ITEM 1. REPORT TO STOCKHOLDERS
John Hancock
Financial
Trends Funds, Inc.
SEMI
ANNUAL
REPORT
6.30.03
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Franklin C. Golden, Chairman of the John Hancock Financial
Trends Fund, Inc., flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
Fund's investments
page 6
Financial statements
page 9
For your information
page 21
Dear Fellow Shareholders,
The stock market made a strong recovery in the first half of 2003.
Historically low interest rates, improving corporate earnings and government
stimulus in the form of tax cuts gave investors hope that the economy would
soon begin to strengthen. Most of the market's move up occurred in the
second quarter, and the breadth of the rally was enormous. As a result, the
major indexes were able to wipe out their first-quarter losses and post
solid gains for the first six months of the year.
With technology leading the way, the tech-heavy Nasdaq Composite Index rose
21.51% through June, the Dow Jones Industrial Average was up 9.02% and the
Standard & Poor's 500 Index returned 11.75%. With falling interest rates,
bonds also did well, continuing their upward trend for a fourth consecutive
year.
As portfolio manager Jim Schmidt discusses on the following pages,
financial stocks flourished as well in the first half of the year,
performing slightly better than the broad market. But there was a
rotation in leadership away from the small and midsize regional banks
toward the market-sensitive financial companies and larger banks. With
its increasingly diverse portfolio of financial stocks, John Hancock
Financial Trends Fund, Inc., performed well in the first half, returning
11.33% at net asset value.
Whether the market rally can be sustained depends in large part on
whether the economy actually does rebound, and by how much, and how
corporate earnings fare. It will also depend on how soon a lot of the
investors still sitting on the sidelines decide to get back into the
stock market.
In any event, we remain encouraged about the Fund's prospects, given the
broad positive trends within the financial sector, including
consolidation and the new more favorable tax treatment of stock
dividends, which banks and other financial companies typically pay.
Sincerely,
/S/ FRANKLIN C. GOLDEN
Franklin C. Golden,
Chairman of the John Hancock Financial Trends Fund, Inc.
This commentary reflects the chairman's views as of June 30, 2003. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
long-term capital
appreciation with
current income as
a secondary objec-
tive by investing
primarily in stocks
of U.S. and foreign
financial services
companies of any
size.
Over the last six months
* The stock market staged a strong rebound as hopes for economic
recovery grew.
* Financial stocks fared better than the overall market.
* The Fund's best performers were the higher-risk financial stocks with
ties to the market.
[Bar chart with heading "John Hancock Financial Trends Fund, Inc.."Under
the heading is a note that reads "Fund performance for the six months
ended June 30, 2003." The chart is scaled in increments of 4% with 0% at
the bottom and 12% at the top. The first bar represents the 11.33% total
return for John Hancock Financial Trends Fund, Inc. A note below the
chart reads "The total return for the Fund is at net asset value with
all distributions reinvested."]
Top 10 holdings
3.1% Citigroup, Inc.
2.8% Wells Fargo & Co.
2.6% Marsh & McLennan Cos., Inc.
2.5% SouthTrust Corp.
2.5% Compass Bancshares, Inc.
2.5% Bank of America Corp.
2.4% Wachovia Corp.
2.4% U.S. Bancorp
2.3% Legg Mason, Inc.
2.2% Merrill Lynch & Co., Inc.
As a percentage of net assets on June 30, 2003.
MANAGERS'
REPORT
BY JAMES K. SCHMIDT, CFA, LISA A. WELCH, AND THOMAS C. GOGGINS,
PORTFOLIO MANAGERS
John Hancock
Financial Trends Fund, Inc.
In the first three months of 2003, stocks remained volatile, due to
concerns about a weak economy, war with Iraq, corporate malfeasance and
questionable earnings. But in April, investors shrugged off their fears,
believing the economy was on the mend, relieved at the brief war and
encouraged by tax cuts. Stocks staged a strong rally that lasted through
June, to end the first half of 2003 with solid gains. For the six months
ended June 30, 2003, the broad market, as measured by the Standard &
Poor's 500 Index, returned 11.75%.
