UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-57347
John Hancock Financial Trends Fund, Inc.
(Exact name of registrant as specified in charter)
601 Congress Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip code)
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
601 Congress Street
Boston, Massachusetts 02110
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-663-4324
Date of fiscal year end: December 31
Date of reporting period: June 30, 2005
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Financial Trends
Fund, Inc.
6.30.2005
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 more information
page 21
Dear Fellow Shareholders,
Stocks had a difficult time making headway in the first half of 2005.
Investors reacted negatively to record-high oil prices, periodic doubts
about the strength of the economy and fears that rising short-term interest
rates would derail corporate profit growth. The result for the first six
months was essentially a flat market, with the Standard & Poor's 500 Index
returning -0.81% in the period.
Financial stocks underperformed the market, as they often do in a rising
rate environment when investors fear that higher interest rates will put a
squeeze on margins at banks and other financial services companies. As a
result, the Standard & Poor's Financial Index returned -2.31% in the first
half of the year.
In this difficult environment, our three person team at the helm of the Fund
continued to display their talent in all markets. While the Fund still
produced a slightly negative net asset value result of -1.31%, the
managers' stock selections helped the Fund outperform its benchmark index
and the average open-end financial services fund, which returned -2.16%,
according to Lipper, Inc. In his commentary, Jim Schmidt and the team
provide further detail.
Each reporting period reassures us that your fund is in good hands, with a
management team that is deep and strong. In addition to Jim Schmidt, who is
well-known and well-regarded in the financial world for his expertise, we
have Tom Finucane who recently received the honor of being named by
Institutional Investor magazine as one of 11 "Best of the Buy Side"
investment research analysts. Lisa Welch joined John Hancock in 1998, where,
as a senior member of the management team, she provides special expertise in
small- to mid-sized banks and thrifts.
As to the Fund's adviser, John Hancock Funds, we want to inform you that
President and Chief Executive Officer James A. Shepherd son has left John
Hancock to pursue another business opportunity. His replacement, Keith F.
Hartstein, is a 15-year veteran of John Hancock Funds, most recently as
executive vice president of retail sales and marketing and a member of John
Hancock Funds' executive and investment committees. We look forward to
working with him.
Finally, I want to assure you that your Board of Directors remains vigilant
on your behalf, striving to put our fellow shareholders' best interests
above all others.
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, 2005. 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 objective
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 stayed essentially flat, as investors worried about
interest rates, the strength of the economy and rising fuel prices.
* Financial stocks underperformed the market in a rising interest rate
environment that put pressure on company margins.
* The Fund, while producing slightly negative results, held up better than
its peers because of good stock selection.
[Bar chart with heading "John Hancock Financial Trends Fund, Inc." Under
the heading is a note that reads "Fund performance for various periods ended
June 30, 2005." The chart is scaled in increments of 4% with -4% at the
bottom and 16% at the top. The first bar represents the -1.31% 6 month
total return for the Fund. The second bar represents the 10.40% 1-year
total return for the Fund. The third bar represents the 11.47% 3-year total
return for the Fund. The fourth bar represents the 15.46% 5-year total
return for the Fund. The fifth bar represents the 13.30% 10-year total
return for the Fund. A note below the chart reads "The total returns for
the Fund are at net asset value and include the reinvestment of all
distributions. The performance data contained within this material
represents past performance, which does not guarantee future results."]
Top 10 holdings
3.0% Citigroup, Inc.
2.9% Wells Fargo & Co.
2.8% Wachovia Corp.
2.7% Bank of America Corp.
2.6% U.S. Bancorp.
2.6% Prudential Financial, Inc.
2.6% SunTrust Banks, Inc.
2.5% Pinnacle Financial Partners, Inc.
2.4% JPMorgan Chase & Co.
2.3% MBNA Corp.
As a percentage of net assets on June 30, 2005.
1
BY JAMES K. SCHMIDT, CFA, LISA A. WELCH AND THOMAS M. FINUCANE,
PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
Financial Trends
Fund, Inc.
