ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Growth and Income Fund
DECEMBER 31, 1997
[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
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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
--------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 were anything but dull. Bond investors enjoyed the
benefits of a strong economy with no inflation. Stock investors were treated to
record-breaking performance by the Dow Jones Industrial Average, but with
record-breaking volatility. After two years of strong advances with relatively
minor swings, the stock market's recent sharp drops and enormous rebounds have
caused a fair share of investor concern.
The latest round began in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had bounced back, yet it and many markets remained edgy and more
volatile as investors sorted out the Asian turmoil and its implications on
economic growth, interest rates and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
2
<PAGE>
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BY TIMOTHY KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
Growth and Income Fund
Stocks surge ahead in 1997, producing over
20% returns for an unprecedented third straight year
Shareholders of John Hancock Utilities Fund have approved the merger of their
fund into John Hancock Growth and Income Fund. The merger was effective after
the close of business on December 5, 1997.
To the amazement of many, the stock market forged into uncharted territory in
1997, breaking records by producing 20%-plus returns for a third consecutive
year. The feat was made possible by the continuation of a near-perfect economic
backdrop for stocks: declining interest rates, a strong economy and limited
signs of inflation. As a result, corporate earnings continued to grow faster
than many expected, especially given the late stages of the current expansion,
now entering its record-setting eighth year. This year, however, was marked by a
significant increase in volatility, especially beginning in late summer.
Although the economy remained buoyant, concerns mounted with several
high-profile earnings disappointments. Then in October, Wall Street was
infected, along with the rest of the world's markets, by fallout from the
mounting currency and financial crises in Asia. The U.S. market rebounded
quickly, but investor confidence was shaken and volatility surged. Nonetheless,
the Standard & Poor's 500 Stock Index, a broad measure of market performance,
still returned 33.36% for the year, including reinvested dividends.
Big was beautiful
Big companies outperformed small ones again this year, as investors were
attracted first to their strong and stable earnings growth and, later in
"...the stock market forged into uncharted territory in 1997..."
[A 2 1/4" by 3 1/2" photo of Fund management team at bottom right. Caption
reads: "Tim Keefe (standing) and Fund management team members Anurag Pandit (l)
and Ben Hock (r)."]
3
<PAGE>
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John Hancock Funds - Growth and Income Fund
"...our overweighted position in financial stocks...served us well."
the year, to their safe-haven appeal. The market's preference for larger
companies served the Fund well, since we focus on the type of stocks that led
the way -- large companies with strong leadership positions in their industries.
For the year ended December 31, 1997, John Hancock Growth and Income Fund's
Class A and Class B shares produced total returns of 36.71% and 35.80%,
respectively, at net asset value. That handily surpassed the 27.14% return of
the average growth and income fund, according to Lipper Analytical Services,
Inc.(1) Longer-term performance information can be found on pages six and seven.
Several of our top holdings were also among our best performers, which
helped boost results. Number-one holding Progressive Corp.'s stock surged almost
80% during the year as this auto insurance company continued to register strong
revenue growth and increased efficiencies due to declining auto repair and
medical costs. Number-two holding Computer Associates International's stock rose
by more than 60% since we bought it earlier in the year at very attractive
levels. This software giant's programs to help companies move from mainframe
computing to client server systems propelled its earnings to higher levels than
the market had expected. We bought our third biggest holding, TCF Financial
Corp., earlier in the year when it was misunderstood and selling at a very low
price-to-earnings ratio (a measure of how much you're paying for earnings
power.) Once the market realized its worth as a well-run regional bank and
leading industry consolidator, its stock price and the Fund were rewarded.
Finance pays off
In general, our overweighted position in financial stocks, which totaled more
than 25% of the Fund's net assets, served us well. Most notable were our bank
holdings. We made some great buys back in March and April during a brief
interest-rate spike that brought many solid financial stocks down to very
compelling levels. As the year progressed, interest rates declined, bank
earnings came in better than expected and the pace of consolidation picked up --
all positives for the sector.
There were some disappointments, however, within the consumer finance
subsector. In the first half, the group came under pressure with the perception
of rising payment delinquencies and increasing personal bankruptcies. At that
point, we picked up several of what we believed to be the best companies at very
attractive prices, such as FIRSTPLUS Financial Group which we bought at a low of
four times earnings. The stock of this lending company rose to as high as 12
times earnings before falling back to eight times earnings upon concerns about
accounting issues. We're
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Progressive Corp. 3.7%; 2) Computer Associates
International 3.0%; 3) TCF Financial Corp. 2.3%; 4) Eli Lilly 2.0%; 5) First
Union Corp. 1.9%. A footnote below states "As a percentage of net assets on
December 31, 1997."]
