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John Hancock Funds
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Growth
and Income
Fund
SEMIANNUAL REPORT
June 30, 1997
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TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the year. Stocks
began 1997 on the high wires, bolstered by a near-perfect "Goldilocks"
economy--not too hot, not too cold. In almost a straight shot, the Dow Jones
Industrial Average soared through the 7000 level for the first time in early
March. Just days later, stocks lost their footing and staged a month-long
free-fall in a nervous reaction to rising interest rates and economic data that
showed the economy was picking up steam. Stocks gave back all of their year's
gain and suffered their worst decline since 1990 during this period. No sooner
had real fears begun to beset investors then they were gone, erased in a
euphoric rally caused by strong earnings and no signs of inflation. By the end
of June, the Dow and the broader Standard & Poor's 500 Stock Index had risen by
20%--a level not many thought the market would reach all year, let alone in six
months. Bondholders have not enjoyed the same bounty, as the bond market has
mostly stayed worried about the strength of the economy, the direction of
interest rates, and the Federal Reserve's next moves to pre-empt inflation.
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A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
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But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more expensive
than it has been in decades. It's impossible to know what will happen next in
the markets. But whether it's another strong move forward or a retreat, we
recommend keeping a long-term perspective, rather than over-focusing on the
market's daily twists and turns. While the economic backdrop seems to remain
near perfect, the one thing we believe investors should be prepared for is more
market volatility. It also makes sense to do something we've always advocated:
set realistic expectations, since, as we've also seen this year, markets can
move down as fast as they go up.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After such a
strong advance in equities over the last two and a half years, it could be time
to rebalance your portfolio, if you haven't already, to maintain your desired
targets of diversification. As part of that process, make sure that your
investment strategies still reflect your individual time horizons, objectives
and risk tolerance. Despite turbulence, one thing remains constant. A
well-constructed plan and a cool head can be the best tools for reaching your
financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY TIMOTHY KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
Growth and Income Fund
Stock market keeps advancing in near-perfect environment
The stock market soared to record highs during the last six months, propelled by
the same near-ideal economic conditions that sustained the market's last two
record years. Overall, the background remained one of moderate growth with low
inflation. In that environment, corporate earnings continued to grow and stock
prices advanced. For the first four months, the market's progress was mainly
limited to the largest blue-chip companies, but after inflation fears and the
pace of the economy subsided in May, the market's advance became broader. For
the six months ended June 30, 1997, the Standard & Poor's 500 Stock Index gained
20.60%, including reinvested dividends, a highly unusual result for such a short
period.
Over the last six months, particularly in the second half when market
volatility increased, John Hancock Growth and Income Fund prospered as we
successfully applied our disciplined value-oriented strategy. We used short-term
market fears to find good companies whose stock prices were, in our opinion,
undervalued relative to what we believe was the company's true worth. During the
period, the Fund's Class A and Class B shares posted total returns of 22.79% and
22.41%, respectively, at net asset value. Those returns were well above the
15.52% return posted by the average growth and income fund, according to Lipper
Analytical Services, Inc.1 Longer-term performance information can be found on
pages six and seven.
"The stock
market soared
to record
highs during
the last six
months..."
We continued to enjoy strong performance from our large pharmaceutical
companies Warner
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A 2 1/4" by 3 3/4" photo of Fund management team at bottom right. Caption reads:
Tim Keefe (standing) and Growth and Income Fund management team members Anurag
Pandit (l) and Ben Hock (r)."
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3
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John Hancock Funds - Growth and Income Fund
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Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Progressive 3.8%; 2) Computer Associates 3.1%;
3) TCF Financial 3.0%; 4) Phillip Morris 2.8%; 5) Eli Lilly 2.6%. A footnote
below states "As a percentage of net assets on June 30, 1997."
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"...our
opportunistic
moves within
the finance
and technology
sectors
boosted
performance."
Lambert, Schering Plough and Eli Lilly, whose fundamentals keep improving on
ever-increasing new product flow. What's more, our opportunistic moves within
the finance and technology sectors also boosted performance.
Sell first, buy later
Early in the period, as the market kept moving from high to historic high and
stock valuations approached what we believed to be very lofty peaks, we took
profits on some stocks and sectors that had performed well. Included were United
Technologies, General Electric and Eastman Kodak, as well as several defense
electronics companies. In each case, we believed that stock prices had reached
the higher end of their valuation ranges, while earnings power was peaking.
