ANNUAL REPORT
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[GRAPHIC OMITTED]
Global
Fund
OCTOBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
EDWARD J. BOUDREAU, JR.
DENNIS S. ARONOWITZ
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
DOUGLAS M. COSTLE
LELAND O. ERDAHL
RICHARD A. FARRELL
GAIL D. FOSLER
WILLIAM F. GLAVIN
ANNE C. HODSDON
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
EDWARD J. SPELLMAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President 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
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
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
Investors have been understandably shaken by these dramatic twists and turns,
but we are pleased to report that most individual investors did not panic, and
we hope that means they've taken our words to heart. Over the long term, markets
do not move up or down in a straight line. That's why after watching the market
charge ahead almost uninterrupted for so many years, we have been striking a
more cautionary stance in this space over the last several months.
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[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. 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.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY MIREN ETCHEVERRY, JOHN L.F. WILLS AND GERARDO J. ESPINOZA,
PORTFOLIO MANAGERS
John Hancock Global Fund
Spreading economic turmoil sparks worldwide volatility
The last 12 months were a nerve-wracking year for global investors, as spreading
currency troubles and economic slowdowns kept financial markets worldwide in
turmoil. Among the hardest hit were countries in Asia, where currency
devaluations and their aftermath have plagued Southeast Asia in particular. For
yet another year, Japan's paltry attempts to revive its economy failed and the
country wound up in recession, further dimming prospects for the entire region's
recovery. As these currency and economic fears worked their way through
emerging-market countries, Latin American stocks also took it on the chin.
Brazil in particular suffered when government steps to shore up the currency by
raising interest rates brought the previously robust economy to a virtual
standstill.
Market volatility reached a crescendo in August when political uncertainty
and economic chaos in Russia erupted following a debt default and the ruble's
devaluation. This catalyst sent investors worldwide fleeing from any security
with risk to the safety of U.S. Treasury bonds, causing stock markets around the
world, including the U.S., to correct sharply in late summer. Even Europe, which
had made great strides in the first half of the fiscal year, gave back almost
all of its gains in the tumult.
In the last several weeks of the fiscal year, however, U.S. and European
markets reversed course again, bolstered by U.S. interest rate cuts and a
tempering of global investor uncertainty. With this last-minute surge, both
Europe and the United States wound up producing strong results for the year and
helped offset declines in other parts of the world.
Europe & U.S. boost performance
For the year ended October 31, 1998, John Hancock Global Fund handily outpaced
its
"Market volatility reached a crescendo in August..."
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[A 3" x 2" photo at bottom right side of page of John Hancock Global Fund.
Caption below reads "Fund management team members (l-r): "Gerardo J. Espinoza,
Miren Etcheverry and John L.F. Wills."]
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3
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John Hancock Funds - Global Fund
"Our large stakes in Europe...and the United States...were the main contributors
to the Fund's outperformance."
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[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into seven sections (from top to left): Canada 1%, Australia
2%, Short-Term Investments & Other 5%, Japan 6%, United Kingdom & Ireland 13%,
United States 35% and Continental Europe 38%. A note below the chart reads "As a
percentage of net assets on October 31, 1998."]
- --------------------------------------------------------------------------------
peers, with its Class A and Class B shares returning a total of 11.88% and
11.15%, respectively, at net asset value. That compared to the 5.31% return of
the average global fund, according to Lipper Analytical Services, Inc.,(1) while
the Morgan Stanley Capital International (MSCI) All Country World Free Index
returned 13.02%. Keep in mind that your net asset value return will be different
from the Fund's stated performance if you were not invested in the Fund for the
entire period and did not reinvest all distributions. Historical performance
information can be found on pages six and seven.
Our large stakes in Europe, at 51% of the Fund's net assets, and the United
States, at 35% -- the world's two best-performing regions -- were the main
contributors to the Fund's outperformance. Our light position in Japan, which
remains mired in structural and banking problems, also helped.
France, Ireland strong; U.K. weak
Our 11% stake in France, one of the European Monetary Union (EMU) countries set
to create a common currency in 1999, served the Fund well, due to French
companies' growing emphasis on corporate restructuring and consolidations. There
was also solid growth among companies with a more domestic focus, such as food
company Danone. France Telecom's stock rose on news of its privatization, and
software developer Cap Gemini benefited from its programs aimed at dealing with
conversion issues for both the year 2000 and the new euro currency. Allied Irish
Banks was the Fund's top contributor to performance, with its strong management
and lack of exposure to emerging markets. The bank is also benefiting from the
Irish economy's solid growth and prospects of further interest rate reductions
as part of the process of EMU unification.
With its economy at the tail end of an expansion, and its non-EMU status
keeping it out of the limelight, the U.K.'s returns, while positive, were more
modest than the rest of Europe's. After being underweighted earlier in the year,
we brought our stake up to a more neutral weighting of 11%, believing that the
market had hit bottom, and that there was good value. However, several of our
holdings detracted somewhat from performance, including usually stalwart Lloyds
TSB Group. It was particularly punished in the late summer by the weakened U.K.
economy and its Latin American exposure. Advertising conglomerate WPP Group's
earnings were impacted by the strength of the British pound, since 80% of its
revenues come from outside the U.K., and by its activities in emerging markets.
In the United States, our focus on the large-company stocks that have led the
market's
- --------------------------------------------------------------------------------
[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 France
Telecom followed by an up arrow with the phrase "Positive reaction to
privatization." The second listing is General Electric followed by an up arrow
with the phrase "Boosted by strong U.S. economy." The third listing is Lloyds
TSB Group followed by a down arrow with the phrase "Weakened U.K. economy;
overseas exposure." A note below the table reads "See `Schedule of Investments.'
Investment holdings are subject to change."]
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4
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John Hancock Funds - Global Fund
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 2% with 0% at the bottom and 12% at the top. The first
bar represents the 11.88% Total return for John Hancock Global Fund Class A. The
second bar represents the 11.15% total return for John Hancock Global Fund Class
B. The third bar represents the 5.31% total return for 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. See the following two pages for
historical performance information."]
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charge for most of the year also served us well. Two of our biggest gainers were
brokerage giant Morgan Stanley Dean Witter, which we sold during the year, and
drug company Schering-Plough.
Asia, emerging world
During the period, we became even more conservative in our approach to Asia and
the emerging markets worldwide. By the end of October, our Asian holdings were
primarily in Japan, where we remain underweighted at 6% because of its weak
economy and structural problems. Because of the uncertainties surrounding
emerging markets in general, we effectively got out of Latin America until the
emerging-market backlash abates.
Going forward
Our sights remain on continental Europe. We believe it holds some of the best
opportunities going forward, what with its new attention to corporate
restructurings and consolidation -- a process enhanced by the EMU's more open
policies. At the same time, Europe does not suffer from the high valuation
levels of many U.S. companies or have Asia's severe structural problems. That
said, European corporate earnings in 1999 could be vulnerable to a prolonged
recession in Japan and a sharp slowdown in demand from U.S. consumers. We
therefore are avoiding companies that appear susceptible to earnings downgrades,
preferring instead those with visible earnings growth trends and pockets of
domestic demand.
We remain cautiously optimistic about the United States, encouraged by the
Federal Reserve's prompt action to prevent the economy from falling into
recession. As for Japan, we are carefully monitoring its efforts to strengthen
its banking system and stimulate the economy. Our future stand on Japan depends
on developments in these two areas, and it is our view that these jobs are
likely to take time.
We expect overseas markets to remain volatile while investors sort out if,
and how, world leaders are confronting the task of preventing a global
recession. Until there are more clear signs of action, and as long as the
sentiment remains uncertain about the stability of emerging markets in general,
we will keep our posture defensive. We will maintain a diversified portfolio,
both at the country and stock levels, and target more defensive sectors, such as
utilities and pharmaceuticals.
"We expect overseas markets to remain volatile..."
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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
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John Hancock Funds - Global Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Global Fund. Total return 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.
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CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
---- ----- --------
Cumulative Total Returns (11.87%) 38.23% 62.49%
Average Annual Total Returns (11.87%) 6.69% 7.47%
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CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (12.10%) 39.05% 135.41%
Average Annual Total Returns (12.10%) 6.82% 8.94%
6
<PAGE>
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John Hancock Funds - Global Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
Global Fund would be worth, assuming all distributions were reinvested for the
period indicated. For comparison, we've shown the same $10,000 in the Morgan
Stanley Capital International (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 John Hancock 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 MSCI All Country World
Free Index and is equal to $21,463 as of October 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Global Fund on January 3, 1992, before sales charge, and is equal to
$18,396 as of October 31, 1998. The third line represents the value of the same
hypothetical investment made in the John Hancock Global Fund, after sales
charge, and is equal to $17,469 as of October 31, 1998.
Line chart with the heading John Hancock 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 MSCI All Country World
Free Index and is equal to $25,289 as of October 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Global Fund on October 31, 1988, before sales charge, and is equal to
$24,310 as of October 31, 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 October 31, 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
October 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and warrants (cost - $152,617,333) .......... $164,932,060
Preferred stock (cost - $295,501) ......................... 349,030
Short-term investments
(cost - $17,658,053) - Note A ........................... 17,658,053
------------
182,939,143
Cash ....................................................... 458
Receivable for investments sold ............................ 5,040,240
Receivable for forward foreign currency exchange
contracts purchased - Note A .............................. 675
Receivable for forward foreign currency exchange
contracts sold - Note A ................................... 81
Receivable for shares sold ................................. 1,050,998
Interest receivable ........................................ 2,064
Dividends receivable ....................................... 145,497
Foreign tax receivable ..................................... 126,074
Other assets ............................................... 12,253
------------
Total Assets .................................... 189,317,483
-------------------------------------------------------------------
Liabilities:
Payable for investments purchased .......................... 2,087,753
Payable for shares repurchased ............................. 157,013
Payable upon return of securities on loan - Note A ......... 10,754,053
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 184,062
Accounts payable and accrued expenses ...................... 130,105
------------
Total Liabilities ............................... 13,312,986
-------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 153,666,989
Accumulated net realized gain on investments and
foreign currency transactions ............................. 10,470,108
Net unrealized appreciation of investments and
foreign currency transactions ............................. 12,381,588
Accumulated net investment loss ............................ (514,188)
------------
Net Assets ...................................... $176,004,497
===================================================================
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 - $120,775,431/8,971,701 ........................... $13.46
===============================================================================
Class B - $55,229,066/4,329,751 ............................ $12.76
===============================================================================
Maximum Offering Price Per Share*
Class A - ($13.46 x 105.26%) ............................... $14.17
===============================================================================
* 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
Year ended October 31, 1998
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Investment Income:
Dividends (net of foreign withholding taxes of $265,247) ..... $2,410,656
Interest (including income on securities loaned
of $49,776) ................................................. 160,336
----------
2,570,992
----------
Expenses:
Investment management fee - Note B .......................... 1,489,223
Distribution and service fee - Note B
Class A .................................................... 352,419
Class B .................................................... 513,733
Transfer agent fee - Note B ................................. 674,876
Custodian fee ............................................... 248,347
Registration and filing fees ................................ 59,317
Miscellaneous ............................................... 56,757
Auditing fee ................................................ 38,914
Financial services fee - Note B ............................. 28,542
Printing .................................................... 13,232
Trustees' fees .............................................. 9,713
Legal fees .................................................. 9,663
Interest expense - Note A ................................... 497
----------
Total Expenses ................................... 3,495,233
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Net Investment Loss .............................. (924,241)
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Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ........................ 36,427,896
Net realized loss on foreign currency transactions ........... (567,031)
Change in net unrealized appreciation/depreciation of
investments ................................................. (17,541,505)
Change in net unrealized appreciation/depreciation of
foreign currency transactions ............................... 13,012
----------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions .................... 18,332,372
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Net Increase in Net Assets
Resulting from Operations ........................ $17,408,131
==================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ......................................................... ($685,936) ($924,241)
Net realized gain on investments sold and foreign currency transactions ..... 17,101,926 35,860,865
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions ..................................................... (3,986,338) (17,528,493)
------------- -------------
Net Increase in Net Assets Resulting from Operations .................... 12,429,652 17,408,131
------------- -------------
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) 47,651,566
------------- -------------
Net Assets:
Beginning of period ......................................................... 122,345,364 120,134,255
------------- -------------
End of period (including accumulated net investment loss of $5,603 and
$514,188, respectively) ................................................... $120,134,255 $176,004,497
============= =============
</TABLE>
*Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1997 1998
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 11,923,445 $155,591,350 15,576,589 $209,111,733
Shares issued in reorganization - Note E ........................ -- -- 1,689,451 21,549,797
Shares issued to shareholders in reinvestment of distributions .. 653,263 8,071,990 513,910 6,526,969
------------ ------------ ------------ ------------
12,576,708 163,663,340 17,779,950 237,188,499
Less shares repurchased ......................................... (12,766,789) (167,535,151) (15,925,820) (215,196,184)
------------ ------------ ------------ ------------
Net increase (decrease) ......................................... (190,081) ($3,871,811) 1,854,130 $21,992,315
============ ============ ============ ============
CLASS B
Shares sold ..................................................... 1,192,325 $15,564,013 2,030,542 $27,203,915
Shares issued in reorganization - Note E ........................ -- -- 2,505,358 30,457,141
Shares issued to shareholders in reinvestment of distributions .. 197,728 2,351,027 163,729 1,981,290
------------ ------------ ------------ ------------
1,390,053 17,915,040 4,699,629 59,642,346
Less shares repurchased ......................................... (1,330,189) (17,763,058) (2,630,797) (33,983,095)
------------ ------------ ------------ ------------
Net increase .................................................... 59,864 $151,982 2,068,832 $25,659,251
============ ============ ============ ============
</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:
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<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $14.30 $14.16 $12.67 $12.97 $12.94
--------- --------- --------- --------- ---------
Net Investment Loss(1) ................................. (0.07) (0.03) (0.02) (0.05) (0.05)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ..................... 1.24 (0.13) 1.20 1.21 1.53
--------- --------- --------- --------- ---------
Total from Investment Operations .................... 1.17 (0.16) 1.18 1.16 1.48
--------- --------- --------- --------- ---------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions ..................... (1.31) (1.33) (0.88) (1.19) (0.96)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ......................... $14.16 $12.67 $12.97 $12.94 $13.46
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value(2) .......... 8.64% (0.37%) 9.87% 9.36% 11.88%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $100,973 $93,597 $94,746 $92,127 $120,775
Ratio of Expenses to Average Net Assets ................ 1.98% 1.87% 1.88% 1.81%(3) 1.82%(3)
Ratio of Net Investment Loss to Average Net Assets ..... (0.54%) (0.23%) (0.19%) (0.36%) (0.33%)
Portfolio Turnover Rate ................................ 61% 60% 98% 81% 160%
</TABLE>
The Financial Highlights summarizes 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.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................... $14.17 $13.93 $12.36 $12.54 $12.39
--------- --------- --------- --------- ---------
Net Investment Loss(1) ................................. (0.15) (0.11) (0.10) (0.14) (0.13)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ..................... 1.22 (0.13) 1.16 1.18 1.46
--------- --------- --------- --------- ---------
Total from Investment Operations .................... 1.07 (0.24) 1.06 1.04 1.33
--------- --------- --------- --------- ---------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions ..................... (1.31) (1.33) (0.88) (1.19) (0.96)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period ......................... $13.93 $12.36 $12.54 $12.39 $12.76
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value(2) .......... 7.97% (1.01%) 9.10% 8.67% 11.15%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............... $31,822 $24,570 $27,599 $28,007 $55,229
Ratio of Expenses to Average Net Assets ................ 2.59% 2.57% 2.54% 2.49%(3) 2.46%(3)
Ratio of Net Investment Loss to Average Net Assets ..... (1.12%) (0.89%) (0.83%) (1.04%) (0.97%)
Portfolio Turnover Rate ................................ 61% 60% 98% 81% 160%
</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) 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 - Global Fund
Schedule of Investments
October 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Global Fund on October 31, 1998. It's divided into four main categories: common
stocks, warrants, preferred stock and short-term investments. Common and
preferred stocks and warrants are further broken down by country. Short-term
investments, which represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Australia (1.56%)
Australia & New Zealand Banking Group
Ltd. American Depositary Receipts
(ADR) (Banks - Foreign) ...................... 19 $542
National Australia Bank, Ltd.
(Banks - Foreign) ........................... 43,852 581,457
News Corp., Ltd. (The) (Media) ................. 44,000 300,791
News Corp., Ltd. (The) (ADR) (Media) ........... 10,622 290,113
Normandy Mining Ltd. (Metal) ................... 400,583 358,279
Telstra Corp., Ltd. (Telecommunications) ....... 238,417 946,899
Westpac Banking Corp., Ltd.
(Banks - Foreign) ........................... 43,000 261,682
-----------
2,739,763
-----------
Belgium (2.71%)
Electrabel SA (Utilities) ...................... 4,358 1,606,049
Fortis AG (Insurance) .......................... 3,026 869,123
Fortis AG (Certificate De Valeur Garantie)
(Insurance)* ................................. 910 6,388
Fortis AG (New Shares) (Insurance)* ............ 910 27
Generale de Banque SA
(Banks - Foreign) ........................... 391 146,382
PetroFina SA (Oil & Gas) ....................... 1,540 572,039
Tractebel SA (Utilities) ....................... 9,358 1,560,123
-----------
4,760,131
-----------
Brazil (0.00%)
Telecomunicacoes Brasileiras S/A (ADR)
(Telecommunications) ......................... 10 759
-----------
Canada (0.73%)
Bombardier, Inc. (Diversified Operations) ...... 78,586 929,484
Northern Telecom Ltd.