[Table entitled "Scorecard" at bottom left hand column. The header for the left
column is "Investment," the header for the right column is "Recent
performance...and what's behind the numbers." The first listing is "TCF
Financial" followed by an up arrow and the phrase "Market recognizes regional
bank's worth". The second listing is "Computer Associates" followed by an up
arrow and the phrase "Greater-than-expected earnings growth". The third listing
is "Oracle" followed by a down arrow and the phrase "Disappointing earnings".
Footnote below reads: "See "Schedule of Investments." Investment holdings are
subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - Growth and Income Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote "For the year ended December 31, 1997." The chart is
scaled in increments of 10% from top to bottom with 40% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
36.71% total return for John Hancock Growth and Income Fund: Class A. The second
represents the 35.80% total return for John Hancock Growth and Income Fund:
Class B. The third represents the 27.14% total return for the average growth and
income fund. Footnote below 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. (1) See
the following two pages for historical performance information.]
holding on, however, because management has changed accounting methods, thereby
renewing confidence and helping assure their place as a sector leader. Within
our technology group, database management company Oracle lost ground when its
earnings were weaker than expected.
Buys and sells
As always, we continued to pursue our strategy of owning good, solid long-term
companies that we could buy at prices not reflective of their true worth. To
that end, we bought stock in pharmaceutical companies American Home Products,
Pharmacia & Upjohn and Johnson & Johnson. Their prices weakened in the second
half on concerns that the strong dollar was eroding the value of their foreign
profits. We also added superregional bank First Union Corp. when it was selling
at a 25% discount to comparable banks. We were drawn to this Charlotte,
N.C.-based bank's strong management and dominant market share in an economically
attractive market. Another good buy was rail-car leasing company GATX Corp. We
also bought the stocks of Citicorp and CalEnergy after their prices dropped in
the wake of concerns about their exposure to Southeast Asia. In each case, we
believe that the company's strong fundamentals did not warrant the amount of the
price decline. Conversely, we sold our stake in companies where we believed the
fundamentals of the business had peaked along with stock valuations. Included in
this group were Honeywell, AlliedSignal and Baxter International.
A look ahead
Given the market's progress over the last three years and the stretched level of
valuations, it's unlikely that we'll see the same level of stock returns, or
positive earnings surprises, in 1998. With continuing fallout from Asia keeping
the market in a stew, we also expect more volatility in the mix. Although we
said it last year and were proved wrong, we still believe investors would be
advised to temper their 1998 expectations, keeping in mind that the market's
longer-term historical average return is 8% to 10%.
Regardless of the market's next moves, we will stick to our disciplined
value-oriented strategy of buying companies across the broad market spectrum at
times when their stock prices do not reflect their true earnings potential.
Especially in these times of heightened uncertainty, we believe this is the best
way to provide shareholders with above-average returns at below-average risk.
"...it's unlikely that we'll see the same level of stock returns...in 1998."
- --------------------------------------------------------------------------------
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
<PAGE>
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John Hancock Funds - Growth and Income 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 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).
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 December 31, 1997
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns 29.87% 117.92% 297.01%
Average Annual Total Returns 29.87% 16.86% 14.78%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (8/22/91)
---- ----- ---------
Cumulative Total Returns 30.80% 118.85% 156.99%
Average Annual Total Returns 30.80% 16.96% 16.00%
6
<PAGE>
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John Hancock Funds - Growth and Income Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
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.
[GRAPHIC OMITTED]
[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 $52,448 as of December 31, 1997. 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 $41,791 as of December 31, 1997. The third line represents the Growth
and Income Fund, after sales charge, and is equal to $39,701 as of December 31,
1997.]
[GRAPHIC OMITTED]
[Line chart with the heading Growth and Income Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines. The first line represents the value of the Standard &
Poor's 500 Stock Index, and is equal to $29,511 as of December 31, 1997. 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 $25,699 as of December 31, 1997.]
*No contingent deferred sales charge applicable.
