ANNUAL REPORT
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[GRAPHIC OMITTED]
European
Equity Fund
OCTOBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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TRUSTEES
EDWARD J. BOUDREAU, JR.
DENNIS S. ARONOWITZ
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
DOUGLAS M. COSTLE
LELAND O. ERDAHL
RICHARD A. FARRELL
GAIL D. FOSLER
WILLIAM F. GLAVIN
ANNE C. HODSDON
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
EDWARD J. SPELLMAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02199-7603
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
SUB-INVESTMENT ADVISER
INDOCAM INTERNATIONAL INVESTMENT SERVICES
90 BOULEVARD PASTEUR
PARIS, FRANCE 75015
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
Investors have been understandably shaken by these dramatic twists and
turns, but we are pleased to report that most individual investors did not
panic, and we hope that means they've taken our words to heart. Over the long
term, markets do not move up or down in a straight line. That's why after
watching the market charge ahead almost uninterrupted for so many years, we have
been striking a more cautionary stance in this space over the last several
months.
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[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
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Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY DIDIER LE CONTE FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
European Equity Fund
Europe succumbs to global economic uncertainty
Over the last 12 months, European equities fell prey to many of the same
gyrations that afflicted financial markets worldwide. From the beginning of 1998
until late July, European markets marched steadily upward due to declining
interest rates, strong earnings and economic growth, even though evidence
indicated that the economic crisis in the Far East that began in mid-1997 was
spreading and might hurt European corporate earnings. That positive momentum
reversed in mid-summer on fears that the U.S. Federal Reserve Board might raise
interest rates to slow growth and head off inflation. Coupled with the
continuing deterioration in the Far East, investors feared higher interest rates
would make it more difficult for corporations to sustain profit growth. Russia's
devaluation of the ruble in August and concerns that currency problems would hit
Latin America added fuel to the bearish fire, and European equity markets
tumbled through the beginning of October. As the turmoil grew, the Fed's
inflation fears became overshadowed by a desire to prevent global slowdowns from
curtailing U.S. growth, and it lowered short-term interest rates at the end of
September and again on October 15. These moves, plus those made by Spain and
several other countries, helped markets to finally rebound. By the end of
October, European markets had made up about 50% of the loss that occurred from
the start of the decline in July through the beginning of October.
From its inception on March 2, 1998 through the end of the Fund's fiscal
year on October 31,
"...we chose companies that we felt had the ability to sustain earnings growth
amid an uncertain environment."
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[A 3" x 2" photo at bottom right side of page of John Hancock European Equity
Fund. Caption below reads "Fund management team members (l-r): Brigitte
Carriere, Gerard Bailly, Claire Chaves d'Oliveira, Patrice de Larrard and Didier
Le Conte."]
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3
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John Hancock Funds - European Equity Fund
"...corporations and investors should benefit as the unified currency opens up
markets..."
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[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into thirteen sections (from top to left): United Kingdom 25%,
Other 1%, Norway 1%, Portugal 2%, Finland 2%, Ireland 2%, Sweden 2%, Spain 5%,
Italy 7%, Netherlands 10%, Germany 12%, Switzerland 14% and France 17%. A note
below the chart reads "As a percentage of net assets on October 31, 1998."]
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1998, John Hancock European Equity Fund's Class A shares posted a total return
of 0.70% at net asset value, a performance that lagged the 4.32% return of the
Morgan Stanley Capital International (MSCI) Europe Index and the 1.71% return of
the average European region fund, according to Lipper Analytical Services,
Inc.(1) Class B shares, which were launched June 1, 1998, returned -9.30% at net
asset value from inception through October 31, 1998. While disappointing on an
absolute basis, the Class B share results were better than the -12.90% average
European region fund's return over the same period, according to Lipper. Keep in
mind that your net asset value return will vary from the Fund's stated
performance if you were not invested in the Fund for the entire period and did
not reinvest all dividends.
Investment process
The Fund seeks long-term growth of capital by investing primarily in stocks of
European companies. We put together the portfolio one stock at a time, based on
individual company prospects. We start with a permanent list of about 400
large-capitalization companies, taking special care to pick those securities
that tend to be more liquid, or easily tradable. This is a relatively large
universe of stocks that requires us to follow news very closely and to meet
regularly with company management. From this list, we winnow down our selections
based on a number of criteria. We look for companies that promise high future
profit growth, with strong management and a solid balance sheet structure. Among
the measures we use to determine the relative attractiveness of a particular
stock are return on equity and return on capital invested. We also keep an eye
on a company's competitive position and the prospects for the company's sector
compared to the overall market. Considerations about country weightings are
subordinate. Once we decide to invest in a stock, we then look to make sure the
Fund is not too heavily weighted in one country, and we keep an eye out for
investment risks that might be specific to a particular country. That said, the
Fund's largest country weightings at the end of the period were in the United
Kingdom, France, Germany and Switzerland -- Europe's four largest markets. We
should add that as most of Europe converts to a single monetary unit, the euro,
on January 1, 1999, country-specific issues will become even less important. The
pace of economic development for countries in the European Monetary Union should
converge once the euro is introduced, and both corporations and investors should
benefit as the unified currency opens up markets and opportunities.
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[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 Nokia
followed by an up arrow with the phrase "Boosted by introduction of a new line
of cellular handsets." The second listing is Roche followed by an up arrow with
the phrase "Strong research and new product pipeline." The third listing is
Alcatel followed by a down arrow with the phrase "Disappointing second half 1998
earnings projections." A note below the table reads "See `Schedule of
Investments.' Investment holdings are subject to change."]
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4
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John Hancock Funds - European Equity Fund
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "From inception March 2, 1998 through October 31,
1998." The chart is scaled in increments of 2% with -10% at the bottom and 2% at
the top. The first bar represents the 0.70% Total return for John Hancock
European Equity Fund Class A. The second bar represents the -9.30% total return
for John Hancock European Equity Fund Class B. The third bar represents the
1.71% total return for Average European region fund. A note below the chart
reads "Total returns for John Hancock European Equity Fund are at net asset
value with all distributions reinvested. The average European region fund is
tracked by Lipper Analytical Services, Inc. See pages seven and eight for
historical performance information. *From inception June 1, 1998 through October
31, 1998."]
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Cautious beginning
Since the Fund's inception, we chose companies that we felt had the ability to
sustain earnings growth amid an uncertain environment. This strategy led us to
overweight the Fund relative to the MSCI Europe Index in pharmaceuticals,
telecommunications, information services, capital goods, automobiles and retail.
As the period progressed and volatility increased, we also reduced the number of
holdings in the Fund, allocating assets to create larger stakes in the companies
we felt had the strongest potential for growth.
Pharmaceutical companies such as top Fund holdings Roche Holding, Novartis
and Glaxo Wellcome were attractive because of increasing consumer use of
pharmaceutical treatments and the companies' strong research and new product
pipelines. In telecommunications, Ericsson and Vodafone Group benefited from
continuing rapid development of cellular communications in Europe. Information
service firms took advantage of helping to facilitate the conversion to the
euro, as well as to solving Year 2000 computer problems. Retail companies were
strengthened by increased consumer activity, as were automobile companies. In
addition, auto manufacturers such as Daimler-Benz were attractive due to merger
and restructuring activities.
Outlook
While we anticipate worldwide deceleration in economic growth, prospects for
Europe remain attractive. Long-term interest rates on the continent are quite
low and should remain so. While short-term rates in the United Kingdom are the
highest in Europe, we anticipate the economic slowdown that is occurring there
will encourage the government to cut rates further in order to stimulate growth.
Adding to the positive sentiment on the continent is increased consumer
spending, as well as the benefits of the upcoming conversion to the euro. In
preparation, many companies are pursuing restructuring programs, an area that
has greatly benefited many U.S. companies and is crucial to European firms that
want to maintain an edge in an increasingly competitive landscape. The Fund will
continue to search out these stories in our effort to produce competitive
results over the long term.
"...prospects for Europe remain attractive."
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This commentary reflects the views of portfolio management team through the end
of the Fund's period discussed in this report. Of course, the team's views are
subject to change as market and other conditions warrant.
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
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John Hancock Funds - European Equity Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock European Equity Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus for a discussion of the risks associated with international
investing, including currency and political risks and differences in accounting
standards and financial reporting before you invest or send money.
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CLASS A
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For the period ended September 30, 1998
SINCE
INCEPTION
(3/2/98)
--------
Cumulative Total Return(1) (10.73%)
Average Annual Total Return (10.73%)(2)
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CLASS B
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For the period ended September 30, 1998
SINCE
INCEPTION
(6/1/98)
--------
Cumulative Total Return(1) (19.50%)
Average Annual Total Return (19.50%)(2)
Notes to Performance
(1) The Adviser has agreed to limit the Fund's expenses on Class A and Class B
shares to 1.90% and 2.60%, respectively, of the Fund's average daily net
assets. Without the limitation of expenses, the cumulative total return
since inception for Class A and Class B shares would have been (11.57%)
and (19.98%), respectively.
(2) Not annualized.
6
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John Hancock Funds - European Equity Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
European Equity 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) Europe Index-an
unmanaged index used to measure the performance of securities listed on European
stock exchanges. Past performance is not indicative of future results.
Line chart with the heading John Hancock European Equity 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
Europe Index and is equal to $10,432 as of October 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock European Equity Fund on March 2, 1998, before sales charge, and is equal
to $10,070 as of October 31, 1998. The third line represents the value of the
same hypothetical investment made in the John Hancock European Equity Fund,
after sales charge, and is equal to $9,567 as of October 31, 1998.
Line chart with the heading John Hancock European Equity 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
Europe Index and is equal to $9,992 as of October 31, 1998. The second line
represents the value of the hypothetical $10,000 investment made in the John
Hancock European Equity Fund on June 1, 1998, before sales charge, and is equal
to $9,069 as of October 31, 1998. The third line represents the value of the
same hypothetical investment made in the John Hancock European Equity Fund,
after sales charge, and is equal to $8,616 as of October 31, 1998.
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - European Equity Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
October 31, 1998
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Assets:
Investments at value - Note C:
Common and preferred stocks and warrants
(cost - $28,372,553) ..................................... $27,292,250
Cash ........................................................ 755,367
Foreign currency, at value (cost - $70,160) ................. 70,160
Receivable for investments sold ............................. 434,770
Receivable for shares sold .................................. 121,016
Dividends receivable ........................................ 17,993
Foreign tax receivable ...................................... 6,613
-----------
Total Assets .............................. 28,698,169
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Liabilities:
Payable for investments purchased ........................... 627,591
Payable for forward foreign currency exchange
contracts purchased - Note A ............................... 2,511
Payable for forward foreign currency exchange
contracts sold - Note A .................................... 783
Payable for shares repurchased .............................. 9,958
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 6,733
Accounts payable and accrued expenses ....................... 56,299
-----------
Total Liabilities ......................... 703,875
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Net Assets:
Capital paid-in ............................................. 30,583,821
Accumulated net realized loss on investments, financial
futures contracts and foreign currency transactions ........ (1,468,286)
Net unrealized depreciation of investments and
foreign currency transactions .............................. (1,082,022)
Accumulated net investment loss ............................. (39,219)
-----------
Net Assets ................................ $27,994,294
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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(1) - $12,146,977/1,206,660 .......................... $10.07
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Class B(2) - $15,847,317/1,578,411 .......................... $10.04
=============================================================================
Maximum Offering Price Per Share*
Class A - ($10.07 x 105.26%) ................................ $10.60
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* 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.
(1) Class A shares commenced operations on March 2, 1998.
