- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
[Graphic Omitted]
Global
Fund
APRIL 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<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 and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and
Compliance Officer
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02199-7603
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 02109-1803
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year wondering
what the market would do for an encore in 1998. The answer so far has been more
of the same. This achievement continues to bolster many investors' convictions
that the market will produce these results forever, or, in the worst case, that
market declines will always be short-lived. While the economy remains solid and
the environment favorable, history and reason tell us it's a highly unlikely
scenario.
This doesn't mean we know what the market will do next, or that it's riding
for a fall. But after such a run, even in this "new era" of strong economic
growth with low inflation, we believe it would be wise for investors to set more
realistic expectations. As we've said before, markets do indeed move in two
directions, even though we've seen "up" much more than "down" recently. Over the
long term, the market's historical results have been more in the 10% per year
range, which is still a solid result, considering it has been produced despite
wars, depressions and other social upheavals along the way.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to third paragraph.]
In addition to adjusting, or at least re-examining, expectations, now could
also be a good time to review with your investment professional how your assets
are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND GERARDO J. ESPINOZA,
PORTFOLIO MANAGERS
John Hancock Global Fund
U.S. and Europe lead world markets
----------------------------------
When the Fund's six-month period began last November, the Asian currency and
financial crisis had just rocked world markets. However, markets in two regions
of the world managed to weather the storm and ended the period producing strong
results. The clear winners were the United States and Europe, which benefited in
part from the massive flight to quality that followed the Asian fallout. Tame
inflation, low interest rates and solid corporate fundamentals also pushed the
U.S. and many European markets to record highs. Even some of the Asian emerging
markets that had borne the brunt of last October's plunge began to rally, but
not enough to overcome their year-end debacle. The emerging-market laggards
extended into Latin America.
Overall, the world's equity markets did well in the last six months,
producing double-digit returns for investors. John Hancock Global Fund fared
even better than its peers. For the six months ended April 30, 1998, the Fund's
Class A and Class B shares posted total returns of 20.60% and 20.13%,
respectively, at net asset value. Keep in mind that your net asset value return
will be different from this performance if you were not invested in the Fund for
the entire period and did not reinvest all distributions. The Fund's performance
surpassed the 16.66% 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.
Europe overweighted; Fund restructured
The Fund benefited from its heavy positions in the United States and Europe. In
the United States, our stake rose to as high as 49% in early 1998. As the U.S.
market rose to new highs and stocks reached our valuation targets, we took
profits and ended the period with a 30% stake. Our focus on large-company
blue-chip stocks
[A 2 1/4" x 3 3/4" photo at bottom right of page of the Fund's portfolio
managers, (l - r) Gerardo J. Espinoza, Miren Etcheverry and John L.F. Wills.]
"Tame inflation, low interest rates and solid corporate fundamentals..."
3
<PAGE>
================================================================================
John Hancock Funds - Global Fund
"The Fund benefited from its heavy positions in the United States and Europe."
[Pie chart at top of left hand column with the heading "Portfolio
Diversification". The chart is divided into 7 sections from top, left to right:
Short-Term Investments & Other 4%; Pacific Rim 11%; Latin America 3%; United
Kingdom & Ireland 10%; Continental Europe 39%; Canada 3% and United States 30%.
A note below the chart reads "As a percentage of net assets on April 30, 1998".]
that have been the market's leaders helped results, as did an overweight in the
financial services and health-care sectors. Brokerage firm Morgan Stanley, Dean
Witter, Discover and drug stock Schering-Plough were our two biggest U.S.
contributors.
Our stake in Europe rose from 34% to 49% as we continued to increase our
position there because of the compelling investment environment. Tame inflation,
low interest rates and imminent prospects of European monetary and economic
union (EMU) remain the key positive themes. At the corporate level,
restructuring and merger activity is increasing, and earnings outlooks remain
favorable. In the last six months, we established positions in several new
attractive markets, including Italy, Spain, Portugal, Belgium, Finland and
Denmark.
In Europe, our financial stocks were some of the best performers, top among
them Allied Irish Banks, Credito Italiano, Axa and ING Groep. We also did well
with U.K. consumer magazine publishing company EMAP. Its stock rose on the
strength of the British economy and an economic rebound in France, where EMAP
derives a large portion of its revenues. The U.K. as a whole did not shine as
brightly as the Continent, particularly our retail holdings, because much of the
world's attention centered on countries entering the European union.
Our growing list of European countries, and the Fund's improved performance,
also reflect the effects of a gradual restructuring of the Fund that we
initiated last year and continued during the period. Our goal was to help better
manage the Fund's risk level by making it more diversified and balanced. We
achieved this by significantly increasing the number of stocks in the portfolio
and by reducing the percentage of the Fund's assets held in the top 10
positions.
Asia, emerging world holdings shrink
Given the heightened turbulence in Asia, we further reduced our stake there to
11% from 18% six months earlier, keeping away from the emerging Asian markets.
That served us well, given the region's lagging results. We brought our Hong
Kong weighting down from 5% to a more neutral 2% level as rising interest rates
negatively affected real estate stocks like Cheung Kong Holdings. In addition to
Hong Kong, we kept our focus on the more defensive markets of Australia and
Japan. Our Australian mining stocks, including Normandy Mining, gained ground
along with a recovery in commodity prices, and we used the occasion to take
profits and pare back our position. In Japan, the export stocks that remain our
focus had a mixed period, as Japanese investors hopeful for
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Unilever
followed by an up arrow with the phrase "Corporate restructuring delivers
earnings growth". The second listing is Credito Italiano followed by an up arrow
with the phrase "Significant growth potential from financial consolidation". The
third listing is Saga Petroleum followed by a down arrow with the phrase "Oil
price drops hurt stock". A note below the table reads "See "Schedule of
Investments." Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - Global Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended April 30, 1998". The
chart is scaled in increments of 5% with 0% at the bottom and 25% at the top.
The first bar represents the 20.60% total return for John Hancock Global Fund
Class A. The second bar represents the 20.13% total return for John Hancock
Global Fund Class B. The third bar represents the 16.66% total return for the
average global fund. A note below the chart 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, Inc. (1). See
the following two pages for historical performance information."]
a recovering economy turned briefly toward domestically oriented stocks.
As removed geographically as Latin America is from Asia, it was unable to
escape the fallout from the Asian crisis, as risk-averse investors left the
emerging world in droves. That had a chilling effect on Latin American markets
during the period, despite the fact that fundamentals in a number of Latin
American countries remained attractive. Although we continue to believe in the
long-range story of privatization and burgeoning economic growth there, we cut
our stake in half, from 8% to 3%, until the Asian contagion calms down. Our
focus is on Brazil and Mexico, where we see the most promise near term.
Outlook
We remain encouraged about the outlook for North American and European stocks
this year. Favorable economic and corporate factors continue to bode well for
Europe's markets, as does the coming economic and monetary union. We will
closely monitor stock valuation levels, as well as the effects that
implementation of the EMU will have on liquidity flows among various European
markets. In the United States, the record market rise has brought stock
valuations to lofty levels that leave it vulnerable to interest rate changes.
We're watching the economy to see if the Federal Reserve will feel compelled to
raise rates to slow down growth.
The prospects for Asia and Japan in particular are far murkier. Japan is
still weighed down by structural problems that the government has yet to address
effectively. Its situation is now aggravated by the weakness of its Asian
neighbors, where we see serious economic and political challenges ahead. As a
result, we will stay underweighted in both the developed and emerging countries
of Asia until the signs are more encouraging. Latin America, on the other hand,
appears to be gathering renewed economic steam. If this trend coupled with its
commitment to reform continues, we may increase our position, keeping our sights
on the highest quality blue-chip securities.
No matter where the world's markets lead us, we will maintain a
well-diversified portfolio of stocks from across a wide range of countries and
market sectors.
- --------------------------------------------------------------------------------
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, economic and
currency risks and differences in accounting standards and financial reporting.
Sector investing is subject to greater risks than the market as a whole.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
"We remain encouraged about the prospects for North American and European
stocks..."
5
<PAGE>
================================================================================
John Hancock Funds - Global Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Global Fund. Total return measures the change
in value of an investment from the beginning to the end of a period, assuming
all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Prior to August 1992, different sales charges were in effect for
Class A shares and are not reflected in the performance data. Class B
performance reflects a maximum contingent deferred sales charge (maximum 5% and
declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus for a discussion of the risks associated with international
investing, including currency and political risks and differences in accounting
standards and financial reporting before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
------ ------ -----------
Cumulative Total Returns 17.82% 80.19% 83.85%
Average Annual Total Returns 17.82% 12.50% 10.25%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
ONE FIVE TEN
YEAR YEARS YEARS
------ ------ -------
Cumulative Total Returns 18.20% 81.67% 157.11%
Average Annual Total Returns 18.20% 12.68% 9.90%
6
<PAGE>
================================================================================
John Hancock Funds - Global Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Global Fund would be worth, assuming all distributions were reinvested for the
period indicated. For comparison, we've shown the same $10,000 investment in the
Morgan Stanley (MSCI) All Country World Free Index -- an unmanaged index used to
measure the performance of both developed and emerging non-U.S. stock markets.
The index represents stocks that are freely traded on equity exchanges around
the world. Past performance is not indicative of future results.
[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 All
Country World Free Index and is equal to $22,447 as of April 30, 1998. 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 $19,831
as of April 30, 1998. The third line represents the Global Fund, after sales
charge and is equal to $18,839 as of April 30, 1998.]
[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 All Country
World Free Index and is equal to $32,793 as of April 30, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the Global
Fund, before sales charge, on October 31, 1987, and is equal to $28,045 as of
April 30, 1998.]
* No contingent deferred sales charge applicable.
7
<PAGE>
==============================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, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks, rights and warrants
(cost - $148,041,706) .................................. $174,345,345
Preferred stocks (cost - $4,095,642) ..................... 4,184,137
Short-term investments (cost - $13,853,552) -
Note A ................................................ 13,853,552
-------------
192,383,034
Cash ...................................................... 2,307,494
Foreign currency, at value (cost - $23,706) ............... 23,531
Receivable for investments sold ........................... 8,288,753
Receivable for shares sold ................................ 44,070
Dividends receivable ...................................... 404,691
Foreign tax receivable .................................... 82,977
Other assets .............................................. 9,320
-------------
Total Assets ............................ 203,543,870
-----------------------------------------------------------
Liabilities:
Payable for investments purchased ......................... 3,071,659
Payable for open forward foreign currency exchange
contracts sold - Note A .................................. 161
Payable for shares repurchased ............................ 22,256
Payable upon return of securities on loan - Note A ........ 13,853,552
Foreign taxes payable ..................................... 36,779
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ...................................... 199,868
Accounts payable and accrued expenses ..................... 162,040
-------------
Total Liabilities ....................... 17,346,315
-----------------------------------------------------------
Net Assets:
Capital paid-in ........................................... 125,968,668
Accumulated net realized gain on investments and
foreign currency transactions ............................ 34,513,729
Net unrealized appreciation of investments and
foreign currency transactions ............................ 26,392,336
Accumulated net investment loss ........................... (677,178)
-------------
Net Assets .............................. $186,197,555
===========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $127,131,294 / 8,759,961 ........................ $14.51
=============================================================================
Class B - $59,066,261 / 4,281,844 ......................... $13.79
=============================================================================
Maximum Offering Price Per Share*
Class A - ($14.51 x 105.26%) .............................. $15.27
=============================================================================
* 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $94,213) ..... $949,027
Interest (including income on securities loaned
of $21,435) ................................................ 71,139
-------------
1,020,166
-------------
Expenses:
Investment management fee - Note B ......................... 716,661
Distribution and service fee - Note B
Class A .................................................. 170,252
Class B .................................................. 247,161
Transfer agent fee - Note B ................................ 366,965
Custodian fee .............................................. 88,656
Registration and filing fees ............................... 36,759
Miscellaneous .............................................. 18,237
Auditing fee ............................................... 17,852
Financial services fee - Note B ............................ 14,522
Legal fees ................................................. 4,895
Printing ................................................... 4,784
Trustees' fees ............................................. 4,500
Interest expense - Note A .................................. 497
-------------
Total Expenses ............................ 1,691,741
-----------------------------------------------------------
Net Investment Loss ....................... (671,575)
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ....................... 38,101,034
Net realized loss on foreign currency transactions .......... (3,584,751)
Change in net unrealized appreciation/depreciation
of investments ............................................. 8,781,413
Change in net unrealized appreciation/depreciation
of foreign currency transactions ........................... 57
-------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions ............. 43,297,753
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................. $42,626,178
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
---------------- ---------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss................................................................. ($685,936) ($671,575)
Net realized gain on investments sold and foreign currency transactions............. 17,101,926 34,516,283
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions ............................................................ (3,986,338) 8,781,470
------------ ------------
Net Increase in Net Assets Resulting from Operations............................ 12,429,652 42,626,178
------------ ------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold and foreign currency transactions
Class A - ($1.1872 and $0.9595 per share, respectively)........................... (8,357,133) (7,059,333)
Class B - ($1.1872 and $0.9595 per share, respectively)........................... (2,563,799) (2,130,122)
------------ ------------
Total Distributions to Shareholders............................................. (10,920,932) (9,189,455)
------------ ------------
From Fund Share Transactions - Net:*................................................... (3,719,829) 32,626,577
------------ ------------
Net Assets:
Beginning of period................................................................. 122,345,364 120,134,255
------------ ------------
End of period (including accumulated net investment loss of $5,603 and
$677,178, respectively)........................................................... $120,134,255 $186,197,555
============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................................. 11,923,445 $155,591,350 5,516,919 $67,189,900
Shares issued in reorganization - Note D ..................... -- -- 1,689,451 21,549,797
Shares issued to shareholders in reinvestment of
distributions .............................................. 653,263 8,071,990 513,873 6,526,468
------------- ------------- ------------- -------------
12,576,708 163,663,340 7,720,243 95,266,165
Less shares repurchased ...................................... (12,766,789) (167,535,151) (6,077,853) (80,393,595)
------------- ------------- ------------- -------------
Net increase (decrease) ...................................... (190,081) ($3,871,811) 1,642,390 $14,872,570
============= ============= ============= =============
CLASS B
Shares sold .................................................. 1,192,325 $15,564,013 625,838 $1,293,721
Shares issued in reorganization - Note D ..................... -- -- 2,505,358 30,457,141
Shares issued to shareholders in reinvestment of
distributions .............................................. 197,728 2,351,027 163,631 1,979,975
------------- ------------- ------------- -------------
1,390,053 17,915,040 3,294,827 33,730,837
Less shares repurchased ...................................... (1,330,189) (17,763,058) (1,273,902) (15,976,830)
------------- ------------- ------------- -------------
Net increase ................................................. 59,864 $151,982 2,020,925 $17,754,007
============= ============= ============= =============
</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>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global 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,
--------------------------------------------------------------
1993 1994 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $10.55 $14.30 $14.16 $12.67
-------- -------- -------- --------
Net Investment Loss(1) ................................. (0.10) (0.07) (0.03) (0.02)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .................... 3.85 1.24 (0.13) 1.20
-------- -------- -------- --------
Total from Investment Operations ................... 3.75 1.17 (0.16) 1.18
-------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions .................... -- (1.31) (1.33) (0.88)
-------- -------- -------- --------
Net Asset Value, End of Period ......................... $14.30 $14.16 $12.67 $12.97
======== ======== ======== ========
Total Investment Return at Net Asset Value(3) .......... 35.55% 8.64% (0.37%) 9.87%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $90,787 $100,973 $93,597 $94,746
-------- -------- -------- --------
Ratio of Expenses to Average Net Assets ................ 2.12% 1.98% 1.87% 1.88%
Ratio of Net Investment Loss to Average Net Assets ..... (0.86%) (0.54%) (0.23%) (0.19%)
Portfolio Turnover Rate ................................ 108% 61% 60% 98%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $10.50 $14.17 $13.93 $12.36
-------- -------- -------- --------
Net Investment Loss(1) ................................. (0.15) (0.15) (0.11) (0.10)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .................... 3.82 1.22 (0.13) 1.16
-------- -------- -------- --------
Total from Investment Operations ................... 3.67 1.07 (0.24) 1.06
-------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions .................... -- (1.31) (1.33) (0.88)
-------- -------- -------- --------
Net Asset Value, End of Period ......................... $14.17 $13.93 $12.36 $12.54
======== ======== ======== ========
Total Investment Return at Net Asset Value(3) .......... 34.95% 7.97% (1.01%) 9.10%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $19,340 $31,822 $24,570 $27,599
Ratio of Expenses to Average Net Assets ................ 2.49% 2.59% 2.57% 2.54%
Ratio of Net Investment Loss to Average Net Assets ..... (1.25%) (1.12%) (0.89%) (0.83%)
Portfolio Turnover Rate ................................ 108% 61% 60% 98%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------- APRIL 30, 1998
1997 (UNAUDITED)
-------- ----------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $12.97 $12.94
-------- --------
Net Investment Loss(1) ................................. (0.05) (0.04)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .................... 1.21 2.57
-------- --------
Total from Investment Operations ................... 1.16 2.53
-------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions .................... (1.19) (0.96)
-------- --------
Net Asset Value, End of Period ......................... $12.94 $14.51
======== ========
Total Investment Return at Net Asset Value(3) .......... 9.36% 20.60%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $92,127 $127,131
-------- --------
Ratio of Expenses to Average Net Assets ................ 1.81%(7) 1.85%(5,7)
Ratio of Net Investment Loss to Average Net Assets ..... (0.36%) (0.60%)(5)
Portfolio Turnover Rate ................................ 81% 106%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $12.54 $12.39
-------- --------
Net Investment Loss(1) ................................. (0.14) (0.09)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions .................... 1.18 2.45
-------- --------
Total from Investment Operations ................... 1.04 2.36
-------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions .................... (1.19) (0.96)
-------- --------
Net Asset Value, End of Period ......................... $12.39 $13.79
======== ========
Total Investment Return at Net Asset Value(3) .......... 8.67% 20.13%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $28,007 $59,066
Ratio of Expenses to Average Net Assets ................ 2.49%(7) 2.52%(5,7)
Ratio of Net Investment Loss to Average Net Assets ..... (1.04%) (1.29%)(5)
Portfolio Turnover Rate ................................ 81% 106%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================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(2)
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(3) ....................................... 22.04% 9.15% (6.70%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................................ $406 $752 $795
Ratio of Expenses to Average Net Assets ............................................. 1.43%(5) 1.42% 1.37%(5)
Ratio of Net Investment Income (Loss) to Average Net Assets ......................... (0.35%)(5) 0.03% 0.06%(5)
Portfolio Turnover Rate ............................................................. 108% 61% 60%(6)
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) 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.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) For the year ended October 31, 1995.
(7) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
The Financial Highlights summarize the impact of the following factors on a
single share for each period indicated: net investment loss, 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Global Fund on April 30, 1998. It's divided into five main categories: common
stocks, rights, warrants, preferred stocks and short-term investments. Common
and preferred 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
Australia (1.33%)
Australia & New Zealand Banking Group
Ltd., American Depositary Receipts
(ADR) (Banks - Foreign) ................... 8,219 $296,911
National Australia Bank Ltd.
(Banks - Foreign) ......................... 43,123 613,168
News Corp. Ltd. (The) (Media) ............... 44,000 295,026
Normandy Mining Ltd. (Metal) ................ 386,770 431,383
Telstra Corp., Ltd. (Telecommunications) .... 238,417 559,827
Westpac Bank Corp. (Banks - Foreign) ........ 43,000 288,882
-----------
2,485,197
-----------
Belgium (1.33%)
Electrabel SA (Utilities) ................... 2,332 619,589
Fortis AG (Insurance) ....................... 2,116 597,659
PetroFina SA (Oil & Gas) .................... 1,540 607,709
Tractebel SA (Utilities) .................... 5,508 658,763
-----------
2,483,720
-----------
Brazil (0.11%)
Telecomunicacoes Brasileiras S/A (ADR)
(Telecommunications) ...................... 1,611 196,240
-----------
Canada (2.69%)
Bombardier Inc. (Diversified Operations) .... 26,293 698,719
Northern Telecom Ltd.