7
<PAGE>
==============================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 December 31, 1997. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $375,073,773) ....................... $524,487,798
Preferred stocks (cost - $14,919,083) ..................... 17,169,400
Bond (cost - $9,900,018) .................................. 11,084,760
Joint repurchase agreement (cost - $88,135,000) ........... 88,135,000
Corporate savings account ................................. 10,867
------------
640,887,825
Receivable for investments sold ............................ 1,149,050
Receivable for shares sold ................................. 1,371,135
Dividends receivable ....................................... 817,251
Dividend reclaim receivable ................................ 4,643
Interest receivable ........................................ 16,276
Other assets ............................................... 45,197
------------
Total Assets ............................. 644,291,377
------------------------------------------------------------
Liabilities:
Payable for shares repurchased ............................. 27,610
Dividend payable ........................................... 1,806
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 502,600
Accounts payable and accrued expenses ...................... 112,251
------------
Total Liabilities ........................ 644,267
------------------------------------------------------------
Net Assets:
Capital paid-in ............................................ 481,827,140
Accumulated net realized gain on investments and
foreign currency transactions ............................. 8,674,154
Net unrealized appreciation of investments and
foreign currency transactions ............................. 152,851,457
Accumulated net investment income .......................... 294,359
------------
Net Assets ............................... $643,647,110
============================================================
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 - $303,313,015 / 15,697,757 ........................ $19.32
==============================================================================
Class B - $340,334,095 / 17,625,587 ........................ $19.31
==============================================================================
Maximum Offering Price Per Share*
Class A - ($19.32 x 105.26%) ............................... $20.34
==============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends
(net of foreign withholding taxes of $10,738) ............. $5,737,548
Interest ................................................... 2,022,269
-------------
7,759,817
-------------
Expenses:
Investment management fee - Note B ......................... 2,735,337
Distribution and service fee - Note B
Class A .................................................. 547,723
Class B .................................................. 2,172,976
Transfer agent fee - Note B ................................ 731,054
Custodian fee .............................................. 96,078
Registration and filing fees ............................... 91,940
Financial services fee - Note B ............................ 79,241
Auditing fee ............................................... 40,203
Trustees' fees ............................................. 30,105
Printing ................................................... 10,574
Miscellaneous .............................................. 10,505
Legal fees ................................................. 6,850
-------------
Total Expenses ........................... 6,552,586
-----------------------------------------------------------
Net Investment Income .................... 1,207,231
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions:
Net realized gain on investments sold ...................... 63,066,229
Net realized loss on foreign currency transactions ......... (3,002)
Change in net unrealized appreciation/depreciation
of investments and foreign currency transactions .......... 72,108,994
-------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions ............ 135,172,221
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................ $136,379,452
===========================================================
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>
PERIOD FROM
YEAR ENDED SEPTEMBER 1, 1996 TO YEAR ENDED
AUGUST 31, 1996 DECEMBER 31, 1996 (1) DECEMBER 31, 1997
--------------- --------------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................. $2,407,620 $483,351 $1,207,231
Net realized gain on investments sold and foreign currency
transactions ... 25,207,559 11,589,657 63,063,227
Change in net unrealized appreciation/depreciation of investments
and foreign currency transactions ................................... 7,739,354 26,075,239 72,108,994
------------ ------------ ------------
Net Increase in Net Assets Resulting from Operations ................. 35,354,533 38,148,247 136,379,452
------------ ------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.1939, $0.0752 and $0.0738 per share, respectively) .... (1,792,414) (697,553) (804,990)
Class B - ($0.0916, $0.0151 and $0.0096 per share, respectively) .... (780,162) (126,946) (101,491)
Distributions from net realized gain on investments sold
Class A - ($0.1450, $1.5747 and $1.9164 per share, respectively) .... (1,309,129) (14,744,885) (24,541,840)
Class B - ($0.1450, $1.5747 and $1.9164 per share, respectively) .... (1,230,621) (13,438,564) (26,375,037)
------------ ------------ ------------
Total Distributions to Shareholders ................................ (5,112,326) (29,007,948) (51,823,358)
------------ ------------ ------------
From Fund Share Transactions - Net: * ................................... (9,818,420) 35,083,465 249,537,997
------------ ------------ ------------
Net Assets:
Beginning of period ................................................... 244,905,468 265,329,255 309,553,019
------------ ------------ ------------
End of period (including undistributed net investment income of
$338,676, distributions in excess of net investment income of $2,472
