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John Hancock Funds
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Short-Term
Strategic
Income
Fund
SEMI-ANNUAL REPORT
April 30, 1997
<PAGE>
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TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
As the market continues to fret over interest rates and inflation,
investors should be prepared for more volatility. It also makes sense to do
something we've always advocated: set realistic expectations. Keep in mind that
the stock market's historic yearly average has been about 10%, not the 20%-plus
annual average of the last two years or even the 16% annual average over the
last 10 years. Remember that the kind of market volatility we've seen lately is
more like the way the market really works. Fluctuations go with the territory.
And market corrections can be healthy, serving to bring inflated stock prices
down to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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By Lawrence J. Daly, Anthony A. Goodchild and Janet L. Clay,
Co-Portfolio Managers
John Hancock
Short-Term Strategic
Income Fund
U.S. bond market sets the tone for global bond markets
The U.S. bond market seemed to set the tone for global bond markets during the
last six months. From October through February, a powerful combination of
moderate growth and tame inflation buoyed U.S. bonds. By early March, however,
evidence of a stronger U.S. economy re-ignited inflation fears and sent bond
prices falling. When the Federal Reserve Bank raised short-term interest rates
on March 25, 1997, the situation worsened. Then, in mid-April, the bond market
reversed course once again in response to more positive inflation news. U.S.
bonds staged a remarkable recovery that wiped out almost all of the losses
triggered by the March interest-rate hike.
The U.S. bond market's woes reverberated throughout many emerging markets.
Fueled by fiscal improvements, emerging markets turned in impressive returns
throughout 1996 and into the first few months of 1997. The Fed's interest-rate
hike interrupted the rally and sparked a wave of selling throughout emerging
markets. The selling pressure, however, subsided with the recovery in the U.S.
bond market. By the end of April, most emerging markets had regained their lost
ground.
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"U.S. bonds staged a remarkable recovery..."
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In Europe, bond markets not only suffered from the U.S. market's troubles,
but also from
[A 2 1/4" x 3 3/4" photo of Anthony Goodchild, Janet Clay and Lawrence Daly.
Caption reads: "Anthony Goodchild, Janet Clay and Lawrence Daly, Co-Portfolio
Managers."]
3
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John Hancock Funds - Short-Term Strategic Income Fund
[Chart entitled "Top Five Bond Categories" at top left hand column. The chart
has five listings: 1) U.S. government 34% 2) Foreign governments 28% 3) Banks 8%
4) Utilities 4% 5)Transportation 4%. Footnote below reads "As a percentage of
net assets on April 30, 1997."]
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"We maintained our 50% weighting in emerging market bonds."
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their own. The U.S. sell-off -- coupled with concerns about the outcome of the
European Economic and Monetary Union (EMU) -- put pressure on many European bond
markets. In addition, the pending elections in the U.K. and France added to the
market volatility.
Performance review
Against this backdrop, John Hancock Short-Term Strategic Income Fund ended the
six-month period ahead of where it started. For the six months ended April 30,
1997, the Fund's Class A and Class B shares had total returns of 3.16% and
2.81%, respectively, at net asset value. Those returns outpaced the average
short-term investment-grade bond fund's return of 2.19%, according to Lipper
Analytical Services, Inc.1 Please see pages six and seven for longer-term
performance information.
With the U.S. dollar appreciating strongly against most foreign currencies,
our strong bias toward U.S. dollar-denominated bonds (83% of assets) boosted
performance. Good credit selection, particularly in emerging markets, also
contributed to the Fund's gains. For example, Argentinean corporate holdings
moved up nicely following the news of credit upgrades.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is Argentinian
corporate bonds followed by an up arrow and the phrase "Credit upgrade." The
second listing is Emerging market bonds followed by an up arrow and the phrase
"Improved fiscal conditions." The third listing is European bonds followed by a
down arrow and the phrase "Uncertainty about economic union." Footnote below
reads: "See "Schedule of Investments." Investment holdings are subject to
change."]
Portfolio strategy
As long-time Fund investors know, our strategy is to balance lower-rated
emerging market bonds with higher-grade securities and U.S. government bonds.
The goal is to maintain an average portfolio credit rating of single A -- which
is the mid-point among investment-quality bonds. What follows is a discussion of
how our strategy played out during the period.
Emerging markets. We maintained our 50% weighting in emerging market bonds.
As was the case six months ago, our focus has remained primarily on Latin
American markets such as Brazil, Mexico, Argentina, Venezuela and Panama. Within
these markets, we continue to hold a blend of government and corporate debt. On
the government side, we benefited from the upgrade of Brazilian and Argentinean
bonds. On the corporate side, our emphasis remained on high-grade issues that
are most likely to benefit from the improving economies in many emerging market
countries.
Europe. By the end of the period, we had basically eliminated our European
investments. Our position here had been heavily weighted toward our holdings in
floating-rate notes from Denmark. Because these notes were approaching their
maturity date, we wanted to take profits while the issues were still liquid. As
a result, we sold all our Denmark holdings in early January.
We also sold our holdings in the so-called "peripheral" European markets --
such as Italy, Spain and Sweden. The main reason was the overwhelming
uncertainty surrounding the outcome of the European Economic and Monetary
4
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John Hancock Funds - Short-Term Strategic Income Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." The chart
has plot points of 0%, 2% and 4% from bottom to top. Within the chart, there are
three solid bars. The first represents the 3.16% total return for John Hancock
Short-Term Strategic Income Fund: Class A. The second represents the 2.81%%
total return for John Hancock Short-Term Strategic Income Fund: Class B. The
third represents the 2.19% total return for the average short-term investment
grade bond fund. Footnote below reads: "Total returns for John Hancock
Short-Term Strategic Income Fund are at net asset value with all distributions
reinvested. The average short-term investment grade bond fund is tracked by
Lipper Analytical Services. (1) the following two pages for historical
performance information."]
Union (EMU). In order to qualify for inclusion in the EMU, countries need to
meet stringent economic and fiscal conditions. With many countries falling short
of these requirements, uncertainty has increased, spreading volatility
throughout European markets.
United States. In place of our European holdings, we added to our stake in
U.S. bonds, increasing our weighting from 10% to more than 30%. Our primary
focus is on short-term U.S. Treasuries with maturities in two- to three-year
range. These high-quality bonds nicely balance out our lower-quality investments
in emerging markets.
Outlook
We believe that the U.S. will continue to set the tone for global bond markets.
Despite the recent recovery, we expect more volatility in the months ahead. With
the U.S. economy continuing to send mixed signals, there is still plenty of
uncertainty about the inflationary outlook and the Federal Reserve's next moves.
Further rate increases are expected, but the uncertainty of how many more is
likely to keep investors nervous.
Europe has its own set of issues. Going forward, we will closely monitor
the developments regarding the monetary union as well as the impact of the
elections in both France and the U.K. Even though emerging markets may
experience some temporary setbacks -- as we saw in March -- we believe that the
long-term trends clearly favor these markets. Improving fiscal conditions,
coupled with increased political stability, bode well for continued strong
performance. However, a repeat of last year's stellar gains is unlikely.
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"...we are optimistic about the worldwide inflationary outlook."
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Overall, we are optimistic about the worldwide inflationary outlook. The
inflation rate in the U.S. -- which is one of the highest in the world -- is
running around 3%. Inflation is lower throughout Europe -- mostly in the 2% to
3% range. As for emerging markets, steady economic growth and responsible fiscal
policies have kept a lid on inflation. With growth slowing in the U.S. and many
European economies just emerging from recessions, there's little upward pressure
on prices in the worldwide markets. That bodes well for the inflation picture
and for world bond investors.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
International investing involves special risks such as currency risks, political
risks and differences in accounting standards and financial reporting. See
prospectus for additional information.
1 Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Short-Term Strategic Income Fund. Total
return is a performance measure that equals the sum of all dividends and capital
gains, assuming reinvestment of these distributions and the change in the price
of the Fund's shares, expressed as a percentage of the Fund's net asset value
per share. Performance figures include the maximum applicable sales charge of 3%
for Class A shares. The effect of the maximum contingent-deferred sales charge
for Class B shares (maximum 3% and declining to 0% over four years) is included
in Class B performance. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, keep in mind
that the total return and share price of the Fund's investments will fluctuate.
As a result, your Fund's shares may be worth more or less than their original
cost, depending on when you sell them. Please see your prospectus for risks
associated with international investing, including currency and political risks
and differences in accounting standards and financial reporting.
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CUMULATIVE TOTAL RETURNS
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For the period ended March 31, 1997
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
John Hancock Short-Term Strategic
Income Fund: Class A(1) 3.98% 28.47% 30.31%
John Hancock Short-Term Strategic
Income Fund: Class B(2) 3.46% 27.72% 39.35%
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended March 31, 1997
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
John Hancock Short-Term Strategic
Income Fund: Class A(1) 3.98% 5.14% 5.18%
John Hancock Short-Term Strategic
Income Fund: Class B(2) 3.46% 5.01% 5.44%
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YIELDS
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As of April 30, 1997
SEC 30-DAY
YIELD
-----
John Hancock Short-Term Strategic Income Fund: Class A 6.65%
John Hancock Short-Term Strategic Income Fund: Class B 6.13%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
(2) Class B shares commenced on December 28, 1990.
6
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
Short-Term Strategic Income Fund would be worth on April 30, 1997, assuming you
had invested on the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Salomon Brothers World Government Bond Index -- an unmanaged index that is
composed of various non-U.S.-currency-denominated bonds, usually with an average
maturity of three years or less.
[Line chart with the heading Short-Term Strategic Income Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Short-Term Strategic Income Fund on January 3, 1992, before sales charge,
and is equal to $13,557 as of April 30, 1997. The second line represents the
Short-Term Strategic Income Fund, after sales charge, and is equal to $13,150 as
of April 30, 1997. The third line represents the value of the Salomon Brothers
World Government Bond Index and is equal to $12,080 as of April 30, 1997.]
[Line chart with the heading Short-Term Strategic Income Fund Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are two lines.
The first line represents the value of the hypothetical $10,000 investment made
in the Short-Term Strategic Income Fund on December 28, 1990, and is equal to
$14,062 as of April 30, 1997. The second line represents the value of Salomon
Brothers World Government Bond Index and is equal to $13,201 as of April 30,
1997.]
*No contingent deferred sales charge applicable.
7
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FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $90,532,094) ................................. $ 92,470,454
Joint repurchase agreement (cost - $2,825,000) ............. 2,825,000
------------
............................................................... 95,295,454
Cash ......................................................... 1,205
Receivable for shares sold ................................... 93,734
Interest receivable .......................................... 2,127,950
Receivable for forward foreign exchange
currency contracts sold - Note A ........................... 2,062
Foreign tax receivable ....................................... 406
Other assets ................................................. 3,155
------------
Total Assets ................ 97,523,966
--------------------------------------------
Liabilities:
Dividend payable ............................................. 19,144
Payable for shares repurchased ............................... 3,123
Payable for forward foreign currency exchange
contracts sold - Note A .................................... 13,991
Payable for closed forward foreign currency exchange
contracts - Note A ......................................... 525
Payable to John Hancock Advisers, Inc. and affiliates -
Note B ..................................................... 76,725
Accounts payable and accrued expenses ........................ 73,760
------------
Total Liabilities ........... 187,268
--------------------------------------------
Net Assets:
Capital paid-in .............................................. $124,387,612
Accumulated net realized loss on investments and
foreign currency transactions .............................. ( 28,970,059)
Net unrealized appreciation of investments and
foreign currency transactions .............................. 1,922,300
Distributions in excess of net investment income ............. ( 3,155)
------------
Net Assets .................. $ 97,336,698
============================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding - unlimited
number of shares authorized with no par
value, respectively)
Class A - $62,550,369 / 7,431,270 ............................ $ 8.42
=============================================================================
Class B - $34,786,329 / 4,138,362 ............................ $ 8.41
=============================================================================
Maximum Offering Price Per Share*
Class A - ($8.42 x 103.09%) .................................. $ 8.68
=============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
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Investment Income:
Interest (net of foreign withholding taxes of $1,402) ........ $4,237,770
----------
Expenses:
Investment management fee - Note B ......................... 315,785
Distribution and service fee - Note B
Class A .................................................. 84,347
Class B .................................................. 204,665
Transfer agent fee - Note B ................................ 100,493
Custodian fee .............................................. 62,057
Auditing fee ............................................... 32,365
Registration and filing fees ............................... 14,762
Printing ................................................... 11,266
Financial services fee - Note B ............................ 9,109
Organization expense - Note A .............................. 4,210
Trustees' fees ............................................. 3,977
Miscellaneous .............................................. 2,251
Legal fees ................................................. 1,630
----------
Total Expenses .............. 846,917
--------------------------------------------
Net Investment Income........ 3,390,853
--------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions
Net realized loss on investments sold ........................ ( 251,567)
Net realized gain on foreign currency transactions ........... 797
Change in net unrealized appreciation/depreciation
of investments ............................................. ( 252,775)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ............................ ( 8,927)
----------
Net Realized and Unrealized
Loss on Investments and Foreign
Currency Transactions ....... ( 512,472)
--------------------------------------------
Net Increase in Net Assets
Resulting from Operations ... $2,878,381
============================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
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SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................................ $ 7,145,128 $ 3,390,853
Net realized loss on investments sold and
foreign currency transactions .............................................. ( 849,953) ( 250,770)
Change in net unrealized appreciation/depreciation
of investments and foreign currency transactions ........................... 1,372,886 ( 261,702)
------------ -----------
Net Increase in Net Assets Resulting from Operations ....................... 7,668,061 2,878,381
------------ -----------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.5702 and $0.3055 per share, respectively) .................... ( 2,214,100) ( 2,049,577)
Class B - ($0.5203 and $0.2761 per share, respectively) .................... ( 4,078,534) ( 1,341,276)
Distributions from capital paid-in
Class A - ($0.0773 and none per share, respectively) ....................... ( 299,953) --
Class B - ($0.0706 and none per share, respectively) ....................... ( 552,541) --
------------ -----------
Total Distributions to Shareholders ........................................ ( 7,145,128) ( 3,390,853)
------------ -----------
From Fund Share Transactions - Net* ............................................ ( 4,644,938) 373,589
------------ -----------
Net Assets:
Beginning of period ........................................................ 101,597,586 97,475,581
------------ -----------
End of period (including distributions in excess of net
investment income of $3,155 for both periods presented) .................. $ 97,475,581 $97,336,698
------------ -----------
<CAPTION>
SIX MONTHS ENDED
* Analysis of Fund Share Transactions: YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................... 5,224,426 $44,002,197 3,007,622 $25,512,376
Shares issued to shareholders in reinvestment
of distributions ............................. 173,166 1,459,286 136,855 1,158,417
--------- ----------- --------- -----------
................................................. 5,397,592 45,461,483 3,144,477 26,670,793
Less shares repurchased ........................ (1,584,884) ( 13,356,794) (1,546,071) ( 13,090,547)
--------- ----------- --------- -----------
Net Increase ................................... 3,812,708 $32,104,689 1,598,406 $13,580,246
========= =========== ========= ===========
CLASS B
Shares sold .................................... 1,947,251 $16,384,501 1,074,466 $ 9,084,360
Shares issued to shareholders in reinvestment
of distributions ............................. 276,956 2,329,163 74,359 627,763
--------- ----------- --------- -----------
................................................. 2,224,207 18,713,664 1,148,825 9,712,123
Less shares repurchased ........................ (6,595,024) ( 55,463,291) (2,708,183) ( 22,918,780)
--------- ----------- --------- -----------
Net Decrease ................................... (4,370,817) ($36,749,627) (1,559,358) ($13,206,657)
========= =========== ========= ===========
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, if any, and any increase or decrease in
money shareholders invested in the Fund. The footnote illustrates the number of
Fund shares sold, reinvested and repurchased during the last two periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $ 9.86 $ 9.32 $ 9.12 $ 8.47 $ 8.41 $ 8.46
------- ------- ------- ------- ------- -------
Net Investment Income ................................ 0.65 0.83(2) 0.76(2) 0.77(2) 0.65 0.31
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .................. ( 0.55) ( 0.20) ( 0.53) ( 0.06) 0.05 ( 0.04)
------- ------- ------- ------- ------- -------
Total from Investment Operations ................. 0.10 0.63 0.23 0.71 0.70 0.27
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................. ( 0.64) ( 0.83) ( 0.62) ( 0.61) ( 0.57) ( 0.31)
Distributions in Excess of Net Investment Income ..... -- -- ( 0.04) -- -- --
Distributions in Excess of Net Realized Gain on
Investments Sold ................................... -- -- ( 0.12) -- -- --
Distributions from Capital Paid-in ................... -- -- ( 0.10) ( 0.16) ( 0.08) --
------- ------- ------- ------- ------- -------
Total Distributions .............................. ( 0.64) ( 0.83) ( 0.88) ( 0.77) ( 0.65) ( 0.31)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ....................... $ 9.32 $ 9.12 $ 8.47 $ 8.41 $ 8.46 $ 8.42
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(3) ........ 1.16%(4) 6.78% 2.64% 8.75% 8.60% 3.16%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $20,468 $11,130 $13,091 $16,997 $49,338 $62,550
Ratio of Expenses to Average Net Assets .............. 1.37%(4) 1.21% 1.26% 1.33% 1.48% 1.45%(4)
Ratio of Net Investment Income to Average Net Assets . 8.09%(4) 8.59% 8.71% 9.13% 7.59% 7.29%(4)
Portfolio Turnover Rate .............................. 86% 306% 150% 147% 77% 52%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the commencement of operations.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 10.01 $ 9.31 $ 9.11 $ 8.46 $ 8.40 $ 8.45
-------- -------- ------- ------- ------- -------
Net Investment Income 0.87 0.75(2) 0.70(2) 0.70(2) 0.59 0.28(2)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ( 0.80) ( 0.20) ( 0.53) ( 0.06) 0.05 ( 0.04)
-------- -------- ------- ------- ------- -------
Total from Investment Operations 0.07 0.55 0.17 0.64 0.64 0.24
-------- -------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ( 0.77) ( 0.75) ( 0.56) ( 0.56) ( 0.52) ( 0.28)
Distributions in Excess of Net Investment Income -- -- ( 0.04) -- -- --
Distributions in Excess of Net Realized Gain on
Investments Sold -- -- ( 0.12) -- -- --
Distributions from Capital Paid-in -- -- ( 0.10) ( 0.14) ( 0.07) --
-------- -------- ------- ------- ------- -------
Total Distributions ( 0.77) ( 0.75) ( 0.82) ( 0.70) ( 0.59) ( 0.28)
-------- -------- ------- ------- ------- -------
Net Asset Value, End of Period $ 9.31 $ 9.11 $ 8.46 $ 8.40 $ 8.45 $ 8.41
======== ======== ======= ======= ======= =======
Total Investment Return at Net Asset Value(3) 0.64% 5.98% 1.93% 7.97% 7.89% 2.81%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $236,059 $142,873 $98,390 $84,601 $48,137 $34,786
Ratio of Expenses to Average Net Assets 2.07% 2.01% 1.99% 2.07% 2.12% 2.15%(4)
Ratio of Net Investment Income to Average Net Assets 8.69% 7.81% 8.00% 8.40% 7.07% 6.55%(4)
Portfolio Turnover Rate 86% 306% 150% 147% 77% 52%
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Annualized.
(5) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
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FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
The Schedule of Investments is a complete list of all securities owned by the
Fund on April 30, 1997. It's divided into two main categories: bonds and
short-term investments. Bonds are further broken down by currency denomination.
Short-term investments, which represent the Fund's "cash" position, are listed
last.
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED)# VALUE
- ------------------- ---- --------------- -----
BONDS
Canadian Dollar (0.75%)
Republic of Argentina,
(Argentina), Deb
Ser EMTN 10-14-97 ............... 10.500% 1,000 $ 731,345
----------
Chilean Peso (3.03%)
Citibank, N.A.,
Nassau Time Deposit
06-18-97 ........................ 10.500 826,800 1,947,525
Nassau Time Deposit
08-18-97 ........................ 11.000 420,300 1,003,462
----------
(Time deposits
with redemption
linked to Chilean Peso
Fx rates)** 2,950,987
----------
Egyptian Pound (1.56%)
Citibank, N.A.,
Nassau Time Deposit
08-18-97 (Time deposit
with redemption linked
to Egyptian Pound
Fx rates)** ..................... 9.000 5,171 1,521,823
----------
Mexican Nuevo Peso (1.62%)
United Mexican States,
Bill 12-31-97 ................... Zero 14,459 1,574,984
----------
New Zealand Dollar (4.15%)
Government of New Zealand,
Bond 02-15-00 ................... 6.500 3,000 2,022,890
Nordic Investment Bank,
(Multinational), Unsub Deb
Ser EMTN 09-16-99 ............... 6.750 3,000 2,018,951
----------
4,041,841
----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED)# VALUE
- ------------------- ---- --------------- -----
South African Financial Rand (3.23%)
ESKOM, Sec Deb Ser E169
10-01-98 ........................ 15.000% 14,000 $ 3,139,643
------------
U.S. Dollar (80.66%)
Banco Central de Costa Rica,
(Costa Rica), Floating Rate
Bond Ser A 05-21-05 ............. 6.313* 872 837,581
Floating Rate Note Ser B
05-21-05 ...................... 6.313* 872 837,581
Banco Credibanco S.A.,
(Brazil), Deb Ser EMTN
11-25-97 ........................ 11.625 1,376 1,406,960
Banco de Galica y Bueno Aries
S.A., (Argentina), Floating
Rate Note Ser EMTN
04-15-99 ........................ 9.516* 1,500 1,548,750
Banco Nacional de Comericio
Exterior, S.N.C., (Mexico),
Floating Rate Note
06-23-97 (R) .................... 10.629* 1,000 1,001,250
Bridas Corp., (British Virgin
Islands), Sr Note 11-15-99..... 12.500 1,500 1,646,250
Centrais Electricas Brasileiras ...
S.A., (Brazil), Sr Unsub
Deb 10-30-98 (R) ................ 10.000 1,000 1,028,750
Copamex Industrias S.A.,
(Mexico), Bond
04-30-04 (R) .................... 11.375 750 762,188
Empresas ICA Sociedad S.A.
de C.V., (Mexico), Note
05-30-01 (R) .................... 11.875 2,000 2,130,000
Federative Republic of Brazil,
(Brazil), Floating Rate Bond
04-15-09 ........................ 6.938* 3,200 2,718,016
Global Bond 11-05-01 ............ 8.875 2,000 2,027,500
Financiera Energetica
Nacional S.A., (Columbia),
Unsub Deb Ser REGS
06-15-06 ........................ 9.375 1,000 1,035,000
ING Bank Sao Paolo, (Brazil),
Deb 10-19-97 .................... 10.250 400 404,000
Innova S. de R.L., (Mexico),
Sr Note 04-01-07 (R) ............ 12.875 200 196,000
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED)# VALUE
- ------------------- ---- --------------- -----
U.S. Dollar (continued)
Klabin Fabricadora de Papel
e Celulose S.A., (Brazil),
Gtd Deb 08-12-04 (R) ............ 11.000% 500 $ 510,000
Northwest Airlines, Inc.,
Sr Note 12-31-00 ................ 12.092 2,480 2,554,082
OPP Petroquimica S.A., (Brazil),
Sr Note 10-29-04 (R) ............ 11.000 500 496,250
Sr Note Ser REGS 10-29-04 ....... 11.000 500 496,250
PT Semen Cibinong, (Indonesia),
Note 12-15-98 ................... 9.000 2,000 2,030,000
Petroleo Brasileiro S.A., (Brazil),
Floating Rate Note 06-08-98 ..... 10.088* 2,000 2,065,000
Republic of Argentina,
(Argentina), Global Bond
02-23-01 ........................ 9.250 2,000 2,070,000
Republic of Panama, (Panama),
Bond 02-13-02 (R) ............... 7.875 2,500 2,437,500
Floating Rate Note 05-10-02 ..... 6.547* 2,115 2,088,958
Republic of Venezuela,
(Venezuela), Floating Rate
Bond Ser DL 12-18-07 ............ 6.500* 3,500 3,088,750
RJR Nabisco, Inc.,
Note 09-15-03 ................... 7.625 1,000 938,110
Russian Federation Ministry
of Finance, (Russia),
Unsub Deb 11-27-01 (R) .......... 9.250 1,000 981,250
Unsub Deb Ser REGS 11-27-01 ..... 9.250 1,500 1,471,875
Siderar S.A.I.C., (Argentina),
Note 10-18-97 (R) ............... 11.000 1,000 1,010,000
Transportacion Maritima
Mexicana S.A. de C.V., (Mexico),
Note 05-15-03 ................... 9.250 1,500 1,406,250
Tubos de Acero de Mexico,
(Mexico), Unsub Deb Ser
REGS 12-08-99 ................... 13.750 2,500 2,812,500
United Mexican States, (Mexico),
Global Bond 02-06-01 ............ 9.750 1,500 1,567,500
United States Treasury,
Note 01-31-99 ................... 6.000 20,000 19,887,400
Note 05-15-99 ................... 6.375 13,000 13,018,330
-----------
78,509,831
-----------
TOTAL BONDS
(Cost $90,532,094) ( 95.00%) 92,470,454
------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED)# VALUE
- ------------------- ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.90%)
Investment in a joint repurchase
agreement transaction with
Aubrey Lanston Dated 4-30-97,
Due 5-01-97 (secured by US
Treasury Notes,5.500% through
6.625%, Due 5-15-98 through
9-30-01) Note A ................. 5.375% $ 2,825 $ 2,825,000
-----------
TOTAL SHORT-TERM INVESTMENTS ( 2.90%) 2,825,000
------- -----------
TOTAL INVESTMENTS ( 97.90%) $95,295,454
======= ===========
NOTES TO SCHEDULE OF INVESTMENTS
* Represents rate in effect on April 30, 1997.
