UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4630
John Hancock Investment Trust III
(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Susan S. Newton, Secretary
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-375-1702
Date of fiscal year end: October 31
Date of reporting period: October 31, 2004
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Large Cap
Growth Fund
10.31.2004
Annual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A Shepherdson, Chief Executive Officer, flush left next
to first paragraph.]
CEO CORNER
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Your expenses
page 8
Fund's investments
page 10
Financial statements
page 15
Trustees & officers
page 29
For more information
page 33
Dear Fellow Shareholders,
The stock market made little, if any, headway year-to-date through
October 2004, as it wrestled with a variety of uncertainties. Questions
about the continuing strength of the economy, the effects of rising
interest rates and expectations for corporate earnings growth kept
investors jittery. In addition, record high crude oil prices,
geopolitical issues and a closely contested U.S. presidential race all
weighed on the market. The picture brightened in early November with the
election over and oil prices moderating somewhat.
Year-to-date through October 31, 2004, the Standard & Poor's 500 Index
was up 3.06%, while the Dow Jones Industrial Average and the Nasdaq
Composite Index were slightly negative, returning -2.40% and -1.05%,
respectively. Despite the Federal Reserve's three hikes in short-term
interest rates from historic lows, bonds still managed to outperform
stocks, with the Lehman Brothers Aggregate Bond Index up 4.22%.
In news closer to home, we are pleased to announce that on June 15,
2004, your fund's Board of Trustees appointed Charles L. Ladner as
independent Chairman of the Board of Trustees, a position previously
held by John Hancock Funds LLC's former Chairman and Chief Executive
Officer, Maureen Ford Goldfarb. This appointment came in advance of new
SEC regulations requiring all mutual funds to have independent chairmen.
Mr. Ladner has served as an independent member of John Hancock Funds'
Board of Trustees since 1992 and formerly held the position of Senior
Vice President and Chief Financial Officer of UGI Corporation, a public
utility holding company in Valley Forge, PA, until his retirement in
1998. He brings a wealth of knowledge, experience and leadership and we
are delighted to have him serve as Chairman.
Sincerely,
/S/ JAMES A. SHEPHERDSON
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of October 31, 2004. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
long-term capital
appreciation by nor-
mally investing at
least 80% of its
assets in stocks of
large-capitalization
companies in the
capitalization range
of the Russell Top
200 Growth Index.
Over the last twelve months
* Stock prices climbed, with most of the gains coming in late 2003 and
early 2004.
* Large-cap stocks trailed small-cap stocks, while growth lagged value.
* Weak stock selection in the technology sector undermined Fund
performance.
[Bar chart with heading "John Hancock Large Cap Growth Fund." Under the
heading is a note that reads "Fund performance for the year ended
October 31, 2004." The chart is scaled in increments of 1% with -5% at the
bottom and 0% at the top. The first bar represents the -3.04% total return
for Class A. The second bar represents the -3.78% total return for Class B.
The third bar represents the -3.67% total return for Class C. A note below
the chart reads "Total returns for the Fund are at net asset value with all
distributions reinvested."]
Top 10 holdings
4.5% Microsoft Corp.
3.9% Pfizer, Inc.
3.8% Nextel Communications, Inc. (Class A)
3.2% Vodafone Group Plc
2.9% Amgen, Inc.
2.8% Yahoo! Inc.
2.7% Johnson & Johnson
2.7% Time Warner, Inc.
2.5% News Corporation Ltd. (The)
2.4% Freeport-McMoran Copper & Gold, Inc. (Class B)
As a percentage of net assets on October 31, 2004.
1
BY ROGER C. HAMILTON AND ROBERT C. JUNKIN, CPA, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
Large Cap Growth Fund
Stocks were strong gainers late in 2003 and during the first few months
of 2004. The market, however, began to lose momentum in February amid
concerns that economic growth in the United States and China would slow.
As the year unfolded, worries about the conflict in Iraq, the outcome of
the U.S. presidential race and the potential for higher interest rates
further unsettled the market. In addition, soaring energy prices curbed
consumer and corporate spending. The economy grew at a more moderate
pace, slowing earnings growth. Although uncertainty mounted throughout
the summer and fall, the Standard & Poor's 500 Index returned 9.42% for
the year ended October 31, 2004. Over the same period, growth stocks
lagged value stocks, and large-cap stocks trailed small-cap stocks.
Mega-cap growth stocks -- those issued by the largest companies -- were
especially weak performers, with the Russell Top 200 Growth Index
returning a modest 1.90% for the year ended October 31, 2004.
Performance review
John Hancock Large Cap Growth Fund continued to focus on mega-cap stocks
with a large concentration for much of the year in economically
sensitive sectors. For the 12-month period, the Fund's Class A, Class B
and Class C shares returned -3.04%, -3.78% and -3.67%, respectively,
at net asset value. Over the same period, the average large-cap growth
fund returned 2.67%, according to Lipper, Inc.1 Keep in mind that your
net asset value return will be different from the Fund's if you were not
invested in the Fund for the entire period and did not reinvest all
distributions. Long-term performance information can be found on pages
six and seven.
"Stocks were strong gainers late
in 2003 and during the first
few months of 2004. The
market, however, began to lose
momentum in February..."
Disappointments from technology and media
Stock selection in the technology sector was the main deterrent to
performance. The Fund had a heavy concentration in tech,
2
[Photos of Roger Hamilton and Robert Junkin flush right next to first
paragraph.]
particularly semiconductor names, which tend to benefit from an economic
recovery. Starting last spring, however, many tech stocks took a nosedive
as orders slowed, inventories built up and investors worried that the
business cycle had peaked. Among our worst performers were semiconductor
manufacturers Intel and Fairchild Semiconductor, which we sold late in the
period amid concerns over the industry's near-term prospects. We held on,
however, to Applied Materials, a leading semiconductor capital equipment
company that also declined sharply.
The Fund sustained further losses from several software and hardware
investments. BEA Systems, which develops software for building Web
designs and logistics systems, suffered from weak license growth and
slower-than-expected sales for its new products. On the hardware side,
Emulex tumbled as orders slowed, while Nortel Networks lost market share
and struggled to resolve accounting issues. We sold our stakes in all
three names. We also reduced our investment in Motorola, a
telecommunications equipment company that rallied nicely following a
pickup in demand for its products and a recent restructuring under new
management. By period end, we had significantly reduced the Fund's
investment in technology. We held on, however, to a sizable stake in
Yahoo!, which produced stellar returns as online advertising grew.
Winners in energy and health care
The Fund's biggest gains came from the energy sector, where tight supply
and growing global demand pushed commodity prices sharply higher. The
Fund benefited from an oversized stake in energy as well as strong stock
selection. Top performers included EOG Resources and Apache, exploration
and production companies, as well as BJ Services, which supplies
drilling equipment and services. We sold both EOG and BJ Services when
they approached what we viewed as full valuation.
"The Fund's biggest gains came
from the energy sector..."
Strong stock selection in the health care sector also aided performance.
Our focus was on biotechnology, medical equipment and services
companies. Biogen Idec, a biotech company with a promising new multiple
sclerosis drug, rallied sharply and was one
3
[Table at top left-hand side of page entitled "Top five industry groups."
The first listing is Pharmaceuticals 10%, the second is Broadcasting &
cable TV 8%, the third is Wireless telecommunication services 7%, the
fourth is Biotechnology 5%, and the fifth is System software 4%.]
of our top performers. Johnson & Johnson, a well-known medical products
company, and United Health Care, a health insurer, also posted strong
gains. We took profits and sold both Biogen Idec and United Health Care. We
kept a below-average investment in large pharmaceutical companies, which
remained under pressure from patent expirations, increased generic
competition and weak new product pipelines. We did, however, own a sizable
stake in Pfizer, which slumped along with the industry despite the
company's huge sales force advantage.
Opportunities in media, wireless and metals
We maintained the Fund's above-average stake in media, expecting
advertising spending to pick up in advance of the summer Olympics and
the presidential election. When this did not happen, many media stocks
suffered. We shifted out of Viacom, which owns radio and television
networks that are highly dependent on advertising revenues. In its
place, we bought News Corporation, a leading media company with an
attractive valuation and strong growth potential from overseas expansion
of its satellite television
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 10-31-04." The chart is divided into two
sections (from top to right): Common stocks 88%, and Short-term investments
& other 12%.]
business. Elsewhere, we boosted our position in wireless
telecommunications. The Fund had a sizable stake in Vodafone Group, an
international wireless company that benefited during the period from its
leadership position in Europe. We added a new position in Nextel
Communications, which is best known for its walkie-talkie feature. We
thought the stock's valuation and growth prospects seemed attractive.
Finally, we increased the Fund's exposure to gold and silver mining
companies, believing that
4
precious metals would hold their value even if the dollar continued to
weaken and oil prices stayed high.
[Table at top of page entitled "Scorecard." The header for the left column
is "Investment" and the header for the right column is "Period's
performance...and what's behind the numbers." The first listing is Intel
followed by a down arrow with the phrase "Slowing economy, weaker demand,
inventory build ups." The second listing is BEA Systems followed by a down
arrow with the phrase "Weak license growth, slow sales for new software
products." The third listing is Apache followed by an up arrow with the
phrase "Soaring oil prices driven by tight supply, growing demand."]
Large-cap growth outlook
As the impact of recent tax cuts and lower interest rates begins to
fade, economic growth may continue to slow. However, we believe
large-cap growth stocks have the potential to do well as they tend to
move into favor in the later stages of an economic recovery when
investors shift their attention toward companies with consistent
earnings growth. In addition, many large-cap companies have overseas
exposure, which means they would benefit from a weak U.S. dollar. At
period end, large-cap valuations also appeared reasonable. Going
forward, our focus will be on large-cap stocks in industries whose
growth is less dependent on the economy's progress, including wireless
telecommunications, certain areas of health care, energy and precious
metals.
"...we believe large-cap growth stocks
have the potential to do well as they
tend to move into favor in the later
stages of an economic recovery..."
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. The managers'
statements reflect their own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
5
A LOOK AT
PERFORMANCE
For the period ended
October 31, 2004
Class A Class B Class C
Inception date 12-24-68 1-3-94 6-1-98
Average annual returns with maximum sales charge (POP)
One year -7.87% -8.60% -4.64%
Five years -16.49 -16.51 -16.22
Ten years -0.16 -0.21 --
Since inception -- -- -9.64
Cumulative total returns with maximum sales charge (POP)
One year -7.87 -8.60 -4.64
Five years -59.39 -59.44 -58.71
Ten years -1.59 -2.08 --
Since inception -- -- -47.83
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of
5%, and the applicable contingent deferred sales charge (CDSC) on Class
B and Class C shares. The returns for Class C shares have been adjusted
to reflect the elimination of the front-end sales charge effective July
15, 2004. The Class B shares' CDSC declines annually between years 1-6
according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge
will be assessed after the sixth year. Class C shares held for less than
one year are subject to a 1% CDSC. The return and principal value of an
investment in the Fund will fluctuate, so that shares, when redeemed,
may be worth more or less than the original cost.
The returns reflect past results and should not be considered indicative
of future performance. The performance table above and the chart on the
next page do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
The Fund's performance results reflect any applicable expense
reductions, without which the expenses would increase and results would
have been less favorable.
6
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown the
same investment in the Russell Top 200 Growth Index.
Russell
Cum Value Cum Value Top 200
of $10K of $10K Growth
Plot Date (No Load) (w/Load) Index
10-31-94 $10,000 $9,500 $10,000
11-30-94 9,719 9,233 9,733
4-30-95 10,620 10,090 11,096
10-31-95 12,592 11,963 13,152
4-30-96 14,157 13,450 14,648
10-31-96 14,906 14,162 16,281
4-30-97 14,849 14,107 19,075
10-31-97 17,298 16,434 21,663
4-30-98 19,787 18,799 27,186
10-31-98 18,994 18,045 28,560
4-30-99 23,622 22,442 35,523
10-31-99 24,232 23,021 38,107
4-30-00 25,531 24,255 43,634
10-31-00 22,256 21,145 39,670
4-30-01 14,603 13,874 29,314
10-31-01 11,624 11,044 24,063
4-30-02 11,590 11,012 23,104
10-31-02 9,116 8,660 19,265
4-30-03 9,228 8,767 19,908
10-31-03 10,683 10,150 22,682
4-30-04 10,695 10,160 23,524
10-31-04 10,359 9,841 23,113
[Line chart with the heading "GROWTH OF $10,000." Within the chart are three
lines. The first line represents the Russell Top 200 Growth Index and is equal
to $23,113 as of October 31, 2004. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock Large Cap Growth Fund,
before sales charge, and is equal to $10,359 as of October 31, 2004. The third
line represents the value of the same hypothetical $10,000 investment made in
the John Hancock Large Cap Growth Fund, after sales charge, and is equal to
$9,841 as of October 31, 2004.]
Class B 1 Class C 1
Period beginning 10-31-94 6-1-98
Large Cap Growth Fund $9,792 $5,217
Index 23,113 8,743
Assuming all distributions were reinvested for the period indicated, the
table above shows the value of a $10,000 investment in the Fund's Class
B and Class C shares, respectively, as of October 31, 2004. The Class C
shares investment with maximum sales charge has been adjusted to reflect
the elimination of the front-end sales charge effective July 15, 2004.
Performance of the classes will vary based on the difference in sales
charges paid by shareholders investing in the different classes and the
fee structure of those classes.
Russell Top 200 Growth Index is an unmanaged index containing
growth-oriented stocks from the Russell Top 200 Index.
It is not possible to invest directly in an index. Index figures do not
reflect sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
7
YOUR
EXPENSES
These examples are intended to help you understand your ongoing
operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
* Transaction costs which include sales charges (loads) on purchases or
redemptions (varies by share class), minimum account fee charge, etc.
* Ongoing operating expenses including management fees, distribution and
service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund's actual
ongoing operating expenses, and is based on your fund's actual return.
It assumes an account value of $1,000.00 on April 30, 2004, with the
same investment held until October 31, 2004.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
Class A $968.60 $8.32
Class B 965.50 11.75
Class C 965.50 11.77
Together with the value of your account, you may use this information to
estimate the operating expenses that you paid over the period. Simply
divide your account value at October 31, 2004 by $1,000.00, then
multiply it by the "expenses paid" for your share class from the table
above. For example, for an account value of $8,600.00, the operating
expenses should be calculated as follows:
Example
-- -- -- --
| My account value / | | "expenses paid" | My
| / $1,000.00 = 8.6 | X $| | = actual
| $8,600.00 / | | from table | expenses
-- -- -- --
8
Hypothetical example for comparison purposes
This table allows you to compare your fund's ongoing operating expenses
with those of any other fund. It provides an example of the Fund's
hypothetical account values and hypothetical expenses based on each
class's actual expense ratio and an assumed 5% annual return before
expenses (which is not your fund's actual return). It assumes an account
value of $1,000.00 on April 30, 2004, with the same investment held
until October 31, 2004. Look in any other fund shareholder report to
find its hypothetical example and you will be able to compare these
expenses.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
Class A $1,016.68 $8.53
Class B 1,013.18 12.04
Class C 1,013.16 12.05
Remember, these examples do not include any transaction costs, such as
sales charges; therefore, these examples will not help you to determine
the relative total costs of owning different funds. If transaction costs
were included, your expenses would have been higher. See the prospectus
for details regarding transaction costs.
1 Expenses are equal to the Fund's annualized expense ratio of 1.68%,
2.38% and 2.38% for Class A, Class B and Class C, respectively,
multiplied by the average account value over the period, multiplied by
[number of days in most recent fiscal half-year/365 or 366] (to reflect
the one-half year period).
9
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
October 31, 2004
This schedule is 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.
Issuer Shares Value
Common stocks 87.63% $149,558,370
(Cost $134,329,773)
Air Freight & Logistics 1.07% 1,821,140
United Parcel Service, Inc. (Class B) 23,000 1,821,140
Aluminum 0.67% 1,137,500
Alcoa, Inc. 35,000 1,137,500
Asset Management & Custody Banks 2.03% 3,468,850
State Street Corp. 77,000 3,468,850
Biotechnology 4.86% 8,299,680
Amgen, Inc. (I) 87,000 4,941,600
Genzyme Corp. (I)(L) 64,000 3,358,080
Brewers 1.64% 2,805,342
Anheuser-Busch Cos., Inc. 56,163 2,805,342
Broadcasting & Cable TV 7.98% 13,615,676
Comcast Corp. (Special Class A) 115,125 3,343,230
DIRECTV Group, Inc. (The) (I) 84,642 1,419,446
News Corporation Ltd. (The) (Australia) (L) 130,000 4,193,800
Time Warner, Inc. (L) 280,000 4,659,200
Communications Equipment 1.04% 1,767,320
Cisco Systems, Inc. (I) 92,000 1,767,320
Computer Hardware 2.07% 3,541,060
Dell, Inc. (I) 101,000 3,541,060
Consumer Finance 0.95% 1,622,720
Capital One Financial Corp. 22,000 1,622,720
Data Processing & Outsourced Services 2.06% 3,514,590
Automatic Data Processing, Inc. 81,000 3,514,590
Diversified Commercial Services 1.45% 2,470,800
Cendant Corp. 120,000 2,470,800
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Issuer Shares Value
Diversified Metals & Mining 2.35% $4,011,365
Freeport-McMoran Copper & Gold, Inc. (Class B) 110,750 4,011,365
Electric Utilities 1.12% 1,904,240
Allegheny Energy, Inc. (I) 104,000 1,904,240
Electrical Components & Equipment 1.50% 2,562,000
Emerson Electric Co. 40,000 2,562,000
Gas Utilities 2.09% 3,559,140
Southern Union Co. (I) 162,000 3,559,140
Gold 1.98% 3,373,920
Newmont Mining Corp. 71,000 3,373,920
Health Care Equipment 4.11% 7,015,451
Boston Scientific Corp. (I) 50,000 1,765,000
Medtronic, Inc. 64,776 3,310,701
Zimmer Holdings, Inc. (I)(L) 25,000 1,939,750
Home Improvement Retail 1.68% 2,875,600
Home Depot, Inc. (The) 70,000 2,875,600
Household Products 3.36% 5,727,020
Colgate-Palmolive Co. 71,000 3,168,020
Procter & Gamble Co. (The) 50,000 2,559,000
Hypermarkets & Super Centers 2.41% 4,110,691
Costco Wholesale Corp. (L) 30,000 1,438,200
Wal-Mart Stores, Inc. 49,564 2,672,491
Industrial Conglomerates 1.95% 3,326,950
3M Co. 20,000 1,551,400
Tyco International Ltd. (Bermuda) 57,000 1,775,550
Integrated Oil & Gas 2.60% 4,435,742
Petro-Canada (Canada) 62,500 3,411,330
Petro-Canada, American Depositary Receipt (ADR) (Canada) 18,800 1,024,412
Internet Software & Services 2.76% 4,704,700
Yahoo! Inc. (I)(L) 130,000 4,704,700
Investment Banking & Brokerage 1.74% 2,966,700
Merrill Lynch & Co., Inc. 55,000 2,966,700
Multi-Line Insurance 0.53% 910,650
American International Group, Inc. 15,000 910,650
Oil & Gas Drilling 0.80% 1,374,750
ENSCO International, Inc. 45,000 1,374,750
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Issuer Shares Value
Oil & Gas Exploration & Production 1.19% $2,028,000
Apache Corp. 40,000 2,028,000
Other Diversified Financial Services 0.91% 1,552,950
Citigroup, Inc. 35,000 1,552,950
Pharmaceuticals 10.14% 17,310,663
Abbot Laboratories 40,000 1,705,200
Alnylam Pharmaceuticals, Inc. 470,450 2,451,515
Johnson & Johnson 80,017 4,671,392
Pfizer, Inc. 228,261 6,608,156
Shire Pharmaceuticals Group Plc (United Kingdom) 66,000 1,874,400
Precious Metals & Minerals 1.18% 2,007,320
Apex Silver Mines Ltd. (Cayman Islands) (I)(L) 107,000 2,007,320
Semiconductor Equipment 0.94% 1,610,000
Applied Materials, Inc. (I)(L) 100,000 1,610,000
Soft Drinks 2.14% 3,659,400
Coca-Cola Co. (The) 90,000 3,659,400
Specialty Stores 2.87% 4,903,226
Staples, Inc. (L) 55,400 1,647,596
Tiffany & Co. 111,000 3,255,630
Systems Software 4.47% 7,631,474
Microsoft Corp. 272,650 7,631,474
Wireless Telecommunication Services 6.99% 11,931,740
Nextel Communications, Inc. (Class A) (I)(L) 245,000 6,490,050
Vodafone Group Plc, ADR (United Kingdom) 211,000 5,441,690
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 28.87% $49,277,643
(Cost $49,277,643)
Joint Repurchase Agreement 12.54% 21,398,000
Investment in a joint repurchase agreement
transaction with Morgan Stanley --
Dated 10-29-04 due 11-01-04 (secured
by U.S. Treasury Bond 8.125% due
08-15-19, U.S. Treasury Note 5.875%
due 11-15-04, U.S. Treasury Inflation
Indexed Bonds 3.625% due 04-15-28
and 3.375% due 04-15-32 and U.S.