The financial sector mirrored the market's trend, but there was a
distinct rotation in leadership of the group. As the market gained
strength, the more aggressive, higher-risk financial stocks with ties to
the market -- including brokerage firms, asset managers, life insurance
companies and large money center banks -- produced outsized gains, many
advancing 20% to 30% in the second quarter alone. By contrast, gains for
the small and midsize regional banks, which had dominated the group for
almost three years, were more modest.
"Stocks staged a
strong rally...to end
the first half of 2003
with solid gains."
FUND PERFORMANCE
For the six months ended June 30, 2003, John Hancock Financial Trends
Fund, Inc. posted a total return of 11.33% at net asset value, compared
with the 12.51% return of the average open-end financial services fund,
according to Lipper, Inc. Keep in mind that your net asset value return
will be different from the Fund's performance if you were not invested
in the Fund for the entire period and did not reinvest all
distributions.
MARKET-RELATED NAMES SURGE
Following the market trend, some of the Fund's best performers were
non-bank financial companies that had gotten beaten down during the
market's long decline, and stood to benefit most from a recovery in
credit quality and market activity. Among our bigger contributors were
financial services giant Citigroup; brokerage firm and asset manager
Legg Mason; insurance company Marsh & McLennan, with its Putnam asset
management arm; and investment banker Lehman Brothers.
[Photos of Jim Schmidt, Lisa Welch and Tom Goggins flush right next to
first paragraph.]
Among our bank holdings, the best performers, including First Tennessee,
were those that had a strong emphasis on mortgage banking and
fixed-income activity, which dominated market activity until only
recently. In addition, larger-cap banks that were perceived to have
leverage to the credit and market recoveries also did well, including
U.S. Bancorp, Bank of America and Wachovia.
EARNINGS WORRIES HIT MID CAPS
The Fund's biggest detractors were small and midsize banks that had
earnings disappointments, which prompted investor concerns that revenue
growth would become more difficult for them. The fear was that the
prolonged low interest-rate environment was continuing to cause margin
pressure, at the same time that commercial loan growth was not yet
showing signs of picking up. That hurt our stakes in National Commerce
Financial Corp., TCF Financial Corp. and First Charter Corp. Another
disappointment was Seacoast Banking Corp. of Florida, which had provided
stellar returns for several years, but lagged in this period, as its
stock price had already reached lofty levels.
"...some of the Fund's
best performers were
non-bank financial
companies that...stood
to benefit most from a
recovery in credit quality
and market activity."
RETURN TO CONSOLIDATION?
During the period, there were two bank takeovers in the Fund. BB&T's
stock tumbled after it announced its intent to buy First Virginia in a
deal the market considered too rich. The Fund held both banks and was
hurt by BB&T but benefited from our sizeable stake in First Virginia,
whose stock rose. The other transaction involved Superior Financial,
which was bought by Arvest, a privately held Arkansas bank. Superior's
stock rose by 29% after the announcement and we sold it. We believe
these moves could signal a resurgence in bank consolidation activity --
either as a means for an acquiring bank to find revenue growth, or for a
seller to cash in at a higher price now, in case revenue and earnings
growth slow later.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Banks -- Southeast 26%, the second is
Banks -- Super Regional 14%, the third Insurance -- Life 9%, the fourth Broker
services 7%, and the fifth Banks -- Midwest 7%.]
[Pie chart in middle of page with heading "Portfolio diversification As
a percentage of net assets on 6-30-03." The chart is divided into two
sections (from top to left): Common stocks 98% and Short-term
investments & other 2%.]
NON-BANK FINANCIAL STAKE GROWS
During the period we continued our efforts to make the Fund more
diversified within the financial sector. We sold some of the small-cap
banks that have done so well for us, and continued to add non-bank names
when their stock prices were beaten down. New additions included
insurance giant American International Group, brokerage firm Merrill
Lynch and mortgage lender Freddie Mac, after it announced it was
replacing its senior management team in the midst of a re-audit of the
company's financials. And we branched out into financial technology with
the addition of Intuit. Finally, we added to our position in Citigroup,
which we believe still has room to advance even after its strong run-up
in this period. Overall, this increased diversification served the Fund
well this period.
[Table at top of page entitled "SCORECARD". The header for the left
column is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Citigroup followed by an up arrow with the phrase "Back in favor." The
second listing is First Tennessee followed by an up arrow with the
phrase "Mortgage Banking powerhouse." The third listing is BB&T followed
by a down arrow with the phrase "Market dislikes high-priced
acquisition."]