** An indexed security's value is linked to changes in foreign currencies,
interest rates or other reference instruments. Indexed securities amounted
to $4,472,810 or 4.59% as of April 30, 1997.
# Par value of non US$ denominated foreign bonds is expressed in local
currency for each country listed.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $10,553,188 or 10.84% of the Fund's net
assets as of April 30, 1997.
EMTN Euro Medium Term Note.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by companies and governments of other
countries. The performance of the Fund is closely tied to the economic condition
within the countries in which it invests. The concentration of investments by
currency denomination for individual securities held by the Fund is shown in the
schedule of investments. In addition, concentration of investments can be
aggregated by various investment categories. The table below shows the
percentages of the Fund's investments at April 30, 1997 assigned to the various
investment categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- --------------
Banks ................................................... 8.27%
Building - Heavy Construction ........................... 2.19
Building Products ....................................... 2.09
Chemicals ............................................... 1.02
Finance ................................................. 1.06
Government - Foreign .................................... 28.00
Government - U.S. ....................................... 33.81
Media - Cable TV ........................................ 0.20
Oil & Gas ............................................... 3.81
Paper & Paper Products .................................. 1.31
Steel ................................................... 3.96
Tobacco ................................................. 0.96
Transportation .......................................... 4.07
Utility ................................................. 4.28
Short-term Investments .................................. 2.90
--------
TOTAL INVESTMENTS 97.90%
========
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust III (the "Trust") (formerly Freedom Investment
Trust II) is a diversified open-end management investment company, registered
under the Investment Company Act of 1940. The Trust consists of six series: John
Hancock Short-Term Strategic Income Fund (the "Fund"), John Hancock Global Fund,
John Hancock World Bond Fund, John Hancock Special Opportunities Fund, John
Hancock Growth Fund and John Hancock International Fund. The other five series
of the Trust are reported in separate financial statements. The investment
objective of the Fund is a high level of current income by investing primarily
in debt securities of foreign governments and companies including those in
emerging markets, as well as the U.S. government, its agencies and
instrumentalities and U.S. companies. The Fund maintains an average portfolio
maturity of three years or less.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below. The Fund may invest in indexed securities whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more 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. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, net currency exchange gains and
losses from sales of foreign debt securities must be treated as ordinary income
even though such items are gains and losses for accounting purposes. The Fund
has $28,719,289 capital loss carryforwards available, to the extent provided by
regulations, to offset future net realized capital gains. To the extent such
carryforwards are used by the Fund, no capital gains distributions will be made.
The carryforwards expire as follows: October 31, 1999 - $470,652, October 31,
2000 - $17,243,199, October 31, 2001 - $3,127,414, October 31, 2002 -
$2,774,082, and October 31, 2003 - $5,103,942. Expired capital loss
carryforwards are reclassified to capital paid-in, in the year of expiration.
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
DISTRIBUTIONS AND INTEREST 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 all distributions to
shareholders from net investment income and realized gains on the ex-dividend
date. Such distributions are determined in conformity with income tax
regulations, which may differ from generally accepted accounting principles.
Dividends paid by the Fund with respect to each class of shares will be
calculated in the same manner, at the same time and will be in the same amount,
except for the effect of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
DISCOUNT ON SECURITIES The Fund accretes discount
from par value on securities from either the date of issue or the date of
purchase over the life of the security, as required by the Internal Revenue
Code.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The fund had no borrowing
activity for the period ended April 30, 1997.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
Open foreign currency forward contracts at April 30, 1997, were as follows:
PRINCIPAL AMOUNT UNREALIZED
COVERED BY EXPIRATION APPRECIATION
CURRENCY CONTRACT DATE (DEPRECIATION)
- -------- -------- ---- --------------
SELLS
Canadian Dollars 1,030,000 MAY 97 $ 2,062
New Zealand Dollars 2,940,345 MAY 97 ($10,186)
New Zealand Dollars 2,970,000 MAY 97 ($ 3,805)
-------
($11,929)
=======
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure to
the underlying instrument or hedge other Fund instruments. At the time the Fund
enters into a financial futures contract, it will be required to deposit with
its custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price on the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," will be recorded by the Fund as unrealized gains or
losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange. For federal income tax purposes, the amount,
character and timing of the Fund's gains and/or losses can be affected as a
result of futures contracts.
At April 30, 1997, there were no open positions in financial futures
contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked to market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in
17
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
highly unusual market conditions. To minimize credit and liquidity risks in
over-the-counter option contracts, the Fund will continuously monitor the
creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended April 30,
1997.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.65% of the first $500,000,000 of the Fund's
average daily net asset value and (b) 0.60% of the Fund's average daily net
asset value in excess of $500,000,000.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. For the period ended April 30, 1997, net sales charges
received with regard to sales of Class A shares amounted to $59,837. Of this
amount, $7,486 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $29,847 was paid as sales commissions to
unrelated broker-dealers and $22,504 was paid as sales commissions to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which
are broker-dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Distributors
and was the indirect sole shareholder until November 29, 1996 of John Hancock
Freedom Securities Corporation and its subsidiaries, which include FDC, Tucker
Anthony and Sutro.
Class B shares which are redeemed within four years of purchase (three
years for purchases prior to January 1, 1994) will be subject to a
contingent-deferred sales charge ("CDSC") at declining rates beginning at 3.0%
of the lesser of the current market value at the time of redemption or the
original purchase cost of the shares being redeemed. Proceeds from the CDSC are
paid to JH Funds and are used in whole or in part to defray its expenses related
to providing distribution related services to the Fund in connection with the
sale of Class B shares. For the period ended April 30, 1997, the
contingent-deferred sales charges paid to JH Funds amounted to $60,489.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 1.00% of Class B average
daily net assets to reimburse the Co-Distributors for their distribution and
service costs. Up to a maximum of 0.25% of such payments may be service fees as
defined by the amended Rules of Fair Practice of the National Association of
Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses. The Fund has an agreement with the Adviser to
perform necessary tax and financial management services for the Fund. The
compensation for the period was at an annual rate of 0.01875% of the average net
assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated
18
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer for
tax purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At April 30, 1997, the Fund's investments to
cover the deferred compensation liability had unrealized appreciation of $321.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1997, aggregated $17,568,487 and $48,172,559, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $32,951,150 and none, respectively, during the period ended
April 30, 1997.
The cost of investments owned at April 30, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $93,357,094. Gross
unrealized appreciation and depreciation of investments aggregated $2,279,907
and $341,547, respectively, resulting in net unrealized appreciation of
$1,938,360.
19
<PAGE>
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- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Global
Fund
Semi-Annual Report
April 30, 1997
<PAGE>
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TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
As the market continues to fret over interest rates and inflation, investors
should be prepared for more volatility. It also makes sense to do something
we've always advocated: set realistic expectations. Keep in mind that the stock
market's historic yearly average has been about 10%, not the 20%-plus annual
average of the last two years or even the 16% annual average over the last 10
years. Remember that the kind of market volatility we've seen lately is more
like the way the market really works. Fluctuations go with the territory. And
market corrections can be healthy, serving to bring inflated stock prices down
to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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By Miren Etcheverry, John L.F. Wills and
Gerardo J. Espinoza, Co-Portfolio Managers
John Hancock
Global Fund
Latin American and European markets perform well;
Asian nations fall behind
At the end of 1996, Miren Etcheverry and Gerardo J. Espinoza joined the
management team of John Hancock Global Fund. Prior to joining John Hancock
Funds, Ms. Etcheverry and Mr. Espinoza were portfolio managers at Baring Asset
Management. Ms. Etcheverry was the head of Baring's Latin American equities
team. Mr. Wills is based in London and has been with Hancock since 1987.
Overseas markets turned in a mixed performance during the last six months, while
the U.S. stock market continued to hold investors' attention. At the beginning
of the period last November, equities were boosted around the globe by falling
interest rates and a healthy U.S. stock market. And while Europe and the
emerging markets of Latin America and eastern Europe continued to have a good
run through April, many Asian markets had a rougher time. Japan's economy
remained stubbornly stalled, banking problems persisted, and a falling yen
compounded the problem for U.S. dollar-based investors. Even Hong Kong, after
its sharp advance last year, took a brief breather in the period. Overall, most
major markets still could not compete with the U.S., where stocks continued
their bull market run in a frenzy of volatility sparked by a faster-growing
economy and inflation fears. Its strong performance diverted investors'
attention away from many world markets.
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"Overseas markets turned in a mixed performance during the last six months..."
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For the six months ended April 30, 1997, John Hancock Global Fund posted a
total return for its Class A and Class B shares of 6.91% and 6.56%,
respectively, at net asset value, which was in line
[A 2 1/4" x 3 3/4" photo of the Global fund managers. Caption reads: "Global
fund co-portfolio managers (l-r) Geraldo J. Espinoza, Miren Etcheverry and John
L.F. Wills."]
3
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John Hancock Funds - Global Fund
[Pie chart with heading "Portfolio Diversification" at top of left hand column.
The pie is divided into eight sections. From top clockwise : Latin America 9%;
North America 39%; Continental Europe 16%; United Kingsom 7%; Hong Kong 9%;
Japan 12%; Pacific Rim 6%; Short-Term Investments and Other 2%. A footnote below
reads: "As a percentage of net assets on April 30, 1997."]
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"...we combine top-down country allocation with bottom-up stock picking."
- --------------------------------------------------------------------------------
with the 6.83% return of the average global fund according to Lipper Analytical
Services, Inc.1 Longer-term performance information can be found on pages six
and seven.
U.S. stocks help performance
Our significant position in the United States, at 39% of the Fund's net assets,
served us well as the stock market moved forward on strong earnings reports.
Most of the market advance was limited to the large-company stocks that were the
focus of our investments. Top performers were such household names as Johnson &
Johnson, General Electric, Colgate Palmolive, Walt Disney, IBM and Microsoft.
Hong Kong and Japan drag
In Japan, stocks remained under pressure with the country's economic woes,
banking problems and government tax increases. A weakening yen compounded the
market's decline for U.S. dollar-based investors, but helped the exporters and
technology companies, such as Sony and TDK, which remained the Fund's focus. We
took profits in some of them and cut our Japanese position from 18% last
November to 12% at the end of April. We probably will not reduce our stake
further, however, because we believe that the economy is bottoming out after
absorbing hefty tax increases and that economic deregulation is beginning.
Another positive sign is that international fund managers are currently very
underweighted in Japan, which suggests they could soon be returning.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is " Recent
performance .... and what's behind the numbers." The first listing is
Telecomunicacoes Brasileiras followed by an up arrow and the phrase "Pending
Brazilian privitization boosts stock." The second listing is Novartis followed
by an up arrow and the phrase "Merger of Switzerland's largest drug companies."
The third is Wharf (Holdings) followed by a down arrow and the phrase "Rising
rates hurt Hong Kong property stocks." Footnote below reads: "See "Schedule of
Investments." Investment holdings are subject to change."]
Although Hong Kong fell in the first part of 1997, it began rebounding in
April and we remain encouraged about the longer term for both Hong Kong and its
impact on the Chinese economy. That would continue to bode well for our
China-related "red-chip" holdings, such as China Resources and Hong Kong &
Shanghai Hotels. That said, after the market's stellar advance last year we
decided to lighten our exposure to a less overweighted position. We took profits
and almost halved our stake from 16% last November to 9% by the period's end.
Latin American position grows
In place of Hong Kong and Japan, we significantly increased our holdings in the
emerging market countries of Latin America to 9% of the Fund's assets, up from
3% last November. Our efforts were rewarded especially in the latter part of the
period. These markets have embraced economic reform and in so doing unleashed
significant investment opportunities. Within the region, our two top choices are
Brazil, at 3% of the Fund's net assets and Mexico at 4%. Brazil -- the "sleeping
giant" -- is just awakening, with economic reform that has sent inflation
plunging from over 3000% several years ago to single digits today. One solid
4
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John Hancock Funds - Global Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." The chart is
scaled in increments of 2% from top to bottom, with 8% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
6.91% total return for John Hancock Global Fund: Class A. The second represents
the 6.56% total return for John Hancock Global Fund: Class B. The third
represents the 6.83% total return for the Average global fund. Footnote below
reads: "Total returns for John Hancock Global Fund are at net asset value with
all distributions reinvested. The average global fund is tracked by Lipper
Analytical Services.(1) See following page for historical performance
information."]
performer is Telecomunicacoes Brasileiras, the telecommunications giant that is
benefiting from the government's move toward privatization.
Europe still a favorite
Reform -- economic and political -- is a key investment theme for us, which is
why we continue to favor many European countries, with an eye lately toward
eastern Europe. During the period, weak currencies, low inflation, slow growth
and further government efforts toward reaching a monetary union were positives
for many markets. The notion of corporate restructuring has also caught on in
Europe and increased profits for shareholders. Of our 23% stake in Europe, the
U.K. remains our largest country weighting at 7% of net assets. We also shifted
some assets to Germany, whose economy is in an earlier stage of rebound than
Britain's.
Investment strategy
In managing the portfolio, we combine top-down country allocation with bottom-up
stock picking. The cornerstone of our process is in-depth fundamental research,
which involves substantial travel to the countries in which the Fund invests.
We've also gained an important edge by having a team of analysts who speak more
than a dozen languages combined. In country allocation, our emphasis is on
selecting countries with favorable political trends, growing economies and
improving liquidity dynamics. In stock selection, the emphasis is on management
quality, sustainable earnings growth and attractive valuations.
- --------------------------------------------------------------------------------
"We are optimistic about the long-term prospects for foreign equity markets."
- --------------------------------------------------------------------------------
Looking ahead
We are optimistic about the long-term prospects for foreign equity markets. As
more markets are freed from centralized control and major industries continue
shifting to private control, it is likely for global growth and rising profits
to remain strong. Moreover, new technologies worldwide are driving down the cost
of production, distribution and investment. What makes this environment so
attractive is that we believe this global expansion will occur without
significant inflation. We'll continue to tap into these trends, for now keeping
our emphasis on the emerging markets of Latin America eastern Europe and Asia,
while seeking out restructuring plays in Europe. We're more cautious about the
U.S. market for now, after the strong performance of the last two years.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
International investing involves special risks such as political and currency
risks and differences in accounting standards and financial reporting.
1 Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Global Fund. Total return is a performance
measure that equals the sum of all dividends and capital gains, assuming
reinvestment of these distributions and the change in the price of the Fund's
shares, expressed as a percentage of the Fund's net asset value per share.
Performance figures include the maximum applicable sales charge of 5% for Class
A shares. Prior to August 1992, different sales charges were in effect for Class
A shares and are not reflected in the performance data. The effect of the
maximum contingent-deferred sales charge for Class B shares (maximum 5% and
declining to 0% over six years) is included in Class B performance. Remember
that all figures represent past performance and are no guarantee of how the Fund
will perform in the future. Also, keep in mind that the total return and share
price of the Fund's investments will fluctuate. As a result, your Fund's shares
may be worth more or less than their original cost, depending on when you sell
them. Please see your prospectus for a discussion of the risks associated with
international investing, including currency and political risks and differences
in accounting standards and financial reporting.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Global Fund: Class A 1.05% 48.43% 48.18%(1)
John Hancock Global Fund: Class B 0.60% 49.59% 101.57%
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AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Global Fund: Class A 1.05% 8.22% 7.79%(1)
John Hancock Global Fund: Class B 0.60% 8.39% 7.26%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
6
<PAGE>
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
Global Fund would be worth on April 30, 1997, assuming you had invested on the
day each class of shares started or have been invested for the most recent ten
years and reinvested all distributions. For comparison, we've shown the same
$10,000 investment in the Morgan Stanley World Index -- an unmanaged index that
measures the performance of a diverse range of global stock markets.
[Line chart with the heading Global Fund: Class A, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
three lines. The first line represents the value of the Morgan Stanley World
Index and is equal to $17,774 as of April 30, 1997. The second line represents
the value of the hypothetical $10,000 investment made in the Global Fund on
January 3, 1992, before sales charge, and is equal to $16,074 as of April 30,
1997. The third line represents the Global Fund, after sales charge and is equal
to $15,271 as of April 30, 1997.]
[Line chart with the heading Global Fund: Class B, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
two lines. The first line represents the value of the Morgan Stanley World Index
and is equal to $31,846 as of April 30, 1997. The second line represents the
value of the hypothetical $10,000 investment made in the Global Fund, before
sales charge, on Spetember 2, 1986, and is equal to $25,949 as of April 30,
1997.]
* No contingent-deferred sales charge applicable.
7
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value -- Note C:
Common stocks and warrants
(cost -- $97,596,401) ................................... $ 119,487,373
Joint repurchase agreement (cost -- $2,217,000) ........... 2,217,000
-------------
121,704,373
Cash ........................................................ 200,914
Foreign currency, at value (cost -- $2,930,011) ............. 2,911,491
Receivable for investments sold ............................. 2,309,811
Receivable for shares sold .................................. 2,663
Receivable for open forward foreign currency
contracts sold -- Note A .................................. 1,298
Interest receivable ......................................... 331
Dividends receivable ........................................ 273,093
Foreign tax receivable ...................................... 26,903
Other assets ................................................ 12,473
-------------
Total Assets .................... 127,443,350
-------------------------------------------------
Liabilities:
Payable for shares repurchased .............................. 28,261
Payable for investments purchased ........................... 3,376,188
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B .................................. 153,507
Accounts payable and accrued expenses ....................... 73,577
-------------
Total Liabilities ............... 3,631,533
-------------------------------------------------
Net Assets:
Capital paid-in ............................................. 93,596,645
Accumulated net realized gain on investments
and foreign currency transactions ......................... 8,770,928
Net unrealized appreciation of investments
and foreign currency transactions ......................... 21,881,757
Accumulated net investment loss ............................. ( 437,513)
-------------
Net Assets ...................... $ 123,811,817
=================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding -- unlimited number of shares
authorized with no par value, respectively)
Class A -- $94,847,960/7,498,137 ............................ $ 12.65
================================================================================
Class B --$28,963,857/2,384,165 ............................. $ 12.15
================================================================================
Maximum Offering Price Per Share *
Class A -- ($12.65 x 105.26%) ............................... $ 13.32
================================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
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Investment Income:
Dividends (net of foreign withholding
taxes of $45,606) ......................................... $ 753,282
Interest .................................................... 77,761
-----------
.............................................................. 831,043
-----------
Expenses:
Investment management fee -- Note B ....................... 594,024
Distribution and service fee -- Note B
Class A ................................................. 143,713
Class B ................................................. 139,522
Transfer agent fee -- Note B ................................ 243,378
Custodian fee ............................................... 74,370
Registration and filing fees ................................ 18,804
Auditing fee ................................................ 18,125
Financial services fee -- Note B ............................ 11,598
Printing .................................................... 11,347
Trustees' fees .............................................. 5,990
Miscellaneous ............................................... 2,631
Legal fees .................................................. 1,354
-----------
Total Expenses .................. 1,264,856
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Net Investment Loss ( 433,813)
--------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 8,973,124
Net realized loss on foreign currency transactions ( 202,105)
Change in net unrealized appreciation/depreciation
of investments 293,609
Change in net unrealized appreciation/depreciation
of foreign currency transactions ( 9,056)
-----------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions 9,055,572
-------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 8,621,759
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
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SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .................................................................... ($ 393,746) ($ 433,813)
Net realized gain on investments sold and foreign currency transactions ................ 10,509,890 8,771,019
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions ................................................................ 1,357,847 284,553
------------ ------------
Net Increase in Net Assets Resulting from Operations ................................. 11,473,991 8,621,759
------------ ------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold and foreign
currency transactions
Class A -- ($0.8842 and $1.1872 per share, respectively) ............................. ( 6,456,924) ( 8,357,133)
Class B -- ($0.8842 and $1.1872 per share, respectively) ............................. ( 1,721,689) ( 2,563,800)
------------ ------------
Total Distributions to Shareholders .................................................. ( 8,178,613) ( 10,920,933)
------------ ------------
From Fund Share Transactions -- Net* ..................................................... 882,664 3,765,627
------------ ------------
Net Assets:
Beginning of period .................................................................. 118,167,322 122,345,364
------------ ------------
End of period (including accumulated net investment loss of $3,700
and $437,513 , respectively) ....................................................... $122,345,364 $123,811,817
============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
------------------------- ------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
CLASS A
Shares sold 8,943,917 $114,915,031 8,024,968 $102,471,932
Shares issued to shareholders in reinvestment of distributions 516,713 6,236,722 653,260 8,071,948
--------- ------------- --------- ------------
9,460,630 121,151,753 8,678,228 110,543,880
Less shares repurchased (9,539,925) ( 122,803,879) (8,487,743) ( 108,918,068)
--------- ------------ --------- ------------
Net Increase (Decrease) ( 79,295) ($ 1,652,126) 190,485 $ 1,625,812
========= ============ ========= ============
CLASS B
Shares sold 583,478 $ 7,131,162 336,924 $ 4,108,216
Shares issued to shareholders in reinvestment of distributions 134,330 1,577,033 197,719 2,350,882
--------- ------------ --------- ------------
717,808 8,708,195 534,643 6,459,098
Less shares repurchased ( 504,739) ( 6,173,405) ( 351,533) ( 4,319,283)
--------- ------------ --------- ------------
Net Increase 213,069 $ 2,534,790 183,110 $ 2,139,815
========= ============ ========= ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, if any, and any increase or decrease in
money shareholders invested in the Fund. The footnote illustrates the number of
Fund shares sold, reinvested and repurchased during the last two periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
------------------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
------------------------------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $ 11.31 $ 10.55 $ 14.30 $ 14.16 $ 12.67 $ 12.97
------- ------- -------- ------- ------- -------
Net Investment Loss(2) ................................ ( 0.04) ( 0.10) ( 0.07) ( 0.03) ( 0.02) ( 0.03)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ....... ( 0.72) 3.85 1.24 ( 0.13) 1.20 0.90
------- ------- -------- ------- ------- -------
Total from Investment Operations .................. ( 0.76) 3.75 1.17 ( 0.16) 1.18 0.87
------- ------- -------- ------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments
Sold and Foreign Currency Transactions .............. -- -- ( 1.31) ( 1.33) ( 0.88) ( 1.19)
------- ------- -------- ------- ------- -------
Net Asset Value, End of Period ........................ $ 10.55 $ 14.30 $ 14.16 $ 12.67 $ 12.97 $ 12.65
======= ======= ======== ======= ======= =======
Total Investment Return at Net Asset Value(4) ......... ( 6.72%)(5) 35.55% 8.64% ( 0.37%) 9.87% 6.91%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $76,980 $90,787 $100,973 $93,597 $94,746 $94,848
Ratio of Expenses to Average Net Assets ............... 2.47%(6) 2.12% 1.98% 1.87% 1.88% 1.89%(6)
Ratio of Net Investment Loss to Average Net Assets .... ( 0.60%)(6) ( 0.86%) (0.54%) ( 0.23%) ( 0.19%) ( 0.54%)(6)
Portfolio Turnover Rate ............................... 69% 108% 61% 60% 98% 45%
Average Broker Commission Rate(7) ..................... N/A N/A N/A N/A $0.0221 $0.0222
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $ 10.92 $ 10.50 $ 14.17 $ 13.93 $ 12.36 $ 12.54
------- ------- -------- ------- ------- -------
Net Investment Loss(2) ................................ ( 0.12) ( 0.15) ( 0.15) ( 0.11) ( 0.10) ( 0.08)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ....... ( 0.30) 3.82 1.22 ( 0.13) 1.16 0.88
------- ------- -------- ------- ------- -------
Total from Investment Operations .................. ( 0.42) 3.67 1.07 ( 0.24) 1.06 0.80
------- ------- -------- ------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments
Sold and Foreign Currency Transactions .............. -- -- ( 1.31) ( 1.33) ( 0.88) ( 1.19)
------- ------- -------- ------- ------- -------
Net Asset Value, End of Period ........................ $ 10.50 $ 14.17 $ 13.93 $ 12.36 $ 12.54 $ 12.15
======= ======= ======== ======= ======= =======
Total Investment Return at Net Asset Value(4) ......... ( 3.85%) 34.95% 7.97% ( 1.01%) 9.10% 6.56%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $11,475 $19,340 $ 31,822 $24,570 $27,599 $28,964
Ratio of Expenses to Average Net Assets ............... 2.68% 2.49% 2.59% 2.57% 2.54% 2.59%(6)
Ratio of Net Investment Loss to Average Net Assets .... ( 1.03%) ( 1.25%) ( 1.12%) ( 0.89%) ( 0.83%) ( 1.24%)(6)
Portfolio Turnover Rate ............................... 69% 108% 61% 60% 98% 45%
Average Broker Commission Rate(7) ..................... N/A N/A N/A N/A $0.0221 $0.0222
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------- MARCH 31, 1995
1993 1994 (UNAUDITED)
---------------------- -----------
<S> <C> <C> <C>
CLASS C(3)
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................. $11.75 $14.34 $14.27
------ ------ ------
Net Investment Loss .................................................. ( 0.02) -- --
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ...................................... 2.61 1.24 ( 0.97)
------ ------ ------
Total from Investment Operations ................................... 2.59 1.24 ( 0.97)
------ ------ ------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold and
Foreign Currency Transactions ...................................... -- ( 1.31) ( 1.33)
------ ------ ------
Net Asset Value, End of Period ....................................... $14.34 $14.27 $11.97
====== ====== ======
Total Investment Return at Net Asset Value(4) ........................ 22.04%(5) 9.15% ( 6.70%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................. $ 406 $ 752 $ 795
Ratio of Expenses to Average Net Assets .............................. 1.43%(6) 1.42% 1.37%(6)
Ratio of Net Investment Income (Loss) to Average Net Assets ...... ( 0.35%)(6) 0.03% 0.06%(6)
Portfolio Turnover Rate .............................................. 108% 61% 60%(8)
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the end of the period
ended March 31, 1995, reflect amounts prior to the redemption of all shares on March 31, 1995.