The stock market struggled just to stay even in the first half of 2005, as
investors stewed periodically over the record-high price of oil, the
sometimes questionable strength of the economy, rising interest rates and
the level of inflation. In the first three months, the market suffered broad
losses as the economy showed signs of softening and the Federal Reserve
continued its string of short-term rate hikes that began a year ago. In the
second quarter, stocks rebounded, as inflation remained tame and the economy
didn't fall apart. But the market fell just short of recouping its first
quarter losses, as investors remained hostage to fears that spiking oil
prices and rising rates would hurt the economy and corporate earnings. As a
result, the broad market, as measured by the Standard & Poor's 500 Index,
returned -0.81% in the first half of 2005.
"Financial stocks fell behind the
overall market, primarily due to
the rising rate environment..."
Financial stocks fell behind the overall market, primarily due to the rising
rate environment and by a flattening yield curve, as short-term rates rose
faster than those at the longer end. Worries about a squeeze on mortgage
companies and banks' net interest margins put downward pressure on their
stocks. Investment banks and other market-sensitive companies fared better,
with merger and acquisition activity remaining fairly robust. Life and
health insurance companies also turned in solid results because they were
viewed as safe havens and had no taint of scandal. Part of the financial
sector's underperformance stemmed from negative news headlines that hit some
of the sector's largest players, such as Freddie Mac and American
International Group. For the six months ended June 30, 2005, the Standard &
Poor's Financial Index returned -2.31%.
Fund performance
For the six months ended June 30, 2005, John Hancock Financial Trends Fund,
Inc. posted a total return of -1.31% at net asset value
2
and -8.13% at market value. The difference in the Fund's net asset value
(NAV) performance and its market performance stems from the fact that the
market share price is subject to the dynamics of secondary market trading,
which could cause it to trade at a discount or premium to the Fund's NAV
share price at any time. The Fund's NAV return exceeded the Fund's benchmark
Standard & Poor's 500 Financial Index and the -2.16% return of the average
open-end financial services fund, according to Lipper, Inc.
[Photos of Jim Schmidt, Lisa Welch and Tom Finucane, flush right at top of
page.]
Winning strategy: good stock selection
This period was unusual in that it was characterized by a wide divergence in
financial stocks' performance and significant underperformance from some
individual companies. As a result, Fund performance was helped by our good
stock selection in otherwise lackluster sub-sectors, as well as by either
avoiding or being underweighted in poor-performing stocks. Names in this
category include American International Group, which had numerous accounting
issues at the same time it was named in a bid-rigging investigation launched
by New York Attorney General Eliot Spitzer; and Freddie Mac, which continued
to deal with accounting issues. While we didn't avoid the names altogether,
and they were some of our worst performers, we were fortunate to have only
relatively small stakes.
Leaders
Several of our insurance stocks were among our biggest contributors to
performance, including Prudential, Hartford, Assured Guarantee and AFLAC.
Their success in the period was not due so much to their fundamentals as it
was to the simple fact that they were viewed as safe havens -- they were not
market- or interest-rate-sensitive and had no headline risk.
"Several of our insurance stocks
were among our biggest
contributors to performance..."
Investment banker Lehman Brothers was another big contributor, as merger and
acquisitions activity remained strong and their fixed income business held
up better than was expected. In the poor-performing regional bank category,
we were well served by owning some names that managed to fight off spread
revenue headwinds better than others and reported solid earnings growth.
They tended to be banks that did not have much exposure to the mortgage
business and also had better commercial
3
loan growth. This group included Zions Bancorp, Colonial BancGroup, Pinnacle
Financial, Whitney Holding Corp., City National and Marshall & Ilsley.
[Table at top left-hand side of page entitled "Industry distribution1." The
first listing is Regional banks 42%, the second is Diversified banks 11%,
the third is Investment banking & brokerage 10%, the fourth is Thrifts &
mortgage finance 7%, the fifth is Asset management & custody banks 7%, the
sixth is Other diversified financial services 6%, the seventh is Life &
health insurance 5%, the eighth is Multi-line insurance 3%, the ninth is
Reinsurance 3%, the tenth is Consumer finance 2% and the eleventh is
Property & casualty insurance 1%.]
Transactions
Our good stocks selection among asset managers also boosted performance
versus the benchmark index, as our stocks produced solid results while the
Index's basket of asset managers was slightly negative. One of our biggest
contributors to performance was asset manager Legg Mason. Its stock rose for
several reasons: first, because it saw strong inflows into its mutual funds,
and later because of its deal with Citigroup whereby it gave Citigroup its
brokerage arm in exchange for Citigroup's asset management group. The
transaction virtually doubled Legg Mason's assets under management.
