-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KuEP1hXf+xOphFGNRhgIL5F5t088HMobTYX/9exHEeONkanzHKsQ7ghFKOO3W6mz x1Lua1+1SUzd4322ry7BLg== 0000928816-98-000185.txt : 19980630 0000928816-98-000185.hdr.sgml : 19980630 ACCESSION NUMBER: 0000928816-98-000185 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980629 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN SPECIAL EQUITIES FUND CENTRAL INDEX KEY: 0000750741 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04079 FILM NUMBER: 98655869 BUSINESS ADDRESS: STREET 1: 101 HUNTINGTON AVE CITY: BOSTON STATE: MA ZIP: 02199 BUSINESS PHONE: 6173751700 FORMER COMPANY: FORMER CONFORMED NAME: HANCOCK JOHN SPECIAL EQUITIES TRUST DATE OF NAME CHANGE: 19901218 N-30D 1 JOHN HANCOCK SPECIAL EQUITIES John Hancock Funds Special Equities Fund SEMIANNUAL REPORT APRIL 30, 1998 TRUSTEES Edward J. Boudreau, Jr. Dennis S. Aronowitz Richard P. Chapman, Jr.* William J. Cosgrove Douglas M. Costle Michael P. DiCarlo Leland O. Erdahl Richard A. Farrell Gail D. Fosler William F. Glavin Anne C. Hodsdon Dr. John A. Moore Patti McGill Peterson John W. Pratt* Richard S. Scipione Edward J. Spellman* *Members of the Audit Committee OFFICERS Edward J. Boudreau, Jr. Chairman and Chief Executive Officer Robert G. Freedman Vice Chairman and Chief Investment Officer Anne C. Hodsdon President and Chief Operating Officer James B. Little Senior Vice President and Chief Financial Officer Susan S. Newton Vice President and Secretary James J. Stokowski Vice President and Treasurer Thomas H. Connors Second Vice President and Compliance Officer CUSTODIAN Investors Bank & Trust Company 200 Clarendon Street Boston, Massachusetts 02116-5072 TRANSFER AGENT John Hancock Signature Services, Inc. 1 John Hancock Way, Suite 1000 Boston, Massachusetts 02217-1000 INVESTMENT ADVISER John Hancock Advisers, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 SUB-INVESTMENT ADVISER DFS Advisors LLC 75 State Street Boston, Massachusetts 02109 PRINCIPAL DISTRIBUTOR John Hancock Funds, Inc. 101 Huntington Avenue Boston, Massachusetts 02199-7603 LEGAL COUNSEL Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109-1803 [A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive Officer, flush right next to third paragraph.] CHAIRMAN'S MESSAGE DEAR FELLOW SHAREHOLDERS: During the last decade, investors have become used to seeing stock market returns averaging 15% or so each year. In the past three years, the stock market has treated us to a record run, producing annual returns in excess of 20%. After such a long and remarkable performance, many began this year wondering what the market would do for an encore in 1998. The answer so far has been more of the same. This achievement continues to bolster many investors' convictions that the market will produce these results forever, or, in the worst case, that market declines will always be short-lived. While the economy remains solid and the environment favorable, history and reason tell us it's a highly unlikely scenario. This doesn't mean we know what the market will do next, or that it's riding for a fall. But after such a run, even in this "new era" of strong economic growth with low inflation, we believe it would be wise for investors to set more realistic expectations. As we've said before, markets do indeed move in two directions, even though we've seen "up" much more than "down" recently. Over the long term, the market's historical results have been more in the 10% per year range, which is still a solid result, considering it has been produced despite wars, depressions and other social upheavals along the way. In addition to adjusting, or at least re-examining, expectations, now could also be a good time to review with your investment professional how your assets are diversified, perhaps with an eye toward a more conservative approach. Stocks, especially with their outsized gains of the last three years, might have grown to represent a larger piece of your portfolio than you had originally intended, given your objectives, time horizon and risk level. At John Hancock Funds, our goal is to help you reach your financial objectives and maintain wealth. One way we can do that is by helping you keep your feet on the ground as you pursue your dreams. Sincerely, /S/ EDWARD J. BOUDREAU, JR. EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER [A 2" x 3" photo at bottom right of page of fund portfolio manager Michael P. DiCarlo. Caption reads "Michael P. DiCarlo, Portfolio Manager".] BY MICHAEL P. DICARLO, PORTFOLIO MANAGER John Hancock Special Equities Fund Small-stock rally cut short by Asian turmoil; large stocks still lead the way The stock market kept moving ahead over the last six months, ignoring earnings disappointments and fears of fallout from Asia's woes. Strong economic growth and low interest rates helped keep the market on its record three-year path as it rose to new heights yet again, producing better results in six months than it has historically provided in an average year. The broad market as measured by the Standard & Poor's 500 Stock Index advanced by 22% in the period. Small-company stocks, however, struggled in vain to keep up with their larger counterparts. As the period began last November, financial turmoil in Asia had just whipsawed small stocks. Concerns about Asia's impact on worldwide growth caused investors to flee the more volatile small-cap arena in droves and seek shelter in the larger, more liquid and secure blue- chip names. It marked the end of a strong six-month small-cap rally and further solidified the trend of the last several years in which large-company stocks have been the place to be. The market for small-cap stocks was extremely punishing to companies that missed earnings targets. Several mergers among brokerage firms that formerly tracked and made a market in small stocks compounded the problem. This shrinkage of the small-cap market caused trading difficulties in some stocks, constraining liquidity. The net effect for small stocks: underperformance and increased volatility. Small-cap growth funds that are particularly aggressive, like Special Equities, took the brunt of the blow, suffering more than their small-cap value counterparts, especially early in the period. "Small- company stocks... struggled in vain to keep up with their larger counterparts." [Chart at the top of left hand column with the heading "Top Five Common Stock Holdings". The chart lists five holdings: 1.) Chancellor