SEMIANNUAL REPORT
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[GRAPHIC OMITTED]
Growth and
Income Fund
JUNE 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
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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 and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK AND 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 02109-1803
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===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer through the
end of June was more of the same. But tremors from Asia have also sparked
increased volatility, as corporate earnings and the U.S. economy have shown
signs of slowing. What's more, a good part of the market's advance has come from
just a small group of the largest companies in the major stock market indexes.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
The move ahead has been so narrow that some observers believe that most
stocks have actually been in a bear market this year. The bond market had its
pockets of volatility as well, although U.S. Treasury bonds benefited from their
safe-haven status.
While we don't make a practice of opining on what the market will do next,
we believe that after such a long run up, it would be wise for investors to set
more realistic expectations. Over the long term, the market's historical results
have been more in the 10% per year range, which is still a solid result,
considering it has been produced despite wars, depressions and other social
upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now
could also be a good time to review with your investment professional how your
assets are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
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 surprises investors with strong gains
in first half of '98
The U.S. stock market got off to a running start in early 1998. Declining
interest rates, low inflation, and a healthy economy provided the perfect
setting for stocks to surge ahead. In addition, concerns about Southeast Asia's
financial crisis eased. With consumer confidence and spending at high levels,
retailing and other consumer-oriented sectors benefited. In the second quarter,
the market became much choppier, as Asia's problems further unraveled. Signs of
slower profit growth, along with a strong dollar and stiff price competition,
translated into weaker second-quarter earnings forecasts from many U.S.
companies. This sent the stock market sideways for much of the spring with
jittery investors again favoring large-company stocks. The Standard & Poor's 500
Stock Index -- a broad measure of market performance -- ended the first half
with a return of 17.71%.
John Hancock Growth and Income Fund benefited from its focus on large-
company stocks. For the six months ended June 30, 1998, the Fund's Class A and
Class B shares produced total returns of 14.08% and 13.63%, respectively, at net
asset value. The Fund's Class C shares, which were introduced on May 1, 1998 in
the midst of heightened volatility, returned - 0.41% at net asset value from
inception through the end of June. Keep in mind that your net asset value return
will be different from this performance if you were not invested in the Fund for
the entire period and did not reinvest all distributions. The Fund's returns
were ahead
"In the second quarter, the market became much choppier..."
[A 3 3/4" x 2 1/4" photo at bottom of page of fund management team members.
Caption below reads "Fund management team members (l - r): Tim Keefe, Tim
Quinlisk and Lisa Welch."]
3
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John Hancock Funds - Growth and Income Fund
[Chart at the top of left hand column with the heading "Top Five Stock
Holdings". The chart lists five stocks: 1.) Progressive Corp. 4.0%; 2.) Computer
Associates International 3.60%; 3.) Galileo International 2.5%; 4.) Lucent
Technologies 2.4% and 5.) Ace, Ltd. 2.1%. A note below the chart reads "As a
percentage of net assets on June 30, 1998."]
"As the market reached all-time highs, we took a cautious approach."
of the average growth and income fund, which returned 12.11% for the six-month
period, according to Lipper Analytical Services, Inc.1 For longer-term
performance information, please see pages six and seven.
Technology boosts performance
Among the Fund's best performers were technology stocks. We focused on software
and service companies, avoiding hardware companies, which were more susceptible
to Southeast Asia's problems. One of our largest investments was Galileo
International, a leader in computer airline reservations systems. When the
company's stock price fell late last year on fears that problems in Southeast
Asia would hurt business, we bought more shares. Galileo's revenues remained
strong, with the stock climbing 63% between January and June. Another large
holding was Lucent Technologies, a company that sells telecommunications
equipment. Since its spin-off from AT&T two years ago, Lucent has made
significant headway in expanding its customer base and cutting expenses. This
powerful combination sent the stock price up over 100% in the past six months.
Our largest investment was Progressive Corp., an auto insurer that did
well thanks to strong revenue growth and improved efficiencies from declining
auto repair costs. The Fund also had a sizable stake in American Home Products,
makers of Robitussin cough syrup, which was up 35% during the first half of the
year. We bought shares in both stocks during the fourth quarter of 1997 when
short-term problems had temporarily depressed their stock prices below what we
thought they were worth.
Caution holds us back
As the market reached all-time highs, we took a cautious approach. This kept the
Fund from fully participating in the market's recent upswing, but also protected
it from extreme volatility. Along these lines, we held a sizable 13% stake in
utilities, including telecommunications companies, which are mostly insulated
from problems in Southeast Asia. Utilities stocks are also cheap, with strong
prospects from industry consolidation. In the top-performing retailing sector,
we had only a 2.7% stake. However, the retail stocks we owned, like Wal-Mart
Stores and McDonald's, did well.
We also had our share of short-term disappointments. TCF Financial had
trouble meeting earnings expectations during the period. A major expansion
program along with a flatter yield curve -- or narrower difference between long-
and short-term interest rates -- hurt the bank's profit margins. Several
health-care and transportation investments also fell short of our
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is American Home
Products followed by an up arrow with the phrase "Resolution of drug interaction
concerns." The second listing is Ace, Ltd. followed by an up arrow with the
phrase "Good growth and strong management team." The third listing is DENTSPLY
International followed by a down arrow with the phrase "Insurance reimbursement
issues in Germany." A note below the table reads "See `Schedule of Investments.'
Investment holdings are subject to change."]
4
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John Hancock Funds - Growth and Income Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended June 30, 1998". The
chart is scaled in increments of 3% with -3% at the bottom and 15% at the top.
The first bar represents the 14.08% total return for John Hancock Growth and
Income Fund Class A. The second bar represents the 13.63% total return for John
Hancock Growth and Income Fund Class B. The third bar represents the -0.41%*
total return for John Hancock Growth and Income Fund Class C and the fourth bar
represents the 12.11% total return for the average growth and income fund. A
note below the chart reads "Total returns for John Hancock Growth and Income
Fund are at net asset value with all distributions reinvested. The average
growth and income fund is tracked by Lipper Analytical Services, Inc. (1). See
the following two pages for historical performance information." The footnote
below reads "*From inception May 1, 1998 to June 30, 1998."]
expectations. DENTSPLY International, a leading manufacturer of dental products,
and Respironics, a maker of respiratory devices, faltered because of changes in
insurance reimbursement schedules. Airline stocks, like Northwest Airlines and
KLM Royal Dutch Airlines, suffered from the perception that a slowdown in
Southeast Asia would curtail their business to the Orient.
Opportunity abounds
Increased volatility has also brought more buying opportunities. We recently
bought Electronic Data Systems, a leading provider of outsourced technology
services, after short-term problems with its largest client caused its stock
price to fall. We also added to our stake in Computer Associates International,
our number two holding, when its share price temporarily dropped. Computer
Associates, which develops software that helps companies move from mainframe
computing to client server systems, announced it would try to buy Computer
Sciences Corp. -- another one of our investments. Although Computer Associates'
stock price dropped, we believed it would come out a winner whichever way the
deal went, so we added to our stake. After the acquisition fell through, its
stock quickly came back and Computer Sciences' share price took off.
We've also taken advantage of low valuations -- prices relative to
earnings and other measures -- to add to our energy holdings. Recent additions
include YPF Sociedad Anonima, an international integrated oil company based in
Argentina, and Triton Energy Ltd., an exploration and production company that
has recently put itself up for sale. In the finance sector, we focused on strong
insurance companies like Ace, Ltd. and PMI Group, whose stock prices have been
hurt by weak pricing in the industry.
We expect the market's volatility to continue as business conditions get
tougher and new challenges emerge. With current valuations at high levels,
investors punish severely the stock of companies that fail to meet earnings
expectations. Fortunately, this often makes the stock of leading companies
available at compelling valuations. We'll continue looking for situations where
short-term events have unfairly clouded strong long-term outlooks. A recent
change in our prospectus means we no longer have a 5% ceiling on our foreign
investments. This will expand the Fund's opportunities to invest in great
businesses that happen to be domiciled outside the United States.
"Increased volatility has also brought more buying opportunities."
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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.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
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John Hancock Funds - Growth and Income Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Growth and Income Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years). Class C performance
includes a contingent deferred sales charge of 1% (declining to 0% after one
year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
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CLASS A
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For the period ended June 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns 20.67% 135.35% 331.93%
Average Annual Total Returns(1) 20.67% 18.67% 15.76%
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CLASS B
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For the period ended June 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (8/22/91)
---- ----- ---------
Cumulative Total Returns 21.06% 136.46% 192.02%
Average Annual Total Returns(1) 21.06% 18.78% 16.91%
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CLASS C
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For the period ended June 30, 1998
SINCE
INCEPTION
(5/1/98)
--------
Cumulative Total Return (1.40%)
Average Annual Total Return(1) (1.40%)(2)
Notes to Performance
(1) The Adviser has voluntarily reduced a portion of the management fee for
the 1998 fiscal year only. Without this fee reduction, the average annual
total return for the one-year period for Class A and Class B shares would
have been 20.66% and 21.05%, respectively. There was no change to the
average annual total return for the remaining Class A and Class B periods
shown above or for Class C shares.
(2) Not annualized.
6
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John Hancock Funds - Growth and Income Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT...
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The charts on the right show how much a $10,000 investment in the John Hancock
Growth and Income Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Stock Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance.
Assuming all distributions were reinvested a $10,000 investment in the Fund's
Class C shares at inception on May 1, 1998, would be worth $9,959 without sales
charge and $9,860 with maximum sales charge as of June 30, 1998. For comparison,
the same $10,000 investment in the Standard & Poor's 500 Stock Index would be
worth $10,227.
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Growth and Income Fund
Class A shares
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 $66,439 as of June 30, 1998. The second
line represents the value of the hypothetical $10,000 investment made in the
Growth and Income Fund on December 31, 1987 before sales charge, and is equal to
$47,676 as of June 30, 1998. The third line represents the Growth and Income
Fund, after sales charge, and is equal to $45,292 as of June 30, 1998.
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- --------------------------------------------------------------------------------
Growth and Income Fund
Class B shares
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 two lines. The first line represents the value of the Standard &
Poor's 500 Stock Index, and is equal to $34,741 as of June 30, 1998. The second
line represents the value of the hypothetical $10,000 investment made in the
Growth and Income Fund on August 22, 1991, after sales charge, and is equal to
$29,202 as of June 30, 1998.
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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, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
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Assets:
Investments at value -- Note C:
Common stocks (cost - $567,995,398) ......................... $813,956,523
Preferred stocks (cost - $14,237,770) ....................... 16,027,251
Bond (cost - $5,008,875) .................................... 5,044,500
Joint repurchase agreement (cost - $87,126,000) ............. 87,126,000
Corporate savings account ................................... 200
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922,154,474
Receivable for shares sold ................................... 1,218,168
Receivable for forward foreign currency contracts
sold - Note A ............................................... 85,139
Dividends receivable ......................................... 1,046,891
Interest receivable .......................................... 178,012
Other assets ................................................. 62,095
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Total Assets ..................................... 924,744,779
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Liabilities:
Payable for investments purchased ............................ 3,797,685
Payable for shares repurchased ............................... 506,270
Dividend payable ............................................. 2,737
Payable to John Hancock Advisers, Inc. .......................
and affiliates - Note B ..................................... 638,177
Accounts payable and accrued expenses ........................ 14,272
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Total Liabilities ................................ 4,959,141
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Net Assets:
Capital paid-in .............................................. 660,633,745
Accumulated net realized gain on investments and
foreign currency transactions ............................... 11,047,320
Net unrealized appreciation of investments and
foreign currency transactions ............................... 247,873,719
Undistributed net investment income .......................... 230,854
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Net Assets ....................................... $919,785,638
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Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding -
unlimited number of shares authorized
with no par value)
Class A -- $408,514,420 / 18,566,840 ......................... $22.00
===============================================================================
Class B -- $509,522,313 / 23,219,241 ......................... $21.94
===============================================================================
Class C** -- $1,748,905 / 79,699 ............................. $21.94
===============================================================================
Maximum Offering Price Per Share*
Class A -- ($22.00 x 105.26%) ................................ $23.16
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* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
** Class C shares commenced operations on May 1, 1998.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Six months ended June 30, 1998 (Unaudited)
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Investment Income:
Dividends (net of foreign withholding taxes of $39,300) ...... $5,377,614
Interest ..................................................... 1,370,224
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6,747,838
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Expenses:
Investment management fee -- Note B ........................ 2,462,153
Distribution and service fee -- Note B
Class A .................................................. 451,238
Class B .................................................. 2,133,121
Class C .................................................. 1,372
Transfer agent fee -- Note B ............................... 740,836
Registration and filing fees ............................... 118,970
Custodian fee .............................................. 81,167
Financial services fee -- Note B ........................... 69,610
Trustees' fees ............................................. 27,896
Auditing fee ............................................... 18,083
Printing ................................................... 15,270
Miscellaneous .............................................. 6,611
Legal fees ................................................. 4,818
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Total Expenses ................................... 6,131,145
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Less Management Fee
Reduction -- Note B .............................. (74,383)
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Net Expenses ..................................... 6,056,762
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Net Investment Income ............................ 691,076
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Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions:
Net realized gain on investments sold ........................ 2,387,672
Net realized loss on foreign currency transactions ........... (14,506)
Change in net unrealized appreciation/depreciation
of investments .............................................. 94,937,147
Change in net unrealized appreciation/depreciation
of foreign currency transactions ............................ 85,115
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Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions .................... 97,395,428
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Net Increase in Net Assets
Resulting from Operations ........................ $98,086,504
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SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED)
-------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ....................................... $1,207,231 $691,076
Net realized gain on investments sold and
foreign currency transactions .............................. 63,063,227 2,373,166
Change in net unrealized appreciation/depreciation
of investments ............................................. 72,108,994 95,022,262
-------------- --------------
Net Increase in Net Assets Resulting
from Operations ............................................ 136,379,452 98,086,504
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.0738 and $0.0405 per share,
respectively) .............................................. (804,990) (701,755)
Class B - ($0.0096 and $0.0026 per share,
respectively) .............................................. (101,491) (52,826)
Distributions from net realized gain on
investments sold
Class A - ($1.0977 and none per share,
respectively) .............................................. (24,541,840) --
Class B - ($1.0977 and none per share,
respectively) .............................................. (26,375,037) --
-------------- --------------
Total Distributions to Shareholders ...................... (51,823,358) (754,581)
-------------- --------------
From Fund Share Transactions - Net: * ......................... 249,537,997 178,806,605
-------------- --------------
Net Assets:
Beginning of period ......................................... 309,553,019 643,647,110
-------------- --------------
End of period (including undistributed net
investment income of $294,359 and $230,854, respectively) .. $643,647,110 $919,785,638
============== ==============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Statement of Changes in Net Assets (continued)
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o Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................. 9,873,058 $181,540,264 5,702,171 $119,317,414
Shares issued in reorganization - Note D ..... 1,152,430 17,941,944 -- --
Shares issued to shareholders in
reinvestment of distributions ............... 1,192,715 22,651,383 27,545 608,156
------------- ------------- ------------- -------------
12,218,203 222,133,591 5,729,716 119,925,570
Less shares repurchased ...................... (6,968,165) (124,529,510) (2,860,633) (60,145,117)
------------- ------------- ------------- -------------
Net increase ................................. 5,250,038 $97,604,081 2,869,083 $59,780,453
============= ============= ============= =============
CLASS B
Shares sold .................................. 8,763,042 $168,420,351 8,012,934 $167,832,725
Shares issued in reorganization - Note D ..... 2,252,005 34,935,449 -- --
Shares issued to shareholders in
reinvestment of distributions ............... 1,237,669 23,549,294 2,345 50,685
------------- ------------- ------------- -------------
12,252,716 226,905,094 8,015,279 167,883,410
Less shares repurchased ...................... (3,973,150) (74,971,178) (2,421,625) (50,581,025)
------------- ------------- ------------- -------------
Net increase ................................. 8,279,566 $151,933,916 5,593,654 $117,302,385
============= ============= ============= =============
CLASS C**
Shares sold .................................. -- -- 80,043 $1,731,297
Less shares repurchased ...................... -- -- (344) (7,530)
------------- ------------- ------------- -------------
Net increase ................................. -- -- 79,699 $1,723,767
============= ============= ============= =============
</TABLE>
** Class C shares commenced operations on May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================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
------------------------------------------ SEPTEMBER 1, 1996 TO
1993 1994 1995(3) 1996 DECEMBER 31, 1996(6)
-------- -------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .... $12.43 $12.08 $11.42 $13.38 $15.07
-------- -------- -------- -------- --------
Net Investment Income(1) ................ 0.40 0.32 0.21 0.19 0.05
Net Realized and Unrealized Gain (Loss)
on Investments ......................... 1.12 (0.61) 1.95 1.84 2.15
-------- -------- -------- -------- --------
Total from Investment Operations ....... 1.52 (0.29) 2.16 2.03 2.20
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .... (0.42) (0.37) (0.20) (0.19) (0.08)
Distributions from Net Realized Gain
on Investments Sold .................... (1.45) -- -- (0.15) (1.57)
-------- -------- -------- -------- --------
Total Distributions .................... (1.87) (0.37) (0.20) (0.34) (1.65)
-------- -------- -------- -------- --------
Net Asset Value, End of Period .......... $12.08 $11.42 $13.38 $15.07 $15.62
======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(2) ......................... 13.64% (2.39%) 19.22% 15.33% 14.53%(5)
Total Adjusted Investment Return at
Net Asset Value(2,9) ................... -- -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) ......................... $115,780 $121,160 $130,183 $139,548 $163,154
Ratio of Expenses to Average
Net Assets ............................. 1.29% 1.31% 1.30% 1.17% 1.22%(4)
Ratio of Adjusted Expenses to
Average Net Assets(10) ................. -- -- -- -- --
Ratio of Net Investment Income
to Average Net Assets .................. 3.43% 2.82% 1.82% 1.28% 0.85%(4)
Ratio of of Adjusted Net Investment
Income to Average Net Assets(10) ....... -- -- -- -- --
Portfolio Turnover Rate ................. 107% 195% 99% 74% 26%
Fee Reduction per Share ................. -- -- -- -- --
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED)
------------ ----------------
<S> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period .... $15.62 $19.32
-------- --------
Net Investment Income(1) ................ 0.12 0.06
Net Realized and Unrealized Gain (Loss)
on Investments ......................... 5.57 2.66
-------- --------
Total from Investment Operations ....... 5.69 2.72
-------- --------
Less Distributions:
Dividends from Net Investment Income .... (0.07) (0.04)
Distributions from Net Realized Gain
on Investments Sold .................... (1.92) --
-------- --------
Total Distributions .................... (1.99) (0.04)
-------- --------
Net Asset Value, End of Period .......... $19.32 $22.00
======== ========
Total Investment Return at Net
Asset Value(2) ......................... 36.71% 14.08%(5)
Total Adjusted Investment Return at
Net Asset Value(2,9) ................... -- 14.07%(5)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) ......................... $303,313 $408,514
Ratio of Expenses to Average
Net Assets ............................. 1.12% 1.13%(4)
Ratio of Adjusted Expenses to
Average Net Assets(10) ................. -- 1.15%(4)
Ratio of Net Investment Income
to Average Net Assets .................. 0.65% 0.58%(4)
Ratio of of Adjusted Net Investment
Income to Average Net Assets(10) ....... -- 0.56%(4)
Portfolio Turnover Rate ................. 102%(7) 21%
Fee Reduction per Share ................. -- $0.00(2,8)
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM
------------------------------------------- SEPTEMBER 1, 1996 TO
1993 1994 1995(3) 1996 DECEMBER 31, 1996(6)
-------- -------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period .................................. $12.44 $12.10 $11.44 $13.41 $15.10
-------- -------- -------- -------- -----------
Net Investment Income (Loss)(1) ............. 0.30 0.24 0.13 0.08 0.01
Net Realized and Unrealized Gain (Loss)
on Investments ............................. 1.12 (0.61) 1.96 1.85 2.14
-------- -------- -------- -------- -----------
Total from Investment Operations ........... 1.42 (0.37) 2.09 1.93 2.15
-------- -------- -------- -------- -----------
Less Distributions:
Dividends from Net Investment Income ........ (0.31) (0.29) (0.12) (0.09) (0.02)
Distributions from Net Realized Gain
on Investments Sold ........................ (1.45) -- -- (0.15) (1.57)
-------- -------- -------- -------- -----------
Total Distributions ........................ (1.76) (0.29) (0.12) (0.24) (1.59)
-------- -------- -------- -------- -----------
Net Asset Value, End of Period .............. $12.10 $11.44 $13.41 $15.10 $15.66
======== ======== ======== ======== ===========
Total Investment Return at Net
Asset Value(2) ............................. 12.64% (3.11%) 18.41% 14.49% 14.15%(5)
Total Adjusted Investment
Return at Net Asset Value(2,9) ............. -- -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) ............................. $65,010 $114,025 $114,723 $125,781 $146,399
Ratio of Expenses to Average
Net Assets ................................. 2.19% 2.06% 2.03% 1.90% 1.98%(4)
Ratio of Adjusted Expenses to
Average Net Assets(10) ..................... -- -- -- -- --
Ratio of Net Investment Income (Loss)
to Average Net Assets ...................... 2.53% 2.07% 1.09% 0.55% 0.10%(4)
Ratio of Adjusted Net Investment Loss
to Average Net Assets(10) ................. -- -- -- -- --
Portfolio Turnover Rate ..................... 107% 195% 99% 74% 26%
Fee Reduction per Share ..................... -- -- -- -- --
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, 1998
1997 (UNAUDITED)
------------ ----------------
<S> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period .................................. $15.66 $19.31
----------- -----------
Net Investment Income (Loss)(1) ............. (0.02) (0.02)
Net Realized and Unrealized Gain (Loss)
on Investments ............................. 5.60 2.65
----------- -----------
Total from Investment Operations ........... 5.58 2.63
----------- -----------
Less Distributions:
Dividends from Net Investment Income ........ (0.01) (0.00)(8)
Distributions from Net Realized Gain
on Investments Sold ........................ (1.92) --
----------- -----------
Total Distributions ........................ (1.93) (0.00)(8)
----------- -----------
Net Asset Value, End of Period .............. $19.31 $21.94
=========== ===========
Total Investment Return at Net
Asset Value(2) ............................. 35.80% 13.63%(5)
Total Adjusted Investment
Return at Net Asset Value(2,9) ............. -- 13.62%(5)
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) ............................. $340,334 $509,522
Ratio of Expenses to Average
Net Assets ................................. 1.87% 1.88%(4)
Ratio of Adjusted Expenses to
Average Net Assets(10) ..................... -- 1.90%(4)
Ratio of Net Investment Income (Loss)
to Average Net Assets ...................... (0.10%) (0.17%)(4)
Ratio of Adjusted Net Investment Loss
to Average Net Assets(10) ................. -- (0.19%)(4)
Portfolio Turnover Rate ..................... 102%(7) 21%
Fee Reduction per Share ..................... -- $0.00(2,8)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
PERIOD
FROM MAY 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1998
(UNAUDITED)
----------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ........................ $22.03
---------
Net Investment Income(1) .................................... 0.00(8)
Net Realized and Unrealized Loss on Investments ............. (0.09)
---------
Total from Investment Operations ........................... (0.09)
---------
Net Asset Value, End of Period .............................. $21.94
=========
Total Investment Return at Net Asset Value(2) ............... (0.41%)(5)
Total Adjusted Investment Return at Net Asset Value(2,9) .... (0.41%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................... $1,749
Ratio of Expenses to Average Net Assets ..................... 1.88%(4)
Ratio of Adjusted Expenses to Average Net Assets(10) ........ 1.89%(4)
Ratio of Net Investment Income to Average Net Assets ........ 0.10%(4)
Ratio of Adjusted Net Investment Income to
Average Net Assets(10) ..................................... 0.09%(4)
Portfolio Turnover Rate ..................................... 21%
Fee Reduction per Share ..................................... $0.00(2,8)
(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) On December 2, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(4) Annualized.