Treasury Inflation Indexed Notes 3.375%
thru 3.875% due 01-15-09 thru 01-15-12) 1.770% $21,398 21,398,000
Shares
Cash Equivalents 16.33% 27,879,643
AIM Cash Investment Trust (T) 27,879,643 27,879,643
Total investments 116.50% $198,836,013
Other assets and liabilities, net (16.50%) ($28,167,401)
Total net assets 100.00% $170,668,612
(I) Non-income-producing security.
(L) All or a portion of this security is on loan as of October 31, 2004.
(T) Represents investment of securities lending collateral.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
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
FINANCIAL STATEMENTS
PORTFOLIO
CONCENTRATION
October 31, 2004
(unaudited)
This table shows the
Fund's investments
as a percentage
of net assets,
aggregated by
various industries.
Value as a percentage
Industry sector distribution of Fund's net assets
Consumer Discretionary 12.54%
Consumer Staples 9.55
Energy 4.59
Financials 6.17
Health Care 19.12
Industrials 5.96
Information Technology 13.34
Materials 6.17
Telecommunication Services 6.99
Utilities 3.20
Short-term investments 28.87
See notes to
financial statements.
14
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
October 31, 2004
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
Assets
Investments, at value (cost $162,209,416)
including $27,334,266 of securities loaned $177,438,013
Joint repurchase agreement (cost $21,398,000) 21,398,000
Cash 859
Receivable for shares sold 2,305
Dividends and interest receivable 75,876
Other assets 41,977
Total assets 198,957,030
Liabilities
Payable for shares repurchased 88,907
Payable upon return of securities loaned 27,879,643
Payable to affiliates
Management fees 108,813
Distribution and service fees 10,720
Other 92,984
Other payables and accrued expenses 107,351
Total liabilities 28,288,418
Net assets
Capital paid-in 407,352,705
Accumulated net realized loss on investments
and foreign currency transactions (251,883,241)
Net unrealized appreciation of investments 15,228,597
Accumulated net investment loss (29,449)
Net assets $170,668,612
Net asset value per share
Based on net asset values and shares outstanding --
the Fund has an unlimited number of shares
authorized with no par value
Class A ($131,642,638 [DIV] 14,234,340 shares) $9.25
Class B ($36,009,232 [DIV] 4,290,273 shares) $8.39
Class C ($3,016,742 [DIV] 359,554 shares) $8.39
Maximum offering price per share
Class A1 ($9.25 [DIV] 95%) $9.74
1 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.
See notes to
financial statements.
15
FINANCIAL STATEMENTS
OPERATIONS
For the year ended
October 31, 2004
This 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.
Investment income
Dividends (net of foreign withholding taxes of $5,911) $1,571,040
Securities lending 85,276
Interest 20,990
Total investment income 1,677,306
Expenses
Investment management fees 1,439,084
Class A distribution and service fees 430,468
Class B distribution and service fees 448,849
Class C distribution and service fees 35,036
Transfer agent fees 1,034,548
Printing 84,140
Accounting and legal services fees 52,217
Professional fees 42,021
Registration and filing fees 41,297
Miscellaneous 33,384
Custodian fees 26,203
Trustees' fees 11,346
Interest 6,599
Securities lending fees 2,301
Total expenses 3,687,493
Less expense reductions (74,396)
Net expenses 3,613,097
Net investment loss (1,935,791)
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments 20,395,490
Foreign currency transactions (71,123)
Change in net unrealized appreciation (depreciation)
of investments (23,996,840)
Net realized and unrealized loss (3,672,473)
Decrease in net assets from operations ($5,608,264)
See notes to
financial statements.
16
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show how
the value of the
Fund's net assets
has changed
during the last
two periods. The
difference reflects
earnings less
expenses, any
investment
gains and losses,
distributions, if
any, paid to
shareholders and
any increase or
decrease in money
shareholders
invested in the
Fund.
Year Year
ended ended
10-31-03 10-31-04
Increase (decrease) in net assets
From operations
Net investment loss ($1,915,137) ($1,935,791)
Net realized gain 2,702,645 20,324,367
Change in net unrealized
appreciation (depreciation) 28,948,933 (23,996,840)
Increase (decrease) in net assets
resulting from operations 29,736,441 (5,608,264)
From Fund share transactions (22,118,554) (25,274,161)
Net assets
Beginning of period 193,933,150 201,551,037
End of period 1 $201,551,037 $170,668,612
1 Includes accumulated net investment loss of $28,700 and $29,449,
respectively.
See notes to
financial statements.
17
FINANCIAL STATEMENTS
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
Period ended 10-31-00 1 10-31-01 1 10-31-02 1 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $25.04 $20.73 $10.38 $8.14 $9.54
Net investment loss 2 (0.23) (0.13) (0.10) (0.07) (0.08)
Net realized and unrealized
gain (loss) on investments (1.48) (9.42) (2.14) 1.47 (0.21)
Total from
investment operations (1.71) (9.55) (2.24) 1.40 (0.29)
Less distributions
From net realized gain (2.60) (0.80) -- -- --
Net asset value, end of period $20.73 $10.38 $8.14 $9.54 $9.25
Total return 3 (%) (8.15) (47.77) (21.58) 17.20 4 (3.04) 4
Ratios and supplemental data
Net assets, end of period
(in millions) $421 $209 $140 $148 $132
Ratio of expenses
to average net assets (%) 1.36 1.59 1.75 1.86 1.71
Ratio of adjusted expenses
to average net assets 5 (%) -- -- -- 1.87 1.75
Ratio of net investment loss
to average net assets (%) (0.97) (0.99) (0.96) (0.82) (0.83)
Portfolio turnover (%) 162 131 228 121 96
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 10-31-00 1 10-31-01 1 10-31-02 1 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $23.74 $19.40 $9.62 $7.49 $8.72
Net investment loss 2 (0.37) (0.21) (0.15) (0.12) (0.13)
Net realized and unrealized
gain (loss) on investments (1.37) (8.77) (1.98) 1.35 (0.20)
Total from
investment operations (1.74) (8.98) (2.13) 1.23 (0.33)
Less distributions
From net realized gain (2.60) (0.80) -- -- --
Net asset value, end of period $19.40 $9.62 $7.49 $8.72 $8.39
Total return 3 (%) (8.79) (48.12) (22.14) 16.42 4 (3.78) 4
Ratios and supplemental data
Net assets, end of period
(in millions) $239 $88 $51 $50 $36
Ratio of expenses
to average net assets (%) 2.05 2.24 2.45 2.56 2.41
Ratio of adjusted expenses
to average net assets 5 (%) -- -- -- 2.57 2.45
Ratio of net investment loss
to average net assets (%) (1.66) (1.65) (1.66) (1.52) (1.53)
Portfolio turnover (%) 162 131 228 121 96
See notes to
financial statements.
19
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 10-31-00 1 10-31-01 1 10-31-02 1 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $23.73 $19.39 $9.61 $7.49 $8.71
Net investment loss 2 (0.37) (0.20) (0.15) (0.12) (0.13)
Net realized and unrealized
gain (loss) on investments (1.37) (8.78) (1.97) 1.34 (0.19)
Total from
investment operations (1.74) (8.98) (2.12) 1.22 (0.32)
Less distributions
From net realized gain (2.60) (0.80) -- -- --
Net asset value, end of period $19.39 $9.61 $7.49 $8.71 $8.39
Total return 3 (%) (8.80) (48.15) (22.06) 16.29 4 (3.67) 4
Ratios and supplemental data
Net assets, end of period
(in millions) $3 $4 $3 $4 $3
Ratio of expenses
to average net assets (%) 2.06 2.29 2.45 2.56 2.41
Ratio of adjusted expenses
to average net assets 5 (%) -- -- -- 2.57 2.45
Ratio of net investment loss
to average net assets (%) (1.71) (1.68) (1.66) (1.53) (1.53)
Portfolio turnover (%) 162 131 228 121 96
1 Audited by previous auditor.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of
sales charges.
4 Total returns would have been lower had certain expenses not been
reduced during the periods shown.
5 Does not take into consideration expense reductions during the
periods shown.
See notes to
financial statements.
20
NOTES TO
STATEMENTS
Note A
Accounting policies
John Hancock Large Cap Growth Fund (the "Fund") is a diversified
series of John Hancock Investment Trust III, an open-end management
investment company registered under the Investment Company Act of
1940. The investment objective of the Fund is to achieve long-term
capital appreciation.
The Trustees have authorized the issuance of multiple classes of
shares of the Fund, designated as Class A, Class B and Class C shares.
The shares of each class represent an interest in the same portfolio
of investments of the Fund and have equal rights as 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 that bears distribution and service expenses
under the 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, if
quotations are not readily available, or the value has been materially
affected by events occurring after the closing of a foreign market, at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments which have a
remaining maturity of 60 days or less, may be valued at amortized
cost, which approximates market value. Investments in AIM Cash
Investment Trust are valued at their net asset value each business
day. 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, LLC (the
"Adviser"), a wholly owned subsidiary of John Hancock Financial
Services, 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.
21
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 4:00 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 currency 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 currency exchange gains and losses arise from changes in the
value of assets and liabilities, other than investments in securities,
resulting from changes in the exchange rates.
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, which are
accrued as applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of
shares based on the appropriate net asset value of the respective
classes. Distribution and service fees, if any, are calculated daily
at the class level based on the appropriate net asset value of each
class and the specific expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual
fund. Expenses that 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.
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. The
Fund has entered into a syndicated line of credit agreement with
various banks. This agreement enables the Fund to participate, with
other funds managed by the Adviser, in an unsecured line of credit
with banks, which permits borrowings of up to $250 million,
collectively. Interest is charged to each fund based on its borrowing.
In addition, a commitment fee is charged to each fund based on the
average daily unused portion of the line of credit, and is allocated
among the participating funds. The Fund had no borrowing activity
under the line of credit during the year ended October 31, 2004.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund negotiated lender fees. 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, 2004, the
Fund loaned securities having a market value of $27,334,266
collateralized by cash in the amount of $27,879,643. The
22
cash collateral was invested in a short-term instrument. Securities
lending expenses are paid by the Fund to the Adviser.
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 that is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $251,391,766 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward is
used by the Fund, no capital gain distributions will be made. The loss
carryforward expires as follows: October 31, 2009 -- $196,195,781 and
October 31, 2010 -- $55,195,985.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the
ex-dividend date or, in the case of some foreign securities, on the
date thereafter when the Fund identifies the dividend. Interest income
on investment securities is recorded on the accrual basis. Foreign
income may be subject to foreign withholding taxes, which are accrued
as applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains, if any, on the ex-dividend date.
Distributions paid by the Fund with respect to each class of shares
are calculated in the same manner, at the same time and are in the
same amount, except for the effect of expenses that may be applied
differently to each class.
As of October 31, 2004, there were no distributable earnings on a tax
basis.
Such distributions and distributable earnings, on a tax basis, are
determined in conformity with income tax regulations, which may differ
from accounting principles generally accepted in the United States of
America. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, 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.
Note B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.75% of the first $750,000,000 of the Fund's average daily net asset
value and (b) 0.70% of the Fund's average daily net asset value in
excess of $750,000,000.
The Fund has an agreement with its custodian bank under which custody
fees are reduced by brokerage commissions offsets applied during the
year. Accordingly, the expense reductions related to custody fee
offsets amounted to $2,220, and had no impact on the Fund's ratio of
expenses to average net assets, for the year ended October 31, 2004.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has
adopted Distribution Plans with respect to Class A, Class B and Class
C, pursuant to Rule 12b-1 under the Investment Company Act of 1940, to
reimburse JH Funds for the services it provides as distributor of
shares of the Fund. Accordingly, the Fund makes monthly payments to JH
Funds at an annual rate not to exceed 0.30% of
23
Class A average daily net asset value and 1.00% of Class B and Class C
average daily net asset value. A maximum of 0.25% of such payments may be
service fees, as defined by the Conduct Rules of the National Association
of Securities Dealers. Under the Conduct Rules, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
Class A shares are assessed up-front sales charges. During the year
ended October 31, 2004, JH Funds received net up-front sales charges
of $106,498 with regard to sales of Class A shares. Of this amount,
$15,349 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $54,560 was paid as sales
commissions to unrelated broker-dealers and $36,589 was paid as sales
commissions to sales personnel of Signator Investors, Inc. ("Signator
Investors"), a related broker-dealer. The Adviser's indirect parent,
John Hancock Life Insurance Company ("JHLICo"), is the indirect sole
shareholder of Signator Investors. Prior to July 15, 2004, Class C
shares were assessed up-front sales charges. During the year ended
October 31, 2004, JH Funds received net up-front sales charges of
$2,870 with regard to sales of Class C shares. Of this amount, $2,659
was paid as sales commissions to unrelated broker-dealers and $211 was
paid as sales commissions to sales personnel of Signator Investors.
Class B shares that are redeemed within six years of purchase are
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. Class C shares that are redeemed within one year of
purchase are subject to a CDSC at a rate of 1.00% of the lesser of the
current market value at the time of redemption or the original
purchase cost of the shares being redeemed. Proceeds from the CDSCs
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 and Class C shares. During the
year ended October 31, 2004, CDSCs received by JH Funds amounted to
$87,981 for Class B shares and $843 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHLICo. The Fund pays a monthly transfer agent fee at an annual rate
of 0.05% of the Fund's average daily net asset value, plus a fee based
on the number of shareholder accounts and reimbursement for certain
out-of-pocket expenses, aggregated and allocated to each class on the
basis of its relative net asset value. Signature Services agreed to
voluntarily reduce the Fund's asset-based portion of the transfer
agent fee if the total transfer agent fee exceeds the Lipper, Inc.
median transfer agency fee for comparable mutual funds by 0.05%.
Accordingly, the transfer agent expense for Class A, Class B and Class
C shares was reduced by $72,176 for the year ended October 31, 2004.
Signature Services reserves the right to terminate this limitation at
any time.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year amounted to $52,217. The Fund also paid the Adviser the amount of
$1,069 for certain publishing services, included in the printing fees.
Mr. James A. Shepherdson is a director and/or officer of the Adviser
and/or its affiliates, as well as Trustee of the Fund. The
compensation of unaffiliated Trustees is borne by the Fund. The
unaffiliated Trustees may elect to defer, for tax purposes, their
receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover
24
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 investments, as well as any unrealized
gains or losses. The Deferred Compensation Plan investments had no impact
on the operations of the Fund.
Note C
Fund share transactions
This listing illustrates the number of Fund shares sold and
repurchased during the last two periods, along with the corresponding
dollar value.
Year ended 10-31-03 Year ended 10-31-04
Shares Amount Shares Amount
Class A shares
Sold 1,307,717 $11,137,303 1,485,165 $14,230,630
Repurchased (3,054,320) (25,747,820) (2,724,528) (26,142,983)
Net decrease (1,746,603) ($14,610,517) (1,239,363) ($11,912,353)
Class B shares
Sold 1,154,106 $8,948,550 1,088,104 $9,378,493
Repurchased (2,151,843) (16,592,814) (2,581,682) (22,361,396)
Net decrease (997,737) ($7,644,264) (1,493,578) ($12,982,903)
Class C shares
Sold 118,376 $923,718 107,043 $939,829
Repurchased (102,019) (787,491) (151,860) (1,318,734)
Net increase
(decrease) 16,357 $136,227 (44,817) ($378,905)
Net decrease (2,727,983) ($22,118,554) (2,777,758) ($25,274,161)
Note D
Investment transactions
Purchases and proceeds from sales or maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the year ended October 31, 2004, aggregated $181,191,501 and
$226,598,903, respectively.
The cost of investments owned on October 31, 2004, including
short-term investments, for federal income tax purposes, was
$184,098,891. Gross unrealized appreciation and depreciation of
investments aggregated $16,723,878 and $1,986,756, respectively,
resulting in net unrealized appreciation of $14,737,122. The
difference between book basis and tax basis net unrealized
appreciation of investments is attributable primarily to the tax
deferral of losses on certain sales of securities.