As value-oriented investors, we found it tough to find good buys in the
first quarter, since there wasn't much fear in the market pushing prices down to
attractive levels. One of the few exceptions were railroad companies, several of
which we bought when their stocks were selling at 60% of the stock market's
average price/earnings multiple--the lower end of their historic range. We added
Burlington Northern, CSX and Union Pacific and they all did well in the period.
We like the railroads long term for their combination of cost cutting,
consolidating and share repurchases, all important characteristics that we look
for in prospective holdings.
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Table entitled "Scorecard" at bottom left hand column. The header for the left
column is "Investment" the header for the right column is "Recent
performance...and what's behind the numbers." The first listing is "Progressive
Corp." followed by an up arrow and the phrase "Expanding auto insurance
business". The second listing is "First Plus Financial" followed by an up arrow
and the phrase "Fast-growing home equity lender" The third listing is
"Millipore" followed by a down arrow and the phrase "Slowdown in semiconductor
capital equipment spending". Footnote below reads: "See "Schedule of
Investments." Investment holdings are subject to change."
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Finance and technology
With the sell-off in stocks that accompanied rising interest rates early in the
second quarter, we identified lots more buying opportunities, particularly among
financial and technology stocks--two of our strongest contributors to
performance.
Within finance, the sector continued to benefit from industry consolidation
and strong earnings growth, yet the stocks were hit indiscriminately when rates
rose, because investors feared that higher rates would hurt finance company
profits. We re-allocated funds within our financial holdings, moving away from
the more interest-rate sensitive areas, such as the money center banks, into
ones that were not as sensitive to changes in rates as the market believed them
to be. We bought American Express and regional bank TCF Financial, whose strong
fundamentals we felt would overwhelm an uptick in rates. We also added to our
position in Progressive Corp. Progressive is an auto insurance company that was
selling at a low price-to-earnings multiple (a measure of how much you're paying
for earnings power) despite its tremendous growth, simply because it fell in the
finance category.
We found some of our best buying opportunities within the consumer finance
subsector this period, when negative sentiment abounded. The sector was hurt by
the perception of rising payment delinquencies and increasing personal
bankruptcies. On
4
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John Hancock Funds - Growth and Income Fund
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Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote "For the six months ended June 30, 1997." The chart is
scaled in increments of 5% from top to bottom with 25% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
22.79% total return for John Hancock Growth and Income Fund: Class A. The second
represents the 22.41% total return for John Hancock Growth and Income Fund:
Class B. The third represents the 15.52% total return for the average growth and
income fund. Footnote below reads: "The total returns for John Hancock
Independence Equity Fund are at net asset value with all distributions
reinvested. The average growth and income fund is tracked by Lipper Analytical
Services. (1) See following two pages for historical performance information".
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top of that, several consumer finance companies were tainted either by
accusations of accounting irregularities, Chapter 11 filings or earnings
shortfalls. We took advantage of investors' fears to invest in several
well-managed companies that we believe stand to benefit from the sector's
turmoil. We added FIRSTPLUS Financial Group, one of the leading home equity
lenders growing at 20% to 30% per year, for a low five times earnings. We also
added CapMAC Holdings, leading insurer of asset-backed securities. We purchased
our position for a 20% discount to the company's adjusted book value, when
companies within this industry normally trade at 1.3 times adjusted book value.
Both stocks have risen by about 50% since we bought them, and we still think
they represent a good value.
Technology stocks were also hard hit during the
period, particularly software companies, which we like because they generate
very high levels of free cash flow, an important measure of a company's
strength. So we seized the moment to buy some of the market leaders at very
compelling prices. Within computer services companies, we bought a dominant
market leader, Computer Sciences, when its stock came under pressure because of
what we believed were temporary problems at its main competitor EDS. We also
bought Oracle, the leading provider of database systems, with a 30% annual
growth rate in a rapidly expanding market, for a price just slightly higher than
the overall market average. Finally, we picked up networking giants Cisco
Systems and Cascade Communications (soon to merge with Ascend) for below-market
multiples. We only wish we had bought more at those inexpensive levels.
"...market
fluctuations
present the
best opportu-
nities to find
great compa-
nies at
attractive
prices..."