(Telecommunications) ...................... 9,630 586,238
Royal Bank of Canada (Banks - Foreign) ...... 31,277 1,870,755
Toronto-Dominion Bank (Banks - Foreign) ..... 40,377 1,844,724
-----------
5,000,436
-----------
Denmark (0.67%)
Novo Nordisk A/S (Medical) .................. 7,738 1,255,150
-----------
Finland (0.94%)
Nokia AB (Telecommunications) ............... 26,056 $1,750,908
-----------
France (8.21%)
Accor SA (Leisure) .......................... 3,444 939,064
Alcatel Alsthom SA (Telecommunications) ..... 6,737 1,249,668
Axa SA (Insurance) .......................... 14,868 1,746,266
Cap Gemini SA (Computers) ................... 11,791 1,531,986
Carrefour SA (Retail) ....................... 1,157 663,095
Compagnie de Saint Gobain SA (Building) ..... 1,888 314,719
Compagnie Financiere de Paribas SA
(Broker Services) ......................... 8,528 907,989
Compagnie Generale des Eaux
(Diversified Operations) .................. 6,617 1,230,711
Danone (Food) ............................... 3,742 883,986
Elf Aquitaine SA (Oil & Gas) ................ 12,422 1,630,504
France Telecom SA (ADR)
(Telecommunications)* ..................... 9,227 504,025
L'Air Liquide SA (Chemicals) ................ 1,682 310,600
L'Oreal SA (Cosmetics & Personal Care) ...... 1,033 493,214
Legrand SA (Electronics) .................... 1,404 371,379
Pinault-Printemps-Redoute SA (Retail) ....... 413 307,672
Societe BIC SA (Office) ..................... 3,419 235,365
Suez Lyonnaise des Eaux
(Diversified Operations) .................. 4,035 684,695
Synthelabo SA (Medical) ..................... 4,122 620,597
Total SA (Oil & Gas) ........................ 2,787 331,510
Valeo SA (Automobile / Trucks) .............. 3,393 337,550
-----------
15,294,595
-----------
Germany (4.94%)
Allianz AG (Insurance) ...................... 4,318 1,328,208
Allianz AG (New Shares) (Insurance)* ........ 127 38,711
Bayerische Motoren Werke AG
(Automobile / Trucks) ..................... 1,563 1,724,521
Bayerische Vereinsbank AG
(Banks - Foreign) ......................... 7,760 590,254
Deutsche Bank AG (Banks - Foreign) .......... 21,286 1,638,069
Deutsche Telekom AG
(Telecommunications) ...................... 27,464 694,807
Fresenius AG (Medical) ...................... 1,398 306,157
Mannesmann AG (Machinery) ................... 968 768,121
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Germany (continued)
Muenchener Rueckversicherungs-
Gesellschaft AG (Insurance) ................ 2,178 $995,213
Siemens AG (Diversified Operations) ........... 10,295 602,366
VEBA AG (Diversified Operations) .............. 7,617 503,400
-----------
9,189,827
-----------
Hong Kong (1.74%)
Cheung Kong Holdings Ltd. (Real Estate
Operations) ................................. 117,366 780,319
China Telecom Ltd. (Telecommunications)* ...... 464,000 880,558
China Telecom Ltd. (ADR)
(Telecommunications)* ....................... 5,100 196,988
Hong Kong Telecommunications Ltd.
(Telecommunications) ........................ 356,093 666,583
Hutchison Whampoa Ltd. ........................
(Diversified Operations) .................... 116,072 717,770
-----------
3,242,218
-----------
India (0.46%)
State Bank of India, Global Depositary
Receipt (GDR) (Banks - Foreign) ............. 45,304 860,776
-----------
Ireland (1.47%)
Allied Irish Banks PLC (ADR)
(Banks - Foreign) ........................... 29,551 2,452,733
CRH PLC (Building) ............................ 20,131 286,221
-----------
2,738,954
-----------
Italy (2.76%)
Assitalia SpA (Insurance)* .................... 47,856 359,322
Credito Italiano SpA (Banks - Foreign) ........ 202,384 1,063,706
Ente Nazionale Idrocarburi SpA (Oil & Gas) .... 47,952 322,008
Istituto Nazionale delle Assicurazioni SpA
(Insurance) ................................. 270,459 808,468
Telecom Italia Mobile SpA
(Telecommunications) ........................ 173,747 990,682
Telecom Italia SpA (Telecommunications) ....... 212,214 1,587,397
-----------
5,131,583
-----------
Japan (6.80%)
Bank of Tokyo-Mitsubishi, Ltd.
(Banks - Foreign) ........................... 67,000 829,779
Fuji Photo Film Co., Ltd. (Leisure) ........... 38,000 1,352,426
Honda Motor Co., Ltd.
(Automobile / Trucks) ....................... 37,000 1,341,998
Ito-Yokado Co., Ltd. (Retail) ................. 16,000 828,170
Japan (continued)
Matsushita Electric Industrial Co., Ltd.
(Electronics) ............................... 81,000 $1,297,567
Nippon Telephone & Telegraph Corp.
(Telecommunications) ........................ 179 1,568,989
Nomura Securities Co., Ltd. (Finance) ......... 95,000 1,159,325
Shin-Etsu Chemical Co., Ltd. (Chemicals) ...... 60,000 1,169,714
Sony Corp. (Electronics) ...................... 14,500 1,206,325
TDK Corp. (Electronics) ....................... 14,000 1,106,544
Tokio Marine & Fire Insurance Co.
(Insurance) ................................. 74,000 805,199
-----------
12,666,036
-----------
Mexico (1.60%)
Panamerican Beverages, Inc. (Beverages) ....... 74,857 2,984,923
-----------
Netherlands (4.93%)
ABN AMRO Holding NV (ADR)
(Banks - Foreign) ........................... 76,975 1,967,673
Aegon NV (Insurance) .......................... 5,259 681,553
ING Groep N.V. (ADR) (Banks - Foreign) ........ 24,280 1,632,830
Royal Dutch Petroleum Co. (Oil & Gas) ......... 26,448 1,457,186
Royal Philips Electronics NV (Electronics) .... 17,871 1,570,270
Unilever PLC (Consumer Products Misc.) ........ 174,690 1,861,339
-----------
9,170,851
-----------
Norway (1.09%)
Orkla ASA (Diversified Operations) ............ 17,094 2,026,553
-----------
Portugal (1.09%)
Cimpor-Cimentos de Portugal SA (Building) ..... 23,288 861,257
Electricidade de Portugal SA (Utilities) ...... 19,653 512,826
Portugal Telecom SA (Telecommunications) ...... 12,089 649,632
-----------
2,023,715
-----------
Singapore (0.35%)
Overseas-Chinese Banking Corp., Ltd.
(Banks - Foreign) ........................... 85,455 450,900
Singapore Telecommunications, Ltd.
(Telecommunications) ........................ 119,000 204,537
-----------
655,437
-----------
Spain (2.86%)
Banco Bilbao Vizcaya SA (Banks - Foreign) ..... 19,068 981,570
Banco Santander SA (Banks - Foreign) .......... 19,172 1,013,359
Corporacion Bancaria de Espana SA
(Banks - Foreign) ........................... 5,605 467,390
Endesa SA (Utilities) ......................... 34,072 827,751
Iberdrola SA (Utilities) ...................... 17,776 285,957
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Spain (continued)
Repsol SA (Oil & Gas) ....................... 5,955 $326,489
Telefonica de Espana SA
(Telecommunications) ...................... 15,314 639,508
TelePizza SA (Retail) ....................... 5,400 776,494
-----------
5,318,518
-----------
Sweden (2.99%)
Astra AB (Medical) .......................... 44,242 908,613
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ...................... 25,815 1,360,439
Investor AB (Diversified Operations) ........ 28,648 1,617,047
Nordbanken Holding AB (Banks - Foreign) ..... 228,353 1,681,235
-----------
5,567,334
-----------
Switzerland (6.50%)
Adecco SA (Business Services - Misc.) ....... 1,569 684,902
Alusuisse-Lonza Group AG (Containers)* ...... 247 316,055
Credit Suisse Group (Banks - Foreign) ....... 6,979 1,534,868
Nestle SA (Food) ............................ 1,054 2,044,079
Novartis AG (Medical) ....................... 1,226 2,026,311
Roche Holding AG (Medical) .................. 45 455,998
Schweizerische Rueckversicherungs-
Gesellschaft (Insurance) .................. 500 1,102,966
Union Bank of Switzerland
(Banks - Foreign) ......................... 5,432 1,743,091
Zurich Versicherungs-Gesellschaft
(Insurance) ............................... 3,605 2,195,915
-----------
12,104,185
-----------
United Kingdom (8.63%)
B.A.T. Industries PLC (Tobacco) ............. 43,280 408,305
British Petroleum Co. PLC (Oil & Gas) ....... 78,064 1,233,958
British Telecommunications PLC
(Telecommunications) ...................... 56,500 613,826
Diageo PLC (Beverages) ...................... 43,590 519,140
EMAP PLC (Media) ............................ 64,580 1,314,639
Glaxo Wellcome PLC (Medical) ................ 53,381 1,509,007
Lloyds TSB Group PLC (Banks - Foreign) ...... 125,959 1,886,743
Marks & Spencer PLC (Retail) ................ 122,224 1,162,264
Northern Rock PLC (Banks - Foreign) ......... 50,484 511,734
Pearson PLC (Media) ......................... 53,354 836,228
Royal & Sun Alliance Insurance Group
PLC (Insurance) ........................... 88,951 993,906
Royal Bank of Scotland Group PLC
(Banks - Foreign) ......................... 56,135 866,669
SmithKline Beecham PLC (Medical) ............ 109,681 1,308,094
United Kingdom (continued)
WPP Group PLC (Advertising) ................. 234,000 $1,485,407
Zeneca Group PLC (Medical) .................. 32,799 1,413,268
-----------
16,063,188
-----------
United States (30.14%)
Abbott Laboratories (Medical) ............... 10,987 803,424
American Express Co. (Finance) .............. 7,892 804,984
American International Group, Inc.
(Insurance) ............................... 10,500 1,381,406
Becton, Dickinson & Co. (Medical) ........... 21,165 1,473,613
Borders Group, Inc. (Retail)* .............. 25,000 803,125
Bristol-Myers Squibb Co. (Medical) ............ 16,852 1,784,206
Carnival Corp. (Class A) (Leisure) ............ 29,450 2,048,616
Chase Manhattan Corp.
(Banks - United States) ..................... 4,166 577,251
Chubb Corp. (The) (Insurance) ................ 11,486 906,676
Cisco Systems, Inc. (Computers)* .............. 24,499 1,794,552
Clorox Co. (Soap & Cleaning Preparations) ..... 5,600 469,700
Coca-Cola Co. (The) (Beverages) ............... 6,400 485,600
Colgate-Palmolive Co.
(Soap & Cleaning Preparations) .............. 750 67,266
Cutter & Buck, Inc. (Textile)* ................ 9,500 251,750
Dayton Hudson Corp. (Retail) .................. 22,060 1,926,114
Diebold, Inc. (Business Services - Misc.) ..... 17,884 733,244
Disney (Walt) Co. (The) (Leisure) ............. 58 7,210
Du Pont (E.I.) De Nemours & Co.
(Diversified Operations) .................... 24,500 1,783,906
Edwards (A.G.), Inc. (Broker Services) ........ 21,300 958,500
Exxon Corp. (Oil & Gas) ....................... 14,125 1,030,242
Fannie Mae (Mortgage Banking) ................ 20,000 1,197,500
First Union Corp. (Banks - United States) ..... 7,700 464,888
Fleet Financial Group, Inc.
(Banks - United States) ..................... 11,200 967,400
General Electric Co. (Electronics) ............ 33,000 2,809,125
Hasbro, Inc. (Leisure) ........................ 25,011 920,717
Hewlett-Packard Co. (Computers) ............... 150 11,297
Home Depot, Inc. (The) (Retail) ............... 20,251 1,409,976
Intel Corp. (Electronics) ..................... 32,180 2,600,546
International Business Machines Corp.
(Computers) ................................. 11,500 1,332,563
International Home Foods, Inc. (Food)* ........ 67,000 2,010,000
Johnson & Johnson (Medical) ................... 18,118 1,293,172
KeyCorp. (Banks - United States) .............. 34,500 1,369,219
Kimberly-Clark Corp.
(Paper & Paper Products) .................... 22,878 1,161,059
Meyer (Fred), Inc. (Retail)* ................ 7,250 325,344
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
United States (continued)
Microsoft Corp. (Computers)* ................ 30,300 $2,730,788
Morgan (J.P.) & Co., Inc.
(Banks - United States) ................... 6,800 892,500
Morgan Stanley, Dean Witter, Discover & Co.
(Finance) ................................. 16,200 1,277,775
National City Corp. (Banks - United States).. 13,100 907,175
Norwest Corp. (Banks - United States) ....... 23,000 912,813
Pitney Bowes, Inc. (Office) ................. 17,884 858,432
Price (T. Rowe) Associates, Inc. (Finance) .. 3,506 264,703
Procter & Gamble Co. (The)
(Soap & Cleaning Preparations) ............ 10,510 863,791
Schering-Plough Corp. (Medical) ............. 20,608 1,651,216
Sysco Corp. (Retail) ........................ 36,200 862,013
Travelers Group, Inc. (Insurance) ........... 30,287 1,853,186
UNUM Corp. (Insurance) ...................... 34,561 1,857,654
Wal-Mart Stores, Inc. (Retail) .............. 30,000 1,516,875
Williams Cos., Inc. (The) (Oil & Gas) ....... 54,000 1,707,750
------------
56,120,862
------------
TOTAL COMMON STOCKS
(Cost $148,036,327) .............. (93.63%) 174,331,206
----------- ------------
RIGHTS
Spain (0.00%)
Telefonica de Espana SA
(Telecommunications)* ..................... 15,314 11,865
------------
TOTAL RIGHTS
(Cost $0) .............. (0.00%) 11,865
----------- ------------
WARRANTS
Hong Kong (0.00%)
Moulin International Holdings Ltd. ..........
(Diversified Operations) .................. 293,629 2,274
------------
TOTAL WARRANTS
(Cost $5,379) .............. (0.00%) 2,274
----------- ------------
TOTAL COMMON STOCKS, RIGHTS
AND WARRANTS
(Cost $148,041,706) .............. (93.63%) 174,345,345
----------- ------------
PREFERRED STOCKS
Brazil (1.71%)
Compania Riograndense de
Telecomunicacoes SA
(Telecommunications) ...................... 301,139 $397,604
Petroleo Brasileiro SA (Oil & Gas) .......... 5,280,000 1,338,871
Telecomunicacoes de Sao Paulo SA
(Telecommunications) ...................... 4,229,600 1,438,652
------------
3,175,127
------------
Germany (0.54%)
Henkel KGaA (Chemicals) ..................... 4,086 318,765
SAP AG (Computers) .......................... 1,384 690,245
------------
1,009,010
------------
TOTAL PREFERRED STOCKS
(Cost $4,095,642) .............. (2.25%) 4,184,137
----------- ------------
PAR VALUE
(000s OMITTED)
--------------
SHORT-TERM INVESTMENTS
Cash Equivalents (7.44%)
Navigator Securities Lending
Prime Portfolio** ......................... $13,854 13,853,552
------------
TOTAL SHORT-TERM INVESTMENTS .............. (7.44%) 13,853,552
----------- ------------
TOTAL INVESTMENTS .............. (103.32%) 192,383,034
----------- ------------
OTHER ASSETS AND LIABILITIES, NET .............. (3.32%) (6,185,479)
----------- ------------
TOTAL NET ASSETS .............. (100.00%) $186,197,555
=========== ============
* Non-income producing security.
** Represents investment of security lending collateral - Note A.
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.
15
<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 in which 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, 1998 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
INVESTMENT CATEGORIES OF FUND NET ASSETS
- --------------------- ------------------
Advertising........................................... 0.80%
Automobile/ Trucks.................................... 1.83
Banks - Foreign....................................... 14.55
Banks - United States................................. 3.27
Beverages............................................. 2.14
Broker Services....................................... 1.00
Building.............................................. 0.79
Business Services - Misc.............................. 0.76
Chemicals............................................. 0.97
Computers............................................. 4.35
Consumer Products Misc................................ 1.00
Containers............................................ 0.17
Cosmetics & Personal Care............................. 0.26
Diversified Operations................................ 5.30
Electronics........................................... 5.89
Finance............................................... 1.88
Food.................................................. 2.65
Insurance............................................. 9.48
Leisure............................................... 2.83
Machinery............................................. 0.41
Media................................................. 1.31
Medical............................................... 9.03
Metal................................................. 0.23
Mortgage Banking...................................... 0.64
Office................................................ 0.59
Oil & Gas............................................. 5.36
Paper & Paper Products............................... 0.62
Real Estate Operations................................ 0.42
Retail................................................ 5.68
Soap & Cleaning Preparations.......................... 0.75
Telecommunications.................................... 9.00
Textile............................................... 0.14
Tobacco............................................... 0.22
Utilities............................................. 1.56
Short-Term Investments................................ 7.44
------
TOTAL INVESTMENTS 103.32%
======
SEE NOTES TO FINANCIAL STATEMENTS.
16
<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,
Inc., 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, 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.
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
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
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
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. These agreements enable
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowings, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
maximum loan balance for the Fund during the period for which loans were
outstanding amounted to $1,439,500 with a rate of 6.1875%. At April 30, 1998,
there was no loan outstanding.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated lender fees. These fees are included in interest
income. The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. At April 30, 1998, the Fund
loaned securities having a market value of $13,635,600 collateralized by cash in
the amount of $13,853,552, which was invested in a short-term instrument.
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.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
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 if they are offset by the currency amount of the underlying
transaction.
At April 30, 1998, open forward foreign currency exchange contracts were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT DATE DEPRECIATION
- -------- ------------------- ---- ------------
SELLS
Swiss Francs 23,523 MAY 98 ($8)
Swedish Kronas 31,299 MAY 98 (153)
-------
($161)
=======
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 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, 1998, there were no open positions in financial futures
contracts.
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 (0.90% effective after December 5, 1997),
(b) 0.80% 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
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
payment of the Sub-Adviser's fee.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, acted as distributors for shares of the Fund. For the period ended
April 30, 1998, net sales charges received with regard to sales of Class A
shares amounted to $84,237. Of this amount, $14,551 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $30,654
was paid as sales commissions to unrelated broker-dealers and $39,032 was paid
as sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses for providing distribution related services to the Fund in connection
with the sale of Class B shares. For the period ended April 30, 1998, contingent
deferred sales charges paid to JH Funds amounted to $80,766.
In addition, to reimburse the 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
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 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 less than 0.02% 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 a
Trustee of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At April 30, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $668.
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, 1998, aggregated $187,285,293 and $168,228,011, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1998.
The cost of investments owned at April 30, 1998 (including short-term
investments) for federal income tax purposes was $165,993,423. Gross unrealized
appreciation and depreciation of investments aggregated $29,082,346 and
$2,692,735, respectively, resulting in net unrealized appreciation of
$26,389,611.
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
NOTE D -
REORGANIZATION
On November 12, 1997, the shareholders of John Hancock Global Marketplace Fund
("Global Marketplace Fund") approved a plan of reorganization between Global
Marketplace Fund and the Fund providing for the transfer of substantially all of
the assets and liabilities of Global Marketplace Fund 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 1,689,451 Class A shares and 2,505,358 Class B
shares of John Hancock Global Fund for the net assets of Global Marketplace
Fund, which amounted to $21,549,797 and $30,457,141 for Class A and B shares,
respectively, including $12,295,758 of unrealized appreciation, after the close
of business on December 5, 1997.