Media 4.6%; 2.) Elan 3.7%; 3.) Uniphase 3.6%; 4.) Outdoor Systems 3.3% and 5.) EVI 3.3%. A note below the chart reads "As a percentage of net assets on April 30, 1998".] The Fund remained in the doldrums during the period. For the six months ended April 30, 1998, the Fund's Class A and Class B shares posted total returns of 3.34% and 2.90%, respectively, at net asset value. Class C shares, which have been renamed Class Y shares to conform to industry standards, returned 3.54% at net asset value during the period. Keep in mind that your net asset value return will be different from this performance if you were not invested in the Fund for the entire period and did not reinvest all distributions. The Fund's results lagged its benchmarks and peers, falling short of the 11.88% return of the broad-based Russell 2000 Index, the 9.95% return of the Russell 2000 Growth Index, which measures the performance of faster-growing small companies, and the 11.04% return of the average small-cap fund, according to Lipper Analytical Services, Inc.1 Longer- term performance information can be found on pages seven and eight. Underperformance explained As most shareholders know, the Fund has a long history of delivering competitive returns. The Fund's Class A shares posted an average annual return of 19.75% for the 10-year period ended April 30, 1998, besting 91% of the small-cap funds in Lipper's universe. However, it's been a different story over the last two years, with lagging returns and increased volatility. This has been a tremendous disappointment we humbly acknowledge. In this report we will identify why we think this happened and what is being done to try to return the Fund to its history as an outperformer. [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 Dura Pharmaceuticals followed by a down arrow with the phrase "Slowdown in sales". The second listing is AOL followed by an up arrow and the phrase "Dominant Internet position; strong subscriber growth". The third listing is Cendant followed by a down arrow and the phrase "News of accounting irregularities punishes stock". A note below the table reads "See "Schedule of Investments." Investment holdings are subject to change."] Issue 1: Poor performance of some of our largest holdings. A number of the Fund's largest holdings have experienced significant difficulties recently. Cendant, an acquisition-driven conglomerate, was hammered after the discovery of accounting irregularities at a firm it merged with. Graham-Field Health, a medical product and services company, ran into unanticipated problems around a recent acquisition. Health-care company Dura Pharmaceuticals got hit by a slowdown in sales. We sold all three of these stocks since, despite some compelling fundamentals, we believe it will take time for each to work out its issues. Issue 2: Over-reliance on company fundamentals. On the face of it, this sounds like twisted logic since strict attention to fundamentals usually rewards investors. But what has become clear to us is that in today's hyper-volatile small-cap market, fundamentals don't always carry the day. Sometimes stocks go down because no one wants to own them, even if the companies are doing well. For many years, we have been successful following our four basic investment criteria: revenue and profit growth of at least 25% per year, the ability to self- finance growth, domination in a marketplace or niche and management that is committed to enhancing shareholder value. We are still sticking to these criteria but in retrospect, we would have benefited from pulling the trigger sooner on some stocks. Over the long term, the evidence suggests that stock prices follow earnings. We continue to believe this, but we won't be as quick to underestimate the market realities that sometimes send stocks lower. [Bar chart at top of left hand column with the heading "Fund Performance". Under the heading is a note that reads "For the six months ended April 30, 1998". The chart is scaled in increments of 5% with 15% at the top and 0% at the bottom. The first bar represents the 3.34% total return for John Hancock Special Equities Fund Class A. The second bar represents the 2.90% total return for John Hancock Special Equities Fund Class B. The third bar represents the 3.54% total return for John Hancock Special Equities Class Y* and the fourth bar represents the 11.04% total return for the average small- cap fund. A note below the chart reads "Total returns for John Hancock Special Equities Fund are at net asset value with all distributions reinvested. The average small-cap fund is tracked by Lipper Analytical Services, Inc. (1). See pages seven and eight for historical performance information." A footnote below the note reads "*Formerly Class C. Change effective June 1, 1998."] Issue 3: Over-concentration in top names. One result of sticking too long with some stocks was a decrease in portfolio turnover. With turnover decreased, we weren't refreshing the Fund with new stocks quickly enough. As a result, the Fund's top 10 holdings grew to be too large a portion of its overall assets. Historically, the top 10 stocks command about 35% of the Fund's net assets; last year that figure had gotten as high as 50%. What's more, the average number of shares we held in a company grew higher than our historical level, which also exacerbated the Fund's volatility. To rectify the situation, we began last year and continued during this period to sell a significant amount of our largest holdings and larger-cap companies, including Cendant and long-standing favorite America Online. AOL has been a stalwart performer for the Fund over the years since we bought it as a fledgling online service company at its initial public offering. But it has grown so big that we significantly pared it back. Issue 4: Too few stocks. In recognition of the increased volatility for the small-cap market as a whole, and to broaden the Fund's exposure to the small-cap universe, we increased the number of Fund holdings from 71 six months ago to 90 by the end of April. Eventually, we intend to reach a target level of approximately 100 names. We believe this extra level of diversification will give us new opportunities and help dampen some of the Fund's recent swings. An example of a new addition we like a lot is Internet music retailer CDnow, which combines a strong, seasoned management team with a good business plan that taps into the broad universe of e-commerce. "...we