(5) Not annualized.
(6) Effective December 31, 1996, the fiscal period end changed from August 31
to December 31.
(7) Portfolio turnover rate excludes merger activity.
(8) Less than $0.01 per share.
(9) An estimated total return calculation that does not take into
consideration fee reductions by the Adviser for fiscal year 1998 only.
(10) Unreimbursed, without fee reductions.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Schedule of Investments
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fund on June 30, 1998. It's divided into four main categories: common stocks,
preferred stocks, bond and short-term investments. The common and preferred
stocks and bond 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
Advertising (0.01%)
Princeton Video Image, Inc.* ........... 20,000 $92,500
-------------
Aerospace (2.35%)
General Dynamics Corp. ................. 150,000 6,975,000
Northrop Grumman Corp. ................. 70,000 7,218,750
United Technologies Corp. .............. 80,000 7,400,000
-------------
21,593,750
-------------
Automobile/Trucks (1.18%)
Dollar Thrifty Automotive Group, Inc.* . 200,000 2,650,000
General Motors Corp. ................... 100,000 6,681,250
Lear Corp.* ............................ 29,700 1,523,981
-------------
10,855,231
-------------
Banks - United States (2.37%)
Banc One Corp. ......................... 179,548 10,021,023
Carnegie Bancorp. ...................... 42,500 1,476,875
Citicorp ............................... 35,000 5,223,750
First Union Corp. ...................... 87,765 5,112,311
-------------
21,833,959
-------------
Beverages (1.54%)
Anheuser-Busch Cos., Inc. .............. 300,000 14,156,250
-------------
Business Services - Misc (2.34%)
ACNielsen Corp.* ....................... 415,500 10,491,375
Block, H & R, Inc. ..................... 250,000 10,531,250
Diebold, Inc. .......................... 15,000 433,125
STRATESEC, Inc.* ....................... 16,700 29,225
-------------
21,484,975
-------------
Chemicals (1.32%)
Monsanto Co. ........................... 145,800 $8,146,575
Solutia, Inc. .......................... 139,400 3,999,037
-------------
12,145,612
-------------
Computers (8.58%)
Automatic Data Processing, Inc. ........ 67,500 4,919,062
Bay Networks, Inc.* .................... 35,000 1,128,750
Computer Associates International, Inc. 600,000 33,337,500
Computer Sciences Corp.* ............... 206,748 13,231,872
Electronic Data Systems Corp. .......... 400,000 16,000,000
First Data Corp. ....................... 125,000 4,164,062
Networks Associates, Inc.* ............. 38,760 1,855,635
Pathways Group, Inc. (The)* ............ 80,000 1,530,000
Quantum Corp.* ......................... 120,000 2,490,000
Security Dynamics Technologies, Inc.* .. 15,000 277,500
-------------
78,934,381
-------------
Cosmetics & Personal Care (0.74%)
Gillette Co. ........................... 120,000 6,802,500
-------------
Diversified Operations (0.75%)
Canadian Pacific, Ltd. (Canada)......... 244,200 6,929,175
-------------
Electronics (1.09%)
Novellus Systems, Inc.* ................ 70,200 2,505,263
SCI Systems, Inc.* ..................... 200,000 7,525,000
-------------
10,030,263
-------------
Energy (0.42%)
CalEnergy Co., Inc.* ................... 128,980 3,877,461
-------------
Finance (8.39%)
Ahmanson (H.F.) & Co. .................. 60,000 4,260,000
American Express Co. ................... 60,000 6,840,000
Astoria Financial Corp. ................ 82,300 4,403,050
Charter One Financial, Inc. ............ 143,188 4,823,646
FIRSTPLUS Financial Group, Inc.* ....... 90,000 3,240,000
Heller Financial, Inc.* ................ 28,000 840,000
Morgan Stanley, Dean Witter,
Discover & Co. ........................ 165,400 15,113,425
SLM Holding Corp. ...................... 200,000 9,800,000
Sovereign Bancorp., Inc. ............... 237,000 3,873,457
TCF Financial Corp. .................... 656,100 19,354,950
Washington Mutual, Inc. ................ 105,570 4,585,697
-------------
77,134,225
-------------
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Food (1.38%)
Bestfoods .............................. 153,000 $8,883,562
Corn Products International, Inc.* ..... 19,125 647,859
IBP, Inc. .............................. 176,400 3,197,250
-------------
12,728,671
-------------
Insurance (12.58%)
Ace, Ltd. (Bermuda)..................... 500,000 19,500,000
Allstate Corp. (The) ................... 100,000 9,156,250
Annuity and Life Re Holdings, Ltd.* .... 700 15,488
CMAC Investment Corp. .................. 60,000 3,690,000
Conseco, Inc. .......................... 148,700 6,951,725
Financial Security Assurance
Holdings, Ltd. ........................ 64,600 3,795,250
Leucadia National Corp. ................ 50,000 1,653,125
Lincoln National Corp. ................. 50,000 4,568,750
Mercury General Corp. .................. 20,000 1,288,750
Mitsui Marine and Fire Insurance
Co, Ltd., (Japan)...................... 1,500,000 7,533,150
PMI Group, Inc. (The) .................. 185,100 13,581,712
Progressive Corp. ...................... 260,405 36,717,105
Travelers Group, Inc. .................. 120,000 7,275,000
-------------
115,726,305
-------------
Leisure (3.00%)
Galileo International, Inc. ............ 500,000 22,531,250
Hilton Hotels Corp. .................... 70,300 2,003,550
King World Productions, Inc.* .......... 118,600 3,024,300
-------------
27,559,100
-------------
Media (3.49%)
Central Newspapers, Inc. (Class A) ..... 175,000 12,206,250
Harcourt General, Inc. ................. 224,000 13,328,000
Viacom, Inc. (Class B)* ................ 113,000 6,582,250
-------------
32,116,500
-------------
Medical (9.19%)
American Home Products Corp. ........... 305,000 15,783,750
Becton, Dickinson & Co. ................ 20,000 1,552,500
DENTSPLY International, Inc. ........... 200,000 5,000,000
Johnson & Johnson ...................... 45,000 3,318,750
Lilly (Eli) & Co. ...................... 180,000 11,891,250
Pharmacia & Upjohn, Inc. ............... 185,000 8,533,125
Respironics, Inc.* ..................... 110,700 1,722,769
Schering-Plough Corp. .................. 160,000 14,660,000
Warner-Lambert Co. ..................... 189,000 13,111,875
Wellpoint Health Networks, Inc.* ....... 120,700 8,931,800
-------------
84,505,819
-------------
Mortgage Banking (1.66%)
Fannie Mae ............................. 165,000 $10,023,750
Federal Home Loan Mortgage Corp. ....... 112,000 5,271,000
-------------
15,294,750
-------------
Oil & Gas (5.29%)
Coastal Corp. (The) .................... 17,000 1,186,812
Columbia Energy Group .................. 16,500 917,813
El Paso Natural Gas Co. ................ 29,000 1,109,250
ENI S.p.A. American Depositary
Receipts (ADR) (Italy)................. 35,000 2,275,000
Mobil Corp. ............................ 138,000 10,574,250
Phillips Petroleum Co. ................. 150,000 7,228,125
Tosco Corp. ............................ 60,000 1,762,500
Triton Energy Ltd.* .................... 440,000 15,702,500
Williams Cos., Inc. (The) .............. 56,000 1,890,000
YPF Sociedad Anonima (ADR) (Argentina).. 200,000 6,012,500
-------------
48,658,750
-------------
Retail (2.74%)
McDonald's Corp. ....................... 100,000 6,900,000
SED International Holdings, Inc.* ...... 68,500 556,563
Sysco Corp. ............................ 250,000 6,406,250
Tiffany & Co. .......................... 20,000 960,000
Wal-Mart Stores, Inc. .................. 170,000 10,327,500
-------------
25,150,313
-------------
Steel (0.25%)
British Steel PLC (ADR) (United Kingdom) 100,000 2,275,000
-------------
Telecommunications (6.85%)
American Tower Corp. (Class A)* ........ 100,000 2,493,750
Bell Atlantic Corp. .................... 60,220 2,747,537
Commonwealth Telephone Enterprises, Inc.* 66,350 1,749,981
Lucent Technologies, Inc. .............. 260,400 21,662,025
MCI Communications Corp. ............... 240,000 13,950,000
MediaOne Group, Inc.* .................. 302,000 13,269,125
Telecomunicacoes Brasileiras S/A (ADR)
(Brazil)............................... 1,300 141,944
U.S. WEST, Inc. ........................ 8,248 387,638
360 Communications Co.* ................ 207,200 6,630,400
-------------
63,032,400
-------------
Tobacco (1.13%)
Philip Morris Cos., Inc. ............... 264,800 10,426,500
-------------
Transport (4.44%)
Burlington Northern Santa Fe Corp. ..... 87,000 8,542,312
CSX Corp. .............................. 86,100 3,917,550
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Transport (continued)
GATX Corp. ............................. 150,000 $6,581,250
KLM Royal Dutch Airlines N.V. (Netherlands) 390,000 15,965,625
Northwest Airlines Corp. (Class A)* .... 150,000 5,784,375
-------------
40,791,112
-------------
Utilities (5.42%)
Atmos Energy Corp. ..................... 54,000 1,647,000
Bay State Gas Co. ...................... 36,800 1,409,900
BEC Energy ............................. 46,000 1,909,000
BellSouth Corp. ........................ 20,000 1,342,500
CMS Energy Corp. ....................... 47,000 2,068,000
DTE Energy Corp. ....................... 30,000 1,211,250
Eastern Enterprises .................... 27,000 1,157,625
Edison International ................... 33,000 975,563
Energen Corp. .......................... 100,000 2,012,500
Florida Progress Corp. ................. 26,500 1,089,812
GTE Corp. .............................. 15,000 834,375
IPALCO Enterprises, Inc. ............... 29,000 1,288,688
KN Energy Inc. ......................... 25,000 1,354,687
MarketSpan Corp.* ...................... 134,140 4,015,816
MDU Resources Group, Inc. .............. 35,000 1,249,062
National Fuel Gas Co. .................. 36,000 1,568,250
National Power PLC (ADR) (United Kingdom) 4,000 147,500
New England Electric System ............ 37,000 1,600,250
Niagara Mohawk Power Corp.*............. 75,000 1,120,313
NUI Corp. .............................. 52,000 1,322,750
PacifiCorp ............................. 50,000 1,131,250
People's Energy Corp ................... 30,000 1,158,750
Potomac Electric Power Co. ............. 23,000 576,438
PowerGen PLC (ADR) (United Kingdom)..... 13,000 732,875
Providence Energy Corp. ................ 42,000 884,625
Puget Sound Energy, Inc. ............... 32,000 858,000
SBC Communications, Inc. ............... 110,000 4,400,000
Sempra Energy* ......................... 75,190 2,086,522
Sierra Pacific Resources ............... 30,000 1,089,375
Southern Co. ........................... 36,000 996,750
Texas Utilities Co. .................... 14,500 603,563
UtiliCorp United, Inc. ................. 47,000 1,771,313
Washington Gas Light Co. ............... 36,000 963,000
Washington Water Power Co. ............. 48,500 1,088,219
Wicor, Inc. ............................ 60,200 1,392,125
Yankee Energy System, Inc. ............. 31,000 763,375
-------------
49,821,021
-------------
TOTAL COMMON STOCKS
(Cost $567,995,398) (88.50%) 813,956,523
----------- -------------
PREFERRED STOCKS
Banks - United States (0.15%)
Chase Manhattan Corp., 10.84%, Ser C ... 44,900 $1,358,225
-------------
Broker Services (0.85%)
Salomon, Inc. 7.625%, Ser FSA .......... 165,000 7,816,875
-------------
Insurance (0.13%)
Conseco, Inc. 7.00%, Ser E ............. 7,700 1,247,400
-------------
Leasing Companies (0.06%)
Capita Preferred Trust, 9.06% .......... 20,000 545,000
-------------
Telecommunications (0.12%)
Sprint Corp. 8.25% ..................... 19,000 1,098,438
-------------
Tobacco (0.23%)
DECS Trust, 8.50% ...................... 155,000 2,131,250
-------------
Utilities (0.20%)
El Paso Tennessee Pipeline Co., 8.25%,
Ser A ................................. 19,000 1,055,688
MCN Michigan, L.P., 9.375%, Ser A ...... 30,000 774,375
-------------
1,830,063
-------------
TOTAL PREFERRED STOCKS
(Cost $14,237,770) (1.74%) 16,027,251
----------- -------------
INTEREST CREDIT PAR VALUE
RATE RATING** (000s OMITTED)
---- -------- --------------
BOND
Banks - Foreign (0.55%)
Fuji Bank Ltd.
Bond 12-31-49(R) 9.870% BB+ $5,700 5,044,500
-------------
TOTAL BOND
(Cost $5,008,875) (0.55%) 5,044,500
----------- -------------
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
INTEREST PAR VALUE MARKET
RATE (000s OMITTED) VALUE
---- -------------- -----
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (9.47%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc.- dated 06-30-98,
due 07-01-98 (Secured by U.S.
Treasury Bond, 9.125% due
05-15-18, and U.S. Treasury
Notes, 5.00% thru 8.75% due
12-31-98 thru 04-30-03)
- Note A........................ 5.750% $87,126 $87,126,000
-------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ............. 200
-------------
TOTAL SHORT-TERM INVESTMENTS (9.47%) 87,126,200
---------- -------------
TOTAL INVESTMENTS (100.26%) 922,154,474
---------- -------------
OTHER ASSETS AND LIABILITIES, NET (0.26%) (2,368,836)
---------- -------------
TOTAL NETASSETS (100.00%) $919,785,638
========== =============
* Non-income producing security.
** Credit ratings are unaudited and rated by Moody's Investor Services or
John Hancock Advisers, Inc. where Standard and Poor's ratings are not
available.
(R) This security is exempt from registration under rule 144A of the
Securities Act of 1933. Such security may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $5,044,500 or 0.55% of net assets as of June 30,
1998.
The percentage shown for each investment category is the total of that category
as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==========================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 multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The Trustees
authorized the issuance of Class C shares effective May 1, 1998. The shares of
each class represent an interest in the same portfolio of investments of the
Fund and have equal rights to voting, redemptions, dividends and liquidation,
except that certain expenses, subject to the approval of the Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal Revenue
Service. Shareholders of a class which bears distribution and service expenses
under 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,
Inc., may participate in a joint repurchase agreement. Aggregate cash balances
are invested in one or more repurchase agreements, whose underlying securities
are obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
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.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the period ended June 30, 1998.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities, other than investments in securities, at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
Open foreign currency forward contracts sold at June 30, 1998, were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT MONTH APPRECIATION
- -------- ------------------- ----- ------------
JAPANESE YEN 988,181,000 DEC 98 $85,139
============
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to 0.625% of the Fund's average daily net asset value. The
Adviser has agreed to a one-time reduction
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
of its management fee of $150,000 for the fiscal year 1998 only. Accordingly,
the reduction in the management fee amount to $74,383 for the period ended June
30, 1998.
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,
1998, net sales charges received with regard to sales of Class A shares amounted
to $1,644,966. Out of this amount, $257,452 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $955,431 was
paid as sales commissions to unrelated broker-dealers and $432,083 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 for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended June 30, 1998,
contingent deferred sales charges amounted to $334,835.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market value
at the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or
in part to defray its expenses related for providing distribution related
services to the Fund in connection with the sale of Class C shares. For the
period ended June 30, 1998, contingent deferred sales charges amounted to $13.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the 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 and Class C
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 transaction the number of shareholder
accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its affiliates, as
well as Trustees of the Fund. The compensation of unaffiliated Trustees is borne
by the Fund. The unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation. Investments to
cover the Fund's deferred compensation liability 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, 1998, the Funds investments to cover the deferred
compensation liability had unrealized appreciation of $2,349.
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, 1998, aggregated $338,742,987 and
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
$153,806,408, respectively. There were no purchases or sales of obligations of
the U.S. government and its agencies during the period ended June 30, 1998.
The cost of investments owned at June 30, 1998 (excluding the corporate
savings acccount) for federal income tax purposes was $675,130,236. Gross
unrealized appreciation and depreciation of investments aggregated $259,434,130
and $12,410,092, respectively, resulting in net unrealized appreciation of
$247,024,038.
NOTE D --
REORGANIZATION
On November 12, 1997 the shareholders of John Hancock Utilities Fund ("JHUF")
approved a plan of reorganization between JHUF and the Fund providing for the
transfer of substantially all of the assets and liabilities of JHUF to the Fund
in exchange solely for Class A shares and Class B shares of the Fund. The
acquisition was accounted for as a tax free exchange of 1,152,430 Class A shares
and 2,252,005 Class B shares of the Fund for the net assets of JHUF, which
amounted to $22,250,320 and $43,474,047 for Class A and Class B shares,
respectively, including $12,846,974 of unrealized appreciation, after close of
business at December 5, 1997.
21
<PAGE>
===================================== NOTES ====================================
John Hancock Funds - Growth and Income Fund
22
<PAGE>
================================================================================
----------------
[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 500SA 6/98
8/98
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Sovereign
Balanced Fund
JUNE 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
--------------------------------------------
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 and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
CUSTODIAN
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
SUB-INVESTMENT ADVISER
SOVEREIGN ASSET MANAGEMENT CORP.
1235 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
--------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer through the
end of June was more of the same. But tremors from Asia have also sparked
increased volatility, as corporate earnings and the U.S. economy have shown
signs of slowing. What's more, a good part of the market's advance has come from
just a small group of the largest companies in the major stock market indexes.
The move ahead has been so narrow that some observers believe that most
stocks have actually been in a bear market this year. The bond market had its
pockets of volatility as well, although U.S. Treasury bonds benefited from their
safe-haven status.
