- --------------------------------------------------------------------------------
John Hancock Funds
European Equity
Fund
SEMIANNUAL REPORT
APRIL 30, 1998
- --------------------------------------------------------------------------------
<PAGE>
John Hancock Funds - European Equity Fund
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
John A. Moore
Patti McGill Peterson
John W. Pratt*
Richard S. Scipione
Edward Spellman*
* Members of the Audit Committee
Officers
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President and
Chief Operating Officer
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
Custodian
State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 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
60 State Street
Boston, Massachusetts 02109
<PAGE>
John Hancock Funds - European Equity Fund
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common stocks and right (cost - $3,169,184) $3,390,855
Preferred stocks (cost - $47,469) 52,367
Short-term investments (cost - $77,000) 77,000
----------
3,520,222
Cash 441
Foreign currency, at value (cost - $569) 569
Receivable for forward foreign currency exchange contracts purchased - Note A 13
Interest receivable 12
Dividends receivable 5,649
Foreign tax receivable 806
Receivable from John Hancock Advisers, Inc.
and affiliates - Note B 3,805
Other assets 3
----------
Total Assets 3,531,520
------------------------------------------
Liabilities:
Payable for investments purchased 39,218
Payable for forward foreign currency exchange contracts purchased - Note A 96
Payable for forward foreign currency exchange contracts sold - Note A 2
Foreign tax payable 671
Accounts payable and accrued expenses 13,893
----------
Total Liabilities 53,880
------------------------------------------
Net Assets:
Capital paid-in 3,256,923
Accumulated net realized loss on investments and foreign currency transactions (8,387)
Net unrealized appreciation of investments and foreign currency transactions 226,519
Undistributed net investment income 2,585
----------
Net Assets $3,477,640
==========================================
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 - $3,477,640 /324,668 $10.71
======================================================================================================================
Maximum Offering Price Per Share*
Class A - ($10.71 x 105.26%) $11.27
======================================================================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
John Hancock Funds - European Equity Fund
<TABLE>
<CAPTION>
Statement of Operations
Period ended April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $3,498
Dividends (net of foreign withholding taxes of $1,308) 9,175
--------
12,673
--------
Expenses:
Investment management fee - Note B 4,779
Registration and filing fees 6,395
Auditing fee 2,459
Custodian fee 2,065
Transfer agent fee 1,967
Distribution and service fee - Note B 1,593
Printing 987
Financial Service Fee 94
Legal fees 11
Miscellaneous 4
Trustees' fees 4
--------
Total Expenses 20,358
----------------------------------------------------------------------------------
Less Expense Reductions - Note B (10,270)
----------------------------------------------------------------------------------
Net Expenses 10,088
----------------------------------------------------------------------------------
Net Investment Income 2,585
----------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold 26,493
Net realized loss on foreign currency transactions (34,880)
Change in net unrealized appreciation/depreciation
of investments 226,569
Change in net unrealized appreciation/depreciation
of foreign currency transactions (50)
--------
Net Realized and Unrealized Gain on
Investments and Foreign Currency Transactions 218,132
----------------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $220,717
==================================================================================
</TABLE>
<PAGE>
John Hancock Funds - European Equity Fund
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------------------------
<S> <C>
PERIOD ENDED
APRIL 30, 1998
(UNAUDITED)
----------------
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $2,585
Net realized loss on investments sold and foreign
currency transactions (8,387)
Change in net unrealized
appreciation/depreciation of investments and foreign currency transactions 226,519
----------
Net Increase in Net Assets Resulting from Operations 220,717
----------
From Fund Share Transactions Net: * 3,256,923
----------
Net Assets:
Beginning of period - -
End of period (including undistributed net investment income of $2,585) $3,477,640
==========
* Analysis of Fund Share Transactions:
<CAPTION>
PERIOD ENDED
APRIL 30,
1998
(UNAUDITED)
--------------------------
SHARES AMOUNT
------------- ------------
<S> <C> <C>
Class A **
Shares sold 324,811 $3,258,377
---------- ----------
324,811 3,258,377
Less shares repurchased (143) (1,454)