continue to maintain our positive, but cautious, outlook." Overall, the actions we have taken have already started to have the desired effect. By the end of the period, the Fund had fresher names, its top 10 holdings as a percentage of total net assets were back within the historical range, and the average number of shares we hold per company had also declined. Outlook We believe that the Fund is now better positioned to benefit from any subsequent small-cap stock rallies, given our revitalized sell discipline and a broader representation of small-company stocks in the portfolio. We will keep working hard to bring the Fund back to its longer-term level of top performance. As for small-company stocks, we continue to maintain our positive but cautious outlook. With low interest rates and a strong economy still in force, the environment remains good. After being out of favor for so long, despite periodic rallies, small-stock valuations as a group are still very compelling, as we have said many times before. We would love to be able to tell you that it's finally time for small stocks again, as it was in the first half of the 90s. But while the broad stock market continues its advance, it also remains punishing in pockets, and no one knows for sure when that will change. With fears of a market correction lingering from Asia's woes, the small-cap world could still remain turbulent in the near term. No matter what the market does, we will keep our eyes on our target -- fast growing small-company stocks whose stock prices reward investors for their earnings growth. - -------------------------------------------------------------------- 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. 1Figures from Lipper Analytical Services, Inc. include reinvested dividends and do not take into account sales charges. Actual load- adjusted performance is lower. A LOOK AT PERFORMANCE The tables on the right show the cumulative total returns and the average annual total returns for the John Hancock Special Equities Fund. Total return measures the change in value of an investment from the beginning to the end of a period, assuming all distributions were reinvested. For Class A shares, total return figures include a maximum applicable sales charge of 5%. Prior to January 1992, different sales charges were in effect for Class A shares and are not reflected in the performance information. Class B performance reflects a maximum contingent deferred sales charge (maximum 5% and declining to 0% over six years). All figures represent past performance and are no guarantee of future results. Keep in mind that the total return and share price of the Fund's investments will fluctuate. As a result, your Fund's shares may be worth more or less than their original cost, depending on when you sell them. Please read your prospectus carefully before you invest or send money. CLASS A For the period ended March 31, 1998 ONE FIVE TEN YEAR YEARS YEARS ---------- ---------- ---------- Cumulative Total Returns 27.70% 108.89% 511.90% Average Annual Total Returns 27.70% 15.87% 19.86% CLASS B For the period ended March 31, 1998 SINCE ONE FIVE INCEPTION YEAR YEARS (3/1/93) --------- --------- ---------- Cumulative Total Returns 28.43% 110.56% 123.14% Average Annual Total Returns 28.43% 16.06% 17.11% CLASS C* For the period ended March 31, 1998 SINCE ONE INCEPTION YEAR (9/1/93) --------- ---------- Cumulative Total Returns 35.07% 95.60% Average Annual Total Returns 35.07% 15.78% * Effective June 1, 1998, Class C shares were renamed Class Y shares. WHAT HAPPENED TO A $10,000 INVESTMENT... The charts on the right show how much a $10,000 investment in the John Hancock Special Equities Fund would be worth, assuming all distributions were reinvested for the period indicated. For comparison, we've shown the same $10,000 investment in the Russell 2000 Index and the Russell 2000 Growth Index. The Russell 2000 Index is an unmanaged, small-cap index that is comprised of 2,000 U.S stocks. The Russell 2000 Growth Index is an unmanaged index containing those Russell 2000 Index stocks with a greater-than-average growth orientation. Past performance is not indicative of future results. [Line chart with the heading Special Equities Fund: Class A, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are four lines. The first line represents the value of the Special Equities Fund, before sales charge, and is equal to $69,946 as of April 30, 1998. The second line represents the value of the hypothetical $10,000 investment made in the Special Equities Fund, after sales charge, on October 31, 1987, and is equal to $66,449 as of April 30, 1998. The third line represents the Russell 2000 Index and is equal to $48,952 as of April 30, 1998. The fourth line represents the Russell 2000 Growth Index and is equal to $41,147 as of April 30, 1998.] [Line chart with the heading Special Equities Fund Class B, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are four lines. The first line represents the value of the Special Equities Fund, before sales charge, and is equal to $21,783 as of April 30, 1998. The second line represents the value of the hypothetical $10,000 investment made in the Special Equities Fund, after sales charge, on March 1, 1993 and is equal to $21,683 as of April 30, 1998. The third line represents the Russell 2000 Index and is equal to $21,415 as of April 30, 1998. The fourth line represents the Russell 2000 Growth Index and is equal to $21,417 as of April 30, 1998.] [Line chart with the heading Special Equities Fund Class C, representing the growth of a hypothetical $10,000 investment over the life of the fund. Within the chart are three lines. The first line represents the value of the Russell 2000 Index and is equal to $20,985 as of April 30, 1998. The second line represents the value of the Russell 2000 Growth Index and is equal to $19,174 as of April 30, 1998. The third line represents the value of the hypothetical $10,000 investment made in the Special Equities Fund, before sales charge, on September 1, 1993 and is equal to $19,033 as of April 30, 1998.] *Effective June 1, 1998, Class C shares were renamed Class Y shares. Financial Statements John Hancock Funds - Special Equities Fund The Statement of Assets and Liabilities is the Fund's balance sheet and shows the value of what the Fund owns, is due and owes on April 30, 1998. You'll also find the net asset value and the maximum offering price per share as of that date.