and undistributed net investment income of $294,359, respectively) ... $265,329,255 $309,553,019 $643,647,110
============= ============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
PERIOD FROM
YEAR ENDED SEPTEMBER 1, 1996 TO YEAR ENDED
AUGUST 31, 1996 DECEMBER 31, 1996 (1) DECEMBER 31, 1997
-------------------------- -------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold ............................ 1,760,701 $25,784,827 2,100,056 $34,769,586 9,873,058 $181,540,264
Shares issued in reorganization - Note D -- -- -- -- 1,152,430 17,941,944
Shares issued to shareholders in
reinvestment of distributions ........ 184,594 2,627,197 864,570 13,618,418 1,192,715 22,651,383
----------- ------------ ----------- ------------ ------------ -------------
1,945,295 28,412,024 2,964,626 48,388,004 12,218,203 222,133,591
Less shares repurchased ................ (2,414,054) (34,877,792) (1,774,320) (29,444,447) (6,968,165) (124,529,510)
----------- ------------ ----------- ------------ ------------ -------------
Net increase (decrease) ................ (468,759) ($6,465,768) 1,190,306 $18,943,557 5,250,038 $97,604,081
=========== ============ =========== ============ ============ =============
CLASS B
Shares sold ............................ 2,595,953 $37,809,526 901,707 $14,803,231 8,763,042 $168,420,351
Shares issued in reorganization - Note D -- -- -- -- 2,252,005 34,935,449
Shares issued to shareholders in
reinvestment of distributions ........ 123,908 1,753,023 767,775 12,131,262 1,237,669 23,549,294
----------- ------------ ----------- ------------ ------------ -------------
2,719,861 39,562,549 1,669,482 26,934,493 12,252,716 226,905,094
Less shares repurchased ................ (2,944,133) (42,915,201) (653,345) (10,794,585) (3,973,150) (74,971,178)
----------- ------------ ----------- ------------ ------------ -------------
Net increase (decrease) ................ (224,272) ($3,352,652) 1,016,137 $16,139,908 8,279,566 $151,933,916
=========== ============ =========== ============ ============ =============
</TABLE>
(1) Effective December 31, 1996, the fiscal period end changed from August 31
to December 31.
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last three periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1,
YEAR ENDED AUGUST 31, 1996 TO YEAR ENDED
-------------------------------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1995(4) 1996 1996(7) 1997
-------- -------- -------- -------- ------------ -----------
<S> <C> <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 $15.62
-------- -------- -------- -------- -------- --------
Net Investment Income (1) ............................ 0.40 0.32 0.21 0.19 0.05 0.12
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 1.12 (0.61) 1.95 1.84 2.15 5.57
-------- -------- -------- -------- -------- --------
Total from Investment Operations ................... 1.52 (0.29) 2.16 2.03 2.20 5.69
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................. (0.42) (0.37) (0.20) (0.19) (0.08) (0.07)
Distributions from Net Realized Gain on
Investments Sold ................................... (1.45) -- -- (0.15) (1.57) (1.92)
-------- -------- -------- -------- -------- --------
Total Distributions ................................ (1.87) (0.37) (0.20) (0.34) (1.65) (1.99)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ....................... $12.08 $11.42 $13.38 $15.07 $15.62 $19.32
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value (2) ....... 13.64% (2.39%) 19.22% 15.33% 14.53%(6) 36.71%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $115,780 $121,160 $130,183 $139,548 $163,154 $303,313
Ratio of Expenses to Average Net Assets .............. 1.29% 1.31% 1.30% 1.17% 1.22%(5) 1.12%
Ratio of Net Investment Income to Average
Net Assets ......................................... 3.43% 2.82% 1.82% 1.28% 0.85%(5) 0.65%
Portfolio Turnover Rate .............................. 107% 195% 99% 74% 26% 102%
Average Broker Commission Rate (3) ................... N/A N/A N/A $0.0665 $0.0692 $0.0686
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 1,
YEAR ENDED AUGUST 31, 1996 TO YEAR ENDED
------------------------------------------- DECEMBER 31, DECEMBER 31,
1993 1994 1995(4) 1996 1996(7) 1997
------- -------- -------- -------- ------------ -----------
<S> <C> <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 $15.66
------- -------- -------- -------- -------- --------
Net Investment Income (Loss) (1) ..................... 0.30 0.24 0.13 0.08 0.01 (0.02)
Net Realized and Unrealized Gain (Loss) on
Investments ........................................ 1.12 (0.61) 1.96 1.85 2.14 5.60
------- -------- -------- -------- -------- --------
Total from Investment Operations ................... 1.42 (0.37) 2.09 1.93 2.15 5.58
------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................. (0.31) (0.29) (0.12) (0.09) (0.02) (0.01)
Distributions from Net Realized Gain on
Investments Sold ................................... (1.45) -- -- (0.15) (1.57) (1.92)
------- -------- -------- -------- -------- --------
Total Distributions ................................ (1.76) (0.29) (0.12) (0.24) (1.59) (1.93)
------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ....................... $12.10 $11.44 $13.41 $15.10 $15.66 $19.31
======= ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) ........ 12.64% (3.11%) 18.41% 14.49% 14.15%(6) 35.80%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $65,010 $114,025 $114,723 $125,781 $146,399 $340,334
Ratio of Expenses to Average Net Assets .............. 2.19% 2.06% 2.03% 1.90% 1.98%(5) 1.87%
Ratio of Net Investment Income (Loss) to Average
Net Assets ......................................... 2.53% 2.07% 1.09% 0.55% 0.10%(5) (0.10%)
Portfolio Turnover Rate .............................. 107% 195% 99% 74% 26% 102%
Average Broker Commission Rate(3) .................... N/A N/A N/A $0.0665 $0.0692 $0.0686
</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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(4) On December 2, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(5) Annualized.
