---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC]
Large Cap
Growth Fund
OCTOBER 31, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
DENNIS S. ARONOWITZ*
STEPHEN L. BROWN
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
LELAND O. ERDAHL
RICHARD A. FARRELL
MAUREEN R. FORD
GAIL D. FOSLER
WILLIAM F. GLAVIN
ANNE C. HODSDON
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Executive 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
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
The best thing about this massive mailing is that it can serve as a wake-up call
to encourage families to focus more on planning for their financial future.
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy, making sure your annual
earnings history and amounts you have contributed over the years are correct.
Keep in mind that the estimated benefits are precisely that, and that rules and
regulations may change by the time you retire. Also remember that they are not
inflation adjusted, so it would be unrealistic to expect them to have the same
purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement. Together, you should make sure to maximize your
participation in tax-advantaged programs like IRAs and 401(k)s.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/ Maureen R. Ford
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY DAVID L. EISENBERG, CFA, AND GEOFFREY R. PLUME, CFA,
PORTFOLIO MANAGERS
John Hancock
Large Cap Growth Fund
Last fiscal year of 20th century ends with substantial gains
We view fiscal 1999 as having two distinct phases. In the first six months of
the period, investors overcame their fears caused by last summer's near-global
financial meltdown. By April's end, however, the mood of the market had changed
to uncertainty. As it became clear that there was nascent global recovery,
leadership broadened to include economically sensitive value stocks,
small-capitalization companies and energy-related issues. This led to concerns
about an overheating domestic economy and the possibility of the Federal
Reserve's intervention to curtail inflation, both of which pushed interest rates
higher and increased market volatility. Economic growth continued to accelerate
and the Fed raised short-term interest rates twice over the summer. As the
second half of the fiscal year came to a close, the market had narrowed, with
select large-cap growth stocks again taking center stage, driving the market as
they have for much of the last three years.
Solid performance results
For the 12 months ended October 31, 1999, John Hancock Large Cap Growth Fund
returned a total of 27.58%, 26.70% and 26.72% for Class A, Class B and Class C
shares, respectively. These returns compare with the 25.67% return of the S&P
500 Index and the 29.12% return of the average growth fund, according to Lipper,
Inc.(1) 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. Longer-term performance
information can be found on pages six and seven.
"We view fiscal 1999 as having two distinct phases."
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[A 3 1/2" x 2 1/2" photo bottom right side of John Hancock Large Cap Growth
Fund. Caption below reads "Fund management team members (l-r): John Golden,
David Eisenberg and Geoffrey Plume."]
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3
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John Hancock Funds - Large Cap Growth Fund
"...we selectively increased our exposure to certain software companies..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Stock Holdings." The first
listing is General Electric 4.8%, the second is Intel 3.9%, the third EMC 3.4%,
the fourth Microsoft 3.3% and the fifth Cisco Systems 3.3%. A note below the
table reads "As a percentage of net assets on October 31, 1999."]
- --------------------------------------------------------------------------------
Technology and telecom dominate
Throughout the period, we maintained a heavy weighting in technology-related and
communication services stocks, which include telecommunication equipment
companies and wireless service providers. In the year's first half, we
emphasized hardware firms, adding companies like Sun Microsystems and bolstering
our position in others, such as EMC. By midyear, valuations in the software
arena had reached extremely attractive levels as Y2K concerns grew. Believing
that fears were overdone, we selectively increased our exposure to certain
software companies, including BMC Software and Computer Associates
International, that are poised to resume their upward momentum once Y2K is
hurdled.
Expanded avenues of growth
The explosive popularity of the Internet and the revolution in how we work and
communicate with one another has succeeded in erasing the fine lines between
technology's sub-sectors, so that many companies offer tremendous growth
potential on several fronts. Portfolio holdings such as Cisco Systems and Lucent
Technologies are prime examples of companies benefiting from the expansion of
not only the Internet, but also global telecommunications. MCI WorldCom, Bell
Atlantic, Sprint PCS and Nextel Communications are communication service
providers whose avenues of growth are also rapidly expanding as deregulation
continues to exert a positive influence.
Renewed interest in pharmaceuticals
Early in the fiscal year, we decreased our exposure to health-care stocks --
pharmaceuticals in particular. Our decision proved advantageous as Medicare
reform and patent expiration concerns dampened the performance of many drug
stocks. For defensive and opportunistic reasons, however, we recently renewed
our interest in certain fundamentally sound companies, such as Schering-Plough,
Pharmacia & Upjohn and Warner-Lambert. Not only had their stock prices become
attractive, but the possibility of an economic slowdown should also create a
favorable backdrop for these stable-growth players.
Financial holdings pared
Financial stocks such as Providian, Wells Fargo, Bank of America, American
Express and Citigroup contributed significantly to the Fund's performance in the
early months of 1999. Despite the fact that the earnings of financial companies
are not as vulnerable to rising interest rates as is widely believed, many of
our holdings came under pressure as rates began to rise this past spring. By
August, we had halved the Fund's weighting in the financial arena to sidestep
the possibility of further downturns as rates continued to rise through period's
end. We've held on to a few sound bank and consumer
- --------------------------------------------------------------------------------
[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 Cisco Systems
followed by an up arrow with the phrase "Explosive growth in transmission of
data." The second listing is Nextel Communications followed by an up arrow with
phrase "Rapid growth in wireless subscribers." The third listing is CVS followed
by a down arrow with the phrase "Concerns about Internet competition and
Medicare drug benefits." 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 - Large Cap Growth Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the year ended October 31, 1999." The
chart is scaled in increments of 5% with 0% at the bottom and 30% at the top.
The first bar represents the 27.58% total return for John Hancock Large Cap
Growth Fund Class A. The second bar represents the 26.70% total return for John
Hancock Large Cap Growth Fund Class B. The third bar represents the 26.72% total
return for John Hancock Large Cap Growth Fund Class C. The fourth bar represents
the 29.12% total return for Average growth fund. A note below the chart reads
"Total returns for John Hancock Large Cap Growth Fund are at net asset value
with all distributions reinvested. The average growth fund is tracked by Lipper,
Inc.1 See the following two pages for historical performance information."]
- --------------------------------------------------------------------------------
finance stocks, including Citigroup and Associates First Capital, believing that
once rates stabilize, investors will renew their interest in this sector. In
view of imminent financial reform legislation, which should lead to
consolidation, we recently added quality life insurer American General to the
portfolio.
Rotation in retail
The strength of the U.S. economy gave consumers confidence, and thereby many
retailers a strong boost this past year. Early on, we sold consumer staple
stocks such as Kroger, a supermarket retailer, to invest in more cyclically
oriented retailers that offered greater earnings and price appreciation
potential. Included in this category were Home Depot, Costco, Lowe's and
Wal-Mart Stores -- all of which experienced strong run-ups in price. By late
summer, the outlook for the economy pointed toward a slight slowdown and we
reduced or cut these positions to re-deploy assets back into the more defensive
consumer-staple sector. We re-introduced Kroger and added CVS and Safeway. In
hindsight, our move may have been a bit premature, as these stocks suffered
along with many others late in the period. However, business conditions at these
companies remain robust and we find their valuations compelling.
A tri-fold approach to fiscal 2000
Despite the advances of a narrow band of large-cap stocks, the average S&P 500
stock is currently down 25% from its high this past year. As a result, we enter
fiscal 2000 with many investment opportunities ahead. Selectivity, however, will
be the key, as these opportunities may not lie in the narrow band of stocks that
have dominated the market's performance this past year.
We will continue to focus on technology-related companies that exhibit
strong secular growth potential both in the U.S. and abroad, regardless of
economic and market conditions.
We will also keep our sights on companies that stand to benefit from the
recovery in the world's economies. These would be the multinational corporations
and diversified industrial firms that can participate in growth overseas and
thereby offer earnings stability should the economy slow at home.
Finally, we believe a modest slowdown in the economy is likely in the
months ahead, whether or not the Fed chooses to increase short-term interest
rates again. As a result, we will look to further position part of the portfolio
a bit defensively by investing in more stable growth companies that investors
historically turn to during uncertain times.
"Selectivity, however, will be the key..."
- --------------------------------------------------------------------------------
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.
(1) Figures from Lipper, Inc. include reinvested dividends and do not take into
account sales charges. Actual load-adjusted performance is lower.
5
<PAGE>
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John Hancock Funds - Large Cap 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 Large Cap Growth Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming the 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, 1999
ONE FIVE TEN
YEAR YEARS YEARS
----- ----- -----
Cumulative Total Returns 22.08% 127.19% 221.67%
Average Annual Total Returns 22.08% 17.84% 12.39%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
--------- -------- --------
Cumulative Total Returns 22.63% 128.70% 113.09%
Average Annual Total Returns 22.63% 17.99% 14.09%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE INCEPTION
YEAR (6/1/98)
------ -----------
Cumulative Total Returns 26.58% 21.57%
Average Annual Total Returns 26.58% 15.80%
6
<PAGE>
================================================================================
John Hancock Funds - Large Cap 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
Large Cap 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 Index. The Standard & Poor's 500 Index
is an unmanaged index that includes 500 widely traded common stocks and is a
commonly used measure of stock market performance. It is not possible to invest
in an index. Past performance is not indicative of future results.