Statement of Assets and Liabilities April 30, 1998 (Unaudited) - ---------------------------------------------------------------------------------- Assets: Investments at value - Note C: Common stocks (cost - $1,082,503,348) $1,523,494,769 Joint repurchase agreement (cost - $73,359,000) 73,359,000 Short-term notes (cost - $53,543,742) 53,543,742 Corporate savings account 6,941 -------------- 1,650,404,452 Receivable for investments sold 35,485,071 Receivable for shares sold 521,471 Interest receivable 11,222 Other assets 34,999 -------------- Total Assets 1,686,457,215 - ---------------------------------------------------------------------------------- Liabilities: Payable for investments purchased 19,851,001 Payable for shares repurchased 2,128,259 Payable to John Hancock Advisers, Inc. and affiliates - Note B 1,740,045 Accounts payable and accrued expenses 96,414 -------------- Total Liabilities 23,815,719 - ---------------------------------------------------------------------------------- Net Assets: Capital paid-in 987,799,977 Accumulated net realized gain on investments 247,061,420 Net unrealized appreciation of investments 440,996,935 Accumulated net investment loss (13,216,836) -------------- Net Assets $1,662,641,496 ================================================================================== Net Asset Value Per Share: (Based on net asset values and shares of beneficial interest outstanding - unlimited number of shares authorized with no par value) Class A - $752,107,738 / 27,654,435 $27.20 ================================================================================== Class B - $843,491,021 / 32,115,555 $26.26 ================================================================================== Class C(1) - $67,042,737 / 2,410,941 $27.81 ================================================================================== Maximum Offering Price Per Share* Class A - ($27.20 x 105.26%) $28.63 ================================================================================== *On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced. (1) Effective June 1, 1998, Class C shares were renamed Class Y shares. See notes to financial statements.
The Statement of Operations summarizes the Fund's investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated. Statement of Operations Six months ended April 30, 1998 (Unaudited) - ---------------------------------------------------------------------------------- Investment Income: Interest $1,819,055 Dividends 428,053 ------------- 2,247,108 ------------- Expenses: Investment management fee - Note B 6,991,828 Distribution and service fee - Note B Class A 1,136,667 Class B 4,407,979 Transfer agent fee - Note B 2,368,427 Financial services fee - Note B 153,063 Custodian fee 142,094 Registration and filing fees 67,583 Printing 53,524 Trustees' fees 49,955 Auditing fee 22,817 Miscellaneous 19,108 Legal fees 9,738 ------------- Total Expenses 15,422,783 - ---------------------------------------------------------------------------------- Net Investment Loss (13,175,675) - ---------------------------------------------------------------------------------- Realized and Unrealized Gain on Investments: Net realized gain on investments sold 259,286,654 Change in net unrealized appreciation/depreciation of investments (189,875,754) ------------- Net Realized and Unrealized Gain on Investments 69,410,900 - ---------------------------------------------------------------------------------- Net Increase in Net Assets Resulting from Operations $56,235,225 ================================================================================== See notes to financial statements.
Financial Statements John Hancock Funds - Special Equities Fund
Statement of Changes in Net Assets - -------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED APRIL 30, 1998 OCTOBER 31, 1997 (UNAUDITED) ---------------- -------------- Increase (Decrease) in Net Assets: From Operations: Net investment loss ($28,901,150) ($13,175,675) Net realized gain on investments sold 14,736,245 259,286,654 Change in net unrealized appreciation/depreciation of investments 150,858,729 (189,875,754) ---------------- -------------- Net Increase in Net Assets Resulting from Operations 136,693,824 56,235,225 ---------------- -------------- From Fund Share Transactions - Net: * (269,581,490) (256,889,403) ---------------- -------------- Net Assets: Beginning of period 1,996,183,340 1,863,295,674 ---------------- -------------- End of period (including accumulated net investment loss of $41,161 and $13,216,836, respectively) $1,863,295,674 $1,662,641,496 ================ ============== * Analysis of Fund Share Transactions: SIX MONTHS ENDED YEAR ENDED APRIL 30, 1998 OCTOBER 31, 1997 (UNAUDITED) --------------------------------- ------------------------------ SHARES AMOUNT SHARES AMOUNT ----------- -------------- ---------- -------------- CLASS A Shares sold 159,331,596 $3,736,259,803 39,174,207 $1,032,036,164 Less shares repurchased (168,292,664) (3,969,808,409) (42,190,044) (1,116,153,255) ----------- -------------- ---------- -------------- Net decrease (8,961,068) ($233,548,606) (3,015,837) ($84,117,091) =========== ============== ========== ============== CLASS B Shares sold 26,806,305 $621,229,331 2,344,831 $59,228,623 Less shares repurchased (29,432,594) (686,306,670) (7,515,170) (190,814,834) ----------- -------------- ---------- -------------- Net decrease (2,626,289) ($65,077,339) (5,170,339) ($131,586,211) =========== ============== ========== ============== CLASS C(1) Shares sold 1,863,540 $45,155,315 768,044 $20,623,145 Less shares repurchased (682,739) (16,110,860) (2,247,309) (61,809,246) ----------- -------------- ---------- -------------- Net increase (decrease) 1,180,801 $29,044,455 (1,479,265) ($41,186,101) =========== ============== ========== ============== (1) Effective June 1, 1998, Class C shares were renamed Class Y shares. The Statement of Changes in Net Assets shows how the value of the Fund's net assets has changed since the end of the previous period. The difference reflects earnings less expenses, any investment gains and losses, distributions paid to shareholders, and any increase or decrease in money shareholders invested in the Fund. The footnote illustrates the number of Fund shares sold, reinvested and repurchased during the last two periods, along with the corresponding dollar value. See notes to financial statements.