21
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Global Fund
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Global Fund
23
<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 4/98
6/98
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Growth
Fund
APRIL 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<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 and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer so far has
been more of the same. This achievement continues to bolster many investors'
convictions that the market will produce these results forever, or, in the worst
case, that market declines will always be short-lived. While the economy remains
solid and the environment favorable, history and reason tell us it's a highly
unlikely scenario.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to third paragraph.]
This doesn't mean we know what the market will do next, or that it's
riding for a fall. But after such a run, even in this "new era" of strong
economic growth with low inflation, we believe it would be wise for investors to
set more realistic expectations. As we've said before, markets do indeed move in
two directions, even though we've seen "up" much more than "down" recently. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now
could also be a good time to review with your investment professional how your
assets are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BENJAMIN A. HOCK JR., CFA, PORTFOLIO MANAGER
John Hancock
Growth Fund
Continued strength of U.S. stock market
helps Fund post double digit gains
Recently, Benjamin A. Hock Jr. assumed leadership of John Hancock Growth Fund's
management team. Mr. Hock, a senior vice president at John Hancock Funds since
1994, has more than 24 years of experience in the investment business.
The U.S. stock market continued to reach record highs over the course of the six
months ended April 30, 1998. Bouncing back from the effects of Asia's economic
and currency crises, many U.S. stock indexes posted returns that exceeded 1998
expectations in the first quarter alone. Most notable are the Dow Jones
Industrial Average, which climbed past the 9000 mark in early April, and the
Standard & Poor's 500 Stock Index, against which many stock mutual funds were
hard pressed to compete. The underlying strength of the economy, continued
corporate profit growth, low interest rates, subdued inflation and high consumer
confidence fueled investors' optimism for equities, despite concerns over lofty
valuations and lower earnings estimates.
Against this backdrop, John Hancock Growth Fund produced solid absolute
results for the semiannual period, returning a total of 14.39% for Class A
shares and 13.99% for Class B shares, at net asset value. Keep in mind that your
net asset value return will be different from this performance if you were not
invested in the Fund for the entire period, and did not reinvest all
distributions. The Fund's performance compared to the 17.31% total return
provided
"...our stake in consumer cyclical stocks...paid off."
[A 2 1/4" x 3 3/4" photo at bottom of page of the Fund's portfolio management
team. Caption below reads "Fund management team members (l - r): Lisa Welch, Ben
Hock, John Golden and Linda Miller".]
3
<PAGE>
================================================================================
John Hancock Funds - Growth Fund
"...technology stocks... posted highly attractive performance..."
[Chart at the top of left hand column with the heading "Top Five Common Stock
Holdings". The chart lists five holdings: 1.) Home Depot 2.4%; 2.) America
Online 2.0%; 3.) Microsoft 1.9%; 4.) Disney 1.8% and 5.) CVS 1.7%. A note below
the chart reads "As a percentage of net assets on April 30, 1998".]
by the average growth fund, according to Lipper Analytical Services, Inc.1
Longer-term performance can be found on pages six and seven. The Fund's relative
underperformance stemmed from its greater-than-average exposure to the oil
services sector, which came under pressure from slowing demand in Southeast
Asia.
Consumer cyclicals, financials strong
Over the period, our stake in consumer cyclical stocks -- consumer-related
stocks whose prices tend to rise and fall with the economy -- paid off. The rise
in personal income, the minimum wage increase and a decline in unemployment
helped boost consumer confidence and, therefore, retail sales. For the most
part, we favored retailers appealing to the cost-conscious shopper, with general
merchandise holdings such as Wal-Mart Stores, Dollar General, Costco and Family
Dollar Stores all performing extremely well. Consumer staples such as CVS and
Coca-Cola also posted handsome gains. The Fund's exposure to housing stocks
further helped performance, with issues like Home Depot turning in outstanding
results.
The steady demand for financial products and services -- along with the
current low interest rate environment and ongoing wave of consolidations -- set
the stage for many of the Fund's financial services and insurance holdings to
perform well. Near the period's end, increased earnings estimates further
supported this sector. Noteworthy issues included large- and mid-size banks such
as Mellon Bank, Chase Manhattan, and Norwest, as well as general finance
companies such as American Express and Travelers Group. Many of the Fund's
mortgage finance holdings, including Fannie Mae and Freddie Mac, benefited from
the surge in home refinancing.
Technology exposure helps Fund
In general, earnings expectations in the technology arena were continuously
subject to downward revisions in the latter part of the period. Ongoing concerns
over the economic turmoil in Southeast Asia were partly to blame and put a drag
on the performance of the semiconductor and capital equipment groups, an area in
which the Fund had some exposure, including Fund holding Applied Materials.
Despite lowered earnings estimates, however, technology stocks as a group
posted highly attractive performance in the last three months of the period.
Computer software and services companies led the charge, benefiting handsomely
from the strength of the U.S. economy and the rebounding economies of Europe.
Furthermore, as personal computers with price tags under $1,000 found their way
into more homes, stocks such as Microsoft, BMC Software, and America Online
(AOL) soared. Computer Sciences
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is AOL followed
by an up arrow with the phrase "Growing market dominance". The second listing is
Disney followed by an up arrow with the phrase "Theme park sales exceed
expectations". The third listing is Adaptec followed by a down arrow with the
phrase "Slowdown in PC demand". A note below the table reads "See "Schedule of
Investments." Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - Growth Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended April 30, 1998". The
chart is scaled in increments of 5% with 0% at the bottom and 20% at the top.
The first bar represents the 14.39% total return for John Hancock Growth Fund
Class A. The second bar represents the 13.99% total return for John Hancock
Growth Fund Class B. The third bar represents the 17.31% total return for the
average growth fund. A note below the chart reads "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, Inc. (1). See
the following two pages for historical performance information."]
Corp., the target of a now failed hostile takeover bid, was another holding that
experienced a substantial run-up in price.
Healthcare, energy stocks
The Fund continued to have a sizable portion of net assets invested in a wide
range of health-care companies -- from a medical device company to health
services organizations to large pharmaceutical corporations. The performance
leaders in this sector were clearly the drug stocks. New product offerings and a
more expedient FDA approval process have bolstered the performance potential of
many issues. Warner-Lambert has been a noteworthy holding, with its stock price
rising handsomely over the period. Merck, Abbot Laboratories, and SmithKline
Beecham also have proven quite profitable.
Integrated oil and gas services companies, stellar performers for much of
1997, produced lackluster results over the last six months. Oil prices declined
to seven-year lows as higher production created more supply. Slowing growth in
Southeast Asia and unusually mild weather in the Northeastern part of the U.S.
were additional factors that helped dampen performance. Even bellwether stocks
such as Halliburton and Schlumberger experienced a decline in price.
An outlook of cautious optimism
Economic and market fundamentals suggest that stock prices have more room to
rise in the months ahead. Moderate wage inflation, increased job creation,
healthy economic growth and a benign interest-rate environment lend credence to
a bullish stance. Yet our outlook is one of cautious optimism. The prospect of
disappointing earnings for many companies is a real one. With top line growth
slowing, companies are unable to increase prices. Corporate profits, therefore,
may well come under pressure. As the problems in Southeast Asia continue to
unfold, they may create a drag on economic growth as well. Increased stock
market volatility and rapid group rotation, therefore, would come as no
surprise. In such an environment brimming with contradictions, our view is that
prudence and keen stock selection remain the appropriate courses of action.
"...prudence and keen stock selection remain the appropriate courses of action."
- --------------------------------------------------------------------------------
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>
================================================================================
John Hancock Funds - Growth Fund
- --------------------------------------------------------------------------------
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 measures the change
in value of an investment from the beginning to the end of a period, assuming
all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns 30.06% 97.73% 274.85%
Average Annual Total Returns 30.06% 14.61% 14.13%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns 31.00% 81.19%
Average Annual Total Returns 31.00% 15.05%
6
<PAGE>
================================================================================
John Hancock Funds - Growth Fund
- --------------------------------------------------------------------------------
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, assuming all distributions were reinvested for the
period indicated. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index. The Standard & Poor's 500 Stock Index is an
unmanaged index that includes 500 widely traded common stocks and is a commonly
used measure of stock market performance. Past performance is not indicative of
future results.
[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 hypothetical $10,000
investment made the Standard & Poor's 500 Stock Index on October 31, 1987, and
is equal to $59,608 as of April 30, 1998. The second line represents the value
in the Growth Fund, before sales charge, and is equal to $42,769 as of April 30,
1998. The third line represents the Growth Fund, after sales charge, and is
equal to $40,631 as of April 30, 1998.]
[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 $26,296 as of April 30, 1998. 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 $18,360 as of
April 30, 1998. The third line represents the value of the Growth Fund, after
sales charge, and is equal to $18,160 as of April 30, 1998.]
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, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common and preferred stocks
(cost - $422,109,368) ................................. $657,308,306
Joint repurchase agreement (cost - $8,092,000) .......... 8,092,000
Corporate savings account ............................... 1,579
-------------
665,401,885
Receivable for investments sold .......................... 33,585,311
Receivable for shares sold ............................... 190,032
Dividends receivable ..................................... 320,332
Interest receivable ...................................... 1,284
Other assets ............................................. 26,318
-------------
Total Assets ........................... 699,525,162
-----------------------------------------------------------
Liabilities:
Payable for investments purchased ........................ 43,261,658
Payable for shares repurchased ........................... 410,826
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................. 681,593
Accounts payable and accrued expenses .................... 191,933
-------------
Total Liabilities ...................... 44,546,010
-----------------------------------------------------------
Net Assets:
Capital paid-in .......................................... 421,708,267
Accumulated net realized gain on investments ............. 183,059
Net unrealized appreciation of investments ............... 235,201,719
Accumulated net investment loss .......................... (2,113,893)
-------------
Net Assets ............................. $654,979,152
===========================================================
Net Asset Value Per Share:
(Based on net assets and shares of beneficial
interest outstanding - unlimited number of
shares authorized with no par value)
Class A - $416,368,856 / 17,943,453 ...................... $23.20
=============================================================================
Class B - $238,610,296 / 10,675,893 ...................... $22.35
=============================================================================
Maximum Offering Price Per Share*
Class A - ($23.20 x 105.26%) ............................. $24.42
=============================================================================
* 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $13,862) ..... $1,972,782
Interest .................................................... 627,163
------------
2,599,945
------------
Expenses:
Investment management fee - Note B ......................... 2,129,076
Distribution and service fee - Note B
Class A .................................................. 562,618
Class B .................................................. 925,927
Transfer agent fee - Note B ................................ 875,391
Custodian fee .............................................. 63,968
Financial services fee - Note B ............................ 49,879
Auditing fee ............................................... 27,789
Registration and filing fees ............................... 23,526
Printing ................................................... 21,068
Trustees' fees ............................................. 14,623
Miscellaneous .............................................. 6,045
Legal fees ................................................. 1,290
------------
Total Expenses ............................ 4,701,200
-----------------------------------------------------------
Net Investment Loss ....................... (2,101,255)
-----------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ....................... 1,441,687
Change in net unrealized appreciation/depreciation
of investments ........................................... 76,236,293
------------
Net Realized and Unrealized
Gain on Investments ....................... 77,677,980
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................. $75,576,725
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ................................................. ($1,868,110) ($2,101,255)
Net realized gain on investments sold ............................... 70,849,140 1,441,687
Change in net unrealized appreciation/depreciation of investments ... (21,033,620) 76,236,293
------------- -------------
Net Increase in Net Assets Resulting from Operations .............. 47,947,410 75,576,725
------------- -------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($2.2830 and $4.1588 per share, respectively) ........... (26,978,610) (52,605,912)
Class B - ($2.2830 and $4.1588 per share, respectively) ........... (2,737,474) (6,547,479)
------------- -------------
Total Distributions to Shareholders ............................... (29,716,084) (59,153,391)
------------- -------------
From Fund Share Transactions - Net: * .................................. 16,367,439 299,058,033
------------- -------------
Net Assets:
Beginning of period ................................................. 304,899,020 339,497,785
------------- -------------
End of period (including accumulated net investment loss
of $12,639 and $2,113,893, respectively) .......................... $339,497,785 $654,979,152
============= =============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 5,919,970 $132,758,761 3,085,104 $69,000,491
Shares issued in reorganization - Note D ........................ -- -- 3,892,361 81,397,839
Shares issued to shareholders in reinvestment of distributions .. 1,190,442 25,034,980 2,338,768 48,248,377
------------ ------------- ------------ -------------
7,110,412 157,793,741 9,316,233 198,646,707
Less shares repurchased ......................................... (6,681,624) (150,827,840) (3,806,333) (84,012,578)
------------ ------------- ------------ -------------
Net increase .................................................... 428,788 $6,965,901 5,509,900 $114,634,129
============ ============= ============ =============
CLASS B
Shares sold ..................................................... 729,300 $16,342,742 779,395 $16,559,454
Shares issued in reorganization - Note D ........................ -- -- 9,479,759 191,455,100
Shares issued to shareholders in reinvestment of distributions .. 124,391 2,559,110 307,718 6,130,474
------------ ------------- ------------ -------------
853,691 18,901,852 10,566,872 214,145,028
Less shares repurchased ......................................... (431,864) (9,500,314) (1,428,405) (29,721,124)
------------ ------------- ------------ -------------
Net increase .................................................... 421,827 $9,401,538 9,138,467 $184,423,904
============ ============= ============ =============
</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 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 - 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
---------------------------------------------- JANUARY 1, 1996 TO
1992 1993 1994 1995 OCTOBER 31, 1996(8)
-------- -------- -------- -------- -------------------
<S> <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
-------- -------- -------- -------- --------
Net Investment Loss ........................... (0.06) (0.11) (0.10) (0.09)(1) (0.13)(1)
Net Realized and Unrealized Gain
(Loss) on Investments ....................... 1.10 2.33 (1.21) 4.40 3.90
-------- -------- -------- -------- --------
Total from Investment Operations ............ 1.04 2.22 (1.31) 4.31 3.77
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold .................. (1.20) (2.14) (0.20) (0.69) --
-------- -------- -------- -------- --------
Net Asset Value, End of Period ................ $17.32 $17.40 $15.89 $19.51 $23.28
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) . 6.06% 13.03% (7.50%) 27.17% 19.32%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...... $153,057 $162,937 $146,466 $241,700 $279,425
Ratio of Expenses to Average Net Assets ....... 1.60% 1.56% 1.65% 1.48% 1.48%(6)
Ratio of Net Investment Loss to Average
Net Assets .................................. (0.36%) (0.67%) (0.64%) (0.46%) (0.73%)(6)
Portfolio Turnover Rate ....................... 71% 68% 52% 68%(3) 59%
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
OCTOBER 31, APRIL 30, 1998
1997 (UNAUDITED)
----------- ----------------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .......... $23.28 $24.37
-------- --------
Net Investment Loss ........................... (0.12)(1) (0.06)(1)
Net Realized and Unrealized Gain
(Loss) on Investments ....................... 3.49 3.05
-------- --------
Total from Investment Operations ............ 3.37 2.99
-------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold .................. (2.28) (4.16)
-------- --------
Net Asset Value, End of Period ................ $24.37 $23.20
======== ========
Total Investment Return at Net Asset Value(2) . 16.05% 14.39%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...... $303,067 $416,369
Ratio of Expenses to Average Net Assets ....... 1.44% 1.44%(6)
Ratio of Net Investment Loss to Average
Net Assets .................................. (0.51%) (0.53%)(6)
Portfolio Turnover Rate ....................... 133% 34%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM YEAR ENDED SIX MONTHS ENDED
---------------------- JANUARY 1, 1996 TO OCTOBER 31, APRIL 30, 1998
1994 1995 OCTOBER 31, 1996(8) 1997 (UNAUDITED)
-------- -------- ------------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
CLASS B(4)
Per Share Operating Performance
Net Asset Value, Beginning of Period ................ $17.16 $15.83 $19.25 $22.83 $23.70
------ ------- ------- ------- --------
Net Investment Loss(1) .............................. (0.20) (0.26) (0.26) (0.27) (0.13)
Net Realized and Unrealized Gain (Loss) on
Investments ....................................... (0.93) 4.37 3.84 3.42 2.94
------ ------- ------- ------- --------
Total from Investment Operations .................. (1.13) 4.11 3.58 3.15 2.81
------ ------- ------- ------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold ................................ (0.20) (0.69) -- (2.28) (4.16)
------ ------- ------- ------- --------
Net Asset Value, End of Period ...................... $15.83 $19.25 $22.83 $23.70 $22.35
====== ======= ======= ======= ========
Total Investment Return at Net Asset Value(2) ....... (6.56%)(5) 26.01% 18.60%(5) 15.33% 13.99%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............ $3,807 $15,913 $25,474 $36,430 $238,610
Ratio of Expenses to Average Net Assets ............. 2.38%(6) 2.31% 2.18%(6) 2.13% 2.12%(6)
Ratio of Net Investment Loss to Average
Net Assets ........................................ (1.25%)(6) (1.39%) (1.42%)(6) (1.20%) (1.17%)(6)
Portfolio Turnover Rate ............................. 52% 68%(3) 59% 133% 34%
</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(7)
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%)(5) (7.07%) 8.11%(5)
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%(6) 1.12% 1.05%(6)
Ratio of Net Investment Income (Loss) to Average Net
Assets .................................................. (0.17%)(6) (0.08%) 0.44%(6)
Portfolio Turnover Rate ................................... 68% 52% 39%
</TABLE>
(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) Class B shares commenced operations on January 3, 1994.
(5) Not annualized.
(6) Annualized.
(7) 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.
(8) Effective October 31, 1996, the fiscal period end changed from December 31
to October 31.