As always, there were some disappointments during the period. Millipore, a
provider of filters to the semiconductor industry, suffered with a slowdown in
semiconductor capital equipment spending, while Boeing languished as it tried to
work out its merger with McDonnell Douglas.
Outlook
In our view, we're in for more market volatility as long as investors remain
edgy about current stock valuation levels. We'll use that to our advantage,
since we believe this same volatility presents the best opportunities to find
great companies at attractive prices that do not reflect their true worth. Our
goal continues to be to provide investors with above-average returns at
below-market risk from a large-company stock portfolio that is generally
representative of the broad stock market.
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This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
1Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Growth and Income Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. Performance figures include the maximum applicable sales charge
of 5% for Class A shares. The effect of the maximum contingent deferred sales
charge for Class B shares (maximum 5% and declining to 0% over six years) is
included in Class B performance. Remember that all figures represent past
performance and are no guarantee of how the Fund will perform in the future.
Also, keep in mind that the total return and share price of the Fund's
investments will fluctuate. As a result, your Fund's shares may be worth more or
less than their original cost, depending on when you sell them.
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CUMULATIVE TOTAL RETURNS
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For the period ended June 30, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Growth and Income
Fund: Class A 29.48% 110.55% 228.72%
John Hancock Growth and Income
Fund: Class B 30.26% 111.25% 130.66%(1)
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AVERAGE ANNUAL TOTAL RETURNS
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For the period ended June 30, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Growth and Income
Fund: Class A 29.48% 16.06% 12.64%
John Hancock Growth and Income
Fund: Class B 30.26% 16.13% 15.34%(1)
Notes to Performance
(1) Class B shares commenced on August 22, 1991.
6
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in John Hancock
Growth and Income Fund would be worth on June 30, 1997 assuming either you had
invested on the day each class of shares started, or have been invested for the
most recent ten years and have reinvested all distributions. For comparison,
we've shown the same $10,000 investment in the Standard & Poor's 500 Stock Index
- --an unmanaged index that includes 500 widely traded common stocks and is often
used as a measure of stock market performance.
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Line chart with the heading Growth and Income Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the value of the Standard &
Poor's 500 Stock Index and is equal to $49,922 as of June 30, 1997. The second
line represents the value of the hypothetical $10,000 investment made in the
Growth and Income Fund on June 30, 1987 before sales charge, and is equal to
$40,503 as of June 30, 1997. The third line represents the Growth and Income
Fund, after sales charge, and is equal to $38,478 as of June 30, 1997.
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Line chart with the heading Growth and Income Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the value of the Standard &
Poor's 500 Stock Index, and is equal to $26,688 as of June 30, 1997. The second
line represents the value of the hypothetical $10,000 investment made in the
Growth and Income Fund, before sales charge, on August 22, 1991, after sales
charge, and is equal to $23,166 as of June 30, 1997. The third line, represents
the value of the Growth and Income Fund, and is equal to $23,066 as of June 30,
1997.
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7
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FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
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Assets:
Investments at value - Note C:
Common stocks (cost - $295,996,180) ........................ $ 415,571,131
Preferred stock (cost - $2,919,705) ........................ 3,512,500
Joint repurchase agreement (cost - $9,404,000) ............. 9,404,000
Corporate savings account .................................. 71
-------------
............................................................... 428,487,702
Receivable for investments sold .............................. 2,188,344
Receivable for shares sold ................................... 825,513
Dividends receivable ......................................... 523,184
Interest receivable .......................................... 2,116
Other assets ................................................. 40,328
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Total Assets ..................... 432,067,187
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Liabilities:
Payable for investments purchased ............................ 4,411,519
Payable for shares repurchased ............................... 135,335
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 310,006
Accounts payable and accrued expenses ........................ 10,056
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Total Liabilities ................ 4,866,916
-------------------------------------------------
Net Assets:
Capital paid-in .............................................. 267,135,039
Accumulated net realized gain on investments and
foreign currency transactions .............................. 39,898,334
Net unrealized appreciation of investments and
foreign currency transactions .............................. 120,170,596
Distributions in excess of net investment income ............. ( 3,698)
-------------
Net Assets ....................... $ 427,200,271
=================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $215,721,047/11,293,531 ............................ $ 19.10
=============================================================================
Class B - $211,479,224/11,037,162 ............................ $ 19.16
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Maximum Offering Price Per Share*
Class A - ($19.10 x 105.26%) ................................. $ 20.11