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: - --------------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, -------------------------------------------------------------------- 1998 1993 1994 1995 1996 1997 (UNAUDITED) --------- -------- -------- -------- -------- --------- CLASS A Per Share Operating Performance Net Asset Value, Beginning of Period $10.99 $16.13 $16.11 $22.15 $24.53 $26.32 -------- -------- -------- -------- -------- -------- Net Investment Loss(1) (0.20) (0.21) (0.18) (0.22) (0.29) (0.15) Net Realized and Unrealized Gain on Investments 5.43 0.19 6.22 3.06 2.08 1.03 -------- -------- -------- -------- -------- -------- Total from Investment Operations 5.23 (0.02) 6.04 2.84 1.79 0.88 -------- -------- -------- -------- -------- -------- Less Distributions: Distributions from Net Realized Gain on Investments Sold (0.09) -- -- (0.46) -- -- -------- -------- -------- -------- -------- -------- Net Asset Value, End of Period $16.13 $16.11 $22.15 $24.53 $26.32 $27.20 ======== ======== ======== ======== ======== ======== Total Investment Return at Net Asset Value(2) 47.83% (0.12%) 37.49% 12.96% 7.30% 3.34%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) $296,793 $310,625 $555,655 $972,312 $807,371 $752,108 Ratio of Expenses to Average Net Assets 1.84% 1.62% 1.48% 1.42% 1.43% 1.42%(6) Ratio of Net Investment Loss to Average Net Assets (1.49%) (1.40%) (0.97%) (0.89%) (1.18%) (1.16%)(6) Portfolio Turnover Rate 33% 66% 82% 59% 41% 44% CLASS B(3) Per Share Operating Performance Net Asset Value, Beginning of Period $12.30 $16.08 $15.97 $21.81 $23.96 $25.52 -------- -------- -------- -------- -------- -------- Net Investment Loss(1) (0.18) (0.30) (0.31) (0.40) (0.46) (0.24) Net Realized and Unrealized Gain on Investments 3.96 0.19 6.15 3.01 2.02 0.98 -------- -------- -------- -------- -------- -------- Total from Investment Operations 3.78 (0.11) 5.84 2.61 1.56 0.74 -------- -------- -------- -------- -------- -------- Less Distributions: Distributions from Net Realized Gain on Investments Sold -- -- -- (0.46) -- -- -------- -------- -------- -------- -------- -------- Net Asset Value, End of Period $16.08 $15.97 $21.81 $23.96 $25.52 $26.26 ======== ======== ======== ======== ======== ======== Total Investment Return at Net Asset Value(2) 30.73%(5) (0.68%) 36.57% 12.09% 6.51% 2.90%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) $158,281 $191,979 $454,934 $956,374 $951,449 $843,491 Ratio of Expenses to Average Net Assets 2.34%(6) 2.25% 2.20% 2.16% 2.19% 2.18%(6) Ratio of Net Investment Loss to Average Net Assets (2.03%)(6) (2.02%) (1.69%) (1.65%) (1.95%) (1.92%)(6) Portfolio Turnover Rate 33% 66% 82% 59% 41% 44% See notes to financial statements.
Financial Highlights (continued) - --------------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, -------------------------------------------------------------------- 1998 1993 1994 1995 1996 1997 (UNAUDITED) --------- -------- -------- -------- -------- --------- CLASS C(4) Per Share Operating Performance Net Asset Value, Beginning of Period $14.90 $16.14 $16.20 $22.40 $24.91 $26.86 --------- -------- -------- -------- -------- -------- Net Investment Loss(1) (0.03) (0.13) (0.09) (0.14) (0.18) (0.10) Net Realized and Unrealized Gain on Investments 1.27 0.19 6.29 3.11 2.13 1.05 --------- -------- -------- -------- -------- -------- Total from Investment Operations 1.24 0.06 6.20 2.97 1.95 0.95 --------- -------- -------- -------- -------- -------- Less Distributions: Distributions from Net Realized Gain on Investments Sold -- -- -- (0.46) -- -- --------- -------- -------- -------- -------- -------- Net Asset Value, End of Period $16.14 $16.20 $22.40 $24.91 $26.86 $27.81 ========= ======== ======== ======== ======== ======== Total Investment Return at Net Asset Value(2) 8.32%(5) 0.37% 38.27% 13.40% 7.83% 3.54%(5) Ratios and Supplemental Data Net Assets, End of Period (000s omitted) $2,838 $7,123 $ 13,701 $ 67,498 $104,476 $ 67,043 Ratio of Expenses to Average Net Assets 1.45%(6) 1.11% 1.01% 1.03% 0.97% 0.97%(6) Ratio of Net Investment Loss to Average Net Assets (1.35%)(6) (0.89%) (0.50%) (0.54%) (0.73%) (0.71%)(6) Portfolio Turnover Rate 33% 66% 82% 59% 41% 44% (1) Based on the average of the shares outstanding at the end of each month. (2) Assumes dividend reinvestment and does not reflect the effect of sales charge. (3) Class B shares commenced operations on March 1, 1993. (4) Class C shares commenced operations on September 1, 1993. Effective June 1, 1998, Class C shares were renamed Class Y shares. (5) Not annualized. (6) Annualized. The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net investment income, gains (losses), dividends and total investment return of the Fund. It shows how the Fund's net asset value for a share has changed since the end of the previous period. Additionally, important relationships between some items presented in the financial statements are expressed in ratio form. See notes to financial statements.