Note E
Reclassification of accounts
During the year ended October 31, 2004, the Fund reclassified amounts
to reflect a decrease in accumulated net realized loss on investments
of $71,324, a decrease in accumulated net investment loss of
$1,935,042 and a decrease in capital paid-in of $2,006,366. This
represents the amounts necessary to report these balances on a tax
basis, excluding certain temporary differences, as of October 31,
2004. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net
asset value of the Fund,
25
are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus
accounting principles generally accepted in the United States of America,
and book and tax differences in accounting for deferred compensation,
certain foreign currency adjustments and net operating loss. The
calculation of net investment loss per share in the Fund's Financial
Highlights excludes these adjustments.
Note F
Subsequent event
A special meeting of shareholders was held on December 1, 2004, at
which time one or more new Trustees were elected to the Fund's Board
of Trustees. Several Trustees had reached the age for mandatory
retirement and plan to retire in 2004 and 2005. The Board of Trustees
recommended and shareholders approved a proposal to consolidate the
two panels into one Board of Trustees for all open-end funds within
the John Hancock funds complex. The effective date for the newly
elected Trustees to the Fund will be January 1, 2005.
26
AUDITORS'
REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of John Hancock Large Cap
Growth 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
the John Hancock Large Cap Growth Fund (the "Fund") at October 31,
2004, the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States of
America. 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the
audits 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 at October
31, 2004, by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 2004
27
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is
furnished with respect to the distributions of the Fund, if any, paid
during its taxable year ended October 31, 2004.
The Fund hereby designates the maximum amount allowable of its net
taxable income as qualified dividend income as provided in the Jobs
and Growth Tax Relief Reconciliation Act of 2003. This amount will be
reflected on Form 1099-DIV for the calendar year 2004.
Shareholders will be mailed a 2004 U.S. Treasury Department Form
1099-DIV in January 2005. This will reflect the total of all
distributions that are taxable for calendar year 2004.
28
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees
manage the day-to-day operations of the Fund and execute policies
formulated by the Trustees.
Independent Trustees
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
Charles L. Ladner,2 Born: 1938 2004 49
Independent Chairman (since 2004); Chairman and Trustee, Dunwoody
Village, Inc. (retirement services) (until 2003); Senior Vice President and
Chief Financial Officer, UGI Corporation (public utility holding company)
(retired 1998); Vice President and Director for AmeriGas, Inc. (retired
1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution);
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History
Association (since 2001).
Dennis S. Aronowitz, Born: 1931 1988 21
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp (since 1998).
Richard P. Chapman, Jr., Born: 1935 1978 21
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William J. Cosgrove, Born: 1933 1991 21
Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A.
(retired 1991); Executive Vice President, Citadel Group Representatives,
Inc. (financial reinsurance) (until 2004); Director, Hudson City Savings Bank
(since 1995); Director, Hudson City Bancorp (since 1999); Trustee, Scholarship
Fund for Inner City Children (since 1986).
Richard A. Farrell, Born: 1932 1996 21
President, Farrell, Healer & Co., Inc. (venture capital management firm)
(since 1980) and President, the Venture Capital Fund of NE (since 1980);
prior to 1980, headed the venture capital group at Bank of Boston Corporation;
Trustee, Marblehead Savings Bank (since 1994).
29
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
William F. Glavin,2 Born: 1932 1996 21
President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox
Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd.
(until 2002).
John A. Moore,2 Born: 1939 1996 31
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Chief Scientist, Sciences
International (health research) (until 2003); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Patti McGill Peterson,2 Born: 1943 1996 31
Executive Director, Council for International Exchange of Scholars and
Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1998); Former President of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003).
John W. Pratt, Born: 1931 1996 21
Professor of Business Administration Emeritus, Harvard University
Graduate School of Business Administration (as of 1998).
Non-Independent Trustees 3
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
James A. Shepherdson, Born: 1952 2004 49
President and Chief Executive Officer
Executive Vice President, Manulife Financial Corporation (since 2004);
Chairman, Director, President and Chief Executive Officer, John Hancock
Advisers, LLC and The Berkeley Financial Group, LLC (holding company);
Chairman, Director, President and Chief Executive Officer, John Hancock
Funds, LLC; Chairman, President, Director and Chief Executive Officer,
Sovereign Asset Management Corporation ("SAMCorp"); Director, Chairman
and President, NM Capital Management, Inc.; President, John Hancock
Retirement Services, John Hancock Life Insurance Company (until 2004);
Chairman, Essex Corporation (until 2004); Co-Chief Executive Officer,
MetLife Investors Group (until 2003); Senior Vice President, AXA/Equitable
Insurance Company (until 2000).
30
Principal officers who are not Trustees
Name, age
Position(s) held with Fund Officer
Principal occupation(s) and of Fund
directorships during past 5 years since
William H. King, Born: 1952 1988
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each
of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1984
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each
of the John Hancock funds, John Hancock Funds and The Berkeley Financial Group, LLC;
Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary,
NM Capital Management, Inc.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes
additional information about members of the Board of Trustees of the
Fund and is available, without charge, upon request, by calling
1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his
or her successor is elected.
2 Member of Audit Committee.
3 Non-independent Trustees hold positions with the Fund's investment
adviser, underwriter and certain other affiliates.
31
OUR FAMILY
OF FUNDS
- -------------------------------------------------------------
Equity Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Growth Trends Fund
International Fund
Large Cap Equity Fund
Large Cap Growth Fund
Large Cap Select Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Fund
Small Cap Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
- -------------------------------------------------------------
Sector Biotechnology Fund
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
- -------------------------------------------------------------
Income Bond Fund
Government Income Fund
High Income Fund
High Yield Fund
Investment Grade Bond Fund
Strategic Income Fund
- -------------------------------------------------------------
Tax-Free Income California Tax-Free Income Fund
High Yield Municipal Bond Fund
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Tax-Free Bond Fund
- -------------------------------------------------------------
Money Market Money Market Fund
U.S. Government Cash Reserve
A fund's investment objectives, risks, charges and expenses are
included in the prospectus and should be considered carefully before
investing. For a prospectus, call your financial professional, call
John Hancock Funds at 1-800-225-5291 or visit our Web site at
www.jhfunds.com. Please read the prospectus carefully before investing
or sending money.
32
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Principal distributor
John Hancock Funds, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
Independent registered public accounting firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
How to contact us
Internet www.jhfunds.com
Mail Regular mail: Express mail:
John Hancock John Hancock
Signature Services, Inc. Signature Services, Inc.
1 John Hancock Way, Suite 1000 Mutual Fund Image Operations
Boston, MA 02217-1000 529 Main Street
Charlestown, MA 02129
Phone Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
A listing of month-end portfolio holdings is available on our Web
site, www.jhfunds.com. A more detailed portfolio holdings summary is
available on a quarterly basis 60 days after the fiscal quarter on
our Web site or upon request by calling 1-800-225-5291, or on the
Securities and Exchange Commission's Web site, www.sec.gov.
33
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
This report is for the information of
the shareholders of the John Hancock
Large Cap Growth Fund.
2000A 10/04
12/04
JOHN HANCOCK
Mid Cap
Growth Fund
10.31.2004
Annual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chief Executive Officer, flush left next
to first paragraph.]
CEO CORNER
Table of contents
Your fund at a glance
page 1
Manager's report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Your expenses
page 8
Fund's investments
page 10
Financial statements
page 15
Trustees & officers
page 30
For more information
page 33
Dear Fellow Shareholders,
The stock market made little, if any, headway year-to-date through
October 2004, as it wrestled with a variety of uncertainties. Questions
about the continuing strength of the economy, the effects of rising
interest rates and expectations for corporate earnings growth kept
investors jittery. In addition, record high crude oil prices,
geopolitical issues and a closely contested U.S. presidential race all
weighed on the market. The picture brightened in early November with the
election over and oil prices moderating somewhat.
Year-to-date through October 31, 2004, the Standard & Poor's 500 Index
was up 3.06%, while the Dow Jones Industrial Average and the Nasdaq
Composite Index were slightly negative, returning --2.40% and --1.05%,
respectively. Despite the Federal Reserve's three hikes in short-term
interest rates from historic lows, bonds still managed to outperform
stocks, with the Lehman Brothers Aggregate Bond Index up 4.22%.
In news closer to home, we are pleased to announce that on June 15,
2004, your fund's Board of Trustees appointed Charles L. Ladner as
independent Chairman of the Board of Trustees, a position previously
held by John Hancock Funds LLC's former Chairman and Chief Executive
Officer, Maureen Ford Goldfarb. This appointment came in advance of new
SEC regulations requiring all mutual funds to have independent chairmen.
Mr. Ladner has served as an independent member of John Hancock Funds'
Board of Trustees since 1992 and formerly held the position of Senior
Vice President and Chief Financial Officer of UGI Corporation, a public
utility holding company in Valley Forge, PA, until his retirement in
1998. He brings a wealth of knowledge, experience and leadership and we
are delighted to have him serve as Chairman.
Sincerely,
/S/ James A. Shepherdson
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of October 31, 2004. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
long-term capital
appreciation by
investing at least
80% of its assets in
stocks of medium-
capitalization
companies (in the
capitalization range
of the Russell
Midcap Growth
Index) with above-
average earnings
growth.
Over the last twelve months
* The stock market ended higher, despite mounting uncertainty in the
second half of the year.
* Growth stocks lagged value stocks, but mid-cap stocks came out ahead
of their large- and small-cap counterparts.
* Disappointing stock selection in the technology and consumer
discretionary sectors hurt Fund performance.
[Bar chart with heading "John Hancock Mid Cap Growth Fund." Under the
heading is a note that reads "Fund performance for the year ended October
31, 2004." The chart is scaled in increments of 1% with -2% at the bottom
and 0% at the top. The first bar represents the -1.19% total return for
Class A. The second bar represents the -1.94% total return for Class B.
The third bar represents the -1.94% total return for Class C. The fourth
bar represents the -0.47% total return for Class I. A note below the
chart reads "Total returns for the Fund are at net asset value with all
distributions reinvested.]
Top 10 holdings
4.1% Sotheby's Holdings, Inc. (Class A)
4.0% Comverse Technology, Inc.
3.7% Protein Design Labs, Inc.
3.6% Affiliated Managers Group, Inc.
3.4% Panera Bread Co.
3.1% BJ Services Co.
3.0% Medicines Co. (The)
3.0% Manpower, Inc.
2.8% Coach, Inc.
2.8% VERITAS Software Corp.
As a percentage of net assets on October 31, 2004.
1
BY THOMAS P. NORTON, CFA, PORTFOLIO MANAGER
MANAGER'S
REPORT
JOHN HANCOCK
Mid Cap Growth Fund
Stocks advanced for the year ended October 31, 2004, with the Standard &
Poor's 500 Index returning 9.42%. The market rallied early on, as the
economy rebounded and corporate earnings met or beat investor
expectations. Pressures mounted, however, in the second half of the
period. In particular, soaring energy prices and rising interest rates
hampered both consumer and corporate spending. Earnings growth, while
reasonable, disappointed investors who had expected stronger numbers.
Geopolitical concerns, the U.S. presidential election and the
sustainability of economic growth also weighed on the market. As
investors struggled with an uncertain outlook, growth stocks trailed
value stocks. Mid-cap stocks, however, fared well with the Russell
MidCap Growth Index returning 8.77% over the 12-month period.
"Stocks advanced for the year
ended October 31, 2004..."
Strategy and performance review
John Hancock Mid Cap Growth Fund remained diversified across industries
with a bias toward economically sensitive sectors. Our bottom-up
approach to stock selection focused on solid, well-run companies with
strong earnings growth prospects. The Fund had sizable stakes in a
handful of technology and consumer discretionary stocks that declined
sharply during the period, resulting in disappointing performance. For
the year ended October 31, 2004, the Fund's Class A, Class B, Class C
and Class I shares returned -1.19%, -1.94%, -1.94%, and -0.47%,
respectively, at net asset value. The Fund trailed the average mid-cap
growth fund, which returned 5.25% during the same period, according to
Lipper, Inc.1 Keep in mind that your net asset value return will be
different from the Fund's if you were not invested in the Fund for the
entire period and did not reinvest all distributions. Long-term
performance information can be found on pages six and seven.
Technology downdraft
After delivering strong performance in late 2003 and early 2004,
technology stocks reversed course as many companies began
2
reducing their tech-related purchases. By summer, many tech companies had
missed earnings and revenues estimates. Disappointed investors sold their
shares, causing stock prices to plummet. The Fund had good-sized
investments in Foundry Networks, a networking company, as well as
semiconductor manufacturers LTX and Broadcom. All three stocks suffered
steep losses. We sold both Foundry and LTX as their business prospects had
deteriorated, but kept Broadcom, which stands to benefit from upcoming new
product launches. These and other sales reduced the Fund's sizable stake
in technology.
[Photo of Thomas Norton flush right next to first paragraph.]
The Fund owned a few tech stocks that escaped the downturn and delivered
very strong gains. They included Symantec, which makes Norton AntiVirus
software, and Comverse Technology, a company that sells voice-mail
software to wireless and wireline carriers. Both companies benefited
from strong demand for their products.
Disappointments from consumer discretionary
LeapFrog Enterprises, an educational toy company, was another major
detractor from performance. The stock suffered from increased
competition as well as distribution issues that hurt the company's
ability to maintain premium pricing. We sold our position because we
were concerned that these could be long-term problems. During the year,
we pared back on the Fund's retail investments amid worries that higher
energy prices and interest rates would hurt consumer spending. We held
on, however, to Coach, the leather goods retailer, which remained a top
position and solid performer, thanks to good execution by management. We
also kept a sizable stake in media names, despite disappointing
performance for the year. We believe media stocks stand to do well once
corporations increase spending on advertising.
"After delivering strong perfor-
mance in late 2003 and early 2004,
technology stocks
reversed course..."
Positive contribution from health care
In health care, our focus remained on biotechnology and pharmaceutical
companies. Biogen Idec, a biotechnology company with a new promising
multiple sclerosis drug, did particularly well and was a top performer.
Aetna US Healthcare, a health insurer, also generated very strong
returns following restructuring and industry-wide price
3
increases. We sold our stake in Aetna on concerns that price increases
would slow and costs would rise. Protein Design Labs, another large
investment, posted solid gains that helped returns. A biotech company that
works with protein molecules to develop new drug treatments, it benefited
from a steady revenue stream, partnerships with larger drug companies and
upside potential from products in development. Offsetting some of these
gains was Taro Pharmaceu ticals, a generic drug company. Taro's stock slid
as inventory issues with some of its distributors surfaced and the
company's new no-spill product for children got off to a slow start.
Expecting these problems to be resolved, we maintained our position.
[Table at top left-hand side of page entitled "Top five sectors." The
first listing is Information technology 23%, the second is Consumer
discretionary 19%, the third is Health care 18%, the fourth is Industrials
17%, and the fifth is Energy 8%.]
Fuel from cyclical bias and energy
We boosted the Fund's stake in other economically sensitive areas, such
as industrials and materials. Within industrials, the Fund benefited
from owning Sotheby's Holdings, the art auction house, and Monster
Worldwide, the well-known Internet job listing service. Within
materials, our top performer was Crown Holdings, a company that makes
cans for beverages and foods. The company's efforts to reduce costs and
pay down loans helped fuel strong gains. As competition eased, the
company was also able to raise prices.
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 10-31-04." The chart is divided into two
sections (from top to left): Common stocks 99%, and Short-term investments
& other 1%.]
Energy stocks produced huge returns, as tight supplies and growing
demand pushed commodity prices to record levels. The Fund benefited from
owning EOG Resources, an exploration and production company that owns a
stake in the highly successful Barnett Shale in Texas. In addition,
energy services companies,
4
such as Smith International and BJ Services, did quite well as demand
increased for their services.
[Table at top of page entitled "Scorecard." The header for the left column
is "Investment" and the header for the right column is "Period's
performance...and what's behind the numbers." The first listing is
Broadcom followed by a down arrow with the phrase "Missed earnings
estimates, slowing demand for semiconductors." The second listing is Taro
Pharmaceuticals followed by a down arrow with the phrase, "Inventory
issues, ill-timed product launch." The third listing is EOG Resources
followed by an up arrow with the phrase "Soaring commodity prices,
productive oil field."]
Cautiously optimistic outlook
While we believe there are many reasons for optimism, we also recognize
the potential for disruption in the market's progress. On the positive
side, we think the economic recovery still has legs, with job growth
potentially picking up. Interest rates remain at historically low
levels, while inflation seems in check. Corporate balance sheets also
are in good shape with historically high levels of cash that can be used
for growth initiatives and continued innovation, or returned to
shareholders through dividends or share repurchases. We expect to
maintain the Fund's bias toward companies that will benefit from a
continued recovery. However, sustained high energy prices, further
interest rate hikes and possible global instability are all causes for
concern that we plan to monitor closely as the year progresses.
"While we believe there are many rea-
sons for optimism, we also recognize
the potential for disruption in the
market's progress."
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. The manager's
statements reflect his own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
5
A LOOK AT
PERFORMANCE
For the period ended
October 31, 2004
Class A Class B Class C Class I 1
Inception date 11-1-93 11-1-93 6-1-98 3-1-02
Average annual returns with maximum sales charge (POP)
One year -6.09% -6.84% -2.92% -0.47%
Five years -7.15 -7.20 -6.85 --
Ten years 4.38 4.33 -- --
Since inception -- -- -2.37 1.54
Cumulative total returns with maximum sales charge (POP)
One year -6.09 -6.84 -2.92 -0.47
Five years -31.00 -31.17 -29.87 --
Ten years 53.49 52.84 -- --
Since inception -- -- -14.28 4.17
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of 5%
and the applicable contingent deferred sales charge (CDSC) on Class B
and Class C shares. The returns for Class C shares have been adjusted to
reflect the elimination of the front-end sales charge effective July 15,
2004. The Class B shares' CDSC declines annually between years 1-6
according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge
will be assessed after the sixth year. Class C shares held for less than
one year are subject to a 1% CDSC. Sales charge is not applicable for
Class I shares. The return and principal value of an investment in the
Fund will fluctuate, so that shares, when redeemed, may be worth more or
less than the original cost.
The returns reflect past results and should not be considered indicative
of future performance. The performance table above and the chart on the
next page do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
The Fund's performance results reflect any applicable expense
reductions, without which the expenses would increase and results would
have been less favorable.
1 For certain types of investors as described in the Fund's Class I
share prospectus.
6
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown the
same investment in two separate indexes.