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Large Cap 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 Index and is equal to $51,454 as of October 31, 1999. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock Large Cap Growth Fund on October 31, 1989, before sales charge,
and is equal to $36,085 as of October 31, 1999. The third line represents the
value of the same hypothetical investment made in the John Hancock Large Cap
Growth Fund, after sales charge, and is equal to $34,280 as of October 31, 1999.
Line chart with the heading John Hancock Large Cap 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 Index and is equal to $32,913 as of October 31, 1999. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock Large Cap Growth Fund on January 3, 1994, before sales charge,
and is equal to $22,253 as of October 31, 1999. The third line represents the
value of the same hypothetical investment made in the John Hancock Large Cap
Growth Fund, after sales charge, and is equal to $22,153 as of October 31, 1999.
Line chart with the heading John Hancock Large Cap Growth Fund Class C*,
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 Standard
& Poor's 500 Index and is equal to $12,735 as of October 31, 1999. The second
line represents the value of the hypothetical $10,000 investment made in the
John Hancock Large Cap Growth Fund on June 1, 1998, before sales charge, and is
equal to $12,636 as of October 31, 1999.
*No contingent deferred sales charge applicable.
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7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Large Cap 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, 1999. 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, 1999
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $616,041,628) ...................... $795,905,313
Joint repurchase agreement (cost - $31,845,000) .......... 31,845,000
Corporate savings account ................................ 951
--------------
827,751,264
Receivable for investments sold ........................... 32,572,424
Receivable for shares sold ................................ 53,509
Dividends receivable ...................................... 219,805
Interest receivable ....................................... 13,938
Other assets .............................................. 42,649
--------------
Total Assets ............................ 860,653,589
----------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................ 257,587
Payable for investments purchased ......................... 62,041,391
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................. 523,796
Accounts payable and accrued expenses ..................... 132,681
--------------
Total Liabilities ....................... 62,955,455
----------------------------------------------------------
Net Assets:
Capital paid-in ........................................... 538,331,657
Accumulated net realized gain on investments .............. 79,525,922
Net unrealized appreciation of investments ................ 179,863,685
Accumulated net investment loss ........................... (23,130)
--------------
Net Assets .............................. $797,698,134
==========================================================
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 - $484,195,645/19,336,090 ......................... $25.04
============================================================================
Class B - $312,045,793/13,142,916 ......................... $23.74
============================================================================
Class C - $1,456,696/61,396 ............................... $23.73
============================================================================
Maximum Offering Price Per Share*
Class A - ($25.04 x 105.26%) .............................. $26.36
============================================================================
* 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 for the period
stated.
Statement of Operations
Year ended October 31, 1999
- --------------------------------------------------------------------------------
Investment Income:
Dividends .................................................... $4,019,905
Interest ..................................................... 804,224
------------
4,824,129
------------
Expenses:
Investment management fee - Note B .......................... 5,578,233
Distribution and service fee - Note B
Class A ................................................... 1,364,094
Class B ................................................... 2,791,642
Class C ................................................... 7,314
Transfer agent fee - Note B ................................. 1,626,523
Custodian fee ............................................... 162,281
Registration and filing fees ................................ 154,435
Accounting and legal services fee - Note B .................. 124,110
Auditing fee ................................................ 47,160
Printing .................................................... 45,021
Trustees' fees .............................................. 33,942
Miscellaneous ............................................... 25,142
Interest expense - Note A ................................... 7,721
Legal fees .................................................. 3,496
------------
Total Expenses ............................. 11,971,114
-----------------------------------------------------------
Net Investment Loss ........................ (7,146,985)
-----------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ........................ 110,762,438
Change in net unrealized appreciation/
depreciation of investments ................................. 59,045,415
------------
Net Realized and Unrealized
Gain on Investments ........................ 169,807,853
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .................. $162,660,868
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Large Cap Growth Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ............................................................... ($4,311,745) ($7,146,985)
Net realized gain on investments sold ............................................. 91,144,971 110,762,438
Change in net unrealized appreciation/depreciation of investments ................. (38,147,156) 59,045,415
------------- -------------
Net Increase in Net Assets Resulting from Operations ............................ 48,686,070 162,660,868
------------- -------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($4.1588 and $2.7100 per share, respectively) ......................... (52,605,912) (45,972,496)
Class B - ($4.1588 and $2.7100 per share, respectively) ......................... (6,547,479) (27,759,800)
Class C** - (none and $2.7100 per share, respectively) .......................... -- (27,033)
------------- -------------
Total Distributions to Shareholders ............................................. (59,153,391) (73,759,329)
------------- -------------
From Fund Share Transactions - Net:* ................................................. 270,160,343 109,605,788
------------- -------------
Net Assets:
Beginning of period ............................................................... 339,497,785 599,190,807
------------- -------------
End of period (including accumulated net investment loss
of $19,330 and $23,130, respectively) ........................................... $599,190,807 $797,698,134
============= =============
</TABLE>
*Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1998 1999
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 6,396,870 $142,420,669 9,568,899 $230,610,734
Shares issued in reorganization - Note D ........................ 3,892,361 81,397,839 -- --
Shares issued to shareholders in reinvestment of distributions .. 2,338,784 48,248,711 2,130,741 42,891,827
----------- ------------ ----------- ------------
12,628,015 272,067,219 11,699,640 273,502,561
Less shares repurchased ......................................... (7,925,886) (175,825,692) (9,499,232) (229,248,085)
----------- ------------ ----------- ------------
Net increase .................................................... 4,702,129 $96,241,527 2,200,408 $44,254,476
=========== ============ =========== ============
CLASS B
Shares sold ..................................................... 2,092,555 $44,843,569 6,594,456 $150,932,220
Shares issued in reorganization - Note D ........................ 9,479,759 191,455,100 -- --
Shares issued to shareholders in reinvestment of distributions .. 307,784 6,131,792 1,263,938 24,280,197
----------- ------------ ----------- ------------
11,880,098 242,430,461 7,858,394 175,212,417
Less shares repurchased ......................................... (3,244,695) (68,713,094) (4,888,308) (111,107,205)
----------- ------------ ----------- ------------
Net increase .................................................... 8,635,403 $173,717,367 2,970,086 $64,105,212
=========== ============ =========== ============
CLASS C **
Shares sold ..................................................... 20,303 $456,292 60,561 $1,390,286
Shares issued to shareholders in reinvestment of distributions .. -- -- 1,368 26,263
----------- ------------ ----------- ------------
20,303 456,292 61,929 1,416,549
Less shares repurchased ......................................... (13,181) (254,843) (7,655) (170,449)
----------- ------------ ----------- ------------
Net increase .................................................... 7,122 $201,449 54,274 $1,246,100
=========== ============ =========== ============
</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 - Large Cap Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM YEAR ENDED OCTOBER 31,
----------------------- JANUARY 1, 1996 TO -----------------------------------
1994 1995 OCTOBER 31, 1996(7) 1997 1998 1999
--------- ---------- ------------------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...... $17.40 $15.89 $19.51 $23.28 $24.37 $22.27
-------- -------- -------- -------- -------- --------
Net Investment Loss ....................... (0.10) (0.09)(1) (0.13)(1) (0.12)(1) (0.11)(1) (0.17)(1)
Net Realized and Unrealized Gain
(Loss) on Investments ................... (1.21) 4.40 3.90 3.49 2.17 5.65
-------- -------- -------- -------- -------- --------
Total from Investment Operations ........ (1.31) 4.31 3.77 3.37 2.06 5.48
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized
Gain on Investments Sold .............. (0.20) (0.69) -- (2.28) (4.16) (2.71)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............. $15.89 $19.51 $23.28 $24.37 $22.27 $25.04
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset
Value(2) ................................ (7.50%) 27.17% 19.32%(5) 16.05% 9.80% 27.58%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .. $146,466 $241,700 $279,425 $303,067 $381,591 $484,196
Ratio of Expenses to Average Net Assets ... 1.65% 1.48% 1.48%(6) 1.44% 1.40% 1.35%(8)
Ratio of Net Investment Loss to Average
Net Assets .............................. (0.64%) (0.46%) (0.73%)(6) (0.51%) (0.50%) (0.70%)
Portfolio Turnover Rate ................... 52% 68%(3) 59% 133% 153%(3) 183%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Large Cap Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM YEAR ENDED OCTOBER 31,
----------------------- JANUARY 1, 1996 TO -----------------------------------
1994(4) 1995 OCTOBER 31, 1996(7) 1997 1998 1999
--------- ---------- ------------------- -------- -------- --------
<S> <C> <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 $21.38
------ ------- ------- ------- -------- --------
Net Investment Loss(1) .................... (0.20) (0.26) (0.26) (0.27) (0.25) (0.31)
Net Realized and Unrealized Gain (Loss)
on Investments .......................... (0.93) 4.37 3.84 3.42 2.09 5.38
------ ------- ------- ------- -------- --------
Total from Investment Operations ........ (1.13) 4.11 3.58 3.15 1.84 5.07
------ ------- ------- ------- -------- --------
Less Distributions:
Distributions from Net Realized Gain
on Investments Sold ................... (0.20) (0.69) -- (2.28) (4.16) (2.71)
------ ------- ------- ------- -------- --------
Net Asset Value, End of Period ............ $15.83 $19.25 $22.83 $23.70 $21.38 $23.74
====== ======= ======= ======= ======== ========
Total Investment Return at Net Asset
Value(2) ................................ (6.56%)(5) 26.01% 18.60%(5) 15.33% 9.04% 26.70%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .. $3,807 $15,913 $25,474 $36,430 $217,448 $312,046
Ratio of Expenses to Average Net Assets ... 2.38%(6) 2.31% 2.18%(6) 2.13% 2.08% 2.02%(8)
Ratio of Net Investment Loss to Average
Net Assets .............................. (1.25%)(6) (1.39%) (1.42%)(6) (1.20%) (1.16%) (1.37%)
Portfolio Turnover Rate ................... 52% 68%(3) 59% 133% 153%(3) 183%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Large Cap Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1999
---------------- ----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $21.43 $21.37
------- -------
Net Investment Loss(1) ....................................... (0.10) (0.31)
Net Realized and Unrealized Gain on Investments .............. 0.04 5.38
------- -------
Total from Investment Operations ........................... (0.06) 5.07
------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ... -- (2.71)
------- -------
Net Asset Value, End of Period ............................... $21.37 $23.73
======= =======
Total Investment Return at Net Asset Value(2) ................ (0.28%)(5) 26.72%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $152 $1,457
Ratio of Expenses to Average Net Assets ...................... 2.10%(6) 2.05%(8)
Ratio of Net Investment Loss to Average Net Assets ........... (1.14%)(6) (1.36%)
Portfolio Turnover Rate ...................................... 153%(3) 183%
</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) 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.