Schedule of Investments April 30, 1998 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- The Schedule of Investments is a complete list of all securities owned by the Special Equities Fund on April 30, 1998. It's divided into two main categories: common stocks and short-term investments. The stocks are further broken down by industry groups. Short-term investments, which represent the Fund's "cash" position, are listed last. MARKET ISSUER, DESCRIPTION NUMBER OF SHARES VALUE - -------------------- ---------------- ------------- COMMON STOCKS Advertising (3.34%) Outdoor Systems, Inc.* 1,750,000 $55,562,500 ------------- Aerospace (0.75%) Aviation Sales Co.* 350,000 12,468,750 ------------- Broker Services (2.01%) Hambrecht & Quist Group* 1,000,000 33,437,500 ------------- Business Services - Misc (5.23%) AHL Services, Inc.* 116,000 3,958,500 Automobile Protection Corp.* 400,000 5,400,000 Charles River Associates, Inc.* 6,700 160,800 Cornell Corrections, Inc.* 350,000 7,918,750 Correctional Services Corp.* 300,000 4,781,250 Mac-Gray Corp.* 500,000 8,250,000 Personnel Group of America, Inc.* 800,000 15,900,000 Pierce Leahy Corp. 700,000 20,212,500 Pre-Paid Legal Services, Inc.* 350,000 13,234,375 RCM Technologies, Inc.* 300,000 7,200,000 ------------- 87,016,175 ------------- Chemicals (0.04%) Schein Pharmaceutical, Inc.* 25,500 624,750 ------------- Computers (15.02%) America Online, Inc.* 500,000 40,000,000 AXENT Technologies, Inc.* 400,000 10,500,000 CBT Group PLC American Depositary Receipts (ADR) (Ireland)* 702,500 35,739,688 Complete Business Solutions, Inc.* 730,000 24,956,875 Datastream Systems, Inc.* 300,000 6,900,000 Fundtech Ltd.* 22,000 464,750 Harbinger Corp.* 750,000 27,281,250 IMNET Systems, Inc. 300,000 4,837,500 Infinium Software, Inc.* 400,000 7,050,000 JDA Software Group, Inc.* 185,100 9,359,119 Manhattan Associates, Inc.* 12,800 289,600 QuickResponse Services, Inc.* 300,000 14,100,000 Wang Laboratories, Inc. * 1,500,000 40,500,000 Wind River Systems* 800,000 27,700,000 ------------- 249,678,782 ------------- Electronics (8.96%) DSP Communications, Inc.* 1,500,000 25,031,250 DuPont Photomasks, Inc.* 190,900 10,356,325 Firearms Training Systems, Inc.* 900,000 7,875,000 Photronics, Inc.* 222,100 8,189,938 QLogic Corp.* 66,500 2,959,250 Uniphase Corp.* 1,105,000 59,946,250 Vitesse Semiconductor Corp.* 600,000 34,612,500 ------------- 148,970,513 ------------- Finance (2.83%) Affiliated Managers Group, Inc.* 500,000 18,562,500 Financial Federal Corp.* 500,000 11,562,500 Medallion Financial Corp. 565,300 16,888,337 ------------- 47,013,337 ------------- Food (1.12%) American Italian Pasta Co. (Class A)* 600,000 18,600,000 ------------- Lasers - Systems/Components (0.50%) Cymer, Inc.* 375,000 8,367,188 ------------- Leisure (3.78%) Family Golf Centers, Inc.* 500,900 21,100,412 Premier Parks, Inc.* 616,700 34,303,937 Travel Services International, Inc.* 200,000 7,375,000 ------------- 62,779,349 ------------- Media (7.66%) Chancellor Media Corp.* 1,600,000 75,900,000 Cox Radio, Inc. (Class A)* 300,000 14,512,500 Jacor Communications, Inc.* 650,000 36,968,750 ------------- 127,381,250 ------------- Medical (12.29%) Advance Paradigm, Inc.* 256,000 10,208,000 AmeriPath, Inc.* 391,400 6,409,175 CareMatrix Corp.* 500,000 13,562,500 Elan Corp., PLC (ADR) (Ireland)* 1,000,000 62,125,000 i-STAT Corp.* 570,000 7,267,500 Novoste Corp.* 400,000 9,900,000 PathoGenesis Corp.* 240,000 9,510,000 PharMerica, Inc.* 600,000 8,325,000 PhyMatrix Corp.* 1,150,000 11,571,875 ProMedCo Management Co.* 300,000 3,750,000 Province Healthcare Co.* 102,700 2,837,088 Universal Health Services, Inc. (Class B)* 872,200 50,206,012 Wesley Jessen VisionCare, Inc.* 282,500 8,722,188 ------------- 204,394,338 ------------- Oil & Gas (4.34%) EVI, Inc.* 1,019,100 54,267,075 Friede Goldman International, Inc.* 446,400 17,967,600 ------------- 72,234,675 ------------- Real Estate Operations (1.99%) Signature Resorts, Inc.* 750,000 13,406,250 Silverleaf Resorts, Inc.* 500,000 11,875,000 Trendwest Resorts, Inc. 400,000 7,800,000 ------------- 33,081,250 ------------- Retail (13.20%) Abercrombie & Fitch Co. (Class A)* 300,000 13,350,000 CDnow, Inc.* 650,000 20,800,000 Central Garden & Pet Co.* 1,000,000 34,250,000 Cheesecake Factory, Inc (The)* 635,000 16,033,750 Columbia Sportswear Co.* 7,000 148,750 Finish Line, Inc. (The)* 400,000 9,900,000 Garden Ridge Corp.* 500,000 9,562,500 Guitar Center Inc.* 500,000 14,250,000 MSC Industrial Direct Co., Inc. (Class A)* 560,000 28,490,000 Party City Corp.* 400,000 11,100,000 Starbucks Corp.* 1,000,000 48,125,000 Trans World Entertainment Corp.* 500,000 13,500,000 ------------- 219,510,000 ------------- Service (0.95%) MemberWorks, Inc.* 515,000 15,836,250 ------------- Telecommunications (6.56%) Concentric Network Corp.* 500,000 10,812,500 Corsair Communications, Inc.* 500,000 9,250,000 e.spire Communications, Inc.* 500,000 9,500,000 Esat Telecom Group PLC (ADR) (Ireland)* 136,300 4,361,600 Innova Corp.* 400,000 6,850,000 Melita International Corp.* 400,000 5,350,000 Metromedia Fiber Network, Inc. (Class A)* 350,000 10,806,250 Premiere Technologies, Inc.* 500,000 15,937,500 STAR Telecommunications, Inc.* 1,025,000 27,739,062 Telegroup, Inc.* 500,000 7,500,000 Teligent, Inc. (Class A)* 30,000 881,250 ------------- 108,988,162 ------------- Textile (0.43%) Guess ?, Inc.* 1,200,000 7,125,000 ------------- Wire & Cable Products (0.63%) AFC Cable Systems, Inc.* 300,000 10,425,000 ------------- TOTAL COMMON STOCKS (Cost $1,082,503,348) (91.63%) 1,523,494,769 --------- -------------