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*On a signle retail sales of less than $50,000. On sales of $50,000 or more and
on group sales, the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated. Statement of Operations
Six months ended June 30, 1997 (Unaudited)
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Investment Income:
Dividends .................................................... $ 2,589,563
Interest ..................................................... 910,078
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............................................................... 3,499,641
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Expenses:
Investment management fee - Note B .......................... 1,103,701
Distribution and service fee - Note B
Class A .................................................... 228,609
Class B .................................................... 838,816
Transfer agent fee - Note B .................................. 281,899
Registration and filing fees ................................. 34,483
Custodian fee ................................................ 33,405
Financial services fee - Note B .............................. 33,111
Auditing fee ................................................. 18,265
Trustees' fees ............................................... 13,192
Miscellaneous ................................................ 3,435
Legal fees ................................................... 2,919
Printing ..................................................... 2,552
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Total Expenses ................... 2,594,387
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Net Investment Income ............ 905,254
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Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ........................ 33,266,161
Net realized loss on foreign currency transactions ........... ( 2,131)
Change in net unrealized appreciation/depreciation
of investments ............................................. 39,427,639
Change in net unrealized appreciation/depreciation
of foreign currency transactions ........................... 494
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Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions .... $ 72,692,163
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Net Increase in Net Assets
Resulting from Operations ........ $ 73,597,417
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SEE NOTES TO FINANCIAL STATEMENTS.
8
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FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED SEPTEMBER 1, 1996 SIX MONTHS ENDED
AUGUST 31, TO DECEMBER 31, JUNE 30, 1997
1996 1996(1) (UNAUDITED)
--------------- --------------- -------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .................................................... $ 2,407,620 $ 483,351 $ 905,254
Net realized gain on investments sold and foreign currency transactions .. 25,207,559 11,589,657 33,264,030
Change in net unrealized appreciation/depreciation of investments and
foreign currency transactions .......................................... 7,739,354 26,075,239 39,428,133
------------- ------------ ------------
Net Increase in Net Assets Resulting from Operations ................. 35,354,533 38,148,247 73,597,417
------------- ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.1939, $0.0752 and $0.0738 per share, respectively) ....... ( 1,792,414) ( 697,553) ( 804,989)
Class B - ($0.0916, $0.0151 and $0.0096 per share, respectively) ....... ( 780,162) ( 126,946) ( 101,491)
Distributions from net realized gain on investments sold
Class A - ($0.1450, $1.5747 and none per share, respectively) .......... ( 1,309,129) ( 14,744,885) --
Class B - ($0.1450, $1.5747 and none per share, respectively) .......... ( 1,230,621) ( 13,438,564) --
------------- ------------ ------------
Total Distributions to Shareholders .................................. ( 5,112,326) ( 29,007,948) ( 906,480)
------------- ------------ ------------
From Fund Share Transactions - Net*: ....................................... ( 9,818,420) 35,083,465 44,956,315
------------- ------------ ------------
Net Assets:
Beginning of period ...................................................... 244,905,468 265,329,255 309,553,019
------------- ------------ ------------
End of period (including undistributed net investment income
of $338,676, distributions in excess of net investment income
of $2,472 and $3,698, respectively) .................................... $ 265,329,255 $309,553,019 $427,200,271
============= ============ ============
<CAPTION>
*Analysis of Fund Share Transactions: YEAR ENDED PERIOD FROM SIX MONTHS ENDED
AUGUST 31, SEPTEMBER 1, 1996 JUNE 30, 1997
1996 TO DECEMBER 31, 1996(1) (UNAUDITED)
------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold .................................. 1,760,701 $25,784,827 2,100,056 $34,769,586 5,984,377 $102,573,846
Shares issued to shareholders
in reinvestment of distributions ........... 184,594 2,627,197 864,570 13,618,418 38,672 689,924
--------- ----------- --------- ----------- --------- ------------
1,945,295 28,412,024 2,964,626 48,388,004 6,023,049 103,263,770
Less shares repurchased ...................... (2,414,054) ( 34,877,792) (1,774,320) ( 29,444,447) (5,177,237) ( 88,211,952)
--------- ----------- --------- ----------- --------- ------------
Net increase (decrease) ...................... ( 468,759) ($ 6,465,768) 1,190,306 $18,943,557 845,812 $ 15,051,818
========= =========== ========= =========== ========= ============
CLASS B
Shares sold .................................. 2,595,953 $37,809,526 901,707 $14,803,231 3,377,550 $ 58,661,859
Shares issued to shareholders
in reinvestment of distributions ........... 123,908 1,753,023 767,775 12,131,262 4,785 87,534
--------- ----------- --------- ----------- --------- ------------
2,719,861 39,562,549 1,669,482 26,934,493 3,382,335 58,749,393
Less shares repurchased ...................... (2,944,133) ( 42,915,201) ( 653,345) ( 10,794,585) (1,691,194) ( 28,844,896)
--------- ----------- --------- ----------- --------- ------------
Net increase (decrease) ...................... ( 224,272) ( $3,352,652) 1,016,137 $16,139,908 1,691,141 $ 29,904,497
========= =========== ========= =========== ========= ============
(1) Effective December 31, 1996, the fiscal period end changed from August 31 to December 31.