(8) Expense ratios do not include interest expense due to bank loans, which
amounted to less than 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Large Cap Growth Fund
Schedule of Investments
October 31, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Large Cap Growth Fund on October 31, 1999. 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 (2.22%)
Interpublic Group of Companies, Inc.
(The) ..................................... 70,000 $2,843,750
Outdoor Systems, Inc.* ...................... 350,000 14,831,250
------------
17,675,000
------------
Banks - United States (0.96%)
Wells Fargo Co. ............................. 160,000 7,660,000
------------
Computers (22.30%)
America Online, Inc.* ....................... 155,000 20,101,563
BMC Software, Inc.* ......................... 290,000 18,614,375
Cisco Systems, Inc.* ........................ 350,000 25,900,000
CMGI, Inc.* ................................. 90,000 9,849,375
Computer Associates International, Inc. ..... 340,000 19,210,000
EMC Corp.* .................................. 370,000 27,010,000
Gateway, Inc.* .............................. 250,000 16,515,625
International Business Machines Corp. ....... 150,000 14,756,250
Microsoft Corp.* ............................ 280,000 25,917,500
------------
177,874,688
------------
Cosmetics & Personal Care (1.26%)
Dial Corp. (The) ............................ 430,000 10,051,250
------------
Diversified Operations (4.64%)
AlliedSignal, Inc. .......................... 300,000 17,081,250
Tyco International Ltd. ..................... 500,000 19,968,750
------------
37,050,000
------------
Electronics (13.35%)
Applied Materials, Inc.* .................... 230,000 20,656,875
General Electric Co. ........................ 285,000 38,635,313
Intel Corp. ................................. 400,000 30,975,000
Motorola, Inc. .............................. 120,000 11,692,500
Solectron Corp.* ............................ 60,000 4,515,000
------------
106,474,688
------------
Finance (2.95%)
Associates First Capital Corp. (Class A) .... 245,000 8,942,500
Citigroup, Inc. ............................. 270,000 14,613,750
------------
23,556,250
------------
Food (2.11%)
Ralston Purina Group ........................ 535,000 16,819,062
------------
Insurance (1.49%)
American General Corp. ...................... 160,000 11,870,000
------------
Leisure (2.03%)
Royal Caribbean Cruises Ltd. ................ 305,000 16,184,062
------------
Media (5.58%)
AMFM, Inc.* ................................. 360,000 25,200,000
Gannett Co., Inc. ........................... 250,000 19,281,250
------------
44,481,250
------------
Medical (11.88%)
Johnson & Johnson ........................... 150,000 15,712,500
Merck & Co., Inc. ........................... 240,000 19,095,000
Pharmacia & Upjohn, Inc. .................... 300,000 16,181,250
Schering-Plough Corp. ....................... 400,000 19,800,000
Warner-Lambert Co. .......................... 300,000 23,943,750
------------
94,732,500
------------
Office (1.08%)
Pitney Bowes, Inc. .......................... 190,000 8,656,875
------------
Oil & Gas (2.04%)
Baker Hughes, Inc. .......................... 300,000 8,381,250
Schlumberger Ltd. ........................... 130,000 7,873,125
------------
16,254,375
------------
Retail (12.31%)
CVS Corp. ................................... 415,000 18,026,562
Home Depot, Inc. (The) ...................... 205,000 15,477,500
Kroger Co.* ................................. 700,000 14,568,750
Safeway, Inc.* .............................. 620,000 21,893,750
Staples, Inc.* .............................. 340,000 7,543,750
Wal-Mart Stores, Inc. ....................... 365,000 20,690,938
------------
98,201,250
------------
Soap & Cleaning Preparations (2.23%)
Procter & Gamble Co. (The) .................. 170,000 17,828,750
------------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Large Cap Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Telecommunications (11.35%)
Bell Atlantic Corp. ......................... 285,000 $18,507,188
Lucent Technologies, Inc. ................... 300,000 19,275,000
MCI WorldCom, Inc.* ......................... 100,000 8,581,250
Nextel Communications, Inc. (Class A)* ...... 110,000 9,480,625
Sprint PCS* ................................. 220,000 18,246,250
Tellabs, Inc.* .............................. 260,000 16,445,000
------------
90,535,313
------------
TOTAL COMMON STOCKS
(Cost $616,041,628) (99.78%) 795,905,313
------------ ------------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (3.99%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
10-29-99, due 11-01-99
(Secured by U.S. Treasury
Bonds, 7.125% thru 13.375%,
due 08-15-01 thru 02-15-23)
-- Note A ................. 5.23% $31,845 31,845,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.30% ........................ 951
------------
TOTAL SHORT-TERM INVESTMENTS (3.99%) 31,845,951
-------- ------------
TOTAL INVESTMENTS (103.77%) 827,751,264
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (3.77%) (30,053,130)
-------- ------------
TOTAL NET ASSETS (100.00%) $797,698,134
======== ============
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Large Cap 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 four series: John Hancock Large Cap Growth Fund (the "Fund"),
John Hancock Global Fund, John Hancock Mid Cap Growth Fund and John Hancock
International Fund. The other three series of the Trust are reported in separate
financial statements. The investment objective of the Fund is to seek 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 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 size of the funds.
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Large Cap Growth 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. Effective March 12, 1999,
the Fund entered into a syndicated line of credit agreement with various banks
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in an unsecured
line of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund, based on its borrowings. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The
maximum loan balance outstanding during the year amounted to $6,579,000. The
annualized interest rate charged during the year ranged from 5.375% through
5.625%. At October 31, 1999, there were no outstanding borrowings.
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, 1999, the Fund
loaned securities having a market value of $28,259,763 collateralized by
securities in the amount of $29,548,505.
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.
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, 1999, net sales charges received with regard to sales of Class A shares
amounted to $599,985. Out of this amount, $77,978 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$266,548 was paid as sales commissions to unrelated broker-dealers and $255,459
was paid as sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Signator Investors.
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 related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the year ended October 31, 1999,
contingent deferred sales charges amounted to $607,273.
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 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, 1999, contingent deferred sales charges amounted to $29.
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
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Large Cap Growth Fund
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. A maximum of 0.25% of such payments may be
service fees as defined by the Conduct Rules of the National Association of
Securities Dealers. Under the Conduct Rules, 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,
accounting and legal 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., Mr. Stephen L. Brown, Ms. Maureen R. Ford,
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 through
December 31, 1999. 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. The investment had no impact on the operations of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term obligations, during the year
ended October 31, 1999, aggregated $1,401,862,406 and $1,358,911,682,
respectively.
The cost of investments owned at October 31, 1999 (excluding the corporate
savings account) for federal income tax purposes was $652,965,739. Gross
unrealized appreciation and depreciation of investments aggregated $194,148,479
and $19,363,905, respectively, resulting in net unrealized appreciation of
$174,784,574.