Two other transactions occurred late in the period. Bank of America
announced it was purchasing credit card giant MBNA, demonstrating further
proof, in our view, that the mono-line credit company model is not
sustainable. Finally, online broker Ameritrade merged with TD Waterhouse,
addressing the current pricing wars through consolidation.
[Pie chart at middle of page with heading "Portfolio diversification 1."
The chart is divided into two sections (from top to left): Common stocks
97% and Short-term investments & other 3%.]
Detractors
The detractors fell either in the category of headline risk, as we mentioned
above, or companies that had earnings disappointments or lowered guidance on
future earnings. This group included JPMorgan Chase, Merrill Lynch, TCF
Financial, Seacoast Banking Corp. of Florida and Amegy Bancorp. Our
underweighting in
4
property and casualty insurance companies and an absence of REIT's also held
us back on a relative basis, as these groups both did well.
[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 Franklin
Resources followed by an up arrow with the phrase "Stock responds to strong
international fund inflows." The second listing is Hudson City followed by
an up arrow with the phrase "Successful second-step demutualization of New
Jersey S&L." The third listing is Fifth Third followed by a down arrow with
the phrase "Bank continues to frustrate and disappoint investors."]
A look ahead
Many investors shy away from financial stocks during periods when the
Federal Reserve is tightening (i.e. raising interest rates). While we
believe it is overly simplistic to judge the attractiveness of the
financials entirely by the interest rate cycle, it is true that about two
thirds of the time financial shares underperform the market while the Fed is
following a restrictive policy. History also shows that the performance of
the stocks improves as we approach the end of the tightening.
"The financial stocks are moderately
undervalued on a price-to-book or
price-earnings basis when compared
to historic norms."
The financial stocks are moderately undervalued on a price-to-book or
price-earnings basis when compared to historic norms. This is particularly
true for the insurance and securities brokerage stocks. Accounting and
regulatory concerns have weighed on some of the insurance names, while a
slowdown in trading volume and underwritings has hurt the brokers. Many of
these companies should benefit as market-related revenues improve later this
year. We feel that weakness in these shares has created some good
opportunities for us to take advantage of.
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.
1 As a percentage of net assets on June 30, 2005.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
June 30, 2005
(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 96.74% $72,769,816
(Cost $40,221,727)
Asset Management & Custody Banks 6.58% 4,949,861
Affiliated Managers Group, Inc. (I) 22,700 1,551,091
Bank of New York Co., Inc. (The) 26,000 748,280
Eaton Vance Corp. 15,000 358,650
Franklin Resources, Inc. 5,500 423,390
Northern Trust Corp. 5,000 227,950
State Street Corp. 34,000 1,640,500
Consumer Finance 2.34% 1,757,952
MBNA Corp. 67,200 1,757,952
Diversified Banks 10.96% 8,249,902
Bank of America Corp. 43,848 1,999,907
U.S. Bancorp. 68,000 1,985,600
Wachovia Corp. 41,653 2,065,989
Wells Fargo & Co. 35,700 2,198,406
Investment Banking & Brokerage 9.54% 7,176,175
Ameritrade Holding Corp. (I) 12,600 234,234
Goldman Sachs Group, Inc. (The) 9,700 989,594
Legg Mason, Inc. 16,150 1,681,376
Lehman Brothers Holdings, Inc. 11,500 1,141,720
Merrill Lynch & Co., Inc. 28,500 1,567,785
Morgan Stanley 8,250 432,878
Raymond James Financial, Inc. 39,950 1,128,588
Life & Health Insurance 5.42% 4,078,471
AFLAC, Inc. 23,050 997,604
Prudential Financial, Inc. 30,010 1,970,457
StanCorp Financial Group, Inc. 14,500 1,110,410
See notes to
financial statements.