(6) Not annualized.
(7) Effective December 31, 1996, the fiscal period end changed from August 31
to December 31.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Schedule of Investments
December 31, 1997
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Fund on December 31, 1997. 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.
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ------------------- --------- -----
COMMON STOCKS
Advertising (0.03%)
Princeton Video Image, Inc.* ................... 20,000 $187,500
------------
Aerospace (3.16%)
General Dynamics Corp. ......................... 75,000 6,482,813
Northrop Grumman Corp. ......................... 70,000 8,050,000
United Technologies Corp. ...................... 80,000 5,825,000
------------
20,357,813
------------
Automobile/Trucks (1.17%)
Dollar Thrifty Automotive Group, Inc. * ........ 300,000 6,150,000
Lear Corp.* .................................... 29,700 1,410,750
------------
7,560,750
------------
Banks - United States (6.46%)
Banc One Corp. ................................. 163,226 8,865,212
Citicorp ....................................... 35,000 4,425,312
First Union Corp. .............................. 243,000 12,453,750
TCF Financial Corp. ............................ 427,500 14,508,281
Wells Fargo & Co. .............................. 4,000 1,357,750
------------
41,610,305
------------
Building (0.04%)
Morrison Knudsen Corp.* ........................ 25,000 243,750
------------
Business Services - Misc (1.77%)
Block, H&R, Inc. ............................... 250,000 11,203,125
Securacom, Inc.* ............................... 16,700 162,825
------------
11,365,950
------------
Chemicals (1.53%)
Monsanto Co. ................................... 145,800 $6,123,600
Solutia Inc. ................................... 139,400 3,720,238
------------
9,843,838
------------
Computers (5.82%)
Adobe Systems, Inc. ............................ 20,000 825,000
Automatic Data Processing, Inc. ................ 67,500 4,142,812
Bay Networks, Inc.* ............................ 70,000 1,789,375
Computer Associates International, Inc. ........ 364,900 19,294,087
Computer Sciences Corp.* ....................... 81,900 6,838,650
NCR Corp. ...................................... 50,000 1,390,625
Networks Associates, Inc. ...................... 25,000 1,321,875
Oracle Corp.* .................................. 30,000 669,375
Quantum Corp. * ................................ 60,000 1,203,750
------------
37,475,549
------------
Consumer Products Misc. (0.41%)
Samsonite Corp.* ............................... 82,800 2,618,550
------------
Cosmetics & Personal Care (0.94%)
Gillette Co. ................................... 60,000 6,026,250
------------
Diversified Operations (0.42%)
Canadian Pacific, Ltd. (Canada) ................ 100,000 2,725,000
------------
Electronics (1.29%)
Fisher Scientific International ................ 43,100 2,058,025
Hadco Corp. .................................... 15,300 692,325
Lattice Semiconductor Corp* .................... 35,400 1,677,075
Novellus Systems, Inc.* ........................ 70,200 2,268,338
Oak Industries, Inc.* .......................... 20,000 593,750
SCI Systems, Inc.* ............................. 24,000 1,045,500
------------
8,335,013
------------
Energy (1.25%)
CalEnergy Co., Inc.* ........................... 279,000 8,021,250
------------
Finance (5.09%)
Ahmanson (H.F.) & Co. .......................... 60,000 4,016,250
American Express Co. ........................... 60,000 5,355,000
Astoria Financial Corp. ........................ 77,300 4,309,475
Charter One Financial, Inc. .................... 21,594 1,363,121
FIRSTPLUS Financial Group, Inc.* ............... 90,000 3,453,750
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ------------------- --------- -----
Finance (continued)
Morgan Stanley, Dean Witter,
Discover & Co. ................................ 165,400 $9,779,275
Washington Mutual, Inc. ........................ 70,380 4,491,124
------------