(4) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded. Required for the fiscal years that began September 1, 1995 or later.
(8) For the year ended October 31, 1995.
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Global Fund on April 30, 1997. It's divided into three main categories: common
stocks, warrants and short-term investments. Common stocks are further broken
down by country. Short-term investments, which represent the Fund's "cash"
position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Argentina (1.53%)
Perez Companc S.A., American
Depositary Receipts (ADR)
(Oil & Gas) ................................... 117,300 $ 1,888,976
------------
Australia (2.58%)
Newcrest Mining Ltd. (Metal) .................... 100,000 297,122
RGC Ltd. (Metal) ................................ 390,007 1,414,281
WMC Ltd. (Metal) ................................ 250,000 1,481,713
------------
3,193,116
------------
Brazil (3.16%)
Centrais Electricas Brasileiras S/A
(ADR) (Utilities) ............................. 51,600 1,135,200
Telecomunicacoes Brasileiras S/A
(ADR) (Telecommunications) .................... 24,200 2,776,950
------------
3,912,150
------------
Canada (0.37%)
Cinar Films, Inc. (Class B) (Leisure)* .......... 20,000 455,000
------------
Chile (0.23%)
Maderas y Sinteticos SA (ADR)
(Building) .................................... 17,800 284,800
------------
France (3.32%)
LVMH Moet Hennessy Louis Vuitton
(Beverages) ................................... 9,250 2,258,417
Lyonnaise des Eaux SA (Diversified
Operations) ................................... 20,500 1,854,536
------------
4,112,953
------------
Germany (3.82%)
Schering AG (Medical) ........................... 30,000 2,875,621
VEBA AG (Diversified Operations) ................ 36,000 1,854,256
------------
4,729,877
------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Hong Kong (8.90%)
Cheung Kong (Holdings) Ltd.
(Real Estate Operations) ...................... 265,000 $ 2,326,212
China Resources Enterprise Ltd.
(Real Estate Operations) ...................... 605,000 1,671,335
CITIC Pacific Ltd.
(Diversified Operations) ...................... 250,000 1,352,224
Hong Kong & Shanghai Hotels Ltd.
(Leisure) ..................................... 1,080,000 1,568,450
Hutchison Whampoa Ltd.
(Diversified Operations) ...................... 400,000 2,969,083
Wharf (Holdings) Ltd.
(Real Estate Operations) ...................... 300,000 1,134,706
------------
11,022,010
------------
India (1.01%)
State Bank of India, Global Depositary
Receipts (Banks - Foreign)* ................... 51,300 1,247,873
------------
Japan (11.77%)
Fujitsu Ltd. (Computers) ........................ 150,000 1,559,853
Ito-Yokado Co. (Retail) ......................... 35,000 1,679,206
Matsushita-Kotobuki Electronics
Industries, Ltd. (Electronics) ................ 122,000 3,892,543
Rohm Co., Ltd. (Electronics) .................... 800 62,016
Sony Corp. (Electronics) ........................ 42,000 3,057,313
TDK Corp. (Electronics) ......................... 60,000 4,325,048
------------
14,575,979
------------
Malaysia (0.66%)
Sime Darby Berhad
(Diversified Operations) ...................... 265,000 817,966
------------
Mexico (3.74%)
Empresas La Moderna S.A. de C.V.
(ADR) (Tobacco) ............................... 26,200 543,650
Grupo Industrial Maseca SA de CV
(ADR) (Food) .................................. 100,900 1,488,275
Panamerican Beverages, Inc.
(Beverages) ................................... 89,800 2,604,200
------------
4,636,125
------------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Netherlands (1.16%)
Gucci Group, NV (Retail) ........................ 15,000 $ 1,040,625
PolyGram NV (Household) ......................... 8,000 392,137
------------
1,432,762
------------
Norway (1.36%)
Saga Petroleum ASA (Oil & Gas) .................. 96,300 1,683,614
------------
Singapore (1.04%)
DBS Land Ltd. (Real Estate Operations) .......... 400,000 1,293,264
------------
South Korea (0.44%)
L.G. Construction Ltd. (Building) ............... 36,530 540,578
------------
Sweden (1.68%)
Investor AB (Diversified Operations) ............ 47,500 2,076,880
------------
Switzerland (4.18%)
Ciba Specialty Chemicals AG
(Chemicals)* .................................. 2,133 183,767
Novartis AG (Medical) ........................... 2,133 2,810,044
SMH AG (Consumer Products) ...................... 16,500 2,182,688
------------
5,176,499
------------
United Kingdom (6.78%)
Dixons Group PLC (Retail) ....................... 275,000 2,253,039
EMAP PLC (Media) ................................ 100,000 1,235,008
Marks & Spencer PLC (Retail) .................... 275,000 2,179,498
Pearson PLC (Media) ............................. 115,000 1,327,066
Wetherspoon (J.D.) PLC (Retail) ................. 75,000 1,403,971
------------
8,398,582
------------
United States (38.74%)
Adaptec, Inc. (Computers)* ...................... 32,000 1,184,000
American International Group, Inc.
(Insurance) ................................... 30,000 3,855,000
Apache Corp. (Oil & Gas) ........................ 25,000 850,000
Cisco Systems, Inc. (Computers)* ................ 33,000 1,707,750
Colgate-Palmolive Co.
(Soap & Cleaning Preparations) ................ 20,000 2,220,000
Dean Witter Discover & Co. (Finance) ............ 80,000 3,060,000
Disney (Walt) Co., (The) (Leisure) .............. 32,093 2,631,626
Du Pont (E.I.) De Nemours & Co.
(Diversified Operations) ...................... 30,000 3,183,750
Eli Lilly & Co. (Medical) ....................... 25,000 2,196,875
Enron Corp. (Oil & Gas) ......................... 50,000 1,881,250
Fannie Mae (Mortgage Banking) ................... 20,000 822,500
General Electric Co. (Electronics) .............. 35,000 3,880,625
Intel Corp. (Electronics) ....................... 20,000 3,062,500
International Business Machines Corp.
(Computers) ................................... 15,000 2,411,250
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
United States (continued)
Johnson & Johnson (Medical) ..................... 40,000 $ 2,450,000
Microsoft Corp. (Computers)* .................... 20,000 2,430,000
Omnicare, Inc. (Medical) ........................ 40,000 975,000
Phillips Petroleum Co. (Oil & Gas) .............. 50,000 1,968,750
Schering-Plough Corp. (Medical) ................. 35,000 2,800,000
US Filter Corp. (Pollution Control)* ............ 40,000 1,215,000
Warner-Lambert Co. (Medical) .................... 10,000 980,000
Williams Cos., Inc. (The) (Oil & Gas) ........... 50,000 2,193,750
------------
47,959,626
------------
TOTAL COMMON STOCKS
(Cost $97,547,215) ( 96.47%) 119,438,630
------- ------------
WARRANTS
Sweden (0.04%)
Scania AB (Automobile / Trucks) ................. 47,500 48,743
------------
TOTAL WARRANTS (0.04%)
(Cost $49,186) ( 0.04%) 48,743
------- ------------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $97,596,401) ( 96.51%) 119,487,373
------- ------------
INTEREST PAR VALUE MARKET
ISSUER DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------ ---- --------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.79%)
Investment in a joint repurchase
agreement transaction with
Aubrey G. Lanston & Co. -
Dated 04-30-97,
Due 05-01-97 (secured by
U.S. Treasury Notes, 5.50%
thru 6.625%, Due 05-15-98
thru 09-30-01) - Note A. .......... 5.38% $ 2,217 2,217,000
TOTAL SHORT-TERM INVESTMENTS ( 1.79%) 2,217,000
------- ------------
TOTAL INVESTMENTS ( 98.30%) $121,704,373
======= ============
*Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries it invests. The concentration of investments by country for
individual securities held by the Fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various
industry groups. The table below shows the percentages of the Fund's investments
at April 30, 1997 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
INVESTMENT CATEGORIES OF FUND NET ASSETS
- --------------------- ------------------
Automobile/Trucks ....................................... 0.04%
Banks - Foreign ......................................... 1.01
Beverages ............................................... 3.93
Building ................................................ 0.60
Chemicals ............................................... 0.15
Computers ............................................... 7.51
Consumer Products ....................................... 1.76
Diversified Operations .................................. 11.40
Electronics ............................................. 14.70
Finance ................................................. 2.47
Food .................................................... 1.20
Household ............................................... 0.32
Insurance ............................................... 3.11
Leisure ................................................. 3.76
Media ................................................... 2.07
Medical ................................................. 12.19
Metal ................................................... 2.58
Mortgage Banking ........................................ 0.66
Oil & Gas ............................................... 8.45
Pollution Control ....................................... 0.98
Real Estate Operations .................................. 5.19
Retail .................................................. 6.91
Soap & Cleaning Preparations ............................ 1.79
Telecommunications ...................................... 2.24
Tobacco ................................................. 0.44
Utilities ............................................... 0.92
Short-Term Investments .................................. 1.79
------
TOTAL INVESTMENTS 98.30%
======
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Investment Trust III (the "Trust") (formerly Freedom Investment
Trust II) is an open-end management investment company, registered under the
Investment Company Act of 1940. The Trust consists of six series: John Hancock
Global Fund (the "Fund"), John Hancock Special Opportunities Fund, John Hancock
World Bond Fund, John Hancock Short-Term Strategic Income Fund, John Hancock
Growth Fund and John Hancock International Fund. The other five series of the
Trust are reported in separate financial statements. The investment objective of
the Fund is to achieve long-term growth of capital primarily through investment
in common stocks of companies domiciled in foreign countries and the United
States.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan. Class C shares were outstanding during the period from May 7, 1993,
through March 31, 1995, but the Trustees abolished Class C shares as of May 1,
1995.
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. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more 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. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its 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 all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSE The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The fund had no borrowing
activity for the period ended April 30, 1997.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that not offset by the currency amount of the underlying
transaction.
At April 30, 1997, open forward foreign currency exchange contracts were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT DATE APPRECIATION
- -------- ------------------- ---- ------------
SELLS
British Pounds 1,034,595 May 97 $1,298
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure
16
<PAGE>
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it is required to deposit with
its custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At April 30, 1997, there were no open positions in financial futures
contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked to market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock market.
Writing puts and buying calls will tend to increase the Fund's exposure to the
underlying instrument and buying puts and writing calls will tend to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended April 30,
1997.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
The Adviser is solely responsible for advising the Fund with respect to
investments in the United States and Canada. The Fund and the Adviser also have
a sub-investment management contract with John Hancock Advisers International
Limited (the "Sub-Adviser"), a wholly owned subsidiary of the Adviser, under
which the Sub-Adviser, subject to the review of the Trustees and overall
supervision of the Adviser, provides the Fund with investment management
services and advice with respect to the portion of the Fund's assets invested in
countries other than the United States and Canada.
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of: (a) 1.00% of the first $100,000,000 of the
Fund's average daily net asset value, (b) 0.80%
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
of the next $200,000,000, (c) 0.75% of the next $200,000,000 and (d) 0.625% of
the Fund's average daily net asset value in excess of $500,000,000. The Adviser
pays the Sub-Adviser a fee equivalent, on an annual basis to the sum of (a)
0.70% of the first $200,000,000 of the Fund's average daily net asset value and
(b) 0.6375% of the Fund's average daily net asset value in excess of
$200,000,000. The Fund is not responsible for the payment of the Sub-Adviser's
fee.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. For the period ended April 30, 1997, net sales charges
received with regard to sales of Class A shares amounted to $63,693. Of this
amount, $9,938 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $16,057 was paid as sales commissions to
unrelated broker-dealers and $37,698 was paid as sales commissions to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., ("Sutro"), all of which are
broker-dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Distributors
and was the indirect sole shareholder until November 29, 1996, of John Hancock
Freedom Securities Corporation and its subsidiaries which include FDC, Tucker
Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent-deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses for providing distribution related services to the Fund in connection
with the sale of Class B shares. For the period ended April 30, 1997,
contingent-deferred sales charges paid to JH Funds amounted to $31,876.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 1.00% of Class B average
daily net assets to reimburse the Co-Distributors for their distribution and
service costs. Up to a maximum of 0.25% of such payments may be service fees as
defined by the amended Rules of Fair Practice of the National Association of
Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon, and Mr. Richard S. Scipione
are trustees and/or officer of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At April 30, 1997, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $362.
18
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1997, aggregated $55,123,859 and $62,601,174, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1997.
The cost of investments owned at April 30, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $99,813,401. Gross
unrealized appreciation and depreciation of investments aggregated $24,635,142
and $2,744,170, respectively, resulting in net unrealized appreciation of
$21,890,972.
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Global
Fund. It may be used as sales literature when preceded or accompanied by the
current prospectus, which details charges, investment objectives and operating
policies.
[RECYCLE LOGO] Printed on Recycled Paper 030SA 4/97
6/97
<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
World
Bond Fund
Semi-Annual Report
April 30, 1997
<PAGE>
================================================================================
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to first paragraph.]
As the market continues to fret over interest rates and inflation, investors
should be prepared for more volatility. It also makes sense to do something
we've always advocated: set realistic expectations. Keep in mind that the stock
market's historic yearly average has been about 10%, not the 20%-plus annual
average of the last two years or even the 16% annual average over the last 10
years. Remember that the kind of market volatility we've seen lately is more
like the way the market really works. Fluctuations go with the territory. And
market corrections can be healthy, serving to bring inflated stock prices down
to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Lawrence J. Daly, Anthony A. Goodchild and Janet L. Clay,
Co-Portfolio Managers
John Hancock
World Bond Fund
World bond markets vulnerable to interest-rate uncertainty
"The U.S. bond market's woes reverberated throughout many
emerging markets."
During the past six months, global bond markets rode a roller coaster of
interest-rate uncertainty -- led primarily by the U.S. bond market. From
November through February, moderate growth and tame inflation provided a strong
tailwind for U.S. bonds. Signs of stronger economic growth in early March,
however, rekindled fears of inflation and sent bond prices falling. Things got
worse when the Federal Reserve Bank raised short-term interest rates on March
25, 1997. Then, in mid-April, the bond market reversed course once again in
response to more positive inflation news. U.S. bonds staged a remarkable
recovery, erasing almost all of the losses triggered by the March interest-rate
hike.
The U.S. bond market's woes reverberated throughout many emerging markets.
Fueled by fiscal improvements, emerging markets turned in impressive returns in
1996 and the first few months of 1997. The Fed's interest-rate hike interrupted
the rally and sparked a wave of selling throughout emerging markets. The selling
pressure, however, subsided with the recovery in the U.S. bond market. By the
end of April, most emerging markets had regained their lost ground.
European markets not only suffered from U.S. market's troubles, but also from
their own. The U.S. sell-off -- coupled with concerns about the outcome of the
European Economic and Monetary Union (EMU) -- put pressure on many European bond
markets. In addition, the pending elections in France and the U.K. added to the
market volatility.
- --------------------------------------------------------------------------------
"The U.S. bond market's woes reverberated throughout many emerging markets."
- --------------------------------------------------------------------------------
Performance review
The net result was lackluster performance for global bond fund investors. For
the six months
[A 2 1/4" x 3 3/4" photo of fund management team at bottom right. Caption reads:
"Tony Goodchild, Janet Clay, Larry Daly, Co-Portfolio Managers."]
3
<PAGE>
================================================================================
John Hancock Funds - World Bond Fund
[Pie Chart with the heading "Portfolio Diversification" at top left hand column.
The chart is divided into five sections. Going from top clockwise Short-Term
Investments & Other 54; Latin America 24%; Europe 30%; Australia/New Zealand 6%;
United States 36%. Footnote below states "As a percentage of net assets on April
30, 1997."]
- --------------------------------------------------------------------------------
"...we have pared our position in Europe."
- --------------------------------------------------------------------------------
ended April 30, 1997, the JP Morgan Global Government Bond Index returned
- -3.76%. In the same period, the Fund's Class A and Class B shares had total
returns of -1.26% and -1.61%, respectively, at net asset value. Longer-term
performance information can be found on pages six and seven. By comparison, the
average global income fund had a total return of 0.07%, according to Lipper
Analytical Services, Inc.1 This universe includes a number of funds that have
significantly more exposure to emerging market bonds than our prospectus
limitations permit. Despite the emerging-market downturn from mid-March to
mid-April, the overall emerging-market group ended the six-month period with
strong gains.
As the U.S. dollar strengthened against most foreign currencies, however, our
heavy 61% weighting in dollar-denominated bonds buoyed performance. In addition,
our slightly shorter duration also helped. Duration measures how much the Fund's
share price will vary with interest rate changes. The shorter the duration, the
less the share price will fall when interest rates rise. Given the market's
March decline, we made the right call in shortening the Fund's duration.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is Emerging
markets followed by an up arrow and the phrase "Improving fiscal conditions."
The second listing is united kingdom followed by an up arrow and the phrase
"Immune from EMU uncertainty." The third listing is U.S. Treasury Bonds followed
by a down arrow and the phrase "Rate increases trigger price declines." Footnote
below reads: "See "Schedule of Investments." Investment holdings are subject to
change."]
Portfolio allocation
Emerging Markets. At the end of the period, emerging market bonds accounted for
25% of the Fund's net assets. Our primary focus remained on U.S.
dollar-denominated government bonds in Latin American markets such as Mexico,
Argentina, Brazil and Venezuela. We are confident about their long-term
potential. Improving fiscal conditions, coupled with increased political
stability, bode well for continued strong performance in these markets. Given
that, we will continue to add to our position in emerging markets as
opportunities arise.
Europe. In the last few months, we have pared our position in Europe. The main
reason is the overwhelming uncertainty surrounding the outcome of the European
Economic and Monetary Union (EMU). In order to qualify for inclusion in the EMU,
countries need to meet stringent economic and fiscal conditions. With many
countries falling short of these requirements, uncertainty has increased,
spreading volatility throughout European markets.
Against this backdrop, we've reduced our holdings in the so-called
"peripheral" European countries -- such as Italy, Sweden and Spain -- which are
most likely to be impacted by the EMU uncertainty. We have, however, maintained
a strong 11% position in the U.K. Because it is outside of the economic union,
we believe that the U.K. will remain relatively immune to the increasing market
volatility.
4
<PAGE>
================================================================================
John Hancock Funds - World Bond Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." The chart is
scaled in increments of 1% from bottom to top, with 1% at the top and -3% at the
bottom. Within the chart there are three solid bars. The first represents the
- -1.26% total return for the John Hancock Global Income Fund: Class A. The second
represents the -1.61% total return for John Hancock Global Income Fund: Class B.
The third represents the 0.07% total return for the average general world income
fund. A footnote below reads: "Total returns for John Hancock Global Income Fund
are at net asset value with all distributions reinvested. The average general
world income fund is tracked by Lipper Analytical Services. (1) See following
two pages for historical performance information."]
United States. In place of our European holdings, we have added to our stake in
U.S. bonds, increasing the Fund's weighting to approximately 36%. Concerns over
the EMU, coupled with declining yield spreads, that is, the difference in yield,
between U.S. and European bonds, swung the risk/return balance in favor of the
U.S. Our emphasis has remained on U.S. Treasuries -- mostly in the five-year
maturity horizon.
What's ahead
We believe that the U.S. will continue to set the tone for global bond markets.
Despite the recent recovery, we expect more volatility in the months ahead. With
the U.S. economy continuing to send mixed signals, there is still plenty of
uncertainty about the inflationary outlook and the Federal Reserve's next moves.
Further rate increases are expected, but the uncertainty of how many more and
the timing of them are likely to keep investors nervous.
Europe has its own set of issues regarding the outcome of the EMU and the
upcoming elections. Given that, we will maintain our current underweighting here
for the time being. Our focus will remain on core countries -- such as Germany
and the U.K. -- which are likely to be less vulnerable to the increasing market
volatility. In addition, because European currencies are expected to remain
under pressure, we will continue to maintain our strong bias toward U.S.
dollar-denominated securities.
Even though emerging markets may experience some temporary setbacks -- as we
saw in March -- we believe that the long-term trends of increasing political
stability and improving fiscal conditions clearly favor these markets. However,
we do not expect a repeat of last year's stellar gains. As mentioned earlier, we
will continue to search out attractive opportunities in these areas.