(Telecommunications) ......................... 8,055 345,587
Royal Bank of Canada (Banks - Foreign) ......... 1 46
-----------
1,275,117
-----------
Denmark (0.48%)
Novo Nordisk A/S (Medical) ..................... 4,108 479,419
Tele Danmark A/S (Telecommunications) .......... 3,400 370,340
-----------
849,759
-----------
Finland (1.47%)
Nokia AB (Telecommunications) .................. 28,456 2,589,733
-----------
France (11.07%)
Accor SA (Leisure) ............................. 4,244 891,439
Air Liquide SA (Chemicals) ..................... 1,892 316,701
Alcatel SA (Telecommunications) ................ 7,237 806,297
Alstom SA (Machinery)* ......................... 28,543 711,019
Axa SA (Insurance) ............................. 13,378 1,512,155
Cap Gemini SA (Computers) ...................... 6,731 1,011,607
Carrefour SA (Retail) .......................... 1,357 900,775
Compagnie de Saint Gobain SA
(Building) ................................... 1,888 279,331
Danone SA (Food) ............................... 5,517 1,458,715
Elf Aquitaine SA (Oil & Gas) ................... 12,422 1,437,633
France Telecom SA
(Telecommunications) ......................... 13,195 920,294
France Telecom SA (ADR)
(Telecommunications) ......................... 17,497 1,230,258
L'Oreal SA (Cosmetics & Personal Care) ......... 1,959 1,119,499
Legrand SA (Electronics) ....................... 1,404 357,829
Pinault-Printemps-Redoute SA (Retail) .......... 6,605 1,105,608
Renault SA (Automobile / Trucks)* .............. 5,317 227,288
Schneider SA (Machinery) ....................... 3,500 207,761
Suez Lyonnaise des Eaux SA
(Diversified Operations) ..................... 7,735 1,385,253
Synthelabo SA (Medical) ........................ 3,122 595,641
Total SA (Oil & Gas) ........................... 5,187 598,439
Valeo SA (Automobile / Trucks) ................. 6,893 596,759
Vivendi SA (Diversified Operations) ............ 7,967 1,819,709
-----------
19,490,010
-----------
Germany (4.79%)
Allianz AG (Insurance) ......................... 4,445 1,524,153
Bayerische Hypo- und Vereinsbank AG
(Banks - Foreign) ........................... 13,770 1,093,121
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Germany (continued)
Bayerische Motoren Werke AG
(Automobile/Trucks) ............................ 1,313 $925,005
Bayerische Motoren Werke AG
(New Shares) (Automobile/Trucks)* .............. 446 304,244
Daimler-Benz AG (Automobile/Trucks)* ............. 3,250 252,113
Deutsche Telekom AG
(Telecommunications) ........................... 27,464 748,069
Fresenius AG (Medical) ........................... 1,398 198,328
Mannesmann AG (Machinery) ........................ 11,980 1,178,835
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance) ................................. 978 447,524
Muenchener Rueckversicherungs-Gesellschaft
AG (New Shares) (Insurance)* ................... 38 17,297
Siemens AG (Diversified Operations) .............. 8,595 516,790
VEBA AG (Diversified Operations) ................. 7,617 425,338
Viag AG (Diversified Operations) ................. 1,168 793,239
----------
8,424,056
----------
Ireland (1.54%)
Allied Irish Banks PLC (ADR)
(Banks - Foreign) ............................. 21,785 1,891,210
Anglo Irish Bank Corp. PLC
(Banks - Foreign) ............................. 215,000 521,776
CRH PLC (Building) ............................... 20,131 293,131
----------
2,706,117
----------
Italy (2.95%)
Assicurazioni Generali SpA (Insurance) ........... 9,000 322,223
Banca Popolare di Brescia SpA
(Banks - Foreign) ............................. 28,000 659,205
Credito Italiano SpA (Banks - Foreign) ........... 222,384 1,193,607
Ente Nazionale Idrocarburi SpA
(Oil & Gas) .................................... 83,452 496,268
Istituto Nazionale delle Assicurazioni SpA
(Insurance) .................................... 270,459 744,791
Telecom Italia Mobile SpA
(Telecommunications) ........................... 173,747 1,008,327
Telecom Italia SpA
(Telecommunications) ........................... 107,214 774,899
----------
5,199,320
----------
Japan (5.52%)
Bank of Tokyo-Mitsubishi, Ltd.
(Banks - Foreign) ............................. 35,000 324,541
Bridgestone Corp.
(Rubber - Tires & Misc.) ....................... 27,000 594,056
Fuji Photo Film Co., Ltd. (Leisure) .............. 18,000 659,290
Fujitsu, Ltd. (Computers) ........................ 55,000 585,006
Honda Motor Co., Ltd.
(Automobile/Trucks) ............................ 32,000 960,714
Ito-Yokado Co., Ltd. (Retail) .................... 8,000 466,632
Kansai Electric Power Co., Inc.
(Utilities) .................................... 38,000 813,261
Matsushita Electric Industrial Co., Ltd.
(Electronics) .................................. 81,000 1,188,806
Nippon Telegraph & Telephone Corp.
(Telecommunications) ........................... 179 1,400,309
Nomura Securities Co., Ltd. (Finance) ............ 57,000 430,262
Sankyo Co., Ltd. (Medical) ....................... 18,000 406,073
Sony Corp. (Electronics) ......................... 7,500 476,068
Takeda Chemical Industries, Ltd.
(Medical) ...................................... 15,000 487,648
TDK Corp. (Electronics) .......................... 14,000 922,285
----------
9,714,951
----------
Netherlands (2.66%)
ABN AMRO Holding NV (ADR)
(Banks - Foreign) ............................. 999 19,168
AEGON NV (Insurance) ............................. 16,272 1,411,700
Akzo Nobel NV (Chemicals) ........................ 11,600 450,727
ING Groep NV (ADR) (Banks - Foreign) ............. 17,060 842,338
Royal Dutch Petroleum Co. (Oil & Gas) ............ 5,848 282,314
Royal KPN NV (Telecommunications) ................ 11,000 427,413
Royal Philips Electronics NV (Electronics) ....... 17,871 950,722
TNT Post Group NV (Transport) .................... 11,000 294,362
----------
4,678,744
----------
Norway (0.83%)
Norsk Hydro ASA (Oil & Gas) ...................... 13,000 564,949
Orkla ASA (Diversified Operations) ............... 53,376 902,466
----------
1,467,415
----------
Portugal (1.41%)
Electricidade de Portugal SA (Utilities) ......... 49,153 1,235,515
Portugal Telecom SA
(Telecommunications) ........................... 26,389 1,250,222
----------
2,485,737
----------
Singapore (0.33%)
Overseas-Chinese Banking Corp., Ltd.
(Banks - Foreign) ............................. 85,455 372,799
Singapore Telecommunications, Ltd.
(Telecommunications) ........................... 119,000 205,462
----------
578,261
----------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Spain (2.00%)
Argentaria SA (Banks - Foreign) .................. 22,420 $487,841
Banco Bilbao Vizcaya SA
(Banks - Foreign) ............................. 29,204 393,920
Banco Santander SA
(Banks - Foreign) ............................. 766 14,030
Endesa SA (Utilities) ............................ 5,732 144,460
Iberdrola SA (Utilities) ......................... 17,776 287,096
Repsol SA (Oil & Gas) ............................ 5,955 298,891
Telefonica SA (Telecommunications) ............... 22,456 1,013,916
TelePizza SA (Retail)* ........................... 108,000 881,727
-----------
3,521,881
-----------
Sweden (1.67%)
Astra AB (Medical) ............................... 21,842 353,960
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ........................... 15,180 342,260
Investor AB (Diversified Operations) ............. 26,548 1,033,896
Nordbanken Holding AB
(Banks - Foreign) ............................. 148,353 889,434
Saab AB (Aerospace)* ............................. 7,162 56,885
Skandia Forsakrings AB (Insurance) ............... 20,600 262,580
-----------
2,939,015
-----------
Switzerland (6.01%)
Adecco SA (Business Services - Misc.) ............ 1,756 699,653
Alusuisse-Lonza Group AG (Containers) ............ 247 282,119
Barry Callebaut AG (Food)* ....................... 1,547 345,858
Credit Suisse Group
(Banks - Foreign) ............................. 1,809 277,964
Nestle SA (Food) ................................. 1,054 2,239,740
Novartis AG (Medical) ............................ 1,311 2,360,245
Roche Holding AG (Medical) ....................... 45 524,607
Schweizerische Rueckversicherungs-Gesellschaft
(Insurance) .................................... 500 1,112,669
UBS AG (Banks - Foreign)* ........................ 2,002 548,766
Zurich Allied AG (Insurance)* .................... 3,605 2,189,120
-----------
10,580,741
-----------
United Kingdom (11.31%)
Allied Zurich PLC (Insurance)* ................... 21,640 257,154
Anglian Water PLC (Utilities) .................... 28,000 407,713
Anglian Water PLC (B Shares) (Utilities)* ........ 30,000 22,595
British American Tobacco PLC (Tobacco)* .......... 21,640 194,405
British Petroleum Co. PLC (Oil & Gas) ............ 78,064 1,145,850
British Telecommunications PLC
(Telecommunications) ........................... 56,500 730,034
Diageo PLC (Beverages) ........................... 50,090 540,740
Glaxo Wellcome PLC (Medical) ..................... 53,999 1,677,417
Kingfisher PLC (Retail) .......................... 68,000 596,941
Lloyds TSB Group PLC
(Banks - Foreign) ............................. 145,959 1,801,649
Pearson PLC (Media) ............................. 40,354 703,771
Pennon Group PLC (Utilities) ..................... 26,000 460,401
Prudential Corp. PLC (Insurance) ................. 21,400 278,299
Royal & Sun Alliance Insurance Group PLC
(Insurance) ................................... 88,951 814,358
Royal Bank of Scotland Group PLC
(Banks - Foreign) ............................. 56,529 749,331
Scottish Hydro-Electric PLC (Utilities) .......... 56,000 575,016
SEMA Group PLC (Computers) ....................... 36,250 293,650
SmithKline Beecham PLC (Medical) ................. 140,281 1,753,868
Tesco PLC (Retail) ............................... 146,000 411,747
Thames Water PLC (Utilities) ..................... 36,333 673,780
Unilever PLC (Consumer Products Misc.) ........... 199,690 2,005,326
Vodafone Group PLC
(Telecommunications) ........................... 89,200 1,194,352
WPP Group PLC (Advertising) ...................... 254,000 1,262,605
Zeneca Group PLC (Medical) ....................... 35,499 1,362,972
-----------
19,913,974
-----------
United States (34.67%)
Abbott Laboratories (Medical) .................... 10,974 515,092
Albertson's, Inc. (Retail) ....................... 21,500 1,194,594
American Express Co. (Finance) ................... 5,000 441,875
American International Group, Inc.
(Insurance) .................................... 9,930 846,533
Apache Corp. (Oil & Gas) ......................... 14,750 417,609
Automatic Data Processing, Inc.
(Computers) .................................... 50 3,891
Bank One Corp.
(Banks - United States) ........................ 17,000 830,875
BankAmerica Corp.
(Banks - United States) ........................ 6,000 344,625
Baxter International, Inc. (Medical) ............. 28,250 1,693,234
Becton, Dickinson & Co. (Medical) ................ 42,330 1,783,151
Bell Atlantic Corp. (Telecommunications) ......... 29,000 1,540,625
BMC Software, Inc. (Computers)* .................. 7,000 336,438
Bristol-Myers Squibb Co. (Medical) ............... 12,852 1,420,949
Chevron Corp. (Oil & Gas) ........................ 18,800 1,532,200
Cisco Systems, Inc. (Computers)* ................. 20,300 1,278,900
Colgate-Palmolive Co.
(Soap & Cleaning Preparations) ................. 10,050 888,169
Compaq Computer Corp. (Computers) ................ 31,000 980,375
Computer Associates International, Inc.
(Computers) .................................... 10,500 413,438
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
United States (continued)
Dayton Hudson Corp. (Retail) ................. 51,470 $2,181,041
Diebold, Inc. (Business Services - Misc.) .... 1 31
Du Pont (E.I.) De Nemours & Co.
(Diversified Operations) ................... 23,150 1,331,125
Duke Energy Corp. (Utilities) ................ 38,500 2,490,469
Emerson Electric Co. (Electronics) ........... 27,500 1,815,000
Exxon Corp. (Oil & Gas) ...................... 14,125 1,006,406
Fannie Mae (Mortgage Banking) ................ 30,700 2,173,944
First Union Corp.
(Banks - United States) .................... 14,440 837,520
Fleet Financial Group, Inc.
(Banks - United States) .................... 22,400 894,600
General Electric Co. (Electronics) ........... 36,500 3,193,750
General Mills, Inc. (Food) ................... 11,720 861,420
Home Depot, Inc. (The) (Retail) .............. 40,502 1,761,837
Intel Corp. (Electronics) .................... 18,425 1,643,280
International Business Machines Corp.
(Computers) ................................ 6,300 935,156
Johnson & Johnson (Medical) .................. 24,528 1,999,032
Lucent Technologies, Inc.
(Telecommunications) ...................... 2,700 216,506
McDonald's Corp. (Retail) .................... 7,000 468,125
McGraw-Hill Cos., Inc. (The) (Media) ......... 10,800 971,325
MCI WorldCom, Inc.
(Telecommunications)* ...................... 17,675 976,544
Merck & Co., Inc. (Medical) .................. 5,800 784,450
Microsoft Corp. (Computers)* ................. 21,550 2,281,606
Mobil Corp. (Oil & Gas) ...................... 6,320 478,345
Norwest Corp. (Banks - United States) ........ 14,000 520,625
PepsiCo, Inc. (Beverages) .................... 26,000 877,500
Pitney Bowes, Inc. (Office) .................. 14,434 794,772
Procter & Gamble Co. (The)
(Soap & Cleaning Preparations) ............. 17,760 1,578,420
Sara Lee Corp. (Food) ........................ 18,300 1,092,281
SBC Communications, Inc. (Utilities) ......... 9,200 426,075
Schering-Plough Corp. (Medical) .............. 5,848 601,613
Southern Co. (Utilities) ..................... 51,800 1,460,113
SYSCO Corp. (Retail) ......................... 36,200 975,138
Texas Utilities Co. (Utilities) .............. 8,000 350,000
Tyco International, Ltd.
(Diversified Operations) ................... 7,500 464,531
Unisys Corp. (Computers)* .................... 16,600 441,975
UNUM Corp. (Insurance) ....................... 36,911 1,640,233
Wal-Mart Stores, Inc. (Retail) ............... 22,700 1,566,300
Warner-Lambert Co. (Medical) ................. 15,905 1,246,554
Williams Cos., Inc. (The) (Utilities) ........ 44,200 1,212,738
------------
61,012,953
------------
TOTAL COMMON STOCKS
(Cost $152,610,254) (93.71%) 164,928,437
------- ------------
WARRANTS
Germany (0.00%)
Muenchener Rueckversicherungs-Gesellschaft
AG (Insurance)* ............................ 38 1,652
------------
Hong Kong (0.00%)
Moulin International Holding Ltd.
(Diversified Operations)* .................. 293,629 1,971
------------
TOTAL WARRANTS
(Cost $7,079) (0.00%) 3,623
------- ------------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $152,617,333) (93.71%) 164,932,060
------- ------------
PREFERRED STOCK
Germany (0.20%)
Henkel KGaA (Chemicals) ...................... 4,086 349,030
------------
TOTAL PREFERRED STOCK
(Cost $295,501) (0.20%) 349,030
------- ------------
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ------- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.92%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 10-30-98, due 11-02-98
(Secured by U.S. Treasury Bonds,
6.25% thru 8.125%, due
11-15-16 thru 11-15-26)
-- Note A ............................... 5.38% $6,904 $6,904,000
-------------
Cash Equivalents (6.11%)
Navigator Securities Lending
Prime Portfolio** ...................... 10,754 10,754,053
-------------
TOTAL SHORT-TERM INVESTMENTS (10.03%) 17,658,053
------- -------------
TOTAL INVESTMENTS (103.94%) 182,939,143
------- -------------
OTHER ASSETS AND LIABILITIES, NET (3.94%) (6,934,646)
------- -------------
TOTAL NET ASSETS (100.00%) $176,004,497
======= =============
*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.
16
<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 October 31, 1998 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
INVESTMENT CATEGORIES OF NET ASSETS
- --------------------- ---------------
Advertising................................................. 0.72%
Aerospace................................................... 0.03
Automobile/Trucks........................................... 1.86
Banks - Foreign............................................. 7.43
Banks - United States....................................... 1.95
Beverages................................................... 0.81
Building.................................................... 0.32
Business Services - Misc. .................................. 0.40
Chemicals................................................... 0.63
Computers................................................... 4.86
Consumer Products Misc...................................... 1.14
Containers.................................................. 0.16
Cosmetics & Personal Care................................... 0.64
Diversified Operations...................................... 5.46
Electronics................................................. 5.99
Finance..................................................... 0.49
Food........................................................ 3.41
Insurance................................................... 8.10
Leisure..................................................... 0.88
Machinery................................................... 1.19
Media....................................................... 1.29
Medical..................................................... 11.50
Metal....................................................... 0.20
Mortgage Banking............................................ 1.23
Office...................................................... 0.45
Oil & Gas................................................... 5.02
Retail...................................................... 7.11
Rubber - Tires & Misc. ..................................... 0.34
Soap & Cleaning Preparations................................ 1.40
Telecommunications.......................................... 10.82
Tobacco..................................................... 0.11
Transport................................................... 0.17
Utilities................................................... 7.80
Short-Term Investments...................................... 10.03
------
TOTAL INVESTMENTS 103.94%
======
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
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 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. Effective December 8, 1998,
the Board of Trustees have authorized the issuance of Class C shares in 1999.
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 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund identifies the dividend. Interest income on
investment securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes, which are accrued as applicable.
The Fund records 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 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
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
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 unsecured
lines 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 year for which loans were
outstanding amounted to $1,439,500 with a rate of 6.1875%. At October 31, 1998,
there were no outstanding loan balances.
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 October 31, 1998, the Fund
loaned securities having a market value of $10,548,136 collateralized by cash in
the amount of $10,754,053, 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. 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
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
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 October 31, 1998, open forward foreign currency exchange contracts were as
follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION
CURRENCY COVERED BY CONTRACT DATE (DEPRECIATION)
- -------- ------------------- ---- --------------
BUYS
French Francs 1,480,428 NOV 98 $675
=====
SELLS
Australian Dollars 16,689 NOV 98 ($66)
French Francs 662,008 NOV 98 127
Pounds Sterling 3,228 NOV 98 20
-----
$81
=====
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 October 31, 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) 0.90% of the first $100,000,000 of the
Fund's average daily net asset value (1.00% prior to 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 payment of the Sub-Adviser's
fee.
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, acted as distributors for shares of the Fund. For the year ended
October 31, 1998, net sales charges received with regard to sales of Class A
shares amounted to $170,892. Of this amount, $28,661 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $75,960
was paid as sales commissions to unrelated broker-dealers and $66,271 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 shares. For the year ended October 31, 1998,
contingent deferred sales charges paid to JH Funds amounted to $148,766.
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 year 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 directors 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 October 31, 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 year
ended October 31, 1998, aggregated $276,788,157 and $264,521,886, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1998.
The cost of investments owned at October 31, 1998 (including short-term
investments) for federal income tax purposes was $171,328,042. Gross unrealized
appreciation and depreciation of investments aggregated $20,099,903 and
$8,488,802, respectively, resulting in net unrealized appreciation of
$11,611,101.
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Fund
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$25,388,203, a decrease in accumulated net investment loss of $415,656 and an
increase in capital paid-in of $24,972,547. This represents the amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1998. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to the treatment of
net operating losses and net realized loss on foreign currency transactions in
the computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles, and the Fund's use of the
tax accounting practice known as equalization. The calculation of net investment
loss per share in the financial highlights excludes these adjustments.
NOTE E -
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 $12,299,215 of unrealized appreciation, after the close
of business on December 5, 1997.
22
<PAGE>
================================================================================
John Hancock Funds - Global Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock Global Fund
and the Trustees of John Hancock Investment Trust III
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of JohnHancock Global Fund (the
"Fund") (a series of John Hancock Investment Trust III) at October 31, 1998, and
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1998.
The Fund has designated distributions to shareholders of $31,661,732 as
capital gain dividends.
Shareholders will be mailed a 1998 U.S. Treasury Department Form 1099-DIV in
January 1999. This will reflect the total of all distributions that are taxable
for the calendar year 1998.
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 0300A 10/98
12/98
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm." A recycled logo in lower left hand corner
with caption "Printed on Recycled Paper."]
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Special
Opportunities
Fund
OCTOBER 31, 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
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
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
----------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
Investors have been understandably shaken by these dramatic twists and turns,
but we are pleased to report that most individual investors did not panic, and
we hope that means they've taken our words to heart. Over the long term, markets
do not move up or down in a straight line. That's why after watching the market
charge ahead almost uninterrupted for so many years, we have been striking a
more cautionary stance in this space over the last several months.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. 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.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
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BY BARBARA C. FRIEDMAN, CFA, PORTFOLIO MANAGER
John Hancock
Special Opportunities Fund
Global economic uncertainty roils markets
The stock market took investors on a wild ride during the past 12 months. After
surging to a string of new highs through mid-July, the market fell on worries
about overseas markets that came back to haunt investors in August and
September, provoked by Russia's debt default and currency devaluation, Asia's
recession and rising fears of a devaluation of Brazil's currency. For much of
the year, the uncertain environment caused investors to favor the large, tested
blue-chip stocks -- and later U.S. Treasuries. As a result, mid-cap stocks,
which are the Fund's focus, were left behind. However, the stock market was
re-energized in early October after the Federal Reserve lowered interest rates
twice in three weeks in order to head off a serious slowdown in the U.S.
economy. This late, but strong, market recovery saw mid-cap stocks rise faster
than their larger brethren, although the three-week rally was not enough to
close the gap. The Standard & Poor's 500 Stock Index posted a robust gain of
21.99% for the 12-month period ended October 31, 1998, while the Russell Midcap
Growth Index gained 2.43%.