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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Growth Fund on April 30, 1998. 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
Advertising (1.32%)
Interpublic Group of Cos., Inc. (The) .......... 80,000 $5,110,000
Outdoor Systems, Inc.* ......................... 112,500 3,571,875
------------
8,681,875
------------
Automobile/Trucks (0.58%)
Avis Rent A Car, Inc.* ......................... 145,000 3,797,187
------------
Banks - United States (3.55%)
Banc One Corp. ................................. 96,186 5,656,939
Chase Manhattan Corp. .......................... 50,000 6,928,125
First Tennessee National Corp. ................. 40,000 1,377,500
Mellon Bank Corp. .............................. 53,000 3,816,000
Norwest Corp. .................................. 100,000 3,968,750
Regions Financial Corp. ........................ 35,000 1,526,875
------------
23,274,189
------------
Beverages (2.12%)
Coca-Cola Co. (The) ............................ 105,000 7,966,875
PepsiCo, Inc. .................................. 150,000 5,953,125
------------
13,920,000
------------
Building (1.50%)
Clayton Homes, Inc. ............................ 200,000 4,012,500
Masco Corp. .................................... 100,000 5,800,000
------------
9,812,500
------------
Business Services - Misc (1.08%)
Paychex, Inc. .................................. 85,000 4,616,562
Robert Half International, Inc.* ............... 45,000 2,435,625
------------
7,052,187
------------
Chemicals (1.34%)
Air Products & Chemicals, Inc. ................. 55,000 4,781,562
Sigma-Aldrich Corp. ............................ 100,000 3,987,500
------------
8,769,062
------------
Computers (17.16%)
Adaptec, Inc.* ................................. 100,000 2,368,750
America Online, Inc.* .......................... 160,000 12,800,000
Automatic Data Processing, Inc. ................ 85,000 5,689,688
BMC Software, Inc.* ............................ 95,000 8,888,438
CBT Group PLC* American Depositary
Receipts (ADR) (Ireland) ..................... 50,000 2,543,750
Cisco Systems, Inc.* ........................... 70,000 5,127,500
Compaq Computer Corp. .......................... 20,000 561,250
Computer Associates International, Inc. ........ 118,500 6,939,656
Computer Sciences Corp.* ....................... 110,000 5,802,500
Electronic Data Systems Corp. .................. 100,000 4,300,000
EMC Corp.* ..................................... 130,000 5,996,250
Fiserv, Inc.* .................................. 45,000 2,941,875
HBO & Co. ...................................... 85,300 5,102,006
Hewlett-Packard Co. ............................ 40,000 3,012,500
International Business Machines Corp. .......... 40,000 4,635,000
Microsoft Corp.* ............................... 140,000 12,617,500
Network Appliance, Inc.* ....................... 100,000 3,606,250
Networks Associates, Inc.* ..................... 120,000 8,220,000
Oracle Corp.* .................................. 175,600 4,543,650
Security Dynamics Technologies, Inc.* .......... 40,000 965,000
Sun Microsystems, Inc.* ........................ 35,000 1,441,562
Symantec Corp.* ................................ 80,000 2,320,000
Visio Corp.* ................................... 40,000 1,980,000
------------
112,403,125
------------
Cosmetics & Personal Care (0.97%)
Gillette Co. ................................... 55,000 6,349,062
------------
Electronics (2.87%)
Applied Materials, Inc.* ....................... 40,000 1,445,000
Emerson Electric Co. ........................... 30,000 1,908,750
General Electric Co. ........................... 120,000 10,215,000
Intel Corp. .................................... 65,000 5,252,812
------------
18,821,562
------------
Finance (6.98%)
American Express Co. ........................... 100,000 10,200,000
Associates First Capital Corp. (Class A) ....... 70,000 5,232,500
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Finance (continued)
E*TRADE Group, Inc.* ........................... 60,000 $1,496,250
First Data Corp. ............................... 150,000 5,081,250
Franklin Resources, Inc. ....................... 80,000 4,280,000
MBNA Corp. ..................................... 217,500 7,367,813
Price (T. Rowe) Associates, Inc. ............... 100,000 7,550,000
SLM Holding Corp. .............................. 105,000 4,482,187
------------
45,690,000
------------
Food (0.27%)
International Home Foods, Inc.* ................ 58,000 1,740,000
------------
Furniture (0.87%)
Leggett & Platt, Inc. .......................... 110,000 5,713,125
------------
Insurance (5.75%)
Ace, Ltd. (Bermuda) ............................ 232,200 8,794,575
AFLAC, Inc. .................................... 30,000 1,950,000
American International Group, Inc. ............. 70,000 9,209,375
Progressive Corp. .............................. 55,000 7,449,063
Travelers Group, Inc. .......................... 168,000 10,279,500
------------
37,682,513
------------
Leisure (4.22%)
Carnival Corp. (Class A) ....................... 52,000 3,617,250
Disney (Walt) Co. (The) ........................ 92,100 11,449,181
Marriott International, Inc. (Class A) ......... 80,000 2,560,000
Marriott International, Inc. ................... 80,000 2,640,000
Royal Caribbean Cruises Ltd. ................... 100,000 6,837,500
Sodexho Marriott Services, Inc. ................ 20,000 510,000
------------
27,613,931
------------
Linen Supply & Related (1.19%)
Cintas Corp. ................................... 130,000 6,191,250
G & K Services, Inc. (Class A) ................. 40,000 1,610,000
------------
7,801,250
------------
Machinery (1.09%)
Dover Corp. .................................... 120,000 4,740,000
Pentair, Inc. .................................. 55,000 2,378,750
------------
7,118,750
------------
Media (6.05%)
CBS Corp.* ..................................... 200,000 7,125,000
Central Newspapers, Inc. (Class A) ............. 70,000 5,127,500
Clear Channel Communications, Inc.* ............ 40,000 3,770,000
Gannett Co., Inc. .............................. 136,000 9,239,500
Heftel Broadcasting Corp. (Class A)* ........... 140,000 6,142,500
Jacor Communications, Inc.* .................... 40,000 2,275,000
Tribune Co. .................................... 90,000 5,940,000
------------
39,619,500
------------
Medical (9.43%)
Abbott Laboratories ............................ 35,000 2,559,375
Health Care & Retirement Corp.* ................ 160,000 6,520,000
Health Management Associates,
Inc. (Class A)* .............................. 300,000 9,450,000
Johnson & Johnson .............................. 118,500 8,457,938
Lilly (Eli) & Co. .............................. 100,000 6,956,250
Medtronic, Inc. ................................ 90,000 4,736,250
Merck & Co., Inc. .............................. 65,000 7,832,500
SmithKline Beecham PLC (ADR)
(United Kingdom) ............................. 92,000 5,479,750
Warner-Lambert Co. ............................. 51,500 9,743,156
------------
61,735,219
------------
Mortgage Banking (2.04%)
Fannie Mae ..................................... 130,000 7,783,750
Freddie Mac .................................... 120,000 5,557,500
------------
13,341,250
------------
Office (1.01%)
HON INDUSTRIES, Inc. ........................... 71,200 2,278,400
Pitney Bowes, Inc. ............................. 90,000 4,320,000
------------
6,598,400
------------
Oil & Gas (5.99%)
Amoco Corp. .................................... 120,000 5,310,000
Diamond Offshore Drilling, Inc. ................ 125,000 6,328,125
ENSCO International, Inc. ...................... 50,000 1,412,500
Halliburton Co. ................................ 150,000 8,250,000
R&B Falcon Corp.* .............................. 250,000 8,015,625
Schlumberger, Ltd. ............................. 95,000 7,873,125
Smith International, Inc.* ..................... 35,000 2,056,250
------------
39,245,625
------------
Retail (12.80%)
Borders Group, Inc. * .......................... 46,200 1,484,175
Consolidated Stores Corp.* ..................... 57,500 2,300,000
Costco Cos., Inc.* ............................. 175,000 9,778,125
CVS Corp. ...................................... 148,638 10,962,052
Dayton Hudson Corp. ............................ 75,000 6,548,438
Dollar General Corp. ........................... 79,687 3,018,145
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Retail (continued)
Family Dollar Stores, Inc. ..................... 90,000 $3,060,000
Home Depot, Inc. (The) ......................... 230,000 16,013,750
Meyer (Fred), Inc. * ........................... 57,800 2,593,775
Starbucks Corp.* ............................... 185,000 8,903,125
Sysco Corp. .................................... 200,000 4,762,500
Walgreen Co. ................................... 140,000 4,830,000
Wal-Mart Stores, Inc. .......................... 190,000 9,606,875
------------
83,860,960
------------
Schools/Education (0.51%)
Apollo Group, Inc. (Class A)* ................. 96,750 3,313,688
------------
Soap & Cleaning Preparations (2.39%)
Colgate-Palmolive Co. .......................... 120,000 10,762,500
Ecolab, Inc. ................................... 155,000 4,911,563
------------
15,674,063
------------
Telecommunications (4.98%)
Century Telephone Enterprises, Inc. ............ 90,000 3,830,625
Nextel Communications, Inc. (Class A)* ......... 330,000 9,466,875
Nokia Corp. (ADR) (Finland) .................... 40,000 2,675,000
Qwest Communications International, Inc.* ...... 100,600 3,879,388
Tellabs, Inc.* ................................. 40,000 2,835,000
WorldCom, Inc.* ................................ 233,000 9,968,020
------------
32,654,908
------------
Textile (0.73%)
Jones Apparel Group, Inc.* ..................... 80,000 4,785,000
------------
Utilities (1.56%)
Questar Corp. .................................. 45,000 1,951,875
SBC Communications, Inc. ....................... 200,000 8,287,500
------------
10,239,375
------------
TOTAL COMMON STOCKS
(Cost $422,109,368) (100.35%) 657,308,306
-------- ------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.24%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. - Dated 04-30-98,
due 05-01-98 (Secured by U.S.
Treasury Bills, 4.86% and 5.27%,
due 06-18-98 and 12-10-98,
U.S. Treasury Bonds, 6.00% thru
13.25%, due 05-15-14 thru 02-15-27
and U.S. Treasury Notes, 4.75% thru
9.25%, due 07-31-98 thru 05-15-06) -
Note A............................... 5.50% $8,092 $8,092,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................... 1,579
------------
TOTAL SHORT-TERM INVESTMENTS (1.24%) 8,093,579
-------- ------------
TOTAL INVESTMENTS (101.59%) 665,401,885
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (1.59%) (10,422,733)
-------- ------------
TOTAL NET ASSETS (100.00%) $654,979,152
======== ============
* 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.
14
<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"), 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 Trustees have authorized
the issuance of new Class C shares, effective June 1, 1998. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in joint repurchase agreement transactions. 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 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. For federal income tax purposes, the fund has $1,207,188 of 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 distribution will be made. This carryforward amount,
all of which was acquired on December 5, 1997 from the John Hancock Disciplined
Growth Fund, will expire on October 31, 2005. The use of this loss to offset
future gains may be limited in a given year, to the extent provided by
regulations.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis. 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 - Growth 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.
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 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. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the lines of credit, is allocated among the participating funds.
The Fund had no borrowing activity for the period ended April 30, 1998.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the 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.
At a trustees meeting on September 9, 1997, the trustees approved a new
monthly investment management contract, which became effective upon the merger,
December 5, 1997, to replace the present contract. Under this new management
contract, the Fund will pay 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 $750,000,000 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 $750,000,000.
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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $252,484. Out of this amount, $40,389 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $96,959
was paid as sales commissions to unrelated broker-dealers and $115,136 was paid
as sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from 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, 1998,
contingent deferred sales charges amounted to $232,128.
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 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
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth Fund
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 less than 0.02% 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 cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At April 30, 1998, the Fund's investments to cover the deferred
compensation had unrealized appreciation of $2,782.
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 obligations, during the period
ended April 30, 1998, aggregated $180,555,414 and $196,646,872, respectively.
The cost of investments owned at April 30, 1998 (including the joint
repurchase agreement), for federal income tax purposes was $430,890,686. Gross
unrealized appreciation and depreciation of investments aggregated $236,661,739
and $2,152,120, respectively, resulting in net unrealized appreciation of
$234,509,619.
NOTE D -
REORGANIZATION
On November 12,1997, the shareholders of John Hancock Disciplined Growth Fund
(JHDGF) and John Hancock Discovery Fund (JHDF) approved a plan of reorganization
between JHDGF and the Fund, and JHDF and the Fund, providing for the transfer of
substantially all of the assets and liabilities of JHDGF and JHDF to the Fund in
exchange solely for Class A and Class B shares of the Fund. The acquisition of
JHDGF was accounted for as a tax free exchange of 1,825,089 Class A shares and
5,012,295 Class B shares of the Fund (valued at $38,166,628 and $101,229,305,
respectively) for the 2,318,348 Class A shares and 6,305,496 Class B shares of
JHDGF, including $42,164,993 of unrealized appreciation, after the close of
business at December 5, 1997. The acquisition of JHDF was accounted for as a tax
free exchange of 2,067,272 Class A shares and 4,467,464 Class B shares of the
Fund (valued at $43,231,211 and $90,225,795, respectively) for 2,567,733 Class A
shares and 5,636,912 Class B shares of JHDF, including $31,282,553 of unrealized
appreciation, after the close of business at December 5, 1997. The aggregate net
assets of JHDGF, JHDF and the Fund were $139,395,933, $133,457,006 and
$350,721,840, respectively, immediately before the acquisition.
17
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Growth Fund
18
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Growth Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS ---------------
A Global Investment Management Firm Bulk Rate
U.S. Postage
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 PAID
1-800-225-5291 1-800-554-6713 (TDD) Randolph, MA
INTERNET: www.jhancock.com/funds Permit No. 75
---------------
- --------------------------------------------------------------------------------
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 4/98
6/98
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Short-Term
Strategic Income
Fund
APRIL 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<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 and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and
Compliance Officer
CUSTODIAN
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 02109-1803
----------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer so far has
been more of the same. This achievement continues to bolster many investors'
convictions that the market will produce these results forever, or, in the worst
case, that market declines will always be short-lived. While the economy remains
solid and the environment favorable, history and reason tell us it's a highly
unlikely scenario.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to third paragraph.]
This doesn't mean we know what the market will do next, or that it's
riding for a fall. But after such a run, even in this "new era" of strong
economic growth with low inflation, we believe it would be wise for investors to
set more realistic expectations. As we've said before, markets do indeed move in
two directions, even though we've seen "up" much more than "down" recently. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now
could also be a good time to review with your investment professional how your
assets are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY LAWRENCE J. DALY AND ANTHONY A. GOODCHILD, PORTFOLIO MANAGERS
John Hancock Short-Term
Strategic Income Fund
Bond markets recover from Asian flu,
despite continued problems in the region
When turmoil erupted in Southeast Asia's financial and currency markets last
October, bond investors feared the worst. Instead, bond markets outside of Asia
did fairly well during the six months following the debacle. The initial flight
away from emerging markets and toward safety benefited U.S. Treasury bonds,
which continued to remain attractive thanks to stable prices, near-ideal
economic conditions and the prospect of lower interest rates. Yields on two-year
U.S. Treasuries hovered around 5.5% for most of the period. In continental
Europe, bond markets rallied briefly during the first quarter of 1998, as
interest rates there remained low. Only in April did interest rates begin
reversing course, as the region prepared to move to a single currency. By
contrast, interest rates stayed high in the United Kingdom due to strong
economic growth. High rates, low inflation and a strong currency made U.K. bond
markets especially attractive. Bonds in certain emerging markets -- including
ones in Latin America -- did well after those countries changed their monetary
and fiscal policy mix to regain investor confidence.
Performance review
In this environment, John Hancock Short-Term Strategic Income Fund did well. For
the six months ended April 30, 1998, the Fund's Class A and Class B shares had
total returns of 3.35% and 3.13%, respectively, at net asset value. Keep in mind
that your net asset value return will be different from this performance if you
were not
"...U.S. Treasury bonds... continued to remain attractive..."
[A 2 3/4" x 2 3/4" photo at bottom right of page of fund portfolio managers.
Caption below reads "Anthony Goodchild (l) and Lawrence Daly (r), Portfolio
Managers".]
3
<PAGE>
================================================================================
John Hancock Funds - Short-Term Strategic Income Fund
[Chart at the top of left hand column with the heading "Top Five Bond
Categories". The chart lists five categories: 1.) U.S. government 63%; 2.)
Foreign governments 15%; 3.) Banks & Finance 5%; 4.) Oil & Gas 4% and 5.)
Utilities 3%. A note below the chart reads "As a percentage of net assets on
April 30, 1998".]
invested in the Fund for the entire period and did not reinvest all
distributions. The Fund's returns beat the average short-term investment-grade
bond fund's return of 2.66%, according to Lipper Analytical Services, Inc.(1)
Please see pages six and seven for longer-term performance information.
The Fund benefited from focusing on government bonds in the United States
and Latin America, while avoiding Southeast Asia. We earned the coupon (or
stated interest rate) on our U.S. investments, plus high yields and price
appreciation on our Latin American debt. In addition, the bulk of the Fund's net
assets -- 92% by the end of April -- were in U.S. dollar-denominated bonds. This
helped performance, as the dollar appreciated about 10% against the Japanese yen
and 4% against the German mark during the period. The Fund also benefited from
occasional small stakes in other currencies, including the British pound and
South African rand.
Portfolio strategy
The Fund owned a mix of higher-quality, short-term securities like U.S.
Treasuries, and lower-quality, longer-term emerging-market bonds. This
combination allowed us to earn high income, while also meeting our target
average portfolio credit rating of single A and keeping the Fund's average
maturity under three years.
United States. During the period, we boosted our stake in U.S. government
and agency bonds to 63% of the Fund's net assets, up from 38% at the end of
October. Early in the period, U.S. bonds seemed to offer the best value and
prospects among developed nations. The bulk of our U.S. investments were
Treasuries with two- or three-year maturities. To add income, we also bought
mortgage-backed securities issued by the Federal Home Loan Mortgage Corporation,
known as Freddie Mac. Both Treasuries and mortgages have the highest possible
credit ratings (AAA), which helped offset the lower quality ratings of our
emerging-market debt.
Emerging markets. Immediately following the Asian crisis, we pared back
our stake in emerging markets to 29% of the Fund's net assets, down from 44% at
the end of October. In Latin America, we sold corporate bonds and trimmed our
stake in government bonds to gain added stability and liquidity. We also sold at
a profit our small stake in Russian government bonds. Our focus instead was on
dollar-denominated government bonds in countries like Brazil, Mexico, Argentina,
Panama and Colombia. These countries have shown they can make the hard choices
necessary to move along
"Our focus... was on dollar-denominated government bonds..."
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Latin
American bonds followed by an up arrow with the phrase "Monetary and fiscal
policy improvements". The second listing is U.S. dollar followed by an up arrow
with the phrase "Higher interest rates and growth prospects". The third listing
is U.S. Treasuries followed by an arrow pointing to the right and left with the
phrase "Little change in interest rates". A note below the table reads "See
"Schedule of Investments." Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - Short-Term Strategic Income Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended April 30, 1998". The
chart is scaled in increments of 1% with 0% at the bottom and 5% at the top. The
first bar represents the 3.35% total return for John Hancock Short-Term
Strategic Income Fund Class A. The second bar represents the 3.13% total return
for John Hancock Short-Term Strategic Income Fund Class B. The third bar
represents the 2.66% total return for the average short-term investment-grade
bond fund. A note below the chart 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, Inc. (1). See the following two pages for historical
performance information."]
the transition path from emerging economies towards more developed economies.
Among the best-performing markets were Brazil and Panama, both of which made
strong rebounds following the Asian crisis. In late February, further currency
problems in Korea, Thailand, and Indonesia hurt all emerging-market debt. We
used this opportunity to boost our Latin American bond stake to 25% of the
Fund's net assets.
Europe. We avoided continental Europe because we expected interest rates
to rise and bond prices to fall, as economies there converge before launching
the new euro currency. Unfortunately, we were early in predicting this move,
since interest rates didn't start turning until April. We also steered clear of
the high-yielding U.K. bond market, believing we could do better by investing in
a mix of higher-yielding emerging markets and U.S. government bonds.
Outlook
Looking ahead, we're cautious. We're concerned about Japan's ability to
re-ignite its economy, develop a more open trading system and stabilize its
currency. Another issue is how Japan will resolve deep-seated problems in its
banking system and financial markets. Given that Japan controls about 50% of the
world's savings, what happens there will have a direct effect on financial
markets here. In the United States, there's also the possibility that the
Federal Reserve will raise interest rates, creating problems for bond investors.
We expect continued volatility in the emerging markets, which will be buffeted
by setbacks and breakthroughs. It's also hard to predict how events will unfold
in Europe, as the new single currency goes into effect.
Given these uncertainties, we believe the best strategy is a defensive one
aimed at avoiding major market disruptions. The Fund's diversification across
both countries and various financial instruments insulates it somewhat from
volatility in individual markets. When bond prices tumble, we'll use the
opportunity to move into undervalued markets that have been unfairly beaten up.
As we do this, however, we'll most likely keep our stake in emerging markets
under 30% of the Fund's net assets, with a bias toward the U.S. dollar.
"...we believe the best strategy is
a defensive one..."
- --------------------------------------------------------------------------------
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, economic 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>
================================================================================
John Hancock Funds - Short-Term Strategic Income Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
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 measures the change in value of an investment from the beginning to the
end of a period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 3%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 3% and declining to 0% over four years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please 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.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
---- ----- --------
Cumulative Total Returns 3.30% 33.22% 38.70%
Average Annual Total Returns 3.30% 5.90% 5.38%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/28/90)
---- ----- ----------
Cumulative Total Returns 2.91% 32.79% 47.58%
Average Annual Total Returns 2.91% 5.84% 5.51%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of April 30, 1998
SEC 30-DAY
YIELD
-----
John Hancock Short-Term Strategic Income Fund:
Class A 5.22%
John Hancock Short-Term Strategic Income Fund:
Class B 4.68%
6
<PAGE>
================================================================================
John Hancock Funds - Short-Term Strategic Income Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Short-Term Strategic Income Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Salomon Brothers World Money Market 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. Past performance is not
indicative of future results.
[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 $14,327 as of
April 30, 1998. The second line represents the Short-Term Strategic Income Fund,
after sales charge, and is equal to $13,897 as of April 30, 1998. The third line
represents the value of the Salomon Brothers World Money Market Index and is
equal to $12,300 as of April 30, 1998.]
