August 25, 2004
EDGAR
United States Securities and
Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form N-CSR
John Hancock Financial Trends Fund, Inc. (the "Registrant")
File Nos. 811-57347
Ladies and Gentlemen:
Enclosed herewith for filing pursuant to the Investment Company Act of 1940
and the Securities Exchange Act of 1934 is the Registrant's Form N-CSR
filing for the period ending June 30, 2004.
If you have any questions or comments regarding this filing, please contact
the undersigned at (617) 375-1513.
Sincerely,
/s/Alfred P. Ouellette
Alfred Ouellette
Attorney and Assistant Secretary
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Financial Trends Fund, Inc.
6.30.2004
Semiannual Report
[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 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 10
For your information
page 21
Dear Fellow Shareholders,
The stock market proved choppy in the first half of 2004 and advanced only
modestly. A strong economy, stronger-than-expected employment growth and
vibrant corporate earnings growth bolstered investor confidence.
Offsetting these positives, and keeping a lid on market gains, however,
were concerns about terrorism and Iraq, higher oil prices and the
expectation that interest rates would soon rise. As a result, the broad
market, as measured by the Standard & Poor's 500 Index, returned 3.44% in
the first half of 2004.
On the following pages, portfolio manager Jim Schmidt writes that
financial stocks as a group fell slightly short of the market's return
because of concerns about higher interest rates' impact on financial
company earnings. Even though financials underperformed, we are pleased to
report that John Hancock Financial Trends Fund, Inc. produced results
slightly ahead of the market, returning 3.52% at net asset value.
On the regulatory front, there were further developments during the period
regarding mutual funds. Specifically, the Securities and Exchange
Commission passed rules that, among other things, require all mutual funds
to have independent chairmen and to have 75% of fund seats filled with
independent directors. We want to remind our shareholders that your fund
has fulfilled the 75% rule since its inception in 1989 and has met the
independent chairman rule since 1991.
Closer to home, John Hancock Financial Services, Inc.-- the parent company
of John Hancock Funds-- was acquired by Manulife Financial Corporation on
April 28, 2004. With the acquisition came a change in executive-level
management of John Hancock Funds. Specifically, Maureen Ford Goldfarb
stepped down as Chairman, President and Chief Executive Officer of John
Hancock Funds, LLC to pursue personal interests, and James A. Shepherdson
was named her replacement. Jamie has been in the investment business for
more than 25 years, most recently as President of Retirement Services at
John Hancock Financial Services. Your Board of Directors has already begun
to work with him in a very constructive way. We want to assure you,
however, that these changes have not distracted us from our focus on
protecting your interests in this challenging market and regulatory
environment.
Sincerely,
/S/ FRANKLIN C. GOLDEN
Franklin C. Golden,
Chairman of John Hancock Financial Trends Fund, Inc.
This commentary reflects the chairman's views as of June 30, 2004. 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
at least 80% of its
assets in stocks of
U.S. and foreign
financial services
companies of
any size.
Over the last six months
* The stock market advanced only slightly amid concerns about rising
rates and geopolitical issues.
* Financial stocks slightly underperformed the market on fears that
rising rates would hurt earnings.
* The Fund's large stake in banks, where merger activity boosted the
group, helped it outperform its benchmark index and peers.
[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, 2004." The chart is scaled in increments of 1% with 0% at the
bottom and 4% at the top. The bar represents the 3.52% total return for the
Fund. A note below the chart reads "The total return for the Fund is at net
asset value with all distributions reinvested."]
Top 10 holdings
3.2% SouthTrust Corp.
2.9% Bank of America Corp.
2.9% Wells Fargo & Co.
2.8% Citigroup, Inc.
2.6% U.S. Bancorp
2.4% National Commerce Financial Corp.
2.3% MBNA Corp.
2.2% Merrill Lynch & Co., Inc.
2.2% State Street Corp.
2.1% Hartford Financial Services Group, Inc. (The)
As a percentage of net assets on June 30, 2004.
1
BY JAMES K. SCHMIDT, CFA, AND LISA A. WELCH, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
Financial Trends Fund, Inc.
James J. McKelvey, previously a member of the Fund's portfolio
management team, recently left John Hancock Advisers, LLC to pursue
other opportunities.