NOTE D -
REORGANIZATION
On November 12, 1997, the shareholders of John Hancock Disciplined Growth Fund
(JHDGF) and John Hancock Discovery Fund (JHDF) approved a plan of reorganization
between JHDGF and the Fund, and JHDF and the Fund, providing for the transfer of
substantially all of the assets and liabilities of JHDGF and JHDF to the Fund in
exchange solely for Class A and Class B shares of the Fund. The acquisition of
JHDGF was accounted for as a tax free exchange of 1,825,089 Class A shares and
5,012,295 Class B shares of the Fund (valued at $38,166,628 and $101,229,305,
respectively) for the 2,318,348 Class A shares and 6,305,496 Class B shares of
JHDGF, including $42,164,993 of unrealized appreciation, after the close of
business at December 5, 1997. The acquisition of JHDF was accounted for as a tax
free exchange of 2,067,272 Class A shares and 4,467,464 Class B shares of the
Fund (valued at $43,231,211 and $90,225,795, respectively) for 2,567,733 Class A
shares and 5,636,912 Class B shares of JHDF, including $31,282,553 of unrealized
appreciation, after the close of business at December 5, 1997. The aggregate net
assets of JHDGF, JHDF and the Fund were $139,395,933, $133,457,006 and
$350,721,840, respectively, immediately before the acquisition.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Large Cap Growth Fund
NOTE E -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1999, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$31,127,453, a decrease in accumulated net investment loss of $7,143,185 and an
increase in capital paid-in of $23,984,268. This represents the amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1999. 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 priciples 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.
18
<PAGE>
================================================================================
John Hancock Funds - Large Cap Growth Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Investment Trust III --
John Hancock Large Cap Growth Fund
(formerly John Hancock Growth Fund)
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Large Cap Growth Fund (the
"Fund"), a series of John Hancock Investment Trust III, as of October 31, 1999,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, 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, 1999, 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 Large Cap Growth Fund, a series of John Hancock Investment Trust
III, at October 31, 1999, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, 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 3, 1999
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,
1999.
The Fund has designated distributions to shareholders of $73,759,329 as
capital gain dividends.
Shareholders will be mailed a 1999 U.S. Treasury Department Form 1099-DIV
in January 2000. This will reflect the tax character of all distributions for
the calendar year 1999.
19
<PAGE>
================================================================================
----------------
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- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Large
Cap 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 10/99
12/99
<PAGE>
---------------------------
The latest report from your
Fund's management team
---------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC]
International
Fund
OCTOBER 31, 1999
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
DENNIS S. ARONOWITZ*
STEPHEN L. BROWN
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
LELAND O. ERDAHL
RICHARD A. FARRELL
MAUREEN R. FORD
GAIL D. FOSLER
WILLIAM F. GLAVIN
ANNE C. HODSDON
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
*Members of the Audit Committee
OFFICERS
STEPHEN L. BROWN
Chairman
MAUREEN R. FORD
Vice Chairman and Chief Executive Officer
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Executive 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
===================================CEO CORNER===================================
DEAR FELLOW SHAREHOLDERS:
I am delighted that one of my first official duties at John Hancock Funds is to
welcome you to the New Millennium! I wish you all the best for a century filled
with momentous occasions.
Every New Year, of course, provides us with a built-in opportunity to make new
resolutions, or re-commit to old ones. It seems fitting, therefore, that this
special New Year 2000 coincides with a very important, although certainly less
exotic, event.
Starting last October, personalized Social Security statements are being sent to
125 million workers over age 25, showing estimates of the retirement, disability
and survivor benefits that they and their families are eligible to receive now
and in the future.
The statements, to be sent out annually, will provide people with a glimpse of
what they can expect from the government when they retire. This should be
comforting to those who feared that Social Security wouldn't be there for them
at all. But many people also already know that government benefits will only
fulfill a small piece of their retirement needs.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Maureen R. Ford, Vice Chairman and Chief Executive Officer,
flush right next to fourth paragraph.]
- --------------------------------------------------------------------------------
The best thing about this massive mailing is that it can serve as a wake-up call
to encourage families to focus more on planning for their financial future.
When you receive your statement, expected to be within three months of your next
birthday, we urge you to read it carefully for accuracy, making sure your annual
earnings history and amounts you have contributed over the years are correct.
Keep in mind that the estimated benefits are precisely that, and that rules and
regulations may change by the time you retire. Also remember that they are not
inflation adjusted, so it would be unrealistic to expect them to have the same
purchasing power in the future as they would today.
We also encourage you to use this mailing as a reason to contact your investment
professional, or to select one if you are not working with somebody. He or she
can help you focus on establishing and maintaining a sound plan to achieve a
comfortable retirement. Together, you should make sure to maximize your
participation in tax-advantaged programs like IRAs and 401(k)s.
The stakes are too high to leave your retirement lifestyle to chance. Congress'
awareness-raising effort is commendable. The next step is yours. Mark the
beginning of the New Millennium by taking it.
Sincerely,
/s/ Maureen R. Ford
MAUREEN R. FORD, VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY MIREN ETCHEVERRY AND JOHN L.F. WILLS, PORTFOLIO MANAGERS
John Hancock
International Fund
Japan and emerging markets top
international performance this year
Recently, shareholders voted to approve a new subadvisory investment management
contract with Indocam International Investment Services, effective January 1,
2000.
The last 12 months were productive for overseas investors, as world financial
markets settled down after last year's global economic turmoil. Japan and the
emerging markets of Asia provided the largest returns, as many of the Southeast
Asian countries that sparked the problems in 1997 showed particularly strong
signs of recovery. Lower interest rates and a pickup in exports and growth
produced especially strong results in South Korea, Thailand and Malaysia. Japan,
whose signs of economic recovery remain more tentative, benefited from a bank
re-capitalization plan and several major corporate restructurings. These served
as signals for foreign investors to re-enter the Japanese market and also caused
the yen to strengthen versus the dollar.
In Europe, a slowdown in economic growth for most of the period, the
decline of the new euro common currency and rising interest rates in the second
half of the fiscal year caused those markets to cool, yet the region still
managed to return 10% overall. Although still in recession in 1999, Latin
American markets also produced positive results due to the rise in commodity
prices, which helped these commodity-dependent markets. Several individual
country concerns held the Latin markets back as the year progressed.
Even though the second half of the fiscal period became more turbulent as
concerns about rising U.S. interest rates filtered through foreign markets, the
world as a whole kept pace with the United States. Our benchmark Morgan Stanley
Capital International (MSCI) All Country World Free Ex-U.S. Index returned
25.26% for the year ended October 31, 1999, compared to the 25.67% return of the
Standard & Poor's 500 Index.
Fund performance
John Hancock International Fund participated in the strength of overseas markets
to much the same degree as our peers. For the year ended October 31, 1999, the
Fund's Class A, Class B and Class C shares posted total returns of 24.29%,
23.39% and 23.63%, respectively, at net asset value. That compared to the 25.53%
"The last 12 months were productive for overseas investors..."
3
<PAGE>
================================================================================
John Hancock Funds - International Fund
"During the year, Japan grew from 8% to 27% of the Fund's net assets..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into seven sections (from top to left): Continental Europe 39%,
Latin America 1%, Canada 4%, Short-term Investments & Other 4%, Pacific Rim ex
Japan 10%, United Kingdom & Ireland 15% and Japan 27%. A note below the chart
reads "As a percentage of net assets on October 31, 1999."]
- --------------------------------------------------------------------------------
return of the average international fund, according to Lipper, 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.
Shifting assets to Asia, emerging markets
Starting in the spring, as we grew more confident in the improved prospects for
recoveries in Japan and the emerging markets, we repositioned the portfolio to
up our stakes in those regions. In so doing, the Fund moved to a more average
weight in continential Europe and the United Kingdom -- 54%, down from 84% a
year ago -- and became more regionally balanced. After re-entering Hong Kong and
Brazil in the first half of the year, we re-established positions in South
Korea, Taiwan, Indonesia, China and Thailand in the second half. This, along
with an increase in Japan, caused our Asian exposure to rise from 11% a year ago
to 39% at the end of October. We also re-established a small foothold in Mexico
in the second half of the year.
Japan grows
During the course of the year, Japan grew from 8% to 27% of the Fund's net
assets through a combination of additional names and strong performance, so that
we ended the year slightly overweighted versus our benchmark and peers. Japan
was also the biggest contributor to the Fund's performance. The best performers
there included Sony, which announced a major corporate restructuring, and Sakura
Bank and Nomura Securities, both of which rebounded after the proposed merger of
three large banks further bolstered confidence in the financial sector. Fujitsu,
one of the largest manufacturers of computer and electronics components, is also
thriving on the telecom equipment boom.
The two fundamental themes driving the Japanese markets are the prospects for
economic recovery and the potential for corporate restructuring. Our Japanese
portfolio is composed of blue-chip companies benefiting from those themes, as
well as from the government's bank re-capitalization plan and the re-emergence
of the Japanese consumer.
Europe: cut but still important
We got to our reduced focus in Europe by cutting our overweighting in France and
lowering our stakes in the U.K., Switzerland and Belgium. Nonetheless, we plan
to keep an important position in Europe because of the opportunities that still
abound around corporate restructurings and industry consolidation. What's more,
despite rising interest rates late in the
- --------------------------------------------------------------------------------
[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 Sony followed
by an up arrow with the phrase "Market reacts favorably to restructuring plan."
The second listing is Mannesmann followed by an up arrow with phrase "Strong
subscriber growth boosts Europe's largest telecom company." The third listing is
Novartis followed by a down arrow with the phrase "Troubles with its
agrochemical division." A note below the table reads "See `Schedule of
Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - International Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the year ended October 31, 1999." The
chart is scaled in increments of 5% with 0% at the bottom and 30% at the top.