6
FINANCIAL STATEMENTS
Issuer Shares Value
Multi-Line Insurance 3.06% $2,300,015
American International Group, Inc. 14,500 842,450
Assurant, Inc. 500 18,050
Hartford Financial Services Group, Inc. (The) 19,250 1,439,515
Other Diversified Financial Services 5.70% 4,290,158
Citigroup, Inc. 49,100 2,269,893
JPMorgan Chase & Co. 50,960 1,799,907
National Financial Partners Corp. 5,630 220,358
Property & Casualty Insurance 0.98% 735,602
ProAssurance Corp. (I) 17,615 735,602
Regional Banks 42.21% 31,750,245
ABC Bancorp. 21,480 388,358
Alabama National Bancorp. 9,000 588,330
Amegy Bancorp., Inc. 20,000 447,600
BancorpSouth, Inc. 38,167 900,741
BB&T Corp. 38,382 1,534,129
BOK Financial Corp. 26,776 1,234,909
Capital City Bank Group, Inc. 21,062 850,905
City National Corp. 17,500 1,254,925
Colonial BancGroup, Inc. (The) 38,112 840,751
Commerce Bancshares, Inc. 18,902 952,850
Commercial Bankshares, Inc. 35,551 1,379,734
Community Bancorp. (I) 880 27,298
Compass Bancshares, Inc. 26,025 1,171,125
Fifth Third Bancorp. 21,500 886,015
First Bancorp. of North Carolina 18,532 410,113
First Charter Corp. 28,500 626,145
First Horizon National Corp. 21,080 889,576
Hancock Holding Co. 21,000 722,400
LSB Bancshares, Inc. 56,512 1,014,956
M&T Bank Corp. 10,000 1,051,600
Marshall & Ilsley Corp. 19,250 855,662
National City Corp. 18,000 614,160
North Fork Bancorp., Inc. 25,000 702,250
Peoples BancTrust Co., Inc. (The) 52,800 844,800
Pinnacle Financial Partners, Inc. (I) 78,000 1,872,000
PNC Financial Services Group, Inc. 23,000 1,252,580
Provident Bankshares Corp. 20,156 643,178
Seacoast Banking Corp. of Florida 69,520 1,368,849
See notes to
financial statements.
7
FINANCIAL STATEMENTS
Issuer Shares Value
Regional Banks (continued)
Summit Bancshares, Inc. 18,600 $321,780
SunTrust Banks, Inc. 26,556 1,918,405
TCF Financial Corp. 42,000 1,086,960
Trustmark Corp. 32,000 936,320
Western Alliance Bancorp. (I) 1,730 43,942
Whitney Holding Corp. 15,300 499,239
Zions Bancorp. 22,000 1,617,660
Reinsurance 2.55% 1,916,844
Assured Guaranty Ltd. (Bermuda) 24,150 564,144
Axis Capital Holdings Ltd. (Bermuda) 13,000 367,900
RenaissanceRe Holdings Ltd. (Bermuda) 20,000 984,800
Specialized Finance 0.41% 308,525
CIT Group, Inc. 7,180 308,525
Thrifts & Mortgage Finance 6.99% 5,256,066
Countrywide Financial Corp. 17,000 656,370
First Financial Holdings, Inc. 40,500 1,211,355
Freddie Mac 23,000 1,500,290
Hudson City Bancorp., Inc. 30,150 344,011
South Street Financial Corp. 95,000 893,000
Washington Mutual, Inc. 16,000 651,040
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 2.90% $2,183,772
(Cost $2,183,772)
Certificates of Deposit 0.04% 28,772
Deposits in mutual banks 29 28,772
Joint Repurchase Agreement 2.86% 2,155,000
Investment in a joint repurchase agreement transaction
with Morgan Stanley -- Dated 06-30-05 due 07-01-05
(secured by U.S. Treasury Inflation Indexed Note 1.875%
due 07-15-13) 2.900% 2,155 2,155,000
Total investments 99.64% $74,953,588
Other assets and liabilities, net 0.36% $267,331
Total net assets 100.00% $75,220,919
See notes to
financial statements.
8
FINANCIAL STATEMENTS
Notes to Schedule of Investments
(I) 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.
9
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
June 30, 2005
(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 $42,405,499) $74,953,588
Cash 2,478
Receivable for investments sold 282,479
Dividends and interest receivable 128,789
Total assets 75,367,334
Liabilities
Payable for investments purchased 38,060
Payable to affiliates
Management fees 40,740
Other 9,402
Other payables and accrued expenses 58,213
Total liabilities 146,415
Net assets
Capital paid-in 40,212,716
Accumulated net realized gain on investments 2,009,949
Net unrealized appreciation of investments 32,548,089
Accumulated net investment income 450,165
Net assets $75,220,919
Net asset value per share
Based on 3,993,124 shares outstanding --
50 million shares authorized with par value
of $0.001 per share $18.84
See notes to
financial statements.