The stock market made little headway in the first half of 2004, as
investors were buffeted by the positive news of a strengthening economy
and solid corporate profits on one hand, and by a list of growing
concerns on the other. These included rising oil prices, terrorism and
Iraq, a feared slowdown in the Chinese economy, and rising fears that
with the strong U.S. economy the Federal Reserve Board would begin to
hike interest rates sooner than expected to keep inflation in check. It
did just that on June 30, raising a key short-term rate for the first
time in four years by one quarter percentage point, from 1% to 1.25%. In
this environment, the broad stock market, as measured by the Standard &
Poor's 500 Index, advanced only modestly, returning 3.44% for the six
months ended June 30, 2004.
"The stock market
made little headway
in the first half
of 2004..."
Financial stocks were lifted at the beginning of the period by heightened
bank merger speculation on the heels of the giant merger last October
between FleetBoston and Bank of America. The group was further bolstered by
a string of additional mergers in early 2004. But financial stocks wound up
slightly underperforming the broad market in the period because investors
view them as especially sensitive to rising interest rates. As a rate hike
became increasingly certain and increasingly near, invest ors sold off the
group. For the six-month period, the S&P 500 Financials Index returned
2.38%.
FUND PERFORMANCE
For the six months ended June 30, 2004, John Hancock Financial Trends
Fund, Inc. outperformed both its index and its
2
peers, posting a total return of 3.52% at net asset value, compared with the
2.39% return of the average open-end financial services fund, according to
Lipper, Inc.
[Photos of Jim Schmidt and Lisa Welch flush right at top of page.]
MERGERS BOOST BANKS
The Fund's large stake in banks was the main reason the Fund outperformed
its benchmark index and Lipper financial group. Banks that were involved in
mergers were some of our best contributors to performance. Bank One Corp.'s
stock did well after its announced acquisition by J. P. Morgan Chase, whose
stock also rose, as the market liked the low-premium deal and believed
managements' arguments about the companies' synergies. SouthTrust was one of
our best performers following its announced acquisition by Wachovia, and
National Commerce's stock also rose nicely after its announced takeout by
SunTrust.
This increased merger activity reverses the trend of recent years, where
market conditions caused a falloff that reached its low point in 2002.
We believe the activity level will remain higher than it was, but not
return to the frenetic pace, or pricing levels, of 1997 and 1998. The
current merger renaissance reaffirms two of our theses: that banks
perceive there to be value in bank branch networks and that there are
still too many banks -- currently 8,000 -- that will inevitably
consolidate to a more workable level of 4,000 nationwide.
"...many insurance compa-
nies rebounded in the
period and produced some
of the financial sector's
best results."
Several of our small-bank holdings also performed well for company
specific reasons. Pinnacle Financial Partners has experienced tremendous
growth in the last several years and long-time favorite Seacoast Banking
Corp. of Florida saw its stock bounce back after a weak fourth quarter.
A WORD ABOUT INTEREST RATES
In this period, the increasing likelihood of a Fed rate hike hurt
financial stocks as the knee-jerk reaction of investors was that rising
rates would be a detriment to earnings. We continue to believe that the
relationship between interest rates and banks is
3
more complicated and nuanced than the market believes. Commercial banks
have improved their ability to maintain stable margins as rates change and
indeed many banks would see net interest income benefit from a 50 basis
point increase in the fed funds rate. We have studied the relationship
between interest rates and the performance of banks and other financials in
great detail, and have found that there is relatively little correlation.
[Table at top left-hand side of page entitled "Top five industry groups."
The first listing is Banks--Regional 41%, the second is Banks--
Superregional 17%, the third is Broker services 7%, the fourth is
Insurance--Multi-line 6% and the fifth is Mortgage & RE services 5%.]
INSURANCE REBOUNDS
After several tough years, many insurance companies rebounded in the
period and produced some of the financial sector's best results.
Reinsurers did well, benefiting from a favorable pricing environment.
RenaissanceRe Holdings has taken advantage of this pricing cycle while
maintaining superior underwriting skills. Life insurance companies, such
as Fund holdings Prudential Financial and Hartford Financial Services
Group, benefited from the stock market's 2003 rebound, which boosted
sales of their variable annuity products, and from the strong
performance of high yield bonds, which make up a sizable portion of
their investment portfolios. Property and casualty giant American
International Group also served us well as it rebounded from last year's
struggles with headline issues and a large charge it had taken against
its reserves.