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last three periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
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FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
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<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM SIX MONTHS ENDED
------------------------------------------------ SEPTEMBER 1, 1996 TO JUNE 30, 1997
1992 1993 1994 1995(4) 1996 DECEMBER 31, 1996(6) (UNAUDITED)
-------- -------- -------- -------- -------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ..... $ 11.77 $ 12.43 $ 12.08 $ 11.42 $ 13.38 $ 15.07 $ 15.62
------- -------- -------- -------- -------- -------- --------
Net Investment Income (1) ................ 0.32 0.40 0.32 0.21 0.19 0.05 0.07
Net Realized and Unrealized Gain (Loss)
on Investments ......................... 0.89 1.12 ( 0.61) 1.95 1.84 2.15 3.48
------- -------- -------- -------- -------- -------- --------
Total from Investment Operations ....... 1.21 1.52 ( 0.29) 2.16 2.03 2.20 3.55
------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ..... ( 0.25)( 0.42)( 0.37)( 0.20)( 0.19) ( 0.08) ( 0.07)
Distributions from Net Realized Gain
on Investments Sold .................... ( 0.30)( 1.45) -- -- ( 0.15) ( 1.57) --
------- -------- -------- -------- -------- -------- --------
Total Distributions .................... ( 0.55)( 1.87)( 0.37)( 0.20)( 0.34) ( 1.65) ( 0.07)
------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ........... $ 12.43 $ 12.08 $ 11.42 $ 13.38 $ 15.07 $ 15.62 $ 19.10
======= ======== ======== ======== ======== ======== ========
Total Investment Return at
Net Asset Value (2) .................... 10.47% 13.64% ( 2.39%) 19.22% 15.33% 14.53%(7) 22.79%(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) . $ 89,682 $115,780 $121,160 $130,183 $139,548 $163,154 $215,721
Ratio of Expenses to Average Net Assets .. 1.34% 1.29% 1.31% 1.30% 1.17% 1.22%(5) 1.11%(5)
Ratio of Net Investment Income
to Average Net Assets .................. 2.75% 3.43% 2.82% 1.82% 1.28% 0.85%(5) 0.87%(5)
Portfolio Turnover Rate .................. 119% 107% 195% 99% 74% 26% 55%
Average Broker Commission Rate (3) ....... N/A N/A N/A N/A $ 0.0665 $ 0.0692 $ 0.0683
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
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FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM SIX MONTHS ENDED
------------------------------------------------ SEPTEMBER 1, 1996 TO JUNE 30, 1997
1992 1993 1994 1995(4) 1996 DECEMBER 31, 1996(6) (UNAUDITED)
-------- -------- -------- -------- -------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ..... $ 11.77 $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 15.10 $ 15.66
------- -------- -------- -------- -------- -------- --------
Net Investment Income (1) ................ 0.23 0.30 0.24 0.13 0.08 0.01 0.01
Net Realized and Unrealized Gain (Loss)
on Investments ......................... 0.89 1.12 ( 0.61) 1.96 1.85 2.14 3.50
------- -------- -------- -------- -------- -------- --------
Total from Investment Operations ....... 1.12 1.42 ( 0.37) 2.09 1.93 2.15 3.51
------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ..... ( 0.15) ( 0.31) ( 0.29) ( 0.12) ( 0.09) ( 0.02) ( 0.01)
Distributions from Net Realized Gain
on Investments Sold .................... ( 0.30) ( 1.45) -- -- ( 0.15) ( 1.57) --
------- -------- -------- -------- -------- -------- --------
Total Distributions .................... ( 0.45) ( 1.76) ( 0.29) ( 0.12) ( 0.24) ( 1.59) ( 0.01)
------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ........... $ 12.44 $ 12.10 $ 11.44 $ 13.41 $ 15.10 $ 15.66 $ 19.16
======= ======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value (2) ........................ 9.67% 12.64% ( 3.11%) 18.41% 14.49% 14.15%(7) 22.41%(7)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) . $29,826 $ 65,010 $114,025 $114,723 $125,781 $146,399 $211,479
Ratio of Expenses to Average Net Assets .. 2.07% 2.19% 2.06% 2.03% 1.90% 1.98%(5) 1.85%(5)
Ratio of Net Investment Income
to Average Net Assets .................. 2.02% 2.53% 2.07% 1.09% 0.55% 0.10%(5) 0.13%(5)