[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 $14,779 as of April 30, 1998. The second
line represents the value of Salomon Brothers World Money Market Index and is
equal to $13,441 as of April 30, 1998.]
*No contingent deferred sales charge applicable.
7
<PAGE>
==============================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, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $583,955) .......................... $564,500
Bonds (cost - $74,028,243) ............................... 74,641,739
Short-term investments (cost - $17,781,269)
- Note A ............................................... 17,781,269
-------------
92,987,508
Cash ...................................................... 558
Receivable for shares sold ................................ 46,808
Dividends receivable ...................................... 6,685
Interest receivable ....................................... 1,616,848
Other assets .............................................. 3,677
-------------
Total Assets ............................ 94,662,084
-----------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................ 2,958
Payable upon return of securities on loan - Note A ........ 14,869,269
Dividend payable .......................................... 16,248
Payable to John Hancock Advisers, Inc. ....................
and affiliates - Note B ................................. 73,489
Accounts payable and accrued expenses ..................... 64,380
-------------
Total Liabilities ....................... 15,026,344
-----------------------------------------------------------
Net Assets:
Capital paid-in ........................................... 106,422,088
Accumulated net realized loss on investments and
foreign currency transactions ............................ (27,342,635)
Net unrealized appreciation of investments and
foreign currency transactions ............................ 593,043
Distributions in excess of net investment income .......... (36,756)
-------------
Net Assets .............................. $79,635,740
===========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding - unlimited
number of shares authorized with no par value)
Class A - $58,524,670/7,016,429 ........................... $8.34
=============================================================================
Class B - $21,111,070/2,530,948 ........................... $8.34
=============================================================================
Maximum Offering Price Per Share*
Class A - ($8.34 x 103.09%) ............................... $8.60
=============================================================================
* 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest (including income on securities loaned
of $37,946) .............................................. $3,024,522
Dividends ................................................. 6,685
-------------
3,031,207
-------------
Expenses:
Investment management fee - Note B ....................... 269,659
Distribution and service fee - Note B
Class A ................................................ 89,666
Class B ................................................ 113,911
Transfer agent fee - Note B .............................. 85,205
Custodian fee ............................................ 30,435
Auditing fee ............................................. 24,648
Registration and filing fees ............................. 12,269
Printing ................................................. 8,029
Financial services fee - Note B .......................... 7,331
Miscellaneous ............................................ 5,180
Trustees' fees ........................................... 2,678
Legal fees ............................................... 666
-------------
Total Expenses .......................... 649,677
-----------------------------------------------------------
Net Investment Income ................... 2,381,530
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain on investments sold ..................... 563,950
Net realized loss on foreign currency transactions ........ (22,118)
Change in net unrealized appreciation/depreciation
of investments ........................................... (241,478)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ......................... 17,853
-------------
Net Realized and Unrealized
Gain on Investments and Foreign
Currency Transactions ................... 318,207
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............... $2,699,737
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Short-Term Strategic Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................................... $6,688,562 $2,381,530
Net realized gain (loss) on investments sold and foreign currency transactions .......... (217,219) 541,832
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions ................................................................. (1,367,334) (223,625)
------------ ------------
Net Increase in Net Assets Resulting from Operations .................................. 5,104,009 2,699,737
------------ ------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5176 and $0.2453 per share, respectively) ............................... (3,698,646) (1,772,227)
Class B - ($0.4678 and $0.2170 per share, respectively) ............................... (1,962,894) (609,303)
Distributions in excess of net investment income
Class A - ($0.0764 and none per share, respectively) .................................. (545,931) --
Class B - ($0.0158 and none per share, respectively) .................................. (289,729) --
Distributions from capital paid-in
Class A - ($0.0175 and none per share, respectively) .................................. (125,016) --
Class B - ($0.0691 and none per share, respectively) .................................. (66,346) --
------------ ------------
Total Distributions to Shareholders ................................................... (6,688,562) (2,381,530)
------------ ------------
From Fund Share Transactions - Net:* ....................................................... (5,923,514) (10,649,981)
------------ ------------
Net Assets:
Beginning of period ..................................................................... 97,475,581 89,967,514
------------ ------------
End of period (including distributions in excess of net investment income of
$36,756 and $36,756, respectively) .................................................... $89,967,514 $79,635,740
============ ============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 4,479,598 $38,000,567 804,140 $6,698,902
Shares issued to shareholders in reinvestment of distributions .. 283,851 2,403,553 111,516 929,694
------------ ------------ ------------ ------------
4,763,449 40,404,120 915,656 7,628,596
Less shares repurchased ......................................... (2,890,921) (24,502,562) (1,604,619) (13,389,230)
------------ ------------ ------------ ------------
Net increase (decrease) ......................................... 1,872,528 $15,901,558 (688,963) ($5,760,634)
============ ============ ============ ============
CLASS B
Shares sold ..................................................... 1,869,770 $15,839,024 338,231 $2,794,110
Shares issued to shareholders in reinvestment of distributions .. 125,322 1,060,356 33,615 280,007
------------ ------------ ------------ ------------
1,995,092 16,899,380 371,846 3,074,117
Less shares repurchased ......................................... (4,572,712) (38,724,452) (960,998) (7,963,464)
------------ ------------ ------------ ------------
Net decrease .................................................... (2,577,620) ($21,825,072) (589,152) ($4,889,347)
============ ============ ============ ============
</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>
==============================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, 1998
1993 1994 1995 1996 1997 (UNAUDITED)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $9.32 $9.12 $8.47 $8.41 $8.46 $8.31
------- ------- ------- ------- ------- -------
Net Investment Income .............................. 0.83(1) 0.76(1) 0.77(1) 0.65 0.61(1) 0.25(1)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions .... (0.20) (0.53) (0.06) 0.05 (0.15) 0.03
------- ------- ------- ------- ------- -------
Total from Investment Operations ............... 0.63 0.23 0.71 0.70 0.46 0.28
------- ------- ------- ------- ------- -------
Less Distributions:
Distributions from Net Investment Income ........... (0.83) (0.62) (0.61) (0.57) (0.52) (0.25)
Distributions in Excess of Net Investment Income ... -- (0.04) -- -- (0.08) --
Distributions in Excess of Net Realized Gain on
Investments Sold ................................. -- (0.12) -- -- -- --
Distributions from Capital Paid-in ................. -- (0.10) (0.16) (0.08) (0.01) --
------- ------- ------- ------- ------- -------
Total Distributions ............................ (0.83) (0.88) (0.77) (0.65) (0.61) (0.25)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ..................... $9.12 $8.47 $8.41 $8.46 $8.31 $8.34
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(2) ...... 6.78% 2.64% 8.75% 8.60% 5.55% 3.35%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........... $11,130 $13,091 $16,997 $49,338 $64,059 $58,525
Ratio of Expenses to Average Net Assets ............ 1.21% 1.26% 1.33% 1.48% 1.43% 1.38%(4)
Ratio of Net Investment Income to Average Net Assets 8.59% 8.71% 9.13% 7.59% 7.22% 5.93%(4)
Portfolio Turnover Rate ............................ 306% 150% 147% 77% 71% 58%
</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>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Short-Term Strategic Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
----------------------------------------------------- APRIL 30, 1998
1993 1994 1995 1996 1997 (UNAUDITED)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ............... $9.31 $9.11 $8.46 $8.40 $8.45 $8.30
-------- ------- ------- ------- ------- -------
Net Investment Income .............................. 0.75(1) 0.70(1) 0.70(1) 0.59 0.55(1) 0.22(1)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions .... (0.20) (0.53) (0.06) 0.05 (0.15) 0.04
-------- ------- ------- ------- ------- -------
Total from Investment Operations ............... 0.55 0.17 0.64 0.64 0.40 0.26
-------- ------- ------- ------- ------- -------
Less Distributions:
Distributions from Net Investment Income ........... (0.75) (0.56) (0.56) (0.52) (0.47) (0.22)
Distributions in Excess of Net Investment Income ... -- (0.04) -- -- (0.07) --
Distributions in Excess of Net Realized Gain on
Investments Sold ................................. (0.12) -- -- -- --
Distributions from Capital Paid-in ................. -- (0.10) (0.14) (0.07) (0.01) --
-------- ------- ------- ------- ------- -------
Total Distributions ............................ (0.75) (0.82) (0.70) (0.59) (0.55) (0.22)
-------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ..................... $9.11 $8.46 $8.40 $8.45 $8.30 $8.34
======== ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(2) ...... 5.98% 1.93% 7.97% 7.89% 4.83% 3.13%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........... $142,873 $98,390 $84,601 $48,137 $25,908 $21,111
Ratio of Expenses to Average Net Assets ............ 2.01% 1.99% 2.07% 2.12% 2.13% 2.06%(4)
Ratio of Net Investment Income to Average
Net Assets ....................................... 7.81% 8.00% 8.40% 7.07% 6.51% 5.25%(4)
Portfolio Turnover Rate ............................ 306% 150% 147% 77% 71% 58%
</TABLE>
(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) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Short-Term Strategic Income Fund
Schedule of Investments
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Short-Term Strategic Income Fund on April 30, 1998. It's divided into three main
categories: common stock, bonds and short-term investments. Common stock and
bonds are further broken down by currency denomination. Short-term investments,
which represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
U.S. Dollar (0.71%)
KeySpan Energy Corp. ................... 8,000 $273,000
Southern Co. ........................... 11,000 291,500
---------
564,500
---------
TOTAL COMMON STOCKS
(Cost $583,955) (0.71%) 564,500
-------- ---------
INTEREST PAR VALUE
RATE (000s OMITTED)#
---- ---------------
BONDS
South African Rand (1.64%)
Ford Credit Canada Ltd.,
(Canada), Bond 11-13-02 ............... 14.000% 4,000 804,368
Walt Disney Co., (United States),
Bond Ser EMTN 10-24-02 ................ 14.000 2,500 502,730
---------
1,307,098
---------
U.S. Dollar (92.09%)
Altos Hornos de Mexico S.A.,
(Mexico), Bond Ser A
04-30-02 ............................ 11.375 $250 257,813
Banco Central de Costa Rica,
(Costa Rica), Floating Rate
Bond Ser A 05-21-05 ................ 6.570* 534 523,404
Banco de Galicia y Buenos Aires
S.A., (Argentina), Floating Rate
Note Ser EMTN 04-15-99 .............. 9.356* 1,500 1,526,250
Centrais Electricas Brasileiras
S.A., (Brazil), Sr Deb
10-30-98 (R) ........................ 10.000 1,000 1,008,750
U.S. Dollar (continued)
Copamex Industrias, S.A. de C.V.,
(Mexico), Sr Note Ser B 04-30-04 ...... 11.375% $750 $823,125
Empresas ICA Sociedad S.A. de C.V.,
(Mexico), Note 05-30-01 (R) ........... 11.875 1,000 1,085,000
Espirito Santo Centrais Electric,
(Brazil), Sr Note 07-15-07 (R) ........ 10.000 750 720,000
Federal Home Loan Mortgage Corp.,
Giant Mtg Part Cert 07-01-12 .......... 7.000 1,805 1,842,541
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 10-01-12 .......... 7.500 5,013 5,157,514
Federative Republic of Brazil, (Brazil),
Global Bond 11-05-01 .................. 8.875 2,000 2,055,000
Variable Rate Bond Ser A
01-01-01 ............................ 6.875* 1,225 1,194,840
Financiera Energetica Nacional S.A.,
(Colombia), Deb Ser REGS
06-15-06 ............................ 9.375 1,000 1,020,000
Innova S. de R.L., (Mexico),
Sr Note 04-01-07 ...................... 12.875 200 215,250
Petroleo Brasileiro S.A., (Brazil),
Floating Rate Note 06-08-98 ........... 10.525* 2,000 2,000,000
Petroleos Mexicanos, (Mexico),
Gtd Deb 09-15-07 ...................... 8.850 1,000 995,000
Republic of Argentina, (Argentina),
Floating Rate Bond Ser FRB
03-31-05 ............................ 6.625* 2,850 2,620,575
Republic of Costa Rica, (Costa Rica),
Deb 05-01-03 (R) ...................... 8.000 700 707,000
Republic of Ecuador, (Ecuador),
Deb 04-25-02 (R) ...................... 11.250 750 768,750
Republic of Korea, (South Korea),
Deb 04-15-03 .......................... 8.750 600 601,116
Republic of Panama, (Panama),
Floating Rate Note 05-10-02 ........... 6.844* 1,904 1,875,319
Republic of Venezuela, (Venezuela),
Floating Rate Bond Ser DL
12-18-07 ............................ 6.813* 952 853,571
TV Azteca S.A. de C.V., (Mexico),
Sr Note Ser A 02-15-04 ................ 10.125 500 522,500
United Mexican States, (Mexico),
Global Bond 02-06-01 .................. 9.750 1,500 1,586,250
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)
United States Treasury,
Note 01-31-99 ........................ 5.875% $10,500 $10,526,250
Note 05-15-99 ........................ 6.375 13,000 13,099,580
Note 11-30-99 ........................ 5.625 1,500 1,500,705
Note 11-15-00 ........................ 5.750 4,900 4,915,288
Note 11-30-02 ........................ 5.750 13,300 13,333,250
-----------
73,334,641
-----------
TOTAL BONDS
(Cost $74,028,243) (93.73%) 74,641,739
-------- -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.65%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. - Dated 04-30-98,
due 05-1-98 (Secured by
U.S. Treasury Notes,
5.00% thru 9.125%, due
02-15-99 thru 07-31-00)
- Note A................................ 5.500 2,912 2,912,000
-----------
Non-Cash Security Lending Collateral (0.15%)
Tri-Party Collateral which consists of
various U.S. Treasury Bonds and
Notes, 5.625% thru 10.375%,
due 05-31-00 thru 08-15-23 ** .......... 109 109,075
-----------
Cash Equivalents (18.53%)
Navigator Securities Lending
Prime Portfolio ** ....................... 14,760 14,760,194
-----------
TOTAL SHORT-TERM INVESTMENTS ............ (22.33%) 17,781,269
---------- -----------
TOTAL INVESTMENTS ............ (116.77%) 92,987,508
---------- -----------
OTHER ASSETS AND LIABILITIES, NET ........... (16.77%) (13,351,768)
---------- -----------
TOTAL NET ASSETS ............ (100.00%) $79,635,740
========== ===========
NOTES TO SCHEDULE OF INVESTMENTS
* Represents rate in effect on April 30, 1998.
** Represents investment of security lending collateral - Note A.
# Par value of non-US$ 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 $4,289,500 or 5.39% of the Fund's net
assets as of April 30, 1998.
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, 1998 assigned to the various
investment categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ----------
Banks - Foreign............................................ 2.58%
Building................................................... 1.36
Finance.................................................... 1.28
Finance - Consumer Loans................................... 1.01
Government - Foreign....................................... 15.40
Government - U.S........................................... 54.47
Government - U.S. Agencies................................. 8.79
Leisure - Services......................................... 0.63
Media...................................................... 0.66
Oil & Gas.................................................. 3.76
Paper & Paper Products..................................... 1.03
Steel...................................................... 0.32
Telecommunications......................................... 0.27
Utilities - Electric Power................................. 0.37
Utilities - Gas Distribution............................... 0.34
Utilities - Foreign........................................ 2.17
Short-Term Investments..................................... 22.33
------
TOTAL INVESTMENTS 116.77%
======
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,
Inc., 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 $27,884,467 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, 2000 -- $16,879,029, October
31, 2001 -- $3,127,414, October 31, 2002 -- $2,774,082, 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.
ORGANIZATION EXPENSES Expenses incurred in connection with the organization of
the Fund were capitalized and were charged to the Fund's operations ratably over
a five-year period that commenced with the investment operations of the Fund.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other Funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each Fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating Funds. The
Fund had no borrowing activity for the period ended April 30, 1998.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated lender fees. These fees are included in interest
income. The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. At April 30, 1998, the Fund
loaned securities having a market value of $14,375,830 collateralized by cash
and securities in the amount of $14,869,269. Cash collateral was invested in a
short-term instrument.
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
16
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Short-Term Strategic Income Fund
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 if they are offset by the currency amount of the underlying
transaction.
At April 30, 1998, there were no open forward foreign currency exchange
contracts.
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, 1998, 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
17
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Short-Term Strategic Income Fund
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 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,
1998.
NOTE B-
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.65% 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, acted as distributors for shares of the Fund. For the period ended
April 30, 1998, net sales charges received with regard to sales of Class A
shares amounted to $12,862. Of this amount, $1,953 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $5,360
was paid as sales commissions to unrelated broker-dealers and $5,549 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within 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 3.00% 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, 1998, the contingent deferred
sales charges paid to JH Funds amounted to $48,723.
In addition, to reimburse the 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
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 distibutors 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 less than 0.02% of the average net assets of the Fund.
18
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Short-Term Strategic Income 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, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $579.
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, 1998, aggregated $9,969,042 and $25,780,598, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $34,594,137 and $18,374,703, respectively, during the period
ended April 30, 1998.
The cost of investments owned at April 30, 1998 (including short-term
investments) for federal income tax purposes was $92,393,467. Gross unrealized
appreciation and depreciation of investments aggregated $779,384 and $185,343,
respectively, resulting in net unrealized appreciation of $594,041.
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
Short-Term Strategic Income 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 320SA 4/98
6/98
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
Special
Opportunities Fund
APRIL 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<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 and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and
Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
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 02109-1803
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer so far has
been more of the same. This achievement continues to bolster many investors'
convictions that the market will produce these results forever, or, in the worst
case, that market declines will always be short-lived. While the economy remains
solid and the environment favorable, history and reason tell us it's a highly
unlikely scenario.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to third paragraph.]
This doesn't mean we know what the market will do next, or that it's
riding for a fall. But after such a run, even in this "new era" of strong
economic growth with low inflation, we believe it would be wise for investors to
set more realistic expectations. As we've said before, markets do indeed move in
two directions, even though we've seen "up" much more than "down" recently. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now
could also be a good time to review with your investment professional how your
assets are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY BARBARA C. FRIEDMAN, CFA, PORTFOLIO MANAGER
John Hancock
Special Opportunities Fund
U.S. stock market shakes off Asian contagion
and charges ahead
Recently, Barbara Friedman assumed management responsibility for John Hancock
Special Opportunities Fund. Mrs. Friedman, who joined John Hancock Funds as a
senior vice president and portfolio manager in January 1998, has over 25 years
of experience in the investment management business.
After a shaky start, U.S. stocks made great headway during the first four months
of 1998 and far exceeded investors' expectations. Troubles in Asian financial
markets had sent U.S. stocks tumbling in the fourth quarter of 1997, clouding
the outlook for future gains. But as concerns about the Asian fallout eased and
economic conditions remained ideal, stocks took off again. After setting a new
high in April, however, the market retreated amid fears of rising interest rates
and concerns that stock prices were too high. Despite this setback, the Standard
& Poor's 500 Stock Index managed a remarkable 22.49% climb for the six months
ended April 30, 1998.
Performance review
During this period, mid-cap stocks lagged large-company stocks with the Russell
Midcap Growth Index returning 16.86%. John Hancock Special Opportunities Fund's
Class A and Class B shares generated total returns of 10.68% and 10.37%,
respectively, at net asset value for the six months ended April 30, 1998. Keep
in mind that your net asset value return will be different from this performance
if you were not invested in the Fund for the entire period, and did not
"...U.S. stocks made great headway..."
[A 2 1/4" x 3 1/2" photo at bottom of page of the Fund's management team
members. Caption below reads "Special Opportunities Fund management team members
(l - r): Barbara Friedman, Ben Hock, Lisa Welch and John Golden".]