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 6-30-04." The chart is divided into two
sections (from top to left): Common stocks 99% and Short-term investments &
other 1%.]
BROKERS, ASSET MANAGERS,
CONSUMER FINANCE
Investment bankers and brokers were disappointments. Despite
stronger-than-expected earnings from strength in fixed-income, equities,
merger advisory and trading activity, the market's reaction
4
was tepid. Fears of rising interest rates, uncertain recurring revenues and
volatile earnings kept results mixed. Two of our bigger detractors were
Merrill Lynch and Goldman Sachs. Asset managers that managed to stay out of
the mutual fund trading scandals were the clear winners in the group,
including Legg Mason. Consumer finance stocks did well as consumer lending
remained robust and credit costs fell, to the benefit of Fund holdings
Countrywide Financial and CIT Group.
[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 Pinnacle
Financial followed by an up arrow with the phrase "Fast-growing Nashville
bank." The second listing is SouthTrust followed by an up arrow with the
phrase "Sells to Wachovia." The third listing is Merrill Lynch followed by
a down arrow with the phrase "Brokers underperform."]
OUTLOOK
We continue to be optimistic about the prospects for financial stocks.
We favor those companies with leverage to an economic and market
recovery. We like the prospects for the brokerage and selected life
insurance names, as well as asset managers -- although the mutual fund
scandals are a wildcard for some in the group. We believe that the
large, diversified banks will perform well, especially in comparison to
the smaller regionals that focus on traditional banking activities.
Commercial loan growth remains sluggish, but we think it could pick up
later this year. Finally, given our belief that "mergers beget mergers,"
we believe that merger activity will continue to be strong, especially
among banks.
"We favor those companies
with leverage to an
economic and
market recovery."
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.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
June 30, 2004
(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.
ISSUER SHARES VALUE
COMMON STOCKS 99.15% $72,271,247
(Cost $42,160,049)
Banks -- Regional 41.12% 29,970,303
ABC Bancorp. 17,900 364,086
Alabama National Bancorp. 9,000 499,230
BancorpSouth, Inc. 38,167 859,902
BB&T Corp. + 38,382 1,418,982
BOK Financial Corp.* 26,776 1,051,493
Capital City Bank Group, Inc. 21,062 833,845
City National Corp. 18,000 1,182,600
Colonial BancGroup (The), Inc. 38,112 692,495
Commerce Bancshares, Inc. 28,940 1,329,648
Commercial Bankshares, Inc. 35,551 944,590
Compass Bancshares, Inc. 31,525 1,355,575
First Bancorp. of North Carolina 12,355 413,028
First Charter Corp. 28,500 621,015
First Horizon National Corp. 26,580 1,208,593
Hancock Holding Co. 21,000 610,260
LSB Bancshares, Inc. 56,512 912,669
M&T Bank Corp. 13,500 1,178,550
National Commerce Financial Corp. 53,028 1,723,410
Peoples Banctrust, Co., Inc. 52,800 747,120
Pinnacle Financial Partners, Inc.* 80,000 1,464,000
Provident Bankshares Corp. 20,156 581,299
Seacoast Banking Corp. of Florida 69,520 1,455,054
SouthTrust Corp. 59,790 2,320,450
Southwest Bancorp. of Texas, Inc.* 10,000 441,200
State Street Corp. 32,000 1,569,280
Summit Bancshares, Inc. 9,300 270,630
TCF Financial Corp. 21,000 1,219,050
Trustmark Corp. 32,000 925,440
Whitney Holding Corp. 10,200 455,634
Zions Bancorp. 21,500 1,321,175
See notes to
financial statements.