Performance and strategy review
For the year ended October 31, 1998, John Hancock Special Opportunities Fund's
Class A and Class B shares generated total returns of -9.40% and -9.97%,
respectively, at net asset value. The Fund's Class C shares, which were
introduced on June 1, 1998, returned -12.71% from inception through October 31,
1998. The Fund's yearly result fell short of the -2.89% return of the average
mid-cap fund, according to Lipper Analytical Services, Inc.,(1) reflecting in
many cases the greater percentage of large-cap stocks
"...worries about overseas markets...came back to haunt investors in August and
September..."
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[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Special
Opportunities Fund. Caption below reads "Fund management team members (l-r):
"Barbara Friedman, Ben Hock, Lisa Welch and John Golden."]
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3
<PAGE>
================================================================================
John Hancock Funds - Special Opportunities Fund
"...this has been a year of transition for the Fund."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Common Stock Holdings." The
first listing is EMC Corp. 2.1%, the second is Mylan Laboratories 2.0%, the
third Life Re Corp. 2.0%, the fourth Genzyme Corp. 1.9% and the fifth Ascend
Communications 1.8%. A note below the table reads "As a percentage of net assets
on October 31, 1998."]
- --------------------------------------------------------------------------------
held by the typical mid-cap fund. In contrast, we manage the Fund to be a true
mid-cap fund. While this approach held us back in the downturn, it, together
with our stock selections, enabled the Fund to outperform the Lipper average
during the rebound in late October. Keep in mind that your net asset value
return will be different from the Fund's stated performance if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. Please see pages six and seven for longer-term performance
information.
A year of transition
As we mentioned in the previous report, this has been a year of transition for
the Fund. While the Fund's focus has always been on mid-cap stocks, we moved it
to being a true mid-cap fund, with the predominant percentage of assets invested
in companies with a $1 billion to $6 billion market capitalization. This
distinguishes us from many of our peers, who invest a portion of their assets in
larger-cap companies. In addition, we broadened the number of holdings from 60
to 100 names, adding diversification to the portfolio even within the sectors of
concentration. We remain steadfast, however, in our concentration on sectors
that we believe will grow faster in the future than the overall economy. During
the year, the Fund's top three primary sector concentrations remained financial
services, technology and health care. Together with consumer cyclicals and
retail, these sectors comprised over 85% of the Fund's holdings.
Looking for higher PC demand
With the market decline in recent months, we used the buying opportunities to
increase our concentration in technology stocks to 32% of net assets, from
roughly 15% six months ago. EMC, Lexmark International Group and Compuware
remain core holdings in the Fund. However, over the summer, we noted that with
the introduction of Microsoft's Windows 98, the demand for personal computers
was rebounding. Accordingly, we increased the Fund's holdings in computer
component companies -- semiconductors and disk drives -- and contract
manufacturers. Unfortunately, strong performance in this area was offset by some
disappointments. Aspen Technology, a provider of process software primarily to
companies in the petroleum and chemical industries, saw its share price decline
due to uncertainty about short-term demand for the company's product and an
inability to control costs. Consequently, we liquidated the position.
Good values in insurers and regional banks
After a mediocre performance during the first half of 1998, the entire financial
services sector was hit hard by concerns over financial problems in Asia, Latin
America and Russia, and by heavy
- --------------------------------------------------------------------------------
[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 Life Re Corp.
followed by an up arrow with the phrase "Acquisition bid by Swiss reinsurer."
The second listing is HEALTHSOUTH followed by a down arrow with the phrase
"Short-term pricing pressure from HMOs." The third listing is Aspen Technology
followed by a down arrow with the phrase "Questions about demand, cost control."
A note below the table reads "See `Schedule of Investments.' Investment holdings
are subject to change."]
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4
<PAGE>
================================================================================
John Hancock Funds - Special Opportunities Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 5% with -15% at the bottom and 0% at the top. The first
bar represents the -9.40% Total return for John Hancock Special Opportunities
Fund Class A. The second bar represents the -9.97% total return for John Hancock
Special Opportunities Fund Class B. The third bar represents the -12.71%* total
return for John Hancock Special Opportunities Fund Class C, and the fourth bar
represents the -2.89% total return for 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. See the following two pages for
historical performance information. * From inception June 1, 1998 to October 31,
1998."]
- --------------------------------------------------------------------------------
losses in U.S. hedge funds. While many money-center banks were hurt by these
issues, regional banks, which had no such vulnerability in most cases, were
likewise spurned by many investors. This mass selling created many opportunities
in the mid-cap sector. For example, we added to the Fund's positions in
Sovereign Bancorp and First Tennessee National, while establishing a new
position in Zions Bancorp. Furthermore, the Fund maintained a sizable position
- -- about 12% -- in insurance companies, many of which had more modest valuations
than their counterparts in the bank and brokerage industries. One star performer
in the financial sector was Life Re, a reinsurer of life and health risks in the
United States whose stock responded well to news that the company would be taken
over by a Swiss reinsurance company. Our allocation of roughly 22% of the Fund's
assets to financial services stocks reflects our belief that the sector will
enjoy high growth for the foreseeable future and will also see continued
consolidation in both the banking and insurance segments.
Diversified health-care holdings
In health care, the third of our "big three" sector allocations, the Fund had a
well-diversified position totaling approximately 16% of assets. One of our
better performers was Genzyme, a biotechnology company that continued to report
strong sales and earnings. Offsetting that strength to some extent was the
performance of HEALTHSOUTH, a leading provider of outpatient rehabilitation
services that suffered during the period from pricing pressures. Given the
company's dominance in its industry and the fact that its pricing problems
should be short term in nature, we have held on to the stock.
Outlook
While we believe growth in the U.S. economy will continue to slow in 1999, we
see no recession on the horizon, especially given the low, and declining,
interest rate environment. In fact, we expect mid-cap companies to grow their
earnings over the next three to five years at a rate 50% higher than that of
their big-cap counterparts. Yet, mid-cap stocks today are trading at a 15%
discount to the big-cap market, providing the opportunity for mid-cap stocks to
outperform. With our year of transition complete, we will continue to maintain a
portfolio of mid-cap stocks, and keep our sights on the market sectors that we
believe will grow faster than the overall economy. We believe it's a sound
strategy for achieving solid long-term investment results.
"...mid-cap stocks today are trading at a 15% discount to the big-cap market..."
- --------------------------------------------------------------------------------
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). Class C performance
includes a cont-ingent deferred sales charge (1% declining to 0% after one
year).
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 September 30, 1998
SINCE
ONE INCEPTION
YEAR (11/1/93)
---- ---------
Cumulative Total Returns (20.01%) 32.68%
Average Annual Total Returns (20.01%) 5.93%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE INCEPTION
YEAR (11/1/93)
---- ---------
Cumulative Total Returns (20.08%) 32.95%
Average Annual Total Returns (20.08%) 5.97%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
INCEPTION
(6/1/98)
---------
Cumulative Total Return (17.85%)
Average Annual Total Return (17.85%)(1)
Notes to Performance
(1) Not annualized.
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 used to measure 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 John Hancock 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
Standard & Poor's 500 Stock Index and is equal to $26,256 as of October 31,
1998. The second line represents the Russell Midcap Growth Index and is equal to
$19,181 as of October 31, 1998. The third line represents the value of the
hypothetical $10,000 investment made in the John Hancock Special Opportunities
Fund on November 1, 1993, before sales charge, and is equal to $14,713 as of
October 31, 1998. The fourth line represents the value of the same hypothetical
investment made in the John Hancock Special Opportunities Fund, after sales
charge, and is equal to $13,974 as of October 31, 1998.
Line chart with the heading John Hancock 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
Standard & Poor's 500 Stock Index and is equal to $26,256 as of October 31,
1998. The second line represents the Russell Midcap Growth Index and is equal to
$19,181 as of October 31, 1998. The third line represents the value of the
hypothetical $10,000 investment made in the John Hancock Special Opportunities
Fund on November 1, 1993, before sales charge, and is equal to $14,206 as of
October 31, 1998. The fourth line represents the value of the same hypothetical
investment made in the John Hancock Special Opportunities Fund, after sales
charge, and is equal to $14,006 as of October 31, 1998.
Line chart with the heading John Hancock Special Opportunities Fund Class C,
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
Standard & Poor's 500 Stock Index and is equal to $10,134 as of October 31,
1998. The second line represents the Russell Midcap Growth Index and is equal to
$9,197 as of October 31, 1998. The third line represents the value of the
hypothetical $10,000 investment made in the John Hancock Special Opportunities
Fund on June 1, 1998, before sales charge, and is equal to $8,729 as of
October 31, 1998. The fourth line represents the value of the same hypothetical
investment made in the John Hancock Special Opportunities Fund, after sales
charge, and is equal to $8,641 as of October 31, 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 October 31, 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
October 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $225,598,581) ....................... $231,395,845
Joint repurchase agreement (cost - $2,025,000) ............ 2,025,000
Corporate savings account ................................. 1,022
------------
233,421,867
Receivable for investments sold ............................ 1,024,015
Receivable for shares sold ................................. 1,991,254
Dividends receivable ....................................... 56,742
Interest receivable ........................................ 608
Other assets ............................................... 23,134
------------
Total Assets ................................... 236,517,620
------------------------------------------------------------------
Liabilities:
Payable for investments purchased .......................... 603,100
Payable for shares repurchased ............................. 167,080
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 263,351
Accounts payable and accrued expenses ...................... 57,378
------------
Total Liabilities .............................. 1,090,909
------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 232,262,268
Accumulated net realized loss on investments sold .......... (2,619,524)
Net unrealized appreciation of investments ................. 5,798,876
Accumulated net investment loss ............................ (14,909)
------------
Net Assets ..................................... $235,426,711
==================================================================
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 - $101,138,308 / 11,103,420 ........................ $9.11
==============================================================================
Class B - $134,188,022 / 15,394,000 ........................ $8.72
==============================================================================
Class C * - $100,381 / 11,518 .............................. $8.72
==============================================================================
Maximum Offering Price Per Share**
Class A - ($9.11 x 105.26%) ................................ $9.59
==============================================================================
* Class C shares commenced operations on June 1, 1998.
** 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
Year ended October 31, 1998
- -------------------------------------------------------------------------------
Investment Income:
Dividends .................................................. $1,774,039
Interest ................................................... 407,412
------------
2,181,451
------------
Expenses:
Investment management fee - Note B ........................ 2,380,126
Distribution and service fee -- Note B
Class A .................................................. 370,559
Class B .................................................. 1,703,417
Class C .................................................. 144
Transfer agent fee - Note B ............................... 1,152,375
Custodian fee ............................................. 82,696
Registration and filing fees .............................. 50,128
Financial services fee - Note B ........................... 49,802
Printing .................................................. 40,851
Auditing fee .............................................. 31,014
Organization expense - Note A ............................. 26,125
Trustees' fees ............................................ 19,317
Miscellaneous ............................................. 6,993
Legal fees ................................................ 2,291
------------
Total Expenses ................................. 5,915,838
------------------------------------------------------------------
Net Investment Loss ............................ (3,734,387)
------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ...................... 11,463,586
Change in net unrealized appreciation/depreciation
of investments ............................................ (32,557,064)
------------
Net Realized and Unrealized
Loss on Investments ............................ (21,093,478)
------------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ...................... ($24,827,865)
==================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Special Opportunities Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ................................................. ($3,706,097) ($3,734,387)
Net realized gain on investments sold ............................... 60,340,967 11,463,586
Change in net unrealized appreciation/depreciation of investments ... (30,342,802) (32,557,064)
------------- -------------
Net Increase(Decrease) in Net Assets Resulting from Operations .... 26,292,068 (24,827,865)
------------- -------------
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) (46,888,774)
------------- -------------
Net Assets:
Beginning of period ................................................. 395,479,932 346,809,745
------------- -------------
End of period (including accumulated net investment loss of $16,773
and $14,909, respectively) ........................................ $346,809,745 $235,426,711
============= =============
</TABLE>
*Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1997 1998
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ............... 13,788,334 $149,978,302 6,953,677 $70,620,558
Shares reinvested ......... 574,409 6,255,139 1,542,642 15,071,789
------------- ------------- ------------- -------------
14,362,743 156,233,441 8,496,319 85,692,347
Less shares repurchased ... (16,237,930) (175,622,420) (9,853,865) (100,927,104)
------------- ------------- ------------- -------------
Net decrease .............. (1,875,187) ($19,388,979) (1,357,546) ($15,234,757)
============= ============= ============= =============
CLASS B
Shares sold ............... 4,201,630 $43,981,077 1,738,672 $17,297,307
Shares reinvested ......... 886,671 9,406,661 2,298,572 21,629,593
------------- ------------- ------------- -------------
5,088,301 53,387,738 4,037,244 38,926,900
Less shares repurchased ... (8,910,759) (91,975,024) (7,219,381) (70,681,852)
------------- ------------- ------------- -------------
Net decrease .............. (3,822,458) ($38,587,286) (3,182,137) ($31,754,952)
============= ============= ============= =============
CLASS C**
Shares sold ............... -- -- 11,518 $100,935
------------- ------------- ------------- -------------
Net increase .............. -- -- 11,518 $100,935
============= ============= ============= =============
</TABLE>
** Class C shares commenced operations on June 1, 1998.
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,
--------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $8.50 $7.93 $9.32 $10.92 $11.40
-------- -------- -------- -------- --------
Net Investment Loss (1) ..................................... (0.03) (0.07) (0.11) (0.06) (0.09)
Net Realized and Unrealized Gain (Loss) on Investments ...... (0.54) 1.46 3.34 1.00 (0.89)
-------- -------- -------- -------- --------
Total from Investment Operations ........................... (0.57) 1.39 3.23 0.94 (0.98)
-------- -------- -------- -------- --------
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 $9.11
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (2) .............. (6.71%) 17.53% 36.15% 8.79% (9.40%)
Total Adjusted Investment Return at Net Asset Value (2,3) ... (6.83%) -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $92,325 $101,562 $156,578 $141,997 $101,138
Ratio of Expenses to Average Net Assets ..................... 1.50% 1.59% 1.59% 1.59% 1.59%
Ratio of Adjusted Expenses to Average Net Assets (4) ........ 1.62% -- -- -- --
Ratio of Net Investment Loss to Average Net Assets .......... (0.41%) (0.87%) (1.00%) (0.57%) (0.86%)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (4) ............................................. (0.53%) -- -- -- --
Portfolio Turnover Rate ..................................... 57% 155% 240% 317% 168%
Expense Reimbursement Per Share ............................. $0.01(1) -- -- -- --
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $8.50 $7.87 $9.19 $10.67 $11.03
-------- -------- -------- -------- --------
Net Investment Loss (1) ..................................... (0.09) (0.13) (0.18) (0.13) (0.15)
Net Realized and Unrealized Gain (Loss) on Investments ...... (0.54) 1.45 3.29 0.95 (0.85)
-------- -------- -------- -------- --------
Total from Investment Operations ........................... (0.63) 1.32 3.11 0.82 (1.00)
-------- -------- -------- -------- --------
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 $8.72
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (2) .............. (7.41%) 16.77% 35.34% 7.84% (9.97%)
Total Adjusted Investment Return at Net Asset Value (2,3) ... (7.53%) -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $131,983 $137,363 $238,901 $204,812 $134,188
Ratio of Expenses to Average Net Assets ..................... 2.22% 2.30% 2.29% 2.28% 2.27%
Ratio of Adjusted Expenses to Average Net Assets (4) ........ 2.34% -- -- -- --
Ratio of Net Investment Loss to Average Net Assets .......... (1.13%) (1.55%) (1.70%) (1.25%) (1.54%)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (4) ............................................. (1.25%) -- -- -- --
Portfolio Turnover Rate ..................................... 57% 155% 240% 317% 168%
Expense Reimbursement Per Share ............................. $0.01(1) -- -- -- --
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Special Opportunities Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM JUNE 1, 1998
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1998
----------------------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $9.99
-------
Net Investment Loss (1) .............................. (0.06)
Net Realized and Unrealized Loss on Investments ...... (1.21)
-------
Total From Investment Operations .................... (1.27)
-------
Net Asset Value, End of Period ....................... $8.72
=======
Total Investment Return at Net Asset Value (2) ....... (12.71%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $100
Ratio of Expenses to Average Net Assets .............. 2.29%(5)
Ratio of Net Investment Loss to Average Net Assets ... (1.66%)(5)
Portfolio Turnover Rate .............................. 168%
(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) An estimated total return calculation which does not take into consideration
fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reduction.
(5) Annualized.
(6) Not annualized.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: the net investment income (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 - Special Opportunities Fund
Schedule of Investments
October 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Special Opportunities Fund on October 31, 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 (2.23%)
Lamar Advertising Co.* ....................... 78,000 $2,435,066
Outdoor Systems, Inc.* ....................... 127,050 2,803,041
-----------
5,238,107
-----------
Automobile/Trucks (1.52%)
Avis Rent A Car, Inc.* ....................... 176,020 3,586,407
-----------
Banks - United States (5.03%)
First American Corp. ......................... 65,000 2,681,250
First Tennessee National Corp. ............... 87,800 2,782,162
Northern Trust Corp. ......................... 42,500 3,134,375
Regions Financial Corp. ...................... 75,900 2,808,300
Zions Bancorp ................................ 8,000 424,500
-----------
11,830,587
-----------
Broker Services (0.32%)
Paine Webber Group Inc. ...................... 22,600 755,688
-----------
Business Services - Misc. (2.71%)
ACNielsen Corp.* ............................. 21,200 567,100
Interim Services, Inc. * ..................... 118,700 2,522,375
Modis Professional Services, Inc.* ........... 140,100 2,469,262
Select Appointments Holdings PLC,
American Depositary Receipts (ADR)
(United Kingdom) ........................... 48,500 824,500
-----------
6,383,237
-----------
Computers (19.64%)
Ascend Communications, Inc.* ................. 87,900 4,241,175
BEA Systems, Inc.* ........................... 128,400 2,515,844
BMC Software, Inc.* ......................... 30,500 1,465,906
Cadence Design Systems, Inc.* ................ 84,000 1,795,500
Cambridge Technology Partners, Inc.* ......... 67,300 1,489,013
Citrix Systems, Inc.* ........................ 46,500 3,295,687
Compuware Corp.* ............................. 29,600 1,603,950
E*TRADE Group, Inc.* ......................... 43,900 790,200
EMC Corp.* ................................... 75,700 4,873,187
Excite, Inc.* ................................ 17,500 674,844
Fiserv, Inc.* ................................ 47,900 2,227,350
Gartner Group, Inc. (Class A)* ............... 30,500 606,188
Keane, Inc.* ................................. 50,600 1,682,450
Lexmark International Group, Inc.