While we don't make a practice of opining on what the market will do next,
we believe that after such a long run up, it would be wise for investors to set
more realistic expectations. Over the long term, the market's historical results
have been more in the 10% per year range, which is still a solid result,
considering it has been produced despite wars, depressions and other social
upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now
could also be a good time to review with your investment professional how your
assets are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY JOHN SNYDER III, AND BARRY EVANS, CFA, PORTFOLIO MANAGERS
John Hancock
Sovereign Balanced Fund
Solid market results despite Asian
uncertainty and economic unrest
The first half of the year was challenging for both the economy and the stock
and bond markets due to political and economic unrest in Asia, the recession and
corrupt business practices in Japan and Russia, and price deflation for many
commodities. On the positive side, however, high U.S. employment levels and
strong wage growth have driven consumer confidence to high levels.
Despite the volatility, the stock market provided strong returns for
investors. Since the start of the year, the Standard & Poor's 500 Stock Index
has gained 17.71%. The market's strong upward trend, however, was not driven by
the broad market, but instead by a narrow group of stocks. Technology stocks, in
particular, were one of the market's strongest sectors, rebounding sharply after
their dismal performance in the fourth quarter of 1997. Dell Computer, for
example, is up 120%; Apple Computer, 119%; Lucent Technologies, 108% and Unisys,
104%.
Performance review
John Hancock Sovereign Balanced Fund turned in solid returns during the first
half of 1998. However, the Fund's performance trailed behind the average
balanced fund. The difference in performance was primarily due to the fact that
we own almost no technology stocks, while many of our peers invest a portion of
their portfolios in this sector. It's not that we don't like technology stocks;
they simply don't meet our primary investment criterion. As long-time
shareholders know, John Hancock Sovereign Balanced Fund focuses on companies
that have increased their dividends consistently for at least
[A 3 1/4" x 2 1/4" photo at bottom right of page of fund management team
members. Caption below reads "Sovereign Investors Fund management team members
(l - r): John Snyder, Barry Evans and Jere Estes."]
"...the stock market provided strong returns for investors."
3
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
"...we've kept our bond exposure relatively light..."
[Pie Chart at the top of left hand column with the heading "Portfolio
Diversification". The chart is divided into three sections (from top to left):
Short-Term Investments & Other 8%, Bonds 26% and Stocks 66%. A note below the
chart reads "As a percentage of net assets on June 30, 1998."]
the past 10 years -- what we call "dividend performers." Most technology stocks
simply don't meet that criterion.
For the six months ended June 30, 1998, John Hancock Sovereign Balanced
Fund's Class A and Class B shares returned 7.38% and 7.01%, respectively, at net
asset value. Keep in mind that your net asset value return will be different
from this performance if you were not invested in the Fund for the entire period
and did not reinvest all distributions. By comparison, the average balanced fund
returned 8.95% for the same period, according to Lipper Analytical Services,
Inc.(1) See pages six and seven for longer-term performance information.
Stocks: Focus on industry leaders
Companies that make up the dividend performers universe share one common
characteristic: they dominate the markets in which they compete. As the economy
slows, it will become more difficult for companies with poor fundamentals to
show attractive sales and earnings growth. Conversely, these dominant companies
will be able to take market share, control industry pricing, expand into new
markets, acquire new lines of business, develop new products and services, and
grow earnings faster than their industry cohorts. In our view, it's particularly
important to own strong companies in the current economic environment. Below are
two examples of companies that we believe will be the winners in a slowing
economy.
Home Depot is the world's largest home-improvement retailer and is among
the top 10 retailers in the United States. Home Depot's dominance is obvious
when compared to its nearest competitor, which had less than half of Home
Depot's sales in 1997. Even with such a dominant market position, Home Depot's
market share is only approximately 25% of the domestic do-it-yourself market,
providing significant growth opportunities.
Interpublic Group is the second largest advertising holding company
worldwide. In addition to owning premier ad agencies like McCann-Erickson,
Interpublic has branched out into non-traditional businesses like direct
marketing, public relations and sports marketing. The U.S. advertising industry
is in the midst of a long expansion and growth in Europe is also picking up.
Interpublic has achieved an impressive acceleration of new business wins over
the past three years and has grown earnings 14% annually over the past five
years.
Bonds: Maintaining light exposure
As we discussed in the annual report six months ago, we currently believe that
stocks offer more
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is First Union
followed by an up arrow with the phrase "Successful acquisition." The second
listing is Dayton Hudson followed by an up arrow with the phrase "Dominant
retailer." The third listing is IKON Office Solutions followed by a down arrow
with the phrase "Difficulty integrating recent acquisitions." A note below the
table reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
4
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended June 30, 1998". The
chart is scaled in increments of 2% with 0% at the bottom and 10% at the top.
The first bar represents the 7.38% total return for John Hancock Sovereign
Balanced Fund Class A. The second bar represents the 7.01% total return for John
Hancock Sovereign Balanced Fund Class B and the third bar represents 8.95% total
return for the average balanced fund. A note below the chart reads "Total
returns for John Hancock Sovereign Balanced Fund are at net asset value with all
distributions reinvested. The average small cap fund is tracked by Lipper
Analytical Services, Inc. (1). See the following two pages for historical
performance information.]
potential. As a result, we've kept our bond exposure relatively light throughout
the first half of the year. At the end of June, our bond position was 26%. Our
holdings were split between U.S. Treasury bonds and high-quality corporate
bonds.
We've also kept our duration neutral at approximately 4.5 years. Duration
measures how sensitive a fund's share price is to interest-rate changes. The
shorter the duration, the less sensitive the share price to interest-rate
changes. Because of our strong positions in financial stocks and other
interest-rate-sensitive companies, the Fund already has a substantial degree of
interest-rate exposure. As a result, we plan to maintain a neutral duration in
the bond portfolio for the near term.
Outlook
With the market flirting with new highs, it does not take much courage to
predict that the upward spiral will continue for awhile. The economy has been
stronger than expected. The flow of funds into stocks from both domestic and
foreign sources has also been very strong. Inflation has been -- and will
continue to be -- benign. However, we do believe that the strong economic
underpinnings that provided good corporate earnings last year are disappearing.
If this is the case, the market expansion will not be able to continue.
Valuations are already extended in a number of areas, including those companies
that have been driving the S&P 500.
The reasons for benign inflation are the very same reasons for our concern
about corporate profits in the second half of the year. Global competition has
taken almost all of the power to set prices away from corporations and given it
to the consumer. Therefore, growth in corporate profits will have to come from
increased efficiencies. This suggests substantially slower profit growth.
We continue to believe that this is the sweet spot of the economic cycle
for the stable growth companies. As corporate earnings growth abates, the
economy is likely to show signs of slowing in the second half of 1998. We
believe companies that historically have been able to grow their earnings
consistently -- that is, "dividend performers" -- will be able to do so through
an economic slowdown.
"...the economy is likely to show signs of slowing in the second half of 1998."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Sovereign Balanced Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended June 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/5/92)
---- ----- ---------
Cumulative Total Returns 11.59% 74.27% 88.85%
Average Annual Total Returns 11.59% 11.75% 11.73%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended June 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/5/92)
---- ----- ---------
Cumulative Total Returns 11.74% 75.22% 90.19%
Average Annual Total Returns 11.74% 11.87% 11.86%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of June 30, 1998
SEC 30-DAY
YIELD
-------
John Hancock Sovereign Balanced Fund: Class A 2.28%
John Hancock Sovereign Balanced Fund: Class B 1.74%
6
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Sovereign Balanced Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard & Poor's 500 Stock Index -- an unmanaged
index that includes 500 widely traded common stocks and is often used as a
measure of stock market performance.
- --------------------------------------------------------------------------------
Sovereign Balanced Fund
Class A shares
Line chart with the heading Sovereign Balanced 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 $31,085 as of June 30, 1998. The second line represents the value of
the hypothetical $10,000 investment made in the Sovereign Balanced Fund on
October 5, 1992, before sales charge, and is equal to $19,879 as of June 30,
1998. The third line represents the Sovereign Balanced Fund after sales charge
and is equal to $18,885 as of June 30, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sovereign Balanced Fund
Class B shares
Line chart with the heading Sovereign Balanced 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 $31,085 as of June 30, 1998. The second line represents the value of
the hypothetical $10,000 investment made in the Sovereign Balanced Fund on
October 5, 1992, before sales charge, and is equal to $19,119 as June 30, 1998.
The third line represents the Sovereign Balanced Fund after sales charge and is
equal to $19,019 as of June 30, 1998.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value -- Note C:
Common stocks and preferred stocks
(cost-- $88,331,528) .................................... $130,165,277
Corporate bonds (cost-- $30,740,627) ...................... 31,046,973
United States government and agencies obligations
(cost -- $18,934,526) ................................... 19,855,765
Joint repurchase agreement (cost -- $16,916,000) .......... 16,916,000
Corporate savings account ................................. 12,365
------------
197,996,380
Receivable for investments sold ............................ 1,321,104
Receivable for shares sold ................................. 27,506
Dividends receivable ....................................... 124,313
Interest receivable ........................................ 1,163,395
Other assets ............................................... 26,335
------------
Total Assets ............................. 200,659,033
------------------------------------------------------------
Liabilities:
Payable for investments purchased .......................... 3,013,708
Payable for shares repurchased ............................. 36,064
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 166,357
Accounts payable and accrued expenses ...................... 38,091
------------
Total Liabilities ........................ 3,254,220
------------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 146,436,819
Accumulated net realized gain on investments ............... 7,901,621
Net unrealized appreciation of investments ................. 43,063,007
Undistributed net investment income ........................ 3,366
------------
Net Assets ............................... $197,404,813
============================================================
Net Asset Value Per Share:
(Based on net asset values and shares of
beneficial interest outstanding --
30,000,000 shares authorized per class
with $0.01 par value per share)
Class A -- $90,411,034/6,394,445 ........................... $14.14
==============================================================================
Class B -- $106,993,779/7,568,182 .......................... $14.14
==============================================================================
Maximum Offering Price Per Share*
Class A -- ($14.14 x 105.26%) .............................. $14.88
==============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Operations
Six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ..................................................... $2,474,104
Dividends (net of foreign withholding taxes of $8,275) ....... 1,079,624
-----------
3,553,728
-----------
Expenses:
Investment management fee -- Note B ....................... 577,640
Distribution and service fee -- Note B
Class A ................................................. 131,569
Class B ................................................. 515,500
Transfer agent fee -- Note B .............................. 199,426
Custodian fee ............................................. 23,121
Registration and filing fees .............................. 18,549
Financial services fee -- Note B .......................... 17,012
Auditing fee .............................................. 15,000
Printing .................................................. 8,117
Trustees' fees ............................................ 8,015
Miscellaneous ............................................. 6,636
Legal fees ................................................ 1,312
-----------
Total Expenses ............................. 1,521,897
------------------------------------------------------------
Net Investment Income ...................... 2,031,831
------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ........................ 6,091,286
Change in net unrealized appreciation/depreciation
of investments .............................................. 5,162,216
-----------
Net Realized and Unrealized
Gain on Investments ........................ 11,253,502
------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .................. $13,285,333
============================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
----------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .............................................. $4,158,403 $2,031,831
Net realized gain on investments sold .............................. 14,306,942 6,091,286
Change in net unrealized appreciation/depreciation of investments .. 13,605,012 5,162,216
------------- -------------
Net Increase in Net Assets Resulting from Operations ............. 32,070,357 13,285,333
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.3717 and $0.1735 per share, respectively) .......... (2,166,268) (1,094,507)
Class B - ($0.2770 and $0.1248 per share, respectively) .......... (1,974,558) (943,834)
Distributions from net realized gain on investments sold
Class A - ($1.0829 and none per share, respectively) ............. (6,328,684) --
Class B - ($1.0829 and none per share, respectively) ............. (7,611,762) --
------------- -------------
Total Distributions to Shareholders .............................. (18,081,272) (2,038,341)
------------- -------------
From Fund Share Transactions-- Net:* .................................. 9,426,144 644,879
------------- -------------
Net Assets:
Beginning of period ................................................ 162,097,713 185,512,942
------------- -------------
End of period (including undistributed net investment income of
$9,876 and $3,366, respectively) ................................. $185,512,942 $197,404,813
============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
----------- ------------ ----------- ------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 1,109,775 $14,711,593 713,915 $9,916,921
Shares issued to shareholders in reinvestment of distributions .. 617,926 8,180,033 73,902 1,047,554
----------- ------------ ----------- ------------
1,727,701 22,891,626 787,817 10,964,475
Less shares repurchased ......................................... (1,210,119) (16,051,956) (716,005) (9,907,296)
----------- ------------ ----------- ------------
Net increase .................................................... 517,582 $6,839,670 71,812 $1,057,179
=========== ============ =========== ============
CLASS B
Shares sold ..................................................... 778,364 $10,353,777 695,549 $9,671,511
Shares issued to shareholders in reinvestment of distributions .. 668,347 8,845,505 59,060 837,912
----------- ------------ ----------- ------------
1,446,711 19,199,282 754,609 10,509,423
Less shares repurchased ......................................... (1,253,224) (16,612,808) (784,737) (10,921,723)
----------- ------------ ----------- ------------
Net increase (decrease) ......................................... 193,487 $2,586,474 (30,128) ($412,300)
=========== ============ =========== ============
</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 gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------------- JUNE 30, 1998
1993 1994 1995 1996 1997 (UNAUDITED)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $10.19 $10.74 $9.84 $11.75 $12.27 $13.33
------- ------- ------- ------- ------- -------
Net Investment Income ................................ 0.46 0.50 0.44(1) 0.41(1) 0.37(1) 0.17(1)
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 0.68 (0.88) 1.91 0.99 2.14 0.81
------- ------- ------- ------- ------- -------
Total from Investment Operations ................... 1.14 (0.38) 2.35 1.40 2.51 0.98
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ............... (0.45) (0.50) (0.44) (0.41) (0.37) (0.17)
Distributions from Net Realized Gain on
Investments Sold ................................. (0.14) (0.02) -- (0.47) (1.08) --
------- ------- ------- ------- ------- -------
Total Distributions ................................ (0.59) (0.52) (0.44) (0.88) (1.45) (0.17)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ....................... $10.74 $9.84 $11.75 $12.27 $13.33 $14.14
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(2) ........ 11.38% (3.51%) 24.23% 12.13% 20.79% 7.38%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $62,218 $61,952 $69,811 $71,242 $84,264 $90,411
Ratio of Expenses to Average Net Assets .............. 1.45% 1.23% 1.27% 1.29% 1.22% 1.21%(4)
Ratio of Net Investment Income to Average Net Assets . 4.44% 4.89% 3.99% 3.33% 2.77% 2.48%(4)
Portfolio Turnover Rate .............................. 85% 78% 45% 80% 115% 26%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------------- JUNE 30, 1998
1993 1994 1995 1996 1997 (UNAUDITED)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $10.20 $10.75 $9.84 $11.74 $12.27 $13.33
------- ------- ------- ------- -------- --------
Net Investment Income ................................ 0.37 0.43 0.36(1) 0.32(1) 0.28(1) 0.12(1)
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 0.70 (0.89) 1.90 1.01 2.14 0.81
------- ------- ------- ------- -------- --------
Total from Investment Operations ................... 1.07 (0.46) 2.26 1.33 2.42 0.93
------- ------- ------- ------- -------- --------
Less Distributions:
Dividends from Net Investment Income ............... (0.38) (0.43) (0.36) (0.33) (0.28) (0.12)
Distributions from Net Realized Gain on
Investments Sold ................................. (0.14) (0.02) -- (0.47) (1.08) --
------- ------- ------- ------- -------- --------
Total Distributions ................................ (0.52) (0.45) (0.36) (0.80) (1.36) (0.12)
------- ------- ------- ------- -------- --------
Net Asset Value, End of Period ....................... $10.75 $9.84 $11.74 $12.27 $13.33 $14.14
======= ======= ======= ======= ======== ========
Total Investment Return at Net Asset Value(2) ........ 10.63% (4.22%) 23.30% 11.46% 19.96% 7.01%(3)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $78,775 $79,176 $87,827 $90,855 $101,249 $106,994
Ratio of Expenses to Average Net Assets .............. 2.10% 1.87% 1.96% 1.99% 1.91% 1.89%(4)
Ratio of Net Investment Income to Average Net Assets . 4.01% 4.25% 3.31% 2.63% 2.08% 1.80%(4)
Portfolio Turnover Rate .............................. 85% 78% 45% 80% 115% 26%
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Not annualized.
(4) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Schedule of Investments
June 30, 1998 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks, as well as price
earnings ratios.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<S> <C> <C>
COMMON STOCKS (64.72%)
Advertising (1.54%)
50,000 Interpublic Group of Companies, Inc.
@ 60 11/16................................................................... $3,034,375
------------
One of the largest advertising agencies
in the world
Earnings P/S..............$ .70, .79, .78, .88, .93, 1.13, 1.26, 1.12, 1.79, 2.00 12.4%
Dividends P/S..................$ .17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7%
Price/Earnings Ratio.........................................................30.4
Banks (6.13%)
45,000 Banc One Corp. @ 55 13/16........................................................ 2,511,563
Ohio-based bank holding company
Earnings P/S.........$ 1.29, 1.37, 1.51, 1.75, 1.96, 2.09, 1.80, 2.20, 2.52, 1.99 4.9%
Dividends P/S..............$ .46, .52, .57, .63, .73, .89, 1.02, 1.12, 1.24, 1.38 13.0%
Price/Earnings Ratio.........................................................16.3
10,000 BankAmerica Corp. @ 86 7/16...................................................... 864,375
Holding company for Bank of America operating
in the West
Earnings P/S..........$ .76, 1.03, 2.08, 2.39, 2.12, 2.44, 2.78, 3.42, 3.86, 4.60 22.1%
Dividends P/S...............$ .30, .50, .60, .65, .70, .80, .92, 1.08, 1.22, 1.38 18.5%
Price/Earnings Ratio.........................................................20.8
60,000 First Tennessee National Corp. @ 31 9/16......................................... 1,893,750
Tennessee-based bank holding company
Earnings P/S...............$ .31, .50, .61, .75, .81, .88, 1.04, 1.24, 1.36, 1.60 20.0%
Dividends P/S..................$ .21, .24, .27, .29, .32, .38, .43, .49, .55, .62 12.8%
Price/Earnings Ratio.........................................................20.4
60,000 KeyCorp. @ 35 5/8................................................................ 2,137,500
Bank holding company with offices from
coast to coast
Earnings P/S.........$ 1.05, 1.16, 1.18, 1.23, 1.20, 1.43, 1.70, 1.71, 1.67, 2.07 7.8%
Dividends P/S..................$ .34, .40, .44, .46, .49, .56, .64, .72, .76, .84 10.6%
Price/Earnings Ratio.........................................................16.1
40,000 NationsBank Corp. @ 76 1/2....................................................... 3,060,000
Largest superregional bank in the Southeast
Earnings P/S...........$ 2.22, 1.31, .38, .70, 2.21, 2.71, 3.10, 3.63, 4.05, 3.83 6.2%
Dividends P/S...............$ .47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.37 12.6%
Price/Earnings Ratio.........................................................22.2
40,000 Regions Financial Corp. @ 41 1/16................................................ 1,642,500
Holding company for Regions Bank operating
in the Southeast
Earnings P/S..........$ .96, 1.03, 1.00, 1.13, 1.37, 1.54, 1.71, 1.63, 1.93, 2.26 9.9%
Dividends P/S..................$ .36, .38, .42, .44, .45, .52, .60, .66, .70, .80 9.3%
Price/Earnings Ratio.........................................................18.6
------------
12,109,688
------------
Beverages (0.83%)
40,000 PepsiCo, Inc. @ 41 3/16.......................................................... 1,647,500
------------
Second largest soft drink company
Earnings P/S...............$ .57, .69, .70, .69, .82, 1.00, 1.14, 1.05, .72, 1.02 6.7%
Dividends P/S..................$ .12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4%
Price/Earnings Ratio.........................................................41.5
Building (1.23%)
40,000 Masco Corp. @ 60 1/2............................................................. 2,420,000
------------
Manufactures building, home improvement
and consumer products
Earnings P/S......$ 2.03, 1.42, .91, .57, .46, 1.30, 1.48, 1.14, 1.20, 2.01, 2.53 2.5%
Dividends P/S..................$ .44, .50, .54, .57, .61, .65, .69, .73, .77, .81 7.0%
Price/Earnings Ratio...........................................................25
Chemicals (3.55%)
50,000 Air Products & Chemicals, Inc. @ 40.............................................. 2,000,000
Producer of industrial gases
Earnings P/S..........$ 1.01, 1.04, 1.11, 1.16, 1.25, .63, 1.42, 1.87, 1.80, 2.31 9.6%
Dividends P/S..................$ .28, .32, .35, .38, .42, .45, .48, .51, .54, .58 8.4%
Price/Earnings Ratio.........................................................16.9
150,000 RPM, Inc. @ 17................................................................... 2,550,000
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof structures
Earnings P/S...................$ .37, .34, .32, .40, .35, .58, .65, .71, .66, .84 9.5%
Dividends P/S..................$ .20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6%
Price/Earnings Ratio.........................................................19.2
70,000 Sigma-Aldrich Corp. @ 35 1/8..................................................... 2,458,750
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S..............$ .65, .72, .59, .84, .99, 1.11, 1.14, 1.36, 1.52, 1.69 12.8%
Dividends P/S..................$ .08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0%
Price/Earnings Ratio.........................................................20.5
------------
7,008,750
------------
Computers (2.50%)
35,000 Automatic Data Processing, Inc. @ 72 7/8......................................... 2,550,625
Largest independent computing services firm
in the U.S.