The first bar represents the 24.29% total return for John Hancock International
Fund Class A. The second bar represents the 23.39% total return for John Hancock
International Fund Class B. The third bar represents the 23.63% total return for
John Hancock International Fund Class C. The fourth bar represents the 25.53%
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 international fund is tracked by Lipper,
Inc.1 See the following two pages for historical performance information."]
- --------------------------------------------------------------------------------
period, Europe's growth rate began to rebound without signs of inflation, due to
a pickup in demand fueled by Asia's recovery and a weak euro that helped
exporters.
Europe still produced some of our biggest winners, such as leading
cellular-phone manufacturer Nokia and and Royal Philips Electronics. There were
also disappointments, however, including Allied Irish Banks, which was unduly
hit by concerns over its recent merger with a Singapore bank, and
DaimlerChrysler, which the market punished for not moving fast enough to realize
the synergies of its famous merger.
Cautious optimism ahead
We remain encouraged about the long-term prospects for international equities,
while being alert to the growing potential for uncertainties in the nearer term.
These include year 2000 computer concerns ("Y2K") and the potential for rising
U.S. interest rates and persistent robust growth, which could slow down
worldwide growth.
The fundamentals of Europe and Japan are strong. In Europe, the impending
pickup in economic growth should help corporate earnings growth, while major
alliances continue to accelerate. While Japan is still sending contrasting
signals, consumer spending is growing at a sustained pace, despite a fall in
income and the ongoing deterioration of the labor market. Japan is also
benefiting from a rebound in external demand coming from its strengthening Asian
neighbors.
Barring a series of U.S. interest rates or major Y2K dislocations, which
we do not anticipate, we believe the outlook for emerging markets is also
positive. Latin America is expected to recover from its 1999 recession and grow
3% next year. Emerging Asian markets are expected to maintain a robust growth in
excess of 5%, even assuming modest growth in Japan, the region's economic
engine.
"We remain encouraged about the long-term prospects for international
equities..."
- --------------------------------------------------------------------------------
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, 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, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
------ ------ ---------
Cumulative Total Returns 21.40% 19.42% 18.22%
Average Annual Total Returns(1) 21.40% 3.61% 2.96%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE FIVE INCEPTION
YEAR YEARS (1/3/94)
------ ------ ---------
Cumulative Total Returns 22.03% 19.09% 18.52%
Average Annual Total Returns(1) 22.03% 3.56% 3.00%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended September 30, 1999
SINCE
ONE INCEPTION
YEAR (6/1/98)
------ ---------
Cumulative Total Returns 26.03% 6.94%
Average Annual Total Returns(1) 26.03% 5.17%
Note to Performance
(1) Effective January 3, 1994, the Adviser has voluntarily undertaken to
temporarily 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 returns for the one-year period, five-year period and since
inception would have been 19.47%, 1.64% and 0.95%, respectively, for Class
A shares and 20.09%, 1.59% and 0.99%, respectively, for Class B shares.
The average annual total returns for the one-year period and since
inception would have been 24.09% and 3.27%, respectively, for Class C
shares.
6
<PAGE>
================================================================================
John Hancock Funds - International Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
International Fund would be worth, assuming all distributions were reinvested
for the period indicated. For comparison, we've shown the same $10,000
investment in the Morgan Stanley Capital International (MSCI) All Country World
Free Ex-U.S. Index, which measures the performance of a broad range of developed
and emerging stock markets around the world. The index represents "free"
securities that are traded freely on equity exchanges around the world. It is
not possible to invest in an index. 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 Free Ex-U.S. Index and is equal to $16,785 as of October 31,
1999. 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 $13,168 as of October 31, 1999. 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 $12,509 as of
October 31, 1999.
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 Free Ex-U.S. Index and is equal to $16,785 as of October 31,
1999. 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 $12,633 as of October 31, 1999. 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 $12,533 as of
October 31, 1999.
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 two lines. The first line represents the MSCI All
Country World Free Ex-U.S. Index and is equal to $11,702 as of October 31, 1999.
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 $11,303 as of October 31, 1999.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Statement of Assets and Liabilities
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks, rights and warrants (cost - $13,684,567) ........... $16,482,823
Short-term investments (cost - $1,511,144) - Note A ............................. 1,511,144
-----------
17,993,967
Receivable for investments sold .................................................. 633,475
Receivable for shares sold ....................................................... 137
Dividends receivable ............................................................. 17,765
Foreign tax receivable ........................................................... 11,731
Interest receivable .............................................................. 164
Other assets ..................................................................... 713
-----------
Total Assets ................................................... 18,657,952
------------------------------------------------------------------------------
Liabilities:
Due to custodian including foreign currencies (cost - $56,415) ................... 56,129
Payable for investments purchased ................................................ 330,893
Payable for forward foreign currency exchange contracts purchased - Note A ....... 8
Payable for forward foreign currency exchange contracts sold - Note A ............ 224
Payable for shares repurchased ................................................... 926
Payable upon return of securities on loan - Note A ............................... 1,134,144
Payable to John Hancock Advisers, Inc. and affiliates - Note B ................... 49,248
Accounts payable and accrued expenses ............................................ 75,208
-----------
Total Liabilities .............................................. 1,646,780
------------------------------------------------------------------------------
Net Assets:
Capital paid-in .................................................................. 13,670,451
Accumulated net realized gain on investments and foreign currency transactions ... 682,928
Net unrealized appreciation of investments and foreign currency transactions ..... 2,797,433
Accumulated net investment loss .................................................. (139,640)
-----------
Net Assets ..................................................... $17,011,172
==============================================================================
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 - $7,387,844/674,540 ..................................................... $10.95
================================================================================================
Class B - $9,436,021/894,192 ..................................................... $10.55
================================================================================================
Class C - $187,307/17,723 ........................................................ $10.57
================================================================================================
Maximum Offering Price Per Share*
Class A - ($10.95 x 105.26%) ..................................................... $11.53
================================================================================================
</TABLE>
* 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 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, 1999. 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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $36,020) ............................... $251,833
Interest (including income on securities loaned of $7,408) ............................ 25,258
----------
277,091
----------
Expenses:
Investment management fee - Note B ................................................... 159,468
Distribution and service fee - Note B
Class A ............................................................................ 19,698
Class B ............................................................................ 89,966
Class C ............................................................................ 726
Custodian fee ........................................................................ 150,320
Transfer agent fee - Note B .......................................................... 121,839
Registration and filing fees ......................................................... 70,742
Auditing fee ......................................................................... 36,985
Printing ............................................................................. 12,136
Organization expense - Note A ........................................................ 4,039
Accounting and legal services fee - Note B ........................................... 2,650
Trustees' fees ....................................................................... 762
Legal fees ........................................................................... 651
Miscellaneous ........................................................................ 551
----------
Total Expenses ...................................................... 670,533
----------------------------------------------------------------------------------
Less Expense Reductions - Note B .................................... (294,784)
----------------------------------------------------------------------------------
Net Expenses ........................................................ 375,749
----------------------------------------------------------------------------------
Net Investment Loss ................................................. (98,658)
----------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ................................................. 1,319,325
Net realized loss on foreign currency transactions .................................... (86,357)
Change in net unrealized appreciation/depreciation of investments ..................... 2,435,385
Change in net unrealized appreciation/depreciation of foreign currency transactions ... (2,960)
----------
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions ....................................... 3,665,393
----------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ................ $3,566,735
==================================================================================
</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,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .............................................................. ($61,776) ($98,658)
Net realized gain (loss) on investments sold and foreign currency transactions ... (20,135) 1,232,968
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions .................................................. 522,994 2,432,425
----------- -----------
Net Increase in Net Assets Resulting from Operations ............................. 441,083 3,566,735
----------- -----------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.0676 and none per share, respectively) ........................... (42,230) --