- --------------------------------------------------------------------------------
"...we expect more volatility in the months ahead."
- --------------------------------------------------------------------------------
Overall, we are relatively optimistic about the worldwide inflationary
outlook. The inflation rate in the U.S. -- which is one of the highest in the
world -- is running around 3%. Inflation is much lower throughout Europe, mostly
in the 2% to 3% range. As for emerging markets, steady economic growth and
responsible fiscal policies have kept a lid on inflation. With growth slowing in
the U.S. and many European economies just emerging from recessions, there's
little upward pressure on prices around the world. That bodes well for the
inflation picture and for world bond investors.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
International investing involves special risks such as political and currency
risks and differences in accounting standards and financial reporting.
1 Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock World Bond Fund. Total return is a
performance measure that equals the sum of all income and capital gain
distributions, assuming reinvestment of these distributions and the change in
the price of the Fund's shares, expressed as a percentage of the Fund's net
asset value per share. Performance figures include the maximum applicable sales
charge of 4.50% for Class A shares. The effect of the maximum
contingent-deferred sales charge for Class B shares (maximum 5% and declining to
0% over six years) is included in Class B performance. Remember that all figures
represent past performance and are no guarantee of how the Fund will perform in
the future. Also, keep in mind that the total return and share price of the
Fund's investments will fluctuate. As a result, your Fund's shares may be worth
more or less than their original cost, depending on when you sell them. Please
see your prospectus for a discussion of the risks associated with international
investing, including currency and political risks and differences in accounting
standards and financial reporting.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock World Bond Fund: Class A (1.17%) 19.83% 16.90%(1)
John Hancock World Bond Fund: Class B (2.23%) 19.95% 97.32%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock World Bond Fund: Class A (1.17%) 3.68% 3.02%(1)
John Hancock World Bond Fund: Class B (2.23%) 3.70% 7.03%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of April 30, 1997
SEC 30-DAY
YIELD
-----
John Hancock World Bond Fund: Class A 5.68%
John Hancock World Bond Fund: Class B 5.25%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
World Bond Fund would be worth on April 30, 1997, assuming you had invested on
the day each class of shares started or have been invested for the most recent
ten years and reinvested all distributions. For comparison, we've shown the same
$10,000 investment in the Salomon Brothers World Government Bond Index -- an
unmanaged index that provides a benchmark bond market performance on a worldwide
basis.
[Line chart with the heading World Bond Fund Class A, representing the growth of
a hypothetical $10,000 investment over the life of the fund. Within the chart
are three lines. The first line represents the value of the Salomon Brothers
World Government Bond Index and is equal to $14,339 as of April 30, 1997. The
second line represents the value of the hypothetical $10,000 investment made in
the World Bond Fund on January 3, 1992, before sales charge, and is equal to
$12,268 as of April 30, 1997. The third line represents the World Bond Fund,
after sales charge, and is equal to $11,716 as of April 30, 1997.]
[Line chart with the heading World Bond Fund Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines. The first line represents the value of the Salomon
Brothers World Government Bond Index and is equal to $24,410 as April 30, 1997.
The second line represents the value of the hypothetical $10,000 investment made
in the World Bond Fund on December 31, 1991, before sales charge, and is equal
to $22,506 as of April 30, 1997.]
* No contingent-deferred sales charge applicable.
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $57,334,767) ................................ $ 56,813,986
Joint repurchase agreement (cost - $1,355,000) ............ 1,355,000
-------------
58,168,986
Cash ........................................................ 123
Receivable for open forward foreign currency
exchange contracts - Note A ............................... 8,334
Receivable for fund shares sold ............................. 513
Interest receivable ......................................... 1,237,168
Other assets ................................................ 8,855
-------------
Total Assets ............... 59,423,979
--------------------------------------------
Liabilities:
Dividend payable ............................................ 8,999
Payable for shares repurchased .............................. 48,254
Payable for foreign withholding tax ......................... 10,808
Payable for closed forward foreign currency exchange
contracts - Note A ........................................ 47,749
Payable for open forward foreign currency exchange
contracts - Note A ........................................ 105,815
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 63,645
Accounts payable and accrued expenses ....................... 72,745
-------------
Total Liabilities .......... 358,015
--------------------------------------------
Net Assets:
Capital paid-in ............................................. 62,390,669
Accumulated net realized loss on investments,
foreign currency transactions, and financial
futures contracts ......................................... ( 2,531,875)
Net unrealized depreciation of investments and
foreign currency transactions ............................. (689,289)
Distributions in excess of net investment income ............ ( 103,541)
-------------
Net Assets ................. $ 59,065,964
============================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding - unlimited
number of shares authorized with no par
value, respectively)
Class A - $27,333,084/3,072,638 ............................. $ 8.90
=============================================================================
Class B - $31,732,880/3,567,188 ............................. $ 8.90
=============================================================================
Maximum Offering Price Per Share *
Class A - ($8.90 x 104.71%) ................................ $ 9.32
=============================================================================
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest (net of foreign withholding tax of $12,015) .......... $ 2,507,014
-----------
Expenses:
Investment management fee - Note B .......................... 248,648
Distribution and service fee - Note B
Class A ................................................... 40,854
Class B ................................................... 195,351
Transfer agent fee - Note B ................................... 97,458
Custodian fee ................................................. 45,903
Auditing fee .................................................. 39,981
Printing ...................................................... 12,173
Registration and filing fees .................................. 9,877
Financial services fee - Note B ............................... 6,216
Trustees' fees ................................................ 3,099
Miscellaneous ................................................. 2,054
Legal ......................................................... 751
-----------
Total Expenses .................... 702,365
-------------------------------------------------
Net Investment Income ............. 1,804,649
-------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized loss on investments sold ......................... ( 49,145)
Net realized loss on foreign currency transactions ............ ( 810,606)
Change in net unrealized appreciation/depreciation
of investments .............................................. ( 1,807,385)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ............................ 6,522
-----------
Net Realized and Unrealized
Loss on Investments and Foreign
Currency Transactions ............. ( 2,660,614)
--------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ......... ($ 855,965)
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 4,401,299 $ 1,804,649
Net realized gain (loss) on investments sold and foreign currency transactions 1,300,834 ( 859,751)
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions ( 1,747,787) ( 1,800,863)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations 3,954,346 ( 855,965)
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.5025 and $0.2669 per share, respectively) ( 1,702,011) ( 798,663)
Class B - ($0.4418 and $0.2349 per share, respectively) ( 2,613,385) ( 1,005,986)
Distributions from capital paid-in
Class A - ($0.0100 and none per share, respectively) ( 33,881) --
Class B - ($0.0088 and none per share, respectively) ( 52,022) --
------------ ------------
Total Distributions to Shareholders ( 4,401,299) ( 1,804,649)
------------ ------------
From Fund Share Transactions - Net*: ( 27,053,357) ( 11,707,514)
------------ ------------
Net Assets:
Beginning of period 100,934,402 73,434,092
------------ ------------
End of period (including distributions in excess of net investment income of
$103,541 for both periods presented) $ 73,434,092 $ 59,065,964
============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------
CLASS A
Shares sold ....................................................... 163,813 $ 1,508,925 583,403 $ 4,852,851
Shares issued to shareholders in reinvestment of distributions .... 107,472 990,433 51,156 468,319
--------- ------------ --------- ------------
271,285 2,499,358 634,559 5,321,170
Less shares repurchased ........................................... (1,101,077) ( 10,123,045) ( 529,890) ( 4,366,101)
--------- ------------ --------- ------------
Net Increase (Decrease) ........................................... ( 829,792) ($ 7,623,687) 104,669 $ 955,069
========= ============ ========= ============
CLASS B
Shares sold ....................................................... 237,253 $ 2,212,528 69,633 $ 646,115
Shares issued to shareholders in reinvestment of distributions .... 132,781 1,224,626 48,219 442,428
--------- ------------ --------- ------------
370,034 3,437,154 117,852 1,088,543
--------- ------------ --------- ------------
Less shares repurchased ........................................... (2,474,099) ( 22,866,824) (1,497,331) ( 13,751,126)
--------- ------------ --------- ------------
Net Decrease ...................................................... (2,104,065) ($ 19,429,670) 1,379,479) ($ 12,662,583)
========= ============ ========= ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
------------------------------------------------------- APRIL 30, 1997
1992(1) 1993 1994 1995 1996 (UNAUDITED)
------- ------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $ 10.57 $ 9.76 $ 9.62 $ 8.85 $ 9.30 $ 9.28
------- ------- ------ ------- -------- -------
Net Investment Income ................................. 0.64 0.76 0.64(3) 0.57(3) 0.51(3) 0.27(3)
Net Realized and Unrealized Gain (Loss) on
Investments, Options, Financial Futures Contracts
and Foreign Currency Transactions ................... ( 0.74) ( 0.10) ( 0.78) 0.48 ( 0.02) ( 0.38)
------- ------- ------ ------- -------- -------
Total from Investment Operations .................. ( 0.10) 0.66 ( 0.14) 1.05 0.49 ( 0.11)
------- ------- ------ ------- -------- -------
Less Distributions:
Dividends from Net Investment Income .................. ( 0.71) ( 0.38) ( 0.11) ( 0.59) ( 0.50) ( 0.27)
Distributions in Excess of Net Investment Income ...... -- ( 0.04) -- -- -- --
Distributions from Capital Paid-In .................... -- ( 0.38) ( 0.52) ( 0.01) ( 0.01) --
------- ------- ------ ------- -------- -------
Total Distributions ............................... ( 0.71) ( 0.80) ( 0.63) ( 0.60) ( 0.51) ( 0.27)
------- ------- ------ ------- -------- -------
Net Asset Value, End of Period ........................ $ 9.76 $ 9.62 $ 8.85 $ 9.30 $ 9.28 $ 8.90
======= ======= ====== ======= ======= =======
Total Investment Return at Net Asset Value(2) ......... ( 0.88%)(4) 7.14% ( 1.30%) 12.25% 5.48% ( 1.26%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $12,880 $12,882 $8,949 $35,334 $27,537 $27,333
Ratio of Expenses to Average Net Assets ............... 1.41%(5) 1.46% 1.59% 1.48% 1.58% 1.71%(5)
Ratio of Net Investment Income to Average Net Assets .. 7.64%(5) 7.89% 7.00% 6.43% 5.54% 5.86%(5)
Portfolio Turnover Rate ............................... 476% 363% 174% 263% 214% 85%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
------------------------------------------------------- APRIL 30, 1997
1992(1) 1993 1994 1995 1996 (UNAUDITED)
------- ------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $ 10.44 $ 9.74 $ 9.62 $ 8.85 $ 9.30 $ 9.28
-------- -------- -------- ------- ------- -------
Net Investment Income ................................ 0.78 0.72 0.59(3) 0.55(3) 0.45(3) 0.24(3)
Net Realized and Unrealized Gain (Loss) on
Investments, Options, Financial Futures Contracts
and Foreign Currency Transactions .................. ( 0.59) ( 0.09) ( 0.78) 0.44 ( 0.02) ( 0.38)
-------- -------- -------- ------- ------- -------
Total from Investment Operations ................. 0.19 0.63 ( 0.19) 0.99 0.43 ( 0.14)
-------- -------- -------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................. ( 0.89) ( 0.33) ( 0.06) ( 0.53) ( 0.44) ( 0.24)
Distributions from Net Realized Gain on Investments .. -- -- -- -- -- --
Distributions in Excess of Net Investment Income ..... -- ( 0.04) -- -- -- --
Distributions from Capital Paid-In ................... -- ( 0.38) ( 0.52) ( 0.01) ( 0.01) --
Total Distributions .............................. ( 0.89) ( 0.75) ( 0.58) ( 0.54) ( 0.45) ( 0.24)
-------- -------- -------- ------- ------- -------
Net Asset Value, End of Period ....................... $ 9.74 $ 9.62 $ 8.85 $ 9.30 $ 9.28 $ 8.90
======== ======== ======== ======= ======= =======
Total Investment Return at Net Asset Value(2) ........ 1.72% 6.77% ( 1.88%) 11.51% 4.78% ( 1.61%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $199,102 $197,166 $114,656 $65,600 $45,897 $31,733
Ratio of Expenses to Average Net Assets .............. 1.91% 1.91% 2.17% 2.16% 2.25% 2.40%(5)
Ratio of Net Investment Income to Average Net Assets . 7.59% 7.45% 6.41% 6.03% 4.87% 5.17%(5)
Portfolio Turnover Rate .............................. 476% 363% 174% 263% 214% 85%
(1) Class A shares commenced operations on January 3, 1992.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Not annualized.
(5) Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by World
Bond Fund on April 30, 1997. It's divided into two main categories: bonds and
short-term investments. The bonds are further broken down by currency
denomination.
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED)# VALUE
- ------------------- ---- --------------- -----
<S> <C> <C> <C>
BONDS
Australian Dollar (1.86%)
State of Queensland Treasury Corp., Global Note 08-14-01 ....................... 8.000% 1,370 $ 1,096,600
------------
British Pound Sterling (10.75%)
United Kingdom Treasury, Bond 06-07-02 ......................................... 7.000 3,940 6,349,328
------------
Danish Krone (3.92%)
Kingdom of Denmark, Bond-Bullet 03-15-06 ....................................... 8.000 13,911 2,314,105
------------
Deutsche Mark (5.00%)
Federal Republic of Germany, Bond Ser 96 01-05-06 .............................. 6.000 5,019 2,952,592
------------
French Franc (4.00%)
Republic of France, Deb 04-25-05 ............................................... 7.500 12,212 2,365,003
------------
Italian Lira (3.06%)
Republic of Italy Treasury, Bond 11-01-00 ...................................... 10.500 2,800,000 1,804,794
------------
New Zealand Dollar (4.34%)
Government of New Zealand, Bond 02-15-00 ....................................... 6.500 3,800 2,562,327
Swedish Krona (2.03%)
Kingdom of Sweden, Bond Ser 1033 05-05-03 ...................................... 10.250 8,000 1,201,529
U.S. Dollar (61.23%)
Empresas ICA Sociedad S.A., (Mexico), Note Ser REGS 05-30-01 ................... 11.875 1,000 1,065,000
Federative Republic of Brazil, (Brazil), Floating Rate Bond 04-15-09 ........... 6.938* 1,100 934,318
Globo Communicacoes e Participacoes Ltda., (Brazil), Bond 12-20-06 (R) ......... 10.500 250 254,688
Impsat Corp., Gtd Deb 07-15-03 ................................................. 12.125 500 521,250
Innova S. de R.L., (Mexico), Sr Note 04-01-07 (R) .............................. 12.875 200 196,000
Klabin Fabricadora de Papel e Celulose S.A., (Brazil), Gtd Deb 08-12-04 (R) .... 11.000 500 510,000
Net Sat Services LTDA, (Brazil), Sr Note 08-05-04 .............................. 12.750 500 516,250
OPP Petroquimica S.A., (Brazil), Sr Note 10-29-04 (R) .......................... 11.000 500 496,250
Petroleo Brasileiros S.A., (Brazil), Bond 10-17-06 (R) ......................... 10.000 500 511,875
Republic of Argentina, (Argentina),
Floating Rate Bond 03-31-05 .................................................. 6.750* 1,940 1,779,950
Global Bond 01-30-17 ......................................................... 11.375 1,000 1,062,500
Republic of Venezuela, (Venezuela), Floating Rate Bond Ser DL 12-18-07 ......... 6.500* 3,750 3,309,375
Russian Federation Ministry of Finance, (Russia), Unsub Deb 11-27-01 (R) ....... 9.250 500 490,625
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED)# VALUE
- ------------------- ---- --------------- -----
<S> <C> <C> <C>
U.S. Dollar (continued)
Sprint Spectrum L.P., Sr Note 08-15-06 ......................................... 11.000% 500 $ 546,250
Transportacion Maritima Mexicana S.A. de C.V., (Mexico), Note 05-15-03 ......... 9.250 500 468,750
United Mexican States, (Mexico),
Global Bond 02-06-01 ......................................................... 9.750 1,000 1,045,000
Global Bond 05-15-26 ......................................................... 11.500 2,000 2,122,500
United States Treasury,
Note 03-31-99 ................................................................ 6.250 2,200 2,199,648
Note 12-31-00 ................................................................ 5.500 2,000 1,935,000
Note 11-30-01 ................................................................ 5.875 9,450 9,194,566
Note 02-28-02 ................................................................ 6.250 1,600 1,578,496
Note 10-15-06 ................................................................ 6.500 5,520 5,429,417
------------
36,167,708
------------
TOTAL BONDS
(Cost $57,334,767) ( 96.19%) 56,813,986
------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.29%)
Investment in a joint repurchase agreement transaction with
Aubrey Lanston -- Dated 4-30-97, Due 5-01-97
(secured by US Treasury Notes, 5.500% through 6.625%,
Due 5-15-98 through 9-30-01) Note A .......................................... 5.375 1,355 1,355,000
------------
TOTAL SHORT-TERM INVESTMENTS ( 2.29%) 1,355,000
------- ------------
TOTAL INVESTMENTS ( 98.48%) $ 58,168,986
======= ============
NOTES TO SCHEDULE OF INVESTMENTS
* Represents rate in effect on April 30, 1997.
# Par value of non US dollar denominated foreign bonds is expressed in local currency for each country listed.
(R)These securities are exempt from registration under rule 144A of the Securities Act of 1933. Such securities
may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $2,459,438 or 4.16% of the Fund's net assets as of April 30, 1997.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in bonds issued by companies and governments of other
countries. The performance of the Fund is closely tied to the economic condition
within the countries in which it invests. The concentration of investments by
currency denomination for individual securities held by the Fund is shown in the
schedule of investments. In addition, concentration of investments can be
aggregated by various investment categories. The table below shows the
percentages of the Fund's investments at April 30, 1997 assigned to the various
investment categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ----------
Building - Heavy Construction .............................. 1.80%
Chemicals .................................................. 0.84
Government - Foreign ....................................... 53.15
Government - U.S. .......................................... 34.43
Media - Cable TV ........................................... 1.21
Oil & Gas .................................................. 0.87
Paper & Paper Products ..................................... 0.86
Telecommunications ......................................... 2.24
Transportation ............................................. 0.79
Short-Term Investments ..................................... 2.29
-------
TOTAL INVESTMENTS 98.48%
=======
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust III (the "Trust") (formerly Freedom Investment
Trust II) is an open-end management investment company, registered under the
Investment Company Act of 1940. The Trust consists of six series: John Hancock
World Bond Fund (the "Fund"), John Hancock Global Fund, John Hancock
International Fund, John Hancock Short-Term Strategic Income Fund, John Hancock
Growth Fund and John Hancock Special Opportunities Fund. The other five series
of the Trust are reported in separate financial statements. The investment
objective of the Fund is to achieve a high total investment return, a
combination of current income and capital appreciation, by investing in a global
portfolio of government and corporate debt securities.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below. The Fund may invest in indexed securities whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
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. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, net currency exchange gains and
losses from sales of foreign debt securities must be treated as ordinary income
even though such items are gains and losses for accounting purposes. The Fund
has $938,808 of capital loss carryforward available, to the extent provided by
regulations, to offset future net realized gains. To the extent such
carryforward is used by the Fund, no capital gains distribution will be made.
The carryforward expires October 31, 2002.
INTEREST AND DISTRIBUTIONS 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 all distributions to
shareholders from net investment income and realized gains on the ex-dividend
date. Such distributions are determined in conformity with income tax
regulations, which
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
may differ from generally accepted accounting principles. Dividends paid by the
Fund with respect to each class of shares will be calculated in the same manner,
at the same time and will be in the same amount, except for the effect of
expenses that may be applied differently to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
purchased from either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The fund had no borrowing
activity for the period ended April 30, 1997.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts and forward cross currency contracts in
connection with settling planned purchases or sales of securities or as a hedge
against the effect of fluctuations in currency exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date at a set price. The aggregate principal amounts of the
contracts are marked to market daily at the applicable foreign currency exchange
rates. Any resulting unrealized gains and losses are included in the
determination of the Fund's daily net assets. The Fund records realized gains
and losses at the time the forward foreign currency contract is closed out or
offset by a matching contract. Risks may arise upon entering these contracts
from potential inability of counterparties to meet the terms of the contract and
from unanticipated movements in the value of a foreign currency relative to the
U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that not offset by the currency amount of the underlying
transaction.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
Open foreign currency forward contracts at April 30, 1997, were as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY COVERED BY CONTRACT DATE (DEPRECIATION)
- -------- ------------------- ---- --------------
SELLS
British Pound 1,800,000 MAY 97 $ 8,334
New Zealand Dollar 3,679,428 MAY 97 ( 16,426)
BUYS
Japanese Yen 438,072,116 MAY 97 ( 34,960)
Japanese Yen 375,000,000 MAY 97 ( 44,685)
-------
($87,737)
=======
Open foreign cross currency forward contracts at April 30, 1997, were as
follows:
PRINCIPAL AMOUNT PRINCIPAL AMOUNT EXPIRATION UNREALIZED
SOLD BOUGHT DATE DEPRECIATION
- ---- ------ ---- ------------
14,500,000 4,297,213
French Francs Deutsche Marks MAY 97 ($3,140)
3,150,000 3,166,084
Italian Lira Deutsche Marks MAY 97 ( 6,604)
------
($9,744)
======
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure to
the underlying instrument or hedge other Fund instruments. At the time the Fund
enters into a financial futures contract, it will be required to deposit with
its custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price on the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," will be recorded by the Fund as unrealized gains or
losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At April 30, 1997, there were no open positions in financial futures
contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked to market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the bond market.
Writing puts and buying calls will tend to increase the Fund's exposure to the
underlying instrument and buying puts and writing calls will tend to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
Risks may also arise if counterparties do not perform under the contract's
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended April 30,
1997.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.75% of the first $250,000,000 of the Fund's
average daily net asset value and (b) 0.70% of the Fund's average daily net
asset value in excess of $250,000,000.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. For the period ended April 30, 1997, net sales charges
received with regard to sales of Class A shares amounted to $5,674. Out of this
amount, $496 was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $3,216 was paid as sales commissions to unrelated
broker-dealers and $1,962 was paid as sales commissions to sales personnel of
John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., ("Sutro"), all of which are broker-dealers.
The Adviser's indirect parent, John Hancock Mutual Life Insurance Company
("JHMLICo"), is the indirect sole shareholder of Distributors and was the
indirect sole shareholder until November 29, 1996 of John Hancock Freedom
Securities Corporation and its subsidiaries which include FDC, Tucker Anthony
and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent-deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended April 30, 1997,
contingent-deferred sales charges paid to JH Funds amounted to $62,278.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 1.00% of Class B average
daily net assets to reimburse the Co-Distributors for their distribution and
service costs. Up to a maximum of 0.25% of such payments may be service fees as
defined by the amended Rules of Fair Practice of the National Association of
Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fee based on the number of shareholder accounts and certain
out-of-pocket expenses. The Fund has an agreement with the Adviser to perform
necessary tax and financial management services for the Fund. The compensation
for the period was at an annual rate of 0.01875% of the average net assets of
the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon, and Mr. Richard S. Scipione
are trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to
18
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - World Bond Fund
defer for tax purposes their receipt of this compensation under the John Hancock
Group of Funds Deferred Compensation Plan. The Fund will make investments into
other John Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
are recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to market
on a periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At April 30, 1997, the Fund's investments to
cover the deferred compensation liability had unrealized appreciation of $351.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1997, aggregated $32,229,696 and $49,094,952, respectively.
Purchases and proceeds from sales of obligations of the U.S. government its
agencies aggregated $21,969,245 and $16,604,753, respectively, during the period
ended April 30, 1997.
The cost of investments owned at April 30, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $58,689,767. Gross
unrealized appreciation and depreciation of investments aggregated $569,062 and
$1,089,843, respectively, resulting in net unrealized depreciation of $520,781.