Portfolio Turnover Rate .................. 119% 107% 195% 99% 74% 26% 55%
Average Broker Commission Rate (3) ....... N/A N/A N/A N/A $ 0.0665 $ 0.0692 $ 0.0683
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(4) On December 2, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(5) Annualized.
(6) Effective December 31, 1996, the fiscal period end changed from August 31 to December 31.
(7) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
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FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
Schedule of Investments
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fund on June 30, 1997. It's divided into three main categories: common stocks,
preferred stocks and short-term investments. The common and preferred stocks are
further broken down by industry groups. Short-term investments, which represent
the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Aerospace (6.44%)
General Dynamics Corp. .............. 75,000 $ 5,625,000
McDonnell Douglas Corp. ............. 133,000 9,110,500
Northrop Grumman Corp. .............. 70,000 6,146,875
United Technologies Corp. ........... 80,000 6,640,000
------------
27,522,375
------------
Automobile / Trucks (0.31%)
Lear Corp.* ......................... 29,700 1,317,938
------------
Banks - United States (2.30%)
Banc One Corp. ...................... 163,226 7,906,259
Providian Financial Corp.* .......... 60,000 1,927,500
------------
9,833,759
------------
Beverages (1.19%)
PepsiCo, Inc. ....................... 135,000 5,070,938
------------
Broker Services (1.67%)
Morgan Stanley, Dean Witter,
Discover & Co. .................... 165,400 7,122,538
------------
Building (0.08%)
Morrison Knudsen Corp.* ............. 25,000 340,625
------------
Business Services - Misc (1.89%)
Block, H & R, Inc. .................. 250,000 8,062,500
------------
Chemicals (3.69%)
BetzDearborn, Inc. .................. 100,000 6,600,000
Monsanto Co. ........................ 172,000 7,406,750
Sigma-Aldrich Corp. ................. 50,000 1,753,125
------------
15,759,875
------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (9.28%)
Automatic Data Processing, Inc. ..... 85,000 $ 3,995,000
Cabletron Systems, Inc.* ............ 20,000 566,250
Cadence Design Systems, Inc.* ....... 100,000 3,350,000
Cisco Systems, Inc.* ................ 41,300 2,772,262
Computer Associates
International, Inc. ............... 239,100 13,314,881
Computer Sciences Corp.* ............ 81,900 5,907,037
Electronic Data Systems Corp. ....... 25,000 1,025,000
Inso Corp.* ......................... 19,000 390,687
Oracle Corp.* ....................... 165,000 8,311,875
------------
39,632,992
------------
Consumer Products Misc. (0.67%)
Samsonite Corp.* .................... 65,000 2,868,125
------------
Cosmetics & Personal Care (1.33%)
Gillette Co. ........................ 60,000 5,685,000
------------
Diversified Operations (1.97%)
AlliedSignal, Inc. .................. 95,700 8,038,800
Fortune Brands, Inc. ................ 10,000 373,125
------------
8,411,925
------------
Electronics (4.52%)
Advanced Micro Devices, Inc.* ....... 85,000 3,060,000
Fisher Scientific International ..... 50,000 2,375,000
General Electric Co. ................ 120,000 7,845,000
Honeywell, Inc. ..................... 50,000 3,793,750
Novellus Systems, Inc.* ............. 19,000 1,643,500
Oak Industries, Inc.* ............... 20,000 575,000
------------
19,292,250
------------
Finance (10.35%)
Ahmanson, H.F. & Co. ................ 89,000 3,827,000
American Express Co. ................ 60,000 4,470,000
Astoria Financial Corp. ............. 77,300 3,671,750
FIRSTPLUS Financial Group, Inc.* .... 100,000 3,400,000
Great Western Financial Corp. ....... 78,200 4,203,250
Student Loan Marketing Assn. ........ 60,000 7,620,000
TCF Financial Corp. ................. 263,751 13,022,691
United Asset Management Corp. ....... 142,000 4,020,375
------------
44,235,066
------------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Food (2.31%)
Archer-Daniels-Midland Co. .......... 120,000 $ 2,820,000
CPC International, Inc. ............. 76,500 7,061,906
------------
9,881,906
------------