Class B - ($0.0676 and none per share, respectively) ........................... (68,630) --
----------- -----------
Total Distributions to Shareholders .............................................. (110,860) --
----------- -----------
From Fund Share Transactions - Net:* ................................................ 1,850,363 (2,414,954)
----------- -----------
Net Assets:
Beginning of period .............................................................. 13,678,805 15,859,391
----------- -----------
End of period (including accumulated net investment loss of $83,042
and $139,640, respectively) .................................................... $15,859,391 $17,011,172
=========== ===========
</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.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
*Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------
1998 1999
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ...................................................... 1,291,951 $11,453,795 1,992,880 $19,868,374
Shares issued to shareholders in reinvestment of distributions ... 5,131 43,600 -- --
---------- ----------- ---------- -----------
1,297,082 11,497,395 1,992,880 19,868,374
Less shares repurchased .......................................... (1,193,043) (10,519,106) (2,012,650) (20,158,135)
---------- ----------- ---------- -----------
Net increase (decrease) .......................................... 104,039 $978,289 (19,770) ($289,761)
========== =========== ========== ===========
CLASS B
Shares sold ...................................................... 1,001,789 $8,906,797 679,532 $6,557,542
Shares issued to shareholders in reinvestment of distributions ... 6,391 52,132 -- --
---------- ----------- ---------- -----------
1,008,180 8,958,929 679,532 6,557,542
Less shares repurchased .......................................... (930,993) (8,113,241) (922,491) (8,828,604)
---------- ----------- ---------- -----------
Net increase (decrease) .......................................... 77,187 $845,688 (242,959) ($2,271,062)
========== =========== ========== ===========
CLASS C**
Shares sold ...................................................... 4,321 $40,254 16,886 $164,040
Less shares repurchased .......................................... (1,605) (13,868) (1,879) (18,171)
---------- ----------- ---------- -----------
Net increase ..................................................... 2,716 $26,386 15,007 $145,869
========== =========== ========== ===========
</TABLE>
** Class C shares commenced operations on June 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<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>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $8.65 $8.14 $8.70 $8.41 $8.81
------ ------ ------ ------ ------
Net Investment Income (Loss) ...................................... 0.04 0.06(1) (0.02)(1) 0.00(1,7) (0.02)(1)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .................................... (0.47) 0.50 (0.26) 0.47 2.16
------ ------ ------ ------ ------
Total from Investment Operations ................................. (0.43) 0.56 (0.28) 0.47 2.14
------ ------ ------ ------ ------
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 .................................... $8.14 $8.70 $8.41 $8.81 $10.95
====== ====== ====== ====== ======
Total Investment Return at Net Asset Value (2) .................... (4.96%) 6.88% (3.22%) 5.61% 24.29%
Total Adjusted Investment Return at Net Asset Value (2,4) ........ (8.12%) 5.33% (4.52%) 3.75% 22.44%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .......................... $4,215 $5,098 $4,965 $6,116 $7,388
Ratio of Expenses to Average Net Assets ........................... 1.64% 1.75% 1.73%(8) 1.79%(8) 1.96%
Ratio of Adjusted Expenses to Average Net Assets (6) .............. 4.80% 3.30% 3.03%(8) 3.65%(8) 3.81%
Ratio of Net Investment Income (Loss) to Average Net Assets ....... 0.56% 0.68% (0.16%) 0.04% (0.20%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (6) ... (2.60%) (0.87%) (1.46%) (1.82%) (2.05%)
Portfolio Turnover Rate ........................................... 69% 83% 169% 129% 113%
Fee Reduction Per Share (1) ....................................... $0.25 $0.14 $0.12 $0.17 $0.18
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indi cated: the net invest ment income, gains
(losses), distributions and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed since the commencement of
operations. Additionally, important rela tionships between some items presented
in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $8.61 $8.05 $8.55 $8.22 $8.55
------ ------ ------ ------ ------
Net Investment Income (Loss) ...................................... (0.03) 0.00(1,7) (0.08)(1) (0.06)(1) (0.09)(1)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .................................... (0.48) 0.50 (0.25) 0.46 2.09
------ ------ ------ ------ ------
Total from Investment Operations ................................. (0.51) 0.50 (0.33) 0.40 2.00
------ ------ ------ ------ ------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold and
Foreign Currency Transactions .................................... (0.05) -- -- (0.07) --
------ ------ ------ ------ ------
Net Asset Value, End of Period .................................... $8.05 $8.55 $8.22 $8.55 $10.55
====== ====== ====== ====== ======
Total Investment Return at Net Asset Value (2) .................... (5.89%) 6.21% (3.86%) 4.88% 23.39%
Total Adjusted Investment Return at Net Asset Value (2,4) ........ (9.05%) 4.66% (5.16%) 3.02% 21.54%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .......................... $3,990 $8,175 $8,713 $9,720 $9,436
Ratio of Expenses to Average Net Assets ........................... 2.52% 2.45% 2.43%(8) 2.49%(8) 2.63%
Ratio of Adjusted Expenses to Average Net Assets (6) .............. 5.68% 4.00% 3.73%(8) 4.35%(8) 4.48%
Ratio of Net Investment Income (Loss) to Average Net Assets ....... (0.37%) 0.02% (0.88%) (0.66%) (0.91%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (6) ... (3.53%) (1.53%) (2.18%) (2.52%) (2.76%)
Portfolio Turnover Rate ........................................... 69% 83% 169% 129% 113%
Fee Reduction Per Share (1) ....................................... $0.25 $0.14 $0.12 $0.17 $0.18
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO YEAR ENDED
OCTOBER 31, 1998 OCTOBER 31, 1999
---------------- ----------------
<S> <C> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period .............................. $9.36 $8.55
------ ------
Net Investment Loss (1) ........................................... (0.03) (0.10)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .................................... (0.78) 2.12
------ ------
Total from Investment Operations ................................. (0.81) 2.02
------ ------
Net Asset Value, End of Period .................................... $8.55 $10.57
====== ======
Total Investment Return at Net Asset Value (2) .................... (8.65%)(3) 23.63%
Total Adjusted Investment Return at Net Asset Value (2,4) ......... (9.43%)(3) 21.78%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .......................... $23 $187
Ratio of Expenses to Average Net Assets ........................... 2.29%(5,8) 2.66%
Ratio of Adjusted Expenses to Average Net Assets (6) .............. 4.15%(5,8) 4.51%
Ratio of Net Investment Loss to Average Net Assets ................ (1.27%)(5) (1.04%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (6) ... (3.13%)(5) (2.89%)
Portfolio Turnover Rate ........................................... 129% 113%
Fee Reduction Per Share (1) ....................................... $0.07 $0.18
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Not annualized.
(4) An estimated total return calculation that does not take into
consideration management fee reductions and other expense subsidies by the
Adviser during the periods shown.
(5) Annualized.
(6) Unreimbursed, without fee reduction.
(7) Less than $0.01 per share.
(8) Expense ratios do not include interest expense due to bank loans, which
amounted to less than 0.01%.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
Schedule of Investments
October 31, 1999
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
International Fund on October 31, 1999. It's divided into five main categories:
common stocks, preferred stocks, rights, warrants and short-term investments.
Common and preferred stocks and rights and warrants are further broken down by
country. Short-term investments, which represent the Fund's "cash" position, are
listed last.
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
COMMON STOCKS
Australia (2.74%)
Capral Aluminium Ltd. (Metal) ................... 30,177 $37,064
Foster's Brewing Group Ltd.
(Beverages) .................................... 15,088 40,103
National Australia Bank Ltd.
(Banks - Foreign) .............................. 1,522 23,488
National Foods Ltd. (Food) ....................... 13,036 24,108
News Corp., Ltd. (The) (Media) ................... 4,500 32,542
News Corp., Ltd. (The), American
Depositary Receipt (ADR) (Media) ............... 4,443 131,624
Pasminco Ltd. (Metal) ............................ 40,236 38,488
Smorgon Steel Group Ltd. (Steel) ................. 24,693 33,383
Telstra Corp., Ltd. (Telecommunications) ......... 15,594 79,326
WMC Ltd. (Metal) ................................. 6,024 25,853
-----------
465,979
-----------
Belgium (0.00%)
Fortis AG* (Certificate De Valeur Garantie)
(Insurance) .................................... 1,134 12
-----------
Canada (3.90%)
Barrick Gold Corp. (Metal) ....................... 4,700 86,069
Bombardier, Inc. (Diversified Operations) ........ 16,136 284,482
Nortel Networks Corp.
(Telecommunications) ........................... 3,122 192,063
Petro-Canada (Oil & Gas) ......................... 7,000 100,109
-----------
662,723
-----------
China (0.48%)
Shandong International Power
Development Co., Ltd.* (Utilities) ............. 200,000 31,924
Yanzhou Coal Mining Co., Ltd. (Metal) ............ 149,000 49,389
-----------
81,313
-----------
Finland (2.85%)
Nokia AB (Telecommunications) ................... 4,240 485,276
-----------
France (10.19%)
Alcatel SA (Telecommunications) .................. 660 103,092
Axa SA (Insurance) ............................... 713 100,571
Bouygues SA (Building) ........................... 352 122,553
Cap Gemini SA (Computers) ........................ 270 40,896
Carrefour SA (Retail) ............................ 851 157,542
France Telecom SA
(Telecommunications) ........................... 526 50,818
Legrand SA (Electronics) ......................... 144 34,459
L'Oreal SA (Cosmetics & Personal Care) ........... 277 184,869
Pinault-Printemps-Redoute SA (Retail) ............ 785 149,700
PSA Peugeot Citroen SA*
(Automobile/Trucks) ............................ 449 86,191
Schneider Electric SA (Machinery) ................ 681 46,918
STMicroelectronics NV (Electronics) .............. 901 79,134
Suez Lyonnaise des Eaux SA
(Diversified Operations) ....................... 1,044 168,563
Total Fina SA (Oil & Gas) ........................ 1,692 228,695
Vivendi SA (Diversified Operations) .............. 2,363 179,082
-----------
1,733,083
-----------
Germany (7.08%)
Allianz AG (Insurance) ........................... 460 140,075
Bayerische Hypo- und Vereinsbank AG
(Banks - Foreign) .............................. 1,510 99,110
DaimlerChrysler AG
(Automobile/Trucks) ............................ 1,597 124,306
Degussa-Huels AG* (Chemicals) ................... 1,437 54,868
Deutsche Telekom AG
(Telecommunications) ........................... 730 33,555
Fresenius AG (Medical) ........................... 406 57,225
Linde AG (Engineering/R&D Services) .............. 990 51,858
Mannesmann AG (Machinery) ........................ 2,276 357,904
Metro AG (Retail) ................................ 89 4,784
SAP AG (Computers) ............................... 176 65,386
Siemens AG (Diversified Operations) .............. 1,565 140,498
VEBA AG (Diversified Operations) ................. 1,397 75,529
-----------
1,205,098
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Hong Kong (2.16%)
Aeon Credit Service Co., Ltd. (Finance) .......... 72,000 $29,658
Cheung Kong Holdings Ltd.