(Class A)* ................................. 41,635 2,911,848
Network Appliance, Inc.* ..................... 10,800 591,300
Network Associates, Inc.* .................... 76,000 3,230,000
Novell, Inc.* ................................ 79,800 1,187,025
Quantum Corp.* ............................... 112,800 1,974,000
Sterling Commerce, Inc.* ..................... 62,600 2,206,650
SunGard Data Systems, Inc.* .................. 66,950 2,259,562
Unisys Corp.* ................................ 122,300 3,256,237
Wang Laboratories, Inc.* ..................... 63,300 1,353,038
-----------
46,230,954
-----------
Cosmetics & Personal Care (2.78%)
Dial Corp. (The) ............................. 99,400 2,739,713
Estee Lauder Cos., Inc. (The) (Class A) ...... 11,200 734,300
Rexall Sundown, Inc.* ........................ 104,800 1,879,850
Twinlab Corp.* ............................... 53,900 1,195,906
-----------
6,549,769
-----------
Electronics (6.04%)
Artesyn Technologies, Inc.* .................. 106,800 1,541,925
Jabil Circuit, Inc.* ......................... 60,200 2,788,012
Linear Technology Corp. ...................... 21,800 1,299,825
Maxim Intergrated Products, Inc.* ............ 38,300 1,366,831
Sanmina Corp.* ............................... 27,000 1,107,000
SCI Systems, Inc* ............................ 46,700 1,844,650
Vitesse Semiconductor Corp.* ................. 21,300 686,925
Waters Corp.* ................................ 48,900 3,594,150
-----------
14,229,318
-----------
Finance (5.02%)
Charter One Financial, Inc. .................. 91,875 2,520,820
CIT Group, Inc. (The) (Class A) .............. 87,100 2,378,919
Concord EFS, Inc.* ........................... 46,200 1,316,700
FINOVA Group, Inc. (The) ..................... 33,500 1,633,125
Sovereign Bancorp., Inc. ..................... 177,600 2,331,000
Waddell & Reed Financial, Inc. (Class A) ..... 78,000 1,633,125
-----------
11,813,689
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Special Opportunities Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Food (1.23%)
Aurora Foods, Inc.* ......................... 117,000 $2,047,500
International Home Foods, Inc.* .............. 47,600 844,900
-----------
2,892,400
-----------
Funeral Services & Related (0.74%)
Loewen Group, Inc. (Canada) .................. 194,700 1,740,131
-----------
Furniture (1.14%)
Leggett & Platt, Inc. ........................ 115,000 2,688,125
-----------
Household (0.65%)
WestPoint Stevens Inc.* ...................... 54,100 1,538,469
-----------
Insurance (11.72%)
Ace, Ltd. (Bermuda) ......................... 84,900 2,875,988
Allmerica Financial Corp. .................... 47,800 2,390,000
CMAC Investment Corp. ........................ 48,400 2,026,750
Executive Risk, Inc. ......................... 57,500 2,731,250
EXEL Ltd. (Class A) (Bermuda) ................ 38,842 2,968,985
Horace Mann Educators Corp. .................. 44,200 1,265,225
Life Re Corp. ................................ 50,525 4,714,614
Mutual Risk Management Ltd. .................. 86,600 2,928,163
Reinsurance Group of America, Inc. ........... 47,100 2,237,250
ReliaStar Financial Corp. .................... 79,000 3,461,187
-----------
27,599,412
-----------
Leisure (0.93%)
Hasbro, Inc. ................................. 62,200 2,180,887
-----------
Media (4.12%)
Central Newspapers, Inc. (Class A) ........... 46,100 3,033,956
Chancellor Media Corp.* ...................... 16,300 625,513
Clear Channel Communications, Inc.* .......... 50,000 2,278,125
Sinclair Broadcast Group, Inc. (Class A)* .... 113,800 1,479,400
Univision Communications, Inc.
(Class A)* ................................. 77,400 2,283,300
-----------
9,700,294
-----------
Medical (15.04%)
Elan Corp., PLC (ADR) (Ireland)* ............. 43,700 3,061,731
Forest Laboratories, Inc.* ................... 66,400 2,776,350
Genzyme Corp.* ............................... 106,500 4,479,656
HCR Manor Care, Inc.* ........................ 82,700 2,687,750
Health Management Associates, Inc.
(Class A)* ................................. 117,650 2,095,641
HEALTHSOUTH Corp.* ........................... 160,700 1,948,488
Humana, Inc.* ................................ 200,800 3,802,650
Mylan Laboratories Inc. ...................... 138,900 4,783,369
Omnicare, Inc. ............................... 104,075 3,597,092
Sofamor Danek Group, Inc.* ................... 27,650 2,809,931
STERIS Corp.* ................................ 82,900 1,906,700
Stryker Corp. ................................ 34,700 1,455,231
-----------
35,404,589
-----------
Office (0.47%)
Office Depot, Inc.* ........................... 44,300 1,107,500
-----------
Oil & Gas (2.96%)
Anadarko Petroleum Corp. ....................... 19,800 670,725
Apache Corp. ................................... 70,600 1,998,863
Burlington Resources, Inc. ..................... 28,200 1,161,488
Diamond Offshore Drilling, Inc. ................ 30,800 945,175
Noble Affiliates, Inc. ......................... 34,900 1,142,975
R&B Falcon Corp.* .............................. 77,500 1,051,094
-----------
6,970,320
-----------
Retail (5.62%)
CVS Corp. ...................................... 65,200 2,978,825
Meyer (Fred), Inc.* ........................... 35,900 1,913,919
Pier 1 Imports, Inc. ........................... 116,138 1,074,272
Richfood Holdings, Inc. ........................ 125,500 2,227,625
Rite Aid Corp. ................................. 61,500 2,440,781
Staples, Inc.* ................................. 79,600 2,596,950
-----------
13,232,372
-----------
Telecommunications (6.73%)
American Tower Corp. (Class A)* ................ 115,500 2,526,562
Global Crossing Ltd.* .......................... 77,300 2,222,375
Global TeleSystems Group, Inc.* ................ 40,200 1,610,513
ICG Communications, Inc.* ...................... 92,600 1,915,663
Intermedia Communications, Inc.* ............... 95,600 1,768,600
McLeodUSA, Inc. (Class A)* ..................... 94,400 3,451,500
NEXTLINK Communications, Inc.
(Class A)* ................................... 56,000 1,435,000
Tel-Save Holdings, Inc.* ....................... 102,300 917,508
-----------
15,847,721
-----------
Utilities (0.85%)
Florida Progress Corp. ......................... 23,600 989,725
Montana Power Co. .............................. 23,100 1,000,519
-----------
1,990,244
-----------
Waste Disposal Service & Equip. (0.80%)
Republic Services, Inc. (Class A)* ............. 86,200 1,885,625
-----------
TOTAL COMMON STOCKS
(Cost $225,598,581) (98.29%) 231,395,845
------- -----------
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 (0.86%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 10-30-98, due 11-02-98
(Secured by U.S. Treasury Bond,
7.125%, due 02-15-23 and
U.S. Treasury Notes, 6.25%,
due 01-31-02 thru 02-28-02)
-- Note A ........................ 5.38% $2,025 $2,025,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.35% ......................... 1,022
------------
TOTAL SHORT-TERM INVESTMENTS (0.86%) 2,026,022
------- ------------
TOTAL INVESTMENTS (99.15%) 233,421,867
------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.85%) 2,004,844
------- ------------
TOTAL NET ASSETS (100.00%) $235,426,711
======= ============
* 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.
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Special Opportunities Fund invests primarily in common stocks of U.S. and
foreign issuers. The performance of the Fund is closely tied to the economic and
financial conditions within the countries in which it invests. The concentration
of investments by industry category for individual securities held by the Fund
is shown in the schedule of investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentages of the Fund's investments at
October 31, 1998 assigned to country categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ---------------
Bermuda ..................................................... 2.48%
Canada ...................................................... 0.74
Ireland ..................................................... 1.30
United Kingdom .............................................. 0.35
United States ............................................... 94.28
-----
TOTAL INVESTMENTS ............................... 99.15%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Special Opportunities Fund
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.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The Trustees
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."
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 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, at October 31, 1998, the Fund has $8,860,270 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, 1999 -- $1,297,087, October 31, 2000 -- $12,856,
October 31, 2001 -- $3,094,744 and October 31, 2002 -- $4,455,583. Availability
of a certain amount of loss carryforwards which were acquired on December 16,
1994 and September 6, 1996 in mergers, 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
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Special Opportunities Fund
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 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 size 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 year ended October 31, 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 PM, 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 counter-
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Special Opportunities Fund
parties 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 October 31, 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 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 October 31, 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 October 31, 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 year ended October
31, 1998, net sales charges received with regard to sales of Class A shares
amounted to $193,713. Out of this amount, $30,378 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $70,275
was paid as sales commissions to unrelated broker-dealers and $93,060 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.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Special Opportunities Fund
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 year ended October 31, 1998,
contingent deferred sales charges paid to JH Funds amounted to $540,367.
Class C shares which are redeemed within one year of purchase will be subject
to a contingent deferred sales charge ("CDSC") at a rate of 1.00% 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 C
shares. For the year ended October 31, 1998, there were no contingent deferred
sales charges.
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, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not exceed 0.30%
of Class A average daily net assets and 1.00% of Class B and Class C average
daily net assets to reimburse JH Funds for its distribution and service costs.
Up to a maximum of 0.25% of such payments may be service fees as defined by the
amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the year 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 directors 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 October 31, 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 year
ended October 31, 1998, aggregated $487,559,816 and $573,767,912, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1998.
The cost of investments owned at October 31, 1998 (excluding the corporate
savings account) for federal income tax purposes was $230,243,107. Gross
unrealized appreciation and depreciation of investments aggregated $29,532,267
and $26,354,529, respectively, resulting in net unrealized appreciation of
$3,177,738.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1998, the Fund has reclassified amounts to
reflect an increase in accumulated net realized loss on
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Special Opportunities Fund
investments sold of $14,002,928, a decrease in accumulated net investment loss
of $3,736,251 and an increase in capital paid-in of $10,266,677. This represents
the amount necessary to report these balances on a tax basis, excluding certain
temporary differences, as of October 31, 1998. Additional adjustments may be
needed in subsequent reporting periods. These reclassifications, which have no
impact on the net asset value of the Fund, are primarily attributable to the
treatment of net operating losses and utilized capital loss carryforwards in the
computation of distributable income and capital gains under federal tax rules
versus generally accepted accounting principles, and the Fund's use of the tax
accounting practice know as equalization. The calculation of net investment loss
per share in the financial highlights excludes these adjustments.
19
<PAGE>
================================================================================
John Hancock Funds - Special Opportunities Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Special Opportunities Fund
and the Trustees of John Hancock Investment Trust III
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Special Opportunities
Fund (the "Fund") (a series of John Hancock Investment Trust III)at October 31,
1998, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1998.
The Fund has designated distributions to shareholders of $29,946,760 as
capital gain dividends.
With respect to the distributions paid by the Fund for the fiscal year ended
October 31, 1998, 14.46% of the distributions qualify for the corporate
dividends received deduction.
Shareholders will be mailed a 1998 U.S. Treasury Department Form 1099-DIV in
January 1999. This will reflect the total of all distributions that are taxable
for calendar year 1998.
20
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Special Opportunities Fund
21
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Special Opportunities Fund
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Special Opportunities 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
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 3900A 10/98
12/98
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm." A recycled logo in lower left hand corner
with caption "Printed on Recycled Paper."]
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Growth
Fund
OCTOBER 31, 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
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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Investors have been understandably shaken by these dramatic twists and
turns, but we are pleased to report that most individual investors did not
panic, and we hope that means they've taken our words to heart. Over the long
term, markets do not move up or down in a straight line. That's why after
watching the market charge ahead almost uninterrupted for so many years, we have
been striking a more cautionary stance in this space over the last several
months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. 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.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
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
Fund gains ground despite challenges of volatile world markets
Extreme volatility in global financial markets has been the rule rather than the
exception since our last annual report. Financial and political instability
raged on in many developing nations. Japan's banking woes continued and
investors remained concerned about the impact Asia's ills might have on the U.S.
economy and corporate profitability. This past summer, other significant
developments included Russia's currency crisis and China's emerging fiscal
challenges.
During the period, the broad U.S. stock market repeatedly hit record
highs, with the rally peaking in mid-July. Shortly thereafter, however, it
suffered a severe setback, dropping close to 20% from its July peak before
rebounding to end October down by 7% from the peak. An ongoing global flight to
quality caused the bellwether 30-year U.S. Treasury bond to rally impressively
throughout the period.
Like most stocks and mutual funds, John Hancock Growth Fund did not escape
the widespread turbulence unscathed. However, through keen stock selection, a
timely restructuring and a disciplined investment approach, the Fund closed
fiscal 1998 on an upbeat note, posting total returns of 9.80% and 9.04% for
Class A and Class B shares, respectively, at net asset value. This return
compares with the 9.61% total return realized by the average growth fund,
according to Lipper Analytical Services, Inc.1 The Fund's Class C shares, which
commenced operations June 1, 1998, returned -0.28% from inception through
October 31, 1998. Keep in mind that your net asset value return will be
different from the Fund's performance if you were not invested in the Fund for
the entire period
"Extreme volatility in global financial markets has been the rule..."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock Growth Fund.
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
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Common Stock Holdings." The
first listing is IBM 5.0%, the second is Warner-Lambert 4.3%, the third Wal-Mart
Stores 4.3%, the fourth MCI WorldCom 4.2% and the fifth Schering-Plough 4.2%. A
note below the table reads "As a percentage of net assets on October 31, 1998."]
- --------------------------------------------------------------------------------
and did not reinvest all distributions. Longer-term performance information can
be found on pages six and seven.
A more streamlined portfolio
As the fiscal year progressed, we made substantial changes in the Fund's
portfolio. We weeded out holdings that were no longer performing in line with
our expectations, such as several semiconductor companies, and we sold a good
number of issues that had experienced a solid run-up in price. For the most
part, the majority of the holdings that we sold were cyclical, energy,
industrial and financial companies. The timing of our scaleback proved
advantageous, as many holdings were sold during the summer stock market rally.
Thus, the Fund was able to avoid the worst of August's dramatic downturn. Some
notable holdings from which the Fund realized considerable profit upon sale
included Coca-Cola, Gillette, Mellon Bank, Chase Manhattan Corp., Banc One
Corp., First Data Corp., Schlumberger, Halliburton, Interpublic Group and
America Online.
As a result of the consolidation process, the Fund's portfolio now
includes a more manageable number of stocks across a variety of industries. Most
of our holdings are large-company positions. In fact, the average market
capitalization (the total value of a firm's outstanding shares) of the Fund's
portfolio has risen to approximately $23 billion, up from $13 billion.
Earnings growth, consistency, resiliency
When trimming back the Fund's portfolio and selecting new holdings, we took a
bottom-up approach. This means we evaluated portfolio candidates on a
stock-by-stock basis, looking at such fundamentals as a company's ability to
consistently grow its earnings and maintain solid cash flows. A differentiated
product or service, sound management teams and resilience in the face of
changing economic conditions are other critical criteria. We favor growing
companies at attractive valuations, an investment strategy known as GAARP --
growth at a reasonable price. By being disciplined in our investment process, we
believe we can provide the Fund with the ability to meet the challenges of any
market environment head on.
Three themes emerge
While we are true bottom-up stock pickers, at times themes emerge from our
selection process. Such was the case during the past fiscal year. As we sold
holdings from the portfolio, we redeployed assets into three key sectors of the
market that we believe offer significant long-term growth potential and a degree
of insulation from the world's widespread financial crisis: technology, health
care and retail.
"The timing of our scaleback proved advantageous..."
- --------------------------------------------------------------------------------
[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 EMC Corp.
followed by an up arrow with the phrase "Surge in demand for data storage; Y2K
player." The second listing is Schering-Plough followed by an up arrow with the
phrase "Strong product line, dominant market share." The third listing is
Williams Cos., Inc. followed by a sideways arrow with the phrase "Challenging
energy environment." 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 heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 2% with -2% at the bottom and 10% at the top. The first
bar represents the 9.80% total return for John Hancock Growth Fund Class A. The
second bar represents the 9.04% total return for John Hancock Growth Fund Class
B. The third bar represents the -0.28%* total return for John Hancock Growth
Fund Clas C and the fourth bar represents the 9.61% total return for 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. See the following two
pages for historical performance information. * From inception June 1, 1998 to
October 31, 1998."]
- --------------------------------------------------------------------------------
The global dominance of U.S. technology companies and the world's
insatiable appetite for technological innovation continue to make the technology
industry a highly attractive sector in which to invest -- despite sometimes
unsettling bouts of growing pains. Companies such as Cisco Systems, Microsoft
and EMC Corp. are in the vanguard of the computer services and software
industries. Also falling under the wide umbrella are many fast-growing media and
telecommunication companies, MCI WorldCom being just one holding worth
mentioning.
In the health-care arena, large pharmaceutical companies such as
Schering-Plough, Warner-Lambert, Merck, Johnson & Johnson and Abbott
Laboratories are benefiting from new, breakthrough products, an improved FDA
approval cycle and changing demographics.
On the retail front, record low unemployment, rising household incomes and
a healthy U.S. economy have served to make consumers much more confident in
their spending habits. Companies such as Rite Aid, Walgreen, Costco, and
Wal-Mart are not only benefiting from a favorable U.S. backdrop, but they are
also benefiting from the Asian Flu. The cost of the goods they sell has fallen
dramatically as imports have become much cheaper. Additionally, because they are
domestically oriented, value-focused companies, they are not subject to
fluctuating currencies and can be considered somewhat recession resistant.
Outlook
Despite the market's recent jolt, the backdrop for investing in U.S. equities
remains favorable. Inflation is dormant. Employment is strong. And the Federal
Reserve Board seems to have initiated a policy of monetary easing that we
believe may well continue into 1999. This, in turn, serves to inject liquidity
into the market, helps lower borrowing costs and sets the stage for a more
profitable environment in which to conduct business. Having said that, it should
be noted that it will take time for the world's markets and economies to solve
many of today's pressing issues. By staying focused in our stock and industry
selections and by targeting only those companies with rising earnings and
revenue streams, we believe we can position the Fund's portfolio to weather the
challenges that may lie ahead.
"...targeting only those companies with rising earnings and revenue streams..."
- --------------------------------------------------------------------------------
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). Class C performance
includes a contingent deferred sales charge (1% declining to 0% after one year).
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 September 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (5.00%) 64.91% 234.41%
Average Annual Total Returns (5.00%) 10.52% 12.83%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns (4.78%) 65.74%
Average Annual Total Returns (4.78%) 11.25%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
INCEPTION
(6/1/98)
--------
Cumulative Total Return (5.67%)
Average Annual Total Return (5.67%)(1)
Notes to Performance
(1) Not annualized.
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 commonly
used to measure stock market performance. Past performance is not indicative of
future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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 Standard & Poor's 500
Stock Index and is equal to $51,737 as of October 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Growth Fund on October 31, 1988, before sales charge, and is equal to
$36,476 as of October 31, 1998. The third line represents the value of the same
hypothetical investment made in the John Hancock Growth Fund, after sales
charge, and is equal to $34,662 as of October 31, 1998.
Line chart with the heading John Hancock 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 Standard & Poor's 500
Stock Index and is equal to $26,192 as of October 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Growth Fund on January 3, 1994, before sales charge, and is equal to
$17,563 as of October 31, 1998. The third line represents the value of the same
hypothetical investment made in the John Hancock Growth Fund, after sales
charge, and is equal to $17,363 as of October 31, 1998.