Instruments - Scientific (0.51%)
Millipore Corp. ..................... 50,000 2,200,000
------------
Insurance (10.28%)
Ace, Ltd. (Bermuda) ................. 100,000 7,387,500
CapMAC Holdings, Inc. ............... 140,000 4,707,500
CMAC Investment Corp. ............... 60,000 2,865,000
Executive Risk, Inc. ................ 26,100 1,357,200
Financial Security Assurance
Holdings Ltd. ..................... 54,600 2,125,988
Leucadia National Corp. ............. 50,000 1,546,875
Lincoln National Corp. .............. 28,800 1,854,000
Mercury General Corp. ............... 10,000 727,500
Progressive Corp. ................... 187,500 16,312,500
Travelers Group, Inc. ............... 80,000 5,045,000
------------
43,929,063
------------
Leisure (1.80%)
Eastman Kodak Co. ................... 100,000 7,675,000
------------
Media (0.93%)
Central Newspapers, Inc. (Class A) .. 55,400 3,968,025
------------
Medical (9.99%)
Baxter International, Inc. .......... 120,000 6,270,000
Columbia/HCA Healthcare Corp. ....... 45,600 1,792,650
Lilly (Eli) & Co. ................... 100,000 10,931,250
Manor Care, Inc. .................... 25,000 815,625
Schering-Plough Corp. ............... 200,000 9,575,000
Warner-Lambert Co. .................. 70,000 8,697,500
Wellpoint Health Networks, Inc.* .... 100,000 4,587,500
------------
42,669,525
------------
Mortgage Banking (2.92%)
Fannie Mae .......................... 165,000 7,198,125
Federal Home Loan Mortgage Corp. .... 112,000 3,850,000
Money Store, Inc. (The) ............. 50,000 1,434,375
------------
12,482,500
------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Oil & Gas (5.19%)
Amerada Hess Corp. .................. 20,000 $ 1,111,250
ENI S.p.A., American Depositary
Receipt (ADR), (Italy)+ ........... 50,000 2,843,750
Exxon Corp. ......................... 60,000 3,690,000
Mobil Corp. ......................... 88,000 6,149,000
Phillips Petroleum Co. .............. 150,000 6,562,500
Tosco Corp. ......................... 60,000 1,796,250
------------
22,152,750
------------
Paper & Paper Products (1.17%)
Kimberly-Clark Corp. ................ 100,000 4,975,000
------------
Pollution Control (0.35%)
US Filter Corp.* .................... 55,000 1,498,750
------------
Retail (3.02%)
Great Atlantic & Pacific
Tea Co., Inc. ..................... 32,800 891,750
Sysco Corp. ......................... 125,000 4,562,500
Wal-Mart Stores, Inc. ............... 220,000 7,438,750
------------
12,893,000
------------
Telecommunications (6.00%)
360 Communications Co.* ............. 107,200 1,835,800
Cable Design Technologies* .......... 21,300 627,019
Cascade Communications Corp.* ....... 92,000 2,541,500
Lucent Technologies, Inc. ........... 130,200 9,382,537
Qwest Communications
International Inc.* ............... 7,100 193,475
SBC Communications, Inc. ............ 55,000 3,403,125
Sprint Corp. ........................ 30,000 1,578,750
U.S. West, Inc.* .................... 300,000 6,075,000
------------
25,637,206
------------
Tobacco (2.75%)
Philip Morris Cos., Inc. ............ 264,800 11,750,500
------------
Transport (4.06%)
Burlington Northern Santa Fe ........ 87,000 7,819,125
CSX Corp. ........................... 92,000 5,106,000
Northwest Airlines Corp. (Class A)* . 25,000 909,375
Union Pacific Corp. ................. 50,000 3,525,000
------------
17,359,500
------------
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Utilities (0.31%)
Edison International ................. 10,000 $ 248,750
Williams Cos., Inc. (The) ............ 25,000 1,093,750
------------
1,342,500
------------
TOTAL COMMON STOCKS
(Cost $295,996,180) ( 97.28%) 415,571,131
------- ------------
PREFERRED STOCK
Broker Services (0.82%)
Salomon Inc. 7.625%, Ser FSA, Conv. .. 100,000 3,512,500
------------
TOTAL PREFERRED STOCK
(Cost $2,919,705) ( 0.82%) 3,512,500
------- ------------
INTEREST PAR VALUE
ISSUER DESCRIPTION RATE (000s OMITTED)
- ------------------ ---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (2.20%)
Investment in a joint repuchase agreement
transaction with Toronto-Dominion Bank -
Dated 06-30-96, Due 07-01-97
(secured by U.S. Treasury Notes,
5.625% thru 8.125% Due 07-31-97