A LOOK AHEAD
After their recent surge forward, financial stocks could soon take a
breather, waiting to see if company fundamentals catch up to stock
prices. Going forward, for banks in particular, we also believe earnings
and stock results will vary widely as some managements better navigate
their companies through a potential slow-growth period. That said, there
are several factors keeping us optimistic about financial stocks'
longer-term prospects. With the new favorable tax treatment for stock
dividends, we believe more financial companies, which typically pay
dividends, will increase their dividend ratios, following the lead of
Bank of America, which recently increased its dividend payout by 25%.
Consolidation appears to be resuming in a more healthy fashion than the
mega-deals of the late 1990s. And with the Fund's increased exposure to
non-bank financial stocks, we believe we have greater potential to
benefit from longer-term growth in the financial industry.
"Consolidation appears
to be resuming in a more
healthy fashion..."
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. The managers'
statements reflect their own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
Sector investing is subject to greater risks than the market as a whole.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
June 30, 2003
(unaudited)
This schedule is divided into two main categories: common stocks 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.
SHARES ISSUER VALUE
COMMON STOCKS 98.31% $62,794,211
(Cost $42,401,197)
Banks -- Midwest 6.54% 4,174,364
25,997 BOK Financial Corp.* 1,002,704
27,562 Commerce Bancshares, Inc. 1,073,540
22,000 Fifth Third Bancorp. 1,261,480
21,000 TCF Financial Corp. 836,640
Banks -- Money Center 3.88% 2,481,500
46,000 Citigroup, Inc. 1,968,800
15,000 J.P. Morgan Chase & Co. 512,700
Banks -- Northeast 3.75% 2,397,770
13,500 M&T Bank Corp. 1,136,970
32,000 State Street Corp. 1,260,800
Banks -- Southeast 26.43% 16,878,758
17,900 ABC Bancorp. 256,507
9,000 Alabama National Bancorp. 436,320
38,167 BancorpSouth, Inc. 795,782
21,062 Capital City Bank Group, Inc. 762,444
43,112 Colonial BancGroup, Inc. 597,963
28,441 Commercial Bankshares, Inc. 845,267
46,525 Compass Bancshares, Inc. 1,625,118
12,355 First Bancorp. of North Carolina 320,118
28,500 First Charter Corp. 495,900
22,580 First Tennessee National Corp. 991,488
30,462 First Virginia Banks, Inc. 1,313,521
10,500 Hancock Holding Co. 494,130
56,512 LSB Bancshares, Inc. 978,223
53,028 National Commerce Financial Corp. 1,176,691
52,800 Peoples Banctrust, Co., Inc. 792,000
40,000 Pinnacle Financial Partners, Inc.* 638,000
63,200 Seacoast Banking Corp. of Florida 1,076,928
16,850 Southern Financial Bancorp., Inc. 514,936
59,790 SouthTrust Corp. 1,626,288
32,000 Trustmark Corp. 815,040
10,200 Whitney Holding Corp. 326,094
Banks -- Southwest 0.85% 543,464
10,000 Southwest Bancorp. of Texas, Inc.* 325,100
9,300 Summit Bancshares, Inc. 218,364
Banks -- Super Regional 14.28% 9,117,658
19,924 Bank of America Corp. 1,574,594
28,000 Bank One Corp. 1,041,040
22,000 PNC Financial Services Group 1,073,820
9,292 SunTrust Banks, Inc. 551,387
62,500 U.S. Bancorp. 1,531,250
38,822 Wachovia Corp. 1,551,327
35,600 Wells Fargo & Co. 1,794,240
Banks -- West 2.64% 1,687,755
18,000 City National Corp. 802,080
17,500 Zions Bancorp. 885,675
Broker Services 7.41% 4,734,565
24,500 Edwards (A.G.) Inc. 837,900
20,000 Lehman Brothers Holdings, Inc. 1,329,600
30,000 Merrill Lynch & Co., Inc. 1,400,400
35,300 Raymond James Financial, Inc. 1,166,665
Computer -- Software 1.29% 823,805
18,500 Intuit, Inc.* 823,805
Finance -- Consumer Loans 2.12% 1,354,600