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
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101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock World
Bond Fund. It may be used as sales literature when preceded or accompanied by
the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 090SA 4/97
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<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Growth
Fund
SEMI-ANNUAL REPORT
April 30, 1997
<PAGE>
================================================================================
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
[ 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
As the market continues to fret over interest rates and inflation, investors
should be prepared for more volatility. It also makes sense to do something
we've always advocated: set realistic expectations. Keep in mind that the stock
market's historic yearly average has been about 10%, not the 20%-plus annual
average of the last two years or even the 16% annual average over the last 10
years. Remember that the kind of market volatility we've seen lately is more
like the way the market really works. Fluctuations go with the territory. And
market corrections can be healthy, serving to bring inflated stock prices down
to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
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By Anurag Pandit, CFA, Portfolio Manager
John Hancock
Growth Fund
Stocks take investors on a wild ride;
selectivity becomes key in searching for growth
On January 1, 1997, Anurag Pandit began leading the management team of John
Hancock Growth Fund. Since joining John Hancock Funds in 1996, Mr. Pandit has
been a member of the Fund's management team. Previously he was a vice president
and equity analyst at Loomis-Sayles.
The investment environment was anything but dull during the six months ended
April 30, 1997. The Dow Jones Industrial Average and the S&P 500 Stock Index hit
successive highs through early February, fueled by strong corporate earnings,
increased investor demand, moderate economic growth, low inflation and favorable
interest rates. But early indications of stronger-than-expected economic growth
and lurking inflation put an end to the party as investors responded with
sobriety over the possibility of a pre-emptive Federal Reserve interest-rate
hike.
In March, the Fed raised the fed funds rate by 0.25% to 5.50%, capping off
weeks of volatility in both the equity and fixed-income markets.
- --------------------------------------------------------------------------------
"The investment environment was anything but dull..."
- --------------------------------------------------------------------------------
While John Hancock Growth Fund participated in the market's rally in December
and the early part of January, the downturn in February and March took its toll
on performance. As a result, the Fund gave back most of the gains it realized
through January. Weakness in the portfolio's technology holdings further
hindered the Fund's ability to make any headway. Although
[A 2 1/4" x 3 3/4" photo of the Fund management team. Caption below reads:
"Anurog Pandit (standing) and Fund management team members: (l-r) Rob Hallisey,
Bernice Behar and Andrew Slabin."]
3
<PAGE>
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John Hancock Funds - Growth Fund
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Johnson & Johnson 2.7 % 2) Coca Cola 2.5% 3)
Walt Disney 2.2% 4) Diamond Offshore Drilling 2.1% 5) Gillette 2.1%. A footnote
below reads "As a percentage of net assets onApril 30, 1997."]
- --------------------------------------------------------------------------------
A number of the Fund's holdings are large-cap, household names.
- --------------------------------------------------------------------------------
the Fund has rebounded in the final weeks of the period, performance overall was
disappointing and the Fund lagged its peers. For the six months ended April 30,
1997, John Hancock Growth Fund's Class A shares and Class B shares returned a
total of -0.38% and -0.68% at net asset value, respectively. This compares to
the 7.15% total return of the average growth fund, according to Lipper
Analytical Services, Inc. 1 Longer-term and comparative performance can be found
on pages six and seven of this report.
Technology reduced but not eliminated
Like many industries, technology has been hurt by general concerns over a rising
interest-rate environment. Increased competition, questionable sales and
earnings growth and high debt margins provided an added drag on the appreciation
potential of a wide variety of technology stocks. While many of the Fund's
hi-tech positions contributed significantly to performance initially,
substantial exposure to this sector hampered returns later in the period and
proved to be one of the main reasons why the Fund underperformed its
competitors. An example of one disappointing performer, which we sold during the
period, was Paychex, a payroll processing/tax-preparation company. After rising
considerably last fall, the company's stock price moved downward not only in
sympathy with the broad sector but also as a result of its acquisition of a
professional employee organization, a lower margin business.
[Table entitled "Scorecard" at bottom left hand column. The heading for the left
column is "Investment"; the heading for the center column is "Recent
performance.. and what's behind the numbers". The first listing is "Johnson &
Johnson" followed by an up arrow and the phrase "Robust product pipeline". The
second listing is "McDonnell Douglas" followed by a horizontal arrow and the
phrase "Future potential from merger and worldwide fleet demand." The third
listing is "Netscape" followed by a down arrow and the phrase "Hurt by
tech-stock correction and growing pains." Footnote below reads "See "Schedule of
Investments." Investment holdings are subject to change."]
As 1996 came to a close, our research uncovered early indications of
industry-wide price competition and slowing demand in the data networking
industry. We chose to sell several key holdings, believing that the bulk of
their price appreciation was behind them. Cisco Systems, 3COM and Cascade
Communications, were a few of the holdings sold. The move proved timely and
helped soften the impact of this sector's rout, during which the prices of these
stocks got pummeled. As a result of our decision, the Fund's weighting in
technology was reduced from approximately 25%-30% of net assets in November 1996
to roughly 17% by period's end.
Worst over for tech stocks?
Because the long-term fundamentals of many corporations remain attractive,
technology nevertheless continues to be a considerable component of the Fund's
portfolio. We believe demand for enhancing the way people communicate, as well
as the continuing drive for corporate cost-efficiency and increased
productivity, has set the stage for high growth in technology-related issues for
decades to come. As the Fund seeks companies whose earnings are growing at least
twice the rate of the economy, many tech stocks -- with their
4
<PAGE>
================================================================================
John Hancock Funds - Growth Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." The chart is
scaled in increments of 1% from bottom to top, with 8% at the top and -1% at the
bottom. Within the chart there are three solid bars. The first represents the
- -0.38% total return for the John Hancock Growth Fund: Class A. The second
represents the -0.68% total return for the John Hancock Growth Fund: Class B.
The third represents the 7.15% total return for the average growth fund. A
footnote below reads: "The total returns for John Hancock Growth Fund are at net
asset value with all distributions reinvested. The average growth fund is
tracked by Lipper Analytical Services. See the following two pages for
historical performance information."]
accelerated earnings possibilities and dynamic growth potential -- are prime
portfolio candidates. Going forward, we will look cautiously to buy on dips,
selectively adding to positions when share prices become too compelling to
ignore.
Health-care stocks well represented
The ongoing demand for quality healthcare -- in good economic times and bad --
makes an attractive case for being exposed to all areas of the health-care
industry. Several issues, in fact, have helped buoy performance during the
market's recent turbulence, including Johnson & Johnson and Pfizer. We've also
increased the Fund's weighting in managed care operations as evidence has
emerged that provider price increases are sticking.
Household names give Fund stability
Throughout the period, investors have preferred the relative safety, liquidity,
and consistent growth characteristics of large, multinational companies, such as
Coca-Cola and Gillette -- two portfolio stocks that have helped mitigate this
year's volatility. We've also recently built up the Fund's position in Walt
Disney Co., and acquired Boeing, which stands to benefit from it's pending
merger with McDonnell Douglas and the strong demand for fleets overseas.
We've increased the Fund's weighting in consumer staples and consumer
cyclical stocks, purchasing CVS and Walgreen's and adding to existing positions,
such as Home Depot and Wal-Mart. By owning stocks of companies that are dominant
players in their industries and whose products typically remain in relatively
solid demand even in a slower economic environment, we have been able to
position the Fund a bit more defensively as we enter the second half of fiscal
1997.
Keeping an eye on the dollar, interest rates
No amount of research or data can give us the ability to predict what course the
market will take next. We are, however, keeping a watchful eye on the
interest-rate horizon and the dollar's unabashed strength, mindful that both
could potentially have an adverse effect on corporate earnings. When selecting
companies that rely on foreign subsidiaries for much of their growth, we will
look only for those that are geographically diversified and in high demand -
ones whose growth potential can offset unfavorable currency exchange rates. We
remain committed to searching for companies that exhibit, in our opinion, solid
fundamentals and the best possible growth characteristics for any environment.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
1 Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Growth Fund. Total return is a performance
measure that equals the sum of all income and capital gains distributions,
assuming reinvestment of these distributions and the change in the price of the
Fund's net asset value per share. Performance figures include the maximum
applicable sales charge of 5% for Class A shares. The effect of the maximum
contingent-deferred sales charge for Class B shares (maximum 5% and declining to
0% over six years) is included in Class B performance. Performance is affected
by a 12b-1 plan, which commenced on January 1, 1990 and January 3, 1994 for
Class A and Class B shares, respectively. Remember that all figures represent
past performance and are no guarantee of how the Fund will perform in the
future. Also, keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Growth Fund: Class A 1.56% 66.75% 150.50%
John Hancock Growth Fund: Class B(1) 1.17% 31.70% N/A
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Growth Fund: Class A 1.56% 10.77% 9.62%
John Hancock Growth Fund: Class B(1) 1.17% 8.87% N/A
Notes to Performance
(1) Class B shares commenced on January 3, 1994.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Growth Fund would be worth on April 30, 1997, assuming you have been invested
and have reinvested all distributions for the entire time periods represented in
the graphs. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index -- an unmanaged index that includes 500 widely
traded common stocks and is used often as a measure of stock market performance.
[Line chart with the heading Growth Fund:Class A, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
three lines. The first line represents the value of the Standard & Poor's 500
Stock Index and is equal to $44,959 as of April 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in the Growth
Fund on October 31, 1986, before sales charge, and is equal to $32,673 as of
April 30, 1997. The third line represents the Growth Fund, after sales charge,
and is equal to $31,040 as of April 30, 1997.]
[Line chart with the heading Growth Fund Class B, representing the growth of a
hypothetical $10,000 investment over the life of the fund. Within the chart are
three lines. The first line represents the value of the Standard & Poor's 500
Stock Index and is equal to $18,641 as of April 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in the Growth
Fund, before sales charge, on January 3, 1994, and is equal to $13,870 as of
April 30, 1997. The third line represents the value of the Growth Fund, after
sales charge, and is equal to $13,570 as of April 30, 1997.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - 176,163,695) ......................... $239,799,406
Joint repurchase agreement (cost - 54,815,000) ............. 54,815,000
Corporate savings account .................................. 10,366
------------
............................................................... 294,624,772
Receivable for investments sold .............................. 8,561,752
Receivable for shares sold ................................... 29,847
Dividends receivable ......................................... 71,323
Interest receivable .......................................... 10,159
Other assets ................................................. 27,871
------------
Total Assets ..................... 303,325,724
-------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 2,822,719
Payable for shares repurchased ............................... 73,085
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 248,132
Accounts payable and accrued expenses ........................ 47,946
------------
Total Liabilities ................ 3,191,882
-------------------------------------------------
Net Assets:
Capital paid-in .............................................. 194,695,141
Accumulated net realized gain on investments ................. 42,527,240
Net unrealized appreciation of investments ................... 63,636,717
Accumulated net investment loss .............................. ( 725,256)
------------
Net Assets ....................... $300,133,842
=================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $271,090,214/12,958,944 $ 20.92
=============================================================================
Class B - $29,043,628/1,423,285 $ 20.41
=============================================================================
Maximum Offering Price Per Share*
Class A - ($20.92 x 105.26%) $ 22.02
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends .................................................... $ 828,336
Interest ..................................................... 780,765
----------
............................................................... 1,609,101
----------
Expenses:
Investment management fee - Note B ......................... 1,211,922
Distribution and service fee - Note B
Class A .................................................. 417,255
Class B .................................................. 142,397
Transfer agent fee - Note B ................................ 411,796
Custodian fee .............................................. 31,054
Financial services fee - Note B ............................ 28,748
Registration and filing fees ............................... 27,593
Printing ................................................... 19,370
Auditing fee ............................................... 17,865
Trustees' fees ............................................. 11,515
Miscellaneous .............................................. 3,182
Legal fees ................................................. 1,911
----------
Net Expenses ..................... 2,324,608
-------------------------------------------------
Net Investment Loss .............. ( 715,507)
-------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ........................ 42,527,505
Change in net unrealized appreciation/depreciation
of investments ............................................. (42,914,783)
----------
Net Realized and Unrealized
Loss on Investments .............. ( 387,278)
--------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ........ ($1,102,785)
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JANUARY 1, 1996 TO APRIL 30, 1997
DECEMBER 31, 1995 OCTOBER 31, 1996(1) (UNAUDITED)
----------------- ------------------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .................................................. ($ 973,581) ($ 1,851,051) ($ 715,507)
Net realized gain on investments sold ................................ 9,207,214 29,604,241 42,527,505
Change in net unrealized appreciation/depreciation of investments .... 30,638,725 21,436,182 ( 42,914,783)
----------- ------------ -----------
Net Increase (Decrease) in Net Assets Resulting from Operations .... 38,872,358 49,189,372 ( 1,102,785)
----------- ------------ -----------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.6945, none and $2.2830 per share, respectively) ...... ( 8,391,968) -- ( 26,978,610)
Class B - ($0.6945, none and $2.2830 per share, respectively) ...... ( 552,264) -- ( 2,737,473)
----------- ------------ -----------
Total Distributions to Shareholders .................................. ( 8,944,232) -- ( 29,716,083)
----------- ------------ -----------
From Fund Share Transactions - Net* .................................... 75,837,052 ( 1,902,994) 26,053,690
----------- ------------ -----------
Net Assets:
Beginning of period .................................................. 151,847,464 257,612,642 304,899,020
----------- ------------ -----------
End of period (including accumulated net investment loss of none,
$9,749 and $725,256, respectively) ................................. $257,612,642 $304,899,020 $300,133,842
============ ============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JANUARY 1, 1996 TO APRIL 30, 1997
DECEMBER 31, 1995 OCTOBER 31, 1996(1) (UNAUDITED)
-----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold ..................................... 1,671,481 $32,932,574 2,868,866 $62,914,842 4,554,564 $100,381,803
Shares issued in reorganization - Note D ........ 3,788,495 77,588,384 -- --
Shares issued to shareholders in reinvestment
of distributions .............................. 402,050 7,803,606 -- -- 1,190,440 25,034,945
--------- ----------- --------- ----------- --------- ------------
5,862,026 118,324,564 2,868,866 62,914,842 5,745,004 125,416,748
Less shares repurchased ......................... (2,691,827) ( 52,370,704) (3,252,462) ( 70,867,350) (4,790,825) ( 106,020,842)
--------- ----------- --------- ----------- --------- ------------
Net increase (decrease) ......................... 3,170,199 $65,953,860 ( 383,596) ($ 7,952,508) 954,179 $ 19,395,906
========= =========== ========= =========== ========= ============
CLASS B
Shares sold ..................................... 333,335 $ 6,333,583 2,230,077 $49,208,673 430,031 $ 9,283,682
Shares issued in reorganization - Note D ........ 471,911 9,563,328 -- --
Shares issued to shareholders in reinvestment
of distributions .............................. 27,495 526,875 -- -- 124,391 2,559,110
--------- ----------- --------- ----------- --------- ------------
832,741 16,423,786 2,230,077 49,208,673 554,422 11,842,792
Less shares repurchased ........................ ( 246,690) ( 4,843,723) (1,940,975) ( 43,159,159) ( 246,737) ( 5,185,008)
--------- ----------- --------- ----------- --------- ------------
Net increase ................................... 586,051 $11,580,063 289,102 $ 6,049,514 307,685 $ 6,657,784
========= =========== ========= =========== ========= ============
CLASS C **
Shares sold 841 15,270
Less shares repurchased ( 99,061) ( 1,712,141)
--------- -----------
Net decrease ( 98,220) ($ 1,696,871)
========= ===========
</TABLE>
** All Class C shares were redeemed on March 31, 1995.
(1) Effective October 31, 1996, the fiscal period end changed from December 31
to October 31.
The Statement of Changes in Net Assets shows how the value of the
Fund's net assets has changed since the end of the previous period. The
difference reflects earnings less expenses, any investment gains and losses,
distributions paid to shareholders and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last three periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM SIX MONTHS ENDED
-------------------------------------- JANUARY 1, 1996 TO APRIL 30, 1997
1992 1993 1994 1995 OCTOBER 31, 1996(9) (UNAUDITED)
-------------------------------------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51 $ 23.28
-------- -------- -------- -------- -------- --------
Net Investment Loss .................................. ( 0.06)( 0.11)( 0.10)( 0.09)(1)( 0.13)(1) ( 0.04)(1)
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 1.10 2.33 ( 1.21) 4.40 3.90 ( 0.04)
-------- -------- -------- -------- -------- --------
Total from Investment Operations ................. 1.04 2.22 ( 1.31) 4.31 3.77 ( 0.08)
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold ................................. ( 1.20)( 2.14)( 0.20)( 0.69) -- ( 2.28)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ....................... $ 17.32 $ 17.40 $ 15.89 $ 19.51 $ 23.28 $ 20.92
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) ........ 6.06% 13.03% ( 7.50%) 27.17% 19.32%(6) ( 0.38%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $153,057 $162,937 $146,466 $241,700 $279,425 $271,090
Ratio of Expenses to Average Net Assets .............. 1.60% 1.56% 1.65% 1.48% 1.48%(7) 1.45%(7)
Ratio of Net Investment Loss to Average Net Assets ... ( 0.36%)( 0.67%)( 0.64%)( 0.46%) ( 0.73%)(7) ( 0.40%)(7)
Portfolio Turnover Rate .............................. 71% 68% 52% 68%(3) 59% 61%
Average Brokerage Commission Rate(4) ................. N/A N/A N/A N/A $ 0.0695 $ 0.0696
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM SIX MONTHS ENDED
JANUARY 1, 1996 TO APRIL 30, 1997
1994(5) 1995 OCTOBER 31, 1996(9) (UNAUDITED)
-------- ------- ------------------- -----------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 17.16 $ 15.83 $ 19.25 $ 22.83
------- ------- ------- -------
Net Investment Loss(1) ....................................... ( 0.20) ( 0.26) ( 0.26) ( 0.12)
Net Realized and Unrealized Gain (Loss) on Investments ....... ( 0.93) 4.37 3.84 ( 0.02)
------- ------- ------- -------
Total from Investment Operations ......................... ( 1.13) 4.11 3.58 ( 0.14)
------- ------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ... ( 0.20) ( 0.69) -- ( 2.28)
------- ------- ------- -------
Net Asset Value, End of Period ............................... $ 15.83 $ 19.25 $ 22.83 $ 20.41
======= ======= ======= =======
Total Investment Return at Net Asset Value(2) ................ ( 6.56%)(6) 26.01% 18.60%(6) ( 0.68%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $ 3,807 $15,913 $25,474 $29,044
Ratio of Expenses to Average Net Assets ...................... 2.38%(7) 2.31% 2.18%(7) 2.15%(7)
Ratio of Net Investment Loss to Average Net Assets ........... ( 1.25%)(7) ( 1.39%) (1.42%)(7) ( 1.10%)(7)
Portfolio Turnover Rate ...................................... 52% 68%(3) 59% 61%
Average Brokerage Commission Rate(4) ......................... N/A N/A $0.0695 $0.0696
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 MARCH 31, 1995
----------------- ----------------- --------------
<S> <C> <C> <C>
CLASS C (8)
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 17.05 $ 17.46 $ 16.02
------- ------- -------
Net Investment Income (Loss) ................................. ( 0.02) ( 0.01) 0.02(1)
Net Realized and Unrealized Gain (Loss) on Investments ....... 2.57 ( 1.23) 1.28
------- ------- -------
Total from Investment Operations ......................... 2.55 ( 1.24) 1.30
------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ... ( 2.14) ( 0.20) --
------- ------- -------
Net Asset Value, End of Period ............................. $ 17.46 $ 16.02 $ 17.32
======= ======= =======
Total Investment Return at Net Asset Value(2) ................ ( 15.18%)(6) ( 7.07%) 8.11%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $ 1,285 $ 1,574 $ 1,672
Ratio of Expenses to Average Net Assets ...................... 1.05%(7) 1.12% 1.05%(7)
Ratio of Net Investment Income (Loss) to Average Net Assets .. ( 0.17%)(7) ( 0.08%) 0.44%(7)
Portfolio Turnover Rate ...................................... 68% 52% 39%
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Excludes merger activity.
(4) Per portfolio share traded. Required for fiscal years that began September 1, 1995, or later.
(5) Class B shares commenced operations on January 3, 1994.
(6) Not annualized.
(7) Annualized.
(8) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the end of the period
reflect amounts prior to the redemption of all shares on March 31, 1995.
(9) Effective October 31, 1996, the fiscal period changed from December 31 to October 31.
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Growth Fund on April 30, 1997. It's 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.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Aerospace (1.78%)
McDonnell Douglas Corp. ................... 90,000 $ 5,343,750
------------
Banks - United States (0.63%)
Chase Manhattan Corp. ..................... 20,400 1,889,550
------------
Beverages (2.54%)
Coca-Cola Co. (The) ....................... 120,000 7,635,000
------------
Business Services - Misc (0.87%)
Sterling Commerce, Inc.* .................. 101,000 2,613,375
------------
Computers (10.67%)
BMC Software, Inc.* ....................... 95,000 4,108,750
Cabletron Systems, Inc.* .................. 65,500 2,259,750
cisco Systems, Inc.* ...................... 29,400 1,521,450
Compaq Computer Corp.* .................... 35,000 2,988,125
Computer Associates International, Inc. ... 41,900 2,178,800
Computer Sciences Corp.* .................. 80,000 5,000,000
Electronics for Imaging, Inc.* ............ 120,000 4,710,000
EMC Corp.* ................................ 70,000 2,546,250
HBO & Co. ................................. 50,000 2,675,000
Oracle Corp.* ............................. 50,000 1,987,500
Parametric Technology Corp.* .............. 45,000 2,036,250
------------
32,011,875
------------
Cosmetics & Personal Care (2.12%)
Gillette Co. (The) ........................ 75,000 6,375,000
------------
Electronics (4.09%)
Adaptec, Inc.* ............................ 127,500 4,717,500
Applied Materials, Inc.* .................. 40,000 2,195,000
Intel Corp. ............................... 35,000 5,359,375
------------
12,271,875
------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Finance (3.32%)
Associates First Capital Corp. (Class A) .. 70,000 $ 3,587,500
First USA, Inc. ........................... 50,000 2,406,250
MBNA Corp. ................................ 120,000 3,960,000
------------
9,953,750
------------
Food (0.70%)
Sara Lee Corp. ............................ 50,000 2,100,000
------------
Household (0.48%)
Rubbermaid, Inc. .......................... 60,000 1,440,000
------------
Leisure (5.22%)
Callaway Golf Co. ......................... 100,000 2,987,500
Disney (Walt) Co., (The) .................. 80,000 6,560,000
HFS, Inc.* ................................ 80,000 4,740,000
Marriott International, Inc. .............. 25,000 1,381,250
------------
15,668,750
------------
Linen Supply & Related (1.64%)
Cintas Corp. .............................. 90,000 4,927,500
------------
Media (3.21%)
Gannett Co., Inc. ......................... 55,000 4,798,750
Tribune Co. ............................... 110,000 4,826,250
------------
9,625,000
------------
Medical (15.70%)
American Home Products Corp. .............. 60,000 3,975,000
Cardinal Health, Inc. ..................... 70,000 3,727,500
Health Care & Retirement Corp. * .......... 195,000 6,166,875
Health Management Associates, Inc.