Line chart with the heading John Hancock Growth Fund Class C, 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 Standard & Poor's 500
Stock Index and is equal to $10,134 as of October 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock Growth Fund on June 1, 1998, before sales charge, and is equal to $9,972
as of October 31, 1998. The third line represents the value of the same
hypothetical investment made in the John Hancock Growth Fund, after sales
charge, and is equal to $9,872 as of October 31, 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 October 31, 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
October 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $462,519,771) ..................... $583,335,259
Joint repurchase agreement (cost - $12,312,000) ......... 12,312,000
Corporate savings account ............................... 5,802
-------------
595,653,061
Receivable for investments sold .......................... 16,882,521
Receivable for shares sold ............................... 32,642
Dividends receivable ..................................... 353,093
Interest receivable ...................................... 3,700
Other assets ............................................. 36,366
-------------
Total Assets ............................... 612,961,383
---------------------------------------------------------------
Liabilities:
Payable for shares repurchased ........................... 109,009
Payable for investments purchased ........................ 13,037,150
Payable to John Hancock Advisers, Inc. ...................
and affiliates - Note B ................................. 550,298
Accounts payable and accrued expenses .................... 74,119
-------------
Total Liabilities .......................... 13,770,576
---------------------------------------------------------------
Net Assets:
Capital paid-in .......................................... 404,741,601
Accumulated net realized gain on investments ............. 73,650,266
Net unrealized appreciation of investments ............... 120,818,270
Accumulated net investment loss .......................... (19,330)
-------------
Net Assets ................................. $599,190,807
===============================================================
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 - $381,590,550/17,135,682 ........................ $22.27
=============================================================================
Class B - $217,448,088/10,172,830 ........................ $21.38
=============================================================================
Class C* - $152,169/7,122 ................................ $21.37
=============================================================================
Maximum Offering Price Per Share**
Class A - ( $22.27 x 105.26%) ............................ $23.44
=============================================================================
* Class C shares commenced operations on June 1, 1998.
** 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
Year ended October 31, 1998
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $12,305) .. $4,173,719
Interest ................................................. 1,198,053
-------------
5,371,772
-------------
Expenses:
Investment management fee - Note B ...................... 4,442,408
Distribution and service fee - Note B
Class A ................................................ 1,150,765
Class B ................................................ 2,030,009
Class C ................................................ 890
Transfer agent fee - Note B ............................. 1,580,024
Custodian fee ........................................... 134,069
Financial services fee - Note B ......................... 97,772
Registration and filing fees ............................ 85,076
Auditing fee ............................................ 55,998
Printing ................................................ 43,789
Trustees' fees .......................................... 31,219
Miscellaneous ........................................... 17,480
Interest expense - Note A ............................... 13,216
Legal fees .............................................. 802
-------------
Total Expenses ............................. 9,683,517
---------------------------------------------------------------
Net Investment Loss ........................ (4,311,745)
---------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold .................... 91,144,971
Change in net unrealized appreciation/depreciation
of investments .......................................... (38,147,156)
-------------
Net Realized and Unrealized
Gain on Investments ........................ 52,997,815
---------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .................. $48,686,070
===============================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ................................................ ($1,868,110) ($4,311,745)
Net realized gain on investments sold .............................. 70,849,140 91,144,971
Change in net unrealized appreciation/depreciation of investments .. (21,033,620) (38,147,156)
------------- -------------
Net Increase in Net Assets Resulting from Operations ............. 47,947,410 48,686,070
------------- -------------
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:* ................................. 16,367,439 270,160,343
------------- -------------
Net Assets:
Beginning of period ................................................ 304,899,020 339,497,785
------------- -------------
End of period (including accumulated net investment
loss of $12,639 and $19,330, respectively) ....................... $339,497,785 $599,190,807
============= =============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------
1997 1998
--------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ...................................... 5,919,970 $132,758,761 6,396,870 $142,420,669
Shares issued in reorganization - Note D ......... -- -- 3,892,361 81,397,839
Shares reinvested ................................ 1,190,442 25,034,980 2,338,784 48,248,711
------------- ------------- ------------- -------------
7,110,412 157,793,741 12,628,015 272,067,219
Less shares repurchased .......................... (6,681,624) (150,827,840) (7,925,886) (175,825,692)
------------- ------------- ------------- -------------
Net increase ..................................... 428,788 $6,965,901 4,702,129 $96,241,527
============= ============= ============= =============
CLASS B
Shares sold ...................................... 729,300 $16,342,742 2,092,555 $44,843,569
Shares issued in reorganization - Note D ......... -- -- 9,479,759 191,455,100
Shares reinvested ................................ 124,391 2,559,110 307,784 6,131,792
------------- ------------- ------------- -------------
853,691 18,901,852 11,880,098 242,430,461
Less shares repurchased .......................... (431,864) (9,500,314) (3,244,695) (68,713,094)
------------- ------------- ------------- -------------
Net increase ..................................... 421,827 $9,401,538 8,635,403 $173,717,367
============= ============= ============= =============
CLASS C **
Shares sold ...................................... -- -- 20,303 $456,292
Less shares repurchased .......................... -- -- (13,181) (254,843)
------------- ------------- ------------- -------------
Net increase ..................................... -- -- 7,122 $201,449
============= ============= ============= =============
</TABLE>
** Class C shares commenced operations on June 1, 1998.
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>
PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, 1996 TO YEAR ENDED OCTOBER 31,
-------------------------------- OCTOBER 31, ----------------------
1993 1994 1995 1996(7) 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ........... $17.32 $17.40 $15.89 $19.51 $23.28 $24.37
-------- -------- -------- -------- -------- --------
Net Investment Loss ............................ (0.11) (0.10) (0.09)(1) (0.13)(1) (0.12)(1) (0.11)(1)
Net Realized and Unrealized Gain (Loss) on
Investments ................................. 2.33 (1.21) 4.40 3.90 3.49 2.17
-------- -------- -------- -------- -------- --------
Total from Investment Operations .......... 2.22 (1.31) 4.31 3.77 3.37 2.06
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold .......................... (2.14) (0.20) (0.69) -- (2.28) (4.16)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ................. $17.40 $15.89 $19.51 $23.28 $24.37 $22.27
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) .. 13.03% (7.50%) 27.17% 19.32%(5) 16.05% 9.80%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....... $162,937 $146,466 $241,700 $279,425 $303,067 $381,591
Ratio of Expenses to Average Net Assets ........ 1.56% 1.65% 1.48% 1.48%(6) 1.44% 1.40%
Ratio of Net Investment Loss to Average Net
Assets ...................................... (0.67%) (0.64%) (0.46%) (0.73%)(6) (0.51%) (0.50%)
Portfolio Turnover Rate ........................ 68% 52% 68%(3) 59% 133% 153%(3)
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM YEAR ENDED OCTOBER 31,
------------------------- JANUARY 1, 1996 TO -----------------------
1994(4) 1995 OCTOBER 31, 1996(7) 1997 1998
--------- --------- ------------------- --------- ---------
<S> <C> <C> <C> <C> <C>
CLASS B
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) (0.25)
Net Realized and Unrealized Gain (Loss)
on Investments ............................... (0.93) 4.37 3.84 3.42 2.09
--------- --------- --------- --------- ---------
Total from Investment Operations ........... (1.13) 4.11 3.58 3.15 1.84
--------- --------- --------- --------- ---------
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 $21.38
========= ========= ========= ========= =========
Total Investment Return at Net Asset Value(2) ... (6.56%)(5) 26.01% 18.60%(5) 15.33% 9.04%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ........ $3,807 $15,913 $25,474 $36,430 $217,448
Ratio of Expenses to Average Net Assets ......... 2.38%(6) 2.31% 2.18%(6) 2.13% 2.08%
Ratio of Net Investment Loss to Average
Net Assets ................................... (1.25%)(6) (1.39%) (1.42%)(6) (1.20%) (1.16%)
Portfolio Turnover Rate ......................... 52% 68%(3) 59% 133% 153%(3)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD FROM
JUNE 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1998
----------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $21.43
-------
Net Investment Loss(1) ...................................... (0.10)
Net Realized and Unrealized Gain on Investments ............. 0.04
-------
Total from Investment Operations ........................... (0.06)
-------
Net Asset Value, End of Period .............................. $21.37
=======
Total Investment Return at Net Asset Value(2) ............... (0.28%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $152
Ratio of Expenses to Average Net Assets ..................... 2.10%(6)
Ratio of Net Investment Loss to Average Net Assets .......... (1.14%)(6)
Portfolio Turnover Rate ..................................... 153%(3)
(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) Portfolio turnover rate excludes merger activity.
(4) Class B shares commenced operations on January 3, 1994.
(5) Not annualized.
(6) Annualized.
(7) 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),
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 - Growth Fund
Schedule of Investments
October 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Growth Fund on October 31, 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 (0.62%)
Outdoor Systems, Inc.* ....................... 168,750 $3,723,047
------------
Aerospace (0.97%)
Raytheon Co. (Class B) ....................... 100,000 5,806,250
------------
Business Services (4.20%)
Automatic Data Processing, Inc. .............. 200,000 15,562,500
Paychex, Inc. ................................ 192,500 9,576,875
------------
25,139,375
------------
Computers (22.68%)
Cisco Systems, Inc.* ......................... 200,000 12,600,000
Compaq Computer Corp. ........................ 735,000 23,244,375
EMC Corp.* ................................... 300,000 19,312,500
International Business Machines Corp. ........ 200,000 29,687,500
Microsoft Corp.* ............................. 200,000 21,175,000
Novell, Inc.* ................................ 400,000 5,950,000
Unisys Corp.* ................................ 900,000 23,962,500
------------
135,931,875
------------
Diversified Operations (2.64%)
Tyco International, Ltd. ..................... 255,000 15,794,063
------------
Electronics (3.36%)
General Electric Co. ......................... 230,000 20,125,000
------------
Food (1.08%)
Flowers Industries, Inc. ..................... 314,300 6,443,150
------------
Media (1.63%)
Clear Channel Communications, Inc.* .......... 215,000 9,795,937
------------
Medical (21.34%)
Abbott Laboratories .......................... 525,000 24,642,187
Johnson & Johnson ............................ 300,000 24,450,000
Merck & Co., Inc. ............................ 185,000 25,021,250
Pfizer, Inc. ................................. 25,000 2,682,812
Schering-Plough Corp. ........................ 245,000 25,204,375
Warner-Lambert Co. ........................... 330,000 25,863,750
------------
127,864,374
------------
Mortgage Banking (4.94%)
Fannie Mae ................................... 300,000 21,243,750
Freddie Mac .................................. 145,000 8,337,500
------------
29,581,250
------------
Office (0.83%)
Pitney Bowes, Inc. ........................... 90,000 4,955,625
------------
Oil & Gas (2.04%)
Apache Corp. ................................. 100,000 2,831,250
Burlington Resources, Inc. ................... 100,000 4,118,750
Enron Corp. .................................. 100,000 5,275,000
------------
12,225,000
------------
Retail (21.73%)
Albertson's, Inc. ............................ 350,000 19,446,875
Costco Cos., Inc.* ........................... 200,000 11,350,000
Dayton Hudson Corp. .......................... 150,000 6,356,250
Home Depot, Inc. (The) ....................... 460,000 20,010,000
Kroger Co.* .................................. 345,000 19,147,500
Rite Aid Corp. ............................... 475,000 18,851,562
Walgreen Co. ................................. 195,000 9,494,063
Wal-Mart Stores, Inc. ........................ 370,000 25,530,000
------------
130,186,250
------------
Soap & Cleaning Preparations (2.95%)
Colgate-Palmolive Co. ........................ 200,000 17,675,000
------------
Telecommunications (6.24%)
Century Telephone Enterprises, Inc. .......... 90,000 5,113,125
MCI WorldCom, Inc.* ......................... 460,000 25,415,000
Tellabs, Inc.* ............................... 125,000 6,875,000
------------
37,403,125
------------
Utilities (0.11%)
Williams Cos., Inc. (The) .................... 25,000 685,938
------------
TOTAL COMMON STOCKS
(Cost $462,519,771) (97.36%) 583,335,259
------- ------------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.05%)
Investment in a joint repurchase
agreement transaction with
HSBCSecurites, Inc. -
Dated 10-30-98, due 11-02-98
(Secured by U.S. Treasury Bond,
7.125%, due 02-15-23, and U.S.
Treasury Notes, 6.25%, due
01-31-02 thru 02-28-02)
-- Note A......................... 5.38% $12,312 $12,312,000
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.35% ................... 5,802
------------
TOTAL SHORT-TERM INVESTMENTS (2.05%) 12,317,802
-------- ------------
TOTAL INVESTMENTS (99.41%) 595,653,061
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.59%) 3,537,746
-------- ------------
TOTAL NET ASSETS (100.00%) $599,190,807
======== ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth Fund
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, Class B and Class C shares. The Trustees
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.
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 for both financial
reporting and federal income tax purposes.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. 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 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
14
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth Fund
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
maximum loan balance outstanding during the year amounted to $22,718,000. The
interest rate was in the range of 5.81% thru 5.88%. At October 31, 1998, there
were no outstanding borrowings.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of: (a) 0.75% of the first $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.
Prior to December 6, 1997, the Fund paid a monthly management fee to the
Adviser for a continuous investment program equivalent, on an annual basis, to
the sum of (a) 0.80% of the first $250,000,000 of the Fund's average daily net
asset value, (b) 0.75% of the next $250,000,000 and (c) 0.70% of the Fund's
average daily net asset value in excess of $500,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended October
31, 1998, net sales charges received with regard to sales of Class A shares
amounted to $464,798. Out of this amount, $75,201 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$180,793 was paid as sales commissions to unrelated broker-dealers and $208,804
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 year ended October 31, 1998,
contingent deferred sales charges amounted to $449,303.
Class C shares which are redeemed within one year of purchase will be
subject to a contingent deferred sales charge ("CDSC") at a rate of 1.00% 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 C shares. For the year ended October 31, 1998, there were no contingent
deferred sales charges.
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, Class B and Class C 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 and Class C
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.
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth Fund
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 year 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 directors 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 October 31, 1998, the Fund's investments to cover the
deferred compensation liability 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 year
ended October 31, 1998, aggregated $854,339,358 and $919,722,162, respectively.
The cost of investments owned at October 31, 1998 (excluding the corporate
savings account) for federal income tax purposes was $474,940,834. Gross
unrealized appreciation and depreciation of investments aggregated $123,655,256
and $2,948,831, respectively, resulting in net unrealized appreciation of
$120,706,425.
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.
NOTE E -
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments sold of
$16,236,077, a decrease in accumulated net investment loss of $4,305,054 and an
increase in capital paid-in of $11,931,023. This represents the amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1998. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to the treatment of
net operating losses in the computation of distributable income and capital
gains under federal tax rules versus generally accepted accounting principles,
and the Fund's use of the tax accounting practice known as equalization. The
calculation of net investment loss per share in the financial highlights
excludes these adjustments.
16
<PAGE>
================================================================================
John Hancock Funds - Growth Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Investment Trust III --
John Hancock Growth Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Growth Fund (the "Fund"), a
series of John Hancock Investment Trust III, as of October 31, 1998, and the
related statement of operations for the year then ended, the statement of
changes in net assets, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1998, by correspondence with the custodian and brokers, or other
appropriate auditing procedures where replies from brokers were not recieved. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
John Hancock Growth Fund, a series of John Hancock Investment Trust III, at
October 31, 1998, the results of its operations for the year then ended, the
changes in its net assets, and the financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
Boston, Massachusetts
December 10, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1998.
The Fund has designated distributions to shareholders of $74,151,426 as
capital gain dividends.
With respect to the distributions paid by the Fund for the fiscal year
ended October 31, 1998, none of the distributions qualify for the corporate
dividends received deduction.
Shareholders will be mailed a 1998 U.S. Treasury Department Form 1099-DIV
in January 1999. This will reflect the total of all distributions that are
taxable for the calendar year 1998.
17
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Growth Fund
18
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Growth Fund
19
<PAGE>
================================================================================
----------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds ----------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Growth Fund. It may be used as sales literature when preceded or accompanied by
the current prospectus, which details charges, investment objectives and
operating policies.
[Recycle Logo] Printed on Recycled Paper 2000A 10/98
12/98
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm." A recycled logo in lower left hand corner
with caption "Printed on Recycled Paper."]
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
International
Fund
OCTOBER 31, 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
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
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground, and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Investors have been understandably shaken by these dramatic twists and
turns, but we are pleased to report that most individual investors did not
panic, and we hope that means they've taken our words to heart. Over the long
term, markets do not move up or down in a straight line. That's why after
watching the market charge ahead almost uninterrupted for so many years, we have
been striking a more cautionary stance in this space over the last several
months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. 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.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
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
Economic turmoil slams Latin America, Asia; curtails Europe advance
The last 12 months were a nerve-wracking year for international investors, as
spreading currency troubles and economic slowdowns kept overseas financial
markets in turmoil. Among the hardest hit were countries in Asia, where currency
devaluations and their aftermath have plagued the region. For yet another year,
Japan's paltry attempts to revive its economy failed and the country wound up in
recession, further dimming prospects for the entire region's recovery. As these
currency and economic fears worked their way through emerging-market countries,
Latin American stocks also took it on the chin. Brazil in particular suffered
when government steps to shore up the currency by raising interest rates brought
the previously robust economy to a virtual standstill.
Market volatility reached a crescendo in August when political uncertainty
and economic chaos in Russia erupted following a debt default and the ruble's
devaluation. This catalyst sent investors worldwide fleeing from any security
with risk in late summer, causing stock markets around the world to correct
sharply.
Even Europe, which had made great strides in the first half of the fiscal
year, gave back almost all of its gains in the tumult. In the last several weeks
of the fiscal year, however, European markets reversed course again, bolstered
by U.S. interest rate cuts and a tempering of global investor uncertainty. With
this last-minute surge, Europe wound up producing strong results for the fiscal
year, and offset declines in other parts of the world.
"Market volatility reached a crescendo in August..."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock International
Fund. Caption below reads "Fund management team members (l-r): "Gerardo
Espinoza, Miren Etcheverry and John Wills."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - International Fund
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into five sections (from top to left): Short-Term Investments &
Other 2%, Canada 3%, Pacific Rimm 11%, U.K. & Ireland 22% and Continental Europe
62 %. A note below the chart reads "As a percentage of net assets on October 31,
1998."]
- --------------------------------------------------------------------------------
Growing Europe stake boosts performance
For the year ended October 31, 1998, the Morgan Stanley Capital International
(MSCI) All Country World Free Index ex-U.S. returned 4.88%. In the same period,
John Hancock International Fund's Class A and Class B shares posted a total
return of 5.61% and 4.88%, respectively, at net asset value. Class C shares,
which were introduced June 1, 1998, returned -8.65% from inception to October
31, 1998. The Fund's annual performance outpaced the 4.07% return of the average
international fund, according to Lipper Analytical Services, Inc.1 Keep in mind
that your net asset value return will be different from the Fund's performance
if you were not invested in the Fund for the entire period and did not reinvest
all distributions. Historical performance information can be found on pages six
and seven.
Throughout the year, we continued to boost our stake in Europe, from 51%
of net assets at the start of the year to 84% by the end. That was the biggest
contributor to the Fund's outperformance.
France, Ireland strong; U.K. weak
Our 17% stake in France served the Fund well due to French companies' growing
emphasis on corporate restructuring and consolidations. There was also solid
growth among companies with a more domestic focus, such as food company Danone.
France Telecom's stock rose on news of its privatization, and software developer
Cap Gemini benefited from its programs aimed at dealing with conversion issues
for both the year 2000 and the new euro currency. Indeed, the favorable
environment around the imminent European Monetary Union (EMU) was a plus for
both France and a number of the other 10 countries set to unite in a common
currency. Allied Irish Banks was our top contributor to performance, given its
strong management and lack of exposure to emerging markets. The bank is also
benefiting from the Irish economy's solid growth and prospects of further
interest rate reductions as part of the process of EMU unification.