(2) Class B shares commenced operations on June 1, 1998.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
For the period from March 2, 1998 (commencement of operations) to
October 31, 1998
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Investment Income:
Interest .................................................... $51,514
Dividends (net of foreign withholding taxes of $17,858) ..... 124,146
-----------
175,660
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Expenses:
Investment management fee - Note B ......................... 88,920
Distribution and service fee - Note B
Class A .................................................. 15,112
Class B .................................................. 48,426
Custodian fee .............................................. 114,359
Registration and filing fees ............................... 69,116
Auditing fee ............................................... 10,000
Transfer agent fee ......................................... 7,900
Printing ................................................... 5,044
Financial service fee ...................................... 1,476
Miscellaneous .............................................. 713
Trustees' fees ............................................. 88
Legal fees ................................................. 54
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Total Expenses ............................ 361,208
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Less Expense Reductions -
Note B .................................... (139,476)
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Net Expenses .............................. 221,732
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Net Investment Loss ....................... (46,072)
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Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contracts and Foreign Currency
Transactions:
Net realized loss on investments sold ....................... (1,503,865)
Net realized gain on financial futures contracts ............ 35,579
Net realized loss on foreign currency transactions .......... (88,297)
Change in net unrealized appreciation/depreciation
of investments ............................................. (1,080,303)
Change in net unrealized appreciation/depreciation
of foreign currency transactions ........................... (1,719)
-----------
Net Realized and Unrealized
Loss on Investments, Financial
Futures Contracts and
Foreign Currency Transactions ............. (2,638,605)
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Net Decrease in Net Assets
Resulting from Operations ................. ($2,684,677)
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SEE NOTES TO FINANCIAL STATEMENTS.
8
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==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - European Equity Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
FOR THE PERIOD FROM
MARCH 2, 1998
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1998
-------------------
<S> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ................................................ ($46,072)
Net realized loss on investments sold, financial futures contracts
and foreign currency transactions ................................ (1,556,583)
Change in net unrealized appreciation/depreciation of investments
and foreign currency transactions ................................ (1,082,022)
-----------
Net Decrease in Net Assets Resulting from Operations ............. (2,684,677)
-----------
From Fund Share Transactions - Net:* ................................. 30,678,971
-----------
Net Assets:
Beginning of period ................................................ --
End of period (including accumulated net investment loss of $39,219) $27,994,294
===========
</TABLE>
* Analysis of Fund Share Transactions:
FOR THE PERIOD FROM MARCH 2, 1998
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 1998
--------------------------
SHARES AMOUNT
--------- -----------
CLASS A**
Shares sold .......................... 1,635,681 $17,462,387
Less shares repurchased .............. (429,021) (4,383,005)
--------- -----------
Net increase ......................... 1,206,660 $13,079,382
========= ===========
CLASS B***
Shares sold .......................... 1,817,977 $20,041,352
Less shares repurchased .............. (239,566) (2,441,763)
--------- -----------
Net increase ......................... 1,578,411 $17,599,589
========= ===========
** Class A shares commenced operations on March 2, 1998.
*** Class B 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 for the 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 period, along with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - European Equity Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
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FOR THE PERIOD
FROM MARCH 2, 1998
(COMMENCEMENT
OF OPERATIONS)
TO OCTOBER 31, 1998
-------------------
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $10.00
-------
Net Investment Income (1) ................................ 0.01
Net Realized and Unrealized Gain on Investments,
Financial Futures Contracts and Foreign Currency
Transactions ........................................... 0.06
-------
Total From Investment Operations ........................ 0.07
-------
Net Asset Value, End of Period ........................... $10.07
=======
Total Investment Return at Net Asset Value (2) ........... 0.70%(3)
Total Adjusted Investment Return at Net
Asset Value (2,4) ...................................... (0.24%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $12,147
Ratio of Expenses to Average Net Assets .................. 1.90%(5)
Ratio of Adjusted Expenses to Average Net Assets (6) ..... 3.31%(5)
Ratio of Net Investment Income to Average Net Assets ..... 0.16%(5)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (6) ......................................... (1.25%)(5)
Portfolio Turnover Rate .................................. 31%
Fee Reduction Per Share (1) .............................. $0.10
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indi cated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed for the period. Additionally, important rela
tionships between some items presented in the financial statements are expressed
in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
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==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - European Equity Fund
Financial Highlights (continued)
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FOR THE PERIOD
FROM JUNE 1, 1998
(COMMENCEMENT
OF OPERATIONS)
TO OCTOBER 31, 1998
-------------------
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................... $11.07
------
Net Investment Loss (1) ....................................... (0.04)
Net Realized and Unrealized Loss on Investments,
Financial Futures Contracts and Foreign
Currency Transactions ....................................... (0.99)
------
Total From Investment Operations ............................. (1.03)
------
Net Asset Value, End of Period ................................ $10.04
======
Total Investment Return at Net Asset Value (2) ................ (9.30%)(3)
Total Adjusted Investment Return at Net Asset
Value (2,4) ................................................. (9.89%)(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................... $15,847
Ratio of Expenses to Average Net Assets ....................... 2.60%(5)
Ratio of Adjusted Expenses to Average Net Assets (6) .......... 4.01%(5)
Ratio of Net Investment Loss to Average Net Assets ............ (1.12%)(5)
Ratio of Adjusted Net Investment Loss to Average
Net Assets (6) .............................................. (2.53%)(5)
Portfolio Turnover Rate ....................................... 31%
Fee Reduction Per Share (1) ................................... $0.06
(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 which does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Annualized.
(6) Unreimbursed, without fee reduction.
SEE NOTES TO FINANCIAL STATEMENTS.
11
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==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - European Equity Fund
Schedule of Investments
October 31, 1998
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The Schedule of Investments is a complete list of all securities owned by the
European Equity Fund on October 31, 1998. It's divided into three main
categories: common stocks, preferred stocks and warrants. The stocks and
warrants are further broken down by country.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Finland (2.05%)
Nokia AB (Telecommunications) .................. 6,300 $573,353
----------
France (16.88%)
Accor SA (Leisure) ............................. 1,100 231,052
Air Liquide SA (Chemicals) ..................... 1,000 167,390
Cap Gemini SA (Computers) ...................... 1,950 293,067
Carrefour SA (Retail) .......................... 630 418,193
France Telecom SA
(Telecommunications) ......................... 3,300 230,161
L'Oreal SA (Cosmetics & Personal Care) ......... 800 457,172
Legrand SA (Manufacturing) ..................... 1,500 382,296
Paribas SA (Banks - Foreign) ................... 2,651 194,868
Peugeot SA (Automobile / Trucks) ............... 1,500 250,274
Pinault-Printemps-Redoute SA (Retail) .......... 2,600 435,213
Rexel SA (Electronics) ......................... 2,000 183,589
Synthelabo SA (Medical) ........................ 1,500 286,182
Total SA (Oil & Gas) ........................... 3,000 346,119
Valeo SA (Automobile / Trucks) ................. 3,500 303,011
Vivendi SA (Diversified Operations) ............ 2,400 548,174
----------
4,726,761
----------
Germany (9.68%)
Allianz AG (Insurance) ......................... 1,500 514,337
BASF AG (Chemicals) ............................ 8,000 339,028
Bayerische Hypo- und Vereinsbank AG
(Banks - Foreign) ............................ 5,300 420,736
Daimler-Benz AG (Automobile / Trucks)* ......... 7,300 566,284
Deutsche Telekom AG
(Telecommunications) ......................... 5,000 136,191
Douglas Holding AG (New) (Retail) .............. 280 15,568
Douglas Holding AG (Retail) .................... 3,500 200,724
Fresenius AG (Medical) ......................... 1,350 191,518
Muenchener Rueckversicherungs-
Gesellschaft AG (New Shares)
(Insurance)* ................................. 16 7,283
VEBA AG (Diversified Operations) ............... 5,000 279,203
Volkswagen AG (Automobile / Trucks) ............ 500 37,579
----------
2,708,451
----------
Ireland (1.71%)
Allied Irish Banks PLC (Banks - Foreign) ....... 15,102 216,870
CRH PLC (Building) ............................. 18,000 262,101
----------
478,971
----------
Italy (6.98%)
Assicurazioni Generali SpA (Insurance) ......... 9,000 322,223
BCA Comm Italiana (Banks - Foreign) ............ 30,000 185,356
Credito Italiano SpA (Banks - Foreign) ......... 50,000 268,366
Ente Nazionale Idrocarburi SpA
(Oil & Gas) .................................. 43,004 255,734
Telecom Italia Mobile (TIM) SpA
(Telecommunications) ......................... 76,100 269,672
Telecom Italia Mobile SpA - RNC
(Telecommunications) ......................... 42,980 249,431
Telecom Italia SpA
(Telecommunications) ......................... 80,000 403,037
----------
1,953,819
----------
Netherlands (9.83%)
ABN AMRO Holdings NV
(Banks - Foreign) ............................ 6,400 119,885
Aegon NV (Insurance) ........................... 4,073 353,359
Dordtsche Petroleum-Industrie MIJ NV
(Diversified Operations) ..................... 18,500 801,012
ING Groep NV (Banks - Foreign) ................. 9,500 459,632
Numico (kon) NV (Food) ......................... 5,000 196,687
Oce NV (Office) ................................ 6,000 194,600
Unilever NV (Food) ............................. 4,000 296,717
Wolters Kluwer NV (Media) ...................... 1,700 329,364
----------
2,751,256
----------
Norway (0.53%)
Tomra Systems ASA (Machinery) .................. 5,300 148,992
----------
Portugal (1.69%)
Electricidade de Portugal SA (Utilities) ....... 7,000 175,953
Portugal Telecom SA
(Telecommunications) ......................... 6,250 296,104
----------
472,057
----------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - European Equity Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Spain (4.84%)
Banco Bilbao Vizcaya SA
(Banks - Foreign)* .......................... 19,000 $256,283
Banco Santander SA (Banks - Foreign) .......... 180 3,297
Centros Com Pryca (Retail) .................... 10,000 221,851
Endesa SA (Utilities) ......................... 15,000 378,035
Telefonica SA (Telecommunications) ............ 11,000 496,663
-----------
1,356,129
-----------
Sweden (2.01%)
Ericsson (LM) Telefonaktiebolaget
(Telecommunications) ........................ 25,000 563,669
-----------
Switzerland (14.01%)
Adecco SA (Business Services - Misc.) ......... 600 239,061
Credit Suisse Group (Banks - Foreign) ......... 800 122,925
Nestle SA (Food) .............................. 295 626,872
Novartis AG Bearer (Medical) .................. 565 1,017,192
Novartis AG - Reg Shs (Medical) ............... 50 89,943
Roche Holding AG (Medical) .................... 88 1,025,898
UBS AG* (Banks - Foreign) ..................... 1,260 345,377
Zurich Allied AG* (Insurance) ................ 750 455,434
-----------
3,922,702
-----------
United Kingdom (25.24%)
Abbey National PLC (Banks - Foreign) .......... 17,000 330,623
Bank of Scotland (Banks - Foreign) ............ 16,000 173,797
British Aerospace PLC (Aerospace) ............. 56,003 414,296
British Petroleum Co. PLC (Oil & Gas) ......... 46,000 675,204
British Telecommunications PLC
(Telecommunications) ........................ 50,000 646,048
CMG PLC (Computers) ........................... 7,495 175,296
CMG PLC (Computers)* .......................... 505 11,833
Compass Group PLC (Food) ...................... 25,000 253,147
General Electric Co. PLC (Electronics) ........ 25,284 202,068
Glaxo Wellcome PLC (Medical) .................. 30,000 931,916
Kingfisher PLC (Retail) ....................... 40,500 355,531
Lloyds TSB Group PLC (Banks - Foreign) ........ 49,600 612,239
Misys (Computers) ............................. 21,500 150,775
Prudential Corp. PLC (Insurance) .............. 12,000 156,056
Rentokil Initial PLC
(Diversified Operations) .................... 32,000 200,308
SEMA Group PLC (Computers) .................... 25,000 202,518
SmithKline Beecham PLC (Medical) .............. 32,500 406,332
Smiths Industries PLC (Manufacturing) ......... 17,500 234,318
Vodafone Group PLC
(Telecommunications) ........................ 52,500 702,954
Zeneca Group PLC (Medical) .................... 6,000 230,368
-----------
7,065,627
-----------
TOTAL COMMON STOCKS
(Cost $27,671,786) ................ (95.45%) 26,721,787
------- -----------
PREFERRED STOCKS
Germany (2.04%)
Fresenius AG (Medical) ........................ 355 60,863
SAP AG (Computers) ............................ 900 438,455
Volkswagen AG (Automobile / Trucks) ........... 1,500 70,450
-----------
TOTAL PREFERRED STOCKS
(Cost $699,933) ................ (2.04%) 569,768
------- -----------
WARRANTS
Germany (0.00%)
Muenchener Rueckversicherungs-
Gesellschaft AG (Insurance)* ................ 16 695
-----------
TOTAL WARRANTS
(Cost $834) (0.00%) 695
------- -----------
TOTAL COMMON AND PREFERRED STOCKS
AND WARRANTS
(Cost $28,372,553) (97.49%) 27,292,250
------- -----------
OTHER ASSETS AND LIABILITIES, NET (2.51%) 702,044
------- -----------
TOTAL NET ASSETS (100.00%) $27,994,294
======= ===========
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - European Equity Fund
Portfolio Concentration
October 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries in which it invests. The concentration of investments by country
for individual securities held by the Fund is shown in the schedule of
investments. In addition, the concentration of investments can be aggregated by
various industry groups. The table below shows the percentages of the Fund's
investments at October 31, 1998 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
INVESTMENT CATEGORIES OF NET ASSETS
- --------------------- -------------
Aerospace ................................................... 1.48%
Automobile/Trucks ........................................... 4.39
Banks - Foreign ............................................. 13.25
Building .................................................... 0.94
Business Services - Misc .................................... 0.85
Chemicals ................................................... 1.81
Computers ................................................... 4.54
Cosmetics & Personal Care ................................... 1.63
Diversified Operations ...................................... 6.53
Electronics ................................................. 2.74
Food ........................................................ 4.91
Insurance ................................................... 6.46
Leisure ..................................................... 0.83
Machinery ................................................... 0.53
Manufacturing ............................................... 0.84
Media ....................................................... 1.18
Medical ..................................................... 15.14
Office ...................................................... 0.70
Oil & Gas ................................................... 4.56
Retail ...................................................... 5.88
Telecommunications .......................................... 16.32
Utilities ................................................... 1.98
-----
TOTAL INVESTMENTS 97.49%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - European Equity Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock World Fund (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series: John Hancock European Equity Fund (the "Fund"), John Hancock
Global Health Sciences Fund and John Hancock Pacific Basin Equities Fund. Prior
to October 1, 1998, John Hancock Global Health Sciences Fund was known as John
Hancock Global Rx Fund. The other series of the Trust are reported in separate
financial statements. The Fund's investment objective is to achieve long-term
capital appreciation through investment in a diversified portfolio of European
equity securities.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. Effective December 8, 1998,
the Board of Trustees have authorized the issuance of Class C shares in 1999.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions, dividends
and liquidation, except that certain expenses, subject to the approval of the
Trustees, may be applied differently to each class of shares in accordance with
current regulations of the Securities and Exchange Commission and the Internal
Revenue Service. Shareholders of a class which bears distribution and service
expenses under terms of a distribution plan have exclusive voting rights to that
distribution plan. On June 1, 1998, Class B shares of beneficial interest were
sold to commence class activity.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $1,450,896 of capital loss
carryforwards available, to the extent provided by regulations, to offset future
net realized capital gains. To the extent such carryforwards are used by the
Fund, no capital gains distributions will be made. The carryforwards expire as
follows: October 31, 2006 -- $1,450,896.