Russell
Cum Value Cum Value Midcap
of $10K of $10K S&P 500 Growth
Plot Date (No Load) (w/Load) Index Index
10-31-94 $10,000 $9,500 $10,000 $10,000
11-30-94 9,634 9,150 9,636 9,559
4-30-95 10,593 10,060 11,046 10,831
10-31-95 11,753 11,162 12,643 12,424
4-30-96 15,372 14,599 14,383 14,491
10-31-96 16,002 15,197 15,689 14,655
4-30-97 14,491 13,762 17,998 15,061
10-31-97 17,408 16,532 20,729 18,261
4-30-98 19,268 18,299 25,394 21,209
10-31-98 15,771 14,978 25,290 18,703
4-30-99 19,510 18,529 30,932 23,827
10-31-99 22,246 21,127 31,782 25,750
4-30-00 30,181 28,663 34,069 36,460
10-31-00 29,645 28,154 33,722 35,710
4-30-01 20,256 19,237 29,652 25,716
10-31-01 14,862 14,115 25,325 20,432
4-30-02 15,735 14,944 25,911 21,856
10-31-02 12,553 11,922 21,499 16,834
4-30-03 13,077 12,419 22,464 18,214
10-31-03 16,356 15,534 25,976 23,450
4-30-04 16,356 15,534 27,605 24,798
10-31-04 16,162 15,349 28,411 25,503
[Line chart with the heading "GROWTH OF $10,000." Within the chart are four
lines. The first line represents the Standard & Poor's 500 Index and is equal
to $28,411 as of October 31, 2004. The second line represents the Russell
Midcap Growth Index and is equal to $25,503 as of October 31, 2004. The
third line represents the value of the hypothetical $10,000 investment made
in the John Hancock Mid Cap Growth Fund, before sales charge, and is equal
to $16,162 as of October 31, 2004. The fourth line represents the value of
the same hypothetical investment made in the John Hancock Mid Cap Growth
Fund, after sales charge, and is equal to $15,349 as of October 31, 2004.]
Class B 1 Class C 1 Class I 2
Period beginning 10-31-94 6-1-98 3-1-02
Mid Cap Growth Fund $15,284 $8,572 $10,417
Index 1 28,411 11,383 10,454
Index 2 25,503 12,674 11,551
Assuming all distributions were reinvested for the period indicated, the
table above shows the value of a $10,000 investment in the Fund's Class
B, Class C and Class I shares, respectively, as of October 31, 2004. The
Class C shares investment with maximum sales charge has been adjusted to
reflect the elimination of the front-end sales charge effective July 15,
2004. Performance of the classes will vary based on the difference in
sales charges paid by shareholders investing in the different classes
and the fee structure of those classes.
Standard & Poor's 500 Index -- Index 1 -- is an unmanaged index that
includes 500 widely traded common stocks.
Russell Midcap Growth Index -- Index 2 -- is an unmanaged index that
contains those stocks from the Russell Midcap Index with a
greater-than-average growth orientation.
It is not possible to invest directly in an index. Index figures do not
reflect sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
2 For certain types of investors as described in the Fund's Class I
share prospectus.
7
YOUR
EXPENSES
These examples are intended to help you understand your ongoing
operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
* Transaction costs which include sales charges (loads) on purchases or
redemptions (varies by share class), minimum account fee charge, etc.
* Ongoing operating expenses including management fees, distribution and
service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund's actual
ongoing operating expenses, and is based on your fund's actual return.
It assumes an account value of $1,000.00 on April 30, 2004, with the
same investment held until October 31, 2004.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
- --------------------------------------------------------------------------
Class A $988.10 $9.02
Class B 984.40 12.47
Class C 984.40 12.49
Class I 990.70 5.29
Together with the value of your account, you may use this information to
estimate the operating expenses that you paid over the period. Simply
divide your account value at October 31, 2004 by $1,000.00, then
multiply it by the "expenses paid" for your share class from the table
above. For example, for an account value of $8,600.00, the operating
expenses should be calculated as follows:
Example
-- -- -- --
| My account value / | | "expenses paid" | My
| / $1,000.00 = 8.6 | X $| | = actual
| $8,600.00 / | | from table | expenses
-- -- -- --
8
Hypothetical example for comparison purposes
This table allows you to compare your fund's ongoing operating expenses
with those of any other fund. It provides an example of the Fund's
hypothetical account values and hypothetical expenses based on each
class's actual expense ratio and an assumed 5% annual return before
expenses (which is not your fund's actual return). It assumes an account
value of $1,000.00 on April 30, 2004, with the same investment held
until October 31, 2004. Look in any other fund shareholder report to
find its hypothetical example and you will be able to compare these
expenses.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
- --------------------------------------------------------------------------
Class A $1,016.07 $9.14
Class B 1,012.57 12.65
Class C 1,012.55 12.66
Class I 1,019.82 5.37
Remember, these examples do not include any transaction costs, such as
sales charges; therefore, these examples will not help you to determine
the relative total costs of owning different funds. If transaction costs
were included, your expenses would have been higher. See the prospectus
for details regarding transaction costs.
1 Expenses are equal to the Fund's annualized expense ratio of 1.80%,
2.50%, 2.50% and 1.06% for Class A, Class B, Class C and Class I,
respectively, multiplied by the average account value over the period,
multiplied by [number of days in most recent fiscal half-year/365 or
366] (to reflect the one-half year period).
9
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
October 31, 2004
This schedule is 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.
Issuer Shares Value
Common stocks 99.44% $136,558,836
(Cost $126,408,283)
Advertising 1.79% 2,461,680
Omnicom Group, Inc. 31,200 2,461,680
Aerospace & Defense 2.27% 3,122,600
Engineered Support Systems, Inc. 65,000 3,122,600
Airlines 1.44% 1,975,400
AirTran Holdings, Inc. (I) 170,000 1,975,400
Apparel Retail 2.49% 3,423,500
Urban Outfitters, Inc. (I) 83,500 3,423,500
Apparel, Accessories & Luxury Goods 2.82% 3,870,290
Coach, Inc. (I) 83,000 3,870,290
Application Software 2.03% 2,788,099
BEA Systems, Inc. (I) 197,700 1,605,324
Manhattan Associates, Inc. (I) 57,500 1,182,775
Biotechnology 8.43% 11,570,707
Biogen Idec, Inc. (I)(L) 47,450 2,759,692
Gilead Sciences, Inc. (I)(L) 56,000 1,939,280
Millennium Pharmaceuticals, Inc. (I) 138,000 1,791,240
Protein Design Labs, Inc. (I)(L) 265,300 5,080,495
Broadcasting & Cable TV 3.33% 4,572,300
Univision Communications, Inc. (Class A) (I)(L) 75,000 2,322,000
Westwood One, Inc. (I) 97,500 2,250,300
Communications Equipment 6.58% 9,031,021
Comverse Technology, Inc (I)(L) 266,400 5,498,496
JDS Uniphase Corp. (I)(L) 582,500 1,846,525
McDATA Corp. (Class B) (I) 281,000 1,686,000
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Issuer Shares Value
Computer Storage & Peripherals 2.30% $3,158,180
Lexmark International, Inc. (I) 38,000 3,158,180
Data Processing & Outsourced Services 2.58% 3,545,750
Affiliated Computer Services, Inc. (Class A) (I) 65,000 3,545,750
Diversified Commercial Services 5.54% 7,610,764
ChoicePoint, Inc. (I) 47,347 1,971,056
Sotheby's Holdings, Inc. (Class A) (I) 301,750 5,639,708
Diversified Metals & Mining 3.44% 4,726,308
Freeport-McMoran Copper & Gold, Inc. (Class B) 72,000 2,607,840
Phelps Dodge Corp. 24,200 2,118,468
Electronic Manufacturing Services 1.57% 2,158,728
Jabil Circuit, Inc. (I)(L) 88,800 2,158,728
Employment Services 4.85% 6,663,050
Manpower, Inc. 89,600 4,054,400
Monster Worldwide, Inc. (I)(L) 93,000 2,608,650
Health Care Equipment 3.67% 5,036,940
Gen-Probe, Inc. (I) 76,000 2,663,040
Invitrogen Corp. (I)(L) 41,000 2,373,900
Health Care Services 0.96% 1,324,674
Caremark Rx, Inc. (I) 44,200 1,324,674
Investment Banking & Brokerage 3.56% 4,886,000
Affiliated Managers Group, Inc. (I)(L) 87,500 4,886,000
Leisure Products 2.69% 3,691,112
Jarden Corp. (I) 105,100 3,691,112
Metal & Glass Containers 2.26% 3,096,847
Crown Holdings, Inc. (I) 272,850 3,096,847
Movies & Entertainment 1.46% 2,005,185
Radio One, Inc. (Class D) (I)(L) 136,500 2,005,185
Oil & Gas Drilling 2.41% 3,308,688
Rowan Cos., Inc. (I) 129,600 3,308,688
Oil & Gas Equipment & Services 5.56% 7,634,220
BJ Services Co. (I)(L) 82,500 4,207,500
Smith International, Inc. (I)(L) 59,000 3,426,720
Paper Products 1.40% 1,926,960
Smurfit-Stone Container Corp. (I) 111,000 1,926,960
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Issuer Shares Value
Personal Products 2.16% $2,963,550
Estee Lauder Cos., Inc. (The) (Class A) 69,000 2,963,550
Pharmaceuticals 5.33% 7,313,148
Medicines Co. (The) (I)(L) 153,500 4,089,240
Rigel Pharmaceuticals, Inc. (I) 52,350 1,256,400
Taro Pharmaceutical Industries Ltd. (Israel) (I)(L) 74,050 1,967,508
Reinsurance 1.48% 2,036,670
RenaissanceRe Holdings Ltd. (Bermuda) 43,500 2,036,670
Restaurants 3.43% 4,715,550
Panera Bread Co. (I)(L) 135,000 4,715,550
Semiconductor Equipment 2.37% 3,254,975
ASML Holding NV (NY Reg Shares) (Netherlands) (I)(L) 87,000 1,239,750
Broadcom Corp. (Class A) (I) 74,500 2,015,225
Specialty Stores 2.30% 3,161,225
Bed Bath & Beyond, Inc. (I) 77,500 3,161,225
Systems Software 4.32% 5,929,242
Symantec Corp. (I)(L) 37,500 2,135,250
VERITAS Software Corp. (I) 173,400 3,793,992
Trading Companies & Distributors 2.62% 3,595,473
Fastenal Co. 65,100 3,595,473
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 32.43% $44,530,246
(Cost $44,530,246)
Joint Repurchase Agreement 0.81% 1,115,000
Investment in a joint repurchase agreement transaction with
Morgan Stanley -- Dated 10-29-04, due 11-01-04 (secured
by U.S. Treasury Bond 8.125% due 08-15-19, U.S.
Treasury Note 5.875% due 11-15-04, U.S. Treasury
Inflation Indexed Bonds 3.375% thru 3.625% due
04-15-28 thru 04-15-32, and U.S. Treasury Inflation Indexed
Notes 3.375% thru 3.875% due 01-15-09 thru 01-15-12) 1.770% $1,115 1,115,000
Shares
Cash Equivalents 31.62% 43,415,246
AIM Cash Investment Trust (T) 43,415,246 43,415,246
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Total investments 131.87% $181,089,082
Other assets and liabilities, net (31.87%) ($43,760,739)
Total net assets 100.00% $137,328,343
(I) Non-income-producing security.
(L) All or a portion of this security is on loan as of October 31, 2004.
(T) Represents investment of securities lending collateral.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer.
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
FINANCIAL STATEMENTS
PORTFOLIO
CONCENTRATION
October 31, 2004
(unaudited)
This table shows the
Fund's investments
as a percentage
of net assets,
aggregated by
various industries.
Sector distribution Value as a percentage of Fund's net assets
- -------------------------------------------------------------------------
Consumer Discretionary 18.68%
Consumer Staples 2.16
Energy 7.97
Financials 5.04
Health Care 18.38
Industrials 16.72
Information Technology 23.39
Materials 7.10
Short-term investments 32.43
See notes to
financial statements.
14
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
October 31, 2004
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
Assets
Investments at value (cost $170,938,529)
including $42,477,696 of securities loaned $181,089,082
Cash 530
Receivable for shares sold 5,521
Dividends and interest receivable 18,164
Other assets 26,223
Total assets 181,139,520
Liabilities
Payable for shares repurchased 134,179
Payable upon return of securities loaned 43,415,246
Payable to affiliates
Management fees 98,134
Distribution and service fees 9,136
Other 75,268
Other payables and accrued expenses 79,214
Total liabilities 43,811,177
Net assets
Capital paid-in 219,979,074
Accumulated net realized loss on investments (92,779,923)
Net unrealized appreciation of investments 10,150,553
Accumulated net investment loss (21,361)
Net assets $137,328,343
Net asset value per share
Based on net asset values and shares outstanding --
the Fund has an unlimited number of shares
authorized with no par value
Class A ($97,871,816 [DIV] 11,750,765 shares) $8.33
Class B ($33,962,886 [DIV] 4,472,853 shares) $7.59
Class C ($2,983,722 [DIV] 392,859 shares) $7.59
Class I ($2,509,919 [DIV] 295,143 shares) $8.50
Maximum offering price per share
Class A 1 ($8.33 [DIV] 95%) $8.77
1 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.
See notes to
financial statements.
15
FINANCIAL STATEMENTS
OPERATIONS
For the year ended
October 31, 2004
This 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.
Investment income
Securities lending $249,387
Dividends (net of foreign withholding taxes of $167) 212,101
Interest 14,818
Total investment income 476,306
Expenses
Investment management fees 1,223,563
Class A distribution and service fees 313,108
Class B distribution and service fees 424,589
Class C distribution and service fees 32,670
Class A, B and C transfer agent fees 782,832
Class I transfer agent fees 1,425
Printing 52,355
Registration and filing fees 48,068
Accounting and legal services fees 41,644
Custodian fees 34,800
Professional fees 32,436
Miscellaneous 27,600
Trustees' fees 9,091
Securities lending fees 7,369
Interest 3,711
Total expenses 3,035,261
Less expense reductions (56,364)
Net expenses 2,978,897
Net investment loss (2,502,591)
Realized and unrealized gain (loss)
Net realized gain on investments 16,496,734
Change in net unrealized appreciation
(depreciation) of investments (16,196,116)
Net realized and unrealized gain 300,618
Decrease in net assets from operations ($2,201,973)
See notes to
financial statements.
16
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show how
the value of the
Fund's net assets
has changed
during the last
two periods. The
difference reflects
earnings less
expenses, any
investment
gains and losses,
distributions, if
any, paid to
shareholders and
any increase or
decrease in money
shareholders
invested in
the Fund.
Year Year
ended ended
10-31-03 10-31-04
Increase (decrease) in net assets
From operations
Net investment loss ($2,569,314) ($2,502,591)
Net realized gain 16,717,797 16,496,734
Change in net unrealized
appreciation (depreciation) 23,244,385 (16,196,116)
Increase (decrease) in net assets
resulting from operations 37,392,868 (2,201,973)
From Fund share transactions (13,076,268) (21,349,161)
Net assets
Beginning of period 136,562,877 160,879,477
End of period 1 $160,879,477 $137,328,343
1 Includes accumulated net investment loss of $20,809 and $21,361,
respectively.
See notes to
financial statements.
17
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
Period ended 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $12.85 $16.03 $7.66 $6.47 $8.43
Net investment loss 1 (0.17) (0.12) (0.11) (0.11) (0.12)
Net realized and unrealized
gain (loss) on investments 4.23 (7.48) (1.08) 2.07 0.02
Total from
investment operations 4.06 (7.60) (1.19) 1.96 (0.10)
Less distributions
From net realized gain (0.88) (0.77) -- -- --
Net asset value, end of period $16.03 $7.66 $6.47 $8.43 $8.33
Total return 2 (%) 33.26 (49.87) (15.54) 30.29 (1.19)
Ratios and supplemental data
Net assets, end of period
(in millions) $176 $85 $85 $107 $98
Ratio of expenses
to average net assets (%) 1.46 1.63 1.89 1.98 1.75
Ratio of adjusted expenses
to average net assets 3 (%) -- -- -- -- 1.79
Ratio of net investment loss
to average net assets (%) (1.08) (1.13) (1.52) (1.62) (1.44)
Portfolio turnover (%) 146 211 267 4 183 75
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $12.22 $15.08 $7.13 $5.98 $7.74
Net investment loss 1 (0.27) (0.18) (0.16) (0.15) (0.17)
Net realized and unrealized
gain (loss) on investments 4.01 (7.00) (0.99) 1.91 0.02
Total from
investment operations 3.74 (7.18) (1.15) 1.76 (0.15)
Less distributions
From net realized gain (0.88) (0.77) -- -- --
Net asset value, end of period $15.08 $7.13 $5.98 $7.74 $7.59
Total return 2 (%) 32.30 (50.24) (16.13) 29.43 (1.94)
Ratios and supplemental data
Net assets, end of period
(in millions) $241 $101 $46 $48 $34
Ratio of expenses
to average net assets (%) 2.16 2.33 2.56 2.67 2.45
Ratio of adjusted expenses
to average net assets 3 (%) -- -- -- -- 2.49
Ratio of net investment
loss to average net assets (%) (1.78) (1.83) (2.20) (2.31) (2.14)
Portfolio turnover (%) 146 211 267 4 183 75
See notes to
financial statements.
19
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $12.21 $15.07 $7.13 $5.99 $7.74
Net investment loss 1 (0.27) (0.18) (0.16) (0.15) (0.17)
Net realized and unrealized
gain (loss) on investments 4.01 (6.99) (0.98) 1.90 0.02
Total from
investment operations 3.74 (7.17) (1.14) 1.75 (0.15)
Less distributions
From net realized gain (0.88) (0.77) -- -- --
Net asset value, end of period $15.07 $7.13 $5.99 $7.74 $7.59
Total return 2 (%) 32.32 (50.21) (15.99) 29.22 (1.94)
Ratios and supplemental data
Net assets, end of period
(in millions) $5 $3 $2 $3 $3
Ratio of expenses
to average net assets (%) 2.16 2.33 2.58 2.68 2.45
Ratio of adjusted expenses
to average net assets 3 (%) -- -- -- -- 2.49
Ratio of net investment loss
to average net assets (%) (1.80) (1.83) (2.21) (2.32) (2.14)
Portfolio turnover (%) 146 211 267 4 183 75
See notes to
financial statements.
20
FINANCIAL HIGHLIGHTS
CLASS I SHARES
Period ended 10-31-02 5 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $8.16 $6.51 $8.54
Net investment loss 1 (0.06) (0.06) (0.06)
Net realized and unrealized
gain (loss) on investments (1.59) 2.09 0.02
Total from
investment operations (1.65) 2.03 (0.04)
Net asset value, end of period $6.51 $8.54 $8.50
Total return 2 (%) (20.22)6 31.18 (0.47)
Ratios and supplemental data
Net assets, end of period
(in millions) $3 $3 $3
Ratio of expenses
to average net assets (%) 1.46 7 1.22 1.02
Ratio of net investment loss
to average net assets (%) (1.00)7 (0.85) (0.71)
Portfolio turnover (%) 267 4 183 75
1 Based on the average of the shares outstanding.
2 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
3 Does not take into consideration expense reductions during the period
shown.