INTEREST PAR VALUE ISSUER, DESCRIPTION RATE (000s OMITTED) - ------------------- -------- ------------- SHORT-TERM INVESTMENTS Joint Repurchase Agreement (4.41%) Investment in a joint repurchase agreement transaction with Toronto Dominion Securities USA, Inc. - Dated 04-30-98, Due 05-01-98 (Secured by U.S. Treasury Bills, 4.86% and 5.27%, Due 06-18-98 and 12-10-98, U.S. Treasury Bonds, 6.00% thru 13.25%, Due 05-15-14 thru 02-15-27 and U.S. Treasury Notes, 4.75% thru 9.25%, Due 07-31-98 thru 05-15-06) - - Note A 5.50% $73,359 73,359,000 ------------- Short-Term Notes (3.22%) American Express Credit Corp., due 05-14-98 5.55% $8,586 $8,568,792 Federal Home Loan Bank Disc Corp., due 05-08-98 5.36 15,000 14,984,367 Heller Financial, Inc., due 05-01-98 5.65 20,000 20,000,000 Heller Financial, Inc., due 05-07-98 5.65 10,000 9,990,583 ------------- TOTAL SHORT-TERM NOTES (Cost $53,543,742) (3.22%) 53,543,742 -------------
MARKET ISSUER, DESCRIPTION VALUE - ------------------- -------------- Corporate Savings Account (0.00%) Investors Bank & Trust Company Daily Interest Savings Account Current Rate 4.95% $6,941 -------------- TOTAL SHORT-TERM INVESTMENTS (7.63%) 126,909,683 ------------- -------------- TOTAL INVESTMENTS (99.26%) 1,650,404,452 ------------- -------------- OTHER ASSETS AND LIABILITIES, NET (0.74%) 12,237,044 ------------- -------------- TOTAL NET ASSETS (100.00%) $1,662,641,496 ============= ============== * Non-income producing security. 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.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- ACCOUNTING POLICIES John Hancock Special Equities Fund (the "Fund") is a diversified open-end management investment company registered under the Investment Company Act of 1940. The investment objective of the Fund is to seek growth of capital by investing in a diversified portfolio of equity securities consisting primarily of small-capitalization companies and companies in situations offering unusual or non-recurring opportunities. The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B and Class C shares. Effective June 1, 1998, Class C shares were renamed Class Y shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission and the Internal Revenue Service. Shareholders of a class which bears distribution and service expenses under terms of a distribution plan have exclusive voting rights to that distribution plan. Significant accounting policies of the Fund are as follows: VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments maturing within 60 days are valued at amortized cost which approximates market value. JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund, along with other registered investment companies having a management contract with John Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, Inc., may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund's custodian bank receives delivery of the underlying securities for the joint account on the Fund's behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times. INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of purchase, sale or maturity. Net realized gains and losses on sales of investments are determined on the identified cost basis. FEDERAL INCOME TAXES The Fund'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. For federal income tax purposes, the Fund has $12,225,234 of capital loss carryforwards available, to the extent provided by regulations, to offset future net realized capital gains. If such carryforwards are used by the Fund, no capital gains distribution will be made. The carryforwards expire October 31, 2004. DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities is recorded on the ex-dividend date. Interest income on investment securities is recorded on the accrual basis. The Fund records all distributions to shareholders from net investment income and realized gains on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from generally accepted accounting principles. Dividends paid by the Fund with respect to each class of shares will be calculated in the same manner, at the same time and will be in the same amount, except for the effect of expenses that may be applied differently to each class. CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains (losses) are calculated at the Fund level and allocated daily to each class of shares based on the appropriate net assets of the respective classes. Distribution and service fees, if any, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rate(s) applicable to each class. USE OF ESTIMATES The preparation of these financial statements in accordance with generally accepted accounting principles incorporates estimates made by management in determining the reported amounts of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates. BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. These agreements enable the Fund to participate with other Funds managed by the Adviser in unsecured lines of credit with banks which permit borrowings up to $800 million, collectively. Interest is charged to each Fund, based on its borrowing, at a rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at a rates ranging from 0.070% to 0.075% per annum based on the average daily unused portion of the line of credit, is allocated among the participating Funds. The Fund had no borrowing activity for the period ended April 30, 1998. NOTE B -- MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS Under the present investment management contract, the Fund pays a monthly management fee to the Adviser for a continuous investment program