(Real Estate Operations) ....................... 10,000 91,073
China Resources Enterprises Ltd.
(Real Estate Operations) ....................... 34,000 43,548
First Pacific Co., Ltd.
(Diversified Operations) ....................... 28,000 16,219
Henderson Land Development Co., Ltd.
(Real Estate Operations) ....................... 8,000 36,352
HSBC Holdings Plc (Banks - Foreign) .............. 7,705 92,736
New World Development Co., Ltd.
(Real Estate Operations) ....................... 13,225 25,025
Swire Pacific Ltd.
(Diversified Operations) ....................... 6,500 32,213
-----------
366,824
-----------
Indonesia (0.54%)
PT Bank Internasional Indonesia
(Banks - Foreign) .............................. 1,556,000 34,048
PT Bank Negara Indonesia
(Banks - Foreign) .............................. 498,000 25,427
PT Medco Energi Corp. (Oil & Gas) ................ 74,000 32,655
-----------
92,130
-----------
Ireland (0.32%)
CRH Plc (Building) ............................... 2,904 54,830
-----------
Italy (2.95%)
Alleanza Assicurazioni SpA (Insurance) ........... 3,210 32,718
Assicurazioni Generali SpA (Insurance) ........... 2,611 83,765
Bipop-Carire SpA (Banks - Foreign) ............... 2,038 86,283
ENI SpA (Oil & Gas) .............................. 9,500 55,559
Telecom Italia Mobile SpA
(Telecommunications) ........................... 31,005 193,719
Telecom Italia SpA (Telecommunications) .......... 3,899 33,670
UniCredito Italiano SpA (Banks - Foreign) ........ 3,417 15,994
-----------
501,708
-----------
Japan (27.41%)
Aiful Corp. (Finance) ............................ 300 46,610
Bank of Tokyo-Mitsubishi, Ltd.
(Banks - Foreign) .............................. 26,000 430,881
Daiwa House Industry Co., Ltd. (Building) ........ 6,000 54,896
Denso Corp. (Automobile/Trucks) .................. 5,000 106,934
Fuji Heavy Industries Ltd.
(Automobile/Trucks) ............................ 11,000 93,469
Fujitsu Ltd. (Computers) ......................... 7,000 210,799
Fujitsu Systems Construction Ltd.
(Engineering/R&D Services) ..................... 9,000 176,081
Ito-Yokado Co., Ltd. (Retail) ................... 2,000 159,969
Marubeni Corp. (Diversified Operations) .......... 65,000 206,963
Nippon Telegraph & Telephone Corp.
(Telecommunications) ........................... 27 414,309
Nippon Thompson Co., Ltd. (Machinery) ............ 12,000 77,798
Nomura Securities Co., Ltd.
(Broker Services) .............................. 22,000 363,115
NTT Mobile Communication Network, Inc.
(Telecommunications) ........................... 10 265,656
Orix Corp. (Leasing Companies) ................... 1,500 201,400
Ricoh Co., Ltd. (Office) ......................... 8,000 130,507
Sakura Bank, Ltd. (The)
(Banks - Foreign) .............................. 39,000 335,130
Sekisui House, Ltd. (Building) ................... 11,000 119,104
Sony Corp. (Electronics) ......................... 3,600 561,389
Takeda Chemical Industries, Ltd.
(Medical) ...................................... 6,000 344,682
Takefuji Corp. (Finance) ......................... 2,000 258,943
Toyota Motor Corp. (Automobile / Trucks) ......... 3,000 103,865
-----------
4,662,500
-----------
Mexico (0.83%)
Grupo Televisa SA (ADR) (Media) .................. 868 36,890
Telefonos de Mexico SA (ADR)
(Telecommunications) ........................... 1,215 103,883
-----------
140,773
-----------
Netherlands (6.73%)
AEGON NV (Insurance) ............................. 1,575 145,372
Akzo Nobel NV (Chemicals) ........................ 2,823 121,566
Dordtsche Petroleum-Industrie
Maatschappij NV
(Diversified Operations) ....................... 4,394 223,697
Fortis NV (Insurance) ............................ 2,666 91,783
Koninklijke Numico NV (Food) ..................... 1,054 42,960
Randstad Holding NV
(Business Services - Misc.) ................... 896 45,426
Royal Philips Electronics NV (Electronics) ....... 1,630 167,165
TNT Post Group NV* (Transport) ................... 1,500 38,182
Unilever Plc (Food) .............................. 19,049 176,852
Wolters Kluwer NV (Media) ........................ 2,747 91,797
-----------
1,144,800
-----------
Norway (0.37%)
Tomra Systems ASA (Machinery) ................... 1,642 62,764
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
Singapore (0.66%)
First Capital, Inc. (Real Estate Operations) ..... 31,000 $36,903
Keppel TatLee Bank Ltd.
(Banks - Foreign) .............................. 23,000 46,462
Singapore Telecommunications, Ltd.
(Telecommunications) ........................... 15,000 28,498
-----------
111,863
-----------
South Korea (1.81%)
Hanvit Bank (Banks - Foreign) ................... 5,400 20,033
Housing & Commercial Bank
(Banks - Foreign) .............................. 500 13,214
Kookmin Bank (Banks - Foreign) ................... 1,600 24,944
Korea Line Co. (Transport) ....................... 1,800 19,808
Korea Telecom Corp.
(Telecommunications) ........................... 900 60,550
Samsung Electronics Co. (Electronics) ............ 590 98,374
Shinhan Bank (Banks - Foreign) ................... 3,400 35,998
SK Telecom Co., Ltd.
(Telecommunications) ........................... 30 34,639
-----------
307,560
-----------
Spain (2.47%)
Banco Santander Central Hispano, SA
(Banks - Foreign) .............................. 13,481 139,956
Centros Comerciales Pryca, SA (Retail) ........... 2,177 40,920
Endesa SA (Utilities) ............................ 866 17,334
Telefonica SA* (Telecommunications) .............. 13,530 222,581
-----------
420,791
-----------
Sweden (0.96%)
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ........................... 1,639 68,159
Skandia Forsakrings AB (Insurance) ............... 4,294 95,550
-----------
163,709
-----------
Switzerland (5.31%)
Adecco SA (Business Services - Misc.) ............ 246 149,120
Credit Suisse Group (Banks - Foreign) ............ 253 48,632
Nestle SA (Food) ................................. 69 133,084
Novartis AG (Medical) ............................ 91 136,115
Roche Holding AG (Medical) ....................... 12 144,066
UBS AG* (Banks - Foreign) ........................ 502 146,059
Zurich Allied AG* (Insurance) ................... 259 146,636
-----------
903,712
-----------
Taiwan (1.70%)
China Steel Corp. (ADR) (Steel) .................. 4,000 67,300
D-Link Corp. (Computers) ......................... 22,000 36,759
Far Eastern Textile Ltd. (Textile) ............... 38,520 52,704
Taiwan Semiconductor Manufacturing Co.,
Ltd.* (ADR) (Electronics) ...................... 2,882 99,789
Vanguard International Semiconductor
Corp.* (Electronics) ........................... 29,864 32,481
-----------
289,033
-----------
Thailand (0.16%)
Golden Land Property Development Pcl*
(Real Estate Operations) ....................... 36,000 9,558
Golden Land Property Development Pcl*
(Real Estate Operations) ....................... 28,000 10,879
Land & Houses Pcl
(Real Estate Operations) ....................... 8,000 7,460
-----------
27,897
-----------
United Kingdom (14.50%)
Bank of Scotland (Banks - Foreign) ............... 7,885 98,600
Barclays Plc (Banks - Foreign) ................... 4,517 138,575
BP Amoco Plc (Oil & Gas) ......................... 35,383 343,615
British Aerospace Plc (Aerospace) ................ 5,787 34,233
British Telecommunications Plc
(Telecommunications) ........................... 15,123 274,345
Carlton Communications Plc (Media) ............... 18,430 133,250
Compass Group Plc (Food) ......................... 9,574 102,258
Dixons Group Plc (Retail) ........................ 2,633 46,640
Glaxo Wellcome Plc (Medical) ..................... 7,054 208,177
Kingfisher Plc (Retail) .......................... 8,749 95,746
Lloyds TSB Group Plc (Banks - Foreign) ........... 15,550 215,146
Misys Plc (Computers) ............................ 4,702 39,172
Orange Plc* (Telecommunications) ................. 3,546 88,101
Pearson Plc (Media) .............................. 6,902 155,377
SEMA Group Plc (Computers) ....................... 4,030 52,646
SmithKline Beecham Plc (Medical) ................. 16,416 211,752
Smiths Industries Plc (Manufacturing) ............ 7,039 95,539
Vodafone Group Plc
(Telecommunications) ........................... 28,492 132,729
-----------
2,465,901
-----------
TOTAL COMMON STOCKS
(Cost $13,561,455) (96.12%) 16,350,279
-------- -----------
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - International Fund
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- ------------------- ------ -----
PREFERRED STOCKS
Brazil (0.48%)
Telecomunicacoes Brasileiras S.A. (ADR)
(Telecommunications) ........................... 1,059 $82,470
-----------
Thailand (0.24%)
Siam Commercial Bank Pcl*
(Banks - Foreign) .............................. 36,000 40,798
-----------
TOTAL PREFERRED STOCKS
(Cost $122,888) (0.72%) 123,268
--------- -----------
RIGHTS
Germany (0.02%)
Linde AG* (Engineering/R&D Services) ............. 990 3,134
-----------
Norway (0.03%)
Orkla ASA* (Diversified Operations) .............. 2,767 5,200
-----------
South Korea (0.00%)
Kookmin Bank* (Banks - Foreign) .................. 160 0
-----------
Thailand (0.00%)
Land & Houses Pcl*
(Real Estate Operations) ....................... 3,200 729
-----------
TOTAL RIGHTS
(Cost $0) (0.05%) 9,063
--------- -----------
WARRANTS
Germany (0.00%)
Muenchener Rueckversicherungs-
Gesellschaft AG* (Insurance) ................... 5 213
TOTAL WARRANTS
(Cost $224) (0.00%) 213
--------- -----------
TOTAL COMMON AND PREFERRED STOCKS,
RIGHTS AND WARRANTS
(Cost $13,684,567) (96.89%) 16,482,823
--------- -----------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.22%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
10-29-99, due 11-01-99
(Secured by U.S. Treasury
Bonds, 8.125% thru 9.875%,
due 11-15-15 thru 08-15-21)
-- Note A...................... 5.23% $377 $377,000
-----------
Cash Equivalents (6.67%)
Navigator Securities Lending
Prime Portfolio**............................ 1,134 1,134,144
-----------
TOTAL SHORT-TERM INVESTMENTS (8.89%) 1,511,144
--------- -----------
TOTAL INVESTMENTS (105.78%) 17,993,967
--------- -----------
OTHER ASSETS AND LIABILITIES, NET (5.78%) (982,795)
--------- -----------
TOTAL NET ASSETS (100.00%) $17,011,172
========= ===========
* 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.