10
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
June 30, 2005
(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 $845,322
Interest 12,850
Securities lending 216
Total investment income 858,388
Expenses
Investment management fees 227,569
Directors' fees 64,976
Administration fees 52,516
Professional fees 42,472
Miscellaneous 20,605
Custodian fees 12,909
Printing 11,957
Transfer agent fees 9,452
Total expenses 442,456
Net investment income 415,932
Realized and unrealized gain (loss)
Net realized gain on investments 810,109
Change in net unrealized appreciation
(depreciation) of investments (2,233,164)
Net realized and unrealized loss (1,423,055)
Decrease in net assets from operations ($1,007,123)
1 Semiannual period from 1-1-05 to 6-30-05.
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
during the last
two periods. The
difference reflects
earnings less
expenses, any
investment
gains and losses,
and distributions,
if any, paid to
shareholders.
Year Period
ended ended
12-31-04 6-30-05 1
Increase (decrease) in net assets
From operations
Net investment income $759,889 $415,932
Net realized gain 4,746,268 810,109
Change in net unrealized
appreciation (depreciation) 4,972,340 (2,233,164)
Increase (decrease) in net assets
resulting from operations 10,478,497 (1,007,123)
Distributions to common shareholders
From net investment income (798,624) --
From net realized gain (3,858,676) --
(4,657,300) --
Net assets
Beginning of period 70,406,845 76,228,042
End of period 2 $76,228,042 $75,220,919
1 Semiannual period from 1-1-05 to 6-30-05. Unaudited.
2 Includes accumulated net investment income of $34,233 and $450,165,
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 12-31-00 12-31-01 12-31-02 12-31-03 12-31-04 6-30-05 1
Per share operating performance
Net asset value,
beginning of period $18.16 $16.58 $15.67 $14.39 $17.63 $19.09
Net investment income 2 0.39 0.22 0.16 0.17 0.19 0.10
Net realized and unrealized
gain (loss) on investments 0.72 1.49 (0.66) 3.81 3 2.44 (0.35)
Total from investment operations 1.11 1.71 (0.50) 3.98 2.63 (0.25)
Less distributions
From net investment income (0.38) (0.24) (0.16) (0.16) (0.20) --
From net realized gain (2.31) (2.38) (0.62) (0.58) (0.97) --
(2.69) (2.62) (0.78) (0.74) (1.17) --
Net asset value, end of period $16.58 $15.67 $14.39 $17.63 $19.09 $18.84
Per share market value,
end of period $13.69 $13.17 $12.36 $18.40 $17.47 $16.05
Total return at market value 4 (%) 5.02 14.41 (0.25) 58.66 1.54 (8.13) 5
Ratios and supplemental data
Net assets,
end of period (in millions) $66 $62 $57 $70 $76 $75
Ratio of expenses
to average net assets (%) 1.12 1.23 1.16 1.20 1.22 1.23 6
Ratio of net investment income
to average net assets (%) 2.35 1.23 1.04 1.04 1.04 1.15 6
Portfolio turnover (%) 23 53 42 26 10 1
1 Semiannual period from 1-1-05 to 6-30-05. 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
12-31-03, on net long-term capital gains retained by the Fund.
4 Assumes dividend reinvestment.
5 Not annualized.
6 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 Directors. Short-term debt investments, which have a remaining maturity
of 60 days or less may be 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 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. There were no securities loaned on June 30, 2005. Securities
lending expenses in the amount of $11 were paid by the Fund to the Adviser
during the period ended June 30, 2005.
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.
14
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, if any, on the ex-dividend date. During the year
ended December 31, 2004, the tax character of distributions paid was as
follows: ordinary income $1,605,955 and long-term capital gains $3,051,345.
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
Management and
administration fees
and transactions with
affiliates and others
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 compensation for the period amounted to
$52,516. The Fund also paid the Adviser the amount of $1,019 for certain
compliance costs, included in the miscellaneous expenses.