Earnings P/S.............$ .63, .72, .79, .90, 1.01, 1.15, 1.34, 1.53, 1.74, 1.94 13.3%
Dividends P/S..................$ .13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6%
Price/Earnings Ratio.........................................................38.1
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the
Sovereign Balanced Fund on June 30, 1998. It's divided into five main
categories: common stocks, preferred stocks, corporate bonds, U.S. government
and agencies obligations and short-term investments. The common stocks are
further broken down by industry group. Short-term investments, which represent
the Fund's "cash" position, are listed last.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<S> <C> <C>
Computers (continued)
40,000 Hewlett-Packard Co. @ 59 7/8..................................................... $2,395,000
Manufactures and services electronic
measurement, analysis and computation
instruments
Earnings P/S..............$ .88, .77, .83, .93, .86, 1.31, 1.92, 2.63, 2.69, 2.88 14.1%
Dividends P/S..................$ .07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5%
Price/Earnings Ratio.........................................................20.7
------------
4,945,625
------------
Containers (2.01%)
40,000 Bemis Company, Inc. @ 40 7/8..................................................... 1,635,000
Producer of a broad range of flexible
packaging and equipment and pressure
sensitive materials
Earnings P/S.............$ .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73, 1.86, 2.05 9.6%
Dividends P/S..................$ .22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4%
Price/Earnings Ratio.........................................................19.4
77,000 Sonoco Products Corp. @ 30 1/4................................................... 2,329,250
Leading manufacturer of containers,
paper products and packaging
Earnings P/S...........$ 1.05, 1.12, .55, 1.05, .89, 1.29, 1.33, 1.72, 1.81, 1.81 6.2%
Dividends P/S..................$ .28, .35, .39, .40, .43, .46, .48, .54, .59, .64 9.6%
Price/Earnings Ratio.........................................................16.5
------------
3,964,250
------------
Diversified Operations (0.94%)
15,000 DuPont (E.I.) De Nemours & Co. @ 74 5/8.......................................... 1,119,375
Nation's largest chemical manufacturer
Earnings P/S............$ 1.77, 1.70, 1.69, .92, .76, .52, 2.23, 2.90, 3.35, 2.02 1.5%
Dividends P/S...............$ .62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9%
Price/Earnings Ratio.........................................................33.7
50,000 IKON Office Solutions, Inc. @ 14 9/16............................................ 728,125
Distributor of office and paper products
Earnings P/S...............$ 1.14, .88, .81, 1.04, 1.18, .05, .74, 1.55, .97, .89 NMF
Dividends P/S........$ .080, .089, .097, .103, .106, .111, .117, .123, .129, .160 8.0%
Price/Earnings Ratio.........................................................16.8
------------
1,847,500
------------
Electronics (5.40%)
60,000 Emerson Electric Co. @ 60 3/8.................................................... 3,622,500
Produces and sells electrical/electronic
products and systems
Earnings P/S.........$ 1.32, 1.38, 1.40, 1.44, 1.53, 1.91, 1.95, 2.15, 2.39, 2.66 8.1%
Dividends P/S................$ .52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8%
Price/Earnings Ratio.........................................................23.4
35,000 General Electric Co. @ 91........................................................ 3,185,000
Dominant force in home appliances, electrical
power and financial services
Earnings P/S.........$ 1.09, 1.21, 1.26, 1.28, 1.12, 1.57, 1.84, 2.08, 2.34, 2.67 10.5%
Dividends P/S.................$ .35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9%
Price/Earnings Ratio.........................................................35.1
65,000 Grainger (W.W.), Inc. @ 49 13/16................................................. 3,237,812
Leading distributor of electrical equipment
Earnings P/S.........$ 1.10, 1.15, 1.16, 1.19, 1.35, 1.52, 1.31, 1.85, 2.07, 2.37 8.9%
Dividends P/S..................$ .22, .25, .28, .31, .33, .35, .39, .45, .49, .53 10.3%
Price/Earnings Ratio.........................................................21.6
15,000 Hubbell, Inc. (Class B) @ 41 5/8................................................. 624,375
Manufactures a variety of electrical products
Earnings P/S.........$ 1.04, 1.18, 1.21, 1.33, 1.42, 1.01, 1.66, 1.88, 2.21, 2.00 10.5%
Dividends P/S................$ .43, .53, .63, .70, .76, .78, .81, .92, 1.02, 1.13 11.3%
Price/Earnings Ratio.........................................................22.3
------------
10,669,687
------------
Food (1.49%)
80,000 Archer-Daniels-Midland Co. @ 19 3/8.............................................. 1,550,000
Processes and merchandises agricultural
products
Earnings P/S.................$ .65, .74, .70, .75, .83, .77, 1.19, 1.33, .69, .83 2.8%
Dividends P/S........$ .028, .033, .046, .048, .050, .053, .063, .110, .184, .193 23.9%
Price/Earnings Ratio.........................................................21.9
10,000 General Mills, Inc. @ 68 3/8..................................................... 683,750
Leading producer of cereals, specialty foods,
yogurt and snack products
Earnings P/S.........$ 2.06, 2.26, 2.82, 3.05, 3.10, 2.14, 1.64, 3.00, 2.82, 2.67 2.9%
Dividends P/S...........$ .72, .84, .98, 1.14, 1.30, 1.46, 1.55, 1.71, 1.97, 2.09 12.6%
Price/Earnings Ratio.........................................................25.9
20,000 McCormick & Co, Inc. @ 35 23/32.................................................. 714,374
Produces spices, flavorings, seasonings and
other specialty foods for retail, food processor
and food service markets
Earnings P/S.............$ 1.54, .83, .89, 1.05, 1.14, 1.27, 1.31, .89, .72, 1.35 NMF
Dividends P/S..................$ .14, .19, .24, .31, .40, .45, .49, .53, .57, .61 17.8%
Price/Earnings Ratio.........................................................26.1
------------
2,948,124
------------
Furniture (1.01%)
80,000 Leggett & Platt, Inc. @ 25....................................................... 2,000,000
------------
Produces intermediate products for the home furnishings industry
Earnings P/S..................$ .33, .21, .17, .32, .44, .56, .73, .81, .90, 1.13 14.7%
Dividends P/S................$ .08, .095, .105, .11, .12, .14, .16, .19, .23, .27 14.5%
Price/Earnings Ratio.........................................................24.3
Insurance (5.17%)
70,000 AFLAC Corp. @ 30 5/16............................................................ 2,121,875
Global specialty insurer
Earnings P/S...............$ .27, .39, .41, .52, .63, .82, 1.00, 1.20, 1.44, 2.42 27.6%
Dividends P/S..................$ .07, .08, .09, .10, .12, .13, .15, .17, .20, .23 14.1%
Price/Earnings Ratio.........................................................15.4
8,000 General Re Corp. @ 253 1/2....................................................... 2,028,000
Broadly based re-insurance organization
Earnings P/S......$ 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02, 10.59, 11.08, 12.56 7.6%
Dividends P/S........$ 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04, 2.20 7.0%
Price/Earnings Ratio.........................................................20.4
65,000 ReliaStar Financial Corp. @ 48................................................... 3,120,000
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S............$ 1.00, .98, .98, .83, 1.13, 1.42, 1.74, 2.32, 2.55, 2.66 11.5%
Dividends P/S..................$ .29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6%
Price/Earnings Ratio.........................................................18.9
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<S> <C> <C>
Insurance (continued)
30,000 Travelers Group, Inc. @ 60 5/8................................................... $1,818,750
Diversified financial services company
Earnings P/S............$ .91, .71, .82, 1.07, 1.67, 1.94, 1.93, 2.75, 3.50, 3.00 14.2%
Dividends P/S................$ .045, .048, .06, .08, .12, .16, .19, .27, .30, .40 27.5%
Price/Earnings Ratio.........................................................23.6
20,000 UNUM Corp. @ 55 1/2.............................................................. 1,110,000
Provides disability/health/life insurance and
pension products
Earnings P/S...........$ .98, 1.15, 1.40, 1.65, 1.87, 2.01, .96, 1.99, 1.94, 2.52 11.1%
Dividends P/S..................$ .12, .14, .19, .25, .31, .38, .46, .52, .55, .57 18.9%
Price/Earnings Ratio.........................................................23.4
------------
10,198,625
------------
Leisure (1.09%)
55,000 Hasbro, Inc. @ 39 5/16........................................................... 2,162,187
------------
Manufactures toys and infant care products
Earnings P/S..............$ .55, .68, .70, .63, 1.36, 1.48, 1.32, 1.21, 1.56, .91 5.8%
Dividends P/S..................$ .05, .07, .08, .10, .13, .15, .18, .21, .25, .31 22.5%
Price/Earnings Ratio.........................................................43.9
Machinery (2.94%)
70,000 Dover Corp. @ 34 1/4............................................................. 2,397,500
Manufactures a variety of specialized
industrial products
Earnings P/S................$ .57, .64, .61, .54, .58, .73, .97, 1.30, 1.73, 1.87 14.1%
Dividends P/S..................$ .16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4%
Price/Earnings Ratio...........................................................18
80,000 Pentair, Inc. @ 42 1/2........................................................... 3,400,000
Manufactures enclosures for electrical, electronic,
woodworking and power tool equipment
Earnings P/S............$ .99, .84, .89, 1.11, 1.11, 1.14, 1.32, 1.55, 1.93, 2.39 10.3%
Dividends P/S..................$ .22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5%
Price/Earnings Ratio.........................................................17.4
------------
5,797,500
------------
Media (1.45%)
35,000 McGraw-Hill Companies, Inc. @ 81 9/16............................................ 2,854,688
------------
Provides informational products and services
for business and industry
Earnings P/S...........$ .41, 1.77, 1.73, 1.51, 1.60, .11, 2.04, 2.31, 4.98, 2.99 24.7%
Dividends P/S.........$ .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44 5.1%
Price/Earnings Ratio.........................................................27.8
Medical (6.47%)
80,000 Abbott Laboratories @ 40 7/8..................................................... 3,270,000
Major pharmaceutical and healthcare firm
Earnings P/S...............$ .48, .56, .59, .69, .79, .89, 1.01, 1.14, 1.29, 1.44 13.0%
Dividends P/S..................$ .15, .17, .20, .24, .29, .33, .37, .41, .47, .53 15.1%
Price/Earnings Ratio.........................................................30.5
20,000 American Home Products Corp. @ 51 3/4............................................ 1,035,000
Producer of pharmaceuticals and
medical devices
Earnings P/S............$ .89, 1.51, 1.53, .92, 1.13, 1.20, 1.74, .92, 1.55, 1.88 8.7%
Dividends P/S..................$ .45, .49, .54, .60, .67, .72, .74, .76, .79, .83 7.0%
Price/Earnings Ratio.........................................................26.3
20,000 Baxter International, Inc. @ 53 13/16............................................ 1,076,250
The company operates four divisions: renal,
biotech, cardiovascular and intravenous systems
and international distribution
Earnings P/S........$ 1.50, (.05), 1.91, 1.81, 1.73, (.70), 2.01, 1.50, .86, 2.39 5.3%
Dividends P/S...............$ .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3%
Price/Earnings Ratio.........................................................22.9
20,000 Bristol-Myers Squibb Co. @ 114 15/16............................................. 2,298,750
Producer of pharmaceuticals, medical devices,
toiletries and beauty aids
Earnings P/S.........$ 1.70, 1.67, 1.75, 2.00, 1.53, 1.92, 1.95, 1.86, 2.93, 3.34 7.8%
Dividends P/S.........$ .84, 1.00, 1.06, 1.20, 1.38, 1.44, 1.46, 1.48, 1.50, 1.52 6.8%
Price/Earnings Ratio.........................................................35.8
38,000 Johnson & Johnson @ 73 3/4....................................................... 2,802,500
Major producer of prescription and
non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S............$ .81, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.94, 2.26, 2.54 13.5%
Dividends P/S..................$ .24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1%
Price/Earnings Ratio.........................................................28.3
25,000 Schering-Plough Corp. @ 91 5/8................................................... 2,290,625
Producer of prescription and non-prescription
drugs, animal health care products, and skin
and foot care products
Earnings P/S..............$ .53, .63, .66, .80, .94, 1.10, 1.26, 1.49, 1.72, 2.07 16.3%
Dividends P/S..................$ .18, .22, .27, .32, .38, .44, .50, .56, .64, .74 17.0%
Price/Earnings Ratio.........................................................47.5
------------
12,773,125
------------
Office (1.46%)
60,000 Pitney Bowes, Inc. @ 48 1/8...................................................... 2,887,500
------------
Manufactures office automation equipment
Earnings P/S.............$ .57, 1.15, .68, .90, .99, 1.00, 1.17, 1.38, 1.63, 1.87 14.1%
Dividends P/S..................$ .23, .26, .30, .34, .39, .45, .52, .60, .69, .80 14.9%
Price/Earnings Ratio.........................................................13.5
Oil & Gas (4.1%)
30,000 Chevron Corp. @ 83 1/16.......................................................... 2,491,875
Integrated, international oil company engaged
in petroleum operations, chemical operations
and coal mining
Earnings P/S.........$ 2.81, 3.05, 3.18, 1.54, 3.57, 1.77, 2.70, 1.67, 4.32, 4.47 5.3%
Dividends P/S........$ 1.28, 1.40, 1.48, 1.63, 1.65, 1.75, 1.85, 1.93, 2.08, 2.28 6.6%
Price/Earnings Ratio.........................................................18.3
40,000 Mobil Corp. @ 76 5/8............................................................. 3,065,000
One of the largest integrated, international
oil companies with interest in petrochemicals
and plastics
Earnings P/S.........$ 2.20, 2.30, 2.70, 1.60, 2.02, 2.60, 2.27, 3.07, 3.81, 3.94 6.7%
Dividends P/S........$ 1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12 6.7%
Price/Earnings Ratio...........................................................19
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ---- -----
<S> <C> <C>
Oil & Gas (continued)
60,000 Shell Transport &Trading Co., PLC
American Depositary Receipts
(Great Britain) @ 42 3/8..................................................... $2,542,500
Involved in all phases in the petroleum industry
Earnings P/S...............$ .62, .76, .63, .70, .64, .87, 1.01, 1.27, 1.33, 1.57 10.9%
Dividends P/S..................$ .08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio.........................................................18.3
------------
8,099,375
------------
Paper & Paper Products (0.63%)
27,000 Kimberly-Clark Corp. @ 45 7/8.................................................... 1,238,625
------------
Leading producer of consumer and personal
care products
Earnings P/S..........$ 1.32, 1.35, 1.36, 1.63, 1.06, 1.63, 1.60, .27, 2.58, 1.47 1.2%
Dividends P/S..................$ .39, .63, .66, .74, .80, .84, .86, .88, .92, .96 10.5%
Price/Earnings Ratio.........................................................31.8
Retail (7.43%)
70,000 Dayton Hudson Corp. @ 48 1/2..................................................... 3,395,000
General merchandiser selling through Target
and Mervyn stores
Earnings P/S...........$ 1.15, .56, .93, .85, .65, .83, .85, .90, .74, 1.24, 1.88 14.4%
Dividends P/S..................$ .17, .19, .22, .24, .26, .27, .28, .29, .31, .33 7.6%
Price/Earnings Ratio.........................................................26.6
37,000 Home Depot, Inc. @ 83 1/16....................................................... 3,073,313
Operates a chain of retail building supply/home
improvement warehouse stores
Earnings P/S...................$ .11, .12, .16, .22, .29, .36, .45, .54, .70, .85 25.5%
Dividends P/S................$ .005, .01, .015, .02, .03, .04, .05, .07, .08, .10 39.5%
Price/Earnings Ratio.........................................................57.4
20,000 May Department Stores @ 65 1/2................................................... 1,310,000
Department store retailer
Earnings P/S...........1.75, 1.83, 1.99, 2.03, 2.42, 2.83, 2.96, 2.77, 2.97, 3.33 7.4%
Dividends P/S...............$ .56, .63, .70, .73, .75, .81, .91, 1.01, 1.13, 1.20 8.8%
Price/Earnings Ratio.........................................................20.4
150,000 Sysco Corp. @ 25 5/8............................................................. 3,843,750
Largest distributor of food service products
Earnings P/S...................$ .30, .37, .40, .45, .50, .58, .67, .74, .82, .93 5.0%
Dividends P/S.................$ .04, .045, .05, .07, .11, .14, .18, .22, .26, .30 25.1%
Price/Earnings Ratio.........................................................27.2
50,000 Wal-Mart Stores, Inc. @ 60 3/4................................................... 3,037,500
Operates chain of discount department stores
Earnings P/S..............$ .48, .50, .59, .73, .90, 1.05, 1.20, 1.21, 1.38, 1.64 14.6%
Dividends P/S..................$ .04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6%
Price/Earnings Ratio.........................................................39.1
------------
14,659,563
------------
Utilities (7.35%)
45,000 Ameritech Corp. @ 44 7/8......................................................... 2,019,375
Provider of local telephone service
Earnings P/S.........$ 1.15, 1.18, 1.17, 1.15, 1.21, 1.15, 1.55, 1.72, 1.99, 2.06 6.7%
Dividends P/S...............$ .69, .75, .81, .86, .89, .93, .97, 1.02, 1.08, 1.15 5.8%
Price/Earnings Ratio.........................................................22.9
55,000 Century Telephone Enterprises, Inc. @ 45 7/8..................................... 2,523,125
Louisiana-based telecommunications company
Earnings P/S...............$ .23, .37, .45, .60, .88, .93, 1.33, 1.33, 1.47, 3.09 33.5%
Dividends P/S........$ .176, .181, .189, .191, .196, .207, .213, .220, .240, .247 3.8%
Price/Earnings Ratio...........................................................16
25,000 Duke Energy Corp. @ 59 1/4....................................................... 1,481,250
Generates, transmits, distributes and sells
electric energy in the Piedmont sections of
North and South Carolina
Earnings P/S.........$ 2.57, 2.40, 2.44, 2.44, 2.39, 2.96, 3.01, 3.11, 2.96, 2.92 1.4%
Dividends P/S........$ 1.42, 1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08, 2.16 4.8%
Price/Earnings Ratio.........................................................20.1
50,000 Northern States Power Co. @ 28 5/8............................................... 1,431,250
Provides electric service in the upper Midwest
Earnings P/S.........$ 1.62, 1.42, 1.39, 1.42, 1.25, 1.58, 1.74, 1.94, 1.89, 1.52 NMF
Dividends P/S........$ 1.05, 1.10, 1.15, 1.20, 1.25, 1.28, 1.31, 1.34, 1.37, 1.40 3.2%
Price/Earnings Ratio.........................................................18.5
80,000 Questar Corp. @ 19 5/8........................................................... 1,570,000
Diversified holding company for Utah, Wyoming
and Colorado natural gas transmission,
distribution and storage
Earnings P/S...............$ .64, .73, .78, .77, 1.00, .99, .56, 1.12, 1.27, 1.27 7.9%
Dividends P/S..................$ .47, .48, .49, .51, .52, .55, .57, .58, .60, .62 3.1%
Price/Earnings Ratio.........................................................14.8
90,000 SBC Communications, Inc. @ 40.................................................... 3,600,000
Provides telephone service throughout the
United States and internationally
Earnings P/S..........$ .88, .91, .92, .90, 1.09, (1.37), 1.53, (1.66), 1.77, .80 NMF
Dividends P/S..................$ .61, .65, .68, .71, .73, .75, .78, .82, .85, .89 4.3%
Price/Earnings Ratio.........................................................48.1
70,000 Teco Energy, Inc. @ 26 13/16..................................................... 1,876,875
Provides electric service in Florida
Earnings P/S.........$ 1.21, 1.23, 1.22, 1.28, 1.29, 1.38, 1.34, 1.68, 1.68, 1.46 5.9%
Dividends P/S..............$ .70, .75, .80, .85, .90, .95, 1.00, 1.05, 1.11, 1.17 2.1%
Price/Earnings Ratio.........................................................18.3
------------
14,501,875
------------
TOTAL COMMON STOCKS
(Cost $85,993,241) 127,768,562
------------
PREFERRED STOCKS (1.21%)
20,841 CSC Holdings, Inc.,
11.125%, Ser M @ 115 ............................................................ 2,396,715
------------
TOTAL PREFERRED STOCKS
(Cost $2,338,287) 2,396,715
------------
TOTAL COMMON AND
PREFERRED STOCKS
(Cost $88,331,528) 130,165,277
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
(000s MARKET
OMITTED) VALUE
-------- -----
<S> <C> <C>
CORPORATE BONDS (15.73%)
$1,000 Adelphia Communications Corp., Sr Note
9.25% 10-01-02 @ 103.500.................................... $1,035,000
1,000 Barclays North American Capital Corp.,
Gtd Cap Note 9.75% 05-15-21 @ 111.870....................... 1,118,700
2,250 CSC Holdings, Inc., Deb Ser B
8.125% 08-15-09 @ 107.250................................... 2,413,125
1,500 Continental Cablevision, Inc., Deb
9.50%, 08-01-13 @ 119.153................................... 1,787,295
1,300 GTE Corp., Deb
10.25% 11-01-20 @ 111.973................................... 1,455,649
1,500 Inter-America Development Bank,
Bond (Supra National) 12.250%
12-15-08 @ 148.507.......................................... 2,227,605
1,800 Landeskreditbank Baden Wuerttemberg,
Sub Note (Germany) 7.625%
02-01-23 @ 116.083.......................................... 2,089,494
2,484 Long Island Lighting Co., Deb
8.90%, 07-15-19 @ 105.976................................... 2,632,444
600 Massachusetts Mutual Life Insurance Co.,
Surplus Note 7.625% 11-15-23 (R) @ 113.393.................. 680,358
1,000 Midland American Capital Corp., Gtd Deb
12.75% 11-15-03 @ 102.320................................... 1,023,200
1,898 Midland Cogeneration Venture L.P., Sec Deb
Ser C-91 10.33% 07-23-02 @ 107.500.......................... 2,040,606
750 New York Life Insurance Co., Surplus Notes
7.50% 12-15-23 (R) @ 104.481................................ 783,608
1,531 North Atlantic Energy Corp., 1st Mtg Bond
9.05% 06-01-02 @ 102.789.................................... 1,573,700
3,000 Quebec, Province of, Deb (Canada)
7.50% 07-15-23 @ 111.560.................................... 3,346,800
400 RJR Nabisco Capital Corp., Sr Notes
8.75% 04-15-04 @ 107.055.................................... 414,824
1,000 Rogers Cablesystems, Note (Canada)
9.625% 08-01-02 @ 107.000................................... 1,070,000
500 Scandinavian Airlines System, Deb
(Multinational) 9.125% 07-20-99
@ 103.500................................................... 517,500
1,100 Security Pacific Corp., Sub Notes
11.50% 11-15-00 @ 111.896................................... 1,230,856
1,000 Standard Credit Card Card Master Trust I,
Class A Credit Card Part Ctf Ser 1994-2
7.25% 04-07-08 @ 106.8430................................... 1,068,430
750 Standard Credit Card Master Trust,
Ser 1995-1 8.25% 01-08-07 @ 111.000......................... 832,500
1,550 TKR Cable I, Inc., Sr Deb
10.50% 10-30-97 @ 110.018................................... 1,705,279
------------
TOTAL CORPORATE BONDS
(Cost $30,740,627) 31,046,973
------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (10.06%)
2,254 Federal National Mort. Assn., Sr Sub
7.00%, 07-01-11 @ 101.906................................... 2,297,080
1,424 Federal National Mort. Assn., Sr Sub
7.50%, 08-01-08 @ 102.518................................... 1,459,404
2,000 Federal National Mort. Assn., Sr Sub
9.50%, 07-01-17 @ 139.757................................... 2,795,144
1,790 Financing Corp., Bond
9.65% 11-02-18 @ 143.141.................................... 2,562,224
1,621 Government National Mort. Assn.,
7.00% 06-15-23 @ 101.750.................................... 1,649,723
95 Government National Mort. Assn.,
9.00% 04-15-21 @ 107.499.................................... 101,739
1,768 United States Treasury, Bond
8.125%, 08-15-19 @ 129.062.................................. 2,281,816
1,000 United States Treasury, Bond
10.75%, 08-15-05 @ 130.109.................................. 1,301,090
2,250 United States Treasury, Bond
12.00%, 08-15-13 @ 148.266.................................. 3,335,985
2,000 United States Treasury, Note
6.625%, 03-31-02 @ 103.578.................................. 2,071,560
------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $18,934,526) 19,855,765
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
-------- -------- -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (8.58%)
$16,916 Joint Repurchase Agreement (8.57%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion Securities
USA, Inc. - Dated 06-30-98, due 07-01-98
(Secured by U.S. Treasury Bond, 9.125% due
05-15-18, and U.S. Treasury Notes, 5.00%
thru 8.75% due 12-31-98 thru 04-30-03)
- Note A ......................................... 5.750% $16,916,000
-------------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%................................ 12,365
-------------
TOTAL SHORT-TERM INVESTMENTS (8.58%) 16,928,365
-------- ------------
TOTAL INVESTMENTS (100.30%) 197,996,380
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.30%) (591,567)
-------- ------------
TOTAL NET ASSETS (100.00%) $197,404,813
======== ============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer.