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 is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - European Equity Fund
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amount of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowings, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the lines of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the period ended October 31, 1998.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated lender fees. These fees are included in interest
income. The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear 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. The Fund had no securities lending
activity for the period ended October 31, 1998.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 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 and losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - European Equity Fund
facilitate the settlement of foreign currency denominated portfolio
transactions, under which it intends to take delivery of the foreign currency.
Such contracts normally involve no market risk if they are offset by the
currency amount of the underlying transaction.
At October 31, 1998, open forward foreign currency exchange contracts were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT DATE DEPRECIATION
- -------- ------------------- ---- ------------
BUYS
French Francs 658,643 NOV 98 ($642)
Italian Lira 418,251,000 NOV 98 (1,180)
Portuguese Escudo 3,866,565 NOV 98 (83)
Pound Sterling 96,236 NOV 98 (606)
--------
($2,511)
========
SELLS
Finnish Markka 345,361 NOV 98 ($298)
French Francs 1,588,708 NOV 98 (20)
Pound Sterling 47,959 NOV 98 (465)
--------
($783)
========
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure to
the underlying instrument or hedge other Fund instruments. At the time the Fund
enters into a financial futures contract, it is required to deposit with its
custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At October 31, 1998, there were no open positions in financial futures
contracts.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
The Adviser is responsible for managing the Fund's investment business affairs
and overseeing the investment activities of the sub-adviser, Indocam
International Investment Services ("IIIS") (the "Sub-Adviser"). Under the
present investment management contract, the Fund pays a monthly management fee
to the Adviser for a continuous investment program equivalent, on an annual
basis, to the sum of (a) 0.90% of the first $500,000,000 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 $500,000,000.
The Adviser has a sub-investment management contract with the Sub-Adviser
under which the Sub-Adviser, subject to the review of the Trustees and the
overall supervision of the Adviser, provides the Fund with investment services
and advice with respect to that portion of the Fund's assets invested in
countries other than the United States. The Adviser pays the Sub-Adviser a fee
at the annual rate of 0.35% of the average daily net assets of the Fund.
The Adviser has agreed to limit the Fund's expenses on Class A and Class B
shares to 1.90% and 2.60%, respectively, of the Fund's average daily net assets.
Accordingly, the reduction in the Adviser's fee amounted
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - European Equity Fund
to $139,476 for the period ended October 31, 1998. The Adviser reserves the
right to terminate this limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended October
31, 1998, net sales charges received with regard to sales of Class A shares
amounted to $109,852. Out of this amount, $1,602 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$105,251 was paid as sales commissions to unrelated broker-dealers and $2,999
was paid as sales commissions to sales personnel of John Hancock Distributors,
Inc. ("Distributors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended October 31,
1998, contingent deferred sales charges paid to JH Funds amounted to $144,313.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets,
to reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are directors and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The Adviser owned 150,038 Class A shares of beneficial interest of the
Fund as of October 31, 1998. 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
will be recorded on the Fund's books as an other asset. The deferred
compensation liability and the related other asset are always equal and are
marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. At October 31, 1998, the
Fund's investments to cover the deferred compensation liability had no
unrealized appreciation/depreciation.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the period ended October 31, 1998, aggregated $34,294,473 and
$4,417,053, respectively. There were no purchases or sales of obligations of the
U.S. government and its agencies during the period ended October 31, 1998.
The cost of investments owned at October 31, 1998 for federal income tax
purposes was $28,430,895. Gross unrealized appreciation and depreciation of
investments aggregated $838,410 and $1,977,055, respectively, resulting in
unrealized depreciation of $1,138,645.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - European Equity Fund
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $88,297, a
decrease in accumulated net investment loss of $6,853 and a decrease in capital
paid-in of $95,150. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1998. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to the treatment of net operating losses and
net realized gain/loss on foreign currency transactions in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
19
<PAGE>
================================================================================
John Hancock Funds - European Equity Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock European Equity Fund
and the Trustees of John Hancock World Fund
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 European Equity Fund
(the "Fund") (a series of John Hancock World Fund) for the period from March 2,
1998 to October 31, 1998, and the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
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
audit, which included confirmation of securities owned at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
20
<PAGE>
======================================NOTES=====================================
John Hancock Funds - European Equity Fund
21
<PAGE>
======================================NOTES=====================================
John Hancock Funds - European Equity Fund
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - European Equity Fund
23
<PAGE>
================================================================================
----------------
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<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Global Health
Sciences Fund
OCTOBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
----------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
DENNIS S. ARONOWITZ
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
DOUGLAS M. COSTLE
LELAND O. ERDAHL
RICHARD A. FARRELL
GAIL D. FOSLER
WILLIAM F. GLAVIN
ANNE C. HODSDON
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
EDWARD J. SPELLMAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
----------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
Investors have been understandably shaken by these dramatic twists and turns,
but we are pleased to report that most individual investors did not panic, and
we hope that means they've taken our words to heart. Over the long term, markets
do not move up or down in a straight line. That's why after watching the market
charge ahead almost uninterrupted for so many years, we have been striking a
more cautionary stance in this space over the last several months.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY LINDA MILLER, CFA, PORTFOLIO MANAGER
John Hancock Global Health Sciences Fund
Health-care stocks mostly repel market turmoil
and produce solid gains
Effective October 1, 1998, Global Rx Fund was renamed Global Health Sciences
Fund to more clearly identify it as an investment focused on the diverse and
growing health-care industry.
Large drug company stocks proved to be an effective antidote against much that
ailed the overall stock market during the past year. Thanks in large part to key
new product introductions and the benefits of drug coverage provided by managed
health-care plans in the U.S., drug stocks were relatively immune to woes --
including global economic turmoil and slower corporate earnings growth -- that
took a toll on many other U.S. and international stocks. In addition, the aging
of the population, both in America and Western Europe, further bolstered the
demand for pharmaceuticals. Although they eventually were infected by the
market's continued drop in late summer and early fall, drug stocks held up
better than many other segments.
Medical service companies didn't enjoy the same robust conditions. The
squeeze on health-care providers continued, as large employers pressured
managed-care companies to control coverage premiums. In turn, health maintenance
organizations exerted pressure on providers like hospitals and physicians.
Furthermore, certain sectors, such as home health care and nursing homes, were
hurt by the federal government's reduction in Medicare reimbursement rates,
changes in payment schedules and investigations
"...drug stocks were relatively immune to woes..."
- --------------------------------------------------------------------------------
[A 3" x 2" photo at bottom right side of page of John Hancock Global Health
Sciences Fund. Caption below reads "Fund management team members (l-r): "Ben
Hock, Linda Miller and Rob Hallisey."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Global Health Sciences Fund
"Pharmaceutical companies... were among the Fund's best performers..."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Common Stock Holdings." The
first listing is Warner-Lambert 5.3%, the second is Schering-Plough 5.0%, the
third Pfizer 4.7%, the fourth Merck 4.1% and the fifth Bristol-Myers Squibb
4.0%. A note below the table reads "As a percentage of net assets on October 31,
1998."]
- --------------------------------------------------------------------------------
regarding payment practices.
For the year ended October 31, 1998, John Hancock Global Health Sciences
Fund's Class A and Class B shares posted total returns of 13.91% and 13.11%,
respectively, at net asset value. The Fund handily outpaced the average
healthcare/biotechnology fund's return of 5.38%, according to Lipper Analytical
Services, Inc.(1) Keep in mind that your net asset value return will be
different from the Fund's performance if you were not invested in the Fund for
the entire period and did not reinvest all distributions. Please see pages six
and seven for longer-term performance information.
Leaders and laggards
Pharmaceutical companies -- including Warner-Lambert, Schering-Plough and Pfizer
- -- were among the Fund's best performers over the past year and rank among its
largest holdings. Warner-Lambert posted gains thanks in large part to the
company's success with two new products: Lipitor and Rezulin. Lipitor, which the
company markets in a partnership with Pfizer, took over a large portion of the
multibillion-dollar market for cholesterol-lowering drugs, while Rezulin,
despite a number of ups and downs during the year, attained a sizable role in
the market for diabetes treatments. Schering-Plough's introduction of Rebetron,
a combination therapy used to treat chronic hepatitis, added to a success story
based recently on Intron interferon and Claritin, the largest-selling
prescription anti-allergy agent. Pfizer continued to post gains based on the
launch of the highly publicized Viagra, used to treat male impotence.
The theme of mergers and acquisitions helped buoy a number of our medical
device stocks. DePuy, a leading manufacturer of orthopedic implants, gained
sharply after announcing a buy-out by Johnson & Johnson. We also saw good
performance from Physio-Control International, a manufacturer and marketer of
external defibrillators, on the news that it would be taken over by Medtronic.
And Stryker, another broad-based orthopedics company, announced that it would
acquire the Howmedica division of Pfizer, nearly doubling the company's overall
size.
Our disappointments were generally concentrated in the health services
sector. HEALTHSOUTH, a long-time holding of the Fund which operates
rehabilitation clinics and outpatient surgery centers, stumbled on concerns of
weak pricing trends and a coincident slowdown in growth in 1999. Concentra
Managed Care, in the worker's compensation field, suffered from a business
slowdown serving its insurance customers. Fortunately, our holdings in this
group were limited, and this helped the Fund's relative performance as well.