The Fund does not pay remuneration to its Officers. Certain Officers of the
Fund are Officers of the Adviser.
Note C
Fund share
transactions
The Fund had no share transactions during the last two periods.
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.
15
Note D
Investment transactions
Purchases and proceeds from sales or maturities of securities, other than
short-term securities and obligations of the U.S. government, during the
period ended June 30, 2005, aggregated $882,279 and $2,612,175,
respectively.
The cost of investments owned on June 30, 2005, including short-term
investments, for federal income tax purposes, was $42,410,687. Gross
unrealized appreciation and depreciation of investments aggregated
$32,852,648 and $309,747, respectively, resulting in net unrealized
appreciation of $32,542,901. 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.
Note E
Change in independent auditor
Based on the recommendation of the Audit Committee of the Fund, the Board of
Directors has de ter mined not to retain Deloitte & Touche LLP as the Fund's
Independent Registered Public Accounting Firm and voted to appoint
PricewaterhouseCoopers LLP for the fiscal year ended December 31, 2005.
During the two most recent fiscal years, Deloitte & Touche LLP's audit
reports contained no adverse opinion or disclaimer of opinion; nor were
their reports qualified as to uncertainty, audit scope or accounting
principles. Further, there were no disagreements between the Fund and
Deloitte & Touche LLP on accounting principles, financial statements
disclosure or audit scope, which, if not resolved to the satisfaction of
Deloitte & Touche LLP, would have caused them to make reference to the
disagreement in their reports.
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
agreement
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, 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 Fund in writing of any proposal which they intend
to present at an annual meeting of shareholders, including any
17
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. The Fund is presently listed on NASDAQ and per a
grandfathering provision, it is not required to hold annual shareholder
meetings. The Board approved the above amendment to the Fund's by-laws to
provide a defined structure for the submission of shareholder proposals
should the circumstances change and an annual meeting be required. 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
18
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
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 more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
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
James K. Schmidt
Vice President
Lisa A. Welch
Vice President
Robert E. Gramer
Treasurer
Alfred P. Ouellette
Corporate Secretary
Investment adviser
John Hancock Advisers, LLC
601 Congress Street
Boston, MA 02210-2805
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
and registrar
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 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, MA 02109-1803
Stock symbol
Listed Nasdaq Symbol:
JHFT
For shareholder assistance
refer to page 19
How to contact us
Internet www.jhfunds.com
Mail Regular mail:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Phone 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
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available on
a quarterly basis 60 days after the fiscal quarter on our Web site or upon
request by calling 1-800-225-5291, or on the Securities and Exchange
Commission'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 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
- ---------------
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
- ---------------
PT0SA 6/05
8/05
ITEM 2. CODE OF ETHICS.
As of the end of the period, June 30, 2005, the registrant has adopted a
code of ethics, as defined in Item 2 of Form N-CSR, that applies to its
Chief Executive Officer, Chief Financial Officer and Treasurer
(respectively, the principal executive officer, the principal financial
officer and the principal accounting officer, the "Senior Financial
Officers"). A copy of the code of ethics is filed as an exhibit to this
Form N-CSR.
The code of ethics was amended effective February 1, 2005 to address new
Rule 204A-1 under the Investment Advisers Act of 1940 and to make other
related changes.
The most significant amendments were:
(a) Broadening of the General Principles of the code to cover compliance
with all federal securities laws.
(b) Eliminating the interim requirements (since the first quarter of 2004)
for access persons to preclear their personal trades of John Hancock mutual
funds. This was replaced by post-trade reporting and a 30 day hold
requirement for all employees.
(c) A new requirement for "heightened preclearance" with investment
supervisors by any access person trading in a personal position worth
$100,000 or more.
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. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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" and "John Hancock Funds - Governance
Committee Charter".
ITEM 11. 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 12. EXHIBITS.
(a)(1) Code of Ethics for Senior Financial Officers is attached.
(a)(2) 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) 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" and "John
Hancock Funds - Governance 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: /s/ Barry H. Evans
------------------------------
Barry H. Evans
President
Date: September 6, 2005
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: /s/ Barry H. Evans
------------------------------
Barry H. Evans
President
Date: September 6, 2005
By: /s/ Robert E. Gramer
------------------------------
Robert E. Gramer
Treasurer
Date: September 6, 2005