32,767,995
------------
Food (1.69%)
CPC International, Inc. ........................ 76,500 8,262,000
IBP, inc ....................................... 126,400 2,646,500
------------
10,908,500
------------
Insurance (9.24%)
Ace, Ltd. (Bermuda) ............................ 100,000 9,650,000
CMAC Investment Corp. .......................... 60,000 3,622,500
Conseco, Inc. .................................. 148,700 6,756,556
ESG Re Ltd.* (Bermuda) ......................... 43,000 1,010,500
Executive Risk, Inc. ........................... 26,100 1,822,106
Financial Security Assurance Holdings Ltd. ..... 64,600 3,116,950
Leucadia National Corp. ........................ 50,000 1,725,000
Mercury General Corp. .......................... 20,000 1,105,000
Mid Ocean Ltd. (Bermuda) ....................... 10,000 542,500
Progressive Corp. .............................. 197,500 23,675,312
Travelers Group, Inc. .......................... 120,000 6,465,000
------------
59,491,424
------------
Leisure (2.01%)
Circus Circus Enterprises, Inc.* ............... 100,000 2,050,000
Galileo International, Inc. .................... 269,500 7,444,937
King World Productions, Inc. * ................ 59,300 3,424,575
------------
12,919,512
------------
Media (1.93%)
Central Newspapers, Inc. (Class A) ............. 55,400 4,096,137
Harcourt General, Inc. ......................... 104,000 5,694,000
Viacom, Inc. (Class B)* ........................ 63,000 2,610,563
------------
12,400,700
------------
Medical (8.69%)
American Home Products Corp. ................... 152,500 11,666,250
Johnson & Johnson .............................. 45,000 2,964,375
Lilly (Eli) & Co. .............................. 180,000 12,532,500
Pharmacia & Upjohn, Inc. ....................... 185,000 6,775,625
Schering-Plough Corp. .......................... 160,000 9,940,000
Warner-Lambert Co. ............................. 63,000 7,812,000
Wellpoint Health Networks, Inc.* ............... 100,000 4,225,000
------------
55,915,750
------------
Mortgage Banking (2.36%)
Fannie Mae ..................................... 165,000 $9,415,313
Federal Home Loan Mortgage Corp. ............... 112,000 4,697,000
Money Store, Inc. (The) ........................ 50,000 1,050,000
------------
15,162,313
------------
Oil & Gas (4.82%)
Amerada Hess Corp. ............................. 20,000 1,097,500
Coastal Corp. (The) ............................ 17,000 1,052,937
Columbia Gas System, Inc. ...................... 11,000 864,188
El Paso Natural Gas Co. ........................ 14,500 964,250
ENI S.p.A., American Depositary
Receipt (ADR), (Italy) ........................ 35,000 1,997,188
Mobil Corp. .................................... 138,000 9,961,875
Pennzoil Co. ................................... 25,000 1,670,313
Phillips Petroleum Co. ......................... 150,000 7,293,750
Tejas Gas Corp.* ............................... 19,800 1,212,750
Tosco Corp. .................................... 60,000 2,268,750
Triton Energy, Ltd.* ........................... 36,000 1,050,750
Williams Cos., Inc. (The) ...................... 56,000 1,589,000
------------
31,023,251
------------
Retail (2.05%)
SED International Holdings, Inc. ............... 68,500 770,625
Sysco Corp. .................................... 125,000 5,695,312
Wal-Mart Stores, Inc. .......................... 170,000 6,704,375
------------
13,170,312
------------
Steel (0.33%)
British Steel Plc, ADR (United Kingdom) ........ 100,000 2,143,750
------------
Telecommunications (5.48%)
360 Communications Co.* ........................ 107,200 2,164,100
Bell Atlantic Corp. ............................ 30,110 2,740,010
Cable Design Technologies* ..................... 21,300 828,037
Lucent Technologies, Inc. ...................... 130,200 10,399,725
MCI Communications Corp. ....................... 240,000 10,275,000
Telecomunicacoes Brasileiras S/A,
ADR (Brazil) .................................. 1,300 151,369
U.S. West Media Group* ......................... 302,000 8,720,250
------------