- --------------------------------------------------------------------------------
[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
Warner-Lambert followed by an up arrow with the phrase "Success with Lipitor,
Rezulin." The second listing is Physio-Control International followed by an up
arrow with the phrase "Bought by Medtronic." The third listing is HEALTHSOUTH
followed by a down arrow with the phrase "Pressure on prices." A note below the
table reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - Global Health Sciences Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 3% with 0% at the bottom and 15% at the top. The first
bar represents the 13.91% Total return for John Hancock Global Health Sciences
Fund Class A. The second bar represents the 13.11% total return for John Hancock
Global Health Sciences Fund Class B. The third bar represents the 5.38% total
return for Average healthcare/biotechnology fund. A note below the chart reads
"Total returns for John Hancock Global Health Sciences Fund are at net asset
value with all distributions reinvested. The average healthcare/biotechnology
fund is tracked by Lipper Analytical Services, Inc. See the following two pages
for historical performance information."]
- --------------------------------------------------------------------------------
Increased focus on mid-sized companies
Although we remain quite optimistic about the long-term prospects in the
pharmaceutical sector, stock valuations remain high after their impressive rise
over the past 12 months. As a result, we have increased or added to positions in
mid-sized drug stocks, retail drug chains and drug wholesalers, all companies
that should benefit from the same secular trends favoring the large
multinational pharmaceutical companies. Several mid-sized drug companies we have
focused on are Watson Pharmaceutical, offering products in women's health and
dermatology; Forest Laboratories, launching a new anti-depressant Celexa with
partner Warner-Lambert; and Mylan Laboratories, which is growing its generic and
branded products businesses. Retail drug chains include CVS, Rite Aid, Walgreens
and Duane Reade, and drug wholesalers include Cardinal Health and McKesson, each
of which has announced several new acquisitions of higher-margin businesses.
Biotechnology remains an area of interest as well, though many of the individual
stocks in this sector are highly speculative.
Outlook
We continue to remain optimistic about the outlook for health-care companies,
and particularly drug stocks, although it wouldn't surprise us at all if these
take a breather after their impressive recent run. From a fundamental
standpoint, all signs point to continued growth for this sector. Progress
remains substantial regarding research and development and there is still strong
support for expedited regulatory reviews in the U.S. and around the world.
Nevertheless, continued growth in health-care spending remains a concern,
especially if public policy drifts more toward a desire to control costs and
away from providing solutions to unmet medical needs. We will continue to
monitor these trends and evaluate their impact on the health-care sector as part
of our ongoing research and fundamental analysis aimed at finding the best
investment opportunities for the long term.
"From a fundamental standpoint, all signs point to continued growth for this
sector."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
International investing involves special risks such as political, economic and
currency risks and differences in accounting standards and financial reporting.
Sector investing is subject to greater risks than the market as a whole.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
John Hancock Funds - Global Health Sciences Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Global Health Sciences Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all the distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus for a discussion of the risks associated with international
investing, including currency and political risks and differences in accounting
standards and financial reporting, before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/1/91)
---- ----- ---------
Cumulative Total Returns 2.84% 134.50% 233.38%
Average Annual Total Returns 2.84% 18.58% 18.77%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE INCEPTION
YEAR (3/7/94)
---- --------
Cumulative Total Returns 2.49% 94.28%
Average Annual Total Returns 2.49% 15.65%
6
<PAGE>
================================================================================
John Hancock Funds - Global Health Sciences Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Global Health Sciences Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Stock Index-an unmanaged index
that includes 500 widely traded common stocks and is a commonly used measure of
stock market performance. Past performance is not indicative of future results.
Line chart with the heading John Hancock Global Health Sciences Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Global Health
Sciences Fund on October 1, 1991, before sales charge, and is equal to $36,438
as of October 31, 1998. The second line represents the value of the same
hypothetical investment made in the John Hancock Global Health Sciences Fund,
after sales charge, and is equal to $34,604 as of October 31, 1998. The third
line represents the Standard & Poor's 500 Stock Index and is equal to $33,617 as
of October 31, 1998.
Line chart with the heading John Hancock Global Health Sciences Fund Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the
Standard & Poor's 500 Stock Index and is equal to $26,037 as of October 31,
1998. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Global Health Sciences Fund on March 7,
1994, before sales charge, and is equal to $20,363 as of October 31, 1998. The
third line represents the value of the same hypothetical investment made in the
John Hancock Global Health Sciences Fund, after sales charge, and is equal to
$20,163 as of October 31, 1998.
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Health Sciences Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $150,006,243) ......................... $196,755,168
Short-term investments (cost - $47,406,123) ................. 47,406,123
------------
244,161,291
Cash ......................................................... 10,952
Receivable for investments sold .............................. 86,105
Receivable for shares sold ................................... 500,724
Dividends receivable ......................................... 89,087
Interest receivable .......................................... 4,127
Other assets ................................................. 3,025
------------
Total Assets ..................................... 244,855,311
------------------------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 2,829,326
Payable for shares repurchased ............................... 65,729
Payable upon return of securities on loan - Note A ........... 33,599,123
Foreign taxes payable ........................................ 4,942
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ..................................... 455,036
Accounts payable and accrued expenses ........................ 92,164
------------
Total Liabilities ................................ 37,046,320
------------------------------------------------------------------
Net Assets:
Capital paid-in .............................................. 162,451,474
Accumulated net realized loss on investments and
foreign currency transactions ............................... (1,389,731)
Net unrealized appreciation of investments and
foreign currency transactions ............................... 46,749,145
Accumulated net investment loss .............................. (1,897)
------------
Net Assets ....................................... $207,808,991
==================================================================
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 - $83,928,496/2,476,448 .............................. $33.89
===============================================================================
Class B - $123,880,495/3,789,756 ............................. $32.69
===============================================================================
Maximum Offering Price Per Share*
Class A - ($33.89 x 105.26%) ................................. $35.67
===============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended October 31, 1998
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $25,195) ....... $865,853
Interest
(including income on securities loaned of $53,257) ........... 525,384
-----------
1,391,237
-----------
Expenses:
Investment management fee - Note B ........................... 1,238,608
Distribution and service fee - Note B
Class A ..................................................... 206,530
Class B ..................................................... 859,826
Transfer agent fee - Note B .................................. 502,164
Custodian fee ................................................ 76,793
Registration and filing fees ................................. 46,290
Advisory board fee - Note B .................................. 40,000
Auditing fee ................................................. 30,651
Miscellaneous ................................................ 30,251
Financial services fee - Note B .............................. 25,243
Printing ..................................................... 25,110
Trustees' fees ............................................... 7,023
Legal fees ................................................... 1,555
-----------
Total Expenses .................................... 3,090,044
------------------------------------------------------------------
Net Investment Loss ............................... (1,698,807)
------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss on investments sold ......................... (1,388,876)
Net realized loss on foreign currency transactions ............ (225)
Change in net unrealized appreciation/depreciation of
investments .................................................. 16,823,885
Change in net unrealized appreciation/depreciation of
foreign currency transactions ................................ (115)
-----------
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions ............................. 15,434,669
------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ......................... $13,735,862
==================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Health Sciences Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .................................................................. ($949,346) ($1,698,807)
Net realized gain (loss) on investments sold and foreign currency transactions ....... 3,209,799 (1,389,101)
Change in net unrealized appreciation/depreciation of investments and foreign currency
transactions ........................................................................ 18,596,951 16,823,770
------------- -------------
Net Increase in Net Assets Resulting from Operations ................................ 20,857,404 13,735,862
------------- -------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold and foreign currency
transactions
Class A - ($1.2325 and $0.5126 per share, respectively) ............................ (2,050,456) (891,908)
Class B - ($1.2325 and $0.5126 per share, respectively) ............................ (1,831,686) (951,137)
------------- -------------
Total Distributions to Shareholders ................................................. (3,882,142) (1,843,045)
------------- -------------
From Fund Share Transactions - Net: * .................................................. 9,443,353 89,358,253
------------- -------------
Net Assets:
Beginning of period .................................................................. 80,139,306 106,557,921
------------- -------------
End of period (including accumulated net investment loss
of $1,585 and $1,897, respectively) ................................................. $106,557,921 $207,808,991
============= =============
</TABLE>
*Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 1,241,664 $32,842,370 1,619,964 $53,582,895
Shares issued to shareholders in reinvestment of distributions .. 80,399 1,938,113 27,245 834,213
------------ ------------ ------------ ------------
1,322,063 34,780,483 1,647,209 54,417,108
Less shares repurchased ......................................... (1,263,154) (33,196,300) (926,858) (29,707,988)
------------ ------------ ------------ ------------
Net increase .................................................... 58,909 $1,584,183 720,351 $24,709,120
============ ============ ============ ============
CLASS B
Shares sold ..................................................... 924,881 $24,469,830 2,488,498 $81,014,505
Shares issued to shareholders in reinvestment of distributions .. 64,658 1,524,031 26,809 797,000
------------ ------------ ------------ ------------
989,539 25,993,861 2,515,307 81,811,505
Less shares repurchased ......................................... (696,883) (18,134,691) (543,276) (17,162,372)
------------ ------------ ------------ ------------
Net increase .................................................... 292,656 $7,859,170 1,972,031 $64,649,133
============ ============ ============ ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Health Sciences Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM YEAR ENDED OCTOBER 31,
------------------------------- SEPTEMBER 1, 1996 TO ----------------------
1994 1995 1996 OCTOBER 31, 1996(6) 1997 1998
------- ------- ------- -------------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ......... $13.38 $16.51 $21.61 $25.43 $25.11 $30.25
------- ------- ------- ------- ------- -------
Net Investment Loss .......................... (0.32) (0.36)(2) (0.19)(2) (0.05)(2) (0.19)(2) (0.23)(2)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions 3.45 5.46 4.15 (0.27) 6.56 4.38
------- ------- ------- ------- ------- -------
Total from Investment Operations ............ 3.13 5.10 3.96 (0.32) 6.37 4.15
------- ------- ------- ------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold and Foreign Currency
Transactions ................................ -- -- (0.14) -- (1.23) (0.51)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ............... $16.51 $21.61 $25.43 $25.11 $30.25 $33.89
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (3) 23.39% 30.89% 18.39% (1.26%)(4) 26.63% 13.91%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..... $18,643 $24,394 $42,405 $42,618 $53,122 $83,928
Ratio of Expenses to Average Net Assets ...... 2.55% 2.56% 1.80% 1.92%(5) 1.68% 1.61%
Ratio of Net Investment Loss to Average
Net Assets .................................. (2.01%) (1.99%) (0.75%) (1.04%)(5) (0.71%) (0.71%)
Portfolio Turnover Rate ...................... 52% 38% 68% 24% 57% 39%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment loss, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Health Sciences Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM YEAR ENDED OCTOBER 31,
-------------------------------- SEPTEMBER 1, 1996 TO ----------------------
1994(1) 1995 1996 OCTOBER 31, 1996(6) 1997 1998
------- ------- ------- -------------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .............. $17.29 $16.46 $21.35 $24.94 $24.60 $29.40
------- ------- ------- ------- ------- --------
Net Investment Loss (2) ........................... (0.17) (0.55) (0.34) (0.08) (0.37) (0.45)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions .... (0.66) 5.44 4.07 (0.26) 6.40 4.25
------- ------- ------- ------- ------- --------
Total from Investment Operations ................. (0.83) 4.89 3.73 (0.34) 6.03 3.80
------- ------- ------- ------- ------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold and Foreign Currency Transactions -- -- (0.14) -- (1.23) (0.51)
------- ------- ------- ------- ------- --------
Net Asset Value, End of Period ...................... $16.46 $21.35 $24.94 $24.60 $29.40 $32.69
======= ======= ======= ======= ======= ========
Total Investment Return at Net Asset Value (3) ...... (4.80%)(4) 29.71% 17.53% (1.36%)(4) 25.76% 13.11%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .......... $1,071 $6,333 $36,591 $37,521 $53,436 $123,880
Ratio of Expenses to Average Net Assets ........... 3.34%(5) 3.45% 2.42% 2.62%(5) 2.38% 2.31%
Ratio of Net Investment Loss to Average
Net Assets ....................................... (2.65%)(5) (2.91%) (1.33%) (1.74%)(5) (1.41%) (1.41%)
Portfolio Turnover Rate ........................... 52% 38% 68% 24% 57% 39%