6
FINANCIAL STATEMENTS
ISSUER SHARES VALUE
Banks -- Money Center 4.42% $3,221,800
Bank of New York Co., Inc. (The) 20,000 589,600
Citigroup, Inc. 44,100 2,050,650
J.P. Morgan Chase & Co. 15,000 581,550
Banks -- Superregional 17.04% 12,419,006
Bank of America Corp. 24,924 2,109,069
Bank One Corp. 28,000 1,428,000
Fifth Third Bancorp . 22,000 1,183,160
National City Corp. 25,000 875,250
National Financial Partners Corp. 5,630 198,570
PNC Financial Services Group 22,000 1,167,760
SunTrust Banks, Inc. 6,292 408,917
U.S. Bancorp. 68,500 1,887,860
Wachovia Corp. 23,822 1,060,079
Wells Fargo & Co. 36,700 2,100,341
Broker Services 7.16% 5,221,234
Ameritrade Holding Corp.* 16,500 187,275
Goldman Sachs Group, Inc. (The) 10,700 1,007,512
Lehman Brothers Holdings, Inc. 13,000 978,250
Merrill Lynch & Co., Inc. 30,000 1,619,400
Piper Jaffray Cos., Inc. 625 28,269
Raymond James Financial, Inc. 52,950 1,400,528
Finance 3.20% 2,334,172
CIT Group, Inc. 17,180 657,822
MBNA Corp. 65,000 1,676,350
Insurance -- Brokers 1.31% 952,980
Marsh & McLennan Cos., Inc. 21,000 952,980
Insurance -- Diversified 0.58% 426,292
Assured Guaranty Ltd. (Bermuda) 25,150 426,292
Insurance -- Life 2.73% 1,991,750
AFLAC, Inc. 25,000 1,020,250
StanCorp Financial Group, Inc. 14,500 971,500
Insurance -- Multi Line 5.75% 4,188,310
American International Group, Inc. 17,000 1,211,760
Hartford Financial Services Group, Inc. (The) 22,000 1,512,280
Prudential Financial, Inc. 31,510 1,464,270
Insurance -- Property & Casualty 1.65% 1,204,528
ProAssurance Corp. 17,615 600,848
XL Capital Ltd. (Class A) (Bermuda) 8,000 603,680
Insurance -- Reinsurance 2.13% 1,550,900
Axis Capital Holdings Ltd. (Bermuda) 13,000 364,000
RenaissanceRe Holdings Ltd. (Bermuda) 22,000 1,186,900
See notes to
financial statements.
7
FINANCIAL STATEMENTS
ISSUER SHARES VALUE
Investment Management 3.42% $2,489,697
Affiliated Managers Group, Inc.* + 20,250 1,019,992
Eaton Vance Corp. 7,500 286,575
Legg Mason, Inc. 13,000 1,183,130
Mortgage & RE Services 4.82% 3,512,020
Countrywide Financial Corp. 12,000 843,000
Fannie Mae 17,000 1,213,120
Freddie Mac 23,000 1,455,900
Thrifts 3.82% 2,788,255
First Financial Holdings, Inc. 40,500 1,166,805
South Street Financial Corp. 95,000 945,250
Washington Mutual, Inc. 17,500 676,200
INTEREST
ISSUER, DESCRIPTION, MATURITY DATE RATE SHARES VALUE
SHORT-TERM INVESTMENTS 4.74% $3,456,635
(Cost $3,456,635)
Cash Equivalents 3.42%
AIM Cash Investment Trust** 2,466,393 2,466,393
PAR VALUE
(000s OMITTED)
Cash Equivalents 0.00%
Certificates of Deposit in mutual banks 30 30,242
Joint Repurchase Agreement 1.32%
Investment in a joint repurchase agreement transaction
with UBS Warburg, Inc. -- Dated 06-30-04, due
07-01-04 (secured by U.S. Treasury Inflation Indexed
Bonds 3.625% due 04-15-28 and 3.375% due
04-15-32, U.S. Treasury Inflation Indexed Note
2.000% due 01-15-14) 1.300% 960 960,000
TOTAL INVESTMENTS 103.89% $75,727,882
OTHER ASSETS AND LIABILITIES, NET (3.89%) ($2,837,374)
TOTAL NET ASSETS 100.00% $72,890,508
See notes to
financial statements.
8
FINANCIAL STATEMENTS
Notes to Schedule of Investments
+ All or a portion of this security is on loan as of June 30, 2004.
* Non-income-producing security.
** Represents investment of securities lending collateral.
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.