(R) 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 $1,463,966 or 0.74% of the Fund's net
assets as of June 30, 1998.
NMF = Mo Meaningful Figure
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.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Balanced 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 Sovereign Balanced Fund (the "Fund"),
John Hancock Growth and Income Fund and John Hancock Sovereign Investors Fund
(collectively, the "Funds"). The other two series of the Trust are reported in
separate financial statements. The investment objectives of the Fund are to
provide current income, long-term growth of capital and income, and preservation
of capital.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights 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,
Inc., may participate in joint repurchase agreements. 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 TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, 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 principals. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or date of purchase over the life of the security,
as required by the Internal Revenue Code.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily 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
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Balanced Fund
expense and the relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the period ended June 30, 1998.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of 0.60% of the Fund's average daily net asset
value. The Adviser has entered into a Sub-Advisory agreement with Sovereign
Asset Management Corporation ("SAMCORP") an affiliate of the Adviser, to provide
certain equity investment research and portfolio management services to the
Fund, for which the Adviser pays SAMCORP 40% of the stock portion of its
management fee.
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,
1998, net sales charges received with regard to sales of Class A shares amounted
to $125,962. Out of this amount, $19,819 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $51,472 was paid
as sales commissions to unrelated broker-dealers and $54,671 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, 1998,
contingent deferred sales charges paid to JH Funds amounted to $62,744.
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 0.30% of
Class A average daily net assets and 1.00% of Class B average daily net assets,
to reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of each Fund.
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Balanced 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, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $1,673.
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, 1998, aggregated $39,259,168 and $36,930,156, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $8,529,766 and $20,567,857, respectively.
The cost of investments owned at June 30, 1998 (including the joint
repurchase agreement), for federal income tax purposes was $154,936,996. Gross
unrealized appreciation and depreciation of investments aggregated $44,381,433
and $1,334,414, respectively, resulting in net unrealized appreciation of
$43,047,019.
20
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
Historical Data (Unaudited)
The table below shows the record of the Fund since inception in 1992.
- --------------------------------------------------------------------------------
CLASS A PER SHARE
YEAR ----------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ----------- ----------- ----- ------------
1992(1) 568,842 $0.0473 $10.19 --
1993 5,792,163 0.4539 10.74 $0.1390
1994 6,295,898 0.4951 9.84 0.0231
1995 5,943,279 0.4373 11.75 --
1996 5,805,051 0.4113 12.27 0.4733
1997 6,322,633 0.3717 13.33 1.0829
1998(2) 6,394,445 0.1735 14.14 --
CLASS B PER SHARE
YEAR ----------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ----------- ----------- ----- ------------
1992(1) 1,403,452 $0.0292 $10.20 --
1993 7,327,059 0.3816 10.75 $0.1390
1994 8,046,236 0.4296 9.84 0.0231
1995 7,478,401 0.3632 11.74 --
1996 7,404,823 0.3257 12.27 0.4733
1997 7,598,310 0.2770 13.33 1.0829
1998(2) 7,568,182 0.1248 14.14 --
(1) For the period October 5, 1992 (commencement of operations) to December 31,
1992.
(2) For the period ended June 30, 1998.
21
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the Sovereign Balanced Fund as of June 30, 1998.
- --------------------------------------------------------------------------------
PERCENT OF
DIVIDEND INCREASE
-----------------
Abbott Laboratories, Inc. ..................................... 11.1%
AFLAC Corp. ................................................... 13.0
Air Products & Chemicals, Inc. ................................ 13.3
American Home Products Corp. .................................. 4.9
Ameritech Corp. ............................................... 6.2
Archer-Daniels-Midland Co. .................................... 5.0
Automatic Data Processing, Inc. ............................... 15.2
BancOne Corp. ................................................. 10.0
BankAmerica Corp. ............................................. 13.1
Baxter International, Inc. .................................... 3.0
Bemis Company, Inc. ........................................... 10.0
Bristol-Myers Squibb Co. ...................................... 2.6
Century Telephone Enterprises, Inc. ........................... 5.3
Chevron Corp. ................................................. 5.2
Dayton Hudson Corp. ........................................... 12.5
Dover Corp. ................................................... 11.8
DuPont (E.I.) De Nemours & Co. ................................ 11.1
Duke Energy Corp. ............................................. 3.8
Emerson Electric Co. .......................................... 9.3
First Tennessee National Corp. ................................ 10.0
General Electric Co. .......................................... 15.4
General Mills, Inc. ........................................... 6.0
General Re Corp. .............................................. 7.3
Grainger (W.W.), Inc. ......................................... 11.1
Hasbro, Inc. .................................................. 19.9
Hewlett-Packard Co. ........................................... 14.3
Home Depot, Inc. .............................................. 20.0
Hubbell, Inc. (Class B) ....................................... 6.9
IKON Office Solutions, Inc. ................................... 35.6
Interpublic Group of Companies, Inc. .......................... 15.4
Johnson & Johnson ............................................. 13.6
KeyCorp ....................................................... 11.9
Kimberly-Clark Corp. .......................................... 4.2
Leggett & Platt, Inc. ......................................... 6.7
Masco Corp. ................................................... 4.8
May Department Stores ......................................... 5.8
McCormick & Co, Inc. .......................................... 6.7
McGraw-Hill Companies, Inc. ................................... 8.3
Mobil Corp. ................................................... 7.5
NationsBank Corp. ............................................. 15.2
Northern States Power Co. ..................................... 1.4
Pentair, Inc. ................................................. 11.1
PepsiCo, Inc. ................................................. 4.0
Pitney Bowes, Inc. ............................................ 12.5
Questar Corp. ................................................. 4.8
Regions Financial Corp. ....................................... 15.0
ReliaStar Financial Corp. ..................................... 19.4
RPM, Inc. ..................................................... 7.7
SBC Communications, Inc. ...................................... 0.04
Schering-Plough Corp. ......................................... 15.8
Shell Trans & Trading Co. PLC (ADR) ........................... 0.0
Sigma-Aldrich Corp. ........................................... 12.0
Sonoco Products Corp. ......................................... 10.0
Sysco Corp. ................................................... 5.9
Teco Energy, Inc. ............................................. 5.1
Travelers Group, Inc. ......................................... 25.0
UNUM Corp. .................................................... 3.5
Wal-Mart Stores, Inc. ......................................... 14.8
-----
The average dividend increase for this group was .............. 10.0%
====
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Sovereign Balanced Fund
23
<PAGE>
================================================================================
----------------
[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
Sovereign Balanced 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 360SA 6/98
8/98
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
Sovereign
Investors Fund
JUNE 30, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
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 and Chief Operating Officer
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
CUSTODIAN
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
SUB-INVESTMENT ADVISER
SOVEREIGN ASSET MANAGEMENT CORP.
1235 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
During the last decade, investors have become used to seeing stock market
returns averaging 15% or so each year. In the past three years, the stock market
has treated us to a record run, producing annual returns in excess of 20%.
After such a long and remarkable performance, many began this year
wondering what the market would do for an encore in 1998. The answer through the
end of June was more of the same. But tremors from Asia have also sparked
increased volatility, as corporate earnings and the U.S. economy have shown
signs of slowing. What's more, a good part of the market's advance has come from
just a small group of the largest companies in the major stock market indexes.
[A 1 1/4" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
The move ahead has been so narrow that some observers believe that most
stocks have actually been in a bear market this year. The bond market had its
pockets of volatility as well, although U.S. Treasury bonds benefited from their
safe-haven status.
While we don't make a practice of opining on what the market will do next,
we believe that after such a long run up, it would be wise for investors to set
more realistic expectations. Over the long term, the market's historical results
have been more in the 10% per year range, which is still a solid result,
considering it has been produced despite wars, depressions and other social
upheavals along the way.
In addition to adjusting, or at least re-examining, expectations, now
could also be a good time to review with your investment professional how your
assets are diversified, perhaps with an eye toward a more conservative approach.
Stocks, especially with their outsized gains of the last three years, might have
grown to represent a larger piece of your portfolio than you had originally
intended, given your objectives, time horizon and risk level.
At John Hancock Funds, our goal is to help you reach your financial
objectives and maintain wealth. One way we can do that is by helping you keep
your feet on the ground as you pursue your dreams.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY JOHN F. SNYDER, III, AND BARRY EVANS, CFA, PORTFOLIO MANAGERS
John Hancock
Sovereign Investors Fund
Stocks advance despite increased pressures
The first half of the year was challenging for both the economy and the
investment markets due to political and economic unrest in Asia, recession and
corrupt business practices in Japan and Russia, and price deflation for many
commodities. On the positive side, however, high U.S. employment levels and
strong wage growth drove consumer confidence to high levels.
Despite the volatility, the equity market provided strong returns for
investors. Since the start of the year, the Standard & Poor's 500 Stock Index --
a broad measure of market performance -- has gained 17.71%. Continuing last
year's pattern, however, the market's strong upward trend was not actually
driven by the broad market, but instead by a narrow group of stocks. Technology
stocks, in particular, were one of the market's strongest sectors, rebounding
sharply after their dismal performance in the fourth quarter of 1997. Dell
Computer, for example, was up 120% year-to-date; Apple Computer, 119%; Lucent
Technologies, 108% and Unisys, 104%.
Performance review
John Hancock Sovereign Investors Fund turned in solid returns during the first
half of 1998. However, the Fund's performance trailed the average growth and
income fund. The difference in performance was primarily due to the fact that we
own almost no technology stocks, while many of our peers invest a portion of
their portfolios in this sector. It's not that we don't like technology stocks;
they simply don't meet our primary investment criterion. As long-time
shareholders know, John Hancock Sovereign Investors Fund focuses on companies
that have increased their dividends consistently for at least the past 10 years.
We call these
"...high U.S. employment levels and strong wage growth drove consumer
confidence..."
[A 3 1/4" x 2 1/4" photo at bottom right of page of fund management team
members. Caption below reads "Sovereign Investors Fund management team members
(l - r): John Snyder, Barry Evans and Jere Estes."]
3
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
[Chart at the top of left hand column with the heading "Top Five Common Stock
Holdings". The chart lists five stocks: 1.) Emerson Electric 2.8%; 2.) General
Electric 2.6%; 3.) W.W. Grainger 2.4%; 4.) Wal-Mart Stores 2.3% and 5.) Sysco
Corp. 2.3%. A note below the chart reads "As a percentage of net assets on June
30, 1998."]
"...it's particularly important to own strong companies in the current economic
environment."
companies "dividend performers." Most technology stocks simply don't meet this
criterion. It's admittedly a cautious approach. But the dividend performers
strategy has helped the Fund not only maintain a strong risk profile, but also
outperform the market in market downturns and produce positive total returns at
net asset value in 18 out of the last 19 calendar years. While we can't
guarantee future results, the Fund's characteristics may serve as a comfort to
investors in this more volatile environment.
For the six months ended June 30, 1998, John Hancock Sovereign Investors
Fund Class A and Class B shares returned 8.57% and 8.19%, respectively, at net
asset value. The Fund's Class C shares, which were renamed Class Y shares to
conform to industry standards, returned 8.80% at net asset value. At the same
time, a new class of C shares was introduced on May 1, and from inception
through June 30, 1998 returned - 0.95% at net asset value. Keep in mind that
your net asset value return will be different from this performance if you were
not invested in the Fund for the entire period and did not reinvest all
distributions. By comparison, the average growth and income fund returned 12.11%
for the same period, according to Lipper Analytical Services, Inc.(1) See pages
six and seven for longer-term performance information.
Focus on industry leaders
Companies that make up the dividend performers universe share one common
characteristic: they dominate the markets in which they compete. As the economy
slows, it will become more difficult for companies with poor fundamentals to
show attractive sales and earnings growth. By contrast, these dominant companies
will be able to take market share, control industry pricing, expand into new
markets, acquire new lines of business, develop new products and services, and
grow earnings faster than their industry cohorts. In our view, it's particularly
important to own strong companies in the current economic environment. Below are
examples of companies that we believe will be the winners in a slowing economy.
Home Depot is the world's largest home improvement retailer and is among
the top 10 retailers in the United States. Home Depot's dominance is obvious
when compared to its nearest competitor, which had less than half of Home
Depot's sales in 1997. Even with such a dominant market position, Home Depot's
market share is only 25% of the domestic do-it-yourself market, providing
significant growth opportunities.
Interpublic Group is the second largest advertising holding company
worldwide. In addition to owning premier ad agencies like McCann-Erickson,
Interpublic has branched out
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is First Union
followed by an up arrow with the phrase "Successful acquisition." The second
listing is Home Depot followed by an up arrow with the phrase "Strong consumer
confidence." The third listing is IKON Office Solutions followed by a down arrow
with the phrase "Difficulty integrating recent acquisitions." A note below the
table reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
4
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
[Bar chart at top of left hand column with the heading "Fund Performance". Under
the heading is a note that reads "For the six months ended June 30, 1998". The
chart is scaled in increments of 3% with -3% at the bottom and 15% at the top.
The first bar represents the 8.57% total return for John Hancock Sovereign
Investors Fund Class A. The second bar represents the 8.19% total return for
John Hancock Sovereign Investors Fund Class B. The third bar represents the
- -0.95%* total return for John Hancock Sovereign Investors Fund Class C. The
fourth bar represents the 8.80% total return for John Hancock Sovereign
Investors Class Y and the fifth bar represents the 12.11% total return for the
average growth and income fund. A note below the chart reads "Total returns for
John Hancock Sovereign Investors Fund are at net asset value with all
distributions reinvested. The average small cap fund is tracked by Lipper
Analytical Services, Inc. (1). See the following two pages for historical
performance information." The footnote below reads "From inception May 1, 1998
to June 30, 1998."]
into non-traditional businesses like direct marketing, public relations and
sports marketing. The U.S. advertising industry is in the midst of a long
expansion, and growth in Europe is also picking up. Interpublic has achieved an
impressive acceleration of new business wins over the past three years and has
grown earnings 14% annually over the past five years.
Hewlett-Packard is one of the few technology stocks that meet our
"dividend performers" criterion. The company is a worldwide technology leader
with major business lines, including personal computers, workstations, servers
and printers. Hewlett-Packard dominates the printer market for both corporate
and consumer users and just recently introduced new inkjet printer technology
that will leapfrog the competition. In the last two years, HP's sales have
skyrocketed, vaulting the company to the number four position in the industry.
Outlook
With the market flirting with new highs, it does not take much courage to
predict that the upward spiral will continue in the near term. The economy has
been stronger than expected and so has the flow of funds into stocks from both
domestic and foreign sources. Inflation has been -- and will continue to be --
benign. However, we do believe that the strong economic underpinnings that
produced good corporate earnings last year are disappearing. If this is the
case, the market expansion will not be able to continue. Valuations are already
extended in a number of areas, including those companies that have been driving
the S&P 500.
The reasons for benign inflation are the very same reasons for our concern
about corporate profits in the second half of the year. Global competition has
taken almost all of the power to set prices away from corporations and given it
to the consumer. Therefore, growth in corporate profits will have to come from
increased efficiencies. This suggests substantially slower profit.
We continue to believe that this is the sweet spot of the economic cycle
for the stable growth companies. As corporate earnings growth abates, the
economy is likely to show signs of slowing in the second half of 1998. We
believe companies that historically have been able to grow their earnings
consistently -- that is, "dividend performers" -- will be able to do so through
an economic slowdown.
"...the economy is likely to show signs of slowing in the second half of 1998."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Sovereign Investors Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years). Class C performance
includes a contingent deferred sales charge of 1% (declining to 0% after one
year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
Notes to Performance
* The new Class C shares commenced operations on May 1, 1998.
** Effective May 1, 1998, the former Class C shares were renamed Class Y
shares.
(1) Not annualized.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended June 30, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns 14.32% 107.75% 292.55%
Average Annual Total Returns 14.32% 15.75% 14.65%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended June 30, 1998
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns 14.42% 101.05%
Average Annual Total Returns 14.42% 16.84%
- --------------------------------------------------------------------------------
CLASS C*
- --------------------------------------------------------------------------------
For the period ended June 30, 1998
SINCE
INCEPTION
(5/1/98)
--------
Cumulative Total Return (1.95%)
Average Annual Total Return (1.95%)(1)
- --------------------------------------------------------------------------------
CLASS Y**
- --------------------------------------------------------------------------------
For the period ended June 30, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (5/7/93)
---- ----- --------
Cumulative Total Returns 20.74% 122.65% 123.26%
Average Annual Total Returns 20.74% 17.36% 16.88%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of June 30, 1998
SEC 30-DAY
YIELD
-----
John Hancock Sovereign Investors Fund: Class A 1.23%
John Hancock Sovereign Investors Fund: Class B 0.54%
John Hancock Sovereign Investors Fund: Class C 0.41%
John Hancock Sovereign Investors Fund: Class Y 1.62%
6
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The chart on the right shows how much a $10,000 investment in the John Hancock
Sovereign Investors Fund would be worth, assuming all distributions were
reinvested for the period indicated. For comparison, we've shown the same
$10,000 investment in the Standard and 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.