---------- ----------
Net increase 324,668 $3,256,923
========== ==========
** Class A shares commenced operations on March 2, 1998.
</TABLE>
<PAGE>
John Hancock Funds - John Hancock 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 as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FROM MARCH 2, 1998
(COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 1998
(UNAUDITED)
----------------------------
<S> <C>
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 (Loss) on Investments
and Foreign Currency Transactions 0.70
------
Total from Investment Operations 0.71
------
Net Asset Value, End of Period $10.71
======
Total Investment Return at Net Asset Value (2) 7.10% (3)
Total Adjusted Investment Return at Net Asset Value (2,4) 6.79% (3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $3,478
Ratio of Expenses to Average Net Assets 1.90% (5)
Ratio of Adjusted Expenses to Average Net Assets (6) 3.83% (5)
Ratio of Net Investment Income to Average Net Assets 0.49% (5)
Ratio of Adjusted Net Investment Loss to Average Net Assets (6) (1.44%) (5)
Portfolio Turnover Rate 4%
Fee Reduction Per Share (1) $0.04
(1) Based on the average of shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Not annualized.
(4) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(5) Annualized.
(6) Unreimbursed, without fee reduction.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule of Investments
April 30, 1998 (Unaudited)
- -------------------------------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER DESCRIPTION SHARES VALUE
- ------------------ ------ -----
<S> <C> <C>
COMMON STOCKS
Finland (1.94%)
Nokia AB (Telecommunications) 1,004 $67,467
---------
France (14.90%)
Accor SA (Leisure) 70 19,087
Alcatel Alsthom SA (Telecommunications) 236 43,776
Cap Gemini SA (Computers) 261 33,911
Carrefour SA (Retail) 43 24,644
Compagnie de Saint Gobain SA (Building) 186 31,005
Compagnie Financiere de Paribas SA (Banks- Foreign) 284 30,238
Compagnie Generale des Eaux (Diversified Operations) 215 39,988
France Telecom SA (Telecommunications)* 443 24,121
L'Air Liquide SA (Chemicals) 152 28,069
L'Oreal SA (Cosmetics & Personal Care) 98 46,791
Legrand SA (Manufacturing) 91 24,071
Pinault-Printemps-Redoute SA (Retail) 37 27,564
Renault SA (Automobile / Trucks)* 525 24,368
Rexel SA (Electronics) 41 16,472
Societe BIC SA (Office) 232 15,971
Synthelabo SA (Medical) 125 18,820
Total SA (Oil & Gas) 348 41,394
Valeo SA (Automobile / Trucks) 280 27,856
---------
518,146
---------
Germany (11.72%)
Adidas-Salomon AG (Shoes & Related Apparel) 122 20,225
Allianz AG (Insurance) 199 61,212
Allianz AG - (New shares) (Insurance)* 5 1,524
BASF AG (Chemicals) 687 30,588
Bayer AG (Chemicals) 450 20,011
Bayerische Vereinsbank AG (Banks - Foreign) 400 30,425
Daimler-Benz AG (Automobile / Trucks) 545 53,208
Deutsche Bank AG (Banks - Foreign) 511 39,324
Deutsche Telekom AG (Telecommunications) 740 18,721
Fresenius AG (Medical) 85 18,615
Muenchener Rueckversicherungs-Gesellschaft AG (Ins90ance) 41,125
Siemens AG (Diversified Operations) 433 25,335
VEBA AG (Utilities) 717 47,386
---------
407,699
---------
Ireland (3.42%)
Allied Irish Banks PLC (Banks - Foreign) 2,908 40,530
CRH PLC (Building) 2,771 39,398
Irish Life PLC (Insurance) 4,162 38,907
---------
118,835
---------
<PAGE>
NUMBER OF MARKET
ISSUER DESCRIPTION SHARES VALUE
- ------------------ ------ -----
Italy (5.52%)
Credito Italiano SpA (Banks - Foreign) 15,716 $82,601
Ente Nazionale Idrocarburi SpA (Oil & Gas) 5,309 35,651
Telecom Italia Mobile SpA (Telecommunications) 13,653 49,560
Telecom Italia SpA (Telecommunications) 4,562 24,055
---------
191,867
---------
Netherlands (11.21%)
ABN AMRO Holdings NV (Banks - Foreign) 2,665 65,302
Aegon NV (Insurance) 227 29,419