With its economy at the tail end of an expansion, and its non-EMU status
keeping it out of the limelight, the U.K.'s returns, while positive, were more
modest than the rest of Europe's. After being underweighted earlier in the year,
we brought our stake up to a more neutral weighting at 19%, believing that the
market had hit bottom and that there was good value. However, several of our
holdings detracted somewhat from performance, including usually stalwart bank
Lloyds TSB Group. It was particularly punished in the late summer by the
weakened U.K. economy and its Latin American
"Throughout the year, we continued to boost our stake in Europe..."
- --------------------------------------------------------------------------------
[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 France
Telecom followed by an up arrow with the phrase "Positive reaction to
privatization." The second listing is Nestle followed by an up arrow with the
phrase "Defensive market sector, restructuring boost stock." The third listing
is Lloyds TSB Group followed by a down arrow with the phrase "Weakened U.K.
economy; overseas exposure." 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 heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 5% with -10% at the bottom and 10% at the top. The first
bar represents the 5.61% Total return for John Hancock International Fund Class
A. The second bar represents the 4.88% total return for John Hancock
International Fund Class B. The third bar represents the -8.65%* total return
for John Hancock International Fund Class C and the fourth bar represents the
4.07% total return for 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 global fund is tracked by Lipper
Analytical Services, Inc. See the following two pages for historical performance
information. * From inception June 1, 1998 to October 31, 1998."]
- --------------------------------------------------------------------------------
exposure. Advertising conglomerate WPP Group's earnings were impacted by the
strength of the British pound, since 80% of its revenues come from outside the
U.K., and by its activities in emerging markets.
Asia, emerging world
During the period, we became even more conservative in our approach to Asia and
the emerging markets worldwide. By the end of October, our Asian holdings were
primarily in Japan, where we remain underweighted at 8% because of its weak
economy and structural problems. We also kept a 3% stake in Australia and
marginal exposure to Singapore. Because of the uncertainties surrounding
emerging markets in general, we effectively got out of Latin America.
Going forward
Our sights remain on continental Europe. We believe it holds some of the best
opportunities going forward, with its new attention to corporate restructurings
and consolidation -- a process enhanced by the EMU's more open policies. What's
more, Europe does not suffer from the high valuation levels of many U.S.
companies or have Asia's severe structural problems. That said, European
corporate earnings in 1999 could be vulnerable to a prolonged recession in Japan
and a sharp slowdown in demand from U.S. consumers. We therefore are avoiding
companies that appear susceptible to earnings downgrades, preferring instead
those with visible earnings growth trends, especially European companies with
pockets of domestic demand.
We are carefully monitoring Japan's efforts to strengthen its banking
system and stimulate the economy. Our future stand on Japan depends on
developments in these two areas, and it is our view that the job of repairing
the banking system and restoring consumer confidence is likely to take time.
For now, overseas markets could remain volatile while investors sort out
if, and how, world leaders are confronting the task of preventing a global
recession. Until there are clearer signs of action, and as long as the sentiment
remains uncertain about the stability of emerging markets in general, we will
keep our posture defensive.
"...we will keep our posture defensive."
- --------------------------------------------------------------------------------
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). Class C performance
includes a contingent deferred sales charge (1% declining to 0% after one year).
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 September 30, 1998
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns (19.98%) (7.52%)
Average Annual Total Returns(1) (19.98%) (1.64%)
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns (20.59%) (7.77%)
Average Annual Total Returns(1) (20.59%) (1.69%)
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
INCEPTION
(6/1/98)
--------
Cumulative Total Return(1) (16.65%)
Average Annual Total Return(2) (16.65%)
Notes to Performance
(1) Effective January 3, 1994, the Adviser has temporarily voluntarily
undertaken to limit the Fund's expenses, including the management fee (but
not including the transfer agent fee and 12b-1 fee) to 0.90% of the Fund's
daily net asset value. Without the limitations of expenses, the average
annual total return for the one-year period and since inception would have
been (21.83%) and (3.67%) for Class A shares, (22.44%) and (3.72%) for
Class B shares. The cumulative total return since inception would have
been (17.29%) for Class C shares.
(2) Not annualized.
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. The index represents those securities that are
traded freely on equity exchanges around the world. Past performance is not
indicative of future results.
Line chart with the heading John Hancock 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 MSCI
All Country World-Ex U.S. Free Index and is equal to $17,946 as of October 31,
1998. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock International Fund on January 3, 1994,
before sales charge, and is equal to $10,565 as of October 31, 1998. The third
line represents the value of the same hypothetical investment made in the John
Hancock International Fund, after sales charge, and is equal to $10,034 as of
October 31, 1998.
Line chart with the heading John Hancock 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 MSCI
All Country World-Ex U.S. Free Index and is equal to $17,946 as of October 31,
1998. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock International Fund on January 3, 1994,
before sales charge, and is equal to $10,209 as of October 31, 1998. The third
line represents the value of the same hypothetical investment made in the John
Hancock International Fund, after sales charge, and is equal to $10,009 as of
October 31, 1998.
Line chart with the heading John Hancock International Fund Class C,
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 MSCI
All Country World-Ex U.S. Free Index and is equal to $9,747 as of October 31,
1998. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock International Fund on June 1, 1998, before
sales charge, and is equal to $9,135 as of October 31, 1998. The third line
represents the value of the same hypothetical investment made in the John
Hancock International Fund, after sales charge, and is equal to $9,043 as of
October 31, 1998.
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Statement of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and warrant (cost - $15,117,567) ............. $15,473,433
Preferred stocks (cost - $38,836) .......................... 45,871
Short-term investments (cost - $1,263,514) - Note A ........ 1,263,514
------------
16,782,818
Cash ........................................................ 856
Foreign currency, at value (cost - $37,317) ................. 37,241
Receivable for investments sold ............................. 14,356
Receivable for forward foreign currency exchange
contracts purchased - Note A .............................. 149
Receivable for forward foreign currency exchange
contracts sold - Note A ................................... 10
Receivable for shares sold .................................. 426
Dividends receivable ........................................ 15,823
Foreign tax receivable ...................................... 16,130
Interest receivable ......................................... 176
Deferred organization expenses - Note A ..................... 4,039
Receivable from John Hancock Advisers, Inc.
and affiliates - Note B ................................... 12,350
Other assets ................................................ 562
------------
Total Assets .................................... 16,884,936
------------------------------------------------------------------
Liabilities:
Payable for investments purchased ........................... 283,181
Payable upon return of securities on loan - Note A .......... 675,514
Accounts payable and accrued expenses ....................... 66,850
------------
Total Liabilities ............................... 1,025,545
------------------------------------------------------------------
Net Assets:
Capital paid-in ............................................. 15,578,367
Accumulated net realized loss on investments and
foreign currency transactions ............................. (942)
Net unrealized appreciation of investments and
foreign currency transactions ............................. 365,008
Accumulated net investment loss ............................. (83,042)
------------
Net Assets ...................................... $15,859,391
==================================================================
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 - $6,116,163/694,310 ................................ $8.81
==============================================================================
Class B - $9,720,018/1,137,151 .............................. $8.55
==============================================================================
Class C** - $23,210/2,716 ................................... $8.55
==============================================================================
Maximum Offering Price Per Share*
Class A - ($8.81 x 105.26%) ................................. $9.27
==============================================================================
* 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.
** Class C shares commenced operations on June 1, 1998.
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 October 31, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Statement of Operations
Year ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $35,531) .............................. $242,622
Interest (including income on securities loaned of $8,980) ........................... 38,959
---------
281,581
---------
Expenses:
Investment management fee - Note B .................................................. 153,986
Distribution and service fee - Note B
Class A ........................................................................... 17,101
Class B ........................................................................... 96,924
Class C ........................................................................... 59
Custodian fee ....................................................................... 137,535
Transfer agent fee - Note B ......................................................... 89,948
Registration and filing fees ........................................................ 57,054
Auditing fee ........................................................................ 37,515
Organization expense - Note A ....................................................... 23,017
Printing ............................................................................ 10,600
Financial services fee - Note B ..................................................... 2,549
Miscellaneous ....................................................................... 2,543
Trustees' fees ...................................................................... 838
Interest expense - Note A ........................................................... 353
Legal fees .......................................................................... 322
---------
Total Expenses ..................................................... 630,344
-------------------------------------------------------------------------------
Less Expense Reductions - Note B ................................... (286,987)
-------------------------------------------------------------------------------
Net Expenses ....................................................... 343,357
-------------------------------------------------------------------------------
Net Investment Loss ................................................ (61,776)
-------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ................................................ 52,228
Net realized loss on foreign currency transactions ................................... (72,363)
Change in net unrealized appreciation/depreciation of investments .................... 520,973
Change in net unrealized appreciation/depreciation of foreign currency transactions .. 2,021
---------
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions .............................................. 502,859
-------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............... $441,083
===============================================================================
</TABLE>
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.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
1997 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ........................................ ($91,694) ($61,776)
Net realized gain (loss) on investments sold and foreign
currency transactions .................................... 608,733 (20,135)
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ............ (1,163,708) 522,994
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from
Operations ............................................. (646,669) 441,083
------------ ------------
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
Class A - (none and $0.0676 per share, respectively) ..... -- (42,230)
Class B - (none and $0.0676 per share, respectively) ..... -- (68,630)
------------ ------------
Total Distributions to Shareholders ...................... (6,338) (110,860)
------------ ------------
From Fund Share Transactions - Net:* .......................... 1,058,453 1,850,363
------------ ------------
Net Assets:
Beginning of period ........................................ 13,273,359 13,678,805
------------ ------------
End of period (including accumulated net investment loss
of $426 and $83,042, respectively) ....................... $13,678,805 $15,859,391
============ ============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1997 1998
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................... 553,881 $5,138,738 1,291,951 $11,453,795
Shares issued to shareholders in reinvestment
of distributions .............................. 674 6,082 5,131 43,600
------------ ------------ ------------ ------------
554,555 5,144,820 1,297,082 11,497,395
Less shares repurchased ......................... (550,545) (5,104,530) (1,193,043) (10,519,106)
------------ ------------ ------------ ------------
Net increase .................................... 4,010 $40,290 104,039 $978,289
============ ============ ============ ============
CLASS B
Shares sold ..................................... 780,756 $6,676,625 1,001,789 $8,906,797
Shares issued to shareholders in reinvestment
of distributions .............................. -- -- 6,391 52,132
------------ ------------ ------------ ------------
780,756 6,676,625 1,008,180 8,958,929
Less shares repurchased ......................... (677,361) (5,658,462) (930,993) (8,113,241)
------------ ------------ ------------ ------------
Net increase .................................... 103,395 $1,018,163 77,187 $845,688
============ ============ ============ ============
CLASS C**
Shares sold ..................................... -- -- 4,321 $40,254
Less shares repurchased ......................... -- -- (1,605) (13,868)
------------ ------------ ------------ ------------
Net increase .................................... -- -- 2,716 $26,386
============ ============ ============ ============
</TABLE>
** Class C shares commenced operations on June 1, 1998.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Financial Highlights
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,
OPERATIONS) TO -----------------------------------------
OCTOBER 31, 1994 1995 1996 1997 1998
---------------- ------ ------ ------ ------
<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) 0.00(1,7)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions ................................... 0.08 (0.47) 0.50 (0.26) 0.47
------ ------ ------ ------ ------
Total from Investment Operations ................................ 0.15 (0.43) 0.56 (0.28) 0.47
------ ------ ------ ------ ------
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 $8.81
====== ====== ====== ====== ======
Total Investment Return at Net Asset Value (2) ................... 1.77%(3) (4.96%) 6.88% (3.22%) 5.61%
Total Adjusted Investment Return at Net Asset Value (2,4) ........ (0.52%)(3) (8.12%) 5.33% (4.52%) 3.75%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ......................... $4,426 $4,215 $5,098 $4,965 $6,116
Ratio of Expenses to Average Net Assets .......................... 1.50%(5) 1.64% 1.75% 1.73%(8) 1.79%(8)
Ratio of Adjusted Expenses to Average Net Assets (6) ............. 3.79%(5) 4.80% 3.30% 3.03%(8) 3.65%(8)
Ratio of Net Investment Income (Loss) to Average Net Assets ...... 1.02%(5) 0.56% 0.68% (0.16%) 0.04%
Ratio of Adjusted Net Investment Loss to Average Net Assets (6) .. (1.27%)(5) (2.60%) (0.87%) (1.46%) (1.82%)
Portfolio Turnover Rate .......................................... 50% 69% 83% 169% 129%
Fee Reduction Per Share (1) ...................................... $0.16 $0.25 $0.14 $0.12 $0.17
</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 of the Fund 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.
11
<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,
OPERATIONS) TO -------------------------------------------
OCTOBER 31, 1994 1995 1996 1997 1998
---------------- ------ ------ ------ ------
<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) (0.06)(1)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions ............... 0.09 (0.48) 0.50 (0.25) 0.46
------ ------ ------ ------ ------
Total from Investment Operations ............................ 0.11 (0.51) 0.50 (0.33) 0.40
------ ------ ------ ------ ------
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 $8.55
====== ====== ====== ====== ======
Total Investment Return at Net Asset Value (2) ............... 1.29%(3) (5.89%) 6.21% (3.86%) 4.88%
Total Adjusted Investment Return at Net Asset
Value (2,4) ................................................ (1.00%)(3) (9.05%) 4.66% (5.16%) 3.02%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $3,948 $3,990 $8,175 $8,713 $9,720
Ratio of Expenses to Average Net Assets ...................... 2.22%(5) 2.52% 2.45% 2.43%(8) 2.49%(8)
Ratio of Adjusted Expenses to Average Net Assets (6) ......... 4.51%(5) 5.68% 4.00% 3.73%(8) 4.35%(8)
Ratio of Net Investment Income (Loss) to Average
Net Assets ................................................. 0.31%(5) (0.37%) 0.02% (0.88%) (0.66%)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (6) ............................................. (1.98%)(5) (3.53%) (1.53%) (2.18%) (2.52%)
Portfolio Turnover Rate ...................................... 50% 69% 83% 169% 129%
Fee Reduction Per Share (1) .................................. $0.16 $0.25 $0.14 $0.12 $0.17
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1998
----------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $9.36
-------
Net Investment Loss (1) ...................................... (0.03)
Net Realized and Unrealized Loss on Investments and
Foreign Currency Transactions ............................... (0.78)
-------
Total from Investment Operations ............................ (0.81)
-------
Net Asset Value, End of Period ............................... $8.55
=======
Total Investment Return at Net Asset Value (2) ............... (8.65%)(3)
Total Adjusted Investment Return at Net Asset Value (2,4) .... (9.43%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $23
Ratio of Expenses to Average Net Assets ...................... 2.29%(5,8)
Ratio of Adjusted Expenses to Average Net Assets (6) ......... 4.15%(5,8)
Ratio of Net Investment Loss to Average Net Assets ........... (1.27%)(5)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (6) ............................................. (3.13%)(5)
Portfolio Turnover Rate ...................................... 129%
Fee Reduction Per Share (1) .................................. $0.07
(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.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Schedule of Investments
October 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Fund on October 31, 1998. It's divided into three main categories:
common stocks and warrant, preferred stock and short-term investments. Common
and preferred stocks and warrant 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 (2.55%)
Australia & New Zealand Banking Group
Ltd., American Depositary Receipt
(ADR) (Banks - Foreign) .......................... 2 $57
National Australia Bank, Ltd.
(Banks - Foreign) ............................... 5,822 77,197
News Corp., Ltd. (The) (Media) ..................... 6,000 41,017
News Corp., Ltd. (The) (ADR) (Media) ............... 2,940 80,299
Normandy Mining Ltd. (Metal) ....................... 52,480 46,938
Telstra Corp., Ltd.
(Telecommunications) ............................. 30,594 121,507
Westpac Banking Corp., Ltd.
(Banks - Foreign) ............................... 6,000 36,514
--------
403,529
--------
Belgium (4.83%)
Electrabel SA (Utilities) .......................... 800 294,823
Fortis AG (Insurance) .............................. 398 114,313
Fortis AG (New shares) (Insurance)* ................ 126 4
Fortis AG (Certificate De Valeur Garantie)
(Insurance)* ..................................... 126 884
Generale de Banque SA
(Banks - Foreign) ............................... 54 20,216
PetroFina SA (Oil & Gas) ........................... 210 78,005
Tractebel SA (Utilities) ........................... 1,546 257,742
--------
765,987
--------
Brazil (0.00%)
Telecomunicacoes Brasileiras S/A (ADR)
(Telecommunications) ............................. 10 759
--------
Canada (3.08%)
BCE, Inc. (Telecommunications) ..................... 930 $31,522
Bombardier, Inc. (Diversified Operations) .......... 9,994 118,205
Canadian Imperial Bank of Commerce
(Banks - Foreign) ............................... 5,000 99,688
Northern Telecom, Ltd.
(Telecommunications) ............................. 2,990 128,281
Royal Bank of Canada
(Banks - Foreign) ............................... 1 46
Toronto-Dominion Bank
(Banks - Foreign) ............................... 3,689 110,670
--------
488,412
--------
Denmark (0.99%)
Novo Nordisk A/S (Medical) ......................... 579 67,571
Tele Danmark A/S
(Telecommunications) ............................. 825 89,862
--------
157,433
--------
Finland (2.31%)
Nokia AB
(Telecommunications) ............................. 4,027 366,491
--------
France (16.93%)
Accor SA (Leisure) ................................. 593 124,558
Alcatel Alsthom SA
(Telecommunications) ............................. 1,009 112,416
Alstom SA (Machinery)* ............................. 3,950 98,396
Axa SA (Insurance) ................................. 1,718 194,191
Cap Gemini SA (Computers) .......................... 955 143,528
Carrefour SA (Retail) .............................. 189 125,458
Compagnie de Saint Gobain SA
(Building) ....................................... 249 36,840
Danone SA (Food) ................................... 881 232,940
Elf Aquitaine SA (Oil & Gas) ....................... 1,769 204,731
France Telecom SA
(Telecommunications) ............................. 1,850 129,029
France Telecom SA (ADR)
(Telecommunications) ............................. 1,855 130,430
L'Air Liquide SA (Chemicals) ....................... 249 41,680
L'Oreal SA (Cosmetics & Personal Care) ............. 278 158,867
Legrand SA (Electronics) ........................... 316 80,537
Pinault-Printemps-Redoute SA (Retail) .............. 930 155,672
Renault SA (Automobile / Trucks) ................... 711 30,393
Schneider SA (Electronics) ......................... 500 29,680
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
France (continued)
Suez Lyonnaise des Eaux
(Diversified Operations) ......................... 1,125 $201,475
Synthelabo SA (Medical) ............................ 452 86,236
Total SA (Oil & Gas) ............................... 351 40,496
Valeo SA (Automobile / Trucks) ..................... 926 80,168
Vivendi SA (Diversified Operations) ................ 1,081 246,907
---------
2,684,628
---------
Germany (7.68%)
Allianz AG (Insurance) ............................. 617 211,564
Bayerische Hypo- und Vereinsbank AG
(Banks-Foreign) .................................. 1,995 158,372
Bayerische Motoren Werke AG
(Automobile / Trucks) ............................ 183 128,923
Bayerische Motoren Werke AG
(New shares) (Automobile / Trucks)* .............. 58 39,565
Daimler-Benz AG (Automobile / Trucks) .............. 910 70,592
Deutsche Telekom AG
(Telecommunications) ............................. 3,523 95,960
Fresenius AG (Medical) ............................. 184 26,103
Mannesmann AG (Machinery) .......................... 1,670 164,328
Muenchener Rueckversicherungs-
Gesellschaft AG (Insurance) ...................... 137 62,690
Muenchener Rueckversicherungs-
Gesellschaft AG (New shares)
(Insurance)* ..................................... 5 2,276
Siemens AG (Diversified Operations) ................ 1,140 68,545
VEBA AG (Diversified Operations) ................... 1,397 78,009
Viag AG (Diversified Operations) ................... 164 111,379
---------
1,218,306
---------
Ireland (2.66%)
Allied Irish Banks Plc (ADR)
(Banks - Foreign) ............................... 3,582 310,962
Anglo Irish Bank Corp. Plc
(Banks - Foreign) ............................... 30,000 72,806
CRH Plc (Building) ................................. 2,626 38,238
---------
422,006
---------
Italy (4.83%)
Assicurazioni Generali SpA (Insurance) ............. 1,300 46,543
Banca Popolare di Brescia SpA
(Banks - Foreign) ............................... 4,000 94,172
Credito Italiano SpA
(Banks - Foreign) ............................... 29,959 160,800
Ente Nazionale Idrocarburi SpA
(Oil & Gas) ...................................... 11,391 67,739
Istituto Nazionale delle Assicurazioni
SpA (Insurance) .................................. 36,708 101,087
Telecom Italia Mobile SpA
(Telecommunications) ............................. 32,970 191,339
Telecom Italia SpA
(Telecommunications) ............................. 14,422 104,236
---------
765,916
---------
Japan (8.40%)
Bank of Tokyo-Mitsubishi, Ltd.