Assuming all distributions were reinvested for the period indicated, the chart
below shows the value of a $10,000 investment in the Fund's Class B, Class C and
Class Y shares, respectively. 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. Past performance is not
indicative of future results.
- --------------------------------------------------------------------------------
Sovereign Investors Fund
Class A shares
Line chart with the heading Sovereign Investors Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the most recent ten years.
Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $61,742 as of June 30, 1998. The second line represents the value of
the hypothetical $10,000 investment made in the Sovereign Investors Fund on
December 31, 1987, before sales charge, and is equal to $44,487 as of June 30,
1998. The third line represents the Sovereign Investors Fund after sales charge
and is equal to $42,263 as of June 30, 1998.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Chart representing the growth of $10,000 investment for the Fund's Class B, C
and Y shares in lower right hand corner of page. Within the chart, there are
three columns and five rows.
Going from left to right, the first column represents information for Class B
shares. From top to bottom the information is as follows: Inception Date:
1/3/94; Without Sales Charge: $20,305; With Maximum Sales Charge: $20,105;
Standard and Poor's 500 Stock Index: $26,893. The second column represents Class
C shares. Top to bottom information is as follows: Inception date: 5/1/98;
Without Sales Charge: $9,905; With Maximum Sales Charge: $9,806; Standard and
Poor's 500 Stock Index: $10,227. The third column represents Class Y shares.
From top to bottom the information is as follows: Inception Date: 5/7/93;
Without Sales Charge: $22,326; With Maximum Sales Charge: N/A; Standard and
Poor's 500 Stock Index: $29,063.
- --------------------------------------------------------------------------------
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks (cost - $1,510,263,364) ................ $2,274,377,309
Corporate bonds (cost - $80,863,234) ............................... 83,765,030
U.S. government and agencies obligations (cost - $96,682,732) ...... 98,708,607
Joint repurchase agreement (cost - $184,043,000) ................... 184,043,000
Corporate savings account .......................................... 70,157
---------------
2,640,964,103
Receivable for investments sold ..................................... 17,323,072
Receivable for shares sold .......................................... 732,862
Dividends receivable ................................................ 2,886,251
Interest receivable ................................................. 3,155,825
Other assets ........................................................ 206,861
---------------
Total Assets ............................................ 2,665,268,974
---------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ................................... 31,465,083
Payable for shares repurchased ...................................... 897,677
Payable to John Hancock Advisers, Inc. and affiliates - Note B ...... 4,209,341
Accounts payable and accrued expenses ............................... 108,191
---------------
Total Liabilities ....................................... 36,680,292
---------------------------------------------------------------------------
Net Assets:
Capital paid-in ..................................................... 1,724,999,141
Accumulated net realized gain on investments ........................ 134,332,826
Net unrealized appreciation of investments .......................... 769,056,936
Undistributed net investment income ................................. 199,779
---------------
Net Assets .............................................. $2,628,588,682
===========================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value)
Class A - $1,854,263,428/76,655,628 ................................. $24.19
=======================================================================================
Class B - $715,520,885/29,616,398 ................................... $24.16
=======================================================================================
Class C** - $1,654,047/68,423 ....................................... $24.17
=======================================================================================
Class Y*** - $57,150,322/2,361,970 .................................. $24.20
=======================================================================================
Maximum Offering Price Per Share*
Class A - ($24.19 x 105.26%) ........................................ $25.46
=======================================================================================
</TABLE>
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
** The new Class C shares commenced operations on May 1, 1998.
*** The old Class C shares were renamed Class Y shares effective May 1, 1998.
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, 1998. You'll also
find the net asset value and the maximum offering price per share as of that
date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Statement of Operations
Six months ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends ........................................................... $17,664,686
Interest ............................................................ 11,183,676
---------------
28,848,362
---------------
Expenses:
Investment management fee - Note B ................................ 6,910,937
Distribution and service fee - Note B
Class A ......................................................... 2,734,980
Class B ......................................................... 3,366,757
Class C ......................................................... 1,085
Transfer agent fee - Note B ....................................... 2,011,970
Financial services fee - Note B ................................... 225,315
Custodian fee ..................................................... 177,269
Miscellaneous ..................................................... 123,156
Trustees' fees .................................................... 105,369
Registration and filing fees ...................................... 88,764
Printing .......................................................... 38,952
Auditing fee ...................................................... 21,323
Legal fees ........................................................ 15,457
---------------
Total Expenses .......................................... 15,821,334
---------------------------------------------------------------------------
Net Investment Income ................................... 13,027,028
---------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ............................... 115,352,481
Change in net unrealized appreciation/depreciation of investments ... 75,915,811
---------------
Net Realized and Unrealized Gain on Investments ......... 191,268,292
---------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations .... $204,295,320
===========================================================================
</TABLE>
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
----------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .............................................. $27,137,824 $13,027,028
Net realized gain on investments sold .............................. 240,406,642 115,352,481
Change in net unrealized appreciation/depreciation of
investments ....................................................... 274,962,970 75,915,811
--------------- ---------------
Net Increase in Net Assets Resulting from Operations .............. 542,507,436 204,295,320
--------------- ---------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.3203 and $0.1418 per share, respectively) ........... (22,908,079) (10,913,472)
Class B - ($0.1480 and $0.0530 per share, respectively) ........... (3,461,817) (1,540,340)
Class C** - (none and $0.0280 per share, respectively) ............ -- (1,866)
Class Y*** - ($0.4017 and $0.1821 per share, respectively) ........ (719,361) (420,138)
Distributions from net realized gain on investments sold
Class A - ($2.3840 and none per share, respectively) .............. (168,473,550) --
Class B - ($2.3840 and none per share, respectively) .............. (58,671,765) --
Class Y*** - ($2.3840 and none per share, respectively) ........... (4,607,424) --
--------------- ---------------
Total Distributions to Shareholders ............................... (258,841,996) (12,875,816)
--------------- ---------------
From Fund Share Transactions - Net: * ................................ 258,579,708 29,446,525
--------------- ---------------
Net Assets:
Beginning of period ................................................ 1,865,477,505 2,407,722,653
--------------- ---------------
End of period (including undistributed net investment
income of $48,567 and $199,779, respectively) ..................... $2,407,722,653 $2,628,588,682
=============== ===============
</TABLE>
** The new Class C shares commenced operations on May 1, 1998.
*** The old Class C shares were renamed Class Y shares effective May 1, 1998.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........................................ 19,232,348 $415,010,041 6,540,422 $154,993,262
Shares issued to shareholders in reinvestment
of distributions .................................. 8,011,937 178,596,078 412,871 10,031,664
------------- ------------- ------------- -------------
27,244,285 593,606,119 6,953,293 165,024,926
Less shares repurchased ............................ (22,602,919) (489,814,527) (8,329,114) (197,011,743)
------------- ------------- ------------- -------------
Net increase (decrease) ............................ 4,641,366 $103,791,592 (1,375,821) ($31,986,817)
============= ============= ============= =============
CLASS B
Shares sold ........................................ 9,793,231 $212,352,695 4,571,559 $108,481,946
Shares issued to shareholders in reinvestment
of distributions .................................. 2,605,792 58,050,121 59,353 1,439,925
------------- ------------- ------------- -------------
12,399,023 270,402,816 4,630,912 109,921,871
Less shares repurchased ............................ (5,990,391) (129,781,552) (2,311,347) (55,069,906)
------------- ------------- ------------- -------------
Net increase ....................................... 6,408,632 $140,621,264 2,319,565 $54,851,965
============= ============= ============= =============
CLASS C**
Shares sold ........................................ -- -- 68,563 $1,645,969
Shares issued to shareholders in reinvestment
of distributions .................................. -- -- 72 1,738
------------- ------------- ------------- -------------
-- -- 68,635 1,647,707
Less shares repurchased ............................ -- -- (212) (5,023)
------------- ------------- ------------- -------------
Net increase ....................................... -- -- 68,423 $1,642,684
============= ============= ============= =============
CLASS Y***
Shares sold ........................................ 581,603 $12,802,638 350,451 $8,302,092
Shares issued to shareholders in reinvestment
of distributions .................................. 238,907 5,326,777 17,231 418,973
------------- ------------- ------------- -------------
820,510 18,129,415 367,682 8,721,065
Less shares repurchased ............................ (177,952) (3,962,563) (158,884) (3,782,372)
------------- ------------- ------------- -------------
Net increase ....................................... 642,558 $14,166,852 208,798 $4,938,693
============= ============= ============= =============
</TABLE>
** The new Class C shares commenced operations on May 1, 1998.
*** The old Class C shares were renamed Class Y shares effective May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------------------------ JUNE 30, 1998
1993 1994 1995 1996 1997 (UNAUDITED)
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ..... $14.78 $15.10 $14.24 $17.87 $19.48 $22.41
---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income .................... 0.44 0.46 0.40 0.36(3) 0.32(3) 0.14(3)
Net Realized and Unrealized Gain
(Loss) on Investments ................... 0.39 (0.75) 3.71 2.77 5.31 1.78
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations ..... 0.83 (0.29) 4.11 3.13 5.63 1.92
---------- ---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .... (0.42) (0.46) (0.40) (0.36) (0.32) (0.14)
Distributions from Net Realized Gain
on Investments Sold .................... (0.09) (0.11) (0.08) (1.16) (2.38) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions .................. (0.51) (0.57) (0.48) (1.52) (2.70) (0.14)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ........... $15.10 $14.24 $17.87 $19.48 $22.41 $24.19
========== ========== ========== ========== ========== ==========
Total Investment Return at Net Asset
Value(2) ................................ 5.71% (1.85%) 29.15% 17.57% 29.14% 8.57%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s
omitted) ................................ $1,258,575 $1,090,231 $1,280,321 $1,429,523 $1,748,490 $1,854,263
Ratio of Expenses to Average Net Assets .. 1.10% 1.16% 1.14% 1.13% 1.06% 1.05%(5)
Ratio of Net Investment Income to
Average Net Assets ...................... 2.94% 3.13% 2.45% 1.86% 1.44% 1.21%(5)
Portfolio Turnover Rate .................. 46% 45% 46% 59% 62% 24%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------------------------- JUNE 30, 1998
1994 1995 1996 1997 (UNAUDITED)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CLASS B(1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ......... $15.02 $14.24 $17.86 $19.46 $22.38
----------- ----------- ----------- ----------- -----------
Net Investment Income(3) ..................... 0.38 0.27 0.21 0.16 0.05
Net Realized and Unrealized Gain (Loss) on
Investments ................................. (0.69) 3.71 2.77 5.29 1.78
----------- ----------- ----------- ----------- -----------
Total from Investment Operations ......... (0.31) 3.98 2.98 5.45 1.83
----------- ----------- ----------- ----------- -----------
Less Distributions:
Dividends from Net Investment Income ........ (0.36) (0.28) (0.22) (0.15) (0.05)
Distributions from Net Realized Gain on
Investments Sold ............................ (0.11) (0.08) (1.16) (2.38) --
----------- ----------- ----------- ----------- -----------
Total Distributions ...................... (0.47) (0.36) (1.38) (2.53) (0.05)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period ............... $14.24 $17.86 $19.46 $22.38 $24.16
=========== =========== =========== =========== ===========
Total Investment Return at Net Asset
Value(2) .................................... (2.04%)(4) 28.16% 16.67% 28.14% 8.19%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..... $128,069 $257,781 $406,523 $610,976 $715,521
Ratio of Expenses to Average Net Assets ...... 1.86%(5) 1.90% 1.91% 1.83% 1.81%(5)
Ratio of Net Investment Income to Average
Net Assets .................................. 2.57%(5) 1.65% 1.10% 0.67% 0.46%(5)
Portfolio Turnover Rate ...................... 45% 46% 59% 62% 24%
</TABLE>
PERIOD
FROM MAY 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1998
(UNAUDITED)
----------------
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period ...................... $24.43
---------
Net Investment Income(3) .................................. 0.03
Net Realized and Unrealized Loss on Investments ........... (0.26)
---------
Total from Investment Operations ....................... (0.23)
---------
Less Distributions:
Dividends from Net Investment Income ..................... (0.03)
---------
Net Asset Value, End of Period ............................ $24.17
=========
Total Investment Return at Net Asset Value(2) ............. (0.95%)(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .................. $1,654
Ratio of Expenses to Average Net Assets ................... 1.81%(5)
Ratio of Net Investment Income to Average Net Assets ...... 0.73%(5)
Portfolio Turnover Rate ................................... 24%
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------------------------------- JUNE 30, 1998
1993 1994 1995 1996 1997 (UNAUDITED)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS Y(6)
Per Share Operating Performance
Net Asset Value, Beginning of Period ...... $14.79 $15.11 $14.24 $17.87 $19.48 $22.41
--------- --------- --------- --------- --------- ---------
Net Investment Income ..................... 0.27 0.52 0.46 0.44(3) 0.41(3) 0.18(3)
Net Realized and Unrealized Gain
(Loss) on Investments .................... 0.48 (0.77) 3.71 2.76 5.30 1.79
--------- --------- --------- --------- --------- ---------
Total from Investment Operations ...... 0.75 (0.25) 4.17 3.20 5.71 1.97
--------- --------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ..... (0.34) (0.51) (0.46) (0.43) (0.40) (0.18)
Distributions from Net Realized Gain
on Investments Sold ..................... (0.09) (0.11) (0.08) (1.16) (2.38) --
--------- --------- --------- --------- --------- ---------
Total Distributions ................... (0.43) (0.62) (0.54) (1.59) (2.78) (0.18)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period ............ $15.11 $14.24 $17.87 $19.48 $22.41 $24.20
========= ========= ========= ========= ========= =========
Total Investment Return at Net
Asset Value(2) ........................... 5.13%(4) (1.57%) 29.68% 17.99% 29.60% 8.80%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .. $10,189 $15,128 $19,946 $29,431 $48,256 $57,150
Ratio of Expenses to Average Net Assets ... 0.88%(5) 0.81% 0.74% 0.75% 0.71% 0.70%(5)
Ratio of Net Investment Income to
Average Net Assets ....................... 3.17%(5) 3.53% 2.84% 2.26% 1.79% 1.56%(5)
Portfolio Turnover Rate ................... 46% 45% 46% 59% 62% 24%
</TABLE>
(1) Class B shares commenced operations on January 3, 1994.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Not annualized.
(5) Annualized.
(6) Effective May 1, 1998, Class C shares, which commenced operations on
May 7, 1993, were renamed Class Y shares.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Schedule of Investments
June 30, 1998 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks, as well as
price/earnings ratio.
The Schedule of Investments is a complete list of all securities owned by the
Sovereign Investors Fund on June 30, 1998. It's divided into five main
categories: common stocks, preferred stocks, corporate bonds, U.S. government
and agencies obligations and short-term investments. The common stocks are
further broken down by industry group. Short-term investments, which represent
the Fund's "cash" position, are listed last.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------
<S> <C> <C>
COMMON STOCKS (86.27%)
Advertising (1.38%)
600,000 Interpublic Group, Inc. @ 60 11/16............................................... $36,412,500
-----------
One of the largest advertising agencies in
the world
Earnings P/S..............$ .70, .79, .78, .88, .93, 1.13, 1.26, 1.12, 1.79, 2.00 12.4%
Dividends P/S..................$ .17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7%
Price/Earnings Ratio.........................................................30.4
Banks (6.62%)
797,500 Banc One Corp. @ 55 13/16........................................................ 44,510,469
Ohio-based bank holding company
Earnings P/S.........$ 1.29, 1.37, 1.51, 1.75, 1.96, 2.09, 1.80, 2.20, 2.52, 1.99 4.9%
Dividends P/S..............$ .46, .52, .57, .63, .73, .89, 1.02, 1.12, 1.24, 1.38 13.0%
Price/Earnings Ratio.........................................................16.3
100,000 BankAmerica Corp. @ 86 7/16...................................................... 8,643,750
Third largest bank holding company in the U.S.
Earnings P/S..........$ .76, 1.03, 2.08, 2.39, 2.12, 2.44, 2.78, 3.42, 3.86, 4.60 22.1%
Dividends P/S...............$ .30, .50, .60, .65, .70, .80, .92, 1.08, 1.22, 1.38 18.5%
Price/Earnings Ratio.........................................................20.8
100,000 First Chicago NBD Corp. @ 88 5/8................................................. 8,862,500
Holding company for First National Bank
of Chicago
Earnings P/S.........$ 2.31, 2.47, 1.62, 1.84, 3.79, 3.58, 3.73, 3.48, 4.57, 5.12 10.8%
Dividends P/S............$ .60, .75, .89, .93, 1.02, 1.08, 1.17, 1.32, 1.44, 1.60 11.5%
Price/Earnings Ratio.........................................................17.9
600,000 First Tennessee National Corp. @ 31 9/16......................................... 18,937,500
Tennessee-based bank holding company
Earnings P/S...............$ .31, .50, .61, .75, .81, .88, 1.04, 1.24, 1.36, 1.60 20.0%
Dividends P/S..................$ .21, .24, .27, .29, .32, .38, .43, .49, .55, .62 12.8%
Price/Earnings Ratio.........................................................20.4
474,300 First Union Corp. @ 58 1/4....................................................... 27,627,975
North Carolina-based bank holding company
Earnings P/S.........$ 1.38, 1.20, 1.26, 1.28, 1.86, 2.09, 2.25, 2.38, 2.59, 2.99 9.0%
Dividends P/S................$ .43, .50, .54, .56, .64, .75, .86, .98, 1.10, 1.22 12.3%
Price/Earnings Ratio.........................................................38.0
450,000 KeyCorp. @ 35 5/8................................................................ 16,031,250
Bank holding company with offices from
coast to coast
Earnings P/S.........$ 1.05, 1.16, 1.18, 1.23, 1.20, 1.43, 1.70, 1.71, 1.67, 2.07 7.8%
Dividends P/S..................$ .34, .40, .44, .46, .49, .56, .64, .72, .76, .84 10.6%
Price/Earnings Ratio.........................................................16.1
500,000 NationsBank Corp. @ 76 1/2....................................................... 38,250,000
Largest superregional bank in the Southeast
Earnings P/S...........$ 2.22, 1.31, .38, .70, 2.21, 2.71, 3.10, 3.63, 4.05, 3.83 6.2%
Dividends P/S...............$ .47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.37 12.6%
Price/Earnings Ratio.........................................................22.2
300,000 Norwest Corp. @ 37 3/8........................................................... 11,212,500
The 12th largest bank holding company
in the U.S.
Earnings P/S..............$ .63, .22, .23, .74, .77, 1.00, 1.26, 1.43, 1.60, 1.83 12.6%
Dividends P/S..................$ .16, .19, .21, .24, .27, .32, .38, .45, .53, .62 16.2%
Price/Earnings Ratio.........................................................20.9
-----------
174,075,944
-----------
Beverages (1.02%)
650,000 PepsiCo, Inc. @ 41 3/16.......................................................... 26,771,875
-----------
Second largest soft drink company
Earnings P/S...............$ .57, .69, .70, .69, .82, 1.00, 1.14, 1.05, .72, 1.02 6.7%
Dividends P/S..................$ .12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4%
Price/Earnings Ratio.........................................................41.5
Building (2.13%)
925,000 Masco Corp. @ 60 1/2............................................................. 55,962,500
-----------
Manufactures buildings, home improvement
and consumer products
Earnings P/S......$ 2.03, 1.42, .91, .57, .46, 1.30, 1.48, 1.14, 1.20, 2.01, 2.53 2.5%
Dividends P/S..................$ .44, .50, .54, .57, .61, .65, .69, .73, .77, .81 7.0%
Price/Earnings Ratio.........................................................25.0
Business Services - Misc (0.35%)
245,000 ServiceMaster Co. @ 36 1/16...................................................... 9,325,312
-----------
Provides management services to health care,
educational and industrial clients
Earnings P/S.................$ .25, .27, .52, .54, .77, .86, .83, .99, 1.16, 1.66 23.4%
Dividends P/S..................$ .34, .35, .37, .38, .39, .40, .41, .43, .45, .47 3.7%
Price/Earnings Ratio.........................................................21.5
Chemicals (4.23%)
854,000 Air Products & Chemicals, Inc. @ 40.............................................. 34,160,000
Producer of industrial gases
Earnings P/S..........$ 1.01, 1.04, 1.11, 1.16, 1.25, .63, 1.42, 1.87, 1.80, 2.31 9.6%
Dividends P/S..................$ .28, .32, .35, .38, .42, .45, .48, .51, .54, .58 8.4%
Price/Earnings Ratio.........................................................16.9
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------
<S> <C> <C>
Chemicals (continued)
420,000 BetzDearborn, Inc. @ 42 3/16..................................................... $17,718,750
Produces and markets a wide range of
engineered programs and specialty
chemical products for process systems
Earnings P/S.........$ 1.77, 2.12, 1.47, 2.53, 2.67, 2.04, 2.45, 2.30, 2.06, 2.89 5.6%
Dividends P/S..........$ .80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49, 1.51 7.3%
Price/Earnings Ratio.........................................................13.8
1,026,562 RPM, Inc. @ 17................................................................... 17,451,554
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof structures
Earnings P/S...................$ .37, .34, .32, .40, .35, .58, .65, .71, .66, .84 9.5%
Dividends P/S..................$ .20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6%
Price/Earnings Ratio.........................................................19.2
550,000 Schulman (A.), Inc. @ 19 9/16.................................................... 10,759,375
Manufactures proprietary and custom plastic
compounds, buys and sells plastic resins and distributes plastic
products and synthetic rubber for prime producers in domestic and
international markets
Earnings P/S............$ .82, .64, .76, 1.11, 1.01, 1.14, 1.48, 1.07, 1.32, 1.46 8.0%
Dividends P/S..................$ .11, .14, .16, .19, .22, .26, .30, .34, .38, .42 16.1%
Price/Earnings Ratio.........................................................12.8
885,000 Sigma-Aldrich Corp. @ 35 1/8..................................................... 31,085,625
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S..............$ .65, .72, .59, .84, .99, 1.11, 1.14, 1.36, 1.52, 1.69 12.8%
Dividends P/S..................$ .08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0%
Price/Earnings Ratio.........................................................20.5
-----------
111,175,304
-----------
Computers (3.77%)
660,000 Automatic Data Processing, Inc. @ 72 7/8......................................... 48,097,500
Largest independent computing services firm
in the U.S.