</TABLE>
(1) Class B shares commenced operations on March 7, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Health Sciences Fund
Schedule of Investments
October 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Global Health Sciences Fund on October 31, 1998. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry group. Short-term investments, which represent the
Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Chemicals - Specialty (3.16%)
Sigma-Aldrich Corp. ............................ 70,000 $2,163,438
Waters Corp.* .................................. 60,000 4,410,000
-----------
6,573,438
-----------
Drugs - Biotechnology (3.22%)
Alkermes, Inc.* ................................ 67,500 1,316,250
Genentech, Inc.* ............................... 35,000 2,506,875
Gilead Sciences, Inc.* ......................... 20,000 567,500
IDEC Pharmaceuticals Corp.* .................... 32,000 956,000
MedImmune, Inc.* ............................... 20,000 1,345,000
-----------
6,691,625
-----------
Drugs - Diversified (17.79%)
Abbott Laboratories ............................ 125,000 5,867,187
American Home Products Corp. ................... 90,000 4,387,500
Bristol-Myers Squibb Co. ....................... 76,000 8,402,750
Johnson & Johnson .............................. 90,000 7,335,000
Warner-Lambert Co. ............................. 140,000 10,972,500
-----------
36,964,937
-----------
Drugs - Major - Domestic (17.42%)
Lilly (Eli) & Co. .............................. 95,000 7,689,062
Merck & Co., Inc. .............................. 62,500 8,453,125
Pfizer, Inc. ................................... 91,000 9,765,437
Schering-Plough Corp. .......................... 100,000 10,287,500
-----------
36,195,124
-----------
Drugs - Major - International (9.82%)
Glaxo Wellcome PLC, American Depositary
Receipts (ADR) (United Kingdom) .............. 75,000 4,668,750
Novartis AG (ADR) (Switzerland) ................ 62,000 5,564,500
Novo Nordisk A/S (ADR) (Denmark) ............... 21,000 1,219,313
Roche Holding AG (Switzerland) ................. 118 1,375,636
SmithKline Beecham PLC (ADR)
(United Kingdom) ............................. 90,000 5,737,500
Zeneca Group PLC (ADR)
(United Kingdom) ............................. 47,000 1,833,000
-----------
20,398,699
-----------
Drugs - Specialty (4.08%)
Elan Corp., PLC (ADR) (Ireland)* ............... 17,000 1,191,063
Forest Laboratories, Inc.* ..................... 55,000 2,299,688
Mylan Laboratories, Inc. ....................... 72,000 2,479,500
Watson Pharmaceutical, Inc.* ................... 45,000 2,503,125
-----------
8,473,376
-----------
Drugs & Sundries - Wholesale (5.88%)
Bergen Brunswig Corp. (Class A) ................ 18,000 878,625
Cardinal Health, Inc. .......................... 66,000 6,241,125
McKesson Corp. ................................. 40,000 3,080,000
Schein (Henry), Inc.* .......................... 52,500 2,031,094
-----------
12,230,844
-----------
Healthcare - Management (5.44%)
Concentra Managed Care, Inc.* .................. 138,000 1,414,500
Hanger Orthopedic Group, Inc.* ................. 60,000 1,185,000
HEALTHSOUTH Corp.* ............................. 230,000 2,788,750
IMPATH, Inc.* .................................. 80,000 2,450,000
Lincare Holdings, Inc.* ........................ 32,500 1,297,969
Renal Care Group, Inc.* ........................ 45,000 1,310,625
Total Renal Care Holdings, Inc.* ............... 35,000 857,500
-----------
11,304,344
-----------
Healthcare - Software/Services (7.72%)
HBO & Co. ...................................... 190,000 4,987,500
IMS Health, Inc. ............................... 50,000 3,325,000
Omnicare, Inc. ................................. 180,000 6,221,250
PAREXEL International Corp.* ................... 68,000 1,500,250
-----------
16,034,000
-----------
Healthcare - Supplies (2.81%)
Allegiance Corp. ............................... 18,000 669,375
Becton, Dickinson & Co. ........................ 55,000 2,316,875
Cooper Cos., Inc.* ............................. 37,000 878,750
Ocular Sciences, Inc.* ......................... 43,000 1,080,375
Wesley Jessen VisionCare, Inc.* ................ 50,000 893,750
-----------
5,839,125
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Health Sciences Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Hospitals Management (3.07%)
Health Management Associates, Inc.
(Class A)* ............................... 200,000 $3,562,500
Tenet Healthcare Corp.* .................... 55,000 1,536,563
Universal Health Services, Inc.
(Class B)* ............................... 25,000 1,282,813
------------
6,381,876
------------
Medical Devices and Products (7.17%)
Allergan, Inc. ............................. 27,500 1,717,031
Medtronic, Inc. ............................ 110,000 7,150,000
Stryker Corp. .............................. 133,000 5,577,687
Ventana Medical Systems, Inc.* ............. 25,000 462,500
------------
14,907,218
------------
Nursing Homes (2.07%)
Alternative Living Services, Inc.* ......... 40,000 1,045,000
HCR Manor Care, Inc.* ...................... 100,000 3,250,000
------------
4,295,000
------------
Retail - Drug Stores (5.03%)
CVS Corp. .................................. 105,000 4,797,187
Duane Reade, Inc.* ......................... 50,000 1,931,250
Rite Aid Corp. ............................. 50,000 1,984,375
Walgreen Co. ............................... 36,000 1,752,750
------------
10,465,562
------------
TOTAL COMMON STOCKS
(Cost $150,006,243) (94.68%) 196,755,168
------ ------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------ ---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.64%)
Investment in a joint repurchase
agreement transaction with
HSBC Securities, Inc. -
Dated 10-30-98, due 11-02-98
(Secured by U.S. Treasury Bonds,
6.25% thru 8.125%, due
11-15-16 thru 11-15-26)
-- Note A ........................ 5.38% $13,807 $13,807,000
------------
Cash Equivalents (16.17%)
Navigator Securities Lending
Prime Portfolio** .............. 33,599 33,599,123
------- ------------
TOTAL SHORT-TERM INVESTMENTS (22.81%) 47,406,123
------- ------------
TOTAL INVESTMENTS (117.49%) 244,161,291
------- ------------
OTHER ASSETS AND LIABILITIES, NET (17.49%) (36,352,300)
------- ------------
TOTAL NET ASSETS (100.00%) $207,808,991
======= ============
*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.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Global Health Sciences Fund
Portfolio Concentration (Unaudited)
- --------------------------------------------------------------------------------
The Global Health Sciences Fund invests primarily in equity securities of
issuers in the health care industry in the United States and abroad. The
concentration of investments by industry category for individual securities held
by the Fund is shown in the schedule of investments.
In addition, concentration of investments can be aggregated by various
countries. The table below shows the percentage of the Fund's investments at
October 31, 1998 assigned to the various country categories.
MARKET VALUE
AS A PERCENTAGE OF
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ------------------
Denmark..................................................... 0.59%
Ireland..................................................... 0.57
Switzerland................................................. 3.34
United Kingdom.............................................. 5.89
United States............................................... 107.10
------
TOTAL INVESTMENTS 117.49%
======
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Health Sciences Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock World Fund (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series: John Hancock Global Health Sciences Fund (the "Fund"), John
Hancock European Equity Fund (which commenced operations on March 2, 1998) and
John Hancock Pacific Basin Equities Fund. Prior to October 1, 1998, the Fund was
known as John Hancock Global Rx Fund. The other series of the Trust are reported
in separate financial statements. The investment objective of the Fund is
long-term capital appreciation through investments in an international portfolio
consisting primarily of equity securities of issuers in the health-care
industry.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. Effective December 8, 1998,
the Board of Trustees have authorized the issuance of Class C shares in 1999.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions, dividends
and liquidation, except that certain expenses, subject to the approval of the
Trustees, may be applied differently to each class of shares in accordance with
current regulations of the Securities and Exchange Commission and the Internal
Revenue Service. Shareholders of a class which bears distribution and service
expenses under terms of a distribution plan have exclusive voting rights to that
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation."
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 large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, at October 31, 1998, the Fund has $1,300,348 of
capital loss carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. If such carryforwards are used by the
Fund, no capital gain distribution will be made. The Fund's carryforwards expire
as follows: October 31, 2006 - $1,300,348.
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.
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Health Sciences Fund
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees 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 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.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowings, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the lines of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the year ended October 31, 1998.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated lenders fees. These fees are included in interest
income. The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on loan. As
with other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral should
the borrower of the securities fail financially. At October 31, 1998, the Fund
loaned securities having a market value of $33,059,055 collateralized by cash in
the amount of $33,599,123, which was invested in a short-term instrument.
FOREIGN CURRENCY TRANSLATION All assets or 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 and losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Health Sciences Fund
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
There were no open forward foreign currency exchange contracts at October 31,
1998.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. Buying futures tends to increase the Fund's exposure to the
underlying instrument. Selling futures tends to decrease the Fund's exposure to
the underlying instrument or hedge other Fund instruments. At the time the Fund
enters into a financial futures contract, it is required to deposit with its
custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At October 31, 1998, there were no open positions in financial futures
contracts.
OPTIONS The Fund may purchase options contracts. Listed options will be valued
at the last quoted sales price on the exchange on which they are primarily
traded. Purchased put or call over-the-counter options will be valued at the
average of the "bid" prices obtained from two independent brokers. Written put
or call over-the-counter options, will be valued at the average of the "asked"
prices obtained from two independent brokers. Upon the writing of a call or put
option, an amount equal to the premium received by the Fund is included in the
Statement of Assets and Liabilities as an asset and corresponding liability. The
amount of the liability is subsequently marked-to-market to reflect the current
market value of the written option.
The Fund may use options contracts to manage its exposure to changing
security prices. Writing puts and buying calls tend to increase the Fund's
exposure to the underlying instrument and buying puts and writing calls tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value reflects the maximum exposure of
the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction,
and only present liquidity risk in highly unusual market conditions. To minimize
credit risk and liquidity risks in over-the-counter option contracts, the Fund
will continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the year ended October 31,
1998.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Health Sciences Fund
NOTE B -
MANAGEMENT FEE, ADMINISTRATIVE SERVICES AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a quarterly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.80% of the first $200,000,000 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 $200,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended October
31, 1998, net sales charges received with regard to Class A shares amounted to
$852,141. Out of this amount, $142,506 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $567,691 was
paid as sales commissions to sales personnel of unrelated broker-dealers and
$141,944 was paid as sales commissions to personnel of John Hancock
Distributors, Inc. ("Distributors"), a related broker-dealer. The Adviser's
indirect parent, John Hancock Mutual Life Insurance Company ("JHMLICo"), is the
indirect sole shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the year ended October 31, 1998,
contingent deferred sales charges paid to JH Funds amounted to $134,662.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds at an
annual rate not to exceed 0.30% of Class A average daily net assets and 1.00% of
Class B average daily net assets to reimburse JH Funds for its distribution and
service costs. Up to a maximum of 0.25% of such payments may be service fees as
defined by the amended Rules of Fair Practice of the National Association of
Securities Dealers. Under the amended Rules of Fair Practice, curtailment of a
portion of the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
The Fund has an independent advisory board composed of scientific and medical
experts who provide the investment officers of the Fund with advice and
consultation on health care developments, for which the Fund pays the advisory
board a fee.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are directors and/or officers of the Adviser, and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer, for tax purposes, their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At October 31, 1998 the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $220.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Global Health Sciences Fund
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the year ended October 31, 1998, aggregated $134,334,982 and
$57,175,502, respectively. There were no purchases or sales of obligations of
the U.S. government and its agencies during the year ended October 31, 1998.
The cost of investments owned at October 31, 1998 (including short-term
investments) for federal income tax purposes was $197,501,749. Gross unrealized
appreciation and depreciation of investments aggregated $54,416,516 and
$7,756,974, respectively, resulting in net unrealized appreciation of
$46,659,542.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $3,046, a
decrease in accumulated net investment loss of $1,698,495 and a decrease in
capital paid-in of $1,701,541. This represents the amount necessary to report
these balances on a tax basis, excluding certain temporary differences, as of
October 31, 1998. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to the treatment of net operating losses in
the computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles. The calculation of net
investment loss per share in the financial highlights excludes these
adjustments.
19
<PAGE>
================================================================================
John Hancock Funds - Global Health Sciences Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock Global Health Sciences Fund and the Trustees
of John Hancock World Fund
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 Global Health Sciences
Fund (formerly John Hancock Global Rx Fund, the "Fund") (a series of John
Hancock World Fund) at October 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and the significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities owned at October 31, 1998 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund paid for its taxable year ended October
31, 1998.
The Fund has designated distributions to shareholders of $1,843,045 as
capital gain dividends.