3
<PAGE>
================================================================================
John Hancock Funds - Special Opportunities Fund
[Chart at the top of left hand column with the heading "Top Five Common Stock
Holdings". The chart lists five holdings: 1.) EMC 1.9%; 2.) Forest Laboratories
1.5%; 3.) Berg Electronics 1.5%; 4.) Tower Automotive 1.4% and 5.) Keane 1.4%. A
note below the chart reads "As a percentage of net assets on April 30, 1998".]
reinvest all distributions. Over the same time frame, the average mid-cap fund
returned 14.41%, according to Lipper Analytical Services, Inc.(1) Please see
pages six and seven for longer-term performance information.
The Fund fell behind for three reasons. First, we had a lower-than-average
stake in technology, which turned out to be a top-performing sector. While the
stocks we picked did well, we didn't own enough of them to keep pace. Second, we
had a substantially larger investment in financial services stocks than the
index. After strong gains in 1997, financials took a breather and ended up
lagging the market during the first quarter of 1998. Finally, the Fund's focus
on pure mid-cap stocks dampened its competitive performance. The Fund targets
stocks with market capitalizations (stock price multiplied by the number of
outstanding shares) between $750 million and $6 billion. By comparison, many
mid-cap funds invest in a combination of small and large companies to give them
an average mid-cap size. During the period, funds with large-cap investments
came out ahead.
Management and sector shifts
The Fund continued to concentrate over 75% of its assets in five sectors
expected to grow faster than the overall economy. To increase diversification
within each sector and across the Fund as a whole, we brought the total number
of names in the portfolio to 98 -- up from 57 six months ago. In addition, we
focused on pure mid-cap stocks, whose prices are cheap compared to their strong
earnings prospects. Along with this change, we moved the Fund into a more
appropriate mid-cap competitive universe as tracked by Lipper.
During the period, we continued to keep our largest concentrations in
financial services and technology. We sold top-performing energy stocks -- one
of our biggest sectors at the end of October -- and used the proceeds to build a
sizable stake in health-care stocks, which looked both cheap and promising. We
also focused on retail stocks and consumer cyclical stocks, mainly media
companies.
Financials, technology, and health-care
At the end of April, 26% of the Fund's net assets were in financial services
stocks, compared to only 9% for the Russell Midcap Growth Index. We expect this
sector to benefit from continued consolidation, especially among mid-size
companies. Our investments included regional banks, savings and loans, life
insurers, property and casualty companies, and an investment management firm.
Most of our financial stocks lagged the market, taking a breather after a strong
run-up late last year and a lack of takeover activity in
"...we focused on pure mid-cap stocks..."
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Forest
Laboratories followed by an up arrow with the phrase "New product approval". The
second listing is Selective Insurance Group followed by an arrow pointing to the
right and left with the phrase "Sector weakness". The third listing is Dura
Pharmaceuticals followed by a down arrow with the phrase "Weak cough and cold
season hurts sales". A note below the table reads "See "Schedule of
Investments." Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - Special Opportunities Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended April 30, 1998". The
chart is scaled in increments of 5% with 0% at the bottom and 15% at the top.
The first bar represents the 10.68% total return for John Hancock Special
Opportunities Fund Class A. The second bar represents the 10.37% total return
for John Hancock Special Opportunities Fund Class B. The third bar represents
the 14.41% total return for the average mid-cap fund. A note below the chart
reads "Total returns for John Hancock Special Opportunities Fund are at net
asset value with all distributions reinvested. The average mid-cap fund is
tracked by Lipper Analytical Services, Inc. (1). See the following two pages for
historical performance information."]
the mid-cap arena. Especially hit were those -- like Selective Insurance Group
- -- that investors have yet to recognize. We did have a few good performers,
however, including Mid Ocean, a Bermuda-based property and casualty insurer that
was acquired by another company.
About 15% of the Fund's net assets were in technology versus the 22% in
the Russell Midcap Growth Index. Our stake was lighter than the index because of
concerns about the sector's vulnerability to the Asian crisis. To limit
volatility, we focused primarily on domestic names -- especially in the software
area -- and avoided semiconductor and computer stocks. Among our top-performing
technology stocks were EMC Corp., a leading computer storage company; Keane,
Inc., a software company that is helping corporations become year 2000
compliant; and McLeodUSA, a Midwest communications services company.
Health-care stocks, which did especially well, represented 12% of the
Fund's net assets. This sector has strong prospects, given that health-care
spending will most likely rise significantly as baby boomers age. This one
generation of people born after World War II accounts for about one-third of the
U.S. population. We owned a wide array of stocks that included pharmaceuticals,
hospital companies, vitamin manufacturers, an HMO and a nursing home. One of our
top investments was Forest Laboratories, a drug company with a potential
blockbuster in the pipeline.
Tempered expectations ahead
We expect the U.S. economy to continue to grow, but at a slower rate than we've
seen recently. During the past three years, we've had good growth, not just in
the economy but also in corporate earnings and the stock market. Given where
we've been, future growth may not be as easy to come by. This means stock
selection will become even more critical. Our focus will be on mid-cap companies
with predictable earnings growth. Among the stocks we've bought recently are
Aspen Technologies, a software company with multi-year contracts with the
refining, chemical and pharmaceutical industries, and Gartner Group, a leading
provider of research on the information technology industry. We'll continue to
look for companies like these that have the potential to generate strong
earnings growth, regardless of market conditions.
"We expect the U.S. economy to continue to grow, but at a slower rate..."
- --------------------------------------------------------------------------------
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.
Sector investing is subject to greater risks than the market as a whole.
(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>
================================================================================
John Hancock Funds - Special Opportunities Fund
- --------------------------------------------------------------------------------
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
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE INCEPTION
YEAR (11/1/93)
---- ---------
Cumulative Total Returns 22.76% 71.38%
Average Annual Total Returns 22.76% 12.99%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE INCEPTION
YEAR (11/1/93)
---- ---------
Cumulative Total Returns 23.22% 72.81%
Average Annual Total Returns 23.22% 13.20%
6
<PAGE>
================================================================================
John Hancock Funds - Special Opportunities Fund
- --------------------------------------------------------------------------------
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, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in both the Standard & Poor's 500 Stock Index and the Russell
Midcap Growth Index. The Standard & Poor's 500 Stock Index is an unmanaged index
that includes 500 widely traded common stocks and is a commonly used measure of
stock market performance. The Russell Midcap Growth Index is an unmanaged index
that contains those securities from the Russell Midcap Index with a
greater-than-average growth orientation. Past performance is not indicative of
future results.
[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 $26,360 as of April 30, 1998. The
second line represents the value of the Russell Midcap Index and is equal to
$21,580 as of April 30, 1998. 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 $17,976 as of April 30,
1998. The fourth line represents the Special Opportunities Fund, after sales
charge, and is equal to $17,077 as of April 30, 1998.]
[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 $26,360 as of April 30, 1998. The
second line represents the value of the Russell Midcap Index and is equal to
$21,580 as of April 30, 1998. 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 $17,416 as of April 30,
1998. The fourth line represents the Special Opportunities Fund, after sales
charge, and is equal to $17,216 as of April 30, 1998.]
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, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $269,721,675) ..................... $314,694,000
Joint repurchase agreement (cost - $8,369,000) .......... 8,369,000
Corporate savings account ............................... 793
-------------
323,063,793
Receivable for investments sold .......................... 3,157,453
Interest receivable ...................................... 1,413
Dividends receivable ..................................... 115,062
Foreign tax receivable ................................... 615
Deferred organization expenses - Note A .................. 13,170
Other assets ............................................. 10,444
-------------
Total Assets ........................... 326,361,950
-----------------------------------------------------------
Liabilities:
Payable for investments purchased ........................ 3,758,286
Payable for shares repurchased ........................... 211,827
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................. 370,341
Accounts payable and accrued expenses .................... 52,515
-------------
Total Liabilities ...................... 4,392,969
-----------------------------------------------------------
Net Assets:
Capital paid-in .......................................... 252,769,927
Accumulated net realized gain on investments and
foreign currency transactions ........................... 26,266,326
Net unrealized appreciation of investments ............... 44,973,937
Accumulated net investment loss .......................... (2,041,209)
-------------
Net Assets ............................. $321,968,981
===========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding -
unlimited number of shares authorized with
no par value)
Class A - $134,339,345 / 12,073,223 ...................... $11.13
=============================================================================
Class B - $187,629,636 / 17,559,621 ...................... $10.69
=============================================================================
Maximum Offering Price Per Share*
Class A - ($11.13 x 105.26%) ............................. $11.72
=============================================================================
* 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $16,126) .. $939,296
Interest ................................................. 272,333
-------------
1,211,629
-------------
Expenses:
Investment management fee - Note B ...................... 1,291,434
Distribution and service fee - Note B
Class A ............................................... 199,564
Class B ............................................... 932,510
Transfer agent fee - Note B ............................. 655,089
Custodian fee ........................................... 44,949
Financial services fee - Note B ......................... 28,525
Registration and filing fees ............................ 21,686
Printing ................................................ 19,889
Auditing fee ............................................ 15,251
Organization expense - Note A ........................... 12,955
Trustees' fees .......................................... 9,389
Miscellaneous ........................................... 3,824
Legal fees .............................................. 1,000
-------------
Total Expenses ......................... 3,236,065
-----------------------------------------------------------
Net Investment Loss .................... (2,024,436)
-----------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold .................... 26,346,508
Change in net unrealized appreciation/depreciation
of investments ........................................ 6,617,997
-------------
Net Realized and Unrealized
Gain on Investments .................... 32,964,505
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .............. $30,940,069
===========================================================
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, 1998
OCTOBER 31, 1997 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ........................................................... ($3,706,097) ($2,024,436)
Net realized gain on investments sold and foreign currency transactions ....... 60,340,967 26,346,508
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions .............................................. (30,342,802) 6,617,997
------------- -------------
Net Increase in Net Assets Resulting from Operations ........................ 26,292,068 30,940,069
------------- -------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.4581 and $1.3062 per share, respectively) ..................... (6,629,671) (15,933,609)
Class B - ($0.4581 and $1.3062 per share, respectively) ..................... (10,356,319) (23,732,786)
------------- -------------
Total Distributions to Shareholders ......................................... (16,985,990) (39,666,395)
------------- -------------
From Fund Share Transactions - Net:* ............................................. (57,976,265) (16,114,438)
------------- -------------
Net Assets:
Beginning of period ........................................................... 395,479,932 346,809,745
------------- -------------
End of period (including accumulated net investment loss of
$16,773 and $2,041,209, respectively) ....................................... $346,809,745 $321,968,981
============= =============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
----------------------------------- -----------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold ............................. 13,788,334 $149,978,302 2,244,572 $23,802,139
Shares reinvested ....................... 574,409 6,255,139 1,542,632 15,071,686
------------- ------------- ------------- -------------
14,362,743 156,233,441 3,787,204 38,873,825
Less shares repurchased ................. (16,237,930) (175,622,420) (4,174,947) (43,704,962)
------------- ------------- ------------- -------------
Net decrease ............................ (1,875,187) ($19,388,979) (387,743) ($4,831,137)
============= ============= ============= =============
CLASS B
Shares sold ............................. 4,201,630 $43,981,077 943,555 $9,915,333
Shares reinvested ....................... 886,671 9,406,661 2,298,531 21,629,310
------------- ------------- ------------- -------------
5,088,301 53,387,738 3,242,086 31,544,643
Less shares repurchased ................. (8,910,759) (91,975,024) (4,258,602) (42,827,944)
------------- ------------- ------------- -------------
Net decrease ............................ (3,822,458) ($38,587,286) (1,016,516) ($11,283,301)
============= ============= ============= =============
</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 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, 1998
1994 1995 1996 1997 (UNAUDITED)
-------- -------- -------- -------- -----------
<S> <C> <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 $11.40
-------- -------- -------- -------- -----------
Net Investment Loss (2) .................................... (0.03) (0.07) (0.11) (0.06) (0.05)
Net Realized and Unrealized Gain (Loss) on Investments ..... (0.54) 1.46 3.34 1.00 1.09
-------- -------- -------- -------- -----------
Total from Investment Operations .......................... (0.57) 1.39 3.23 0.94 1.04
-------- -------- -------- -------- -----------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ... -- -- (1.63) (0.46) (1.31)
-------- -------- -------- -------- -----------
Net Asset Value, End of Period ............................. $7.93 $9.32 $10.92 $11.40 $11.13
======== ======== ======== ======== ===========
Total Investment Return at Net Asset Value (3) ............. (6.71%) 17.53% 36.15% 8.79% 10.68%(7)
Total Adjusted Investment Return at Net Asset Value (3,4) .. (6.83%) -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $92,325 $101,562 $156,578 $141,997 $134,339
Ratio of Expenses to Average Net Assets .................... 1.50% 1.59% 1.59% 1.59% 1.60%(6)
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%) (0.57%) (0.85%)(6)
Ratio of Adjusted Net Investment Loss to Average Net
Assets (5) .............................................. (0.53%) -- -- -- --
Portfolio Turnover Rate .................................... 57% 155% 240% 317% 110%
Expense Reimbursement Per Share ............................ $0.01(2) -- -- -- --
CLASS B(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $8.50 $7.87 $9.19 $10.67 $11.03
-------- -------- -------- -------- -----------
Net Investment Loss (2) .................................... (0.09) (0.13) (0.18) (0.13) (0.08)
Net Realized and Unrealized Gain (Loss) on Investments ..... (0.54) 1.45 3.29 0.95 1.05
-------- -------- -------- -------- -----------
Total from Investment Operations .......................... (0.63) 1.32 3.11 0.82 0.97
-------- -------- -------- -------- -----------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ... -- -- (1.63) (0.46) (1.31)
-------- -------- -------- -------- -----------
Net Asset Value, End of Period ............................. $7.87 $9.19 $10.67 $11.03 $10.69
======== ======== ======== ======== ===========
Total Investment Return at Net Asset Value (3) ............. (7.41%) 16.77% 35.34% 7.84% 10.37%(7)
Total Adjusted Investment Return at Net Asset Value (3,4) .. (7.53%) -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $131,983 $137,363 $238,901 $204,812 $187,630
Ratio of Expenses to Average Net Assets .................... 2.22% 2.30% 2.29% 2.28% 2.29%(6)
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%) (1.25%) (1.54%)(6)
Ratio of Adjusted Net Investment Loss to Average Net
Assets (5) .............................................. (1.25%) -- -- -- --
Portfolio Turnover Rate .................................... 57% 155% 240% 317% 110%
Expense Reimbursement Per Share ............................ $0.01(2) -- -- -- --
</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(8)
------------------- -----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................................... $7.60 $7.94
--------- ---------
Net Investment Income ...................................................... -- 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%)(7) 3.40%(7)
Total Adjusted Investment Return at Net Asset Value (3,4) .................. (4.85%)(7) --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................................... $165 $218
Ratio of Expenses to Average Net Assets .................................... 1.01%(6) 0.98%(6)
Ratio of Adjusted Expenses to Average Net Assets (5) ....................... 1.39%(6) --
Ratio of Net Investment Income to Average Net Assets ....................... 0.03%(6) 0.23%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (5) .......... (0.35%)(6) --
Portfolio Turnover Rate .................................................... 57% N/A
Expense Reimbursement Per Share ............................................ $0.01(2) --
</TABLE>
(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) Annualized.
(7) Not annualized.
(8) 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.
The Financial Highlights summarize the impact of the following factors on a
single share for each period indi cated: the net investment income (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 end of the previous period.
Additionally, important rela tionships 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Special Opportunities Fund on April 30, 1998. It's divided into two main
categories: common stocks and short-term investments. 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
Advertising (1.14%)
Outdoor Systems, Inc.* ........................ 116,100 $3,686,175
------------
Automobile/Trucks (2.37%)
Avis Rent A Car, Inc.* ........................ 119,100 3,118,931
Tower Automotive, Inc.* ....................... 85,000 4,531,563
------------
7,650,494
------------
Banks - United States (4.61%)
First American Corp. .......................... 72,000 3,550,500
Regions Financial Corp. ....................... 75,900 3,311,137
Republic New York Corp. ....................... 28,000 3,745,000
Silicon Valley Bancshares* .................... 65,000 4,241,250
------------
14,847,887
------------
Business Services (1.49%)
Diebold, Inc. ................................. 33,200 1,361,200
Select Appointments Holdings PLC,
American Depository Receipts (ADR)
(United Kingdom) ............................ 127,000 3,444,875
------------
4,806,075
------------
Computers (10.66%)
Aspen Technologies, Inc.* ..................... 58,400 2,854,300
Cambridge Technology Partners, Inc.* .......... 67,000 3,500,750
Compuware Corp.* .............................. 82,700 4,041,962
EMC Corp.* .................................... 134,000 6,180,750
Gartner Group, Inc. (Class A)* ................ 100,000 3,312,500
Keane, Inc.* .................................. 90,000 4,522,500
Lexmark International Group, Inc. (Class A)* .. 55,300 3,200,487
Network Associates, Inc.* ..................... 53,000 3,630,500
Sterling Commerce, Inc.* ...................... 72,500 3,085,781
------------
34,329,530
------------
Containers (1.15%)
EarthShell Corp.* ............................. 29,000 $424,125
Owens-Illinois, Inc.* ......................... 82,550 3,265,884
------------
3,690,009
------------
Cosmetics & Personal Care (2.01%)
Rexall Sundown, Inc.* ......................... 102,600 3,276,788
Twinlab Corp.* ................................ 81,300 3,191,025
------------
6,467,813
------------
Diversified Operations (0.53%)
IKON Office Solutions, Inc. ................... 70,500 1,705,219
------------
Electronics (4.65%)
Berg Electronics Corp.* ....................... 195,700 4,660,106
Computer Products, Inc.* ...................... 142,200 3,128,400
Jabil Circuit, Inc.* .......................... 95,400 3,350,925
Waters Corp.* ................................. 71,400 3,819,900
------------
14,959,331
------------
Finance (5.23%)
Charter One Financial, Inc. ................... 47,750 3,232,078
CIT Group, Inc. (The) (Class A) ............... 96,700 3,426,806
Price (T. Rowe) Associates, Inc. .............. 44,025 3,323,887
Sovereign Bancorp., Inc. ...................... 192,000 3,624,000
TCF Financial Corp. ........................... 99,000 3,223,688
------------
16,830,459
------------
Food (2.11%)
International Home Foods, Inc.* ............... 104,800 3,144,000
Suiza Foods Corp.* ............................ 61,440 3,640,320
------------
6,784,320
------------
Furniture (1.00%)
Leggett & Platt, Inc. ......................... 62,000 3,220,125
------------
Insurance (12.05%)
Ace, Ltd. (Bermuda) ........................... 51,400 1,946,775
Allmerica Financial Corp. ..................... 65,000 4,070,625
CMAC Investment Corp. ......................... 62,000 4,002,875
Executive Risk, Inc. .......................... 50,000 3,334,375
Life Re Corp. ................................. 53,000 3,816,000
Mid Ocean Ltd. (Bermuda) ...................... 56,000 4,221,000
Mutual Risk Management Ltd. ................... 94,300 3,194,412
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Special Opportunities Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Insurance (continued)
Reliance Group Holdings, Inc. ................. 230,000 $3,981,875
ReliaStar Financial Corp. ..................... 79,000 3,604,375
Selective Insurance Group, Inc. ............... 123,000 3,382,500
Vesta Insurance Group, Inc. ................... 57,334 3,246,538
------------
38,801,350
------------
Leisure (0.39%)
Hasbro, Inc. .................................. 33,900 1,247,944
------------
Media (4.01%)
Central Newspapers, Inc. (Class A) ............ 46,100 3,376,825
Clear Channel Communications, Inc.* ........... 34,000 3,204,500
Sinclair Broadcast Group, Inc. (Class A)* ..... 64,700 3,356,313
Univision Communications, Inc. (Class A)* ..... 77,400 2,965,388
------------
12,903,026
------------
Medical (12.05%)
Dura Pharmaceuticals, Inc.* ................... 74,000 1,961,000
Elan Corp., PLC (ADR) (Ireland)* ............. 66,000 4,100,250
Forest Laboratories, Inc.* .................... 132,000 4,776,750
Genesis Health Ventures, Inc.* ................ 58,000 1,533,375
Genzyme Corp.* ................................ 119,000 3,681,562
Health Management Associates, Inc.