Earnings P/S.............$ .63, .72, .79, .90, 1.01, 1.15, 1.34, 1.53, 1.74, 1.94 13.3%
Dividends P/S..................$ .13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6%
Price/Earnings Ratio.........................................................38.1
850,000 Hewlett-Packard Co. @ 59 7/8..................................................... 50,893,750
Manufactures and services electronic
measurement, analysis and computation
instruments
Earnings P/S..............$ .88, .77, .83, .93, .86, 1.31, 1.92, 2.63, 2.69, 2.88 14.1%
Dividends P/S..................$ .07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5%
Price/Earnings Ratio.........................................................20.7
-----------
98,991,250
-----------
Containers (2.44%)
947,000 Bemis Company, Inc. @ 40 7/8..................................................... 38,708,625
Producer of a broad range of flexible
packaging and equipment and pressure
sensitive materials
Earnings P/S.............$ .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73, 1.86, 2.05 9.6%
Dividends P/S..................$ .22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4%
Price/Earnings Ratio.........................................................19.4
840,080 Sonoco Products Corp. @ 30 1/4................................................... 25,412,420
Leading manufacturer of containers,
paper products and packaging
Earnings P/S...........$ 1.05, 1.12, .55, 1.05, .89, 1.29, 1.33, 1.72, 1.81, 1.81 6.2%
Dividends P/S..................$ .28, .35, .39, .40, .43, .46, .48, .54, .59, .64 9.6%
Price/Earnings Ratio.........................................................16.5
-----------
64,121,045
-----------
Diversified Operations (2.03%)
400,000 DuPont (E.I.) De Nemours & Co. @ 74 5/8.......................................... 29,850,000
Nation's largest chemical manufacturer
Earnings P/S............$ 1.77, 1.70, 1.69, .92, .76, .52, 2.23, 2.90, 3.35, 2.02 1.5%
Dividends P/S...............$ .62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9%
Price/Earnings Ratio.........................................................33.7
640,700 IKON Office Solutions, Inc. @ 14 9/16............................................ 9,330,194
Distributor of office and paper products
Earnings P/S...............$ 1.14, .88, .81, 1.04, 1.18, .05, .74, 1.55, .97, .89 NMF
Dividends P/S........$ .080, .089, .097, .103, .106, .111, .117, .123, .129, .160 8.0%
Price/Earnings Ratio.........................................................16.8
250,000 Johnson Controls, Inc. @ 57 3/16................................................. 14,296,875
Manufactures automotive systems and
building controls
Earnings P/S.........$ 1.28, 1.07, 1.04, 1.22, 1.50, 1.72, 2.03, 2.35, 2.21, 3.25 10.9%
Dividends P/S..................$ .56, .59, .61, .63, .65, .69, .74, .79, .83, .88 5.2%
Price/Earnings Ratio.........................................................17.3
-----------
53,477,069
-----------
Electronics (9.77%)
175,000 AMP, Inc. @ 34 3/8............................................................... 6,015,625
World's largest manufacturer of
electrical/electronic connectors
Earnings P/S.........$ 1.48, 1.32, 1.31, 1.23, 1.39, 1.44, 1.83, 2.01, 1.24, 2.09 3.9%
Dividends P/S................$ .50, .60, .68, .72, .76, .80, .84, .92, 1.00, 1.04 8.5%
Price/Earnings Ratio.........................................................23.7
1,200,000 Emerson Electric Co. @ 60 3/8.................................................... 72,450,000
Produces and sells electrical/electronic
products and systems
Earnings P/S.........$ 1.32, 1.38, 1.40, 1.44, 1.53, 1.91, 1.95, 2.15, 2.39, 2.66 8.1%
Dividends P/S................$ .52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8%
Price/Earnings Ratio.........................................................23.4
750,000 General Electric Co. @ 91........................................................ 68,250,000
Dominant force in home appliances, electrical
power, and financial services
Earnings P/S.........$ 1.09, 1.21, 1.26, 1.28, 1.12, 1.57, 1.84, 2.08, 2.34, 2.67 10.5%
Dividends P/S.................$ .35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9%
Price/Earnings Ratio.........................................................35.1
1,250,000 Grainger (W.W.), Inc. @ 49 13/16................................................. 62,265,625
Leading distributor of electrical equipment
Earnings P/S.........$ 1.10, 1.15, 1.16, 1.19, 1.35, 1.52, 1.31, 1.85, 2.07, 2.37 8.9%
Dividends P/S..................$ .22, .25, .28, .31, .33, .35, .39, .45, .49, .53 10.3%
Price/Earnings Ratio.........................................................21.6
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------
<S> <C> <C>
Electronics (continued)
400,000 Honeywell, Inc. @ 83 9/16........................................................ $33,425,000
Makes automation and control systems
Earnings P/S.........$ 3.12, 2.45, 2.39, 2.66, 2.52, 2.34, 2.22, 2.70, 3.27, 3.87 2.4%
Dividends P/S...............$ .51, .55, .69, .77, .84, .91, .97, 1.01, 1.06, 1.09 8.8%
Price/Earnings Ratio.........................................................22.9
375,000 Parker-Hannifin Corp. @ 38 1/8................................................... 14,296,875
Operates in the industrial and aerospace
industries producing a wide range of
motion control devices and designs and
manufactures products for the aircraft,
missile and spacecraft markets
Earnings P/S.............$ .94, 1.00, .83, .42, .60, 1.28, 1.74, 2.18, 2.21, 2.93 13.5%
Dividends P/S........$ .366, .373, .393, .406, .413, .426, .433, .453, .480, .567 5.0%
Price/Earnings Ratio.........................................................12.0
-----------
256,703,125
-----------
Food (1.90%)
875,000 Archer-Daniels-Midland Co. @ 19 3/8.............................................. 16,953,125
Processes and merchandises agricultural
products
Earnings P/S.................$ .65, .74, .70, .75, .83, .77, 1.19, 1.33, .69, .83 2.8%
Dividends P/S........$ .028, .033, .046, .048, .050, .053, .063, .110, .184, .193 23.9%
Price/Earnings Ratio.........................................................21.9
150,000 ConAgra, Inc. @ 31 11/16......................................................... 4,753,125
Leader in frozen & processed foods, and
distributes agricultural supplies
Earnings P/S..........$ .54, .62, .71, .75, .79, .91, 1.03, .40, 1.34, 1.35, 1.37 10.9%
Dividends P/S..................$ .15, .18, .21, .24, .28, .32, .37, .43, .49, .57 16.0%
Price/Earnings Ratio.........................................................18.9
250,000 General Mills, Inc. @ 68 3/8..................................................... 17,093,750
A leading producer of cereals, specialty foods
and snack products
Earnings P/S.........$ 2.06, 2.26, 2.82, 3.05, 3.10, 2.14, 1.64, 3.00, 2.82, 2.67 2.9%
Dividends P/S...........$ .72, .84, .98, 1.14, 1.30, 1.46, 1.55, 1.71, 1.97, 2.09 12.6%
Price/Earnings Ratio.........................................................25.9
200,000 Sara Lee Corp. @ 55 15/16........................................................ 11,187,500
Manufactures brand name packaged foods
and consumer products
Earnings P/S..........$ .88, .31, 1.03, 1.49, 1.36, 1.47, .52, 1.76, 1.99, (1.20) NMF
Dividends P/S...................$ .32, .38, .43, .48, .52, .60, .65, .70 .78, .86 11.6%
Price/Earnings Ratio.........................................................n.a.
-----------
49,987,500
-----------
Furniture (1.42%)
1,490,000 Leggett & Platt, Inc. @ 25....................................................... 37,250,000
-----------
Produces intermediate products for the home
furnishings industry
Earnings P/S..................$ .33, .21, .17, .32, .44, .56, .73, .81, .90, 1.13 14.7%
Dividends P/S................$ .08, .095, .105, .11, .12, .14, .16, .19, .23, .27 14.5%
Price/Earnings Ratio.........................................................24.3
Insurance (9.74%)
1,000,000 AFLAC Corp. @ 30 5/16............................................................ 30,312,500
Global specialty insurer
Earnings P/S...............$ .27, .39, .41, .52, .63, .82, 1.00, 1.20, 1.44, 2.42 27.6%
Dividends P/S..................$ .07, .08, .09, .10, .12, .13, .15, .17, .20, .23 14.1%
Price/Earnings Ratio.........................................................15.4
100,000 American International Group @ 146............................................... 14,600,000
Broadly based property-casualty insurance
organization
Earnings P/S.........$ 1.97, 2.05, 2.06, 2.20, 2.36, 2.73, 3.15, 3.67, 4.27, 4.91 10.7%
Dividends P/S..................$ .08, .10, .12, .14, .16, .17, .19, .22, .25, .28 14.9%
Price/Earnings Ratio.........................................................30.4
725,000 Chubb Corp. @ 80 3/8............................................................. 58,271,875
Property and casualty insurance
Earnings P/S.........$ 2.46, 3.04, 3.15, 3.22, 3.49, 1.55, 3.39, 3.91, 3.09, 4.51 7.0%
Dividends P/S................$ .54, .58, .66, .74, .80, .86, .92, .98, 1.08, 1.16 8.9%
Price/Earnings Ratio.........................................................22.0
125,000 General Re Corp. @ 253 1/2....................................................... 31,687,500
Broadly based re-insurance organization
Earnings P/S......$ 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02, 10.59, 11.08, 12.56 7.6%
Dividends P/S........$ 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04, 2.20 7.0%
Price/Earnings Ratio.........................................................20.4
926,400 ReliaStar Financial Corp. @ 48................................................... 44,467,200
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S............$ 1.00, .98, .98, .83, 1.13, 1.42, 1.74, 2.32, 2.55, 2.66 11.5%
Dividends P/S..................$ .29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6%
Price/Earnings Ratio.........................................................18.9
645,000 Travelers Group, Inc. @ 60 5/8................................................... 39,103,125
Diversified financial services company
Earnings P/S............$ .91, .71, .82, 1.07, 1.67, 1.94, 1.93, 2.75, 3.50, 3.00 14.2%
Dividends P/S................$ .045, .048, .06, .08, .12, .16, .19, .27, .30, .40 27.5%
Price/Earnings Ratio.........................................................23.6
675,000 UNUM Corp. @ 55 1/2.............................................................. 37,462,500
Holding company for UNUM Life Insurance
Company of America
Earnings P/S...........$ .98, 1.15, 1.40, 1.65, 1.87, 2.01, .96, 1.99, 1.94, 2.52 11.1%
Dividends P/S..................$ .12, .14, .19, .25, .31, .38, .46, .52, .55, .57 18.9%
Price/Earnings Ratio.........................................................23.4
-----------
255,904,700
-----------
Leisure (0.90%)
600,000 Hasbro, Inc. @ 39 5/16........................................................... 23,587,500
-----------
Designs, manufactures and markets toys,
games and interactive software
Earnings P/S..............$ .55, .68, .70, .63, 1.36, 1.48, 1.32, 1.21, 1.56, .91 5.8%
Dividends P/S..................$ .05, .07, .08, .10, .13, .15, .18, .21, .25, .31 22.5%
Price/Earnings Ratio.........................................................43.9
Machinery (3.48%)
1,600,000 Dover Corp. @ 34 1/4............................................................. 54,800,000
Manufactures a variety of specialized
industrial products
Earnings P/S................$ .57, .64, .61, .54, .58, .73, .97, 1.30, 1.73, 1.87 14.1%
Dividends P/S..................$ .16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4%
Price/Earnings Ratio...........................................................18
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------
<S> <C> <C>
Machinery (continued)
862,900 Pentair, Inc. @ 42 1/2........................................................... $36,673,250
Manufactures enclosures for electrical,
electronic, woodworking and power tool
equipment
Earnings P/S............$ .99, .84, .89, 1.11, 1.11, 1.14, 1.32, 1.55, 1.93, 2.39 10.3%
Dividends P/S..................$ .22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5%
Price/Earnings Ratio.........................................................17.4
-----------
91,473,250
-----------
Media (3.19%)
600,000 Gannett Co., Inc. @ 71 1/16...................................................... 42,637,500
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S.........$ 1.24, 1.18, 1.11, 1.03, 1.24, 1.41, 1.67, 1.64, 2.37, 3.25 11.3%
Dividends P/S..................$ .51, .56, .61, .62, .63, .65, .67, .69, .71, .74 4.2%
Price/Earnings Ratio.........................................................22.2
505,600 McGraw-Hill Companies, Inc. @ 81 9/16............................................ 41,238,000
Provides informational products and services
for business and industry
Earnings P/S...........$ .41, 1.77, 1.73, 1.51, 1.60, .11, 2.04, 2.31, 4.98, 2.99 24.7%
Dividends P/S.........$ .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44 5.1%
Price/Earnings Ratio.........................................................27.8
-----------
83,875,500
-----------
Medical (8.97%)
1,100,000 Abbott Laboratories @ 40 7/8..................................................... 44,962,500
Major pharmaceutical and healthcare firm
Earnings P/S...............$ .48, .56, .59, .69, .79, .89, 1.01, 1.14, 1.29, 1.44 13.0%
Dividends P/S..................$ .15, .17, .20, .24, .29, .33, .37, .41, .47, .53 15.1%
Price/Earnings Ratio.........................................................30.5
750,000 Baxter International, Inc. @ 53 13/16............................................ 40,359,375
The company operates four divisions: renal,
biotech, cardiovascular and intravenous
systems and international distribution
Earnings P/S........$ 1.50, (.05), 1.91, 1.81, 1.73, (.70), 2.01, 1.50, .86, 2.39 5.3%
Dividends P/S...............$ .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3%
Price/Earnings Ratio.........................................................22.9
250,000 Becton Dickinson & Co. @ 77 5/8.................................................. 19,406,250
Manufactures broad line of medical supplies
Earnings P/S.........$ 1.00, 1.17, 1.20, 1.19, 1.32, 1.40, 1.67, 1.98, 2.35, 2.50 10.7%
Dividends P/S..................$ .22, .26, .28, .29, .31, .34, .38, .42, .48, .54 10.5%
Price/Earnings Ratio.........................................................34.2
500,000 Bristol-Myers Squibb Co. @ 114 15/16............................................. 57,468,750
Produces pharmaceuticals, medical devices,
non-prescription health products
Earnings P/S.........$ 1.70, 1.67, 1.75, 2.00, 1.53, 1.92, 1.95, 1.86, 2.93, 3.34 7.8%
Dividends P/S.........$ .84, 1.00, 1.06, 1.20, 1.38, 1.44, 1.46, 1.48, 1.50, 1.52 6.8%
Price/Earnings Ratio.........................................................35.8
726,000 Johnson & Johnson @ 73 3/4....................................................... 53,542,500
Major producer of prescription and
non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S............$ .81, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.94, 2.26, 2.54 13.5%
Dividends P/S..................$ .24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1%
Price/Earnings Ratio.........................................................28.3
150,000 Merck & Co., Inc. @ 133 3/4...................................................... 20,062,500
World's largest ethical drug manufacturer
Earnings P/S.........$ 1.26, 1.52, 1.59, 1.89, 2.18, 1.87, 2.45, 2.79, 3.34, 3.96 13.6%
Dividends P/S.............$ .43, .55, .64, .77, .92, 1.03, 1.14, 1.24, 1.42, 1.69 16.4%
Price/Earnings Ratio.........................................................33.5
-----------
235,801,875
-----------
Metal (0.25%)
100,000 Illinois Tool Works, Inc. @ 66 11/16............................................. 6,668,750
-----------
Manufactures construction fasteners and
packaging systems
Earnings P/S...............$ .77, .84, .84, .81, .87, .96, 1.33, 1.73, 2.06, 2.46 13.8%
Dividends P/S..................$ .11, .14, .17, .20, .23, .25, .27, .31, .35, .43 16.4%
Price/Earnings Ratio.........................................................27.4
Office (1.83%)
1,000,000 Pitney Bowes, Inc. @ 48 1/8...................................................... 48,125,000
-----------
Manufactures office automation equipment
Earnings P/S.............$ .57, 1.15, .68, .90, .99, 1.00, 1.17, 1.38, 1.63, 1.87 14.1%
Dividends P/S..................$ .23, .26, .30, .34, .39, .45, .52, .60, .69, .80 14.9%
Price/Earnings Ratio.........................................................13.5
Oil & Gas (3.17%)
450,000 Chevron Corp. @ 83 1/16.......................................................... 37,378,125
One of the largest integrated, international oil
companies with interest in petrochemicals
Earnings P/S.........$ 2.81, 3.05, 3.18, 1.54, 3.57, 1.77, 2.70, 1.67, 4.32, 4.47 5.3%
Dividends P/S........$ 1.28, 1.40, 1.48, 1.63, 1.65, 1.75, 1.85, 1.93, 2.08, 2.28 6.6%
Price/Earnings Ratio.........................................................18.3
600,000 Mobil Corp. @ 76 5/8............................................................. 45,975,000
One of the largest integrated, international oil
companies with interest in petrochemicals
and plastics
Earnings P/S.........$ 2.20, 2.30, 2.70, 1.60, 2.02, 2.60, 2.27, 3.07, 3.81, 3.94 6.7%
Dividends P/S........$ 1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12 6.7%
Price/Earnings Ratio.........................................................19.0
-----------
83,353,125
-----------
Paper & Paper Products (0.96%)
550,000 Kimberly-Clark Corp. @ 45 7/8.................................................... 25,231,250
-----------
Leading producer of consumer and personal
care products
Earnings P/S..........$ 1.32, 1.35, 1.36, 1.63, 1.06, 1.63, 1.60, .27, 2.58, 1.47 1.2%
Dividends P/S..................$ .39, .63, .66, .74, .80, .84, .86, .88, .92, .96 10.5%
Price/Earnings Ratio.........................................................31.8
Retail (9.09%)
1,000,000 Dayton Hudson Corp. @ 48 1/2..................................................... 48,500,000
General merchandiser selling through Target
and Mervyn stores
Earnings P/S...........$ 1.15, .56, .93, .85, .65, .83, .85, .90, .74, 1.24, 1.88 14.4%
Dividends P/S..................$ .17, .19, .22, .24, .26, .27, .28, .29, .31, .33 7.6%
Price/Earnings Ratio.........................................................26.6
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------
<S> <C> <C>
Retail (continued)
650,000 Home Depot, Inc. @ 83 1/16....................................................... $53,990,625
Operates a chain of retail building
supply/home improvement warehouse stores
Earnings P/S...................$ .11, .12, .16, .22, .29, .36, .45, .54, .70, .85 25.5%
Dividends P/S................$ .005, .01, .015, .02, .03, .04, .05, .07, .08, .10 39.5%
Price/Earnings Ratio.........................................................57.4
250,000 May Department Stores @ 65 1/2................................................... 16,375,000
Department store retailer operating 365 stores
in 30 states
Earnings P/S...........1.75, 1.83, 1.99, 2.03, 2.42, 2.83, 2.96, 2.77, 2.97, 3.33 7.4%
Dividends P/S...............$ .56, .63, .70, .73, .75, .81, .91, 1.01, 1.13, 1.20 8.8%
Price/Earnings Ratio.........................................................20.4
2,311,600 Sysco Corp. @ 25 5/8............................................................. 59,234,750
Largest distributor of food service products
Earnings P/S...................$ .30, .37, .40, .45, .50, .58, .67, .74, .82, .93 5.0%
Dividends P/S.................$ .04, .045, .05, .07, .11, .14, .18, .22, .26, .30 25.1%
Price/Earnings Ratio.........................................................27.2
1,000,000 Wal-Mart Stores, Inc. @ 60 3/4................................................... 60,750,000
Operates chain of discount department stores
Earnings P/S..............$ .48, .50, .59, .73, .90, 1.05, 1.20, 1.21, 1.38, 1.64 14.6%
Dividends P/S..................$ .04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6%
Price/Earnings Ratio.........................................................39.1
--------------
238,850,375
--------------
Soap & Cleaning Preparations (0.94%)
800,000 Ecolab, Inc. @ 31................................................................ 24,800,000
--------------
Develops and markets premium institutional
cleansing, sanitizing and maintenance
products and services
Earnings P/S..................$ .03, .54, .46, .50, .52, .63, .64, .77, .92, 1.07 40.5%
Dividends P/S................$ .16, .165, .17, .175, .18, .20, .23, .26, .29, .34 8.7%
Price/Earnings Ratio.........................................................30.6
Tobacco (0.75%)
500,000 Philip Morris Cos., Inc. @ 39 3/8................................................ 19,687,500
--------------
Global tobacco, brewing and food company
Earnings P/S.........$ 1.06, 1.28, 1.33, 1.48, 1.88, 1.34, 1.90, 2.27, 2.66, 2.45 9.8%
Dividends P/S..............$ .34, .42, .52, .64, .78, .87, 1.01, 1.22, 1.47, 1.60 18.8%
Price/Earnings Ratio.........................................................16.3
Transport (0.05%)
50,000 C.H. Robinson Worldwide, Inc. @ 24 7/8........................................... 1,243,750
--------------
Provides intermodal transportation services
Earnings P/S............................................$ .28, .36, .52, .67, .78 NMF
Dividends P/S...$ .036, .045, .058, .062, .067, .073, .087, .108, .130, .185, .20 21.0%
Price/Earnings Ratio.........................................................25.5
Utilities (5.89%)
300,000 Ameritech Corp. @ 44 7/8......................................................... 13,462,500
One of the world's largest communications
companies
Earnings P/S.........$ 1.15, 1.18, 1.17, 1.15, 1.21, 1.15, 1.55, 1.72, 1.99, 2.06 6.7%
Dividends P/S...............$ .69, .75, .81, .86, .89, .93, .97, 1.02, 1.08, 1.15 5.8%
Price/Earnings Ratio.........................................................22.9
300,000 Bell Atlantic Corp. @ 45 5/8..................................................... 13,687,500
Telecommunications company providing voice
and data services in the mid-atlantic region
Earnings P/S.........$ 1.36, 1.69, 1.23, 1.64, 1.57, 1.73, 1.63, 2.10, 2.03, 1.71 2.6%
Dividends P/S........$ 1.02, 1.10, 1.18, 1.26, 1.30, 1.34, 1.38, 1.40, 1.44, 1.51 4.5%
Price/Earnings Ratio.........................................................27.4
500,000 Century Telephone Enterprises, Inc. @ 45 7/8...........................22,937,500
Louisiana-based telecommunications company
Earnings P/S...............$ .23, .37, .45, .60, .88, .93, 1.33, 1.33, 1.47, 3.09 33.5%
Dividends P/S........$ .176, .181, .189, .191, .196, .207, .213, .220, .240, .247 3.8%
Price/Earnings Ratio.........................................................16.0
200,000 Duke Energy Corp. @ 59 1/4....................................................... 11,850,000
Generates, transmits, distributes and sells
electric energy in the Piedmont sections
of North and South Carolina
Earnings P/S.........$ 2.57, 2.40, 2.44, 2.44, 2.39, 2.96, 3.01, 3.11, 2.96, 2.92 1.4%
Dividends P/S........$ 1.42, 1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08, 2.16 4.8%
Price/Earnings Ratio.........................................................20.1
450,000 National Fuel Gas Co. @ 43 9/16.................................................. 19,603,125
Integrated natural gas system serving N.Y., PA.