65,000 MBNA Corp. 1,354,600
Finance -- Investment Management 3.58% 2,284,200
13,500 Affiliated Managers Group, Inc.* 822,825
22,500 Legg Mason, Inc. 1,461,375
Finance -- Savings & Loan 5.07% 3,239,270
40,500 First Financial Holdings, Inc. 1,095,120
10,000 GreenPoint Financial Corp. 509,400
95,000 South Street Financial Corp. 912,000
17,500 Washington Mutual, Inc. 722,750
Finance -- Services Misc. 1.03% 660,229
3,400 Chicago Mercantile Exchange Holdings, Inc. (The)* 236,742
17,180 CIT Group, Inc. 423,487
Insurance -- Brokers 4.20% 2,679,740
32,000 Marsh & McLennan Cos., Inc. 1,634,240
34,000 Willis Group Holdings Ltd.* 1,045,500
Insurance -- Life 8.56% 5,465,707
35,000 AFLAC, Inc. 1,076,250
26,250 Jefferson Pilot Corp. 1,088,325
39,000 Protective Life Corp. 1,043,250
34,510 Prudential Financial, Inc.* 1,161,262
21,000 StanCorp Financial Group, Inc. 1,096,620
Insurance -- Property & Casualty 3.06% 1,956,636
22,000 American International Group, Inc. 1,213,960
2,915 ProAssurance Corp. 78,676
8,000 XL Capital Ltd. (Class A) (Bermuda) 664,000
Mortgage & Real Estate Services 3.62% 2,314,190
17,000 Fannie Mae 1,146,480
23,000 Freddie Mac 1,167,710
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000S OMITTED) VALUE
SHORT-TERM INVESTMENTS 1.58% $1,010,159
(Cost $1,010,159)
Cash Equivalents 0.04%
Certificates of deposit in mutual banks $29 29,159
Joint Repurchase Agreement 1.54%
Investment in a joint repurchase agreement
transaction with UBS Warburg, Inc. -- Dated
06-30-03, due 07-01-03 (Secured by U.S.
Treasury Bonds, 5.250% thru 7.875% due
02-15-21 thru 11-15-28) 1.100% 981 981,000
TOTAL INVESTMENTS 99.89% $63,804,370
OTHER ASSETS AND LIABILITIES, NET 0.11% $67,646
TOTAL NET ASSETS 100.00% $63,872,016
* Non-income-producing security.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
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.
ASSETS AND
LIABILITIES
June 30, 2003
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes.
You'll also find
the net asset
value for each
common share.
ASSETS
Investments at value (cost $43,411,356) $63,804,370
Cash 463
Dividends and interest receivable 136,624
Total assets 63,941,457
LIABILITIES
Payable to affiliates
Management fee 30,476
Other 8,076
Other payables and accrued expenses 30,889
Total liabilities 69,441
NET ASSETS
Capital paid-in 37,213,160
Accumulated net realized gain on investments 5,921,490
Net unrealized appreciation of investments 20,393,014
Accumulated net investment income 344,352
Net assets $63,872,016
NET ASSET VALUE PER SHARE
Based on 3,986,504 shares outstanding $16.02
See notes to
financial statements.
OPERATIONS
For the period ended
June 30, 2003
(unaudited) 1
This 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.
INVESTMENT INCOME
Dividends $650,939
Interest (including security lending income of $6) 6,972
Total investment income 657,911
EXPENSES
Investment management fee 193,709
Administration fee 44,702
Trustees' fee 43,945
Legal fee 18,868
Auditing fee 17,574
Miscellaneous 12,285
Printing 8,899
Custodian fee 8,733
Transfer agent fee 7,592
Interest expense 795
Total expenses 357,102
Net investment income 300,809
REALIZED AND UNREALIZED GAIN
Net realized gain on investments 3,960,538
Change in net unrealized appreciation (depreciation)
of investments 2,245,704
Net realized and unrealized gain 6,206,242
Increase in net assets from operations $6,507,051
1 Semiannual period from 1-1-03 through 6-30-03.
See notes to
financial statements.
CHANGES IN
NET ASSETS
This 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 dif-
ference reflects
earnings less
expenses, any
investment
gains and losses
and distribu-
tions, if any,
paid to share-
holders.