(Banks - Foreign) ............................... 6,000 55,636
Bridgestone Corp.
(Rubber - Tires & Misc.) ......................... 4,000 88,008
Fuji Photo Film Co., Ltd. (Leisure) ................ 2,000 73,254
Fujitsu Ltd. (Computers) ........................... 8,000 85,092
Honda Motor Co., Ltd.
(Automobile / Trucks) ............................ 4,000 120,089
Ito-Yokado Co., Ltd. (Retail) ...................... 1,000 58,329
Kansai Electric Power Co., Inc. (Utilities) ........ 6,000 128,410
Matsushita Electric Industrial Co., Ltd.
(Electronics) .................................... 10,000 146,766
Nippon Telephone & Telegraph Corp.
(Telecommunications) ............................. 24 187,751
Nomura Securities Co., Ltd. (Finance) .............. 8,000 60,388
Sankyo Co., Ltd. (Medical) ......................... 3,000 67,679
Sony Corp. (Electronics) ........................... 1,000 63,476
Takeda Chemical Industries (Medical) ............... 2,000 65,020
TDK Corp. (Electronics) ............................ 2,000 131,755
---------
1,331,653
---------
Netherlands (4.26%)
ABN AMRO Holding NV (ADR)
(Banks - Foreign) ............................... 9 173
AEGON NV (Insurance) ............................... 2,298 199,366
Akzo Nobel NV (Chemicals) .......................... 1,600 62,169
ING Groep NV (ADR)
(Banks - Foreign) ............................... 2,324 114,748
KPN NV (Telecommunications) ........................ 1,500 58,284
Royal Dutch Petroleum Co. (Oil & Gas) .............. 892 43,062
Royal Philips Electronics NV (Electronics) ......... 2,971 158,055
TNT Post Group NV (Transport)* ..................... 1,500 40,140
---------
675,997
---------
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Norway (1.30%)
Norsk Hydro ASA (Oil & Gas) ...................... 2,000 $86,915
Orkla ASA (Diversified Operations) ............... 6,996 118,286
----------
205,201
----------
Portugal (2.20%)
Electricidade de Portugal SA (Utilities) ......... 7,002 176,003
Portugal Telecom SA
(Telecommunications) ........................... 3,645 172,688
----------
348,691
----------
Singapore (0.46%)
Overseas-Chinese Banking Corp., Ltd.
(Banks - Foreign) ............................. 10,574 46,129
Singapore Telecommunications, Ltd.
(Telecommunications) ........................... 15,000 25,899
----------
72,028
----------
Spain (4.08%)
Argentaria SA (Banks - Foreign) .................. 2,832 61,622
Banco Bilbao Vizcaya SA
(Banks - Foreign) ............................. 4,078 55,006
Banco Santander SA (Banks - Foreign) ............. 97 1,777
Endesa SA (Utilities) ............................ 1,956 49,296
Iberdrola SA (Utilities) ......................... 4,418 71,354
Repsol SA (Oil & Gas) ............................ 1,630 81,812
Telefonica de Espana SA
(Telecommunications) ........................... 3,670 165,705
TelePizza SA (Retail)* ........................... 19,700 160,833
----------
647,405
----------
Sweden (2.95%)
Astra AB (Medical) ............................... 3,018 48,908
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ........................... 4,854 109,442
Investor AB (Diversified Operations) ............. 3,654 142,303
Nordbanken Holding AB
(Banks - Foreign) ............................. 20,515 122,995
Saab AB (Aerospace)* ............................. 926 7,355
Skandia Forsakrings AB (Insurance) ............... 2,900 36,965
----------
467,968
----------
Switzerland (9.13%)
Adecco SA (Business Services - Misc.) ............ 248 98,812
Alusuisse-Lonza Holding AG
(Containers)* .................................. 32 36,550
Barry Callebaut AG (Food)* ....................... 211 47,173
Credit Suisse Group
(Banks - Foreign) ............................. 253 38,875
Nestle SA (Food) ................................. 141 299,624
Novartis AG (Medical) ............................ 170 306,058
Roche Holding AG (Medical) ....................... 6 69,948
Schweizerische Rueckversicherungs-
Gesellschaft (Insurance) ....................... 70 155,774
UBS AG (Banks - Foreign)* ........................ 282 77,299
Zurich Allied AG (Insurance)* ................... 524 318,197
----------
1,448,310
----------
United Kingdom (18.93%)
Allied Zurich Plc (Insurance)* ................. 2,974 35,341
Anglian Water Plc (Utilities) .................. 4,666 67,942
Anglian Water Plc (B shares) (Utilities)* ...... 5,000 3,766
British American Tobacco Plc (Tobacco) ......... 2,974 26,717
British Petroleum Co. Plc (Oil & Gas) .......... 10,727 157,454
British Telecommunications Plc
(Telecommunications) ......................... 11,600 149,883
Diageo Plc (Beverages) ......................... 7,474 80,684
Glaxo Wellcome Plc (Medical) ................... 8,921 277,121
Granada Group Plc
(Diversified Operations) ..................... 9,000 135,645
Kingfisher Plc (Retail) ........................ 10,000 87,785
Lloyds TSB Group Plc
(Banks - Foreign) ........................... 18,537 228,812
Pearson Plc (Media) ........................... 5,480 95,571
Pennon Group Plc (Utilities) ................... 4,000 70,831
Prudential Corp. Plc (Insurance) ............... 2,750 35,763
Royal & Sun Alliance Insurance Group
Plc (Insurance) .............................. 11,690 107,023
Royal Bank of Scotland Group Plc
(Banks - Foreign) ........................... 7,250 96,104
Scottish Hydro-Electric Plc (Utilities) ........ 8,000 82,145
SEMA Group Plc (Computers) ..................... 9,750 78,982
SmithKline Beecham Plc (Medical) ............... 19,650 245,675
Tesco Plc (Retail) ............................. 21,000 59,224
Thames Water Plc (Utilities) ................... 4,700 87,160
Unilever Plc (Consumer Products Misc.) ......... 27,250 273,650
Vodafone Group Plc
(Telecommunications) ......................... 13,800 184,776
WPP Group Plc (Advertising) .................... 35,450 176,218
Zeneca Group Plc (Medical) ..................... 4,121 158,224
----------
3,002,496
----------
TOTAL COMMON STOCKS
(Cost $15,117,343) (97.57%) 15,473,216
------ ----------
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
WARRANT
Germany (0.00%)
Muenchener Rueckversicherungs-
Gesellschaft AG (Insurance)* ................. 5 $217
----------
TOTAL WARRANT
(Cost $224) (0.00%) 217
------ ----------
TOTAL COMMON STOCKS ANDWARRANT
(Cost $15,117,567) (97.57%) 15,473,433
------ ----------
PREFERRED STOCK
Germany (0.28%)
Henkel KGaA (Chemicals) ........................ 537 45,871
----------
TOTAL PREFERRED STOCK
(Cost $38,836) (0.28%) 45,871
------ ----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.71%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 10-30-98, due 11-02-98
(Secured by U.S. Treasury
Bonds, 6.25% thru 8.125%,
due 11-15-16 thru 11-15-26)
-- Note A........................... 5.38% $588 $588,000
-----------
Cash Equivalents (4.26%)
Navigator Securities Lending
Prime Portfolio** ................. 676 675,514
------- -----------
TOTAL SHORT-TERM INVESTMENTS (7.97%) 1,263,514
------- -----------
TOTAL INVESTMENTS (105.82%) 16,782,818
------- -----------
OTHER ASSETS AND LIABILITIES, NET (5.82%) (923,427)
------- -----------
TOTAL NET ASSETS (100.00%) $15,859,391
======= ===========
* 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.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries 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 October 31, 1998 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ----------
Advertising ................................................... 1.11%
Aerospace ..................................................... 0.05
Automobile / Trucks ........................................... 2.96
Banks - Foreign ............................................... 12.87
Beverages ..................................................... 0.51
Building ...................................................... 0.47
Business Services - Misc ...................................... 0.62
Chemicals ..................................................... 0.94
Computers ..................................................... 1.93
Consumer Products Misc ........................................ 1.73
Containers .................................................... 0.23
Cosmetics & Personal Care ..................................... 1.00
Diversified Operations ........................................ 7.70
Electronics ................................................... 3.66
Finance ....................................................... 0.38
Food .......................................................... 3.66
Insurance ..................................................... 10.23
Leisure ....................................................... 1.25
Machinery ..................................................... 1.84
Media ......................................................... 1.37
Medical ....................................................... 8.95
Metal ......................................................... 0.30
Oil & Gas ..................................................... 4.79
Retail ........................................................ 4.08
Rubber - Tires & Misc ......................................... 0.55
Telecommunications ............................................ 16.12
Tobacco ....................................................... 0.17
Transport ..................................................... 0.25
Utilities ..................................................... 8.13
Short-Term Investments ........................................ 7.97
------
TOTAL INVESTMENTS 105.82%
======
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - International Fund
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. The Fund seeks to achieve its investment objective by
investing primarily in stocks of foreign companies.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The Trustees
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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
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.
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.
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - International Fund
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
lines 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 lines of credit, is allocated among the participating funds. The
maximum loan balance for the Fund during the year for which loans were
outstanding amounted to $1,040,000 with a rate of 6.1875%. At October 31, 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 October 31, 1998, the Fund
loaned securities having a market value of $652,431 collateralized by cash in
the amount of $675,514, 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. 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
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - International Fund
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 October 31, 1998, open forward foreign currency exchange contracts were
as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT DATE (DEPRECIATION)
- -------- ------------------- ---- --------------
BUYS
French Francs 321,838 NOV 98 ($166)
Italian Lira 49,327,500 NOV 98 119
Pound Sterling 20,286 NOV 98 196
-------
$149
=======
SELLS
Australian Dollar 2,142 NOV 98 ($8)
French Francs 79,760 NOV 98 15
Pound Sterling 438 NOV 98 3
-------
$10
=======
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 ("JHAI") (the "Sub-Adviser"), a wholly owned subsidiary of the Adviser,
under which JHAI, 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 $286,987 for the year ended October 31, 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 year ended October
31, 1998, net sales charges received with regard to sales of Class A shares
amounted to $14,884. Out of this amount, $2,430 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $7,749
was paid as sales commissions to unrelated broker-dealers and $4,705 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 shares. For the year ended October 31, 1998,
contingent deferred sales charges paid to JH Funds amounted to $40,018.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - International Fund
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 C shares. For the year
ended October 31, 1998 contigent deferred sales charges paid to JH Funds
amounted to $506.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted a Distribution Plan
with respect to Class A, Class B and Class C 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 and Class C
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 year 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 directors and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. Mr. Edward J. Boudreau, Jr. and Ms. Anne C.
Hodsdon are also directors of JHAI. 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 October 31, 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 year
ended October 31, 1998, aggregated $21,316,970 and $18,864,814, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1998.
The cost of investments owned at October 31, 1998 (including short-term
investments) for federal income tax purposes was $16,503,648. Gross unrealized
appreciation and depreciation of investments aggregated $1,356,239 and
$1,077,069, respectively, resulting in net unrealized appreciation of $279,170.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified amounts to
reflect a decrease in net realized loss on investments of $14,265, an increase
in accumulated net investment loss of $20,840 and an increase in capital paid-in
of $6,575. This represents the amount necessary to report these balances on a
tax basis, excluding certain temporary difference, as of October 31, 1998.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to the net operating loss, net realized loss on foreign
currency transactions and passive foreign investment companies in the
computation of distributable income and capital gains under federal tax rules
versus generally accepted accounting principles and the Fund's use of the tax
accounting practice known as equalization. The calculation of net investment
income per share in the financial highlights excludes these adjustments.
22
<PAGE>
================================================================================
John Hancock Funds - International Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock International Fund and
the Trustees of John Hancock Investment Trust III
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock International Fund
(the "Fund") (a series of John Hancock Investment Trust III) at October 31,
1998, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
Deccember 11, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1998.
The Fund has designated distributions to shareholders of $139,026 as
capital gain dividends.
With respect to the distributions paid by the Fund for the fiscal year
ended October 31, 1998, none of the distributions qualify for the corporate
dividends received deduction.
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
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 4000A 10/98
12/98
[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm." A recycled logo in lower left hand corner
with caption "Printed on Recycled Paper."]
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Short-Term
Strategic Income
Fund
OCTOBER 31, 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
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
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
-----------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Investors have been understandably shaken by these dramatic twists and turns,
but we are pleased to report that most individual investors did not panic, and
we hope that means they've taken our words to heart. Over the long term, markets
do not move up or down in a straight line. That's why after watching the market
charge ahead almost uninterrupted for so many years, we have been striking a
more cautionary stance in this space over the last several months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. 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.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY FREDERICK L. CAVANAUGH, JR., ARTHUR N. CALAVRITINOS, CFA, AND
ROGER HAMILTON, PORTFOLIO MANAGERS
John Hancock Short-Term
Strategic Income Fund
Treasuries rally in the face of Latin American, Asian turmoil
Recently, a management team composed of Frederick Cavanaugh, Arthur Calavritinos
and Roger Hamilton assumed leadership of John Hancock Short-Term Strategic
Income Fund. Mr. Cavanaugh, senior vice president, has been in the investment
business since 1973. Messrs. Calavritinos and Hamilton, vice presidents, have
been in the investment business since 1986 and 1980, respectively.
Strong crosscurrents led to widely varying results for the global fixed-income
markets over the past 12 months. Asian bonds continued to falter, plagued by a
worsening economic meltdown in that region and Japan's inability to make
much-needed structural and banking reforms. Like falling dominoes, Latin
American bonds suffered along with their emerging-market Asian counterparts.
Some Latin American markets staged a brief rebound in the spring of 1998, as
proposed economic and fiscal policy changes helped renew investor confidence.
That confidence quickly evaporated in the summer when Brazil, the region's
largest economy and the bellwether for Latin America, suffered bruising losses.
Unable to make the hoped-for policy changes that would help the region stave off
the economic contagion, Brazil suffered from skyrocketing interest rates and
concerns that it would devalue its currency. The sell-off of Brazilian debt was
accompanied by a similar flight from Mexico and Argentina, and the remainder of
Latin America was pulled down along with them. Mexico's currency, for example,
declined at a rate not seen since the 1995 peso crisis.
"The primary beneficiary of this widening global turmoil was the U.S. Treasury
market."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock Short-Term
Strategic Income Fund. Caption below reads "Fund management team members (l-r):
"Lee Crockett, Roger Hamilton, Fred Cavanaugh, Arthur Calavritinos and Carolee
Bongiovi."]
- --------------------------------------------------------------------------------
Portfolio management team members (l - r): Lee Crockett, Roger Hamilton, Fred
Cavanaugh, Arthur Calavritinos and Carolee Bongiovi
3
<PAGE>
================================================================================
John Hancock Funds - Short-Term Strategic Income Fund
"...we sold some Latin American corporate bonds when brief rallies afforded us
relatively attractive opportunities..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into five sections (from top to left): Oil & Gas 2%, Foreign
Banks & Finance 4%, Short-Term Investments & Other 7%, Foreign Governments 20%
and U.S. Government & Agencies 67 %. A note below the chart reads "As a
percentage of net assets on October 31, 1998."]
- --------------------------------------------------------------------------------
Compounding the emerging markets' troubles was the near collapse of Russia when
it devalued its currency and defaulted on its debt.
The primary beneficiary of this widening global turmoil was the U.S. Treasury
market. Investors headed for the exits in Asia, Latin America, Eastern Europe
and even the U.S. stock market and increasingly sought out the safe haven of
Treasuries. The renewed interest in these, coupled with two Federal Reserve
Board interest rate cuts intended to stem the world markets' growing liquidity
problems, drove Treasury yields -- which move in the opposite direction of their
prices -- to 30-year lows. Europe surprised many investors by gaining
significant ground during the final months of the period even after its bond
yields had fallen below U.S. bond yields.
Performance review
For the 12-month period ended October 31, 1998, John Hancock Short-Term
Strategic Income Fund's Class A and Class B shares had total returns of 1.17%,
and 0.60%, respectively, at net asset value. The Fund's returns lagged the
average short-term investment-grade bond fund's return of 6.02%, according to
Lipper Analytical Services, Inc.1 Keep in mind that your net asset value return
will be different from the Fund's performance if you were not invested in the
Fund for the entire period and did not reinvest all distributions. Please see
pages six and seven for longer-term performance information.
The main detractor from the Fund's performance, and the primary reason for
our lag relative to our peers, was our investments in emerging-market debt from
Latin America. Even though our growing stake in Treasuries proved to be a
positive for the Fund, it wasn't enough to totally offset losses we experienced
from our investments in Brazilian, Mexican and Argentinian government and
corporate bonds.
Credit quality upgrade
Growing uncertainty about the fate of emerging markets prompted us to pare back
our holdings in emerging-market regions, first by eliminating our Southeast
Asian holdings in late 1997, then by selling some Latin American investments
this fall. Over the past several months, for example, we sold some Latin
American corporate bonds when brief rallies afforded us relatively attractive
opportunities to do so. Unfortunately, a lack of liquidity meant that we weren't
able to sell as much as we would have liked. By the end of the period, our
emerging-market holdings had declined to 26% of net assets from 44% a year
earlier.
We used the proceeds from our Latin American sales to increase our holdings
in
- --------------------------------------------------------------------------------
[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 U.S.
Treasuries followed by an up arrow with the phrase "Inflation worries wane and
Fed cuts rates." The second listing is U.K. bonds followed by an up arrow with
the phrase "Interest rates drift lower." The third listing is Latin American
bonds followed by a down arrow with the phrase "Concerns over fiscal, monetary
policies." 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 heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 2% with 0% at the bottom and 8% at the top. The first
bar represents the 1.17% Total return for John Hancock Short-Term Strategic
Income Fund Class A. The second bar represents the 0.60% total return for John
Hancock Short-Term Strategic Income Fund Class B and the third bar represents
the 6.02% total return for 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. See the following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
higher-quality bonds. Most notably, we upped our stake in U.S. government and
agency bonds to 67% of net assets at the end of October, from 38% a year ago.
During the last several months, we added Canadian government bonds at attractive
prices after its government temporarily raised rates to support its currency.