With respect to the distributions paid by the Fund for the fiscal year ended
October 31, 1998, none of the distributions qualify for the corporate dividends
received deduction.
20
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Global Health Sciences Fund
21
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Global Health Sciences Fund
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Global Health Sciences Fund
23
<PAGE>
================================================================================
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[A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the page. A
box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below reads
"A Global Investment Management Firm." A recycled logo in lower left hand corner
with caption "Printed on Recycled Paper."]
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Pacific Basin
Equities Fund
OCTOBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
-------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
DENNIS S. ARONOWITZ
RICHARD P. CHAPMAN, JR.*
WILLIAM J. COSGROVE
DOUGLAS M. COSTLE
LELAND O. ERDAHL
RICHARD A. FARRELL
GAIL D. FOSLER
WILLIAM F. GLAVIN
ANNE C. HODSDON
DR. JOHN A. MOORE
PATTI MCGILL PETERSON
JOHN W. PRATT*
RICHARD S. SCIPIONE
EDWARD J. SPELLMAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 FRANKLIN STREET
BOSTON, MASSACHUSETTS 02110
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
SUB-INVESTMENT ADVISER
INDOCAM ASIA ADVISERS LIMITED
ONE EXCHANGE SQUARE
HONG KONG
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
PRICEWATERHOUSECOOPERS LLP
160 FEDERAL STREET
BOSTON, MASSACHUSETTS 02110
-------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
An often-used analogy for stock market performance over the short term is a
roller coaster. That is because, while long-term history suggests the market's
general direction is up, its swings over the short term can be dramatic and, at
times, violent. This year, the market has given us several stark examples of
this phenomenon. From the new highs set in mid-July, the major indices plunged
by 19% through the end of August. It was the worst such fall since 1990. For the
first time in a number of years, some bonds and bond mutual funds outperformed
stocks and stock mutual funds. Seeking safety in a world of global economic
uncertainties, investors everywhere converged on U.S. Treasury bonds and pushed
their yields to historic lows.
Then, in early October, the market staged a remarkable rebound that was
sparked by the Federal Reserve's two cuts in interest rates. The major indices
regained all their previously lost ground and the S&P 500 Stock Index ended
October actually up by 15% year-to-date.
- --------------------------------------------------------------------------------
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
Investors have been understandably shaken by these dramatic twists and
turns, but we are pleased to report that most individual investors did not
panic, and we hope that means they've taken our words to heart. Over the long
term, markets do not move up or down in a straight line. That's why after
watching the market charge ahead almost uninterrupted for so many years, we have
been striking a more cautionary stance in this space over the last several
months.
Analysts are still pondering the implications of global turmoil and the
potential for slower U.S. economic and corporate earnings growth. While we don't
make a practice of opining on what the market will do next, we continue to
believe it would be wise for investors to set more realistic expectations. Over
the long term, the market's historical results have been more in the 10% per
year range, which is still a solid result, considering it has been produced
despite wars, depressions and other social upheavals along the way.
There is no doubt, however, that the market's heightened volatility and
recent dramatic moves have been cause for concern. In these uncertain times, it
becomes even harder to remember to "stay the course" and stick to your long-term
investment plan. But this remains the essential tenet of successful investing.
Now could also be a good time to review your asset allocation with your
investment professional, keeping in mind that the last six months' divergence in
performance of stocks and high-quality bonds is a perfect example of why all
your eggs shouldn't be in one basket. Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY AYAZ EBRAHIM FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Pacific Basin
Equities Fund
Economic crisis continues to plague Asian markets
Currency turmoil and financial crisis cast a shadow over the Pacific Basin
markets during the past year. The downturn was triggered by the sharp
devaluation of Thailand's currency and the subsequent collapse of the Thai stock
market in July 1997. Thailand's woes quickly spread throughout the region as
investors began to worry about the financial health of other Pacific Basin
economies such as Malaysia, the Philippines, Singapore and Indonesia.
Asian stock markets rebounded temporarily in January with the announcement of
Japan's economic stimulus package. The recovery, however, was short-lived as it
became clear that Japan's fiscal measures were not enough to stimulate its
lackluster economy and address the critical problems in its banking system.
Without Japan as the engine of growth in Asia, prospects for a recovery dimmed
and stock markets across the region continued to decline.
Fears of a global recession in the summer months compounded the situation as
hopes for an export-led recovery faded. The sharp decline in currencies had made
Asian exports much more attractive. Many hoped that demand for Asian exports
would be a strong enough catalyst to bring the region out of its doldrums.
However, with economic growth slowing around the world -- particularly in the
U.S. and Europe -- demand for Asian exports wasn't strong enough to lead a
recovery.
Performance scorecard
Needless to say, the market turmoil that plagued the region negatively impacted
the performance of all Pacific region funds. For the year ended October 31,
1998, John Hancock Pacific Basin
"Fears of a global recession in the summer months compounded the situation..."
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[A 2 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Pacific
Basin Equities Fund. Caption below reads "Ayaz Ebrahim."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Pacific Basin Equities Fund
"In recent months...we've rebuilt our Hong Kong position..."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into eleven sections (from top to left): Short-Term Investments
& Other 15%, Thailand 1%, Taiwan 3%, South Korea 5%, Singapore 7%, Philippines
1%, Malaysia 1%, Japan 25%, Indonesia 1%, Hong Kong 23% and Australia 18%. A
note below the chart reads "As a percentage of net assets on October 31, 1998."]
- --------------------------------------------------------------------------------
Equities Fund Class A and Class B shares returned -24.68% and -25.18%,
respectively, at net asset value. By comparison, the average Pacific region fund
returned -21.64%, according to Lipper Analytical Services, Inc.(1) Keep in mind
that your net asset value return will be different from the Fund's performance
if you were not invested in the Fund for the entire period and did not reinvest
all distributions. Please see pages six and seven for longer-term performance
information.
The Fund slightly lagged its peers mostly due to its defensive posture at the
start of the year. When the Asian markets rebounded in January, we did not
benefit from the rally as much as other funds with more aggressive investment
strategies. Given the region's economic woes, however, we are confident that
maintaining a defensive investment posture is the right strategy for the Fund.
Japan
For much of the period, we increased our weighting in Japan, hitting a high at
one point of 37% of net assets. The main reason was that Japanese stocks had
declined significantly over the past few years. Given their relative valuations,
they offered a defensive investment move in the midst of the region's economic
crisis. Initially, our focus was Japanese exporters, who were likely to benefit
from the weakening yen. More recently, we've shifted toward more domestically
oriented companies. One example is computer-service company NTT Data. With all
of the corporate and bank restructuring taking place in Japan, many companies
are completely overhauling their information systems. Because of its dominant
position in the industry, NTT Data is well positioned to reap the benefits of
these corporate restructurings.
With signs that the worst of the region's crisis may be behind us, we believe
that other Asian markets could start to outperform Japan. As a result, we've
recently cut back our Japanese weighting in favor of Thailand and South Korea.
Thailand and Korea
After eliminating our Thai holdings last year, we recently re-entered the market
with a 1% weighting. Although Thailand is still facing significant financial
problems, the government has laid the groundwork for substantial reforms.
Similarly, South Korea has been successful in pushing through financial
reform. Although slightly behind Thailand in its reform process, South Korea is
certainly moving in the right direction. What's more, South Korea is one of the
few Asian economies that has benefited from a pick-up in exports. Given that,
we've increased our South Korean holdings to 5% of net assets.
- --------------------------------------------------------------------------------
[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 Telestra
Corp. followed by an up arrow with the phrase "Dominates Australian
communications industry." The second listing is Hutchison Whampoa followed by a
down arrow with the phrase "Ties to Hong Kong infrastructure." The third listing
is Overseas-Chinese Banking Corp. followed by a down arrow with the phrase
"Singapore bank with regional exposure." A note below the table reads "See
'Schedule of Investments.' Investment holdings are subject to change."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - Pacific Basin Equities Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended October 31, 1998." The chart is
scaled in increments of 5% with -30% at the bottom and 0% at the top. The first
bar represents the -24.68% Total return for John Hancock Pacific Basin Equities
Fund Class A. The second bar represents the -25.18% total return for John
Hancock Pacific Basin Equities Fund Class B. The third bar represents the
- -21.64% total return for Average Pacific region fund. A note below the chart
reads "Total returns for John Hancock Pacific region fund are at net asset value
with all distributions reinvested. The average Pacific region fund is tracked by
Lipper Analytical Services, Inc. See the following two pages for historical
performance information."]
- --------------------------------------------------------------------------------
Hong Kong
After holding our position in Hong Kong relatively steady for most of the year,
we began to trim holdings there in August when the government intervened in the
stock market. In an attempt to squeeze out troublesome market speculators,
government authorities started to aggressively buy Hong Kong stocks. With the
negative reaction from investors, we believed this would result in an overhang
in the market.
In recent months, however, we've rebuilt our Hong Kong position to 23% of the
Fund's net assets for several reasons. First, the government has enacted reforms
that make it very difficult for speculators to enter the market. Second,
increased liquidity throughout the Pacific Basin has particularly impacted Hong
Kong -- the most liquid market in the region behind Japan. Finally, Hong Kong
has benefited from the drop in U.S. interest rates. Because of the Hong Kong
dollar's tight link to the U.S. dollar, Hong Kong interest rates tend to fall
with U.S. interest rates. Our recent Hong Kong purchases have focused on
property stocks, since they offer tremendous value after their significant
decline in the past year, and are also likely to benefit from lower interest
rates.
Outlook
We are cautiously optimistic about the region's prospects. There are signs that
the worst of the economic crisis may be over. Although economies are still
deteriorating, the rate of decline has slowed considerably. It will take time,
however, for the transition from recession to recovery. In addition, we believe
the major currency risks in the Asian markets have subsided. The strengthening
of the Japanese yen has lent stability to currencies throughout the region. As
long as the yen doesn't weaken, currency risk should be diminished.
In light of the problems facing financial intermediaries throughout Asia,
financial reform is absolutely critical to the region's recovery. Although
falling interest rates will spur economic growth, the region will not make a
full recovery until structural reforms are complete. While governments are in
the process of pushing through reforms, political pressure has delayed -- and
could continue to delay --progress. With all of these considerations, we remain
cautious on the region and will continue to maintain our defensive posture until
more concrete signs of an economic recovery are evident.
"...we remain cautious on the region and will continue to maintain our defensive
posture..."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio management team through the
end of the Fund's period discussed in this report. Of course, the team's views
are subject to change as market and other conditions warrant.
International investing involves special risks such as political and currency
risks and differences in accounting standards and financial reporting.
(1)Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
John Hancock Funds - Pacific Basin Equities 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 Pacific Basin Equities Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions werereinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus for a discussion of the risks associated with international
investing, including currency and political risks and differences in accounting
standards and financial reporting, before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns (48.37%) (38.93%) (0.07%)
Average Annual Total Returns (48.37%) (9.39%) (0.01%)
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended September 30, 1998
SINCE
ONE INCEPTION
YEAR (3/7/94)
---- --------
Cumulative Total Returns (48.75%) (47.98%)
Average Annual Total Returns (48.75%) (13.33%)
6
<PAGE>
================================================================================
John Hancock Funds - Pacific Basin Equities Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Pacific Basin Equities 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) Pacific
Index-an unmanaged index that measures performance for a diverse range of global
stock markets, including Australia, Hong Kong, Japan, New Zeland and Singapore/
Malaysia. Past performance is not indicative of future results.
Line chart with the heading John Hancock Pacific Basin Equities Fund Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the hypothetical $10,000 investment made in the John Hancock Pacific Basin
Equities Fund on October 31, 1988, before sales charge, and is equal to $10,767
as of October 31, 1998. The second line represents the value of the same
hypothetical investment made in the John Hancock Pacific Basin Equities Fund,
after sales charge, and is equal to $10,230 as of October 31, 1998. The third
line represents the MSCI Pacific Index and is equal to $6,929 as of October 31,
1998.
Line chart with the heading John Hancock Pacific Basin Equities Fund Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines. The first line represents the value
of the MSCI Pacific Index and is equal to $6,640 as of October 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock Pacific Basin Equities Fund on March 7, 1994, before sales
charge, and is equal to $5,872 as of October 31, 1998. The third line represents
the MSCI Pacific Index and is equal to $5,760 as of October 31, 1998.