YEAR PERIOD
ENDED ENDED
12-31-02 6-30-03 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $652,982 $300,809
Net realized gain 2,752,310 3,960,538
Change in net unrealized
appreciation (depreciation) (5,402,091) 2,245,704
Increase (decrease) in net assets
resulting from operations (1,996,799) 6,507,051
Distributions to shareholders
From net investment income (637,840) --
From net realized gain (2,476,098) --
(3,113,938) --
NET ASSETS
Beginning of period 62,475,702 57,364,965
End of period 2 $57,364,965 $63,872,016
1 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
2 Includes accumulated net investment income of $43,543 and $344,352,
respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
COMMON SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 12-31-98 12-31-99 12-31-00 12-31-01 12-31-02 6-30-03 1
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $27.91 $23.97 $18.16 $16.58 $15.67 $14.39
Net investment income 2 0.33 0.35 0.39 0.22 0.16 0.08
Net realized and unrealized
gain (loss) on investments (1.99) (3.49) 0.72 1.49 (0.66) 1.55
Total from
investment operations (1.66) (3.14) 1.11 1.71 (0.50) 1.63
Less distributions
From net investment income (0.32) (0.35) (0.38) (0.24) (0.16) --
From net realized gain (1.96) (2.32) (2.31) (2.38) (0.62) --
(2.28) (2.67) (2.69) (2.62) (0.78) --
Net asset value,
end of period $23.97 $18.16 $16.58 $15.67 $14.39 $16.02
Per share market value,
end of period $22.38 $15.50 $13.69 $13.17 $12.36 $14.94
Total return at
market value (%) (18.37) (18.94) 5.02 14.41 (0.25) 20.87 3
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $96 $72 $66 $62 $57 $64
Ratio of expenses
to average net assets (%) 0.97 1.05 1.12 1.23 1.16 1.21 4
Ratio of net investment income
to average net assets (%) 1.22 1.52 2.35 1.23 1.04 1.02 4
Portfolio turnover (%) 9 14 23 53 42 15
1 Semiannual period from 1-1-03 through 6-30-03. Unaudited.
2 Based on the average of the shares outstanding.
3 Not annualized.
4 Annualized.
See notes to
financial statements.
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Financial Trends Fund, Inc. (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. It's secondary investment objective is
current income. The Fund will seek to achieve its primary investment
objective of long-term capital appreciation by investing at least 80%
(65% prior to January 25, 2002) of its assets in stocks of U.S. and
foreign financial services companies of any size. These companies
include banks, thrifts, finance companies, brokerage and advisory firms,
real estate-related firms, insurance companies and financial holding
companies. These companies are usually regulated by governmental or
quasi-governmental entities, and as a result, are subject to the risk
that regulatory developments will adversely affect them. With respect to
the Fund's investment policy of investing at least 80% of "assets" in
equity securities, "assets" is defined as net assets plus the amount of
any borrowings for investment purposes. In addition, the Fund will
notify shareholders at least 60 days prior to any change in this policy.
In abnormal market conditions, the Fund may take temporary defensive
positions. As such, the Fund may temporarily invest all of its assets in
investment-grade, short-term securities. In such circumstances, the Fund
may not achieve its objective. The Fund's current investment
restriction, relating to industry concentration, has been modified to
remove the reference to the banking and savings industry so that it
reads as follows: "Except for temporary defensive purposes, the Fund may
not invest more than 25% of its total assets in any one industry or
group of related industries except that the Fund will invest more than
25% of its assets in the financial services sector."
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, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC,
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.
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. There were no
securities loaned on June 30, 2003.
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 that 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 or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date. Such
distributions, on a tax basis, are determined in conformity with income
tax regulations, which may differ from accounting principles generally
accepted in the United States of America. Distri butions in excess of
tax basis earnings and profits, if any, are reported in the Fund's
financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Investment advisory and administration fees
and transactions with affiliates
The Fund has an investment management contract with the Adviser, under
which the Adviser furnishes office space, furnishings and equipment and
provides the services of persons to manage the investment of the Fund's
assets and to continually review, supervise and administer the Fund's
investment program. Under the investment management agreement the Fund
pays a monthly management fee to the Adviser at an annual rate of 0.65%
of the Fund's average weekly net asset value, or a flat annual fee of
$50,000, whichever is higher. If total Fund expenses exceed 2% of the
Fund's average weekly net asset value in any one year, the Fund may
require the Adviser to reimburse the Fund for such excess, subject to a
minimum fee of $50,000.