(Class A) * ............................. 232,500 6,219,375
Johnson & Johnson ......................... 130,000 7,962,500
Merck & Co., Inc. ......................... 50,000 4,525,000
Omnicare, Inc. ............................ 100,000 2,437,500
Oxford Health Plans, Inc.* ................ 30,000 1,976,250
Pfizer, Inc. .............................. 60,000 5,760,000
United Healthcare Corp .................... 90,000 4,376,250
------------
47,126,250
------------
Mortgage - Equity REIT (0.58%)
Spieker Properties, Inc. .................. 50,000 1,743,750
------------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Oil & Gas (12.91%)
Chevron Corp. ............................. 60,000 $ 4,110,000
Diamond Offshore Drilling, Inc.* .......... 100,000 6,437,500
Exxon Corp. ............................... 90,000 5,096,250
Halliburton Co. ........................... 85,000 6,003,125
Reading & Bates Corp.* .................... 200,000 4,475,000
Schlumberger, Ltd. ........................ 45,000 4,983,750
Smith International, Inc.* ................ 100,000 4,737,500
Western Atlas, Inc. * ..................... 46,600 2,889,200
------------
38,732,325
------------
Pollution Control (1.64%)
U.S.A Waste Services, Inc.* ............... 150,000 4,912,500
------------
Retail (8.44%)
CVS Corp. ................................. 120,000 5,955,000
Dollar General Corp. ...................... 50,000 1,581,250
Home Depot, Inc. .......................... 100,000 5,800,000
Starbucks Corp.* .......................... 70,000 2,091,250
Wal-Mart Stores, Inc. ..................... 220,000 6,215,000
Walgreen Co ............................... 80,000 3,680,000
------------
25,322,500
------------
Schools / Education (0.49%)
Apollo Group, Inc. (Class A)* ............. 55,150 1,482,156
------------
Telecommunications (1.34%)
WorldCom, Inc.* ........................... 168,000 4,032,000
------------
Textile (1.53%)
Jones Apparel Group, Inc.* ................ 110,000 4,592,500
------------
TOTAL COMMON STOCKS
(Cost $176,163,695) ( 79.90%) 239,799,406
-------- ------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000S OMITTED) VALUE
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (18.26%)
Investment in joint repurchase
agreement transaction with
Aubrey G. Lanston & Co. -
Dated 4-30-97, Due 5-01-97
(Secured by U.S. Treasury
Bills, 5.37% thru 5.78%
Due 8-21-97 thru 3-05-98,
U.S. Treasury Bonds,
7.125% thru 11.25% Due
2-15-15 thru 2-15-23 and U.S.
Treasury Notes, 5.125%
thru 7.75% Due 8-31-98
thru 5-15-05) - Note A 5.375% $54,815 $ 54,815,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 10,366
------------
TOTAL SHORT-TERM INVESTMENTS ( 18.26%) 54,825,366
-------- ------------
TOTAL INVESTMENTS ( 98.16%) $294,624,772
======== ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust III (the "Trust"), is an open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of six series: John Hancock Growth Fund (the "Fund") and John
Hancock Global Fund, John Hancock World Bond Fund, John Hancock Short-Term
Strategic Income Fund, John Hancock Special Opportunities Fund and John Hancock
International Fund. The other five series of the Trust are reported in separate
financial statements. The investment objective of the Fund is to seek long-term
capital appreciation through investment in stocks that are diversified with
regard to industries and issuers.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obli-gations 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 for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its 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 all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund, if any, with respect to each
class of shares will be calculated in the same manner, at the same time and will
be in the same amount, except for effect of expenses that may be applied
differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees if any, are calculated daily at the class level based on the
appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable,
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
taking into consideration, among other things, the nature and type of expense
and the relative sizes of the fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended April 30, 1997.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.80% of the first $250,000,000 of the Fund's
average daily net asset value, (b) 0.75% of the next $250,000,000 and (c) 0.70%
of the Fund's average daily net asset value in excess of $500,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended April
30, 1997, JH Funds received net sales charges of $219,432. Out of this amount,
$34,007 was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $69,835 was paid as sales commissions to
unrelated broker-dealers, and $115,590 was paid as sales commissions to
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which
are broker-dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Distributors
and was the indirect sole shareholder until November 29, 1996, of John Hancock
Freedom Securities Corporation and its subsidiaries, which include Tucker
Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent-deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended April 30, 1997,
contingent-deferred sales charges amounted to $24,815.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B average daily net
assets to reimburse JH Funds for its distribution and service costs. Up to a
maximum of 0.25% of such payments may be service fees as defined by the amended
Rules of Fair Practice of the National Association of Securities Dealers. Under
the amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
cover its liability for the deferred compensation. Investments to cover the
Fund's deferred compensation liability are recorded on the Fund's books as an
other asset. The deferred compensation liability and the related other asset are
always equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At April 30,
1997, the Fund's investment to cover the deferred compensation had unrealized
appreciation of $1,006.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1997, aggregated $168,667,675 and
$209,308,664, respectively.
The cost of investments owned at April 30, 1997 (excluding the corporate
savings account), for federal income tax purposes was $230,978,695. Gross
unrealized appreciation and depreciation of investments aggregated $68,213,649
and $4,577,938, respectively, resulting in net unrealized appreciation of
$63,635,711.
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of John Hancock Capital Growth Fund
(JHCGF) approved a plan of reorganization between JHCGF and the Fund providing
for the transfer of substantially all of the assets and liabilities of JHCGF to
the Fund in exchange solely for Class A and Class B shares of the Fund. The
acquisition was accounted for as a tax free exchange of 3,788,495 Class A
shares, and 471,911 Class B shares of John Hancock Growth Fund for the net
assets of JHCGF, which amounted to $77,588,384 and $9,563,328 for Class A and
Class B shares, respectively, including $20,624,702 of unrealized appreciation,
after the close of business on September 15, 1995.
16
<PAGE>
================================================================================
NOTES
John Hancock Funds - Growth Fund
17
<PAGE>
================================================================================
NOTES
John Hancock Funds - Growth Fund
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Growth Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Growth
Fund. It may be used as sales literature when preceded or accompanied by the
current prospectus, which details charges, investment objectives and operating
policies.
[RECYCLE LOGO] Printed on Recycled Paper 200SA 4/97
6/97
<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
International
Fund
SEMI-ANNUAL REPORT
April 30, 1997
<PAGE>
================================================================================
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
As the market continues to fret over interest rates and inflation, investors
should be prepared for more volatility. It also makes sense to do something
we've always advocated: set realistic expectations. Keep in mind that the stock
market's historic yearly average has been about 10%, not the 20%-plus annual
average of the last two years or even the 16% annual average over the last 10
years. Remember that the kind of market volatility we've seen lately is more
like the way the market really works. Fluctuations go with the territory. And
market corrections can be healthy, serving to bring inflated stock prices down
to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Miren Etcheverry, John L.F. Wills and Gerardo J. Espinoza,
Co-Portfolio Managers
John Hancock
International Fund
Rising U.S. interest rates hurt some foreign markets; Latin
America and Europe perform well in the last six months
At the end of 1996, Miren Etcheverry and Gerardo J. Espinoza joined the
management team of John Hancock International Fund. Prior to joining John
Hancock Funds, Ms. Etcheverry and Mr. Espinoza were portfolio managers at Baring
Asset Management. Ms. Etcheverry was the head of Baring's Latin American
equities team. Mr. Wills is based in London and has been with John Hancock since
1987.
Overseas markets turned in a mixed performance during the last six months. Early
in the period, equities were boosted around the globe by falling interest rates
and a healthy U.S. stock market. And while Europe and the emerging markets of
Latin America and eastern Europe continued to have a good run through April,
many Asian markets had a rougher time. Japan fell as its economy remained
stubbornly stalled and banking problems persisted, and a falling yen compounded
the problem for U.S. dollar-based investors. Even Hong Kong, after its sharp
advance last year, took a breather due to rising U.S. interest rates, concerns
over escalating real estate values and the pending transition to Chinese rule.
Overall, most major markets still could not compete with the U.S., where stocks
continued their bull market run in a frenzy of volatility sparked by a
faster-growing economy and inflation fears. This strong performance diverted
investors' attention and investments away from many world markets.
- --------------------------------------------------------------------------------
"Overseas markets turned in a mixed performance..."
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 3/4" photo of the International Fund co-portfolio managers at
bottom right. Caption reads "International Fund co-portfolio managers (l-r)
Gerardo J. Espinoza, Miren Etcheverry and John L.F. Wills."]
3
<PAGE>
================================================================================
John Hancock Funds - International Fund
[Pie chart with the title "Portfolio Diversification" at top of left hand
column. The chart is divided into six sections. Going from top left clockwise:
Short-Term Investments and Other 8%; Latin America 18%; United Kingdom 11%;
Pacific Rim ex-Japan 25%; Japan 15%; Continental Europe 23%. A footnote below
reads "As a percentage of net assets on April 30, 1997."]
- --------------------------------------------------------------------------------
"We significantly increased our holdings in Latin America..."
- --------------------------------------------------------------------------------
For the six months ended April 30, 1997, John Hancock International Fund
posted a total return for its Class A and Class B shares of 3.11% and 2.69%,
respectively, at net asset value. Our performance was modest compared to the
6.17% return of the average international fund, according to Lipper Analytical
Services, Inc.1 Please see pages six and seven for longer-term performance
information.
Hong Kong and Japan: performance drags
We attribute our underperformance to our relatively large weightings in Hong
Kong and Japan during the period. In Japan, stocks remained under pressure as
the country was plagued by economic woes, banking problems and government tax
increases. A weakening yen compounded the market's decline for U.S. dollar-based
investors, but helped the exporters and technology companies, such as Sony and
TDK, which remained the Fund's focus. We took profits in some of them and cut
our Japanese position almost in half, from 28% last November to 15% at the end
of April. We probably will not reduce our stake further, however, because we
believe that the economy is bottoming out after absorbing hefty tax increases
and that economic deregulation is beginning. Another positive sign is that
international fund managers have long been very underweighted in Japan, and
there are signs that they are returning.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is
Telecomunicacoes Brasileiras followed by an up arrow and the phrase "Pending
privatization boosts stock." The second listing is Vokswagen followed by an up
arrow and the phrase "Cost reductions, strong dollar boost stock." The third
listing is Wharf Holdings followed by a down arrow and the phrase "Property
stocks suffer with rising interest rate fears." Footnote below reads: "See
"Schedule of Investments." Investment holdings are subject to change."]
Although Hong Kong fell in the first part of 1997, it began rebounding in
April and we remain encouraged about the longer term for both Hong Kong and its
impact on the Chinese economy. That would continue to bode well for our
China-related "red-chip" holdings, such as China Resources and Hong Kong &
Shanghai Hotels. That said, after the market's stellar advance last year we
decided to lighten our exposure to a less overweighted position. We took profits
to halve our stake from 20% last November to 10% by the period's end.
Latin American emerging market position
grows and prospers
In place of Hong Kong and Japan, we significantly increased our holdings in the
emerging market countries of Latin America to 18% of the Fund's assets, up from
3% last November. Our efforts were rewarded especially in the latter part of the
period. These markets have embraced economic reform and, in so doing, unleashed
significant investment opportunities. Within the region, our top choices are
Brazil, at 8% of the Fund's net assets. This "sleeping giant" is just awakening,
with economic reform that has sent inflation plunging from over 3,000% several
years ago to single digits today. The Fund's largest holding, and a solid
performer, is Telecomunicacoes Brasileiras, the telecommunications giant that is
benefiting from
4
<PAGE>
================================================================================
John Hancock Funds - International Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." The chart is
scaled in increments of 2% from bottom to top, with 6% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
3.11% total return for John Hancock International Fund: Class A. The second
represents the 2.69% total return for John Hancock International Fund: Class B.
The third represents the 6.17% total return for the average international fund.
Footnote below reads: "Total returns for John Hancock International Fund are at
net asset value with all distributions reinvested. The average international
fund is tracked by Lipper Analytical Services. (1) See the following two pages
for historical performance information."]
the government's move toward privatization. We also like Mexico, at 7% of
the Fund's assets, for similar reasons. Our largest Mexican stock, Panamerican
Beverages, also gained ground.
Europe still a favorite
Reform -- economic and political -- is a key investment theme for us. That is
why we continue to favor many European countries, with an eye lately toward
eastern Europe. During the period, weak currencies, low inflation, slow growth
and further government efforts toward reaching a monetary union were positives
for many markets. The notion of corporate restructuring has also caught on in
Europe and increased profits for shareholders. Of the Fund's 34% stake in
Europe, the U.K. remains our largest country weighting at 11%. We also shifted
some assets to Germany, whose economy is in an earlier stage of rebound than
Britain's. Good performers were auto-maker Volkswagen and drug company Schering.
Investment strategy
In managing the portfolio, we combine top-down country allocation with bottom-up
stock picking. The cornerstone of our process is in-depth fundamental research,
which involves substantial travel to the countries in which the Fund invests.
We've gained an important edge by having a team of analysts who speak more than
a dozen languages combined. In country allocation, our emphasis is on selecting
countries with favorable political trends, growing economies and improving
liquidity dynamics. In stock selection, the emphasis is on management quality,
sustainable earnings growth and attractive valuations.
- --------------------------------------------------------------------------------
"We are optimistic about the long-term prospects for foreign equity markets."
- --------------------------------------------------------------------------------
Looking ahead
We are optimistic about the long-term prospects for foreign equity markets. As
more markets are freed from centralized control and major industries continue
shifting to private control, it is likely for global growth and rising profits
to remain strong. Moreover, new technologies worldwide are driving down the cost
of production, distribution and investment. What makes this environment so
attractive is that we believe this global expansion will occur without
significant inflation. We'll continue to tap into these trends, for now keeping
our emphasis on the emerging markets of Latin America, eastern Europe and Asia,
while seeking restructuring plays in Europe.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
International investing involves special risks such as currency risks, political
risks and differences in accounting standards and financial reporting. See
prospectus for additional information.
1 Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock International Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's net asset value per
share. Performance figures include the maximum applicable sales charge of 5% for
Class A shares. The effect of the maximum contingent-deferred sales charge for
Class B shares (maximum 5% and declining to 0% over six years) is included in
Class B performance. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, keep in mind
that the total return and share price of the Fund's investments will fluctuate.
As a result, your Fund's shares may be worth more or less than their original
cost, depending on when you sell them. Please see your prospectus for a
discussion of the risks associated with international investing, including
currency and political risks and differences in accounting standards and
financial reporting.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Fund: Class A(1,2) (0.88%) 1.23%
John Hancock International Fund: Class B(1,2) (1.47%) 1.09%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock International Fund: Class A(1,2) (0.88%) 0.38%
John Hancock International Fund: Class B(1,2) (1.47%) 0.33%
Notes to Performance
(1) Both Class A and Class B shares commenced on January 3, 1994.
(2) Effective January 3, 1994, the Adviser has temporarily voluntarily
undertaken to limit the Fund's expenses, including the management fee (but
not including the transfer agent fee and 12b-1 fee) to 0.90% of the Fund's
daily net asset value. Without the limitations of expenses, the average
annualized total return for the one-year period and since inception would
have been (2.33%) and (1.84%) for Class A shares and (2.92%) and (1.89%)
for Class B shares, respectively.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
International Fund would be worth on April 30, 1997, assuming you had invested
on the day each class of shares started and reinvested all distributions. For
comparison, we've shown the same $10,000 investment in the Morgan Stanley EAFE
Index -- an unmanaged index that measures the performance of stock markets in
Europe, Australia and the Far East.
[Line chart with the heading International Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the value of the Morgan
Stanley EAFE Index and is equal to $12,699 as of April 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in the
International Fund before sales charge, on January 3, 1994, and is equal to
$10,659 as of October 31, 1996. The third line represents the International
Fund, after sales charge, and is equal to $10,126 as of October 31, 1996.]
[Line chart with the heading International Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the value of the Morgan
Stanley EAFE Index and is equal to $12,699 as of April 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in the
International Fund, before sales charge, on January 3, 1994 and is equal to
$10,397 as of April 30, 1997. The third line represents the value of
theInternational Fund after sales charge, and is equal to $10,097 as of April
30, 1997.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value -- Note C:
Common stocks and warrant (cost -- $12,220,246) ............ $ 13,440,212
Joint repurchase agreement (cost -- $835,000) .............. 835,000
------------
14,275,212
Cash ......................................................... 38,895
Foreign taxes receivable ..................................... 778
Receivable for investments sold .............................. 627,123
Receivable for fund shares sold .............................. 35,358
Dividends and interest receivable ............................ 50,635
Deferred organization expenses -- Note A ..................... 38,659
Other assets ................................................. 274
------------
Total Assets ..................... 15,066,934
-------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 343,619
Payable to John Hancock Advisers Inc.,
and affiliates -- Note A ................................... 6,449
Accounts payable and accrued expenses ........................ 35,253
------------
Total Liabilities ................ 385,321
-------------------------------------------------
Net Assets:
Capital paid-in .............................................. 13,889,921
Accumulated net realized loss on investments
and foreign currency transactions .......................... ( 382,155)
Net unrealized appreciation of investments
and foreign currency transactions .......................... 1,217,308
Accumulated net investment loss .............................. ( 43,461)
------------
Net Assets ....................... $ 14,681,613
=================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding - unlimited
number of shares authorized with no par
value, respectively)
Class A -- $5,437,326/607,149 ................................ $ 8.96
=============================================================================
Class B -- $9,244,287/1,052,724 .............................. $ 8.78
=============================================================================
Maximum Offering Price Per Share *
Class A -- ($8.96 x 105.26%) ................................. $ 9.43
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $9,369) ....... $ 86,624
Interest ..................................................... 22,475
-----------
............................................................... 109,099
-----------
Expenses:
Investment management fee -- Note B ........................ 69,358
Distribution and service fee -- Note B
Class A .................................................. 7,870
Class B .................................................. 43,126
Transfer agent fee -- Note B ............................... 38,874
Custodian fee .............................................. 35,843
Auditing fee ............................................... 17,852
Registration and filing fees ............................... 14,397
Organization expense -- Note A ............................. 11,414
Printing ................................................... 5,804
Financial services fee -- Note B ........................... 1,301
Trustees' fees ............................................. 581
Miscellaneous .............................................. 537
Legal fees ................................................. 449
-----------
Total Expenses ................... 247,406
-------------------------------------------------
Less expense reductions --
Note B ........................... ( 95,120)
-------------------------------------------------
Net Expenses ..................... 152,286
-------------------------------------------------
Net Investment Loss .............. ( 43,187)
-------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ........................ 247,919
Net realized loss on foreign currency transactions ........... ( 37,965)
Change in net unrealized appreciation/depreciation
of investments ............................................... 213,964
Change in net unrealized appreciation/depreciation
of foreign currency transactions ............................. ( 2,378)
-----------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions ............ 421,540
-------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........ $ 378,353
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) ......................................................... $ 35,713 ($ 43,187)
Net realized gain (loss) on investments sold and foreign currency transactions ....... ( 103,249) 209,954
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions .............................................................. 727,115 211,586
------------ ------------
Net Increase in Net Assets Resulting from Operations ............................... 659,579 378,353
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- (none and $0.0109 per share, respectively) .............................. -- ( 6,338)
------------ ------------
From Fund Share Transactions -- Net*: .................................................. 4,408,817 1,036,239
------------ ------------
Net Assets:
Beginning of period .................................................................. 8,204,963 13,273,359
------------ ------------
End of period (including undistributed net investment income of $6,064
and distributions in excess of net investment income of $43,461, respectively) ..... $ 13,273,359 $ 14,681,613
============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
------------------------ -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 1,161,618 $ 9,954,113 202,389 $ 1,795,002
Shares issued to shareholders in reinvestment of distributions -- -- 673 6,080
--------- ------------ ------- ------------
1,161,618 9,954,113 203,062 1,801,082
Less shares repurchased ( 1,093,395) ( 9,411,237) ( 182,174) ( 1,627,601)
--------- ------------ ------- ------------
Net Increase 68,223 $ 542,876 20,888 $ 173,481
========= ============ ======= ============
CLASS B
Shares sold 1,141,712 $ 9,576,146 384,105 $ 3,409,202
Less shares repurchased ( 680,493) ( 5,710,205) ( 287,950) ( 2,546,444)
--------- ------------ ------- ------------
Net Increase 461,219 $ 3,865,941 96,155 $ 862,758
========= ============ ======= ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1994
(COMMENCEMENT OF YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
OPERATIONS) TO ----------------------- APRIL 30, 1997
OCTOBER 31, 1994 1995 1996 (UNAUDITED)
---------------- ------- -------- -----------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $ 8.50 $ 8.65 $ 8.14 $ 8.70
------ ------ ------- --------
Net Investment Income (Loss) .................................. 0.07(1) 0.04 0.06(1) ( 0.01)(1)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ........................... 0.08 ( 0.47) 0.50 0.28
------ ------ ------- --------
Total from Investment Operations ............................ 0.15 ( 0.43) 0.56 0.27
------ ------ ------- --------
Less Distributions:
Dividends from Net Investment Income .......................... -- ( 0.03) -- ( 0.01)
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions ........................... -- ( 0.05) -- --
------ ------ ------- --------
Total Distributions ......................................... -- ( 0.08) -- ( 0.01)
------ ------ ------- --------
Net Asset Value, End of Period ................................ $ 8.65 $ 8.14 $ 8.70 $ 8.96
====== ====== ======= ========
Total Investment Return at Net Asset Value (2) ................ 1.77%(3) ( 4.96%) 6.88% 3.11%(3)
Total Adjusted Investment Return at Net Asset Value (2,4) ..... ( 0.52%)(3) ( 8.12%) 5.33% 2.43%(3)
Ratios and Supplemental Data ....................................
Net Assets, End of Period (000s omitted) ..................... $4,426 $4,215 $ 5,098 $ 5,437
Ratio of Expenses to Average Net Assets ....................... 1.50%(5) 1.64% 1.75% 1.76%(5)
Ratio of Adjusted Expenses to Average Net Assets (6) .......... 3.79%(5) 4.80% 3.30% 3.13%(5)
Ratio of Net Investment Income to Average Net Assets .......... 1.02%(5) 0.56% 0.68% ( 0.18%)(5)
Ratio of Adjusted Net Investment Loss to Average Net Assets (6) ( 1.27%)(5) ( 2.60%) ( 0.87%) ( 1.55%)(5)
Portfolio Turnover Rate ..................................... 50% 69% 83% 45%
Fee Reduction Per Share (1) .................................. $ 0.16 $ 0.25 $ 0.14 $ 0.06
Average Brokerage Commission Rate (7) ........................ N/A N/A $0.0192 $ 0.0214
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 3, 1994
(COMMENCEMENT OF YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
OPERATIONS) TO ----------------------- APRIL 30, 1997
OCTOBER 31, 1994 1995 1996 (UNAUDITED)
---------------- ------- -------- -----------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $ 8.50 $ 8.61 $ 8.05 $ 8.55
------ ------- ------- -------
Net Investment Income (Loss) .................................. 0.02(1) ( 0.03) 0.00(1,8) ( 0.04)(1)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ........................... 0.09 ( 0.48) 0.50 0.27
------ ------- ------- -------
Total from Investment Operations ............................ 0.11 ( 0.51) 0.50 0.23
------ ------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions ........................... -- ( 0.05) -- --
------ ------- ------- -------
Net Asset Value, End of Period ................................ $ 8.61 $ 8.05 $ 8.55 $ 8.78
====== ======= ======= =======
Total Investment Return at Net Asset Value (2) ................ 1.29%(3) ( 5.89%) 6.21% 2.69%(3)
Total Adjusted Investment Return at Net Asset Value (2,4) ..... ( 1.00%)(3) ( 9.05%) 4.66% 2.01%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $3,948 $ 3,990 $ 8,175 $ 9,244
Ratio of Expenses to Average Net Assets ....................... 2.22%(5) 2.52% 2.45% 2.46%(5)
Ratio of Adjusted Expenses to Average Net Assets (6) .......... 4.51%(5) 5.68% 4.00% 3.83%(5)
Ratio of Net Investment Income (Loss) to Average Net Assets ... 0.31%(5) ( 0.37%) 0.02% ( 0.88%)(5)
Ratio of Adjusted Net Investment Loss to Average Net Assets (6) ( 1.98%)(5) ( 3.53%) ( 1.53%) ( 2.25%)(5)
Portfolio Turnover Rate ....................................... 50% 69% 83% 45%
Fee Reduction Per Share (1) ................................... $ 0.16 $ 0.25 $ 0.14 $ 0.06
Average Brokerage Commission Rate (7) ......................... N/A N/A $0.0192 $0.0214
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Not annualized.
(4) An estimated total return calculation that does not take into consideration management fee
reductions and other expense subsidies by the Adviser during the periods shown.
(5) Annualized.
(6) Unreimbursed, without fee reduction.