and Ohio
Earnings P/S..........$ 1.93, 1.83, 1.95, 1.89, 1.88, 2.05, 2.27, 2.40, 2.96, .90 NMF
Dividends P/S........$ 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67, 1.73 0.5%
Price/Earnings Ratio.........................................................47.2
250,000 Northern States Power Co. @ 28 5/8............................................... 7,156,250
Provides electric, utility, and gas services to
mid-western states
Earnings P/S.........$ 1.62, 1.42, 1.39, 1.42, 1.25, 1.58, 1.74, 1.94, 1.89, 1.52 NMF
Dividends P/S........$ 1.05, 1.10, 1.15, 1.20, 1.25, 1.28, 1.31, 1.34, 1.37, 1.40 3.2%
Price/Earnings Ratio.........................................................18.5
1,401,200 Questar Corp. @ 19 5/8........................................................... 27,498,550
Diversified holding company for Utah, Wyoming
and Colorado natural gas transmission,
distribution and storage
Earnings P/S...............$ .64, .73, .78, .77, 1.00, .99, .56, 1.12, 1.27, 1.27 7.9%
Dividends P/S..................$ .47, .48, .49, .51, .52, .55, .57, .58, .60, .62 3.1%
Price/Earnings Ratio.........................................................14.8
700,000 SBC Communications, Inc. @ 40.................................................... 28,000,000
Provides telephone service throughout the
United States and internationally
Earnings P/S..........$ .88, .91, .92, .90, 1.09, (1.37), 1.53, (1.66), 1.77, .80 NMF
Dividends P/S..................$ .61, .65, .68, .71, .73, .75, .78, .82, .85, .89 4.3%
Price/Earnings Ratio.........................................................48.1
400,000 Teco Energy, Inc. @ 26 13/16..................................................... 10,725,000
Holding company for Tampa Electric, which
provides regulated electric utility services
in Florida
Earnings P/S.........$ 1.21, 1.23, 1.22, 1.28, 1.29, 1.38, 1.34, 1.68, 1.68, 1.46 5.9%
Dividends P/S..............$ .70, .75, .80, .85, .90, .95, 1.00, 1.05, 1.11, 1.17 2.1%
Price/Earnings Ratio.........................................................18.3
--------------
154,920,425
--------------
TOTAL COMMON STOCKS
(Cost $1,503,895,932) 2,267,776,424
--------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- ------
<S> <C>
PREFERRED STOCKS (0.25%)
57,399 CSC Holdings, Inc., 11.125%, Ser M @ 115 ......... $6,600,885
--------------
TOTAL PREFERRED STOCKS
(Cost $6,367,432) 6,600,885
--------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost $1,510,263,364) 2,274,377,309
--------------
<CAPTION>
PAR VALUE
(000s
OMITTED)
- ---------
<S> <C>
CORPORATE BONDS (3.19%)
$6,000 Adelphia Communications Corp., Sr Note
9.25%, 10-01-02 @ 103.500............... 6,210,000
4,000 BankAmerica Corp., Sub Note
8.125%, 02-01-02 @ 106.351.............. 4,254,040
1,000 BankAmerica Corp., Sub Note
8.95%, 11-15-04 @ 103.446............... 1,034,460
4,000 Cablevison Systems Corp., Sr Deb Ser B
8.125%, 08-15-09 @ 107.250.............. 4,290,000
8,000 Citibank Credit Card Master Trust,
Series 1997-3A 6.839%, 02-10-04
@ 102.906............................... 8,163,750
5,000 Comcast Corp., Sr Sub Deb
10.25%, 10-15-01 @ 109.865.............. 5,493,250
1,500 Continental Cablevision, Inc., Deb
9.50%, 08-01-13 @ 119.153............... 1,787,295
5,000 CSC Holdings, Inc., Sr NT
7.875%, 12-15-07 @ 105.250.............. 5,262,500
3,000 First Union Corp., Sub Note,
8.00%, 08-15-09 @ 108.825............... 3,264,750
5,000 GTE North Inc., Sr Sub Note,
9.60%, 01-01-21 @ 122.576.............. 6,128,800
13,305 Guaranteed Trade Trust, Notes
7.39%, 06-26-06 @ 105.350............... 14,016,466
2,000 Landeskreditbank Baden Wuerttemberg,
Sub Note 7.625%,02-01-23 @116.083....... 2,321,660
6,152 Long Island Lighting Co., Deb
8.90%, 07-15-19 @ 105.976............... 6,519,644
10,000 Long Island Lighting Co., Deb
8.20%, 03-15-23 @ 109.250............... 10,925,000
2,000 NationsBank Corp., Deb
9.125%, 10-15-01 @ 108.820.............. 2,176,400
1,865 North Atlantic Energy Corp., 1st Mtg Bond
9.050%, 06-01-02 @ 102.789.............. 1,917,015
-------------
TOTAL CORPORATE BONDS
(Cost $80,863,234) 83,765,030
-------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (3.76%)
$5,000 Federal Home Loan Mort. Corp., Sr Sub
8.00%, 12-15-08 @ 106.906............... 5,345,300
7,305 Federal Home Loan Mort. Corp., Sr Sub
7.50%, 08-01-11 @ 102.906............... 7,516,905
10,000 Federal National Mort. Assn., Sr Sub
8.50%, 02-01-05 @ 103.969............... 10,396,900
5,000 Federal National Mort. Assn., Sr Sub
6.21%, 11-07-07 @ 102.562............... 5,128,100
8,199 Federal National Mort. Assn., Sr Sub
6.50%, 02-01-12 @ 100.563............... 8,245,340
3,000 Federal National Mort. Assn., Sr Sub
9.50%, 07-01-17@ 139.757................ 4,192,716
3,883 Government National Mort. Assn.,
8.00% 08-15-24 @ 103.625................ 4,023,728
4,503 Government National Mort. Assn.,
7.50% 07-15-26 @ 102.781................ 4,628,175
4,151 Government National Mort. Assn.,
7.50% 11-15-26 @ 102.781................ 4,266,616
12,000 United States Treasury, Bond
7.750%, 12-31-99 @ 103.156.............. 12,378,720
7,500 United States Treasury, Bond
10.750%, 08-15-05 @ 130.109............. 9,758,175
7,750 United States Treasury, Bond
6.125%, 11-15-27 @ 107.156.............. 8,304,590
100 United States Treasury, Note
7.875%, 11-15-99 @ 103.062.............. 103,062
6,000 United States Treasury, Note
6.25%, 01-31-02 @ 102.234............... 6,134,040
8,000 United States Treasury, Note
6.625%, 03-31-02 @ 103.578.............. 8,286,240
-------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $96,682,732) 98,708,607
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
- -------- ---- -----
<S> <C> <C>
SHORT-TERM INVESTMENTS (7.00%)
$184,043 Joint Repurchase Agreement (7.00%)
Investment in a joint repurchase agreement
transaction with Toronto Dominion
Securities USA, Inc. - Dated 06-30-98,
due 07-01-98 (Secured by U.S. Treasury
Bond, 9.125% due 05-15-18, and by U.S.
Treasury Notes, 5.00% thru 8.75% due
12-31-98 thru 04-30-03) - Note A ........... 5.750% $184,043,000
---------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% ......................... 70,157
---------------
TOTAL SHORT-TERM INVESTMENTS (7.00%) 184,113,157
----------- ---------------
TOTAL INVESTMENTS (100.47%) 2,640,964,103
----------- ---------------
OTHER ASSETS AND LIABILITIES, NET (0.47%) (12,375,421)
----------- ---------------
TOTAL NET ASSETS (100.00%) $2,628,588,682
=========== ===============
</TABLE>
NMF = No Meaningful Figure
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.
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Investors Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Investment Trust (the "Trust") is an open-end investment management
company registered under the Investment Company Act of 1940. The Trust consists
of three series portfolios: John Hancock Sovereign Investors Fund (the "Fund"),
John Hancock Growth and Income Fund and John Hancock Sovereign Balanced Fund.
The other two series of the Trust are reported in separate financial statements.
The investment objective of the Fund is to provide long-term growth of capital
and of income without assuming undue market risks.
The Trustees have authorized the issuance of multiple classes of the Fund,
designated as Class A, Class B, Class C and Class Y shares. On May 1, 1998,
Class C shares were renamed Class Y shares. The Trustees authorized the issuance
of new Class C shares effective May 1, 1998. The shares of each class represent
an interest in the same portfolio of investments of the Fund and have equal
rights to voting, redemptions, dividends and liquidation, except that certain
expenses, subject to the approval of the Trustees, may be applied differently to
each class of shares in accordance with current regulations of the Securities
and Exchange Commission and Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under 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,
Inc., may participate in joint repurchase agreements. 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 TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. 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. Dividends paid by the Fund
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on investment
securities from either the date of issue or date of purchase over the life of
the security, as required by the Internal Revenue Code.
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,
22
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Investors Fund
taking into consideration, among other things, the nature and type of expense
and the relative size of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the period ended June 30, 1998.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a quarterly
management fee to the Adviser for a continuous investment program equivalent on
an annual basis, to the sum of (a) 0.60% of the first $750,000,000 of the Fund's
average daily net asset value, (b) 0.55% of the next $750,000,000, (c) 0.50% of
the next $1,000,000,000 and (d) 0.45% of the Fund's average daily net asset
value in excess of $2,500,000,000. The Adviser has entered into a Sub-Advisory
agreement with Sovereign Asset Management Corporation ("SAMCORP"), an affiliate
of the Adviser, to provide certain investment research and portfolio management
services to the Fund, for which the Adviser pays SAMCORP 40% of its management
fee.
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,
1998, net sales charges received with regard to sales of Class A shares amounted
to $2,198,383. Out of this amount, $325,338 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $1,004,627 was
paid as sales commissions to unrelated broker-dealers and $868,418 was paid as
sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), a related broker-dealer. 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, 1998
contingent deferred sales charges paid to JH Funds amounted to $589,841.
Class C shares which are redeemed within one year of purchase will be
subject to a CDSC at a rate of 1.00% of the lesser of the current market value
at the time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in whole or
in part to defray its expenses related to providing distribution related
services to the Fund in connection with the sale of Class C shares. For the
period ended June 30, 1998, contingent deferred sales charges amounted to $2.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets to reimburse JH Funds for its distribution/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
23
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Investors Fund
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. Class
A, Class B and Class C shares pay transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses. Class Y shares pay a
monthly transfer agent fee equivalent, on an annual basis, to 0.10% of the
average daily net asset value of Class Y shares of the Fund.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of less than 0.02% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and 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 an periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At June 30, 1998, the Fund's investment to cover the deferred
compensation liability had unrealized appreciation of $15,319.
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, 1998, aggregated $518,402,057 and $517,465,566, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $65,899,047 and $70,504,434, respectively. The cost of
investments owned at June 30, 1998 (including the joint repurchase agreement),
for federal income tax purposes was $1,871,852,330. Gross unrealized
appreciation and depreciation of investments aggregated $780,728,357 and
$11,686,740, respectively, resulting in net unrealized appreciation of
$769,041,617.
24
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
Historical Data (Unaudited)
The table below shows the record of the Fund during the past periods.
- --------------------------------------------------------------------------------
CLASS A PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
------------------------------------------------------------------------
1985 2,105,220 $.53 $11.31 $.44
1986 2,807,182 .55 12.36 .87
1987 3,701,248 .58 10.96 .90
1988 4,099,131 .60 11.19 .38
1989 5,274,426 .61 12.60 .58
1990 6,991,411 .59 11.94 .60
1991 13,560,178 .53 14.31 .67
1992 59,053,529 .45 14.78 .09
1993 83,332,510 .42 15.10 .09
1994 76,585,860 .46 14.24 .11
1995 71,652,920 .40 17.87 .08
1996 73,390,083 .36 19.48 1.16
1997 78,031,449 .32 22.41 2.38
1998(4) 76,655,628 .14 24.19 --
CLASS B PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
------------------------------------------------------------------------
1994(1) 8,996,738 $.36 $14.24 $.11
1995 14,432,679 .28 17.86 .08
1996 20,888,201 .22 19.46 1.16
1997 27,296,833 .15 22.38 2.38
1998(4) 29,616,398 .05 24.16 --
CLASS C PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
------------------------------------------------------------------------
1998(3,4) 68,423 $.03 $24.17 $--
CLASS Y PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
------------------------------------------------------------------------
1993(2) 674,320 $.34 $15.11 $.09
1994 1,062,699 .51 14.24 .11
1995 1,116,297 .46 17.87 .08
1996 1,510,614 .43 19.48 1.16
1997 2,153,172 .40 22.41 2.38
1998(4) 2,361,970 .18 24.20 --
(1) Class B shares commenced operations on January 3, 1994.
(2) Effective May 1, 1998, Class C shares, which commenced operations on May
7, 1993, were renamed Class Y shares.
(3) The new Class C shares commenced operations on May 1, 1998.
(4) For the period ended June 30, 1998.
25
<PAGE>
John Hancock Funds - Sovereign Investors Fund
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the Sovereign Investors Fund as of June 30, 1998.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories, Inc. ............................. 11.1%
AFLAC Corp. ........................................... 13.0
Air Products & Chemicals, Inc. ........................ 13.3
American International Group, Inc. .................... 12.4
Ameritech Corp. ....................................... 6.2
AMP, Inc. ............................................. 3.8
Archer-Daniels-Midland Co. ............................ 5.0
Automatic Data Processing, Inc. ....................... 15.2
Banc One Corp. ........................................ 10.0
BankAmerica Corp. ..................................... 13.1
Baxter International, Inc. ............................ 3.0
Becton Dickinson & Co. ................................ 11.5
Bell Atlantic Corp. ................................... 4.1
Bemis Company, Inc. ................................... 10.0
BetzDearborn, Inc. .................................... 1.3
Bristol-Myers Squibb Co. .............................. 2.6
C.H. Robinson Worldwide, Inc. ......................... 8.1
Century Telephone Enterprises, Inc. ................... 5.3
Chevron Corp. ......................................... 5.2
Chubb Corp. ........................................... 6.9
ConAgra, Inc. ......................................... 14.7
Dayton Hudson Corp. ................................... 12.5
Dover Corp. ........................................... 11.8
DuPont (E.I.) De Nemours & Co. ........................ 11.1
Duke Energy Corp. ..................................... 3.8
Ecolab, Inc. .......................................... 18.8
Emerson Electric Co. .................................. 9.3
First Chicago NBD Corp. ............................... 10.0
First Tennessee National Corp. ........................ 10.0
First Union Corp. ..................................... 13.5
Gannett Co., Inc. ..................................... 5.6
General Electric Co. .................................. 15.4
General Mills Co. ..................................... 6.0
General Re Corp. ...................................... 7.3
Grainger (W.W.), Inc. ................................. 11.1
Hasbro, Inc. .......................................... 19.9
Hewlett-Packard Co. ................................... 14.3
Home Depot, Inc. ...................................... 20.0
Honeywell, Inc. ....................................... 3.7
IKON Office Solutions, Inc. ........................... 35.6
Illinois Tool Works, Inc. ............................. 26.3
Interpublic Group of Companies, Inc. .................. 15.4
Johnson & Johnson ..................................... 13.6
Johnson Controls, Inc. ................................ 7.0
KeyCorp ............................................... 11.9
Kimberly-Clark Corp. .................................. 4.2
Leggett & Platt, Inc. ................................. 6.7
Masco Corp. ........................................... 4.8
May Department Stores ................................. 5.8
McGraw-Hill Companies, Inc. ........................... 8.3
Merck & Co., Inc. ..................................... 7.1
Mobil Corp. ........................................... 7.5
National Fuel Gas Co. ................................. 3.4
NationsBank Corp. ..................................... 15.2
Northern States Power Co./Mn .......................... 1.4
Norwest Corp. ......................................... 10.0
Parker-Hannifin Corp. ................................. 12.5
Pentair, Inc. ......................................... 11.1
PepsiCo, Inc. ......................................... 4.0
Philip Morris Cos., Inc. .............................. 20.0
Pitney Bowes, Inc. .................................... 12.5
Questar Corp. ......................................... 4.8
ReliaStar Financial Corp. ............................. 19.4
RPM, Inc. ............................................. 7.7
Sara Lee Corp. ........................................ 9.5
SBC Communications, Inc. .............................. 0.04
Schulman (A.), Inc. ................................... 9.5
ServiceMaster Co. ..................................... 5.9
Sigma-Aldrich Corp. ................................... 12.0
Sonoco Products Corp. ................................. 10.0
Sysco Corp. ........................................... 5.9
Teco Energy, Inc. ..................................... 5.1
Travelers Group, Inc. ................................. 25.0
UNUM Corp. ............................................ 3.5
Wal-Mart Stores, Inc. ................................. 14.8
-----
The average dividend increase for this group was ...... 10.1%
=====
26
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Sovereign Investors Fund
27
<PAGE>
================================================================================
----------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
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INTERNET: www.jhancock.com/funds ----------------
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This report is for the information of shareholders of the John Hancock
Sovereign Investors Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
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