4 Excludes merger activity.
5 Class I shares began operations on 3-1-02.
6 Not annualized.
7 Annualized.
See notes to
financial statements.
21
NOTES TO
STATEMENTS
Note A
Accounting policies
John Hancock Mid Cap Growth Fund (the "Fund") is a diversified series of
John Hancock Invest ment Trust III, an open-end management investment
company registered under the Investment Company Act of 1940. The
investment objective of the Fund is to seek long-term capital
appreciation.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B, Class C and Class I shares.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights as 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 that bears distribution and service expenses under the 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 may be valued at amortized cost, which approximates market value.
Investments in AIM Cash Investment Trust are valued at their net asset
value each business day.
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, LLC (the
"Adviser"), a wholly owned subsidiary of John Hancock Financial
Services, 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.
Class allocations
Income, common expenses and realized and unrealized gains
22
(losses) are determined at the fund level and allocated daily to each
class of shares based on the appropriate net asset value of the respective
classes. Distribution and service fees, if any, and transfer agent fees
for Class I shares, are calculated daily at the class level based on the
appropriate net asset value of each class and the specific expense rate(s)
applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual
fund. Expenses that 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.
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. The Fund has
entered into a syndicated line of credit agreement with various banks.
This agreement enables the Fund to participate, with other funds managed
by the Adviser, in an unsecured line of credit with banks, which permits
borrowings of up to $250 million, collectively. Interest is charged to
each fund based on its borrowing. In addition, a commitment fee is
charged to each fund based on the average daily unused portion of the
line of credit, and is allocated among the participating funds. The Fund
had no borrowing activity under the line of credit during the year ended
October 31, 2004.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the
Fund negotiated lender fees. 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, 2004, the Fund loaned
securities having a market value of $42,477,696 collateralized by cash
in the amount of $43,415,246. The cash collateral was invested in a
short-term instrument. Securities lending expenses are paid by the Fund
to the Adviser.
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 that is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $92,779,923 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent that such
carryforward is used by the Fund, no capital gain distributions will be
made. The loss carryforward expires as follows: October 31, 2008 --
$821,684, October 31, 2009 -- $66,951,793 and October 31, 2010 --
$25,006,446. Availability of a certain amount of loss carryforward,
which was acquired on June 7, 2002 in a merger, may be limited in a
given year.
Dividends, interest
and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund 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 distributions to shareholders from net investment income
and net realized gains, if any, on the ex-dividend date. Distributions
paid by the
23
Fund with respect to each class of shares are calculated in the same
manner, at the same time and are in the same amount, except for the effect
of expenses that may be applied differently to each class.
As of October 31, 2004, there were no distributable earnings on a tax
basis.
Such distributions and distributable earnings on a tax basis are
determined in conformity with income tax regulations, which may differ
from accounting principles generally accepted in the United States of
America. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, 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.
Note B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.80% of the first $500,000,000 of the Fund's average daily net asset
value, (b) 0.75% of the next $500,000,000 and (c) 0.70% of the Fund's
average daily net asset value in excess of $1,000,000,000.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted
Distribution Plans with respect to Class A, Class B and Class C,
pursuant to Rule 12b-1 under the Investment Company Act of 1940, to
reimburse JH Funds for the services it provides as distributor of shares
of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at
an annual rate not to exceed 0.30% of Class A average daily net asset
value and 1.00% of Class B and Class C average daily net asset value. A
maximum of 0.25% of such payments may be service fees, as defined by the
Conduct Rules of the National Association of Securities Dealers. Under
the Conduct Rules, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
Class A shares are assessed up-front sales charges. During the year
ended October 31, 2004, JH Funds received net up-front sales charges of
$94,720 with regard to sales of Class A shares. Of this amount, $12,207
was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $61,329 was paid as sales commissions to
unrelated broker-dealers and $21,184 was paid as sales commissions to
sales personnel of Signator Investors, Inc. ("Signator Investors"), a
related broker-dealer. The Adviser's indirect parent, John Hancock Life
Insurance Company ("JHLICo"), is the indirect sole shareholder of
Signator Investors. Prior to July 15, 2004, Class C shares were assessed
up-front sales charges. During the year ended October 31, 2004, JH Funds
received net up-front sales charges of $1,411 with regard to sales of
Class C shares. Of this amount, $1,309 was paid as sales commissions to
unrelated broker-dealers and $102 was paid as sales commissions to sales
personnel of Signator Investors.
Class B shares that are redeemed within six years of purchase are
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. Class C shares that are redeemed within one year of purchase
are subject to a CDSC at a
24
rate of 1.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSCs 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 and Class C shares.
During the year ended October 31, 2004, CDSCs received by JH Funds
amounted to $78,082 for Class B shares and $219 for Class C shares.
The Fund has a transfer agent agreement with John Han cock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
For Class A, Class B and Class C shares, the Fund pays a monthly
transfer agent fee at an annual rate of 0.05% of each class's average
daily net asset value, plus a fee based on the number of shareholder
accounts and reimbursement for certain out-of-pocket expenses,
aggregated and allocated to each class on the basis of its relative net
asset value. For Class I shares the Fund pays a monthly transfer agent
fee at a total annual rate of 0.05% of Class I average daily net asset
value. Signature Services agreed to voluntarily reduce the Fund's
asset-based portion of the transfer agent fee if the total transfer
agent fee exceeds the Lipper, Inc. median transfer agency fee for
comparable mutual funds by 0.05%. Accord ingly, the transfer agent
expense for Class A, Class B and Class C shares was reduced by $56,364
for the year ended October 31, 2004. Signature Services reserves the
right to terminate this limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year amounted to $41,644. The Fund also paid the Adviser the amount of
$662 for certain publishing services, included in the printing fees.
Mr. James A. Shepherdson is a director and/or officer of the Adviser
and/or its affiliates, as well as Trustee of the Fund. The compensation
of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer, for tax purposes, their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investments, as well
as any unrealized gains or losses. The Deferred Compensation Plan
investments had no impact on the operations of the Fund.
25
Note C
Fund share transactions
This listing illustrates the number of Fund shares sold and repurchased
during the last two periods, along with the corresponding dollar value.
Year ended 10-31-03 Year ended 10-31-04
Shares Amount Shares Amount
Class A shares
Sold 2,334,794 $16,511,673 1,967,512 $16,799,745
Repurchased (2,850,728) (19,782,837) (2,857,998) (24,115,884)
Net decrease (515,934) ($3,271,164) (890,486) ($7,316,139)
Class B shares
Sold 913,561 $6,171,951 902,062 $6,933,222
Repurchased (2,400,880) (15,429,942) (2,635,622) (20,261,037)
Net decrease (1,487,319) ($9,257,991) (1,733,560) ($13,327,815)
Class C shares
Sold 128,247 $829,129 120,684 $934,329
Repurchased (122,444) (789,063) (144,186) (1,101,394)
Net increase (decrease) 5,803 $40,066 (23,502) ($167,065)
Class I shares
Sold 173,708 $1,227,046 57,520 $502,107
Repurchased (259,133) (1,814,225) (120,524) (1,040,249)
Net decrease (85,425) ($587,179) (63,004) ($538,142)
Net decrease (2,082,875) ($13,076,268) (2,710,552) ($21,349,161)
Note D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the year ended October 31, 2004, aggregated $114,730,163 and
$135,067,302, respectively.
The cost of investments owned on October 31, 2004, including short-term
invest ments, for federal income tax purposes, was $170,938,529. Gross
unrealized appreciation and depreciation of investments aggregated
$20,193,368 and $10,042,815, respectively, resulting in net unrealized
appreciation of $10,150,553.
Note E
Reclassification
of accounts
During the year ended October 31, 2004, the Fund reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of
$1,224,157, a decrease in accumulated net investment loss of $2,502,039
and a decrease in capital paid-in of $3,726,196. This represents the
amounts necessary to report these balances on a tax basis, excluding
certain temporary differences, as of October 31, 2004. 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 certain differences in the
computation of distributable income and capital gains under federal tax
rules versus accounting principles generally accepted in the United
States of America, and book and tax differences in accounting for
deferred compensation, net operating loss and expiring capital loss on
carryforward. The calculation of net investment loss per share in the
Fund's Financial Highlights excludes these adjustments.
Note F
Subsequent event
A special meeting of shareholders was held on December 1, 2004, at which
time one or more new Trustees were elected to the
26
Fund's Board of Trustees. Several Trustees had reached the age for
mandatory retirement and plan to retire in 2004 and 2005. The Board of
Trustees recommended and shareholders approved a proposal to consolidate
the two panels into one Board of Trustees for all open-end funds within
the John Hancock funds complex. The effective date for the newly elected
Trustees to the Fund will be January 1, 2005.
27
AUDITORS'
REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of
John Hancock Mid Cap Growth 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 Mid Cap Growth Fund (the "Fund") at October 31, 2004, the
results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States of
America. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits 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 at October 31, 2004, by correspondence with
the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 2004
28
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund, if any, paid during its
taxable year ended October 31, 2004.
The Fund hereby designates the maximum amount allowable of its net
taxable income as qualified dividend income as provided in the Jobs and
Growth Tax Relief Reconciliation Act of 2003. This amount will be
reflected on Form 1099-DIV for the calendar year 2004.
Shareholders will be mailed a 2004 U.S. Treasury Department Form
1099-DIV in January 2005. This will reflect the total of all
distributions that are taxable for calendar year 2004.
29
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
Independent Trustees
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
Charles L. Ladner, 2 Born: 1938 2004 49
Independent Chairman (since 2004); Chairman and Trustee, Dunwoody
Village, Inc. (retirement services) (until 2003); Senior Vice President and
Chief Financial Officer, UGI Corporation (public utility holding company)
(retired 1998); Vice President and Director for AmeriGas, Inc. (retired
1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution);
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History
Association (since 2001).
Dennis S. Aronowitz, Born: 1931 1996 21
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp (since 1998).
Richard P. Chapman, Jr., Born: 1935 1996 21
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William J. Cosgrove, Born: 1933 1996 21
Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A.
(retired 1991); Executive Vice President, Citadel Group Representatives,
Inc. (financial reinsurance) (until 2004); Director, Hudson City Savings Bank
(since 1995); Director, Hudson City Bancorp (since 1999); Trustee, Scholarship
Fund for Inner City Children (since 1986).
Richard A. Farrell, Born: 1932 1993 21
President, Farrell, Healer & Co., Inc. (venture capital management firm)
(since 1980) and President, the Venture Capital Fund of NE (since 1980);
prior to 1980, headed the venture capital group at Bank of Boston Corporation;
Trustee, Marblehead Savings Bank (since 1994).
30
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
William F. Glavin, 2 Born: 1932 1993 21
President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox
Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd.
(until 2002).
John A. Moore, 2 Born: 1939 1993 31
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Chief Scientist, Sciences
International (health research) (until 2003); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Patti McGill Peterson, 2 Born: 1943 1993 31
Executive Director, Council for International Exchange of Scholars and
Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1998); Former President of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003).
John W. Pratt, Born: 1931 1993 21
Professor of Business Administration Emeritus, Harvard University
Graduate School of Business Administration (as of 1998).
Non-Independent Trustees 3
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
James A. Shepherdson, Born: 1952 2004 49
President and Chief Executive Officer
Executive Vice President, Manulife Financial Corporation (since 2004);
Chairman, Director, President and Chief Executive Officer, John Hancock
Advisers, LLC and The Berkeley Financial Group, LLC (holding company);
Chairman, Director, President and Chief Executive Officer, John Hancock
Funds, LLC; Chairman, President, Director and Chief Executive Officer,
Sovereign Asset Management Corporation ("SAMCorp"); Director, Chairman
and President, NM Capital Management, Inc.; President, John Hancock
Retirement Services, John Hancock Life Insurance Company (until 2004);
Chairman, Essex Corporation (until 2004); Co-Chief Executive Officer,
MetLife Investors Group (until 2003); Senior Vice President, AXA/Equitable
Insurance Company (until 2000).
31
Principal officers who are not Trustees
Name, age
Position(s) held with Fund Officer
Principal occupation(s) and of Fund
directorships during past 5 years since
William H. King, Born: 1952 1993
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each
of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1993
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each
of the John Hancock funds, John Hancock Funds and The Berkeley Financial Group, LLC;
Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary,
NM Capital Management, Inc.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Non-independent Trustees hold positions with the Fund's investment
adviser, underwriter and certain other affiliates.
32
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Principal distributor
John Hancock Funds, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
How to contact us
Internet www.jhfunds.com
Mail Regular mail: Express mail:
John Hancock John Hancock
Signature Services, Inc. Signature Services, Inc.
1 John Hancock Way, Suite 1000 Mutual Fund Image Operations
Boston, MA 02217-1000 529 Main Street
Charlestown, MA 02129
Phone Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available
on a quarterly basis 60 days after the fiscal quarter on our Web site
or upon request by calling 1-800-225-5291, or on the Securities and
Exchange Commission's Web site, www.sec.gov.
33
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
This report is for the information of
the shareholders of the John Hancock
Mid Cap Growth Fund.
3900A 10/04
12/04
JOHN HANCOCK
International Fund
10.31.2004
Annual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of James A. Shepherdson, Chief Executive Officer, flush left next
to first paragraph.]
CEO CORNER
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Your expenses
page 8
Fund's investments
page 10
Financial statements
page 16
Trustees & officers
page 33
For more information
page 37
Dear Fellow Shareholders,
The stock market made little, if any, headway year-to-date through
October 2004, as it wrestled with a variety of uncertainties.
Questions about the continuing strength of the economy, the effects of
rising interest rates and expectations for corporate earnings growth
kept investors jittery. In addition, record high crude oil prices,
geopolitical issues and a closely contested U.S. presidential race all
weighed on the market. The picture brightened in early November with
the election over and oil prices moderating somewhat.
Year-to-date through October 31, 2004, the Standard & Poor's 500 Index
was up 3.06%, while the Dow Jones Industrial Average and the Nasdaq
Composite Index were slightly negative, returning -2.40% and -1.05%,
respectively. Despite the Federal Reserve's three hikes in short-term
interest rates from historic lows, bonds still managed to outperform
stocks, with the Lehman Brothers Aggregate Bond Index up 4.22%.
In news closer to home, we are pleased to announce that on June 15,
2004, your fund's Board of Trustees appointed Charles L. Ladner as
independent Chairman of the Board of Trustees, a position previously
held by John Hancock Funds LLC's former Chairman and Chief Executive
Officer, Maureen Ford Goldfarb. This appointment came in advance of
new SEC regulations requiring all mutual funds to have independent
chairmen.
Mr. Ladner has served as an independent member of John Hancock Funds'
Board of Trustees since 1992 and formerly held the position of Senior
Vice President and Chief Financial Officer of UGI Corporation, a
public utility holding company in Valley Forge, PA, until his
retirement in 1998. He brings a wealth of knowledge, experience and
leadership and we are delighted to have him serve as Chairman.
Sincerely,
/S/ JAMES A. SHEPHERDSON
James A. Shepherdson,
Chief Executive Officer
This commentary reflects the CEO's views as of October 31, 2004. They
are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
long-term growth
of capital by
normally investing
at least 80%
of its assets
in stocks of
foreign companies.
Over the last twelve months
* International stock markets moved higher amid global economic
improvement.
* While strong on absolute terms, the Fund's results lagged its
benchmark index because of its focus on growth stocks, which trailed
value stocks.
* Positions in Hong Kong, Mexico and Russia added value relative to
the benchmark.
[Bar chart with heading "John Hancock International Fund." Under the
heading is a note that reads "Fund performance for the year ended October
31, 2004." The chart is scaled in increments of 5 with 0% at the bottom and
15% at the top. The first bar represents the 9.18% total return for Class
A. The second bar represents the 8.43% total return for Class B. The third
bar represents the 8.43% total return for Class C. The fourth bar
represents the 10.16% total return for Class I. A note below the chart
reads "Total returns for the Fund are at net asset value with all
distributions reinvested."]
Top 10 holdings
2.7% America Movil SA de CV
2.2% Esprit Holdings Ltd.
2.1% WMC Resources Ltd.
2.1% Carnival Plc
2.1% Morrison (Wm.) Supermarkets Plc
2.1% Sanofi-Aventis SA
2.0% Sumitomo Mitsui Financial Group, Inc.
2.0% Rank Group Plc
1.9% Deutsche Telekom AG
1.8% News Corp. Ltd. (The)
As a percentage of net assets on October 31, 2004.
1
BY HORACIO A. VALEIRAS, CFA, FOR THE NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT PORTFOLIO MANAGEMENT TEAM
MANAGERS'
REPORT
JOHN HANCOCK
International Fund
International stock prices climbed higher during the year ended
October 31, 2004, adding to impressive gains from the prior twelve
months. U.S.-based investors further benefited from the appreciation
of many foreign currencies versus the U.S. dollar, as this boosted
international equity performance in dollar terms.
In late 2003 and early 2004, overseas stock markets rose steadily
against a backdrop of global economic improvement, rising corporate
earnings and surging commodity prices. Equities retrenched in the
spring and summer, however, as headwinds that had been in place for
much of the year overwhelmed investors, including rising oil prices,
terrorism fears and higher U.S. interest rates. Interna tional stock
markets resumed their upward path in August, buoyed by a number of
favorable developments. For example, investors seemed to become more
comfortable with the outlook for emerging markets, especially China's
ability to engineer a soft landing for its booming economy.
"Equity performance was
strong worldwide, with
stocks in nearly every market
posting solid increases."
Equity performance was strong worldwide, with stocks in nearly every
market posting solid increases. In Japan, the economy continued to
gradually recover, and business confidence rose to a level unseen in
more than a decade. In the United Kingdom, unemployment was low,
consumer spending was brisk and corporate profitability was the
highest it had been since 1999. Stock market gains were particularly
strong in smaller European markets. For instance, equities were up
more than 30% on average in Norway and Russia, as these
energy-producing countries benefited from high oil and natural gas
prices.
From a sector perspective, equity gains were also broad-based. The
information technology sector was the only group to generate a
negative return, as tech stocks fell on evidence of weakening demand
and building inventories. In contrast, energy and materials companies
were among the best performers, driven by robust global demand for
commodities, such as oil, steel and coal.