9
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
June 30, 2004
(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 $45,616,684)
including $2,417,297 of securities loaned $75,727,882
Cash 992
Receivable for investments sold 225,315
Dividends and interest receivable 144,673
Total assets 76,098,862
LIABILITIES
Payable for investments purchased 682,438
Payable upon return of securities loaned 2,466,393
Payable to affiliates
Management fee 31,567
Administration fee 7,285
Other payables and accrued expenses 20,671
Total liabilities 3,208,354
NET ASSETS
Capital paid-in 40,212,716
Accumulated net realized gain on investments 2,130,515
Net unrealized appreciation of investments 30,111,198
Accumulated net investment income 436,079
Net assets $72,890,508
NET ASSET VALUE PER SHARE
Based on 3,993,124 shares outstanding --
50 million shares authorized with par value of
$0.001 per share. $18.25
See notes to
financial statements.
10
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
June 30, 2004
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in operat-
ing the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Dividends $773,679
Interest 2,965
Securities lending 1,854
Total investment income 778,498
EXPENSES
Investment management fees 228,635
Directors' fees 53,628
Administration fees 52,762
Professional fees 34,063
Miscellaneous 17,711
Printing 10,627
Custodian fees 9,966
Transfer agent fees 7,950
Securities lending fees 45
Total expenses 415,387
Net investment income 363,111
REALIZED AND UNREALIZED GAIN
Net realized gain on investments 1,818,267
Change in net unrealized appreciation
(depreciation) of investments 302,285
Net realized and unrealized gain 2,120,552
Increase in net assets from operations $2,483,663
1 Semiannual period from 1-1-04 through 6-30-04.
See notes to
financial statements.
11
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show 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 shareholders.
YEAR PERIOD
ENDED ENDED
12-31-03 6-30-04 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $667,255 $363,111
Net realized gain 5,079,972 1,818,267
Federal income tax on gain retained (1,552,304) --
Change in net unrealized
appreciation (depreciation) 11,661,603 302,285
Increase in net assets
resulting from operations 15,856,526 2,483,663
Distributions to shareholders
From net investment income (637,841) --
From net realized gain (2,293,516) --
(2,931,357) --
From Fund share transactions 116,711 --
NET ASSETS
Beginning of period 57,364,965 70,406,845
End of period 2 $70,406,845 $72,890,508
1 Semiannual period from 1-1-04 through 6-30-04. Unaudited.
2 Includes accumulated net investment income of $72,968 and $436,079,
respectively.
See notes to
financial statements.
12
FINANCIAL HIGHLIGHTS
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 12-31-99 12-31-00 12-31-01 12-31-02 12-31-03 6-30-04 1
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $23.97 $18.16 $16.58 $15.67 $14.39 $17.63
Net investment income 2 0.35 0.39 0.22 0.16 0.17 0.09
Net realized and unrealized
gain (loss) on investments (3.49) 0.72 1.49 (0.66) 3.81 3 0.53
Total from
investment operations (3.14) 1.11 1.71 (0.50) 3.98 0.62
Less distributions
From net investment income (0.35) (0.38) (0.24) (0.16) (0.16) --
From net realized gain (2.32) (2.31) (2.38) (0.62) (0.58) --
(2.67) (2.69) (2.62) (0.78) (0.74) --
Net asset value,
end of period $18.16 $16.58 $15.67 $14.39 $17.63 $18.25
Per share market value,
end of period $15.50 $13.69 $13.17 $12.36 $18.40 $15.42
Total return
at market value (%) (18.94) 5.02 14.41 (0.25) 58.66 (16.20) 4
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $72 $66 $62 $57 $70 $73
Ratio of expenses
to average net assets (%) 1.05 1.12 1.23 1.16 1.20 1.17 5
Ratio of net investment income
to average net assets (%) 1.52 2.35 1.23 1.04 1.04 1.02 5
Portfolio turnover (%) 14 23 53 42 26 5
1 Semiannual period from 1-1-04 through 6-30-04. Unaudited.
2 Based on the average of the shares outstanding.
3 Net of federal income taxes of $0.39 per share for the year ended
December 31, 2003, on net long-term capital gains retained by the Fund.
4 Not annualized.
5 Annualized.
See notes to
financial statements.
13
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.
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.
Investments in AIM Cash Investment Trust are valued at their net asset
value each business day.