ASM Lithography Holdings NV (Electronics)* 151 13,701
Dordtsche Petroleum-Industrie MIJ NV (Diversified1,653ations) 86,737
ING Groep NV (Banks - Foreign) 1,202 77,888
Koninklijke Ahold NV (Retail) 1,207 37,284
Oce NV (Office) 136 20,534
Royal Philips Electronics NV (Electronics) 351 30,841
Unilever NV (Food) 397 28,260
---------
389,966
---------
Portugal (2.46%)
Cimpor-Cimentos de Portugal SA (Building) 1,000 36,983
Electricidade de Portugal SA (Utilities) 625 16,309
Portugal Telecom SA (Telecommunications) 600 32,242
---------
85,534
---------
Spain (3.96%)
Banco Bilbao Vizcaya SA (Banks - Foreign) 1,036 53,331
Endesa SA (Utilities) 1,413 34,328
Telefonica de Espana SA (Telecommunications) 1,200 50,112
---------
137,771
---------
Sweden (3.28%)
Astra AB (Medical) 1,733 34,472
Ericsson (LM) Telefonaktiebolaget 1,037 54,649
(Telecommunications)
Sandvik AB (Machinery) 862 24,829
---------
113,950
---------
Switzerland (12.11%)
Adecco SA (Business Services - Misc) 91 39,723
Alusuisse-Lonza Group AG (Containers)* 25 31,989
Clariant AG (Chemicals) 15 16,145
Nestle SA (Food) 38 73,695
Novartis AG (Medical) 52 85,945
Roche Holding AG (Medical) 8 81,066
Schweizerischer Bankverein (Banks - Foreign) 174 60,416
Zurich Versicherungs-Gesellschaft (Insurance) 53 32,284
---------
421,263
---------
United Kingdom (26.96%)
Abbey National PLC (Banks - Foreign) 1,900 35,690
BAA PLC (Transport) 2,815 28,652
Boots Co. PLC (Retail) 1,586 24,579
British Aerospace PLC (Aerospace) 1,115 37,264
British Airways PLC (Transport) 2,493 25,979
British Petroleum Co. PLC (Oil & Gas) 4,760 75,241
<PAGE>
NUMBER OF MARKET
ISSUER DESCRIPTION SHARES VALUE
- ------------------ ------ -----
United Kingdom (continued)
British Telecommunications PLC (Telecommunications) 2,500 $27,160
CMG PLC (Computers) 355 15,851
Diageo PLC (Beverages) 1,425 16,971
EMAP PLC (Media) 880 17,914
General Accident PLC (Insurance) 1,657 38,970
General Electric Co. PLC (Electronics) 2,000 16,560
Glaxo Wellcome PLC (Medical) 2,922 82,601
Kingfisher PLC (Retail) 1,160 21,072
Ladbroke Group PLC (Leisure) 4,804 26,417
Lloyds TSB Group PLC (Banks - Foreign) 5,844 87,537
Marks & Spencer PLC (Retail) 1,860 17,687
Prudential Corp. PLC (Insurance) 2,317 32,827
Reed International PLC (Media) 1,968 17,398
Rentokil Initial PLC (Diversified Operations) 4,546 29,295
SEMA Group PLC (Computers) 300 10,854
Siebe PLC (Diversified Operations) 1,336 29,856
SmithKline Beecham PLC (Medical) 5,043 60,145
Smiths Industries PLC (Manufacturing) 1,361 19,590
TI Group PLC (Manufacturing) 1,180 10,599
Vodafone Group PLC (Telecommunications) 5,779 63,316
WPP Group PLC (Advertising) 5,500 34,913
Zeneca Group PLC (Medical) 754 32,489
----------
937,427
----------
TOTAL COMMON STOCKS
(Cost $3,169,184) (97.48%) 3,389,925
----------
PREFERRED STOCKS
Germany (1.51%)
SAP AG (Computers) 105 52,367
----------
TOTAL PREFERRED STOCKS
(Cost $47,469) (1.51%) 52,367
----------
RIGHTS
Spain (0.02%)
Telefonica de Espana SA (Telecommunications)* 1,200 930
----------
TOTAL RIGHTS
(Cost $0) (0.02%) 930
----------
TOTAL COMMON STOCKS, PREFERRRED STOCKS
AND RIGHTS
(Cost $3,216,653) (99.01%) 3,443,222
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------ ---- -------------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.21%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities USA, Inc. -
Dated 04-30-98, Due 05-01-98 (secured by
U.S. Treasury Notes, 5.00% thru 9.125%,
due 02-15-99 thru 07-31-00) - Note A 5.50% $77 $77,000
----------
TOTAL SHORT-TERM INVESTMENTS (2.21%) 77,000
----------
TOTAL INVESTMENTS (101.22%) 3,520,222
----------
OTHER ASSETS AND LIABILITIES, NET (1.22%) (42,582)
----------
TOTAL NET ASSETS (100.00%) $3,477,640
==========
*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.