2
Fund performance explained
For the 12 months ended October 31, 2004, John Hancock International
Fund's Class A, Class B, Class C and Class I shares gained 9.18%,
8.43%, 8.43% and 10.16%, respectively, at net asset value. During the
same period, the average international multi-cap growth fund advanced
13.15%, according to Lipper, Inc.,1 while the benchmark MSCI All
Country World Free Ex-U.S. Index rose 16.67%. 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. See pages six and seven for historical
performance information.
The Fund's return was strong in absolute terms, as positions in the
majority of countries and sectors registered solid gains. On a
comparative basis, however, the Fund lagged its benchmark. Consistent
with our investment philosophy, the Fund's holdings are concentrated
in growth stocks, while the MSCI All Country World Free Ex-U.S. Index
contains both growth and value names. This difference in style hurt
the Fund's relative performance because investors demonstrated a
strong preference for value stocks this period. Issue selection in the
United Kingdom, the Netherlands and among financials and industrials
was also unfavorable.
"...positions in Hong Kong, Mexico
and Russia added value relative to
the benchmark."
Positive stock selection
On a positive note, positions in Hong Kong, Mexico and Russia added
value relative to the benchmark. Stock selection drove outperformance
in Hong Kong, while both stock selection and overweight positions were
advantageous in Mexico and Russia. In addition, select positions in
the consumer staples, energy and telecommunication services sectors
favorably impacted results versus the index.
Top-performing stocks included Sino Land, a Hong Kong real estate firm
that experienced a decline in financing costs; Precision Drilling, a
Canadian oilfield services company which benefited from high energy
prices; and America Movil, a Mexican wireless communications provider
that saw robust subscriber growth. Among the decliners were ASM
International, a Dutch semiconductor equipment manufacturer which
experienced a softening in orders;
3
Samsung Heavy Industries, a South Korean producer of ships and construction
equipment that was hurt by rising raw material costs; and British Sky
Broadcasting, a U.K. satellite television operator which suffered from
disappointing subscriber growth.
[Table at top left-hand side of page entitled "Top five industry groups."
The first listing is Diversified banks 13%, the second is Integrated
telecommunication services 7%, the third is Wireless telecommunication
services 6%, the fourth is Pharmaceuticals 4%, and the fifth is Integrated
oil & gas 3%.]
Fund moves
During the period, there were changes in the Fund's country and sector
weightings that resulted from our stock-by-stock investment decisions.
Assets were shifted from emerging nations in the Asia Pacific region,
most notably Taiwan and South Korea, in favor of opportunities
identified in developed European countries, such as Germany and Italy.
Changes in sector exposures included a decrease in the Fund's
information technology holdings and an increase in consumer
discretionary and telecommunication services stocks.
Holdings remained well diversified at the end of the period, with
broad representation across countries and sectors. Compared to the
benchmark, the Fund was overweight stocks in developed and emerging
Asian countries and underweight developed European countries. The Fund
was overweight consumer discretionary and telecommunication services
stocks and underweight energy companies, financials and utilities.
[Bar chart at middle of page with heading "Top five countries As a
percentage of net assets on 10-31-04." The chart is divided into five
sections: Japan 22%, United Kingdom 17%, Germany 8%, France 5% and Hong
Kong 5%.]
Outlook
We are cautiously optimistic in our outlook for international
equities. On the plus side, expectations are that economies in both
developed and emerging countries will show solid growth in 2005. In
many developing nations, inflation has remained relatively subdued,
and higher commodity prices are helping a
4
number of economies, particularly in Latin America. However, the
more widespread effects of steep energy prices, as well as ongoing concerns
about global security, are likely to remain on investors' minds. In addition,
market participants are expected to closely monitor signs of slower economic
growth in the United States, which would impact American demand for local
market exports.
[Table at top of page entitled "Scorecard." The header for the left column
is "Investment" and the header for the right column is "Period's
performance...and what's behind the numbers." The first listing is Sino
Land followed by an up arrow with the phrase "Decline in financing costs."
The second listing is Precision Drilling followed by an up arrow with the
phrase "Benefited from high energy costs." The third listing is British Sky
Broadcasting followed by a down arrow with the phrase "Disappointing
subscriber growth."]
Regardless of what the future holds, we remain committed to our
bottom-up stock selection process and continue to find exciting
investment opportunities overseas. While the pace of economic activity
has moderated in many countries, corporate earnings continue to grow.
In addition, recent analysis we've done suggests that, if history is a
guide, value stocks' leadership of the past several years is unlikely
to continue much longer. By consistently applying our growth-oriented
investment approach, we are confident in our ability to produce
strong, long-term performance for shareholders.
"We are cautiously optimistic in our
outlook for international equities."
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. The
team's statements reflect their own opinions. As such, they are in no
way guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards
and financial reporting.
1 Figures from Lipper, Inc. include reinvested dividends and do not
take into account sales charges. Actual load-adjusted performance is
lower.
5
A LOOK AT
PERFORMANCE
For the period ended
October 31, 2004
Class A Class B Class C Class I 1
Inception date 1-3-94 1-3-94 6-1-98 3-1-02
Average annual returns with maximum sales charge (POP)
One year 3.67% 3.43% 7.43% 10.16%
Five years -9.35 -9.39 -9.07 --
Ten years -2.33 -2.38 -- --
Since inception -- -- -5.37 4.44
Cumulative total returns with maximum sales charge (POP)
One year 3.67 3.43 7.43 10.16
Five years -38.78 -38.93 -37.85 --
Ten years -21.02 -21.40 -- --
Since inception -- -- -29.82 12.30
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of
5% and the applicable contingent deferred sales charge (CDSC) on Class
B and Class C shares. The returns for Class C shares have been
adjusted to reflect the elimination of the front-end sales charge
effective July 15, 2004. The Class B shares' CDSC declines annually
between years 1-6 according to the following schedule: 5, 4, 3, 3, 2,
1%. No sales charge will be assessed after the sixth year. Class C
shares held for less than one year are subject to a 1% CDSC. Sales
charge is not applicable for Class I shares. The return and principal
value of an investment in the Fund will fluctuate, so that shares,
when redeemed, may be worth more or less than the original cost.
The returns reflect past results and should not be considered
indicative of future performance. The performance table above and the
chart on the next page do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund
shares.
The Fund's performance results reflect any applicable expense
reductions, without which the expenses would increase and results
would have been less favorable.
1 For certain types of investors as described in the Fund's Class I
share prospectus.
6
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown
the same investment in the MSCI All Country World Free Ex-U.S. Index.
MSCI
All Country
Cum Value Cum Value World
of $10K of $10K Ex-U.S.
Plot Date (No Load) (w/Load) Free Index
10-31-94 $10,000 $9,500 $10,000
11-30-94 9,353 8,880 9,503
4-30-95 9,340 8,869 9,801
10-31-95 9,504 9,024 9,622
4-30-96 10,368 9,844 10,789
10-31-96 10,158 9,645 10,435
4-30-97 10,474 9,945 10,673
10-31-97 9,831 9,335 10,743
4-30-98 11,466 10,887 12,177
10-31-98 10,382 9,858 11,060
4-30-99 11,796 11,201 12,849
10-31-99 12,904 12,252 13,622
4-30-00 13,606 12,919 14,665
10-31-00 11,594 11,009 13,150
4-30-01 9,594 9,110 11,934
10-31-01 7,582 7,199 9,677
4-30-02 7,840 7,444 10,392
10-31-02 6,257 5,941 8,443
4-30-03 6,257 5,941 8,579
10-31-03 7,619 7,234 10,709
4-30-04 8,171 7,758 11,818
10-31-04 8,318 7,898 12,492
[Line chart with the heading "GROWTH OF $10,000." Within the chart are three
lines. The first line represents the MSCI All Country World Free Ex-U.S.
Index and is equal to $12,492 as of October 31, 2004. The second line
represents the value of the hypothetical $10,000 investment made in the
John Hancock International Fund, before sales charge, and is equal to
$8,318 as of October 31, 2004. The third line represents the value of the
same hypothetical investment made in the John Hancock International Fund,
after sales charge, and is equal to $7,898 as of October 31, 2004.]
Class B 1 Class C 1 Class I 2
Period beginning 10-31-94 6-1-98 3-1-02
International Fund $7,860 $7,018 $11,230
Index 12,492 10,576 12,532
Assuming all distributions were reinvested for the period indicated,
the table above shows the value of a $10,000 investment in the Fund's
Class B, Class C and Class I shares, respectively, as of October 31,
2004. The Class C shares investment with maximum sales charge has been
adjusted to reflect the elimination of the front-end sales charge
effective July 15, 2004. Performance of the classes will vary based on
the difference in sales charges paid by shareholders investing in the
different classes and the fee structure of those classes.
Morgan Stanley Capital International (MSCI) All Country World Free
Ex-U.S. Index is an unmanaged index of freely traded stocks of foreign
companies.
It is not possible to invest directly in an index. Index figures do
not reflect sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
2 For certain types of investors as described in the Fund's Class I
share prospectus.
7
YOUR
EXPENSES
These examples are intended to help you understand your ongoing
operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
* Transaction costs which include sales charges (loads) on purchases
or redemptions (varies by share class), minimum account fee charge,
etc.
* Ongoing operating expenses including management fees, distribution
and service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund's
actual ongoing operating expenses, and is based on your fund's actual
return. It assumes an account value of $1,000.00 on April 30, 2004,
with the same investment held until October 31, 2004.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
- -----------------------------------------------
Class A $1,018.00 $8.76
Class B 1,014.50 12.19
Class C 1,014.50 12.35
Class I 1,022.10 5.17
Together with the value of your account, you may use this information
to estimate the operating expenses that you paid over the period.
Simply divide your account value at October 31, 2004 by $1,000.00,
then multiply it by the "expenses paid" for your share class from the
table above. For example, for an account value of $8,600.00, the
operating expenses should be calculated as follows:
Example
-- -- -- --
| My account value / | | "expenses paid" | My
| $8,600.00 / $1,000.00 = 8.6 | X $| from table | = actual
| / | | | expenses
-- -- -- --
8
Hypothetical example for comparison purposes
This table allows you to compare your fund's ongoing operating
expenses with those of any other fund. It provides an example of the
Fund's hypothetical account values and hypothetical expenses based on
each class's actual expense ratio and an assumed 5% annual return
before expenses (which is not your fund's actual return). It assumes
an account value of $1,000.00 on April 30, 2004, with the same
investment held until October 31, 2004. Look in any other fund
shareholder report to find its hypothetical example and you will be
able to compare these expenses.
Account value Expenses paid
$1,000.00 Ending value during period
on 4-30-04 on 10-31-04 ended 10-31-04 1
- ----------------------------------------------
Class A $1,016.45 $8.75
Class B 1,013.03 12.19
Class C 1,012.87 12.34
Class I 1,020.02 5.17
Remember, these examples do not include any transaction costs, such as sales
charges; therefore, these examples will not help you to determine the relative
total costs of owning different funds. If transaction costs were included,
your expenses would have been higher. See the prospectus for details regarding
transaction costs.
1 Expenses are equal to the Fund's annualized expense ratio of 1.73%,
2.41%, 2.44% and 1.02% for Class A, Class B, Class C and Class I,
respectively, multiplied by the average account value over the period,
multiplied by [number of days in most recent fiscal half-year/365 or
366] (to reflect the one-half year period).
9
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
October 31, 2004
This schedule is divided into four main categories: common stocks,
preferred stocks, securities-linked warrants and short-term
investments. The common and preferred stocks and securities-linked
warrants are further broken down by country. Short-term investments,
which represent the Fund's cash position, are listed last.
Issuer, description Shares Value
Common stocks 94.81% $89,547,664
(Cost $80,626,485)
Australia 4.52% 4,267,339
Aristocrat Leisure Ltd. (Casinos & Gaming) 86,022 552,941
News Corp. Ltd. (The) (Movies & Entertainment) 210,358 1,695,316
WMC Resources Ltd. (Diversified Metals & Mining) 399,737 2,019,082
Belgium 1.08% 1,024,569
InBev (Brewers) 28,757 1,024,569
Brazil 0.90% 854,588
Empresa Brasileira de Aeronautica SA, American
Depositary Receipts (ADR) (Aerospace & Defense) 32,200 854,588
Canada 4.18% 3,950,984
ATI Technologies, Inc. (Semiconductors) (I) 47,200 851,960
Molson, Inc. (A Shares) (Brewers) 36,500 939,470
Petro-Canada (Integrated Oil & Gas) 20,700 1,129,832
Precision Drilling Corp. (Oil & Gas Drilling) (I) 16,700 1,029,722
China 0.52% 494,231
PetroChina Co., Ltd. (Integrated Oil & Gas) 944,000 494,231
Finland 1.67% 1,577,465
Nokia Oyj (ADR) (Communications Equipment) 69,900 1,077,858
Stora Enso Oyj (R Shares) (Paper Products) 34,900 499,607
France 5.07% 4,785,296
Alcatel SA (Communications Equipment) (I) 9,249 135,598
BNP Paribas SA (Diversified Banks) 14,908 1,017,481
Dassault Systemes SA (Application Software) 32,643 1,661,221
Sanofi-Aventis SA (Pharmaceuticals) 26,888 1,970,996
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Issuer, description Shares Value
Germany 7.24% $6,834,890
Adidas-Salomon AG (Apparel, Accessories & Luxury Goods) 7,205 1,009,301
Bayer AG (Diversified Chemicals) 49,761 1,416,419
Bayerische Hypo- und Vereinsbank AG (Diversified Banks) (I) 50,287 988,142
Deutsche Telekom AG (Integrated Telecommunication Services) (I) 91,230 1,755,328
Merck KGaA (Pharmaceuticals) 17,078 954,753
Metro AG (Hypermarkets & Super Centers) 14,879 710,947
Greece 0.85% 803,795
Greek Organisation of Football Prognostics SA (Casinos & Gaming) 1,850 37,820
Hellenic Telecommunications Organization SA
(Integrated Telecommunication Services) 49,320 765,975
Hong Kong 4.76% 4,498,494
Esprit Holdings Ltd. (Apparel Retail) 388,300 2,075,350
Hutchison Whampoa Ltd. (Industrial Conglomerates) 124,000 951,898
Sino Land Co., Ltd. (Real Estate Management & Development) 1,722,000 1,471,246
Indonesia 1.27% 1,196,296
PT Indonesian Satellite Corp Tbk (ADR)
(Integrated Telecommunication Services) 45,800 1,196,296
Italy 4.27% 4,031,802
ENI SpA (Integrated Oil & Gas) 61,372 1,397,536
Saipem SpA (Oil & Gas Equipment & Services) 122,606 1,417,924
Telecom Italia Mobile SpA (Wireless Telecommunication Services) 205,798 1,216,342
Japan 22.05% 20,823,644
Asahi Glass Co., Ltd. (Building Products) 104,000 956,886
Canon, Inc. (Office Electronics) 23,200 1,146,193
Fuji Photo Film Co., Ltd. (Photographic Products) 43,000 1,470,433
Matsushita Electric Industrial Co., Ltd. (Consumer Electronics) 89,000 1,292,207
Mitsubishi Estate Co., Ltd. (Real Estate Management & Development) 132,000 1,395,315
Mizuho Financial Group, Inc. (Diversified Banks) 430 1,661,345
Rohm Co., Ltd. (Semiconductors) 8,800 904,440
Shin-Etsu Chemical Co., Ltd. (Specialty Chemicals) 35,400 1,347,648
SMC Corp. (Industrial Machinery) 8,900 954,232
Sumitomo Corp. (Trading Companies & Distributors) 143,000 1,065,813
Sumitomo Mitsui Financial Group, Inc. (Diversified Banks) 291 1,894,001
T&D Holdings, Inc. (Life & Health Insurance) 24,200 1,069,866
Tokyo Gas Co., Ltd. (Gas Utilities) 255,000 951,492
Toppan Printing Co., Ltd. (Commercial Printing) 102,000 986,662
Toyota Motor Corp. (Automobile Manufacturers) 31,200 1,217,230
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Issuer, description Shares Value
Japan (continued)
UFJ Holdings, Inc. (Diversified Banks) (I) 306 1,422,180
Yamanouchi Pharmaceutical Co., Ltd. (Pharmaceuticals) 29,600 1,087,701
Malaysia 1.01% 958,434
Telekom Malaysia Berhad (Integrated Telecommunication Services) 316,700 958,434
Mexico 2.65% 2,503,600
America Movil SA de CV (ADR) (Wireless Telecommunication Services) 56,900 2,503,600
Netherlands 4.58% 4,323,990
ASM International NV (Semiconductor Equipment) (I) 35,307 513,112
ING Groep NV (Other Diversified Financial Services) 35,923 953,594
Royal Numico NV (Packaged Foods & Meats) (I) 47,552 1,607,216
Vedior NV (Employment Services) 84,822 1,250,068
Norway 0.54% 508,258
Telenor ASA (Integrated Telecommunication Services) 63,723 508,258
Philippines 0.52% 486,940
Philippine Long Distance Telephone Co.
(Integrated Telecommunication Services) (I) 19,400 486,940
South Korea 2.63% 2,483,454
Hyundai Motor Co., Global Depositary Receipts (GDR)
(Automobile Manufacturers) (S) 16,700 405,007
Hyundai Motor Co. (Automobile Manufacturers) 8,260 400,641
LG Electronics, Inc. (Consumer Electronics) 29,720 1,677,806
Spain 1.65% 1,558,686
Banco Bilbao Vizcaya Argentaria SA (Diversified Banks) 99,056 1,558,686
Switzerland 3.09% 2,917,044
Actelion Ltd. (Biotechnology) (I) 7,190 819,868
Synthes, Inc. (Health Care Equipment) 7,770 825,213
UBS AG (Diversified Capital Markets) 17,708 1,271,963
Taiwan 1.10% 1,039,505
Asustek Computer, Inc. (GDR) (Computer Storage & Peripherals) (S)(T) 469,260 1,039,505
Thailand 1.43% 1,354,730
Shin Corp. Pcl (Wireless Telecommunication Services) 600,800 585,218
True Corp. Pcl (Integrated Telecommunications Services) (I) 5,056,000 769,512
United Kingdom 17.23% 16,269,630
Aegis Group Plc (Advertising) 718,737 1,346,872
BPB Plc (Building Products) 183,345 1,415,575
Carnival Plc (Hotels, Resorts & Cruise Lines) 37,948 2,009,273
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Issuer, description Shares Value
United Kindom (continued)
HSBC Holdings Plc (Diversified Banks) 98,863 1,597,444
Man Group Plc (Asset Management & Custody Banks) 55,789 1,339,616
Morrison (Wm) Supermarkets Plc (Food Retail) 482,777 2,008,958
Rank Group Plc (Leisure Facilities) 352,092 1,850,028
Royal Bank of Scotland Group Plc (Diversified Banks) 56,667 1,670,942
United Business Media Plc (Publishing) 173,287 1,518,590
Vodafone Group Plc (Wireless Telecommunication Services) 590,088 1,512,332
Issuer, description Value
Preferred stocks 1.03% $972,565
(Cost $948,524)
Germany 1.03% 972,565
ProSiebenSat.1 Media AG (Broadcasting & Cable TV) 54,109 972,565
Issuer, description Value
Securities-linked warrants 1.52% $1,438,220
(Cost $1,327,943)
India 0.01% 15,473
Hindustan Lever Ltd. (Household Products) (I)(Q) 115,000 15,473
Taiwan 1.51% 1,422,747
Cathay Financial Holding Co., Ltd (Life & Health Insurance) (I)(R) 741,000 1,418,185
United Microelectronics Corp. (Electrical Components
& Equipment) (I)(R) 7,552 4,562
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 0.31% $290,000
(Cost $290,000)
Joint Repurchase Agreement 0.31% 290,000
Investment in a joint repurchase agreement transaction with
Morgan Stanley -- Dated 10-29-04, due 11-01-04 (secured
by U.S. Treasury Bond 8.125% due 08-15-19, U.S. Treasury
Note 5.875% due 11-15-04, U.S. Treasury Inflation Indexed
Bonds 3.625% due 04-15-28 and 3.375% due 04-15-32,
and U.S. Treasury Inflation Indexed Notes 3.375% thru
3.875% due 01-15-09 thru 01-15-12) 1.77% $290 290,000
See notes to
financial statements.