thru 11-15-04) - Note A 5.97% 9,404 9,404,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ................. 71
------------
TOTAL SHORT-TERM INVESTMENTS ( 2.20%) 9,404,071
------- ------------
TOTAL INVESTMENTS (100.30%) $428,487,702
======= ============
* Non-income producing security.
+ This security having an aggregate market value of $2,843,750 and 0.67% of the
Fund's net asset value, has been purchased as a forward commitment. That is, the
Fund has agreed on trade date to take delivery of and make payment for such
security on a delayed basis subsequent to this schedule. The Fund has instructed
its custodian bank to segregate assets with a current value at least equal to
the amount of the forward commitment. Accordingly, the market value of
$4,343,625 of Computer Associates International, Inc. 78,000 shares has been
segregated to cover the forward commitments.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, the security is U.S.
dollar denominated.
The percentage shown for each investment category is the total of that category
as a percentage of net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust (the "Trust") is an open-end management investment
company registered under the Investment Company Act of 1940. The Trust consists
of three series portfolios: John Hancock Growth and Income Fund (the "Fund"),
John Hancock Sovereign Balanced Fund and John Hancock Sovereign Investors Fund.
The other two series of the Trust are reported in separate financial statements.
The investment objective of the Fund is to obtain the highest total return, a
combination of capital appreciation and current income, consistent with
reasonable safety of capital.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemptions, dividends and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under the terms of a distribution
plan have exclusive voting rights regarding such distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAX The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates
15
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
estimates made by management in determining the reported amounts of assets,
liabilities, revenues and expenses of the Fund. Actual results could differ from
these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended June 30, 1997.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.625% of the Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended June 30,
1997, net sales charges received with regard to sales of Class A shares amounted
to $337,409. Out of this amount, $58,236 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $162,472 was
paid as sales commissions to unrelated broker-dealers and $116,701 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended June 30, 1997,
contingent deferred sales charges amounted to $159,291.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses at an annual rate not to exceed 0.25% of Class
A average daily net assets and 1.00% of Class B average daily net assets to
reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the related
other asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At June 30, 1997, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $2,356.
16
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth and Income Fund
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1997, aggregated $230,602,116 and $178,939,868, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended June 30, 1997.
The cost of investments owned at June 30, 1997 (excluding the corporate
savings account) for federal income tax purposes was $308,319,885. Gross
unrealized appreciation and depreciation of investments aggregated $121,655,156
and $1,487,410, respectively, resulting in net unrealized appreciation of
$120,167,746.
17
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NOTES
John Hancock Funds - Growth and Income Fund
18
<PAGE>
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NOTES
John Hancock Funds - Growth and Income Fund
19
<PAGE>
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[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Growth
and Income Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 2100A 6/97
8/97