</TABLE>
<PAGE>
Portfolio Concentration (Unaudited)
April 30, 1998
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries it invests. The concentration of investments by country for
individual securities held by the Fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various
industry groups. The table below shows the percentages of the Fund's Investments
at April 30, 1998 assigned to the various investment categories.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
INVESTMENT CATEGORIES OF NET ASSETS
- --------------------- ---------------
Advertising 1.00%
Aerospace 1.07
Automobile/Trucks 3.03
Banks-Foreign 17.35
Beverages 0.49
Building 3.09
Business Services- Misc 1.14
Chemicals 2.73
Computers 3.25
Containers 0.92
Cosmetics & Personal Care 1.35
Diversified Operations 6.08
Electronics 2.23
Food 2.93
Insurance 7.94
Leisure 1.31
Machinery 0.71
Manufacturing 1.56
Media 1.01
Medical 11.91
Office 1.05
Oil & Gas 4.38
Retail 4.39
Shoes & Related Apparel 0.58
Telecommunications 13.12
Transport 1.57
Utilities 2.82
Short- Term Investments 2.21
------
TOTAL INVESTMENTS 101.22%
======
<PAGE>
(UNAUDITED)
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 Rx Fund and John Hancock Pacific Basin Equities 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. No Class B shares were
issued during the period ended April 30, 1998. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. For federal income tax purposes, net currency
exchange gains and losses from sales of foreign debt securities must be treated
as ordinary income even though such items are gains and losses for accounting
purposes.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or in the case of some foreign securities,
on the date thereafter when the Fund 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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
purchased from either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code.
<PAGE>
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 an unsecured
line of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each Fund, based on its borrowings, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating Funds. The
Fund had no borrowing activity for the period ended April 30, 1998.
SECURITIES LENDING The Fund may lend its securities to certain qualified brokers
who pay the Fund negotiated lender fees. These fees are included in interest
income. The loans are collateralized at all times with cash or securites 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 April 30, 1998.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00PM, 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.
<PAGE>
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
At April 30, 1998, open forward foreign currency exchange contracts were as
follows:
UNREALIZED
PRINCIPAL AMOUNT EXPIRATION APPRECIATION/
CURRENCY COVERED BY CONTRACT DATE (DEPRECIATION)
- -------- ------------------- ---- --------------
SELLS
French Franc 3,423 MAY 98 ($2)
====
BUYS
Deutsche Mark 31,524 MAY 98 (54)
Finish Mark 91,012 MAY 98 (42)
French Franc 28,751 MAY 98 13
====
($83)
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 pay 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 to $10,270 for the
period ended April 30, 1998. The Adviser reserves the right to terminate this
limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended April
30, 1998, there were no net sales charges received with regard to sales of Class
A shares.
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. There were no contingent deferred
sales charges paid to JH Funds for the period ended April 30, 1998.
<PAGE>
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses, at an annual rate not exceed 0.30% of Class A
average daily net assets and 1.00% of Class B average daily net assets to
reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability 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 April 30, 1998 , the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of none.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the period ended April 30, 1998 aggregated $3,357,977 and
$139,571 respectively. There were no purchases or sales of obligations of the
U.S. government and its agencies during the period ended April 30, 1998.
The cost of investments owned at April 30, 1998 (including the joint
repurchase agreement) for federal income tax purposes was $3,293,653. Gross
unrealized appreciation and depreciation of investments aggregated $283,011 and
$56,442, respectively, resulting in unrealized appreciation of $226,569.