(Class A)* .................................. 135,000 4,252,500
HEALTHSOUTH Corp.* ............................ 127,000 3,833,812
Mylan Laboratories, Inc. ...................... 161,000 4,367,125
Quorum Health Group, Inc.* .................... 103,200 3,315,300
Sofamor Danek Group, Inc.* .................... 39,500 3,466,125
Wellpoint Health Networks, Inc.* .............. 48,800 3,519,700
------------
38,807,499
------------
Office (1.17%)
OfficeMax, Inc. * ............................. 200,000 3,762,500
------------
Oil & Gas (6.78%)
BJ Services Co.* .............................. 42,900 1,608,750
Columbia Energy Group ......................... 42,000 3,412,500
Cooper Cameron Corp.* ......................... 34,000 2,258,875
Diamond Offshore Drilling, Inc. ............... 37,000 1,873,125
El Paso Natural Gas Co. ....................... 102,000 3,767,625
EVI, Inc.* .................................... 45,400 2,417,550
Mitchell Energy & Development Corp.* .......... 108,500 2,712,500
R&B Falcon Corp.* ............................. 65,000 2,084,062
Santa Fe International Corp. .................. 43,000 1,685,063
------------
21,820,050
------------
Pollution Control (1.10%)
USA Waste Services, Inc.* ..................... 72,400 $3,552,125
------------
Real Estate Investment Trust (3.47%)
FelCor Suite Hotels, Inc. ..................... 89,000 3,115,000
Spieker Properties, Inc. ...................... 71,900 2,849,038
Starwood Hotels & Resorts ..................... 56,900 2,855,669
Vornado Realty Trust .......................... 59,100 2,367,694
------------
11,187,401
------------
Retail (8.14%)
Costco Cos., Inc.* ............................ 60,000 3,352,500
CVS Corp. ..................................... 45,000 3,318,750
Ethan Allen Interiors, Inc. ................... 51,570 2,626,847
Fastenal Co. .................................. 6,900 385,969
Furniture Brands International, Inc.* ......... 109,800 3,225,375
Meyer (Fred), Inc. * .......................... 81,600 3,661,800
Pier 1 Imports, Inc. .......................... 60,000 1,582,500
Rite Aid Corp. ................................ 94,000 3,019,750
Ruddick Corp. ................................. 90,000 1,614,375
Safeway, Inc.* ................................ 89,300 3,415,725
------------
26,203,591
------------
Service (1.05%)
Interim Services, Inc. * ...................... 103,500 3,376,687
------------
Telecommunications (5.86%)
ICG Communications, Inc.* ..................... 103,200 3,612,000
Intermedia Communications, Inc.* .............. 47,800 3,488,650
McLeodUSA, Inc. (Class A)* .................... 94,400 4,342,400
NEXTLINK Communications, Inc.
(Class A)* .................................. 133,700 4,011,000
Tel-Save Holdings, Inc.* ...................... 150,000 3,421,875
------------
18,875,925
------------
Textile (1.12%)
St. John Knits, Inc. .......................... 80,540 3,594,098
------------
Transport (0.50%)
Kansas City Southern Industries, Inc. ......... 35,560 1,606,867
------------
Utilities (3.10%)
KN Energy, Inc. ............................... 60,000 3,521,250
MCN Energy Group, Inc. ........................ 86,000 3,246,500
Questar Corp. ................................. 74,000 3,209,750
------------
9,977,500
------------
TOTAL COMMON STOCKS
(Cost $269,721,675) ................ (97.74%) 314,694,000
--------- ------------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Special Opportunities Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.60%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities USA,
Inc. - Dated 04-30-98, due
05-01-98 (Secured by U.S.
Treasury Bills, 4.86% and 5.27%,
due 06-18-98 and 12-10-98, U.S.
Treasury Bonds, 6.00% thru 13.25%,
due 05-15-14 thru 02-15-27 and
U.S. Treasury Notes, 4.75% thru
9.25%, due 07-31-98 thru 05-15-06)
- Note A............................. 5.50% $8,369 $8,369,000
-------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................... 793
-------------
TOTAL SHORT-TERM INVESTMENTS (2.60%) 8,369,793
--------- -------------
TOTAL INVESTMENTS (100.34%) 323,063,793
--------- -------------
OTHER ASSETS AND LIABILITIES, NET (0.34%) (1,094,812)
--------- -------------
TOTAL NET ASSETS (100.00%) $321,968,981
========= =============
* 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.
14
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Special Opportunities 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 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 Trustees have authorized
the issuance of new Class C shares, effective June 1, 1998. 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."
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in joint repurchase agreement transactions. 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 for both financial
reporting and federal income tax purposes. 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 April 30,1998, the Fund has
$11,066,430 of capital loss carryforwards available, to the extent provided by
regulations, to offset future net realized capital gains. If such carryforwards
are used by the Fund, no capital gain distributions will be made. The Fund's
carryforwards expire as follows: October 31, 1998 -- $769,302, October 31, 1999
- -- $1,297,087, October 31, 2000 -- $12,856, October 31, 2001 -- $4,531,602 and
October 31, 2002 -- $4,455,583. Availability of a certain amount of loss
carryforwards which were acquired on September 6,1996 in a merger, 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 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 dis-
15
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Special Opportunities Fund
tributions 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 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.
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. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the lines of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the period ended April 30, 1998.
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 if they are offset by the currency amount of the underlying
transaction.
At April 30, 1998 there were no open foreign currency forward contracts.
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 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, 1998, there were no open positions in financial futures
contracts.
SHORT SALE POSITIONS The Fund, in "selling short," sells borrowed securities
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 may realize losses upon repurchase at prices which may
exceed the prices used in determining the liability on the Statement of Assets
and Liabilities. 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, 1998, there were no open positions in short sales.
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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $114,246. Out of this amount, $18,208 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $39,941
was paid as sales commissions to unrelated broker-dealers and $56,097 was paid
as sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being
17
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - Special Opportunities Fund
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, 1998, contingent deferred sales charges paid to JH Funds
amounted to $311,207.
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 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 less than 0.02% 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 cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At April 30, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $1,612.
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, 1998, aggregated $350,615,046 and $407,577,135, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1998.
The cost of investments owned at April 30, 1998 (including the joint
repurchase agreement) for federal income tax purposes was $278,090,675. Gross
unrealized appreciation and depreciation of investments aggregated $52,226,588
and $7,254,263, respectively, resulting in net unrealized appreciation of
$44,972,325.
18
<PAGE>
===================================== NOTES ====================================
John Hancock Funds - Special Opportunities 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
Special Opportunities 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 390SA 4/98
6/98
<PAGE>
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
International
Fund
APRIL 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<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 and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and
Compliance Officer
CUSTODIAN
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 02109-1803
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer so far has
been more of the same. This achievement continues to bolster many investors'
convictions that the market will produce these results forever, or, in the worst
case, that market declines will always be short-lived. While the economy remains
solid and the environment favorable, history and reason tell us it's a highly
unlikely scenario.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to third paragraph.]
This doesn't mean we know what the market will do next, or that it's
riding for a fall. But after such a run, even in this "new era" of strong
economic growth with low inflation, we believe it would be wise for investors to
set more realistic expectations. As we've said before, markets do indeed move in
two directions, even though we've seen "up" much more than "down" recently. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now
could also be a good time to review with your investment professional how your
assets are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND GERARDO J. ESPINOZA,
PORTFOLIO MANAGERS
John Hancock
International Fund
Overseas investors treated to double-digit six-month returns
When the Fund's six-month period began last November, the Asian currency and
financial crisis had just rocked world markets. But markets in two regions of
the world managed to weather the storm and ended the period producing strong
results. The clear winners were in North America and Europe, where many stock
markets rose to record highs, in part because of the flight to quality that
followed the Asian meltdown. Even some of the Asian emerging markets that had
borne the brunt of last October's plunge began to rally, but not enough to
overcome their year-end debacle. The emerging-market laggards extended into
Latin America, which couldn't escape being painted with the same volatile brush
as their Asian counterparts.
Overall, foreign markets did well in the last six months, producing
double-digit returns for investors. John Hancock International Fund shared
equally in the bounty. For the six months ended April 30, 1998, the Fund's Class
A and Class B shares posted total returns of 16.63% and 16.16%, respectively, at
net asset value. Keep in mind that your net asset value return will be different
from this performance if you were not invested in the Fund for the entire period
and did not reinvest all distributions. The Fund's performance was right in line
with the average international fund's 16.25% return, according to Lipper
Analytical Services, Inc.1 Longer-term performance information can be found on
pages six and seven.
Europe overweighted; Fund restructured
The Fund benefited from its large position in Europe, which rose from 51% to 75%
of the
"The clear winners were in North America and Europe..."
[A 2 1/4" x 3 3/4" photo at bottom of page of the Fund's portfolio managers,
(l - r) Gerardo Espinoza, Miren Etcheverry and John Wills.]
3
<PAGE>
================================================================================
John Hancock Funds - International Fund
[Pie chart at top of left hand column with the heading "Portfolio
Diversification". The chart is divided into 6 sections from top, left to right:
Latin America 5%; Pacific Rim 6%; Japan 10%; Canada 4%; Continental Europe 58%
and U.K. & Ireland 17%. A note below the chart reads "As a percentage of net
assets on April 30, 1998".]
"The Fund benefited from its large position in Europe..."
Fund's net assets in the last six months. We continued to build our stake there
because of the compelling investment environment, including tame inflation, low
interest rates, and imminent prospects of European monetary and economic union
(EMU). At the corporate level, restructuring and merger activity is increasing,
and earnings outlooks remain favorable. In the last six months, we established
positions in several new attractive markets, including Italy, Spain, Portugal,
Belgium, Finland and Denmark.
Our European financial stocks were the biggest contributors to
performance, top among them Allied Irish Banks, Credito Italiano, Axa and ING
Groep. Another strong performer was U.K. consumer magazine publishing company
EMAP. Its stock rose on the strength of the British economy and an economic
rebound in France, where EMAP derives a large portion of its revenues. The U.K.
as a whole did not shine as brightly as the Continent, particularly our retail
holdings, because much of the world's attention remained centered on countries
entering the European union.
Our growing list of European countries, and the Fund's improved
performance, also reflect the effects of a gradual restructuring of the Fund
that we initiated last year and continued during the period. Our goal was to
better manage the Fund's risk level by making it more diversified and balanced.
We achieved this by significantly increasing the number of stocks in the
portfolio and by reducing the percentage of the Fund's assets held in the top 10
positions.
Asia, emerging world shrink
Given the heightened turbulence in Asia, we further reduced our stake there to
16% from 29% six months earlier, keeping away from the emerging Asian markets.
That served us well, given the region's lagging results. We brought our Hong
Kong weighting down from 7% to a more neutral 3% level as rising interest rates
negatively affected real estate stocks like China Resources. In addition to Hong
Kong, we kept our focus on the more defensive markets of Australia and Japan.
Our Australian mining stocks, including Normandy Mining, gained ground along
with a recovery in commodity prices, and we used the occasion to take profits
and pare back our position. In Japan, we stayed underweighted at 10%. The export
stocks that remain our focus had a mixed period as Japanese investors hopeful
for a recovering economy turned briefly toward more domestically oriented
stocks.
As removed geographically as Latin America is from Asia, it was unable to
escape the fallout
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Unilever
followed by an up arrow with the phrase "Corporate restructuring delivers
earnings growth". The second listing is Credito Italiano followed by an up arrow
with the phrase "Significant growth potential from financial consolidation". The
third listing is Saga Petroleum followed by a down arrow with the phrase "Oil
price drops hurt stock". A note below the table reads "See "Schedule of
Investments." Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - International Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended April 30, 1998". The
chart is scaled in increments of 5% with 0% at the bottom and 20% at the top.
The first bar represents the 16.63% total return for John Hancock International
Fund Class A. The second bar represents the 16.16% total return for John Hancock
International Fund Class B. The third bar represents the 16.25% total return for
the average international fund. A note below the chart 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, Inc. (1). See the following two pages for historical performance
information."]
from the Asian crisis, as risk-averse investors left the emerging world as a
whole. That had a chilling effect on Latin American markets during the period,
despite the fact that fundamentals in a number of Latin American countries
remain very attractive. Although we continue to believe in the long-range story
of privatization and burgeoning economic growth there, we cut our stake by more
than half, from 12% to 5%, until the Asian contagion calms down. Our focus
remains on Brazil and Mexico, where we see the most promise in the near term.
Outlook
We remain encouraged about the outlook for the North American and European stock
markets this year, and that's where we will keep our focus for now. Favorable
economic and corporate factors continue to bode well for Europe's markets, as
does the coming economic and monetary union. We will closely monitor stock
valuation levels, as well as the effects that implementation of the EMU will
have on liquidity flows among various European markets.
By contrast, the prospects for Asia and Japan in particular are far
murkier. Japan is still weighed down by structural problems that the government
has yet to address effectively. Its situation is now aggravated by the weakness
of its Asian neighbors, where we see serious economic and political challenges
ahead. As a result, we will stay underweighted in both the developed and
emerging countries of Asia until the signs are more encouraging. Latin America,
on the other hand, appears to be gathering renewed economic steam. If this
trend, coupled with its commitment to reform, continues, we may increase our
position, keeping our sights on the highest quality blue chip securities.
No matter where the world's markets lead us, we will continue to maintain
a well-diversified portfolio of stocks from across a wide range of countries and
market sectors. With the Fund now broader in scope, we believe it is better
positioned to participate in worldwide opportunities. Our goal is to provide
shareholders with competitive long-term results, with a reduced level of
volatility.
"...the prospects for Asia and Japan in particular are far murkier."
- --------------------------------------------------------------------------------
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, economic 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>
================================================================================
John Hancock Funds - International Fund
- --------------------------------------------------------------------------------
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 measures the
change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus for a discussion of the risks associated with international
investing, including currency and political risks and differences in accounting
standards and financial reporting before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns 0.79% 7.43%
Average Annual Total Returns(1) 0.79% 1.71%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended March 31, 1998
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns 0.42% 7.73%
Average Annual Total Returns(1) 0.42% 1.77%
Notes to Performance
(1) Effective January 3, 1994, the Adviser has temporarily and 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
annual total return for the one-year period and since inception would have
been (0.54%) and (0.28%) for Class A shares and (0.91%) and (0.22%) for
Class B shares.
6
<PAGE>
================================================================================
John Hancock Funds - International Fund
- --------------------------------------------------------------------------------
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, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Morgan Stanley Capital International (MSCI) All Country
World-Ex U.S. Free Index, which measures the performance of a broad range of
developed and emerging stock markets around the world. The index represents
securities that are traded freely on stock exchanges around the world. Past
performance is not indicative of future results.
[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 All Country World Ex-U.S. Free Index and is equal to $18,769 as of April
30, 1998. 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 $11,669 as of April 30, 1998. The third line represents
the International Fund, after sales charge, and is equal to $11,085 as of April
30, 1998.]
[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 All Country World Ex-U.S. Free Index and is equal to $18,769 as of April
30, 1998. 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 $11,307 as of April 30, 1998. The third line represents the
value of the International Fund, after sales charge and is equal to $11,107 as
of April 30, 1998.] .
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, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and rights (cost - $14,333,075) ............. $15,843,376
Preferred stocks (cost - $526,158) ........................ 537,364
Short-term investments (cost - $2,422,622) - Note A ....... 2,422,622
------------
18,803,362
Foreign currency, at value (cost - $273,224) ............... 273,224
Receivable for investments sold ............................ 275,545
Receivable for shares sold ................................. 41,456
Dividends receivable ....................................... 51,938
Foreign taxes receivable ................................... 11,533
Deferred organization expenses - Note A .................... 15,642
Other assets ............................................... 333
------------
Total Assets ............................. 19,473,033
-----------------------------------------------------------
Liabilities:
Due to Custodian ........................................... 448,021
Payable for investments purchased .......................... 194,357
Payable for forward foreign currency exchange contracts
sold - Note A ............................................ 326
Payable for shares repurchased ............................. 1,910
Payable upon return of securities on loan - Note A ......... 2,422,622
Foreign taxes payable ...................................... 5,539
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 6,378
Accounts payable and accrued expenses ...................... 45,133
------------
Total Liabilities ........................ 3,124,286
-----------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 14,299,891
Accumulated net realized gain on investments and
foreign currency transactions ............................. 572,025
Net unrealized appreciation of investments and
foreign currency transactions ............................. 1,520,948
Accumulated net investment loss ............................ (44,117)
------------
Net Assets ............................... $16,348,747
===========================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest oustanding - unlimited
number of shares authorized with no par value)
Class A - $6,091,929/626,370 ............................... $9.73
=============================================================================
Class B - $10,256,818/1,083,358 ............................ $9.47
=============================================================================
Maximum Offering Price Per Share*
Class A - ($9.73 x 105.26%) ................................ $10.24
=============================================================================
* 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, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $13,066) .... $100,539
Interest (including income on securities loaned
of $4,289) ................................................ 19,546
------------
120,085
------------
Expenses:
Investment management fee - Note B ........................ 71,510
Distribution and service fee - Note B
Class A ................................................. 8,047
Class B ................................................. 44,686
Transfer agent fee - Note B ............................... 46,324
Custodian fee ............................................. 38,163
Auditing fee .............................................. 17,852
Registration and filing fees .............................. 15,271
Organization expense - Note A ............................. 11,414
Printing .................................................. 5,848
Financial services fee - Note B ........................... 1,264
Miscellaneous ............................................. 1,027
Trustees' fees ............................................ 404
Interest expense - Note A ................................. 359
Legal fees ................................................ 110
------------
Total Expenses ........................... 262,279
-----------------------------------------------------------
Less expense reductions
- Note B ................................. (98,503)
-----------------------------------------------------------
Net Expenses ............................. 163,776
-----------------------------------------------------------
Net Investment Loss ...................... (43,691)
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ...................... 1,094,820
Net realized loss on foreign currency transactions ......... (527,722)
Change in net unrealized appreciation/depreciation of
investments ............................................... 1,679,577
Change in net unrealized appreciation/depreciation of
foreign currency transactions ............................. (643)
------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions ............ 2,246,032
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................ $2,202,341
===========================================================
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, 1998
OCTOBER 31, 1997 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ................................................................... ($91,694) ($43,691)
Net realized gain on investments sold and foreign currency
transactions ........................................................................ 608,733 567,098
Change in net unrealized appreciation/depreciation of investments
and foreign currency transactions ................................................... (1,163,708) 1,678,934
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ..................... (646,669) 2,202,341
------------ ------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.0109 and none per share, respectively) ................................ (6,338) --
------------ ------------
Distributions from net realized gain on investments sold and
foreign currency transactions
Class A - (none and $0.0676 per share, respectively) ................................ -- (42,231)
Class B - (none and $0.0676 per share, respectively) ................................ -- (68,630)
------------ ------------
Total Distributions to Shareholders ................................................. (6,338) (110,861)
------------ ------------
From Fund Share Transactions - Net:* ..................................................... 1,058,453 578,462
------------ ------------
Net Assets:
Beginning of period ................................................................... 13,273,359 13,678,805
------------ ------------
End of period (including net investment loss of $426 and
and $44,117, respectively) ......................................................... $13,678,805 $16,348,747
============ ============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1998
OCTOBER 31, 1997 (UNAUDITED)
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ......................................... 553,881 $5,138,738 542,724 $4,746,492
Shares issued to shareholders in reinvestment
of distributions .................................. 674 6,082 4,610 38,485
------------- ------------- ------------- -------------
554,555 5,144,820 547,334 4,784,977
Less shares repurchased ............................. (550,545) (5,104,530) (511,235) (4,444,261)
------------- ------------- ------------- -------------
Net increase ........................................ 4,010 $40,290 36,099 $340,716
============= ============= ============= =============
CLASS B
Shares sold ......................................... 780,756 $6,676,625 477,867 $4,112,408
Shares issued to shareholders in reinvestment
of distributions .................................. -- -- 6,316 51,414
------------- ------------- ------------- -------------
780,756 6,676,625 484,183 4,163,822
Less shares repurchased ............................. (677,361) (5,658,462) (460,789) (3,926,076)
------------- ------------- ------------- -------------
Net increase ........................................ 103,395 $1,018,163 23,394 $237,746
============= ============= ============= =============
</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, 1998
OCTOBER 31, 1994 1995 1996 1997 (UNAUDITED)
---------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................ $8.50 $8.65 $8.14 $8.70 $8.41
--------- --------- --------- --------- ---------
Net Investment Income (Loss) ........................ 0.07(1) 0.04 0.06(1) (0.02)(1) (0.01)(1)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions .... 0.08 (0.47) 0.50 (0.26) 1.40
--------- --------- --------- --------- ---------
Total from Investment Operations ............... 0.15 (0.43) 0.56 (0.28) 1.39
--------- --------- --------- --------- ---------
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) -- -- (0.07)
--------- --------- --------- --------- ---------
Total Distributions ............................ -- (0.08) -- (0.01) (0.07)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ...................... $8.65 $8.14 $8.70 $8.41 $9.73
========= ========= ========= ========= =========
Total Investment Return at Net Asset
Value (2) ........................................ 1.77%(3) (4.96%) 6.88% (3.22%) 16.63%(3)
Total Adjusted Investment Return at Net Asset
Value (2,4) ...................................... (0.52%)(3) (8.12%) 5.33% (4.52%) 15.95%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............ $4,426 $4,215 $5,098 $4,965 $6,092
Ratio of Expenses to Average Net Assets ............. 1.50%(5) 1.64% 1.75% 1.73%(8) 1.83%(5,8)
Ratio of Adjusted Expenses to Average Net
Assets (6) ....................................... 3.79%(5) 4.80% 3.30% 3.03%(8) 3.21%(5,8)
Ratio of Net Investment Income (Loss) to Average
Net Assets ....................................... 1.02%(5) 0.56% 0.68% (0.16%) (0.16%)(5)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (6) ................................... (1.27%)(5) (2.60%) (0.87%) (1.46%) (1.54%)(5)
Portfolio Turnover Rate ............................. 50% 69% 83% 169% 98%
Fee Reduction Per Share (1) ......................... $0.16 $0.25 $0.14 $0.12 $0.06
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: the net invest ment 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 commencement of
operations. Additionally, important rela tionships 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 - 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, 1998
OCTOBER 31, 1994 1995 1996 1997 (UNAUDITED)
---------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ............ $8.50 $8.61 $8.05 $8.55 $8.22
--------- --------- --------- --------- ----------
Net Investment Income (Loss) .................... 0.02(1) (0.03) 0.00(1,7) (0.08)(1) (0.04)(1)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
Transactions ................................. 0.09 (0.48) 0.50 (0.25) 1.36
--------- --------- --------- --------- ----------
Total from Investment Operations ........... 0.11 (0.51) 0.50 (0.33) 1.32
--------- --------- --------- --------- ----------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold and Foreign Currency
Transactions ................................. -- (0.05) -- -- (0.07)
--------- --------- --------- --------- ----------
Net Asset Value, End of Period .................. $8.61 $8.05 $8.55 $8.22 $9.47
========= ========= ========= ========= ==========
Total Investment Return at Net Asset
Value (2) .................................... 1.29%(3) (5.89%) 6.21% (3.86%) 16.16%(3)
Total Adjusted Investment Return at Net
Asset Value (2,4) ............................ (1.00%)(3) (9.05%) 4.66% (5.16%) 15.48%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........ $3,948 $3,990 $8,175 $8,713 $10,257
Ratio of Expenses to Average Net Assets ......... 2.22%(5) 2.52% 2.45% 2.43%(8) 2.56%(5,8)
Ratio of Adjusted Expenses to Average
Net Assets (6) ............................... 4.51%(5) 5.68% 4.00% 3.73%(8) 3.94%(5,8)
Ratio of Net Investment Income (Loss) to
Average Net Assets ........................... 0.31%(5) (0.37%) 0.02% (0.88%) (0.88%)(5)
Ratio of Adjusted Net Investment Loss to
Average Net Assets (6) ....................... (1.98%)(5) (3.53%) (1.53%) (2.18%) (2.26%)(5)
Portfolio Turnover Rate ......................... 50% 69% 83% 169% 98%
Fee Reduction Per Share (1) ..................... $0.16 $0.25 $0.14 $0.12 $0.06
</TABLE>
(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) Less than $0.01 per share.