(7) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(8) Less than one cent per share.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Fund on April 30, 1997. It's divided into three main categories:
common stocks, warrants and short-term investments. Common stocks and warrants
are further broken down by country. Short-term investments, which represent the
Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Argentina (2.55%)
Perez Companc S.A., American Depositary
Receipts (ADR) (Oil & Gas) ................ 23,300 $ 375,219
-----------
Australia (4.51%)
Newcrest Mining Ltd. (Metal) ................ 60,000 178,273
RGC Ltd. (Metal) ............................ 60,000 217,578
WMC Ltd. (Metal) ............................ 45,000 266,708
-----------
662,559
-----------
Brazil (8.08%)
Centrais Electricas Brasileiras S/A (ADR)
(Utilities) ............................... 20,000 440,000
Telecomunicacoes Brasileiras S/A (ADR)
(Telecommunications) ...................... 6,500 745,875
-----------
1,185,875
-----------
Chile (0.37%)
Maderas y Sinteticos SA (ADR) (Building) .... 3,400 54,400
-----------
Finland (1.75%)
Amer Group, Ltd. (Diversified Operations) ... 15,000 256,711
-----------
France (4.72%)
LVMH Moet Hennessy Louis Vuitton
(Beverages) ............................... 1,730 422,385
Lyonnaise des Eaux SA
(Diversified Operations) .................. 3,000 271,396
-----------
693,781
-----------
Germany (4.79%)
Schering AG (Medical) ....................... 2,000 191,708
VEBA AG (Diversified Operations) ............ 5,000 257,536
Volkswagen AG (Automobile / Trucks) ......... 400 254,302
-----------
703,546
-----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Hong Kong (10.14%)
Cheung Kong (Holdings) Ltd.
(Real Estate Operations) .................. 35,000 $ 307,236
China Resources Enterprise Ltd.
(Real Estate Operations) .................. 100,000 276,254
CITIC Pacific Ltd.
(Diversified Operations) .................. 45,000 243,400
Hong Kong & Shanghai Hotels Ltd.
(Leisure) ................................. 150,000 217,840
Hutchison Whampoa Ltd.
(Diversified Operations) .................. 42,000 311,754
Wharf (Holdings) Ltd.
(Real Estate Operations) .................. 35,000 132,382
----------
1,488,866
----------
India (1.76%)
State Bank of India, Global Depositary
Receipts (GDR) (Banks - Foreign)* ......... 10,600 257,845
----------
Japan (14.75%)
Fujitsu Ltd. (Computers) .................... 25,000 259,976
Ito-Yokado Co. (Retail) ..................... 6,000 287,864
Matsushita Communication Industrial Co.,
Ltd. (Telecommunications) ................. 4,000 103,360
Matsushita-Kotobuki Electronics Industries,
Ltd. (Electronics) ........................ 13,000 414,779
Shin-Etsu Chemical Co., Ltd. (Chemicals) .... 15,000 302,517
Sony Corp. (Electronics) .................... 5,000 363,966
TDK Corp. (Electronics) ..................... 6,000 432,505
----------
2,164,967
----------
Malaysia (1.79%)
Sime Darby Berhad
(Diversified Operations) .................. 85,000 262,367
----------
Mexico (7.23%)
Empresas La Moderna S.A. de C.V. (ADR)
(Tobacco) ................................. 9,000 186,750
Grupo Industrial Maseca SA de CV (ADR)
(Food) .................................... 18,800 277,300
Panamerican Beverages, Inc. (Beverages) ..... 20,600 597,400
----------
1,061,450
----------
Netherlands (1.33%)
PolyGram NV (Household) ..................... 4,000 196,068
----------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Norway (1.79%)
Saga Petroleum ASA (Oil & Gas) .............. 15,000 $ 262,245
-----------
Pakistan (0.02%)
Crescent Textile Mills (Textile)* ........... 7,076 3,036
-----------
Romania (1.41%)
Societe Generale Romania Fund Ltd.
(Finance - Public Investment Fund) ........ 2,000 207,000
-----------
Singapore (6.16%)
DBS Land Ltd. (Real Estate Operations) ...... 75,000 242,487
Keppel Corp., Ltd.
(Diversified Operations) .................. 45,000 195,855
Oversea-Chinese Banking Corp., Ltd.
(Banks - Foreign) ......................... 20,000 233,506
Wing Tai Holdings Ltd.
(Real Estate Operations) .................. 90,000 232,539
-----------
904,387
-----------
South Korea (0.55%)
L.G. Construction Ltd. (Building) ........... 5,500 81,390
-----------
Sweden (2.53%)
Investor AB (Diversified Operations) ........ 8,500 371,652
-----------
Switzerland (4.47%)
Ciba Specialty Chemicals AG
(Chemicals)* .............................. 213 18,351
Novartis AG (Medical) ....................... 213 280,609
SMH AG (Consumer Products Misc.) ............ 2,700 357,167
-----------
656,127
-----------
United Kingdom (10.79%)
Dixons Group PLC (Retail) ................... 30,000 245,786
Marks & Spencer PLC (Retail) ................ 50,000 396,272
Pearson PLC (Media) ......................... 28,000 323,112
PizzaExpress PLC (Retail) ................... 35,000 391,977
Regal Hotel Group PLC (Leisure) ............. 250,000 226,904
-----------
1,584,051
-----------
TOTAL COMMON STOCKS
(Cost $12,211,515)( 91.49%) 13,433,542
-------- -----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
WARRANT
Sweden (0.05%)
Scania AB (Automobile / Trucks) ............. $ 6,500 $ 6,670
-----------
TOTAL WARRANT
(Cost $8,731)( 0.05%) 6,670
-------- -----------
TOTAL COMMON STOCKS AND WARRANT
(Cost $12,220,246)( 91.54%) $13,440,212
-------- -----------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- ---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (5.69%)
Investment in a joint repurchase
agreement transaction with
Aubrey G. Lanston & Co.
Dated 04-30-97, Due 05-01-97
(secured by U.S. Treasury Notes,
5.50% thru 6.625%, Due
05-15-98 thru 09-30-01) --
Note A ............................... 5.38% $ 835 $ 835,000
-----------
TOTAL SHORT-TERM INVESTMENTS ( 5.69%) 835,000
-------- -----------
TOTAL INVESTMENTS ( 97.23%) $14,275,212
======== ===========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries it invests. The concentration of investments by country for
individual securities held by the Fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various
industry groups. The table below shows the percentages of the Fund's Investments
at April 30, 1997 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ----------
Automobile/Trucks .......................................... 1.78%
Banks - Foreign ............................................ 3.35
Beverages .................................................. 6.95
Building ................................................... 0.92
Chemicals .................................................. 2.19
Computers .................................................. 1.77
Consumer Products Misc. .................................... 2.43
Diversified Operations ..................................... 14.79
Electronics ................................................ 8.25
Finance - Public Investment Fund ........................... 1.41
Food ....................................................... 1.89
Household .................................................. 1.33
Leisure .................................................... 3.03
Media ...................................................... 2.20
Medical .................................................... 3.22
Metal ...................................................... 4.51
Oil & Gas .................................................. 4.34
Real Estate Operations ..................................... 8.11
Retail ..................................................... 9.00
Telecommunications ......................................... 5.78
Textile .................................................... 0.02
Tobacco .................................................... 1.27
Utilities .................................................. 3.00
Short-Term Investments ..................................... 5.69
-------
TOTAL INVESTMENTS 97.23%
=======
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust III (the "Trust") (formerly Freedom Investment
Trust II) is a diversified open-end management investment company, registered
under the Investment Company Act of 1940. The Trust consists of six series: John
Hancock International Fund (the "Fund"), John Hancock Global Fund, John Hancock
Growth Fund, John Hancock World Bond Fund, John Hancock Special Opportunities
Fund and John Hancock Short-Term Strategic Income Fund. The other five series of
the Trust are reported in separate financial statements. The investment
objective of the Fund is long-term growth of capital through investment
primarily in stocks of foreign companies.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more 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. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, net currency exchange gains and
losses from sales of foreign debt securities must be treated as ordinary income
even though such items are gains and losses for accounting purposes.
For federal income tax purposes, the Fund has $592,108 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized gains. To the extent such carryforwards are used by the Fund, no
capital gains distribution will be made. The carryforwards expire as follows:
$531,549 -- October 31, 2003, and $60,559 -- October 31, 2004.
DIVIDENDS, DISTRIBUTIONS AND INTEREST 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 all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
by the Fund with respect to each class of shares will be calculated in the same
manner, at the same time and will be in the same amount, except for the effect
of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
ORGANIZATION EXPENSES Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five year period that commenced with the investment operations of
the Fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The fund had no borrowing
activity for the period ended April 30, 1997.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
At April 30, 1997, there were no open forward currency contracts.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
The Adviser is solely responsible for advising the Fund with respect to
investments in the United States and Canada. The Fund and the Adviser also have
a sub-investment management contract with John Hancock Advisers International
Limited (the "Sub-Adviser"), a wholly owned subsidiary of the Adviser, under
which the Sub-Adviser, subject to the review of the Trustees and overall
supervision of the Adviser, provides the Fund with investment management
services and advice with respect to the portion of the Fund's assets invested in
countries other than the United States and Canada.
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 1.00% of the first $250,000,000 of the Fund's
average daily net asset value, (b) 0.80% of the next $250,000,000, (c) 0.75% of
the next $250,000,000 and (d) 0.625% of the Fund's average daily net asset value
in excess of $750,000,000. The Adviser pays the Sub-Adviser a fee equivalent, on
an annual basis to the sum of (a) 0.70% of the first $200,000,000 of the Fund's
average daily net asset value and (b) 0.6375% of the Fund's average daily net
asset value in excess of $200,000,000. The Fund is not responsible for the
payment of the Sub-Adviser's fee.
The Adviser has agreed to limit Fund expenses, including the management fee
(but not including the transfer agent fee and the 12b-1 fee), to 0.90% of the
Fund's average daily net assets. Accordingly, the reduction in the Adviser's fee
and other expenses amounted to $95,120 for the period ended April 30, 1997. The
Adviser reserves the right to terminate this limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended April
30, 1997, net sales charges received with regard to sales of Class A shares
amounted to $15,448. Out of this amount, $2,378 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $10,084
was paid as sales commissions to unrelated broker dealers and $2,986 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"), all of which are broker dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect
sole shareholder of Distributors and was the indirect sole shareholder until
November 29, 1996 of John Hancock Freedom Securities Corporation and its
subsidiaries, which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended April 30, 1997,
contingent deferred sales charges paid to JH Funds amounted to $15,427.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of the Fund.
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon, and Mr. Richard S. Scipione
are trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At April 30, 1997, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $23.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1997, aggregated $5,912,151 and $6,184,140, respectively. There
were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1997.
The cost of investments owned at April 30, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $13,055,246. Gross
unrealized appreciation and depreciation of investments aggregated $1,828,744
and $608,778, respectively, resulting in net unrealized appreciation of
$1,219,966.
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - International Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
International Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 400SA 4/97
6/97
<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Special
Opportunities Fund
SEMI-ANNUAL REPORT
April 30, 1997
<PAGE>
================================================================================
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and
Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
As the market continues to fret over interest rates and inflation, investors
should be prepared for more volatility. It also makes sense to do something
we've always advocated: set realistic expectations. Keep in mind that the stock
market's historic yearly average has been about 10%, not the 20%-plus annual
average of the last two years or even the 16% annual average over the last 10
years. Remember that the kind of market volatility we've seen lately is more
like the way the market really works. Fluctuations go with the territory. And
market corrections can be healthy, serving to bring inflated stock prices down
to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Robert Freedman, Chief Investment Officer, for the
Portfolio Management Team
John Hancock
Special Opportunities Fund
Stock market charges ahead but favors larger companies
Recently, John Hancock Funds' chief investment officer Robert Freedman assumed
leadership of the Fund's management team on an interm basis, joining fund
management team members Ben Hock and Jim Boyd.
The stock market closed out 1996 and began 1997 on a high, bolstered by moderate
economic growth, tame inflation and strong corporate earnings. But signs that
the economy was picking up steam sent nervous shivers through the market in
early March. Interest rates rose along with inflation fears. From mid-March to
mid-April, the Dow Jones Industrial Average lost nearly 700 points and gave up
just about all the gains it had made in the first two months. But in the last
few weeks of April, the market changed its mind again, and sent stocks into
record-breaking territory by the end of April.
With all the uncertainty, much of the market's advance was limited to the
largest blue-chip companies in the Dow and the Standard & Poor's 500 Stock
Index. That posed some hurdles for John Hancock Special Opportunities Fund,
whose focus is more on mid-sized companies, many of which languished in the rush
to large-cap stocks. For the six months ended April 30, 1997, the Fund's Class A
and Class B shares posted total returns of -9.44% and -9.86%, respectively, at
net asset value. In the same period, the average capital appreciation fund
returned 1.34%, according to Lipper Analytical Services, Inc.1 For another
comparison, the Russell Midcap Growth Index returned 2.77%. Please see pages six
and seven for longer-term performance information.
Strategy
When the period began last November, our five focus sectors included energy,
financials, basic materials, technology and capital equipment. At the end of
April, energy remained our top sector, although we pared it substantially during
the period. We increased our position in basic
- --------------------------------------------------------------------------------
"...mid-sized companies languished in the rush to large-cap stocks."
- --------------------------------------------------------------------------------
[A 2 1/4 x 3 3/4 photo of the Special Opportunities team at bottom right.
Caption reads: "Robert Freedman (l) and Fund management team members Ben Hock
(center) and Jim Boyd (r)."]
3
<PAGE>
================================================================================
John Hancock Funds - Special Opportunities Fund
[Chart with heading "Top Five Common Stock Holdings" at top left hand column.
The chart lists five holdings: 1) Smith International 2.8% 2) Energy Ventures
2.7% 3) Health Management Associates 2.6% 4) Ensco International 2.5% 5) Tosco
Corporation 2.4%. A footnote below reads "As a percentage of net assets on April
30, 1997.]
- --------------------------------------------------------------------------------
"...energy remained our top sector, although we pared it substantially."
- --------------------------------------------------------------------------------
materials and kept approximately the same exposure to capital equipment. We cut
our financial stocks, which suffered during the period from rising interest
rates. In their place, we added positions in retail and healthcare.
We also cut back our exposure to technology over the last six months, since
volatility has increased along with rising interest rates. Most of the big gains
in technology have recently occurred in the larger-capitalization technology
stocks such as Intel and Microsoft, an area we had underweighted. We still own
several technology stocks, however, on the belief that many technology companies
still have the potential for strong growth; we've just become more selective.
Energy underperforms short term
We attribute our underperformance during the period primarily to our
over-emphasis in the energy sector, which has served us well over time, but
stumbled over the past six months. One key reason was a slowdown in demand for
oil, and consequently, a drop in crude oil prices. Demand fell because most of
the country had a much warmer winter than usual and, for the most part, stored
oil reserves met consumers' needs. But we firmly believe that demand will pick
up again, stemming from high-growth countries like Indonesia, China and India as
well as efficiency-complacent Americans. The potential for a disruption in
supply also remains. While energy stocks have not provided the price
appreciation we expected in the short term, we will maintain an emphasis in this
sector, focusing on drilling and equipment and service companies, as well as
those involved in exploration and production. The energy sector currently
represents 30% of the Fund's assets.
[Table entitled "Scorecard" at bottom left hand column. The header for the left
column is "Investment"; the header for the right column is "Recent
performance...and what's behind the numbers." The first listing is Energy
Ventures followed by an up arrow and the phrase "Increased drilling activity."
The second listing is Stillwater Mining followed by a horizontal arrow pointing
in both directions followed by the phrase "Sluggish platinum prices." The third
listing is Biogen followed by a down arrow and the phrase "Slowdown in European
sales." Footnote below reads "See "Schedule of Investments." Investment holdings
are subject to change."]
Basic materials
Our investments in the basic materials sector reflect our belief that the rising
demand for gold in fast-growing nations like China, Indonesia and India, which
are the largest consumers of gold for jewelry production, will eventually give a
boost to gold stocks. The move didn't happen during the six-month period, but we
still believe in the sector's appreciation potential. We have sold our
investments in titanium-related stocks because we believe that the market has
anticipated a slowdown in orders for aircraft and golf clubs. Bema Gold and
Franco-Nevada Mining Corporation are two of our larger holdings in this sector,
which makes up 16% of the portfolio.
Discounters prevail in retail sector
We have replaced many technology stocks with investments in the retail sector,
which represents 20% of our investments. Discount companies like Payless Shoes,
TJX Companies and Costco are benefiting greatly from improved pricing. There is
also a growing trend towards more
4
<PAGE>
================================================================================
John Hancock Funds - Special Opportunities Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." the chart is
scaled in increments of 2% from bottom to top, with -10% at the bottom and 2% at
the top. Within the chart, there are three solid bars. The first represents the
- -9.44% total return for John Hancock Special Opportunities Fund: Class A. The
second represents the -9.86% total return for John Hancock Special Opportunities
Fund: Class B. The third represents the 1.34% total return for the Average
capital appreciation fund. Footnote below reads "total returns for John Hancock
Special Opportunities Fund are at net asset value with all distributions
reinvested. The average capital appreciation fund is tracked by Lipper
Analytical Services. (1) See the following two pages for historical performance
information."]
casual attire in the workplace. Costco, which merged with Price Companies in
California, continues to increase its business and is particularly astute at
store site selection.
Healthcare and capital equipment
We have established a 14% position in the health-care sector. As hospitals
around the country continue to consolidate, costs are centralized and
redundancies eliminated, producing solid business operations. Demand for
health-care facilities will only keep growing as people live longer. Some strong
candidates for earnings growth are our holdings in Elan Corp., which seeks out
better ways to deliver drugs to patients, and hospital management companies
Tenet Healthcare and Health Management Associates.
Capital equipment stocks, which totaled 5% of the portfolio, included
aerospace and pollution control companies, which tend to be less sensitive to
moves in the economy and are benefiting from industry consolidation, such as
Superior Services.
Looking ahead
In the near term, we expect more market volatility as investors remain nervous
about the possibility of further interest rate hikes. As long as interest rates
don't go up too much, we continue to believe that there's still room for
earnings growth and market advance. In order to give the Fund more flexibility
to pursue market opportunities, the Fund's trustees recently agreed to reduce
from 90% to 75% the amount of the Fund's invested assets required to be within
five or fewer sectors. This modification gives the Fund a greater ability to
invest in securities that meet the Fund's investment criteria but that lie
outside of the Fund's focus sectors. It also enables the establishment of
initial positions in possible future sectors without having to alter overall
sector alignments. No matter what, we remain committed to our disciplined
investment strategy of choosing the best companies from within the
fastest-growing market sectors in our search for rewarding performance.
- --------------------------------------------------------------------------------
"In the near term, we expect more market volatility..."
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
Sector investing is subject to different, and sometimes greater, risks than the
market as a whole.
1 Figures from Lipper Analytical Services include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
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- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Special Opportunities Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's net asset value per
share. Performance figures include the maximum applicable sales charge of 5% for
Class A shares. The effect of the maximum contingent-deferred sales charge for
Class B shares (maximum 5% and declining to 0% over six years) is included in
Class B performance. Remember that all figures represent past performance and
are no guarantee of how the Fund will perform in the future. Also, keep in mind
that the total return and share price of the Fund's investments will fluctuate.
As a result, your Fund's shares may be worth more or less than their original
cost, depending on when you sell them. Please see your prospectus for risks
associated with industry segment investing.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Special Opportunities Fund: Class A(1) (0.61%) 32.59%
John Hancock Special Opportunities Fund: Class B (1) (1.07%) 33.33%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Special Opportunities Fund: Class A(1) (0.61%) 8.63%
John Hancock Special Opportunities Fund: Class B (1) (1.07%) 8.81%
Notes to Performance
(1) Both Class A and Class B shares commenced on November 1, 1993.
6
<PAGE>
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Special Opportunities Fund would be worth on April 30, 1997, assuming you had
invested on the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index -- an unman-aged index that includes 500
widely traded common stocks and is a commonly used measure of stock market
performance. In addition, the Fund is compared to the Russell Midcap Growth
Index - an unmanaged index that contains those securities from the Russell
Mid-Cap Growth Index with a greater-than-average growth orientation. The Adviser
has chosen to add the Index of comparison to more closely represent the
investment strategy of the Fund. The strategy of the Fund presently is to invest
in Mid-Cap companies, rather than the Standard & Poor's 500 Stock Index.
[Line chart with the heading Special Opportunities Fund: Class A, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are four lines. The first line represents the value of the
Standard & Poor's 500 Index and is equal to $17,635 as of April 30, 1997. The
second line represents the value of the Russell Midcap Growth Index and is equal
to $15,443 as of April 30, 1997. The third line represents the value of the
hypothetical $10,000 investment made in the Special Opportunities Fund on
November 1, 1993, before sales charge, and is equal to $13,520 as of April 30,
1997. The fourth line represents the Special Opportunities Fund, after sales
charge, and is equal to $12,844 as of April 30, 1997.]