13
Total investments 97.67% $92,248,449
Other assets and liabilities, net 2.33% $2,202,653
Total net assets 100.00% $94,451,102
(I) Non-income-producing security.
(Q) Credit-linked warrant.
(R) Equity-linked warrant.
(S) These securities are exempt from registration under rule 144A of
the Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $1,444,512 or 1.53% of
the Fund's net assets as of October 31, 2004.
(T) Issuer is an affiliate of John Hancock Advisers, LLC.
The percentage shown for each investment category is the total value
of that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
14
PORTFOLIO
CONCENTRATION
October 31, 2004
(unaudited)
This table shows the
Fund's investments
as a percentage
of net assets,
aggregated by
various industries.
Industry distribution Value as a percentage of Fund's net assets
- -------------------------------------------------------------------------------
Advertising 1.43%
Aerospace & Defense 0.90
Apparel, Accessories & Luxury Goods 1.07
Apparel Retail 2.20
Application Software 1.76
Asset Management & Custody Banks 1.42
Automobile Manufacturers 2.14
Biotechnology 0.87
Brewers 2.08
Broadcasting & Cable TV 1.03
Building Products 2.51
Casinos & Gaming 0.63
Commercial Printing 1.04
Communications Equipment 1.28
Computer Storage & Peripherals 1.10
Consumer Electronics 3.14
Diversified Banks 12.50
Diversified Capital Markets 1.35
Diversified Chemicals 1.50
Diversified Metals & Mining 2.14
Electrical Components & Equipment 0.01
Employment Services 1.32
Food Retail 2.13
Gas Utilities 1.01
Health Care Equipment 0.87
Hotels Resorts & Cruise Lines 2.13
Household Products 0.02
Hypermarkets & Super Centers 0.75
Industrial Conglomerates 1.01
Industrial Machinery 1.01
Integrated Oil & Gas 3.20
Integrated Telecommunication Services 6.82
Leisure Facilities 1.96
Life & Health Insurance 2.63
Movie & Entertainment 1.79
Office Electronics 1.21
Oil & Gas Drilling 1.09
Oil & Gas Equipment & Services 1.50
Other Diversified Financial Services 1.01
Packaged Foods & Meats 1.70
Paper Products 0.53
Pharmaceuticals 4.25
Photographic Products 1.56
Publishing 1.61
Real Estate Management & Development 3.03
Semiconductor 1.86
Semiconductor Equipment 0.54
Specialty Chemicals 1.43
Trading Companies & Distributors 1.13
Wireless Telecommunication Services 6.16
Short-term investments 0.31
See notes to
financial statements.
15
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
October 31, 2004
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
Assets
Investments, at value
Unaffiliated issuers (cost $82,226,715) $91,208,944
Affiliated issuers (cost $966,237) 1,039,505
Cash 316
Foreign cash, at value (cost $479,769) 480,719
Receivable for investments sold 12,128,891
Receivable for shares sold 1,107
Dividends and interest receivable 147,043
Other assets 14,921
Total assets 105,021,446
Liabilities
Payable for investments purchased 10,240,692
Payable for shares repurchased 77,308
Payable to affiliates
Management fees 89,876
Distribution and service fees 8,552
Other 52,565
Other payables and accrued expenses 101,351
Total liabilities 10,570,344
Net assets
Capital paid-in 155,370,546
Accumulated net realized loss on investments
and foreign currency transactions (69,963,607)
Net unrealized appreciation of investments
and translation of assets and liabilities
in foreign currencies 8,993,899
Accumulated net investment income 50,264
Net assets $94,451,102
Net asset value per share
Based on net asset values and shares outstanding --
the Fund has an unlimited number of shares
authorized with no par value
Class A ($63,694,820 [DIV] 9,396,405 shares) $6.78
Class B ($25,659,464 [DIV] 4,074,782 shares) $6.30
Class C ($3,808,192 [DIV] 604,588 shares) $6.30
Class I ($1,288,626 [DIV] 185,743 shares) $6.94
Maximum offering price per share
Class A 1 ($6.78 [DIV] 95%) $7.14
1 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.
See notes to
financial statements.
17
FINANCIAL STATEMENTS
OPERATIONS
For the year ended
October 31, 2004
This 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.
Investment income
Dividends (including $11,326 received from affiliated issuers
and net of foreign withholding taxes of $228,492) $1,725,268
Interest 18,503
Total investment income 1,743,771
Expenses
Investment management fees 890,991
Class A distribution and service fees 194,517
Class B distribution and service fees 291,837
Class C distribution and service fees 37,685
Class A, B and C transfer agent fees 631,501
Class I transfer agent fees 604
Custodian fees 49,469
Registration and filing fees 46,587
Professional fees 35,462
Printing 27,397
Accounting and legal services fees 26,861
Miscellaneous 24,882
Interest 5,668
Trustees' fees 5,547
Total expenses 2,269,008
Less expense reductions (32,667)
Net expenses 2,236,341
Net investment loss (492,570)
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments 17,410,585
Foreign currency transactions (832,294)
Change in net unrealized appreciation (depreciation) of
Investments (8,033,807)
Translation of assets and liabilities in foreign currencies (60,854)
Net realized and unrealized gain 8,483,630
Increase in net assets from operations $7,991,060
See notes to
financial statements.
17
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show how
the value of the
Fund's net assets
has changed
during the last
two periods. The
difference reflects
earnings less
expenses, any
investment
gains and losses,
distributions, if
any, paid to
shareholders and
any increase or
decrease in money
shareholders
invested in
the Fund.
Year Year
ended ended
10-31-03 10-31-04
Increase (decrease) in net assets
From operations
Net investment loss ($332,738) ($492,570)
Net realized gain 3,128,084 16,578,291
Change in net unrealized
appreciation (depreciation) 10,775,633 (8,094,661)
Increase in net assets
resulting from operations 13,570,979 7,991,060
From Fund share transactions 71,228,289 (10,403,583)
Net assets
Beginning of period 12,064,357 96,863,625
End of period 1 $96,863,625 $94,451,102
1 Includes accumulated net investment income (loss) of ($20,791) and
$50,264, respectively.
See notes to
financial statements.
18
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a
share has changed since the end of the previous period.
Period ended 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $10.95 $9.45 $6.18 $5.10 $6.21
Net investment loss 1 (0.04) (0.05) (0.04) (0.04) (0.02)
Net realized and unrealized
gain (loss) on investments (1.01) (3.22) (1.04) 1.15 0.59
Total from
investment operations (1.05) (3.27) (1.08) 1.11 0.57
Less distributions
From net realized gain (0.45) -- -- -- --
Net asset value, end of period $9.45 $6.18 $5.10 $6.21 $6.78
Total return 2,3 (%) (10.15) (34.60) (17.48) 21.76 9.18
Ratios and supplemental data
Net assets, end of period
(in millions) $15 $8 $6 $62 $64
Ratio of expenses
to average net assets (%) 1.88 2.23 2.38 2.45 2.04
Ratio of adjusted expenses
to average net assets 4 (%) 3.44 3.83 4.43 3.00 2.07
Ratio of net investment loss
to average net assets (%) (0.43) (0.65) (0.68) (0.63) (0.27)
Portfolio turnover (%) 163 278 228 5 216 5 201
See notes to
financial statements.
19
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $10.55 $9.04 $5.86 $4.81 $5.81
Net investment loss 1 (0.12) (0.10) (0.08) (0.07) (0.06)
Net realized and unrealized
gain (loss) on investments (0.94) (3.08) (0.97) 1.07 0.55
Total from
investment operations (1.06) (3.18) (1.05) 1.00 0.49
Less distributions
From net realized gain (0.45) -- -- -- --
Net asset value, end of period $9.04 $5.86 $4.81 $5.81 $6.30
Total return 2,3 (%) (10.65) (35.18) (17.92) 20.79 8.43
Ratios and supplemental data
Net assets, end of period
(in millions) $12 $6 $5 $30 $26
Ratio of expenses
to average net assets (%) 2.57 2.93 3.08 3.15 2.74
Ratio of adjusted expenses
to average net assets 4 (%) 4.13 4.53 5.13 3.70 2.77
Ratio of net investment loss
to average net assets (%) (1.13) (1.34) (1.38) (1.28) (0.98)
Portfolio turnover (%) 163 278 228 5 216 5 201
See notes to
financial statements.
20
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 10-31-00 10-31-01 10-31-02 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $10.57 $9.05 $5.87 $4.81 $5.81
Net investment loss 1 (0.11) (0.10) (0.08) (0.06) (0.06)
Net realized and unrealized
gain (loss) on investments (0.96) (3.08) (0.98) 1.06 0.55
Total from
investment operations (1.07) (3.18) (1.06) 1.00 0.49
Less distributions
From net realized gain (0.45) -- -- -- --
Net asset value, end of period $9.05 $5.87 $4.81 $5.81 $6.30
Total return 2,3 (%) (10.72) (35.14) (18.06) 20.79 8.43
Ratios and supplemental data
Net assets, end of period
(in millions) $1 $1 $1 $3 $4
Ratio of expenses
to average net assets (%) 2.57 2.93 3.08 3.15 2.73
Ratio of adjusted expenses
to average net assets 4 (%) 4.13 4.53 5.13 3.70 2.76
Ratio of net investment loss
to average net assets (%) (1.07) (1.35) (1.38) (1.11) (0.96)
Portfolio turnover (%) 163 278 228 5 216 5 201
See notes to
financial statements.
21
FINANCIAL HIGHLIGHTS
CLASS I SHARES
Period ended 10-31-02 6 10-31-03 10-31-04
Per share operating performance
Net asset value,
beginning of period $6.18 $5.12 $6.30
Net investment income (loss) 1 (0.01) 0.03 0.04
Net realized and unrealized
gain (loss) on investments (1.05) 1.15 0.60
Total from
investment operations (1.06) 1.18 0.64
Net asset value, end of period $5.12 $6.30 $6.94
Total return 2,3 (%) (17.15) 7 23.05 10.16
Ratios and supplemental data
Net assets, end of period
(in millions) $1 $1 $1
Ratio of expenses
to average net assets (%) 2.04 8 1.60 1.17
Ratio of adjusted expenses
to average net assets 4 (%) 4.09 8 2.15 --
Ratio of net investment income (loss)
to average net assets (%) (0.34) 8 0.58 0.60
Portfolio turnover (%) 228 5 216 5 201
1 Based on the average of the shares outstanding.
2 Assumes dividend reinvestment and does not reflect the effect of
sales charges.
3 Total returns would have been lower had certain expenses not been
reduced during the periods shown.
4 Does not take into consideration expense reductions during the
periods shown.
5 Excludes merger activity.
6 Class I shares began operations on 3-01-02.
7 Not annualized.
8 Annualized.
22
FINANCIAL HIGHLIGHTS
NOTES TO
STATEMENTS
Note A
Accounting policies
John Hancock International Fund (the "Fund") is a diversified series
of John Hancock Investment III Trust, an open-end management
investment company registered under the Investment Company Act of
1940. The investment objective of the Fund is to achieve long-term
growth of capital.
The Trustees have authorized the issuance of multiple classes of
shares of the Fund, designated as Class A, Class B, Class C and Class
I shares. The shares of each class represent an interest in the same
portfolio of investments of the Fund and have equal rights as 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 that bears distribution and
service expenses under the 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, if
quotations are not readily available, or the value has been materially
affected by events occurring after the closing of a foreign market, at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within
60 days may be 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, LLC (the
"Adviser"), a wholly owned subsidiary of John Hancock Financial
Services, 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.
Foreign currency translation
All assets or liabilities initially expressed in terms of foreign currencies
are translated into U.S. dollars based on London
23
currency exchange quotations as of 4:00 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 currency 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 currency exchange gains and losses arise from changes in the
value of assets and liabilities, other than investments in securities,
resulting from changes in the exchange rates.
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, which are
accrued as applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of
shares based on the appropriate net asset value of the respective
classes. Distribu tion and service fees, if any, and transfer agent
fees for Class I shares are calculated daily at the class level based
on the appropriate net asset value of each class and the specific
expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual
fund. Expenses that 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.
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. The
Fund has entered into a syndicated line of credit agreement with
various banks. This agreement enables the Fund to participate, with
other funds managed by the Adviser, in an unsecured line of credit
with banks, which permits borrowings of up to $250 million,
collectively. Interest is charged to each fund based on its borrowing.
In addition, a commitment fee is charged to each fund based on the
average daily unused portion of the line of credit, and is allocated
among the participating funds. The Fund had no borrowing activity
under the line of credit during the year ended October 31, 2004.
Securities-linked warrants
The Fund may buy and sell securities-linked warrants. The Fund purchases the
equity-linked and credit-linked warrants from a broker, who in turn purchases
the underlying securities in the local market and issues a call warrant hedged
on the underlying holding. If the Fund exercises its call and closes its
position, the underlying securities are sold and the warrant redeemed with the
proceeds. Each warrant represents one share of the underlying stock or unit of
fixed income security, therefore the price, performance and liquidity of the
warrant are all directly linked to the underlying investments. The warrants
can be redeemed for 100% of the
24
value of the underlying securities, less transaction costs. Securities-linked
warrants are subject to risks related to the counterparty's ability to perform
under the contract, and to the market risk of the underlying holding. The Fund
may also suffer losses if it is unable to sell outstanding securities-linked
warrants or reduce its exposure through offsetting transactions.
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 asset value. The Fund records realized gains and
losses at the time the forward foreign currency exchange contracts are
closed out. Risks may arise upon entering these contracts from the
potential inability of counterparties to meet the terms of the
contracts 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 transactions. The Fund had no open
forward foreign currency exchange contracts on October 31, 2004.
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 that is
distributed to shareholders. Therefore, no federal income tax
provision is required. For federal income tax purposes, the Fund has
$71,426,399 of a capital loss carryforward available, to the extent
provided by regulations, to offset future net realized capital gains.
To the extent that such carryforward is used by the Fund, no capital
gain distributions will be made. The loss carryforward expires as
follows: October 31, 2005 -- $99,966, October 31, 2006 -- $1,234,369,
October 31, 2007 -- $442,948, October 31, 2008 -- $51,797,156, October
31, 2009 -- $13,925,126 and October 31, 2010 -- $3,926,834.
Availability of a certain amount of the carryforwards which were
acquired on June 7, 2002 in a merger with John Hancock International
Equity Fund, on May 9, 2003 in mergers with John Hancock European
Equity Fund and John Hancock Global Fund and in a merger with John
Hancock Pacific Basin Equity Fund on September 26, 2003, may be
limited in a given year.
Dividends, interest
and distributions
Dividend income on investment securities is recorded on the
ex-dividend date or, in the case of some foreign securities, on the
date thereafter when the Fund 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 distributions to shareholders from net investment
income and net realized gains, if any, on the ex-dividend date.
Distributions paid by the Fund with respect to each class of shares
are calculated in the same manner, at the same time and are in the
same amount, except for the effect of expenses that may
25
be applied differently to each class.
As of October 31, 2004, the components of distributable earnings on a
tax basis included $1,689,144 of undistributed long-term capital gain.
Such distributions, on a tax basis, are determined in conformity with
income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Distributions in
excess of tax basis earnings and profits, if any, are reported in the
Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, 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.
Note B
Management fee and
transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.90% of the first $100,000,000 of the Fund's average daily net asset
value, (b) 0.80% of the next $200,000,000, (c) 0.75% of the next
$200,000,000 and (d) 0.625% of the Fund's average daily net asset
value in excess of $500,000,000. The Adviser has a subadvisory
agreement with Nicholas-Applegate Capital Management, LLC. The Fund is
not responsible for payment of the subadvisory fees.
The Adviser has agreed to limit the Fund's total expenses excluding
the distribution and service fees and transfer agent fees, to 1.27% of
the Fund's average daily net asset value, at least until February 28,
2005. There were no expense reductions related to this total expense
limitation for the year ended October 31, 2004. The Adviser reserves
the right to terminate this limitation in the future.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has
adopted Distribution Plans with respect to Class A, Class B and Class
C, pursuant to Rule 12b-1 under the Investment Company Act of 1940, to
reimburse JH Funds for the services it provides as distributor of
shares of the Fund. Accordingly, the Fund makes monthly payments to JH
Funds at an annual rate not to exceed 0.30% of Class A average daily
net asset value and 1.00% of Class B and Class C average daily net
asset value. A maximum of 0.25% of such payments may be service fees,
as defined by the Conduct Rules of the National Association of
Securities Dealers. Under the Conduct Rules, curtailment of a portion
of the Fund's 12b-1 payments could occur under certain circumstances.
Class A shares are assessed up-front sales charges. During the year ended
October 31, 2004, JH Funds received net up-front sales charges of $56,958 with
regard to sales of Class A shares. Of this amount, $7,452 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $34,221 paid as sales commissions to unrelated broker-dealers and
$15,285 paid as sales commissions to sales personnel of Signator Investors,
Inc. ("Signator Investors"), a related broker-dealer. The Adviser's indirect
parent, John Hancock Life Insurance Company ("JHLICO"), is the indirect sole
shareholder of Signator Investors. Prior to July 15, 2004, Class C shares were
assessed up-front sales charges. During the year ended October 31, 2004, JH
Funds received net up-front sales charges of $4,616 with regard to sales of
Class C shares. Of this amount, $4,569 was paid as sales
26
commissions to unrelated broker-dealers and $47 was paid as sales commissions
to sales personnel of Signator Investors.