The Fund has an administration agreement with the Adviser under which
the Adviser provides certain administrative services required by the
Fund. The Fund pays a monthly administration fee to the Adviser at an
annual rate of approximately 0.15% of the Fund's average weekly net
asset value, or a flat annual fee of $22,000, whichever is higher.
The Fund does not pay remuneration to its Officers nor to any Director
who may be employed by an affiliate of the Fund. Certain officers or
Directors of the Fund are Officers of the Adviser.
NOTE C
Fund common share transactions
The Fund had no common share transactions during the period ended June
30, 2003. The Fund from time to time may, but is not required to, make
open market repurchases of its shares in order to attempt to reduce or
eliminate the amount of any market value discount or to increase the net
asset value of its shares, or both. In addition, the Board currently
intends each quarter during periods when the Fund's shares are trading
at a discount from the net asset value to consider the making of tender
offers. The Board may at any time, however, decide that the Fund should
not make share repurchases or tender offers.
NOTE D
Investment transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the period
ended June 30, 2003, aggregated $9,417,080 and $8,872,669, respectively.
The cost of investments owned on June 30, 2003, including short-term
investments, for federal income tax purposes was $43,416,544. Gross
unrealized appreciation and depreciation of investments aggregated
$20,914,342 and $526,516, respectively, resulting in net unrealized
appreciation of $20,387,826. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the tax deferral of losses on wash sales.
REPURCHASE AGREEMENTS
A repurchase agreement is a contract under which the Fund would acquire
a security for a relatively short period (usually not more than seven
days) subject to the obligation of the seller to repurchase and the Fund
to resell such security at a fixed time and price (representing the
Fund's cost plus interest). The Fund will enter into repurchase
agreements only with member banks of the Federal Reserve System and with
"primary dealers" in U.S. government securities. The Adviser will
continuously monitor the creditworthiness of the parties with whom the
Fund enters into repurchase agreements.
Repurchase transactions must be fully collateralized at all times, but
they involve some credit risk to the Fund if the other party defaults on
its obligations and the Fund is delayed or prevented from liquidating
the collateral. The Fund has established a procedure providing that the
securities serving as collateral for each repurchase agreement must be
delivered to the Fund's custodian either physically or in book-entry
form and that the collateral must be marked to market daily to ensure
that each repurchase agreement is fully collateralized at all times. In
the event of bankruptcy or other default by a seller on a repurchase
agreement, the Fund could experience delays in liquidating the
underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the
period while the Fund seeks to enforce its rights thereto, possible
subnormal levels of income and lack of access to income during this
period, and the expense of enforcing its rights.
DIVIDEND REINVESTMENT PLAN
The Fund offers its registered shareholders an automatic Dividend
Reinvestment Plan (the "Plan") which enables each participating
shareholder to have all dividends (including income dividends and/or
capital gains distributions) payable in cash reinvested by the Plan
Agent in shares of the Fund's common stock. However, shareholders may
elect not to enter into, or may terminate at any time without penalty,
their participation in the Plan by notifying Mellon Investor Services
(the "Plan Agent"), in writing. Shareholders who do not participate will
receive all dividends in cash.
In the case of shareholders such as banks, brokers or nominees who hold
shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of record ownership of shares. These record
shareholders will receive dividends under the Plan on behalf of
participating beneficial owners and cash on behalf of non-participating
beneficial owners. These recordholders will then credit the beneficial
owners' accounts with the appropriate stock or cash distribution.
Whenever the market price of the Fund's stock equals or exceeds net asset
value per share, participating shareholders will be issued stock valued at
the greater of (i) net asset value per share or (ii) 95% of the market
price. If the net asset value per share of the Fund's stock exceeds the
market price per share on the record date, the Plan Agent shall make open
market purchases of the Fund's stock for each participating shareholder's
account. These purchases may begin no sooner than five business days prior
to the payment date for the dividend and will end up to thirty days after
the payment date. If shares cannot be purchased within thirty days after the
payment date, the balance of shares will be purchased from the Fund at the
average price of shares purchased on the open market. Each participating
shareholder will be charged a pro rata share of brokerage commissions on all
open market purchases.
The shares issued to participating shareholders, including fractional
shares, will be held by the Plan Agent in the name of the shareholder.