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 Advis ers, LLC (the
"Adviser"), a wholly owned subsidiary of John Hancock Financial
Services, 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.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund negotiated lender fees. The loans are collateralized at all times
with cash or securities with a market value at least equal to the market
value of the securities on loan. As with other extensions of credit, the
Fund may bear the risk of delay of the loaned securities in recovery or
even loss of rights in the collateral, should the borrower of the
securities fail financially. At June 30, 2004, the Fund loaned
securities having a market value of $2,417,297 collateralized by cash in
the amount of $2,466,393. The cash collateral was invested in a
short-term instrument. Securities lending expenses are paid by the Fund
to the Adviser.
Federal income taxes
The Fund qualifies as a "regulated investment com pany" by complying with
the applicable
14
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.
During the year ended December 31, 2003, the tax character of
distributions paid was as follows: ordinary income $965,213 and
long-term capital gains $6,401,298; of this amount $4,435,154 is deemed
distributions. The Fund has the option and has chosen to retain and pay
the applicable federal income tax of $1,552,304 on its net long-term
capital gains incurred during the year ended December 31, 2003. The
long-term gain net of federal income tax amounting to $2,882,850 has
been reclassified to capital paid-in, as of December 31, 2003.
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. Distributions 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
management 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 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.
15
NOTE C
Fund share transactions
This listing illustrates the distributions reinvested, reclassifications
of net long-term capital gains and capital accounts, and number of Fund
common shares outstanding at the beginning and end of the last two
periods, along with the corresponding dollar value.
YEAR ENDED 12-31-03 PERIOD ENDED 6-30-04 1
SHARES AMOUNT SHARES AMOUNT
Beginning of period 3,986,504 $37,213,160 3,993,124 $40,212,716
Distributions reinvested 6,620 116,711 -- --
Reclassification of net
long-term capital gains
(net of federal income
tax of none & $1,552,304) -- 2,882,850 -- --
Reclassification of
capital accounts -- (5) -- --
End of period 3,993,124 $40,212,716 3,993,124 $40,212,716
1 Semiannual period from 1-1-04 through 6-30-04. Unaudited.
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 or maturities of securities, other
than short-term securities and obligations of the U.S. govern ment,
during the period ended June 30, 2004, aggregated $3,490,053 and
$4,424,366, respectively.
The cost of investments owned on June 30, 2004, including short-term
investments, for federal income tax purposes, was $45,621,872. Gross
unrealized appreciation and depreciation of investments aggregated
$30,154,560 and $48,550, respectively, resulting in net unrealized
appreciation of $30,106,010. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable
primarily to the tax deferral of losses on certain sales of securities.
16
INVESTMENT
OBJECTIVE AND
POLICY
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. 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."
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.
BY-LAWS
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
17
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.
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 Mellon
Investor Services (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 the Plan Agent in writing. Share holders who do not
participate in the Plan 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
18
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
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.
19
20
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
Barry H. Evans
President
Barry H. Evans
Vice President
Lisa A. Welch
Vice President
Robert E. Gramer
Treasurer
Susan S. Newton
Corporate Secretary
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 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
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
STOCK SYMBOL
Listed Nasdaq Symbol: JHFT
For shareholder assistance
refer to page 19
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 proxy 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 www.sec.gov
21
[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
1-800-231-5469 (TDD)
www.jhfunds.com
- ---------------
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
- ---------------
PT0SA 6/04
8/04
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.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The registrant has adopted procedures by which shareholders may
recommend nominees to the registrant's Board of Trustees. A copy of the
procedures is filed as an exhibit to this Form N-CSR. See attached
"John Hancock Funds - Administration Committee Charter".
ITEM 10. 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 11. EXHIBITS.
(a)(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)(1) 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)(1) Submission of Matters to a Vote of Security Holders is attached. See
attached "John Hancock Funds - Administration Committee Charter".
(c)(2) Contact person at the registrant.
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.
John Hancock Financial Trends Fund, Inc.
By:
------------------------------
Barry H. Evans
President
Date: September 1, 2004
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:
------------------------------
Barry H. Evans
President
Date: September 1, 2004
By:
------------------------------
Robert E. Gramer
Treasurer
Date: September 1, 2004