18
<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, 1999 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
OF FUND'S
INVESTMENT CATEGORIES NET ASSETS
- --------------------- ---------------
Aerospace ..................................................... 0.20%
Automobile/Trucks ............................................. 3.03
Banks - Foreign ............................................... 12.41
Beverages ..................................................... 0.24
Broker Services ............................................... 2.13
Building ...................................................... 2.07
Business Services - Misc ...................................... 1.14
Chemicals ..................................................... 1.04
Computers ..................................................... 2.62
Cosmetics & Personal Care ..................................... 1.09
Diversified Operations ........................................ 7.83
Electronics ................................................... 6.31
Engineering/R&D Services ...................................... 1.36
Finance ....................................................... 1.97
Food .......................................................... 2.82
Insurance ..................................................... 4.92
Leasing Companies ............................................. 1.18
Machinery ..................................................... 3.21
Manufacturing ................................................. 0.56
Media ......................................................... 3.42
Medical ....................................................... 6.48
Metal ......................................................... 1.39
Office ........................................................ 0.77
Oil & Gas ..................................................... 4.47
Real Estate Operations ........................................ 1.54
Retail ........................................................ 3.85
Steel ......................................................... 0.59
Telecommunications ............................................ 17.32
Textile ....................................................... 0.31
Transport ..................................................... 0.34
Utilities ..................................................... 0.29
Short-Term Investments ........................................ 8.88
------
TOTAL INVESTMENTS 105.78%
======
SEE NOTES TO FINANCIAL STATEMENTS.
19
<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 four series: John Hancock International Fund (the
"Fund"), John Hancock Global Fund, John Hancock Large Cap Growth Fund and John
Hancock Mid Cap Growth Fund. Prior to June 1, 1999, John Hancock Large Cap
Growth Fund was known as John Hancock Growth Fund and John Hancock Mid Cap
Growth Fund was known as John Hancock Special Opportunities Fund. The other
three series of the Trust are reported in separate financial statements. The
investment objective of the Fund is long-term growth of capital through
investment primarily in stocks of foreign companies.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
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
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - International Fund
at the class level based on the appropriate net assets of each class and the
specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
ORGANIZATION EXPENSES Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that commenced with the investment operations of
the Fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. Effective March 12, 1999,
the Funds entered into a syndicated line of credit agreement with various banks,
and the agreements previously in effect were terminated. This agreement enables
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $500 million,
collectively. Interest is charged to each fund based on its borrowings. In
addition, a commitment fee is charged based on the average daily unused portion
of the line of credit and is allocated among the participating funds. The Fund
had no borrowing activity for the year ended October 31, 1999.
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, 1999, the Fund
loaned securities having a market value of $1,105,904 collateralized by cash in
the amount of $1,134,144, 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
21
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==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - International Fund
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, 1999, open forward foreign currency exchange contracts were
as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT DATE DEPRECIATION
- -------- ------------------- ---- ------------
BUYS
Euro Currency ................ 3,817 NOV 99 $8
=======
SELLS
Pound Sterling ............... 94,123 NOV 99 66
Swedish Krona ................ 411,469 NOV 99 158
-------
$224
=======
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Adviser is solely responsible for advising the Fund with respect to
investments in the United States and Canada. The Fund and the Adviser also have
a sub-investment management contract with John Hancock Advisers International
Limited (the "Sub-Adviser"), a wholly owned subsidiary of the Adviser, under
which the Sub-Adviser, subject to the review of the Trustees and overall
supervision of the Adviser, provides the Fund with investment management
services and advice with respect to the portion of the Fund's assets invested in
countries other than the United States and Canada.
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 1.00% of the first $250,000,000 of the Fund's
average daily net asset value, (b) 0.80% of the next $250,000,000, (c) 0.75% of
the next $250,000,000 and (d) 0.625% of the Fund's average daily net asset value
in excess of $750,000,000. The Adviser pays the Sub-Adviser a fee equivalent, on
an annual basis, to the sum of (a) 0.70% of the first $200,000,000 of the Fund's
average daily net asset value and (b) 0.6375% of the Fund's average daily net
asset value in excess of $200,000,000. The Fund is not responsible for the
payment of the Sub-Adviser's fee.
The Adviser has agreed to limit Fund expenses, including the management
fee (but not including the transfer agent fee and the 12b-1 fee), to 0.90% of
the Fund's average daily net assets. Accordingly, the reduction in the Adviser's
fee and other Fund expenses amounted to $294,784 for the year ended October 31,
1999. 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, 1999, net sales charges received with regard to sales of Class A shares
amounted to $28,023. Out of this amount, $3,752 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $17,304
was paid as sales commissions to unrelated broker-dealers and $6,967 was paid as
sales commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer (formerly known as John Hancock
Distributors, Inc.). The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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, 1999,
contingent deferred sales charges paid to JH Funds amounted to $70,804.
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 market value
at the time of redemption or the original purchase cost of
22
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - International Fund
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, 1999, contingent deferred sales charges paid to JH
Funds amounted to $563.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A, 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. A maximum of 0.25% of such payments may be service fees as defined by the
Conduct Rules of the National Association of Securities Dealers. Under the
Conduct Rules, 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,
accounting and legal 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., Mr. Stephen L. Brown, Ms. Maureen R. Ford,
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 through
December 31, 1999. 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.
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, 1999, aggregated $17,561,172 and $20,438,012, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the year ended October 31, 1999.
The cost of investments owned at October 31, 1999 (including short-term
investments) for federal income tax purposes was $15,364,269. Gross unrealized
appreciation and depreciation of investments aggregated $3,077,002 and $447,304
respectively, resulting in net unrealized appreciation of $2,629,698.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1999, the Fund has reclassified amounts to
reflect a decrease in net realized gain on investments and foreign currency
transactions of $549,098, a decrease in accumulated net investment loss of
$42,060 and an increase in capital paid-in of $507,038. This represents the
amount necessary to report these balances on a tax basis, excluding certain
temporary difference, as of October 31, 1999. 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.
23
<PAGE>
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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,
1999, 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
Deccember 10, 1999
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,
1999.
The Fund has designated distributions to shareholders of $58,515 as
capital gain dividends.
SHAREHOLDER MEETING (UNAUDITED)
On December 1, 1999, the shareholders of the Fund approved a new subadvisory
contract between the Adviser and Indocam International Investment Services
(746,002 FOR, 33,726 AGAINST and 70,766 ABSTAINING).
24
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======================================NOTES=====================================
John Hancock Funds - International Fund
25
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======================================NOTES=====================================
John Hancock Funds - International Fund
26
<PAGE>
======================================NOTES=====================================
John Hancock Funds - International Fund
27
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