The Plan Agent will confirm each acquisition made for the account of the
participating shareholders as soon as practicable after the payment date
of the distribution.
The reinvestment of dividends does not relieve participating shareholders of
any federal, state or local income tax which may be due with respect to each
dividend. Dividends reinvested in shares will be treated on your federal
income tax return as though you had received a dividend in cash in an amount
equal to the fair market value of the shares received, as determined by the
prices for shares of the Fund on the Nasdaq National Market System as of the
dividend payment date. Distributions from the Fund's long-term capital gains
will be taxable to you as long-term capital gains. The confirmation referred
to above will contain all the information you will require for determining
the cost basis of shares acquired and should be retained for that purpose.
At year end, each account will be supplied with detailed information
necessary to determine total tax liability for the calendar year.
All correspondence or additional information concerning the Plan should
be directed to the Plan Agent, Mellon Bank, N.A., c/o Mellon Investor
Services at P.O. Box 3338, South Hackensack, New Jersey 07606-1938
(telephone 1-800-852-0218).
SHAREHOLDER MEETINGS
In January 2003, the Board of Directors adopted several amendments to
the Fund's by-laws, including provisions relating to the calling of a
special meeting and requiring advance notice of shareholder proposals or
nominees for Director. The advance notice provisions in the by-laws
require shareholders to notify the Fund in writing of any proposal which
they intend to present at an annual meeting of shareholders, including
any nominations for Director, between 90 and 120 days prior to the first
anniversary of the mailing date of the notice from the prior year's
annual meeting of shareholders. The notification must be in the form
prescribed by the by-laws. The advance notice provisions provide the
Fund and its Directors with the opportunity to thoughtfully consider and
address the matters proposed before the Fund prepares and mails its
proxy statement to shareholders. Other amendments set forth the
procedures, which must be followed in order for a shareholder to call a
special meeting of shareholders. Please contact the Secretary of the
Fund for additional information about the advance notice requirements or
the other amendments to the by-laws.
SHAREHOLDER COMMUNICATION AND ASSISTANCE
If you have any questions concerning the 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:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone: 1-800-852-0218
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
FOR YOUR
INFORMATION
DIRECTORS
Franklin C. Golden
Robert G. Freedman
Russell J. Page
Fred G. Steingraber
Donald R. Tomlin
H. Hall Ware III
OFFICERS
Franklin C. Golden
Chairman
William L. Braman
President
Robert E. Gramer
Treasurer
James K. Schmidt
Vice President
Susan S. Newton
Secretary
Thomas H. Connors
Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT,
DISTRIBUTION DISBURSING AGENT AND REGISTRAR
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, New Jersey 07660
INDEPENDENT
DIRECTORS' COUNSEL
Kilpatrick Stockton LLP
1100 Peachtree Street
Atlanta, Georgia 30309-4530
FUND COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
STOCK SYMBOL
Listed Nasdaq Symbol: JHFT
For shareholder assistance refer to page 17
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Customer service representatives 1-800-852-0218
Portfolio commentary 1-800-344-7054
24-hour automated information 1-800-843-0090
TDD Line 1-800-231-5469
The Fund's voting policies and procedures are available without charge,
upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site http://www.sec.gov
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-852-0218
1-800-843-0090 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
PT0SA 6/03
8/03
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
See attached Exhibit "Proxy Voting Policies and Procedures".
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form N-CSR,
the registrant's principal executive officer and principal financial officer
have concluded that those disclosure controls and procedures provide reasonable
assurance that the material information required to be disclosed by the
registrant on this report is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a) Not applicable at this time.
(b)(1) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(b)(2) Separate certifications for the registrant's principal executive officer
and principal financial officer, as required by 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule
30a-2(b) under the Investment Company Act of 1940, are attached. The
certifications furnished pursuant to this paragraph are not deemed to be "filed"
for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section. Such certifications are not deemed to
be incorporated by reference into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, except to the extent that the Registrant
specifically incorporates them by reference.
(c) Proxy Voting Policies and Procedures
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By:
- -----------------------
Maureen R. Ford
Chairman, President and Chief Executive Officer
Date: August 27, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By:
- -----------------------
Maureen R. Ford
Chairman, President and Chief Executive Officer
Date: August 27, 2003
By:
- -----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: August 27, 2003