(8) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Schedule of Investments
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Fund on April 30, 1998. It's divided into four main categories:
common stocks, rights, preferred stocks and short-term investments. Common and
preferred 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
Australia (2.04%)
Australia & New Zealand Banking Group
Ltd. American Depositary Receipts
(ADR) (Banks - Foreign) ......................... 1,147 $41,435
National Australia Bank Ltd.
(Banks - Foreign) ............................... 5,816 82,698
News Corp. Ltd. (The) (Media) .................... 6,000 40,231
Normandy Mining Ltd. (Metal) ...................... 50,671 56,516
Telstra Corp., Ltd. (Telecommunications) .......... 30,594 71,838
Westpac Banking Corp. (Banks - Foreign) ........... 6,000 40,309
----------
333,027
----------
Belgium (1.98%)
Electrabel SA (Utilities) ......................... 300 79,707
Fortis AG (Insurance) ............................. 272 76,826
PetroFina SA (Oil & Gas) .......................... 210 82,869
Tractebel SA (Utilities) .......................... 706 84,438
----------
323,840
----------
Brazil (0.16%)
Telecomunicacoes Brasileiras S/A (ADR)
(Telecommunications) ............................ 219 26,677
----------
Canada (4.26%)
Bombardier, Inc. (Diversified Operations) ......... 3,297 87,616
Northern Telecom Ltd.
(Telecommunications) ........................... 1,300 79,139
Royal Bank of Canada (Banks - Foreign) ............ 4,438 265,448
Toronto-Dominion Bank (Banks - Foreign) ........... 5,792 264,622
----------
696,825
----------
Denmark (1.00%)
Novo Nordisk A/S (Medical) ........................ 1,009 163,666
----------
Finland (1.40%)
Nokia AB (Telecommunications) .................... 3,402 228,607
----------
France (12.49%)
Accor SA (Leisure) ................................ 453 123,518
Alcatel Alsthom SA (Telecommunications) ........... 859 159,339
Axa SA (Insurance) ................................ 1,908 224,097
Cap Gemini SA (Computers) ......................... 1,510 196,192
Carrefour SA (Retail) ............................. 149 85,394
Compagnie de Saint Gobain SA (Building) ........... 249 41,507
Compagnie Financiere de Paribas SA
(Broker Services) ............................... 1,087 115,734
Compagnie Generale des Eaux
(Diversified Operations) ........................ 841 156,420
Danone SA (Food) .................................. 501 118,353
Elf Aquitaine SA (Oil & Gas) ...................... 1,594 209,227
France Telecom SA (ADR)
(Telecommunications)* ........................... 2,400 131,100
L'Air Liquide SA (Chemicals) ...................... 222 40,995
L'Oreal SA (Cosmetics & Personal Care) ............ 133 63,502
Legrand SA (Electronics) .......................... 181 47,877
Pinault-Printemps-Redoute SA (Retail) ............. 54 40,228
Societe BIC SA (Office) ........................... 439 30,221
Suez Lyonnaise des Eaux
(Diversified Operations) ........................ 535 90,784
Synthelabo SA (Medical) ........................... 542 81,602
Total SA (Oil & Gas) .............................. 351 41,751
Valeo SA (Automobile/Trucks) ...................... 446 44,370
----------
2,042,211
----------
Germany (7.46%)
Allianz AG (Insurance) ............................ 600 184,559
Allianz AG (New shares) (Insurance)* .............. 17 5,182
Bayerische Motoren Werke AG
(Automobile/Trucks) ............................. 203 223,978
Bayerische Vereinsbank AG
(Banks - Foreign) ............................... 1,020 77,585
Deutsche Bank AG (Banks - Foreign) ................ 2,774 213,474
Deutsche Telekom AG
(Telecommunications) ............................ 3,523 89,128
Fresenius AG (Medical) ............................ 184 40,295
Mannesmann AG (Machinery) ......................... 129 102,363
Muenchener Rueckversicherungs-
Gesellschaft AG (Insurance) .................... 282 128,857
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Germany (continued)
Siemens AG (Diversified Operations) ............... 1,440 $84,255
VEBA AG (Diversified Operations) .................. 1,047 69,195
----------
1,218,871
----------
Hong Kong (2.71%)
Cheung Kong Holdings Ltd. (Real Estate
Operations) ..................................... 16,357 108,751
China Telecom Ltd. (Telecommunications)* .......... 64,000 121,456
China Telecom Ltd. (ADR)
(Telecommunications)* ........................... 600 23,175
Hong Kong Telecommunications Ltd.
(Telecommunications) ............................ 49,408 92,489
Hutchison Whampoa Ltd. (Diversified
Operations) ..................................... 15,797 97,686
----------
443,557
----------
India (0.66%)
State Bank of India (Global Depositary
Receipts) (Banks - Foreign) .................... 5,652 107,388
----------
Ireland (2.50%)
Allied Irish Banks PLC (ADR)
(Banks - Foreign) ............................... 4,470 371,010
CRH PLC (Building) ................................ 2,626 37,336
----------
408,346
----------
Italy (4.15%)
Assitalia SpA (Insurance)* ........................ 6,155 46,214
Credito Italiano SpA (Banks - Foreign) ............ 26,959 141,693
Ente Nazionale Idrocarburi SpA
(Oil & Gas) ..................................... 6,291 42,245
Istituto Nazionale delle Assicurazioni SpA
(Insurance) ..................................... 36,708 109,729
Telecom Italia Mobile SpA
(Telecommunications) ............................ 23,470 133,823
Telecom Italia SpA (Telecommunications) ........... 27,422 205,121
----------
678,825
----------
Japan (10.32%)
Bank of Tokyo-Mitsubishi, Ltd.
(Banks - Foreign) ............................... 9,000 111,463
Fuji Photo Film Co., Ltd. (Leisure) ............... 5,000 177,951
Honda Motor Co., Ltd.
(Automobile / Trucks) ........................... 5,000 181,351
Ito-Yokado Co., Ltd. (Retail) .................... 2,000 103,521
Matsushita Electric Industrial Co., Ltd.
(Electronics) ................................... 10,000 160,193
Nippon Telephone & Telegraph Corp.
(Telecommunications) ............................ 24 210,367
Nomura Securities Co., Ltd. (Finance) ............. 13,000 158,644
Shin-Etsu Chemical Co., Ltd. (Chemicals) .......... 8,000 155,962
Sony Corp. (Electronics) .......................... 1,800 149,751
TDK Corp. (Electronics) ........................... 2,000 158,078
Tokio Marine & Fire Insurance Co.
(Insurance) ..................................... 11,000 119,692
----------
1,686,973
----------
Mexico (2.14%)
Panamerican Beverages, Inc. (Beverages) ........... 8,775 349,903
----------
Netherlands (7.62%)
ABN AMRO Holding NV (ADR)
(Banks - Foreign) ............................... 10,375 265,211
Aegon NV (Insurance) .............................. 712 92,273
ING Groep NV (ADR) (Banks - Foreign) .............. 3,317 223,068
Royal Dutch Petroleum Co. (Oil & Gas) ............. 3,402 187,438
Royal Philips Electronics NV (Electronics) ........ 2,496 219,316
Unilever PLC (Consumer Products Misc.) ............ 24,250 258,386
----------
1,245,692
----------
Norway (1.63%)
Orkla ASA (Diversified Operations) ................ 2,249 266,627
----------
Portugal (1.65%)
Cimpor-Cimentos de Portugal SA (Building) ......... 3,047 112,687
Electricidade de Portugal SA (Utilities) .......... 2,602 67,897
Portugal Telecom SA (Telecommunications) .......... 1,670 89,742
----------
270,326
----------
Singapore (0.50%)
Overseas-Chinese Banking Corp., Ltd.
(Banks - Foreign) ............................... 10,574 55,793
Singapore Telecommunications, Ltd.
(Telecommunications) ............................ 15,000 25,782
----------
81,575
----------
Spain (3.67%)
Banco Bilbao Vizcaya SA (Banks - Foreign) ......... 2,426 124,884
Banco Santander SA (Banks - Foreign) .............. 2,447 129,339
Corporacion Bancaria de Espana SA
(Banks - Foreign) ............................... 708 59,039
Endesa SA (Utilities) ............................. 4,749 115,373
Iberdrola SA (Utilities) .......................... 2,318 37,289
Repsol SA (Oil & Gas) ............................. 830 45,506
Telefonica de Espana SA
(Telecommunications) ............................ 2,127 88,823
----------
600,253
----------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Sweden (4.41%)
Astra AB (Medical) ............................... 5,768 $118,459
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ........................... 3,337 175,858
Investor AB (Diversified Operations) ............. 3,704 209,074
Nordbanken Holding AB (Banks - Foreign) .......... 29,615 218,039
----------
721,430
----------
Switzerland (9.75%)
Adecco SA (Business Services - Misc.) ............ 202 88,177
Alusuisse-Lonza Holding AG (Containers)* ......... 32 40,946
Credit Suisse Group (Banks - Foreign) ............ 883 194,195
Nestle SA (Food) ................................. 141 273,449
Novartis AG (Medical) ............................ 170 280,973
Roche Holding AG (Medical) ....................... 6 60,800
Schweizerische Rueckversicherungs-
Gesellschaft (Insurance) ....................... 70 154,415
Union Bank of Switzerland
(Banks - Foreign) .............................. 687 220,454
Zurich Versicherungs-Gesellschaft
(Insurance) .................................... 459 279,591
----------
1,593,000
----------
United Kingdom (14.40%)
B.A.T. Industries PLC (Tobacco) .................. 5,948 56,114
British Petroleum Co. PLC (Oil & Gas) ............ 10,727 169,562
British Telecommunications PLC
(Telecommunications) ........................... 7,600 82,568
Diageo PLC (Beverages) ........................... 5,474 65,193
EMAP PLC (Media) ................................. 8,267 168,289
Glaxo Wellcome PLC (Medical) ..................... 6,694 189,230
Granada Group PLC
(Diversified Operations) ....................... 9,000 155,059
Lloyds TSB Group PLC (Banks - Foreign) ........... 15,837 237,223
Marks & Spencer PLC (Retail) ..................... 16,006 152,206
Northern Rock PLC (Banks - Foreign) .............. 6,889 69,831
Pearson PLC (Media) .............................. 6,980 109,399
Regal Hotel Group PLC (Leisure) .................. 180,000 130,220
Royal & Sun Alliance Insurance Group
PLC (Insurance) ................................ 11,690 130,620
Royal Bank of Scotland Group PLC
(Banks - Foreign) .............................. 7,200 111,161
SmithKline Beecham PLC (Medical) ................. 13,900 165,776
WPP Group PLC (Advertising) ...................... 29,000 184,089
Zeneca Group PLC (Medical) ....................... 4,121 177,569
----------
2,354,109
----------
TOTAL COMMON STOCKS
(Cost $14,333,075) .................... (96.90%) 15,841,728
---------- ----------
RIGHTS
Spain (0.01%)
Telefonica de Espana SA
(Telecommunications)* .......................... 2,127 $1,648
----------
TOTAL RIGHTS
(Cost $0) .................... (0.01%) 1,648
---------- ----------
TOTAL COMMON STOCKS AND RIGHTS
(Cost $14,333,075) .................... (96.91%) 15,843,376
---------- ----------
PREFERRED STOCKS
Brazil (2.48%)
Compania Riograndense de
Telecomunicacoes SA
(Telecommunications) ........................... 41,368 54,619
Petroleo Brasileiro SA (Oil & Gas) ............... 682,000 172,938
Telecomunicacoes de Sao Paulo SA
(Telecommunications) ........................... 520,800 177,144
----------
404,701
----------
Germany (0.81%)
Henkel KGaA (Chemicals) .......................... 537 41,894
SAP AG (Computers) ............................... 182 90,769
----------
132,663
----------
TOTAL PREFERRED STOCKS
(Cost $526,158) (3.29%) 537,364
---------- ----------
PAR VALUE
(000s OMITTED)
SHORT-TERM INVESTMENTS
Cash Equivalents (14.81%)
Navigator Securities Lending Prime
Portfolio ** ................................. $2,423 2,422,622
----------
TOTAL SHORT-TERM INVESTMENTS (14.81%) 2,422,622
---------- ----------
TOTAL INVESTMENTS (115.01%) 18,803,362
---------- ----------
OTHER ASSETS AND LIABILITIES, NET (15.01%) (2,454,615)
---------- ----------
TOTAL NET ASSETS (100.00%) $16,348,747
========== ===========
* Non-income producing security.
** Represents investment of security lending collateral - Note A.
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.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Industry Diversification (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 in which 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, 1998 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ----------
Advertising......................................... 1.13%
Automobile/Trucks................................... 2.75
Banks - Foreign..................................... 22.17
Beverages .......................................... 2.54
Broker Services..................................... 0.71
Building............................................ 1.17
Business Services - Misc............................ 0.54
Chemicals........................................... 1.46
Computers........................................... 1.76
Containers.......................................... 0.25
Consumer Products Misc.............................. 1.58
Cosmetics & Personal Care........................... 0.39
Diversified Operations.............................. 7.44
Electronics......................................... 4.50
Finance............................................. 0.97
Food ............................................... 2.40
Insurance........................................... 9.49
Leisure............................................. 2.64
Machinery........................................... 0.63
Media............................................... 1.94
Medical............................................. 7.82
Metal............................................... 0.35
Office.............................................. 0.18
Oil & Gas........................................... 5.82
Real Estate Operations.............................. 0.67
Retail.............................................. 2.33
Telecommunications.................................. 13.88
Tobacco............................................. 0.34
Utilities........................................... 2.35
Short-Term Investments.............................. 14.81
------
TOTAL INVESTMENTS 115.01%
======
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - International Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Investment Trust III (the "Trust") 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 Trustees have authorized
the issuance of Class C shares, effective June 1, 1998. 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,
Inc., 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.
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 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.
16
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - International Fund
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. These agreements enable
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowings, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
maximum loan balance for the Fund during the period for which loans were
outstanding amounted to $1,040,000 with a rate of 6.1875%. At April 30, 1998,
there was no loan outstanding.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated lenders fees. These fees are included in interest
income. The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. At April 30, 1998, the Fund
loaned securities having a market value of $2,354,495 collateralized by cash in
the amount of $2,422,622, which was invested in a short-term instrument.
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
17
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - International Fund
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 if they are offset by the currency amount of the underlying
transaction.
At April 30, 1998, open forward foreign currency exchange contracts were
as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT DATE DEPRECIATION
- -------- ------------------- ---- ------------
SELLS
Australian Dollar 80,777 MAY 98 ($182)
French Franc 276,042 MAY 98 (122)
Spanish Peseta 72,798 MAY 98 (1)
Swedish Krona 31,484 MAY 98 (21)
-------
($326)
=======
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 amounted to $98,503 for the period ended April 30, 1998. 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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $8,879. Out of this amount, $1,375 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $4,949
was paid as sales commissions to unrelated broker-dealers and $2,555 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% 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
18
<PAGE>
========================= NOTES TO FINANCIAL STATEMENTS ========================
John Hancock Funds - International Fund
shares. For the period ended April 30, 1998, contingent deferred sales charges
paid to JH Funds amounted to $25,598.
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 less than 0.02% 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 cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At April 30, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $50.
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, 1998, aggregated $15,135,149 and $13,716,659, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1998.
The cost of investments owned at April 30, 1998 (including short-term
investments) for federal income tax purposes was $17,281,855. Gross unrealized
appreciation and depreciation of investments aggregated $1,946,408 and $424,901,
respectively, resulting in net unrealized appreciation of $1,521,507.
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 4/98
6/98