[Line chart with the heading Special Opportunities Fund: Class B, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are four lines. The first line represents the value of the
Standard & Poor's 500 Index and is equal to $17,635 as of April 30, 1997. The
second line represents the value of the Russell Midcap Growth Index and is equal
to $15,443 as of April 30, 1997. The third line represents the value of the
hypothetical $10,000 investment made in the Special Opportunities Fund on
November 1, 1993, before sales charge, and is equal to $13,520 as of April 30,
1997. The fourth line represents the Special Opportunities Fund, after sales
charge, and is equal to $12,844 as of April 30, 1997.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value -- Note C:
Common stocks (cost -- $307,449,746) ....................... $ 320,787,104
Joint repurchase agreement (cost -- $51,780,000) ........... 51,780,000
Corporate savings account .................................. 2,769
-------------
............................................................... 372,569,873
Receivable for shares sold ................................... 89,315
Receivable for investments sold short -- Note A .............. 14,698,962
Interest receivable .......................................... 8,480
Dividends receivable ......................................... 100,028
Foreign tax receivable ....................................... 6,805
Deferred organization expenses -- Note A ..................... 39,256
Other assets ................................................. 10,983
-------------
Total Assets ..................... 387,523,702
-------------------------------------------------
Liabilities:
Investments sold short
(Contract amount $15,359,189) -- Note A .................... 15,522,155
Due to Custodian ............................................. 29,200
Payable for investments purchased ............................ 25,068,446
Payable for shares repurchased ............................... 149,193
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B ................................... 343,369
Accrued fees and expenses .................................... 101,357
-------------
Total Liabilities ................ 41,213,720
-------------------------------------------------
Net Assets:
Capital paid-in ............................................. $ 316,780,137
Accumulated net realized gain on investments and
foreign currency transactions .............................. 18,120,728
Net unrealized appreciation of investments and
foreign currency transactions .............................. 13,174,353
Accumulated net investment loss .............................. ( 1,765,236)
-------------
Net Assets ....................... $ 346,309,982
=================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding -- unlimited number of shares
authorized with no par value, respectively)
Class A -- $139,830,209 / 14,735,573 ......................... $ 9.49
=============================================================================
Class B -- $206,479,773 / 22,383,537 ......................... $ 9.22
=============================================================================
Maximum Offering Price Per Share *
Class A -- ($9.49 x 105.26%) ................................. $ 9.99
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes
of $25,711) ................................................. $ 1,300,582
Interest ...................................................... 932,519
-----------
................................................................ 2,233,101
-----------
Expenses:
Investment management fee -- Note B ......................... 1,587,782
Distribution and service fee -- Note B
Class A ................................................... 239,316
Class B ................................................... 1,187,008
Transfer agent fee -- Note B ................................ 728,022
Custodian fee ............................................... 98,079
Financial services fee -- Note B ............................ 37,213
Printing .................................................... 28,790
Registration and filing fees ................................ 25,866
Trustees' fees .............................................. 16,782
Auditing fee ................................................ 13,141
Organization expense -- Note A .............................. 12,916
Miscellaneous ............................................... 7,882
Legal fees .................................................. 4,439
-----------
Total Expenses .................... 3,987,236
-------------------------------------------------
Net Investment Loss ............... ( 1,754,135)
-------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions:
Net realized gain on investments sold ......................... 17,732,131
Net realized gain on investments sold short ................... 957,384
Net realized gain on foreign currency transactions ............ 104,578
Change in net unrealized appreciation/depreciation
of investments .............................................. ( 55,368,064)
Change in net unrealized appreciation/depreciation
of investments sold short ................................... ( 162,966)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ............................ 6,641
-----------
Net Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions ..... ( 36,730,296)
--------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ......... ($38,484,431)
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .......................................................... ($ 4,193,647) ($ 1,754,135)
Net realized gain on investments sold and foreign currency transactions ...... 69,904,536 18,794,093
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions .............................................. 22,495,622 ( 55,524,389)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations .......... 88,206,511 ( 38,484,431)
------------ ------------
Distribution to Shareholders:
Distribution from net realized gain on investments sold
Class A -- ($1.6317 and $0.4581, respectively) ........................... ( 16,983,647) ( 6,629,672)
Class B -- ($1.6317 and $0.4581, respectively) ........................... ( 25,051,185) ( 10,356,319)
------------ ------------
Total Distributions to Shareholders ...................................... ( 42,034,832) ( 16,985,991)
------------ ------------
From Fund Share Transactions -- Net* ........................................... 110,382,843 6,300,472
------------ ------------
Net Assets:
Beginning of period .......................................................... 238,925,410 395,479,932
------------ ------------
End of period (including accumulated net investment loss of
$11,101 and $1,765,236, respectively) ................................. $395,479,932 $346,309,982
============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................... 8,559,130 $ 96,067,916 11,345,461 $123,255,539
Shares issued in reorganization -- Note D ....... 1,877,582 19,116,784 -- --
Shares reinvested ............................... 1,583,421 15,945,056 574,172 6,252,674
---------- ------------ ---------- ------------
.................................................. 12,020,133 131,129,756 11,919,633 129,508,213
Less shares repurchased ......................... ( 8,586,867) ( 95,919,018) (11,520,213) ( 124,329,445)
---------- ------------ ---------- ------------
Net Increase .................................... 3,433,266 $ 35,210,738 399,420 $ 5,178,768
========== ============ ========== ============
CLASS B
Shares sold ..................................... 6,000,021 $ 65,825,284 3,240,237 $ 34,084,818
Shares issued in reorganization - Note D ........ 4,519,844 44,987,360 -- --
Shares reinvested ............................... 2,350,721 23,155,093 886,032 9,400,773
---------- ------------ ---------- ------------
12,870,586 133,967,737 4,126,269 43,485,591
Less shares repurchased ......................... ( 5,421,096) ( 58,795,632) ( 4,141,327) ( 42,363,887)
---------- ------------ ---------- ------------
Net Increase (Decrease) ......................... 7,449,490 $ 75,172,105 ( 15,058) $ 1,121,704
========== ============ ========== ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
------------------------------------- APRIL 30, 1997
1994 1995 1996 (UNAUDITED)
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
CLASS A(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................... $ 8.50 $ 7.93 $ 9.32 $ 10.92
-------- -------- -------- --------
Net Investment Loss (2) ............................................ ( 0.03) ( 0.07) ( 0.11) ( 0.02)
Net Realized and Unrealized Gain (Loss) on Investments ............. ( 0.54) 1.46 3.34 ( 0.95)
-------- -------- -------- --------
Total from Investment Operations ................................. ( 0.57) 1.39 3.23 ( 0.97)
-------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ........... -- -- ( 1.63) ( 0.46)
-------- -------- -------- --------
Net Asset Value, End of Period ..................................... $ 7.93 $ 9.32 $ 10.92 $ 9.49
======== ======== ======== ========
Total Investment Return at Net Asset Value (3) ..................... ( 6.71%)(8) 17.53% 36.15% ( 9.44%)(10)
Total Adjusted Investment Return at Net Asset Value (5) ............ ( 6.83%)(4) -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................... $ 92,325 $101,562 $156,578 $139,830
Ratio of Expenses to Average Net Assets ............................ 1.50% 1.59% 1.59% 1.59%(7)
Ratio of Adjusted Expenses to Average Net Assets (5) ............... 1.62% -- -- --
Ratio of Net Investment Loss to Average Net Assets ................. ( 0.41%) ( 0.87%) ( 1.00%) ( 0.46%)(7)
Ratio of Adjusted Net Investment Loss to Average Net Assets (5) .... ( 0.53%) -- -- --
Portfolio Turnover Rate ............................................ 57% 155% 240% 149%
Expense Reimbursement Per Share .................................... $ 0.01(2) -- -- --
Average Broker Commission Rate (6) ................................. N/A N/A $ 0.0600 $ 0.0629
CLASS B(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ............................... $ 8.50 $ 7.87 $ 9.19 $ 10.67
-------- -------- -------- --------
Net Investment Loss (2) ............................................ ( 0.09) ( 0.13) ( 0.18) ( 0.06)
Net Realized and Unrealized Gain (Loss) on Investments ............. ( 0.54) 1.45 3.29 ( 0.93)
-------- -------- -------- --------
Total from Investment Operations ................................. ( 0.63) 1.32 3.11 ( 0.99)
-------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ........... -- -- ( 1.63) ( 0.46)
-------- -------- -------- --------
Net Asset Value, End of Period ..................................... $ 7.87 $ 9.19 $ 10.67 $ 9.22
======== ======== ======== ========
Total Investment Return at Net Asset Value (3) ..................... ( 7.41%)(8) 16.77% 35.34% ( 9.86%)(10)
Total Adjusted Investment Return at Net Asset Value (5) ............ ( 7.53%)(4) -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........................... $131,983 $137,363 $238,901 $206,480
Ratio of Expenses to Average Net Assets ............................ 2.22% 2.30% 2.29% 2.29%(7)
Ratio of Adjusted Expenses to Average Net Assets (5) ............... 2.34% -- -- --
Ratio of Net Investment Loss to Average Net Assets ................. ( 1.13%) ( 1.55%) ( 1.70%) ( 1.17%)(7)
Ratio of Adjusted Net Investment Loss to Average Net Assets (5) .... ( 1.25%) -- -- --
Portfolio Turnover Rate ............................................ 57% 155% 240% 149%
Expense Reimbursement Per Share .................................... $ 0.01(2) -- -- --
Average Broker Commission Rate (6) ................................. N/A N/A $ 0.0600 $ 0.0629
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 6, 1994
(COMMENCEMENT OF OPERATIONS) PERIOD ENDED
TO OCTOBER 31, 1994 APRIL 11, 1995
------------------- ---------------
<S> <C> <C>
CLASS C (9)
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 7.60 $ 7.94
-------- --------
Net Investment Income (2) -- 0.01
Net Realized and Unrealized Gain on Investments 0.34 0.29
-------- --------
Total From Investment Operations 0.34 0.30
-------- --------
Net Asset Value, End of Period $ 7.94 $ 8.24
======== ========
Total Investment Return at Net Asset Value (3) ( 4.47%)(8) 3.40%
Total Adjusted Investment Return at Net Asset Value (5) ( 4.85%)(4) --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 165 $ 218
Ratio of Expenses to Average Net Assets 1.01%(7) 0.98%(7)
Ratio of Adjusted Expenses to Average Net Assets (5) 1.39%(7) --
Ratio of Net Investment Income to Average Net Assets 0.03%(7) 0.23%(7)
Ratio of Adjusted Net Investment Income to Average Net Assets (5) ( 0.35%)(7) --
Portfolio Turnover Rate 57% N/A
Expense Reimbursement Per Share $ 0.01(2) --
(1) Class A and B shares commenced operations on November 1, 1993.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) An estimated total return calculation which does not take into consideration
fee reductions by the adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(7) Annualized.
(8) Without the reimbursements total investment return would be lower.
(9) Per share operating performance and the ratios and supplemental data are calculated as of April 11,
1995, the date on which Class C shares were redeemed.
(10) Not annualized.
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indicated: the net investment loss, gains (losses),
and total investment return of the Fund. It shows how the Fund's net asset value
for a share has changed since the commencement of operations. Additionally,
important relationships between some items presented in the financial statements
are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Special Opportunities Fund on April 30, 1997. It's divided into three main
categories: common stocks, short-term investments and investments sold short.
The common stocks are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Aerospace (1.36%)
Tracor, Inc.* ............................ 216,700 $ 4,713,225
-------------
Agricultural Operations (1.70%)
Dekalb Genetics Corp. (Class B) .......... 60,000 3,780,000
Pioneer Hi-Bred International, Inc. ...... 30,000 2,118,750
-------------
5,898,750
-------------
Automobile / Trucks (0.66%)
PACCAR, Inc. ............................. 33,000 2,305,875
-------------
Beverages (0.05%)
Vina Concha Y Toro American Depositary
Receipt (ADR)(Chile) ................... 5,400 176,175
-------------
Computers (1.49%)
Compuware Corp. * ........................ 73,000 2,755,750
SMART Modular Technologies, Inc. * ....... 72,000 2,412,000
-------------
5,167,750
-------------
Consumer Products Misc. (0.89%)
Samsonite Corp.* ......................... 74,000 3,071,000
-------------
Cosmetics & Personal Care (1.65%)
Alberto-Culver Co. ....................... 196,500 5,723,063
-------------
Food (2.73%)
Morningstar Group, Inc.* ................. 120,000 2,910,000
Smithfield Foods, Inc.* .................. 142,000 6,549,750
-------------
9,459,750
-------------
Medical (14.34%)
AmeriSource Health Corp.* ................ 64,000 2,856,000
Ballard Medical Products ................. 108,100 2,053,900
Bio-Technology General Corp.* ............ 145,000 2,084,375
DePuy, Inc.* ............................. 251,000 5,271,000
Elan Corp., PLC (ADR) (Ireland)* ......... 112,000 3,808,000
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Medical (continued)
Health Management Associates, Inc.
(Class A) * ............................ 337,000 $ 9,014,750
Medeva PLC (ADR) (United Kingdom) ........ 190,000 3,657,500
Novacare, Inc.*+ ......................... 391,000 4,447,625
Oxford Health Plans, Inc.* ............... 99,000 6,521,625
Tenet Healthcare Corp.* .................. 288,400 7,498,400
Universal Health Services, Inc.
(Class B)* ............................. 65,000 2,461,875
-------------
49,675,050
-------------
Metal (14.51%)
Bema Gold Corp. (Canada)* ................ 917,000 6,247,062
Coeur d'Alene Mines Corp.*+ .............. 609,000 8,373,750
Compania de Minas Buenaventura S.A.
(ADR) (Peru)* .......................... 110,000 2,392,500
Euro-Nevada Mining Corp. (Canada) ........ 274,000 7,861,060
Franco-Nevada Mining Corp., Ltd.
(Canada)* .............................. 115,000 5,348,087
Getchell Gold Corp.* ..................... 56,000 2,149,000
Hecla Mining Co.* ........................ 621,900 3,342,712
Kinross Gold Corp. (Canada)* ............. 626,000 3,443,000
Santa Fe Pacific Gold Corp. .............. 411,000 6,062,250
Stillwater Mining Co.* ................... 237,000 4,769,625
TVX Gold, Inc. (Canada)* ................. 43,800 246,375
-------------
50,235,421
-------------
Oil & Gas - Drilling (8.05%)
ENSCO International, Inc.* ............... 183,500 8,716,250
Falcon Drilling Co., Inc.* ............... 204,000 7,803,000
Global Marine, Inc.* ..................... 292,000 5,876,500
Noble Drilling Corp.* .................... 315,000 5,473,125
-------------
27,868,875
-------------
Oil & Gas - Equipment & Services (12.51%)
BJ Services Co.* ......................... 39,000 1,837,875
Energy Ventures, Inc.* ................... 141,200 9,442,750
Halliburton Co. .......................... 39,000 2,754,375
National-Oilwell, Inc.* .................. 39,600 1,539,450
Petroleum Geo-Services ASA (ADR)
(Norway)* .............................. 206,500 7,950,250
Smith International, Inc.* ............... 204,500 9,688,188
Tosco Corp.+ ............................. 285,000 8,443,125
Varco International, Inc.* ............... 72,000 1,656,000
-------------
43,312,013
-------------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Oil & Gas - Exploration & Production (9.80%)
Canadian Natural Resources, Ltd.
(Canada)* .............................. 157,000 $ 3,740,509
Flores & Rucks, Inc.* .................... 89,000 3,882,625
Forcenergy, Inc.* ........................ 75,000 2,325,000
Gulf Canada Resources, Ltd.* ............. 618,000 5,021,250
Harken Energy Corp.* ..................... 1,214,000 5,538,875
Monterey Resources, Inc. ................. 168,000 2,562,000
Nuevo Energy Co. * ....................... 43,000 1,478,125
Oryx Energy Co.* ......................... 129,000 2,580,000
Unocal Corp. ............................. 70,000 2,668,750
USX - Marathon Group ..................... 103,000 2,845,375
Vintage Petroleum, Inc. .................. 46,000 1,299,500
-------------
33,942,009
-------------
Pollution Control (4.00%)
Philip Environmental, Inc. (Canada)* ..... 234,200 3,688,650
Superior Services, Inc.* ................. 302,000 6,644,000
USA Waste Services, Inc.* ................ 107,100 3,507,525
-------------
13,840,175
-------------
Retail (17.09%)
Borders Group, Inc. * .................... 216,000 4,590,000
Carrefour Supermarche (France) ........... 3,300 2,060,389
Costco Companies, Inc.* .................. 222,000 6,410,250
Dollar General Corp. ..................... 193,000 6,103,625
Next PLC (United Kingdom) ................ 220,000 2,325,664
Payless ShoeSource, Inc.* ................ 156,000 6,630,000
PizzaExpress PLC (United Kingdom) ........ 200,000 2,242,420
Quality Food Centers, Inc.* .............. 97,000 3,892,125
Ross Stores, Inc. ........................ 252,000 7,087,500
Stage Stores, Inc.* ...................... 264,000 5,478,000
Stein Mart, Inc.* ........................ 242,000 7,018,000
TJX Companies, Inc. ...................... 113,000 5,339,250
-------------
59,177,223
-------------
Textile (1.80%)
Jones Apparel Group, Inc.* ............... 149,000 6,220,750
-------------
TOTAL COMMON STOCKS
(Cost $307,449,746) ( 92.63%) 320,787,104
======== =============
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (14.95%)
Investment in a joint repurchase
agreement transaction with
Aubrey G. Lanston & Co.-
Dated 4-30-97, Due
5-01-97 (secured by U.S.
Treasury Bills, 5.37% thru
5.78% Due 8-21-97 thru
3-05-98, U.S. Treasury
Bonds, 7.125% thru 11.25%
Due 2-15-15 thru 2-15-23,
U.S. Treasury Notes, 5.125%
thru 7.75%, Due 8-31-98 thru
5-15-05) -- Note A .................. 5.375% $51,780 $ 51,780,000
-------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% .................. 2,769
-------------
TOTAL SHORT-TERM INVESTMENTS 14.95% 51,782,769
------- -------------
TOTAL INVESTMENTS 107.58% $ 372,569,873
======= =============
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
MARKET
DESCRIPTION NUMBER OF SHARES VALUE
- ----------- ---------------- -----
INVESTMENTS SOLD SHORT
Affiliated Computer Services, Inc.
(Class A) ................................... 13,000 $ 338,000
AmeriCredit Corp. ............................. 23,000 330,625
AMRESCO, Inc. ................................. 21,000 305,813
BDM International, Inc. ....................... 64,000 1,488,000
BioChem Pharma, Inc. (Canada) ................. 18,000 323,717
BMC Industries, Inc. .......................... 13,000 377,000
CKE Restaurants, Inc. ......................... 14,000 274,750
Coherent, Inc. ................................ 9,000 373,500
Kenneth Cole Productions, Inc. (Class A) ...... 18,000 299,250
CurativeHealth Services, Inc. ................. 13,000 307,125
Cytec Industries, Inc. ........................ 9,000 338,625
DeVry, Inc. ................................... 7,000 154,000
Exide Corp. ................................... 22,000 354,750
Gartner Group, Inc. (Class A) ................. 51,000 1,338,750
GenRad, Inc. .................................. 23,000 379,500
Green Tree Financial Corp. .................... 10,000 296,250
Gucci Group, NV (Netherlands) ................. 12,000 832,500
Herbalife International, Inc. ................. 18,000 290,250
K2, Inc. ...................................... 13,000 339,625
Lincare Holdings, Inc. ........................ 9,000 353,250
Meredith Corp. ................................ 15,000 352,500
Money Store, Inc. (The) ....................... 55,000 1,189,375
Oakwood Homes Corp. ........................... 74,000 1,498,500
Rainforest Cafe, Inc. ......................... 69,000 1,647,375
Republic Industries, Inc. ..................... 12,000 297,750
Rexall Sundown, Inc. .......................... 19,000 377,625
Total System Services, Inc. ................... 15,000 369,375
UICI .......................................... 13,000 357,500
Varian Associates, Inc . ...................... 7,000 336,875
-----------
TOTAL INVESTMENTS SOLD SHORT
(Contract amount $15,359,189) ( 4.48%) $15,522,155
====== ===========
* Non-Income producing security.
+ These securities have been segregated by the Funds custodian bank to secure
the Funds outstanding short sale positions. As of April 30, 1997 the total
market value of these securities amounted to $21,264,500.
The percentage shown for each category is the total value of that category as
a percentage of the net assets of the Fund.
Portfolio Concentration
- --------------------------------------------------------------------------------
The Special Opportunities Fund invests primarily in common stocks of U.S. and
foreign issuers. The performance of the Fund is closely tied to the economic and
financial conditions within the countries in which it invests. The concentration
of investments by industry category for individual securities held by the Fund
is shown in the Schedule of Investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentages of the Fund's investments at
April 30, 1997 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ----------
Canada ....................................................... 8.83%
Chile ........................................................ 0.05
France ....................................................... 0.59
Ireland ...................................................... 1.10
Norway ....................................................... 2.30
Peru ......................................................... 0.69
United Kingdom ............................................... 2.38
United States ................................................ 76.69
Short-Term Investments ....................................... 14.95
------
TOTAL INVESTMENTS 107.58%
======
SEE NOTES TO FINANCIAL STATEMENTS.
14
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust III (the "Trust") (formerly Freedom Investment
Trust II) is an open-end management investment company, registered under the
Investment Company Act of 1940. The Trust consists of six series: John Hancock
Special Opportunities Fund (the "Fund"), John Hancock Global Fund, John Hancock
World Bond Fund, John Hancock Short-Term Strategic Income Fund, John Hancock
Growth Fund and John Hancock International Fund. The other five series of the
Trust are reported in separate financial statements. The investment objective of
the Fund is long-term capital appreciation by investing in those economic
sectors that appear to have a higher than average earnings potential.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan. Class C shares were outstanding during the period from July 6, 1994,
through April 11, 1995, but the Trustees terminated Class C shares as of May 1,
1995.
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. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more 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. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, at October 31, 1996, the Fund has
$13,060,425 of capital loss carryforwards available, to the extent provided by
regulations, to offset future net realized capital gains. The Fund's
carryforwards expire as follows: 1998 - $1,326,439, 1999 - $1,297,087, 2000 -
$12,856, 2001 - $71,925, 2002 - $6,628,947 and 2003 - $3,723,171. Of the capital
loss carryforwards expiring in 2002 and 2003, $5,896,535 and $3,723,171,
respectively, were acquired on September 6, 1996 in a merger with John Hancock
Gold and Government Fund. Their availability may be limited in a given year.
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 is made aware of the dividend. Interest
income on investment securities is
15
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distri-butions are determined
in conformity with income tax regulations, which may differ from generally
accepted accounting principles. Dividends paid by the Fund with respect to each
class of shares will be calculated in the same manner, at the same time and will
be in the same amount, except for the effect of expenses that may be applied
differently to each class.
CLASS ALLOCATIONS
Income, common expenses and realized and unrealized gains (losses) are
determined at the Fund level and allocated daily to each class of shares based
on the appropriate net assets of the respective classes. Distribution and
service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended April 30, 1997.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that not offset by the currency amount of the underlying
transaction.
At April 30, 1997 there were no open foreign currency forward contracts.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it is required to deposit with
its custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments arising from
this "mark to market," are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange. For federal income tax purposes, the amount,
character and timing of the Fund's gains and/or losses can be affected as a
result of futures contracts.
At April 30, 1997, there were no open positions in financial futures
contracts.
SHORT SALE POSITIONS The Fund, in "selling short," sells borrowed securities in
anticipation of a decline in the market price of such securities or in order to
hedge portfolio positions, which must at some date be repurchased and returned
to the lender. The risk associated with this practice is that, if the market
value of securities sold short increases, the Fund would realize a loss upon a
closing purchase to offset the short position, as the repurchase cost exceeds
the proceeds originally received. Further, in unusual circumstances, the Fund
may be unable to repurchase securities to close its short positions except at
prices above those previously quoted in the market.
At April 30, 1997, securities with a market value of $21,264,500 had been
segregated to the Fund's custodian to secure the Fund's outstanding short sale
positions.
NOTE B ---
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of: (a) 0.80% of the first $500,000,000 of the
Fund's average daily net asset value, (b) 0.75% of the next $500,000,000 and (c)
0.70% of the Fund's average daily net asset value in excess of $1,000,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended April
30, 1997, net sales charges received with regard to sales of Class A shares
amounted to $441,150. Out of this amount, $69,876 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$162,592 was paid as sales commissions to unrelated broker-dealers and $208,682
was paid as sales commissions to sales personnel of John Hancock Distributors,
Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro
& Co., ("Sutro"), all of which are broker-dealers. The Adviser's
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
indirect parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the
indirect sole shareholder of Distributors and was the indirect sole shareholder
until November 29, 1996 of John Hancock Freedom Securities Corporation and its
subsidiaries which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent-deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended April 30, 1997,
contingent-deferred sales charges paid to JH Funds amounted to $344,275.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not exceed to 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are trustees and/or officers of the Adviser and/or its affiliates as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At April 30, 1997, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $666.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended April 30, 1997 aggregated $543,215,521 and $550,276,449, respectively.
There were no purchases or sales of obli-gations of the U.S. government and its
agencies during the period ended April 30, 1997.
The cost of investments owned at April 30, 1997 (including the joint
repurchase agreement) for federal income tax purposes was $359,229,746. Gross
unrealized appreciation and depreciation of investments aggregated $23,723,417
and $10,386,059, respectively, resulting in net unrealized appreciation of
$13,337,358.
18
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
NOTE D --
REORGANIZATION
On August 14, 1996, the shareholders of John Hancock Global Resources Fund
(JHGRF) and on August 15, 1996, the shareholders of the John Hancock Gold &
Government Fund (JHG&GF) approved plans of reorganization between JHGRF and the
Fund, JHG&GF and the Fund, providing for the transfer of substantially all of
the assets and liabilities of JHGRF and JHG&GF to the Fund in exchange solely
for Class A shares and Class B shares of the Fund. The acquisition of JHGRF was
accounted for as a tax free exchange of 501,258 Class A shares and 3,438,771
Class B shares of the Fund (valued at $5,103,607 and $34,227,123, respectively)
for the 274,943 Class A shares and 1,876,138 Class B shares of JHGRF, including
$9,558,517 of unrealized appreciation, after the close of business at September
6, 1996. The acquisition of JHG&GF was accounted for as a tax-free exchange of
1,376,324 Class A shares and 1,081,073 Class B shares of the Fund (valued at
$14,013,177 and $10,760,237, respectively) for 991,292 Class A shares and
762,359 Class B shares of JHG&GF, including $1,486,018 of unrealized
depreciation, after the close of business at September 6, 1996. The aggregate
net assets of JHGRF, and JHG&GF and the Fund were $39,330,729, $24,773,414, and
$298,425,478, respectively, immediately before the acquisition.
19
<PAGE>
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objectives and operating policies.
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