equivalent, on an annual basis, to the sum of (a) 0.85% of the first $250,000,000 of the Fund's average daily net asset value and (b) 0.80% of the Fund's average daily net asset value in excess of $250,000,000. DiCarlo, Forbes and St. Pierre Advisors, LLC, (the "subadviser")(DFS) serves as subadviser to the Fund pursuant to a subadvisory agreement with the Fund and the Adviser. The Adviser, not the Fund, pays all subadvisory fees. The Adviser pays DFS an annual fee of 0.25% of the average daily net assets of the Fund. The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the Adviser. For the period ended April 30, 1998 net sales charges received with regard to sales of Class A shares amounted to $676,710. Out of this amount, $106,359 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $382,433 was paid as sales commissions to unrelated broker-dealers and $187,918 was paid as sales commissions to sales personnel of John Hancock Distributors, Inc. ("Distributors"), a related broker-dealer. The Adviser's indirect parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole shareholder of Distributors. Class B shares which are redeemed within six years of purchase will be subject to a contingent deferred sales charge ("CDSC") at declining rates beginning at 5.0% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSC are paid to JH Funds and are used in whole or in part to defray its expenses for providing distribution related services to the Fund in connection with the sale of Class B shares. For the period ended April 30, 1998, contingent deferred sales charges paid to JH Funds amounted to $2,520,100. In addition, to reimburse JH Funds for the services it provides as distributor of shares of the Fund, the Fund has adopted Distribution Plans with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for distribution and service expenses, at an annual rate not exceed 0.30% of Class A average daily net assets and 1.00% of Class B average daily net assets to reimburse JH Funds for its distribution and service costs. Up to a maximum of 0.25% of such payments may be service fees as defined by the amended Rules of Fair Practice of the National Association of Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments could occur under certain circumstances. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. Class A and Class B shares pay transfer agent fees based on the number of shareholder accounts and certain out-of-pocket expenses. Class C shares pay a monthly transfer agent fee equivalent of 0.10% of the average daily net assets of the Class C shares of the Fund. The Fund has an agreement with the Adviser to perform necessary tax and financial management services for the Fund. The compensation for the period was at an annual rate of less than 0.02% of the average net assets of the Fund. Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon, Mr. Michael P. DiCarlo 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 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. At April 30, 1998, the Fund's investments to cover the deferred compensation liability had unrealized appreciation of $5,514. NOTE C -- INVESTMENT TRANSACTIONS: Purchases and proceeds from sales of securities, other then obligations of the U.S. government and its agencies and short-term securities, during the period ended April 30, 1998, aggregated $734,219,097 and $1,111,872,393, respectively. There were no purchases or sales of obligations of the U.S. government and its agencies during the period ended April 30, 1998. The cost of investments owned at April 30, 1998 (including the joint repurchase agreement) for federal income tax purposes was $1,209,406,090. Gross unrealized appreciation and depreciation of investments aggregated $515,780,724 and $74,789,303, respectively, resulting in net unrealized appreciation of $440,991,421. NOTE D - 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 April 30, 1998 is set forth below.
Acquisitions Dispositions ---------------------------------------- Beginning Ending Share Share Share Share Realized Dividend Ending Affiliate Amount Amount Cost Amount Cost Amount Gain (Loss) Income Value - ------------------------------------------------------------------------------------------------------------------------------------ DSP Communications, Inc. 2,302,000 -- $-- 802,000 $5,793,629 1,500,000(1) $7,777,518 -- $-- Hvide Marine, Inc. (Class A) 700,000 -- -- 700,000 8,400,000 -(2) 3,711,084 -- -- IMNET Systems, Inc. 500,000 -- -- 200,000 5,948,442 300,000(1) (2,788,583) -- -- -------- ---------- ---------- -------- -------- $-- $20,142,071 $8,700,019 $-- $-- ======== ========== ========== ======== ======== (1) As of April 30, 1998, no longer an affiliated issuer. (2) As of April 30, 1998, no longer owned by Fund.
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A box sectioned in quadrants with a triangle in upper left, a circle in upper right, a cube in lower left and a diamond in lower right. A tag line below reads "A Global Investment Management Firm." 101 Huntington Avenue, Boston, MA 02199-7603 1-800-225-5291 1-800-554-6713 (TDD) Internet: www.jhancock.com/funds Bulk Rate U.S. Postage PAID Randolph, MA Permit No. 75 This report is for the information of shareholders of the John Hancock Special Equities Fund. It may be used as sales literature when preceded or accompanied by the current prospectus, which details charges, investment objectives and operating policies. A recycled logo in lower left hand corner with the caption "Printed on Recycled Paper." 180SA 4/98 6/98 -----END PRIVACY-ENHANCED MESSAGE-----