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Pacific Basin Equities Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
October 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and warrants (cost - $21,948,671) ........... $23,571,556
Short-term investments (cost - $2,674,425) - Note A ....... 2,674,425
-----------
26,245,981
Cash ....................................................... 185,049
Foreign currency, at value (cost - $256,726) ............... 265,439
Receivable for investments sold ............................ 2,840,386
Receivable for forward foreign currency exchange
contracts sold - Note A ................................... 4,771
Receivable for shares sold ................................. 1,397,847
Dividends receivable ....................................... 109,631
Other assets ............................................... 3,664
-----------
Total Assets ............................. 31,052,768
-----------------------------------------------------------
Liabilities:
Payable for investments purchased .......................... 358,894
Payable for forward foreign currency exchange
contracts purchased - Note A .............................. 784
Payable upon return of securities on loan - Note A ......... 2,674,425
Foreign tax payable ........................................ 4,671
Payable to John Hancock Advisers, Inc. .....................
and affiliates - Note B ................................... 67,161
Accounts payable and accrued expenses ...................... 63,767
------------
Total Liabilities ........................ 3,169,702
-----------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 39,800,623
Accumulated net realized loss on investments
and foreign currency transactions ......................... (13,306,157)
Net unrealized appreciation of investments
and foreign currency transactions ......................... 1,629,767
Accumulated net investment loss ............................ (241,167)
-----------
Net Assets ............................... $27,883,066
===========================================================
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 - $14,717,073 / 1,679,774 .......................... $8.76
=============================================================================
Class B - $13,165,993 / 1,554,116 .......................... $8.47
=============================================================================
Maximum Offering Price Per Share*
Class A - ($8.76 x 105.26%) ................................ $9.22
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended October 31, 1998
- --------------------------------------------------------------------------------
Investment Income:
Dividends
(net of foreign withholding taxes of $38,377) ............. $625,086
Interest
(including income on securities loaned of $48,393) ........ 172,719
-----------
797,805
-----------
Expenses:
Investment management fee - Note B ........................ 237,268
Distribution and service fee - Note B
Class A ................................................. 48,376
Class B ................................................. 135,330
Transfer agent fee - Note B ............................... 219,181
Custodian fee ............................................. 99,063
Auditing fee .............................................. 30,534
Registration and filing fees .............................. 23,760
Printing .................................................. 17,152
Miscellaneous ............................................. 5,889
Financial services fee - Note B ........................... 4,982
Legal fees ................................................ 2,192
Trustees' fees ............................................ 2,087
-----------
Total Expenses ........................... 825,814
-----------------------------------------------------------
Net Investment Loss ...................... (28,009)
------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized loss on investments sold ...................... (12,835,100)
Net realized loss on foreign currency transactions ......... (1,659,702)
Change in net unrealized appreciation/depreciation
of investments ............................................ 6,604,196
Change in net unrealized appreciation/depreciation
of foreign currency transactions .......................... 14,955
-----------
Net Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions ............ (7,875,651)
------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ................ ($7,903,660)
============================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Pacific Basin Equities Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .................................... ($493,112) ($28,009)
Net realized loss on investments sold and foreign
currency transactions ................................ (323,389) (14,494,802)
Change in net unrealized appreciation/depreciation of
investments and foreign currency transactions ........ (6,891,185) 6,619,151
------------ ------------
Net Decrease in Net Assets Resulting from Operations . (7,707,686) (7,903,660)
------------ ------------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
and foreign currency transactions
Class A - ($0.1114 and none per share, respectively) . (298,861) --
Class B - ($0.1114 and none per share, respectively) . (226,927) --
------------ ------------
Total Distributions to Shareholders .................. (525,788) --
------------ ------------
From Fund Share Transactions - Net:* ...................... (22,178,367) (2,642,510)
------------ ------------
Net Assets:
Beginning of period .................................... 68,841,077 38,429,236
------------ ------------
End of period (including accumulated net investment loss
of $2,740 and $241,167, respectively) ................ $38,429,236 $27,883,066
============ ============
</TABLE>
*Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1997 1998
----------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 7,033,995 $104,411,972 6,871,046 $63,598,308
Shares issued to shareholders in reinvestment of distributions .. 18,734 279,606 -- --
------------ ------------- ----------- ------------
7,052,729 104,691,578 6,871,046 63,598,308
Less shares repurchased ......................................... (7,912,293) (118,130,220) (7,006,277) (65,982,694)
------------ ------------- ----------- ------------
Net decrease .................................................... (859,564) ($13,438,642) (135,231) ($2,384,386)
============ ============= =========== ============
CLASS B
Shares sold ..................................................... 1,927,628 $28,233,034 2,024,172 $18,385,168
Shares issued to shareholders in reinvestment of distributions .. 12,216 178,751 -- --
------------ ------------- ----------- ------------
1,939,844 28,411,785 2,024,172 18,385,168
Less shares repurchased ......................................... (2,533,663) (37,151,510) (1,999,604) (18,643,292)
------------ ------------- ----------- ------------
Net increase (decrease) ......................................... (593,819) ($8,739,725) 24,568 ($258,124)
============ ============= =========== ============
</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 redeemed during the last two periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Pacific Basin Equities 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
YEAR ENDED AUGUST 31, PERIOD FROM OCTOBER 31,
---------------------------- SEPTEMBER 1, 1996 TO ----------------
1994 1995 1996 OCTOBER 31, 1996(7) 1997 1998
------ ------ ------ ------------------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .................... $13.27 $15.88 $14.11 $14.74 $14.47 $11.63
------- ------- ------- ------- ------- -------
Net Investment Income (Loss)(2) ......................... (0.10) 0.02(3) (0.02) (0.02) (0.07) 0.02
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ...................... 3.12 (1.24) 0.65 (0.25) (2.66) (2.89)
------- ------- ------- ------- ------- -------
Total from Investment Operations ..................... 3.02 (1.22) 0.63 (0.27) (2.73) (2.87)
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Realized Gain on Investments Sold
and Foreign Currency Transactions ...................... (0.41) (0.55) -- -- (0.11) --
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period .......................... $15.88 $14.11 $14.74 $14.47 $11.63 $8.76
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(4) ........... 22.82% (7.65%) 4.47% (1.83%)(5) (19.03%) (24.68%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................ $50,261 $37,417 $41,951 $38,694 $21,109 $14,717
Ratio of Expenses to Average Net Assets ................. 2.43% 2.05% 1.97% 2.21%(6) 2.06% 2.46%
Ratio of Net Investment Income (Loss)
to Average Net Assets .................................. (0.66%) 0.13%(3) (0.15%) (0.83%)(6) (0.49%) 0.22%
Portfolio Turnover Rate ................................. 68% 48% 73% 15% 118% 230%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Pacific Basin Equities Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED YEAR ENDED AUGUST 31, PERIOD FROM OCTOBER 31,
AUGUST 31, ------------------ SEPTEMBER 1, 1996 TO ------------------
1994(1) 1995 1996 OCTOBER 31, 1996(7) 1997 1998
------ ------- ------- ------------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period .............. $15.11 $15.84 $13.96 $14.49 $14.20 $11.32
------ ------- ------- ------- ------- -------
Net Investment Loss(2) ............................ (0.09) (0.09) (0.13) (0.04) (0.18) (0.04)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions .... 0.82 (1.24) 0.66 (0.25) (2.59) (2.81)
------ ------- ------- ------- ------- -------
Total from Investment Operations ............... 0.73 (1.33) 0.53 (0.29) (2.77) (2.85)
------ ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Realized Gain on Investments
Sold and Foreign Currency Transactions ........... -- (0.55) -- -- (0.11) --
------ ------- ------- ------- ------- -------
Net Asset Value, End of Period .................... $15.84 $13.96 $14.49 $14.20 $11.32 $8.47
====== ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(4) ..... 4.83%(5) (8.38%) 3.80% (2.00%)(5) (19.67%) (25.18%)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .......... $9,480 $14,368 $32,342 $30,147 $17,320 $13,166
Ratio of Expenses to Average Net Assets ........... 3.00%(6) 2.77% 2.64% 2.90%(6) 2.76% 3.16%
Ratio of Net Investment Loss to Average
Net Assets ....................................... (1.40%)(6) (0.66%) (0.86%) (1.52%)(6) (1.19%) (0.48%)
Portfolio Turnover Rate ........................... 68% 48% 73% 15% 118% 230%
</TABLE>
(1) Class B shares commenced operations on March 7, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) May not accord to amounts shown elsewhere in the financial statements due
to the timing of sales and repurchases of Fund shares in relation to
fluctuating market values of the investments of the Fund.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Pacific Basin Equities Fund
Schedule of Investments
October 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Pacific Basin Equities Fund on October 31, 1998. It's divided into two main
categories: common stocks and warrants and short-term investments. Common stocks
and warrants are further broken down by country. Short-term investments, which
represent the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Australia (17.60%)
Broken Hill Proprietary Co., Ltd.
(Diversified Operations) .................... 39,800 $338,544
Commonwealth Bank of Australia
(Banks - Foreign) ........................... 21,300 264,976
Foster's Brewing Group, Ltd. (Beverages) ...... 168,800 414,914
GIO Australia Holdings, Ltd. (Insurance) ...... 62,600 199,290
Goodman Fielder, Ltd. (Food) .................. 218,200 288,368
Hoyts Cinemas Group (Leisure) ................ 353,733 316,376
National Australia Bank, Ltd.
(Banks - Foreign) ........................... 20,000 265,191
News Corp., Ltd. (The) (Media) ................ 113,800 777,956
Publishing & Broadcasting, Ltd. (Media) ....... 59,000 234,325
Telstra Corp., Ltd.
(Telecommunications) ........................ 183,800 729,981
Westpac Banking Corp., Ltd.
(Banks - Foreign) ........................... 41,800 254,379
Woodside Petroleum, Ltd. (Oil & Gas) .......... 50,000 264,409
Woolworth's, Ltd. (Retail) .................... 158,800 559,180
----------
4,907,889
----------
Hong Kong (23.19%)
Cheung Kong Holdings, Ltd.
(Real Estate Operations) .................... 78,000 533,764
China Telecom, Ltd.
(Telecommunications)* ....................... 98,000 184,106
China Telecom, Ltd. American Depositary
Receipts (ADR) (Telecommunications)* ........ 6,000 228,750
CLP Holdings, Ltd. (Utilities) ................ 53,000 297,676
Guoco Group, Ltd. (Finance) ................... 401,000 419,380
Hang Seng Bank, Ltd.
(Banks - Foreign) ........................... 15,900 137,547
Henderson Land Development Co., Ltd.
(Real Estate Operations) .................... 78,000 383,706
HKR International, Ltd.
(Real Estate Operations) .................... 783,200 442,414
Hong Kong & China Gas Co., Ltd.
(Oil & Gas) ................................. 306,900 435,881
Hong Kong Telecommunications, Ltd.
(Telecommunications) ........................ 248,000 496,320
Hongkong Electric Holdings, Ltd.
(Utilities) ................................. 61,000 223,680
Hongkong Land Holdings, Ltd.
(Real Estate Operations) .................... 94,000 133,480
HSBC Holdings, Ltd.
(Banks - Foreign) ........................... 53,200 1,219,238
Hutchison Whampoa, Ltd.
(Diversified Operations) .................... 81,000 580,439
Sun Hung Kai Properties, Ltd.
(Real Estate Operations) .................... 64,000 446,223
Union Bank of Hong Kong, Ltd.
(Banks - Foreign) ........................... 457,000 303,880
----------
6,466,484
----------
Indonesia (0.60%)
PT Gudang Garam Tbk (Tobacco) ................ 92,000 82,921
PT Telekomunikasi
(Telecommunications) ........................ 340,000 83,882
----------
166,803
----------
Japan (25.06%)
Fuji Photo Film Co., Ltd. (Leisure) ........... 4,000 146,509
Ito-Yokado Co., Ltd. (Retail) ................ 3,000 174,987
Marui Co., Ltd. (Retail) ...................... 4,000 69,652
Matsushita Communication Industrial
Co., Ltd. (Telecommunications) .............. 3,000 138,703
Nidec Corp. (Machinery) ....................... 3,000 273,031
Nippon Telegraph & Telephone Corp.
(Telecommunications) ........................ 25 195,574
NTN Corp. (Metal) ............................. 97,000 292,880
NTT Data Corp.
(Telecommunications) ........................ 220 930,348
NTT Mobile Communication Network, Inc.