Finally, we added a U.K. government bond in anticipation of that country's
interest rates moving lower.
Outlook
We believe that high-quality bonds will be the place to be over the near term.
Although the worst appears to be behind many emerging markets, we feel that
disruptions will continue to occur, although their severity likely will be
diminished. Select emerging markets will eventually offer attractive
opportunities, but we think that possibility is still quite a way off. Our main
concern is Brazil and whether or not it can enact the requisite changes for
pulling itself and the rest of the region away from the brink of much more
severe problems. So we'll look for opportunities to sell emerging-market
holdings during periods of temporary strength, and move more of our holdings
into higher-quality bonds. We'll concentrate on countries where we think
interest rates will come down, including the United Kingdom and the United
States. In the U.S., we expect that the Federal Reserve Board, once worried
about inflation, will continue to be accommodative, turning its sights toward
keeping the economy growing.
"We believe that high-quality bonds will be the place to be over the near term."
- --------------------------------------------------------------------------------
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, before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/92)
-------- --------- -------------
Cumulative Total Returns (5.34%) 24.35% 33.94%
Average Annual Total Returns (5.34%) 4.45% 4.43%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (12/28/90)
-------- --------- -------------
Cumulative Total Returns (5.76%) 24.05% 41.96%
Average Annual Total Returns (5.76%) 4.41% 4.62%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of October 31, 1998
SEC 30-DAY
YIELD
--------------
John Hancock Short-Term Strategic Income Fund:
Class A 5.83%
John Hancock Short-Term Strategic Income Fund:
Class B 5.30%
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 John Hancock 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 John Hancock Short-Term
Strategic Income Fund on January 3, 1992, before sales charge, and is equal to
$14,031 as of October 31, 1998. The second line represents the same hypothetical
investment made in the John Hancock Short-Term Strategic Income Fund, after
sales charge, and is equal to $13,617 as of October 31, 1998. The third line
represents the Salomon Brothers World Money Market Index and is equal to $13,193
as of October 31, 1998.
Line chart with the heading John Hancock 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 John Hancock Short-Term
Strategic Income Fund on December 28, 1990, before sales charge, and is equal to
$14,424 as of October 31, 1998. The second line represents the Salomon Brothers
World Money Market Index and is equal to $14,417 as of October 31, 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 October 31, 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
October 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Bonds (cost - $69,120,748) ............................... $67,531,507
Common stocks (cost - $583,955) .......................... 549,063
Short-term investments (cost - $4,938,125)
- Note A ................................................. 4,938,125
-------------
73,018,695
Cash ...................................................... 414
Receivable for shares sold ................................ 34,767
Dividends receivable ...................................... 7,245
Interest receivable ....................................... 1,490,498
Other assets .............................................. 5,265
-------------
Total Assets ............................ 74,556,884
-----------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................ 16,768
Payable upon return of securities on loan - Note A ........ 3,914,125
Dividend payable .......................................... 22,780
Payable for futures variation margin - Note A ............. 19,031
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 60,905
Accounts payable and accrued expenses ..................... 75,522
-------------
Total Liabilities ....................... 4,109,131
-----------------------------------------------------------
Net Assets:
Capital paid-in ........................................... 100,991,688
Accumulated net realized loss on investments and
foreign currency transactions ............................ (28,786,807)
Net unrealized depreciation of investments, financial
futures contracts and foreign currency transactions ...... (1,730,420)
Distributions in excess of net investment income .......... (26,708)
-------------
Net Assets .............................. $70,447,753
===========================================================
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 - $50,498,114/6,372,297 ........................... $7.92
=============================================================================
Class B - $19,949,639/2,517,428 ........................... $7.92
=============================================================================
Maximum Offering Price Per Share*
Class A - ($7.92 x 103.09%) ............................... $8.16
=============================================================================
* 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
Year ended October 31, 1998
- --------------------------------------------------------------------------------
Investment Income:
Interest
(including income on securities loaned of $74,682) ....... $5,769,735
Dividends ................................................. 21,260
-------------
5,790,995
-------------
Expenses:
Investment management fee - Note B ....................... 514,305
Distribution and service fee - Note B
Class A ................................................ 171,740
Class B ................................................ 215,862
Transfer agent fee - Note B .............................. 143,308
Custodian fee ............................................ 55,736
Auditing fee ............................................. 45,068
Registration and filing fees ............................. 24,422
Financial services fee - Note B .......................... 13,182
Printing ................................................. 12,050
Miscellaneous ............................................ 10,387
Trustees' fees ........................................... 5,096
Legal fees ............................................... 1,305
-------------
Total Expenses .......................... 1,212,461
-----------------------------------------------------------
Net Investment Income ................... 4,578,534
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized loss on investments sold ..................... (902,555)
Net realized loss on foreign currency transactions ........ (106,958)
Change in net unrealized appreciation/depreciation
of investments ........................................... (2,459,653)
Change in net unrealized appreciation/depreciation
of financial futures contracts ........................... (106,460)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ......................... 19,025
-------------
Net Realized and Unrealized
Loss on Investments, Financial
Futures Contracts and Foreign
Currency Transactions ................... (3,556,601)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............... $1,021,933
===========================================================
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>
YEAR ENDED OCTOBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ..................................................................... $6,688,562 $4,578,534
Net realized loss on investments sold and foreign currency
transactions ............................................................................ (217,219) (1,009,513)
Change in net unrealized appreciation/depreciation of
investments, financial futures contracts and foreign
currency transactions ................................................................... (1,367,334) (2,547,088)
------------ ------------
Net Increase in Net Assets Resulting from Operations .................................... 5,104,009 1,021,933
------------ ------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.5176 and $0.4780 per share, respectively) ................................. (3,698,646) (3,322,613)
Class B - ($0.4678 and $0.4230 per share, respectively) ................................. (1,962,894) (1,126,678)
Distributions in excess of net investment income
Class A - ($0.0764 and $0.0015 per share, respectively) ................................. (545,931) (10,603)
Class B - ($0.0691 and $0.0014 per share, respectively) ................................. (289,729) (3,595)
Distributions from capital paid-in
Class A - ($0.0175 and $0.0124 per share, respectively) ................................. (125,016) (85,913)
Class B - ($0.0158 and $0.0109 per share, respectively) ................................. (66,346) (29,132)
------------ ------------
Total Distributions to Shareholders ..................................................... (6,688,562) (4,578,534)
------------ ------------
From Fund Share Transactions - Net:* ......................................................... (5,923,514) (15,963,160)
------------ ------------
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 $26,708, respectively) ................................. $89,967,514 $70,447,753
============ ============
</TABLE>
*Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................................. 4,479,598 $38,000,567 1,724,135 $14,275,885
Shares issued to shareholders in reinvestment of
distributions .............................................. 283,851 2,403,553 216,155 1,771,929
------------ ------------ ------------ ------------
4,763,449 40,404,120 1,940,290 16,047,814
Less shares repurchased ...................................... (2,890,921) (24,502,562) (3,273,385) (26,994,702)
------------ ------------ ------------ ------------
Net increase (decrease) ...................................... 1,872,528 $15,901,558 (1,333,095) ($10,946,888)
============ ============ ============ ============
CLASS B
Shares sold .................................................. 1,869,770 $15,839,024 937,760 $7,634,236
Shares issued to shareholders in reinvestment of
distributions .............................................. 125,322 1,060,356 66,168 542,160
------------ ------------ ------------ ------------
1,995,092 16,899,380 1,003,928 8,176,396
Less shares repurchased ...................................... (4,572,712) (38,724,452) (1,606,600) (13,192,668)
------------ ------------ ------------ ------------
Net decrease ................................................. (2,577,620) ($21,825,072) (602,672) ($5,016,272)
============ ============ ============ ============
</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 distributions
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 redeemed 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,
-------------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $9.12 $8.47 $8.41 $8.46 $8.31
------- ------- ------- ------- -------
Net Investment Income ................................. 0.76(1) 0.77(1) 0.65 0.61(1) 0.49(1)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency
Transactions ........................................ (0.53) (0.06) 0.05 (0.15) (0.39)
------- ------- ------- ------- -------
Total from Investment Operations .................. 0.23 0.71 0.70 0.46 0.10
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................. (0.62) (0.61) (0.57) (0.52) (0.48)
Distributions in Excess of Net Investment Income ...... (0.04) -- -- (0.08) (0.00)(3)
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) (0.01)
------- ------- ------- ------- -------
Total Distributions ............................... (0.88) (0.77) (0.65) (0.61) (0.49)
------- ------- ------- ------- -------
Net Asset Value, End of Period ........................ $8.47 $8.41 $8.46 $8.31 $7.92
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(2) ......... 2.64% 8.75% 8.60% 5.55% 1.17%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $13,091 $16,997 $49,338 $64,059 $50,498
Ratio of Expenses to Average Net Assets ............... 1.26% 1.33% 1.48% 1.43% 1.35%
Ratio of Net Investment Income to Average Net Assets .. 8.71% 9.13% 7.59% 7.22% 5.97%
Portfolio Turnover Rate ............................... 150% 147% 77% 71% 74%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Short-Term Strategic Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $9.11 $8.46 $8.40 $8.45 $8.30
------- ------- ------- ------- -------
Net Investment Income ................................. 0.70(1) 0.70(1) 0.59 0.55(1) 0.44(1)
Net Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency
Transactions ........................................ (0.53) (0.06) 0.05 (0.15) (0.38)
------- ------- ------- ------- -------
Total from Investment Operations .................. 0.17 0.64 0.64 0.40 0.06
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................. (0.56) (0.56) (0.52) (0.47) (0.43)
Distributions in Excess of Net Investment Income ...... (0.04) -- -- (0.07) (0.00)(3)
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) (0.01)
------- ------- ------- ------- -------
Total Distributions ............................... (0.82) (0.70) (0.59) (0.55) (0.44)
------- ------- ------- ------- -------
Net Asset Value, End of Period ........................ $8.46 $8.40 $8.45 $8.30 $7.92
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(2) ......... 1.93% 7.97% 7.89% 4.83% 0.60%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $98,390 $84,601 $48.137 $25,908 $19,950
Ratio of Expenses to Average Net Assets ............... 1.99% 2.07% 2.12% 2.13% 2.02%
Ratio of Net Investment Income to Average Net Assets .. 8.00% 8.40% 7.07% 6.51% 5.30%
Portfolio Turnover Rate ............................... 150% 147% 77% 71% 74%
</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) Less than $0.01 per share.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Short-Term Strategic Income Fund
Schedule of Investments
October 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Short-Term Strategic Income Fund on October 31, 1998. It's divided into three
main categories: bonds, common stocks and short-term investments. Bonds and
common stocks are further broken down by currency denomination. Short-term
investments, which represent the Fund's "cash" position, are listed last.
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED)# VALUE
- ------------------- ---- --------------- -----
<S> <C> <C> <C>
BONDS
British Pound Sterling (1.63%)
United Kingdom Treasury,
Bond 12-07-00 .......................... 8.000% 650 $1,145,367
-----------
Canadian Dollar (1.27%)
Government of Canada,
Bond Ser VR22 03-01-01 ................. 7.500 1,300 893,824
-----------
U.S. Dollar (92.96%)
Banco Central de Costa Rica,
(Costa Rica), Floating Rate
Bond Ser A 05-21-05 .................. 6.568* $351 347,219
Banco de Galicia y Buenos
Aires S.A., (Argentina), Floating
Rate Note Ser EMTN 04-15-99 .......... 9.048* 1,500 1,470,000
Companhia Energetica de Minas
Gerais, (Brazil), Deb Ser REGS
11-18-04 ............................. 9.125 250 198,750
Empresas ICA Sociedad S.A
de C.V., (Mexico), Note
05-30-01 (R) ......................... 11.875 1,000 980,000
Espirito Santo Centrais Eletricas
S.A., (Brazil), Sr Note
07-15-07 (R) ......................... 10.000 750 442,500
Federal Home Loan Mortgage Corp.,
Giant Mtg Part Cert 07-01-12 ........... 7.000 1,624 1,658,169
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 10-01-12 ........... 7.500 4,511 4,629,153
Federative Republic of Brazil,
(Brazil),
Global Bond 11-05-01 ................... 8.875 2,000 1,810,000
Variable Rate Bond Ser A
01-01-01 ............................. 6.750* 1,076 947,100
Financiera Energetica Nacional
S.A., (Colombia), Deb Ser
REGS 06-15-06 ........................ 9.375 1,000 710,000
Government of Jamaica, (Jamaica),
Note 06-10-05 (R) ...................... 10.875 1,000 730,000
Petroleo Brasileiro S.A., (Brazil),
Floating Rate Note 09-25-00 ............ 6.821* 2,000 1,690,000
Republic of Argentina, (Argentina),
Floating Rate Bond Ser FRB
03-31-05 ............................. 6.188* 2,820 2,333,550
Floating Rate Note 07-21-03 ............ 10.350* 1,000 820,000
Republic of Colombia, (Colombia),
Note 02-15-03 .......................... 7.250 500 405,000
Republic of Costa Rica, (Costa Rica),
Deb 05-01-03 (R) ....................... 8.000 700 696,500
Republic of Ecuador, (Ecuador),
Bond 04-25-02 (R) ...................... 11.250 750 600,000
Republic of Panama, (Panama),
Floating Rate Note 05-10-02 ............ 6.750* 1,692 1,565,421
Note 02-13-02 .......................... 7.875 375 358,125
Transportacion Maritima
Mexicana S.A., (Mexico),
Note 10-15-00 ........................ 8.500 250 215,000
TV Azteca S.A. de C.V., (Mexico),
Sr Note Ser A 02-15-04 ................. 10.125 500 370,000
United Mexican States, (Mexico),
Global Bond 02-06-01 ................... 9.750 1,500 1,530,000
United States Treasury,
Note 01-31-99 .......................... 5.875 10,300 10,328,943
Note 05-15-99 .......................... 6.375 13,000 13,125,970
Note 11-30-99 .......................... 5.625 500 506,330
Note 11-15-00 .......................... 5.750 4,900 5,035,534
Note 11-30-02 .......................... 5.750 11,425 11,989,052
-----------
65,492,316
-----------
TOTAL BONDS
(Cost $69,120,748) (95.86%) 67,531,507
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Short-Term Strategic Income Fund
<TABLE>
<CAPTION>
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ------------------- --------- -----
<S> <C> <C>
COMMON STOCKS
U.S. Dollar (0.78%)
KeySpan Energy Corp. ..................... 8,000 $239,000
Southern Co. ............................. 11,000 310,063
-----------
549,063
-----------
TOTAL COMMON STOCKS
(Cost $583,955) (0.78%) 549,063
------- -----------
<CAPTION>
INTEREST PAR VALUE
RATE (OOOS OMITTED)
---- --------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (1.45%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 10-30-98, due 11-02-98
(Secured by U.S. Treasury Bonds,
6.25% thru 8.125%,
due 11-15-16 thru 11-15-26)
-- Note A ............................ 5.380% $1,024 1,024,000
-----------
Cash Equivalents (5.56%)
Navigator Securities Lending
Prime Portfolio** ................... 3,914 3,914,125
------- -----------
TOTAL SHORT-TERM INVESTMENTS (7.01%) 4,938,125
------- -----------
TOTAL INVESTMENTS (103.65%) 73,018,695
------- -----------
OTHER ASSETS AND LIABILITIES, NET (3.65%) (2,570,942)
------- -----------
TOTAL NETASSETS (100.00%) $70,447,753
======= ===========
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
* Represents rate in effect on October 31, 1998.
** Represents investment of security lending collateral - Note A.
# Par value of non-US$ 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 $3,449,000 or 4.90% of the Fund's net
assets as of October 31, 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 October 31, 1998 assigned to the
various investment categories.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ---------------
Banks - Foreign....................................... 2.58%
Building.............................................. 1.39
Finance............................................... 1.01
Government - Foreign.................................. 19.64
Government - U.S. .................................... 58.18
Government - U.S. Agencies............................ 8.92
Media................................................. 0.52
Oil & Gas............................................. 2.40
Transport - Ship...................................... 0.31
Utilities - Electric Power............................ 0.72
Utilities - Gas Distribution.......................... 0.34
Utilities - Foreign................................... 0.63
Short-Term Investments................................ 7.01
------
TOTAL INVESTMENTS 103.65%
======
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Short-Term Strategic Income Fund
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 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.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. Effective December 8, 1998,
the Board of Trustees have authorized the issuance of Class C shares in 1999.
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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, at October 31, 1998, the Fund has $28,893,267 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 distribution will be made. The Fund's 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 and October 31,
2006 -- $1,008,800.
DIVIDENDS, 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,
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Short-Term Strategic Income Fund
which may differ from generally accepted accounting principles. Dividends paid
by the Fund with respect to each class of shares will be calculated in the same
manner, at the same time and will be in the same amount, except for the effect
of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. 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 year ended October 31, 1998.
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 October 31, 1998, the Fund
loaned securities having a market value of $3,832,102 collateralized by cash in
the amount of $3,914,125, 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
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Short-Term Strategic Income Fund
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 October 31, 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 October 31, 1998, open positions in financial futures contracts were as
follows:
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
DEC 98 21 U.S. TREASURY BONDS LONG $106,460
========
At October 31, 1998, the Fund had deposited in a segregated account, $55,000
par value of U.S. Treasury Note, 6.375%, 05-15-99 to cover margin requirements
on open financial futures contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked to market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock market.
Writing puts and buying calls will tend to increase the Fund's exposure to the
underlying instrument and buying puts and writing calls will tend to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Short-Term Strategic Income Fund
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 year ended October 31,
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 year ended
October 31, 1998, net sales charges received with regard to sales of Class A
shares amounted to $30,634. Of this amount, $3,492 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $9,842
was paid as sales commissions to unrelated broker-dealers and $17,300 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 3.0% 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 year ended October 31, 1998, the contingent deferred sales
charges paid to JH Funds amounted to $76,062.
In addition, to reimburse the distibutors 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 year 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 directors 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
18
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Short-Term Strategic Income Fund
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
October 31, 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 year
ended October 31, 1998, aggregated $18,273,236 and $33,348,003, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $36,203,746 and $23,085,785, respectively, during the year
ended October 31, 1998.
The cost of investments owned at October 31, 1998 (including short-term
investments) for federal income tax purposes was $74,642,828. Gross unrealized
appreciation and depreciation of investments aggregated $843,413 and $2,467,546,
respectively, resulting in net unrealized depreciation of $1,624,133.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments and foreign
currency transactions of $107,173, an increase in distributions in excess of net
investment income of $104,997 and a decrease in capital paid-in of $2,176. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of October 31, 1998. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to the treatment of net realized losses on foreign
currency transactions in the computation of distributable income and capital
gains under federal tax rules versus generally accepted accounting principles.
The calculation of net investment income per share in the financial highlights
excludes these adjustments.
19
<PAGE>
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John Hancock Funds - Short-Term Strategic Income Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock Short-Term Strategic Income Fund and the
Trustees of John Hancock Investment Trust III
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Short-Term Strategic
Income Fund (the "Fund") (a series of John Hancock Investment Trust III) at
October 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and the significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities owned at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1998.
With respect to the distributions paid by the Fund for the fiscal year ended
October 31, 1998, 0.4717% of the distributions qualify for the corporate
dividends received deduction.
Shareholders will be mailed a 1998 U.S. Treasury Department Form 1099-DIV in
January of 1999. This will reflect the total of all distributions that are
taxable for the calendar year 1998.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
20
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John Hancock Funds - Short-Term Strategic Income Fund
21
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Short-Term Strategic Income Fund
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Short-Term Strategic Income Fund
23
<PAGE>
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