Class B shares that are redeemed within six years of purchase are 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. Class C shares that
are redeemed within one year of purchase are subject to a CDSC at a rate of
1.00% of the lesser of the current market value at the time of redemption or
the original purchase cost of the shares being redeemed. Proceeds from the
CDSCs 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 and Class C shares. During the year ended October 31,
2004, CDSCs received by JH Funds amounted to $51,459 for Class B shares and
$980 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHLICo. For Class A, Class B and Class C shares, the Fund pays a
monthly transfer agent fee at an annual rate of 0.05% of each class's
average daily net asset value, plus a fee based on the number of
shareholder accounts and reimbursement for certain out-of-pocket
expenses, aggregated and allocated to each class on the basis of its
relative net asset value. For Class I shares, the Fund pays a monthly
transfer agent fee at an annual rate of 0.05% of the average daily net
asset value. Signature Services agreed to limit Class A, Class B and
Class C shares' transfer agent fees to 0.78% of each class's average
daily net asset value, at least until February 28, 2005. Signature
Services agreed to voluntarily reduce the Fund's asset-based portion
of the transfer agent fee if the total transfer agent fee exceeds the
Lipper, Inc. median transfer agency fee for comparable mutual funds by
0.05%. Accordingly, the transfer agent expense for Class A, Class B
and Class C shares was reduced by $32,667 for the year ended October
31, 2004. Signature Services reserves the right to terminate this
limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year amounted to $26,861. The Fund also paid the Adviser the amount of
$865 for certain publishing services, included in the printing fees.
Mr. James A. Shepherdson is a director and/or officer of the Adviser
and/or its affiliates, as well as Trustee of the Fund. The
compensation of unaffiliated Trustees is borne by the Fund. The
unaffiliated Trustees may elect to defer, for tax purposes, their
receipt of this compensation under the John Hancock Group of Funds
Deferred Compensation Plan. The Fund makes investments into other
John Hancock funds, as applicable, to cover its liability for the
deferred compensation. Investments to cover the Fund's deferred
compensation liability are recorded on the Fund's books as another
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 investments, as well as any
unrealized gains or losses. The Deferred Compensation Plan
investments had no impact on the operations of the Fund.
27
Note C
Fund share transactions
This listing illustrates the number of Fund shares sold, issued in
reorganizations and repurchased during the last two periods, along
with the corresponding dollar value.
Year ended 10-31-03 Period ended 10-31-04
Shares Amount Shares Amount
Class A shares
Sold 1,647,644 $9,092,862 1,973,699 $13,194,450
Issued in reorganization 9,576,643 51,258,116 -- --
Repurchased (2,256,593) (12,418,091) (2,637,147) (17,370,134)
Net increase (decrease) 8,967,694 $47,932,887 (663,448) ($4,175,684)
Class B shares
Sold 452,210 $2,359,494 1,369,403 $8,533,931
Issued in reorganization 4,660,904 23,715,852 -- --
Repurchased (894,451) (4,591,171) (2,491,843) (15,289,617)
Net increase (decrease) 4,218,663 $21,484,175 (1,122,440) ($6,755,686)
Class C shares
Sold 193,720 $972,776 317,706 $1,985,539
Issued in reorganization 313,872 1,607,553 -- --
Repurchased (129,277) (641,150) (254,252) (1,557,702)
Net increase (decrease) 378,315 $1,939,179 63,454 $427,837
Class I shares
Sold 177,491 $978,406 42,406 $290,627
Repurchased (201,766) (1,106,358) (28,340) (190,677)
Net increase (decrease) (24,275) ($127,952) 14,066 $99,950
Net increase (decrease) 13,540,397 $71,228,289 (1,708,368 ($10,403,583)
Note D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the year ended October 31, 2004, aggregated $196,385,344 and
$210,816,258, respectively.
The cost of investments owned on October 31, 2004, including short-term
investments, for federal income tax purposes, was $83,419,305. Gross
unrealized appreciation and depreciation of investments aggregated $10,175,655
and $1,346,511, respectively, resulting in net unrealized appreciation of
$8,829,144. The difference between book basis and tax basis net unrealized
appreciation of investments is attributable primarily to the tax deferral of
losses on certain sales of securities.
28
Note E
Transactions in securities of affiliated issuers
Affiliated issuers, as defined by the Investment Company Act of 1940,
are those in which the Fund's holdings of an issuer represent 5% or
more of the outstanding voting securities of the issuer. A summary of
the Fund's transactions in the securities of these issuers during the
year ended October 31, 2004 is set forth below.
Beginning Ending
share share Realized Dividend Ending
Affiliate amount amount gain income value
Asustek Computer, Inc. GDR 144A
bought: 426,600 shares
sold: none -- 469,260* -- $11,326 $1,039,505
Totals $11,326 $1,039,505
* Reflects 10% stock dividend, record date August 9, 2004.
Note F
Reclassification of accounts
During the year ended October 31, 2004, the Fund reclassified amounts
to reflect a decrease in accumulated net realized loss on investments
of $832,193, an increase in accumulated net investment income of
$563,625 and a decrease in capital paid-in of $1,395,818. This
represents the amounts necessary to report these balances on a tax
basis, excluding certain temporary differences, as of October 31,
2004. 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 certain
differences in the computation of distributable income and capital
gains under federal tax rules versus accounting principles generally
accepted in the United States of America, book and tax differences in
accounting for deferred compensation, for net operating loss and
certain foreign currency adjustments. The calculation of net
investment income (loss) per share in the Fund's Fi nan cial
Highlights excludes these adjustments.
Note G
Reorganizations
On May 7, 2003, the shareholders of John Hancock Global Fund ("Global
Fund") approved an Agreement and Plan of Reorganization, which
provided for the transfer of substantially all of the assets and
liabilities of the Global Fund in exchange for Class A, Class B and
Class C shares of the Fund. The acquisition was accounted for as a
tax-free exchange of 6,558,929 Class A shares, 1,864,356 Class B
shares and 130,784 of Class C shares of the Fund for the net assets of
the Global Fund, which amounted to $34,316,962, $9,149,332 and
$642,073 for Class A, Class B and Class C shares of the Global Fund,
respectively, including the total of $1,730,018 of unrealized
appreciation, after the close of business on May 9, 2003.
On May 7, 2003, the shareholders of John Hancock European Equity Fund
("European Equity Fund") approved an Agreement and Plan of Reorganization,
which provided for the transfer of substantially all of the assets and
liabilities of the European Equity Fund in exchange for Class A, Class B and
Class C shares of the Fund. The acquisition was accounted for as a tax- free
exchange of 889,585 Class A shares, 1,099,066 Class B shares and 48,954 Class
C shares of the Fund for the net assets of the European Equity Fund, which
amounted to $4,654,400, $5,393,668 and $240,336 for Class A, Class B and Class
C shares of the European Equity Fund, respectively, including
29
the total of $1,183,872 of unrealized appreciation, after the close of
business on May 9, 2003.
On September 24, 2003, the shareholders of John Hancock Pacific Basin
Equities Fund ("Pacific Basin Equities Fund") approved an Agreement
and Plan of Reorganization, which provided for the transfer of
substantially all of the assets and liabilities of the Pacific Basin
Equities Fund in exchange for Class A, Class B and Class C shares of
the Fund. The acquisition was accounted for as a tax-free exchange of
2,128,129 Class A shares, 1,697,482 Class B shares and 134,134 Class C
shares of the Fund for the net assets of the Pacific Basin Equities
Fund, which amounted to $12,286,754, $9,172,852 and $725,144 for Class
A, Class B and Class C shares of the Pacific Basin Equities Fund,
respectively, including the total of $3,956,781 of unrealized
appreciation, after the close of business on September 26, 2003.
Note H
Subsequent event
A special meeting of shareholders was held on December 1, 2004, at
which time one or more new Trustees were elected to the Fund's Board
of Trustees. Several Trustees had reached the age for mandatory
retirement and plan to retire in 2004 and 2005. The Board of Trustees
recommended and shareholders approved a proposal to consolidate the
two panels into one Board of Trustees for all open-end funds within
the John Hancock funds complex. The effective date for the newly
elected Trustees to the Fund will be January 1, 2005.
30
AUDITORS'
REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of
John Hancock International 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 International Fund (the "Fund") at October 31, 2004, the
results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
accounting principles generally accepted in the United States of
America. 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the
audits 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 at October
31, 2004, by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 2004
31
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is
furnished with respect to the distributions of the Fund, if any, paid
during its taxable year ended October 31, 2004.
The Fund hereby designates the maximum amount allowable of its net
taxable income as qualified dividend income as provided in the Jobs
and Growth Tax Relief Reconciliation Act of 2003. This amount will be
reflected on Form 1099-DIV for the calendar year 2004.
Shareholders will be mailed a 2004 U.S. Treasury Department Form
1099-DIV in January 2005. This will reflect the total of all
distributions that are taxable for calendar year 2004.
32
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees
manage the day-to-day operations of the Fund and execute policies
formulated by the Trustees.
Independent Trustees
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
Charles L. Ladner, 2 Born: 1938 2004 49
Independent Chairman (since 2004); Chairman and Trustee, Dunwoody
Village, Inc. (retirement services) (until 2003); Senior Vice President and
Chief Financial Officer, UGI Corporation (public utility holding company)
(retired 1998); Vice President and Director for AmeriGas, Inc. (retired
1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution);
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History
Association (since 2001).
Dennis S. Aronowitz, Born: 1931 1996 21
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp (since 1998).
Richard P. Chapman, Jr., Born: 1935 1996 21
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William J. Cosgrove, Born: 1933 1996 21
Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A.
(retired 1991); Executive Vice President, Citadel Group Representatives,
Inc. (financial reinsurance) (until 2004); Director, Hudson City Savings Bank
(since 1995); Director, Hudson City Bancorp (since 1999); Trustee, Scholarship
Fund for Inner City Children (since 1986).
Richard A. Farrell, Born: 1932 1994 21
President, Farrell, Healer & Co., Inc. (venture capital management firm)
(since 1980) and President, the Venture Capital Fund of NE (since 1980);
prior to 1980, headed the venture capital group at Bank of Boston Corporation;
Trustee, Marblehead Savings Bank (since 1994).
33
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
William F. Glavin, 2 Born: 1932 1994 21
President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox
Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd.
(until 2002).
John A. Moore, 2 Born: 1939 1994 31
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Chief Scientist, Sciences
International (health research) (until 2003); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Patti McGill Peterson,2 Born: 1943 1994 31
Executive Director, Council for International Exchange of Scholars and
Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1998); Former President of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003).
John W. Pratt, Born: 1931 1994 21
Professor of Business Administration Emeritus, Harvard University
Graduate School of Business Administration (as of 1998).
Non-Independent Trustees 3
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
James A. Shepherdson, Born: 1952 2004 49
President and Chief Executive Officer
Executive Vice President, Manulife Financial Corporation (since 2004);
Chairman, Director, President and Chief Executive Officer, John Hancock
Advisers, LLC and The Berkeley Financial Group, LLC (holding company);
Chairman, Director, President and Chief Executive Officer, John Hancock
Funds, LLC; Chairman, President, Director and Chief Executive Officer,
Sovereign Asset Management Corporation ("SAMCorp"); Director, Chairman
and President, NM Capital Management, Inc.; President, John Hancock
Retirement Services, John Hancock Life Insurance Company (until 2004);
Chairman, Essex Corporation (until 2004); Co-Chief Executive Officer,
MetLife Investors Group (until 2003); Senior Vice President, AXA/Equitable
Insurance Company (until 2000).
34
Principal officers who are not Trustees
Name, age
Position(s) held with Fund Officer
Principal occupation(s) and of Fund
directorships during past 5 years since
William H. King, Born: 1952 1994
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each
of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1994
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each
of the John Hancock funds, John Hancock Funds and The Berkeley Financial Group, LLC;
Vice President, Signature Services (until 2000); Director, Senior Vice President and Secretary,
NM Capital Management, Inc.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes
additional information about members of the Board of Trustees of the
Fund and is available, without charge, upon request, by calling
1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his
or her successor is elected.
2 Member of Audit Committee.
3 Non-independent Trustees hold positions with the Fund's investment
adviser, underwriter and certain other affiliates.
35
OUR FAMILY
OF FUNDS
- ---------------------------------------------------------
Equity Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Growth Trends Fund
International Fund
Large Cap Equity Fund
Large Cap Growth Fund
Large Cap Select Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Fund
Small Cap Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
- ---------------------------------------------------------
Sector Biotechnology Fund
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
- ---------------------------------------------------------
Income Bond Fund
Government Income Fund
High Income Fund
High Yield Fund
Investment Grade Bond Fund
Strategic Income Fund
- ---------------------------------------------------------
Tax-Free Income California Tax-Free Income Fund
High Yield Municipal Bond Fund
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Tax-Free Bond Fund
- ---------------------------------------------------------
Money Market Money Market Fund
U.S. Government Cash Reserve
A fund's investment objectives, risks, charges and expenses are
included in the prospectus and should be considered carefully before
investing. For a prospectus, call your financial professional, call
John Hancock Funds at 1-800-225-5291 or visit our Web site at
www.jhfunds.com. Please read the prospectus carefully before investing
or sending money.
36
For more information
The Fund's proxy voting policies, procedures and records are available without
charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Sub-Investment adviser
Nicholas-Applegate Capital
Management, LLC
600 West Broadway
San Diego, CA 92101
Principal distributor
John Hancock Funds, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
How to contact us
Internet www.jhfunds.com
Mail Regular mail: Express mail:
John Hancock John Hancock
Signature Services, Inc. Signature Services, Inc.
1 John Hancock Way, Suite 1000 Mutual Fund Image Operations
Boston, MA 02217-1000 529 Main Street
Charlestown, MA 02129
Phone Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
A listing of month-end portfolio holdings is available on our Web
site, www.jhfunds.com. A more detailed portfolio holdings summary is
available on a quarterly basis 60 days after the fiscal quarter on
our Web site or upon request by calling 1-800-225-5291, or on the
Securities and Exchange Commission's Web site, www.sec.gov.
37
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
This report is for the information of
the shareholders of the John Hancock
International Fund.
4000A 10/04
12/04
ITEM 2. CODE OF ETHICS.
As of the end of the period, October 31, 2004, the registrant has adopted a
code of ethics, as defined in Item 2 of Form N-CSR, that applies to its
Chief Executive Officer, Chief Financial Officer and Treasurer
(respectively, the principal executive officer, the principal financial
officer and the principal accounting officer, the "Senior Financial
Officers"). A copy of the code of ethics is filed as an exhibit to this
Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
William F. Glavin is the audit committee financial expert and is
"independent", pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the
principal accountant(s) for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant(s) in
connection with statutory and regulatory filings or engagements amounted to
$92,300 for the fiscal year ended October 31, 2003 (broken out as follows:
John Hancock International Fund - $34,400, John Hancock Large Cap Growth
Fund - $32,500 and John Hancock Mid Cap Growth Fund - $25,400) and $96,900
for the fiscal year ended October 31, 2004 (broken out as follows: John
Hancock International Fund - $36,100, John Hancock Large Cap Growth Fund -
$34,100 and John Hancock Mid Cap Growth Fund - $26,700). These fees were
billed to the registrant and were approved by the registrant's audit
committee.
(b) Audit-Related Services
There were no audit-related fees during the fiscal year ended October 31,
2003 and fiscal year ended October 31, 2004 billed to the registrant or to
the registrant's investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the adviser that provides
ongoing services to the registrant ("control affiliates").
(c) Tax Fees
The aggregate fees billed for professional services rendered by the
principal accountant(s) for the tax compliance, tax advice and tax planning
("tax fees") amounted to $9,800 for the fiscal year ended October 31, 2003
(broken out as follows: John Hancock International Fund - $3,500, John
Hancock Large Cap Growth Fund - $3,500 and John Hancock Mid Cap Growth Fund
- - $2,800) and $10,300 for the fiscal year ended October 31, 2004 (broken
out as follows: John Hancock International Fund - $3,700, John Hancock
Large Cap Growth Fund - $3,700 and John Hancock Mid Cap Growth Fund -
$2,900). The nature of the services comprising the tax fees was the review
of the registrant's income tax returns and tax distribution requirements.
These fees were billed to the registrant and were approved by the
registrant's audit committee. There were no tax fees billed to the control
affiliates.
(d) All Other Fees
There were no other fees during the fiscal year ended October 31, 2003 and
fiscal year ended October 31, 2004 billed to the registrant or to the
control affiliates.
(e)(1) See attachment "Approval of Audit, Audit-related, Tax and Other
Services", with the audit committee pre-approval policies and procedures.
(e)(2) There were no fees that were approved by the audit committee
pursuant to the de minimis exception for the fiscal years ended October 31,
2003 and October 31, 2004 on behalf of the registrant or on behalf of the
control affiliates that relate directly to the operations and financial
reporting of the registrant.
(f) According to the registrant's principal accountant, for the fiscal year
ended October 31, 2004, the percentage of hours spent on the audit of the
registrant's financial statements for the most recent fiscal year that were
attributed to work performed by persons who were not full-time, permanent
employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant(s)
for services rendered to the registrant and rendered to the registrant's
control affiliates for each of the last two fiscal years of the registrant
were $9,800 for the fiscal year ended October 31, 2003 and $66,762 for the
fiscal year ended October 31, 2004.
(h) The audit committee of the registrant has considered the non-audit
services provided by the registrant's principal accountant(s) to the
control affiliates and has determined that the services that were not
pre-approved are compatible with maintaining the principal accountant(s)'
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to previously disclosed John Hancock Funds -
Administration Committee Charter.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure
controls and procedures as conducted within 90 days of the filing date of
this Form N-CSR, the registrant's principal executive officer and principal
accounting officer have concluded that those disclosure controls and
procedures provide reasonable assurance that the material information
required to be disclosed by the registrant on this report is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal half-year (the registrant's second fiscal half-year in the case of
an annual report) that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics for Senior Financial Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive
officer and principal accounting officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company
Act of 1940, are attached.
(b)(1) Separate certifications for the registrant's principal executive
officer and principal accounting officer, as required by 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
and Rule 30a-2(b) under the Investment Company Act of 1940, are attached.
The certifications furnished pursuant to this paragraph are not deemed to
be "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of that section. Such
certifications are not deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Registrant specifically incorporates
them by reference.
(c)(1) Approval of Audit, Audit-related, Tax and Other Services is
attached.
(c)(2) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Investment Trust III
By:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: December 21, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: December 21, 2004
By:
-----------------------
William H. King
Vice President and Treasurer
Date: December 21, 2004