(Telecommunications)* ....................... 18 650,026
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Pacific Basin Equities Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Japan (continued)
Sankyo Co., Ltd. (Medical) .................... 24,000 $541,431
Secom Co., Ltd.
(Protection - Safety Equip. & Svc.) ......... 4,000 296,792
Sekisui Chemical Co., Ltd. (Chemicals) ........ 21,000 114,385
Sekisui House, Ltd. (Building) ................ 17,000 169,300
Seven-Eleven Japan Co., Ltd. (Retail) ......... 7,000 531,995
Takeda Chemical Industries, Ltd.
(Medical) ................................... 33,000 1,072,826
Terumo Corp. (Medical) ........................ 59,000 1,239,921
Tokyo Electric Power Co., Inc. (Utilities) .... 5,900 149,297
----------
6,987,657
----------
Malaysia (1.39%)
Malaysia International Shipping Berhad
(Transport)*** .............................. 120,000 91,958
Petronas Gas Berhad (Oil & Gas)*** ............ 104,000 131,232
Rothmans of Pall Mall Berhad (Tobacco)*** ..... 20,000 66,684
Sime Darby Berhad
(Diversified Operations)*** ................ 191,000 97,108
----------
386,982
----------
Philippine Islands (0.66%)
Philippine Long Distance Telephone Co.
(ADR) (Utilities) ........................... 7,600 185,250
----------
Singapore (6.45%)
City Developments, Ltd.
(Real Estate Operations) .................... 100,000 362,519
DBS Land, Ltd.
(Real Estate Operations) .................... 348,000 393,438
Keppel Corp., Ltd.
(Diversified Operations) .................... 210,000 420,645
Overseas-Chinese Banking Corp., Ltd.
(Banks - Foreign) ........................... 34,000 148,326
Overseas Union Bank, Ltd.
(Banks - Foreign) ........................... 76,000 206,402
Singapore Telecommunications, Ltd.
(Telecommunications) ........................ 155,000 267,619
----------
1,798,949
----------
South Korea (5.45%)
Daewoo Heavy Industries Co.
(Machinery) ................................. 46,500 174,794
Dongwon Securities Co.
(Broker Services) ........................... 47,470 262,983
Kookmin Bank (Banks - Foreign)* ............... 22,000 79,363
Korea Electric Power Corp. (Utilities) ........ 19,500 347,291
Samsung Display Devices Co.
(Electronics) ............................... 7,262 272,428
Samsung Electronics Co. (Electronics) ......... 7,597 310,904
Samsung Electronics, Ltd. Global Depositary
Receipts (Electronics)* (R) ................ 3,204 72,811
----------
1,520,574
----------
Taiwan (3.06%)
Asustek Computer, Inc. (Computers)* ........... 5,009 37,075
Compal Electronics, Inc. (Computers)* ......... 28,000 87,217
D-Link Corp. (Computers)* ..................... 52,000 114,665
Hon Hai Precision Industry Co.
(Electronics)* .............................. 36,400 175,124
Taiwan Semiconductor Manufacturing
Co., Ltd. (Electronics)* .................... 94,250 190,389
Taiwan Semiconductor Manufacturing
Co., Ltd. (ADR) (Electronics)* .............. 6,090 90,969
Yageo Corp. (Electronics)* .................... 119,000 156,709
----------
852,148
----------
Thailand (1.07%)
Krung Thai Bank Public Co., Ltd.
(Banks - Foreign)* .......................... 500,000 183,698
PTT Exploration & Production Public Co.,
Ltd. (Oil & Gas)* ........................... 11,800 113,681
----------
297,379
----------
TOTAL COMMON STOCKS
(Cost $21,947,127) (84.53%) 23,570,115
------- ----------
WARRANTS
Hong Kong (0.01%)
Hong Kong & China Gas Co., Ltd.
(Oil & Gas)* ................................ 13,950 1,441
----------
TOTAL WARRANTS
(Cost $1,544) (0.01%) 1,441
------- ----------
TOTAL COMMON STOCKS AND WARRANTS
(Cost $21,948,671) (84.54%) 23,571,556
------- ----------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Pacific Basin Equities Fund
PAR VALUE MARKET
ISSUER, DESCRIPTION (000s OMITTED) VALUE
- ------------------- -------------- -----
SHORT-TERM INVESTMENTS
Non-Cash Security Lending Collateral (0.53%)
U.S. Treasury Bills 3.47% thru 4.22%,
due 11-27-98 thru 01-07-99, U.S.
Treasury Note (Strip Principal) 7.875%,
due 11-15-99**............................... $148 $148,004
-----------
Cash Equivalents (9.06%)
Navigator Securities Lending
Prime Portfolio **........................... 2,526 2,526,421
-----------
TOTAL SHORT-TERM INVESTMENTS (9.59%) 2,674,425
------ -----------
TOTAL INVESTMENTS (94.13%) 26,245,981
------ -----------
OTHER ASSETS AND LIABILITIES, NET (5.87%) 1,637,085
------ -----------
TOTAL NETASSETS (100.00%) $27,883,066
====== ===========
* Non-income producing security.
** Represents investment of security lending collateral - Note A.
*** Security is restricted as to resale by the Malaysian Central Bank.
(R) Security is exempt from registration under rule 144A of the Securities and
Exchange Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $72,811 as of October 31, 1998.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Industry Diversification
October 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries in which it invests. The concentration of investments by country
for individual securities held by the Fund is shown in the schedule of
investments. In addition, the concentration of investments can be aggregated by
various industry groups. The table below shows the percentages of the Fund's
investments at October 31, 1998 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
INVESTMENT CATEGORIES OF NET ASSETS
- --------------------- -------------
Banks - Foreign ............................................ 10.99%
Beverages .................................................. 1.49
Broker Services ............................................ 0.94
Buildings .................................................. 0.61
Chemicals .................................................. 0.41
Computers .................................................. 0.86
Diversified Operations ..................................... 5.15
Electronics ................................................ 4.55
Finance .................................................... 1.50
Food ....................................................... 1.03
Insurance .................................................. 0.71
Leisure .................................................... 1.66
Machinery .................................................. 1.61
Media ...................................................... 3.63
Medical .................................................... 10.24
Metal ...................................................... 1.05
Oil & Gas .................................................. 3.39
Protection - Safety Equip. & Svc ........................... 1.06
Real Estate Operations ..................................... 9.67
Retail ..................................................... 4.79
Telecommunications ......................................... 14.01
Tobacco .................................................... 0.54
Transport .................................................. 0.33
Utilities .................................................. 4.32
Short-Term Investments ..................................... 9.59
-----
TOTAL INVESTMENTS 94.13%
=====
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Pacific Basin Equities Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock World Fund (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series: John Hancock Pacific Basin Equities Fund (the "Fund"), John
Hancock European Equity Fund (which commenced operations on March 2, 1998) and
John Hancock Global Health Sciences Fund. Prior to October 1, 1998, John Hancock
Global Health Sciences Fund was known as John Hancock Global Rx Fund. The other
series of the Trust are reported in separate financial statements. The Fund's
investment objective is to seek long-term capital appreciation through
investment in a diversified portfolio of equity securities of issuers located in
countries of the Pacific Basin.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. Effective December 8, 1998,
the Board of Trustees have authorized the issuance of Class C shares in 1999.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights to voting, redemptions, dividends
and liquidation, except that certain expenses, subject to the approval of the
Trustees, may be applied differently to each class of shares in accordance with
current regulations of the Securities and Exchange Commission and the Internal
Revenue Service. Shareholders of a class which bears distribution and service
expenses under terms of a distribution plan have exclusive voting rights to that
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, at October 31, 1998, the Fund has $13,211,734 of
capital loss carryforwards available, to the extent provided by regulations, to
offset future net realized capital gains. If such carryforwards are used by the
Fund, no capital gain distribution will be made. The Fund's carryforwards expire
as follows: October 31, 2005 -- $369,905 and October 31, 2006 -- $12,841,829.
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 is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such 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
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Pacific Basin Equities Fund
same manner, at the same time and will be in the same amount, except for the
effect of expenses that may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amount of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowings, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the lines of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the year ended October 31, 1998.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated 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 risk of delay of the loaned
securities in recovery or even loss of rights in the collateral should the
borrower of the securities fail financially. At October 31, 1998 the Fund loaned
securities having a market value of $2,553,617 collateralized by cash and
securities in the amount of $2,674,425. The cash portion of the collateral was
invested in a short-term instrument.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference 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 and 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
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Pacific Basin Equities Fund
arise upon entering these contracts from potential inability of counterparties
to meet the terms of the contract and from unanticipated movements in the value
of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
Open forward foreign currency exchange contracts for the Fund at October 31,
1998 were as follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT DATE (DEPRECIATION)
- -------- ------------------- ---- --------------
BUYS
Thai Baht 7,273,797 NOV 98 ($784)
======
SELLS
Hong Kong Dollars 3,284,000 NOV 98 ($27)
Japanese Yen 8,403,803 NOV 98 186
Singapore Dollars 3,149,000 NOV 98 4,612
------
$4,771
======
NOTE B -
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
The Adviser is solely responsible for advising the Fund with respect to
investments in the United States and Canada.
The Fund and the Adviser also have a sub-investment management contract with
John Hancock Advisers International Limited ("JHAI") (the "Sub-Adviser"), a
wholly owned subsidiary of the Adviser, under which 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 that portion
of the Fund's assets invested in countries other than the United States and
Canada. The Adviser and Indosuez Asia Advisers Limited ("IAAL") have a second
subadvisory contract. Pursuant to such contract, IAAL will serve as
co-subadviser to the Fund with JHAI. IAAL provides additional expertise in Asian
and Pacific Basin countries.
Under the present investment management contract, the Fund pays a quarterly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.80% of the first $200,000,000 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 $200,000,000. The Adviser pays JHAI a quarterly management
fee equivalent, on an annual basis, to the sum of (a) 0.50% of the first
$200,000,000 of the Fund's average daily net asset value and (b)0.4375% of the
Fund's average daily net asset value in excess of $200,000,000. As of September
1, 1994, JHAI has waived all but 0.05% of their fee. The Adviser pays IAAL
quarterly a subadvisory fee at the annual rate of (a) 0.30% of the first
$100,000,000 of the Fund's average daily net assets managed by IAAL plus (b) 40%
percent of the gross management fee received by the Adviser pursuant to the
investment management contract with respect to the Fund's average daily net
assets in excess of $100,000,000 which are managed by IAAL (the rate increases
to 50% on net assets in excess of $250,000,000).
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended October
31, 1998, net sales charges received with regard to sales of Class A shares
amounted to $52,695. Of this amount, $9,451 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $29,291 was paid
as sales commissions to unrelated broker-dealers and $13,953 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual LifeInsurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Pacific Basin Equities Fund
in whole or in part to defray its expenses for providing distribution related
services to the Fund in connection with the sale of Class B shares. For the year
ended October 31, 1998, contingent deferred sales charges paid to JH Funds
amounted to $66,270.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted a Distribution Plan
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not to exceed 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets
to reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are directors and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. Trustee Edward J. Boudreau, Jr. and Ms. Anne C. Hodsdon
are directors of JHAI. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At October 31, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $428.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the year ended October 31, 1998 aggregated $62,694,170 and
$66,408,018, respectively. There were no purchases or sales of obligations of
the U.S. government and its agencies during the period ended October 31, 1998.
The cost of investments owned at October 31, 1998 (including short-term
investments) for federal income tax purposes was $24,956,040. Gross unrealized
appreciation and depreciation of investments aggregated $2,857,417 and
$1,567,476, respectively, resulting in net unrealized appreciation of
$1,289,941.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments and foreign
currency transactions of $1,659,793, an increase in accumulated net investment
loss of $210,418 and a decrease in capital paid-in of $1,449,375. This
represents the amount necessary to report these balances on a tax basis,
excluding certain temporary differences, as of October 31, 1998. Additional
adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to the net operating loss and realized gain/loss on
foreign currency transactions, and certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles. The calculation of net investment income per
share in the financial highlights excludes these adjustments.
18
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John Hancock Funds - Pacific Basin Equities Fund
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of John Hancock Pacific Basin Equities Fund
and the Trustees of John Hancock World Fund
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 Pacific Basin Equities
Fund (the "Fund") (a series of John Hancock World Fund) at October 31, 1998, and
the results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities owned at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
19
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