35,278,491
------------
Tobacco (1.86%)
Philip Morris Cos., Inc. ....................... 264,800 11,998,750
------------
Transport (3.99%)
Burlington Northern Santa Fe ................... 87,000 8,085,562
CSX Corp. ...................................... 92,000 4,968,000
GATX Corp. ..................................... 75,000 5,442,187
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ------------------- --------- -----
Transport (continued)
Northwest Airlines Corp. (Class A)* ............ 150,000 $7,181,250
------------
25,676,999
------------
Utilities (7.66%)
Atmos Energy Corp. ............................. 54,000 1,633,500
Bay State Gas Co. .............................. 36,800 1,366,200
BellSouth Corp. ................................ 20,000 1,126,250
Boston Edison Co. .............................. 46,000 1,742,250
CMS Energy Corp. ............................... 47,000 2,070,937
Companhia Paranaense de Energia-Copel,
ADR (Brazil) .................................. 31,900 436,631
DTE Energy Corp. ............................... 30,000 1,040,625
Eastern Enterprises ............................ 27,000 1,215,000
Edison International ........................... 33,000 897,188
Energen Corp. .................................. 50,000 1,987,500
Florida Progress Corp. ......................... 26,500 1,040,125
GTE Corp. ...................................... 15,000 783,750
IPALCO Enterprises, Inc. ....................... 29,000 1,216,188
KeySpan Energy Corp. ........................... 17,100 629,494
KN Energy, Inc. ................................ 25,000 1,350,000
Long Island Lighting Co. ....................... 133,000 4,006,625
MDU Resources Group, Inc. ...................... 35,000 1,106,875
National Fuel Gas Co. .......................... 36,000 1,752,750
National Power Plc, ADR (United Kingdom) ....... 4,000 158,500
New England Electric System .................... 37,000 1,581,750
NUI Corp. ...................................... 52,000 1,491,750
Pacific Enterprises ............................ 50,000 1,881,250
PacifiCorp ..................................... 50,000 1,365,625
People's Energy Corp. .......................... 30,000 1,181,250
Potomac Electric Power Co. ..................... 23,000 593,688
PowerGen Plc, ADR (United Kingdom) ............. 13,000 690,625
Providence Energy Corp. ........................ 42,000 916,125
Puget Sound Energy, Inc. ....................... 32,000 966,000
SBC Communications, Inc. ....................... 55,000 4,028,750
Sierra Pacific Resources ....................... 30,000 1,125,000
Southern Co. ................................... 36,000 931,500
Texas Utilities Co. ............................ 14,500 602,656
UtiliCorp United, Inc. ......................... 47,000 1,824,188
Washington Gas Light Co. ....................... 36,000 1,113,750
Washington Water Power Co. ..................... 48,500 1,179,156
Wicor, Inc. .................................... 30,100 1,397,769
Yankee Energy System, Inc. ..................... 31,000 827,313
------------
49,258,533
------------
TOTAL COMMON STOCKS
(Cost $375,073,773) (81.49%) 524,487,798
------ ------------
PREFERRED STOCKS
Banks - United States (0.21%)
Chase Manhattan Corp., 10.84%, Ser C ........... 44,900 $1,369,450
------------
Broker Services (1.03%)
Salomon Inc. 7.625%, Ser FSA ................... 165,000 6,600,000
------------
Food (0.12%)
Ralston Purina Co., 7.00% ...................... 11,000 765,875
------------
Insurance (0.19%)
Conseco, Inc. 7.00%, Ser E ..................... 7,700 1,201,200
------------
Leasing Companies (0.08%)
Capita Preferred Trust, 9.06% .................. 20,000 533,750
------------
Telecommunications (0.13%)
Sprint Corp., 8.25% ............................ 19,000 850,250
------------
Tobacco (0.62%)
DECS Trust, 8.50% .............................. 155,000 3,991,250
------------
Utilities (0.29%)
El Paso Tennessee Pipeline Co.,
8.25%, Ser A .................................. 19,000 1,066,375
MCN Michigan, L.P., 9.375%, Ser A .............. 30,000 791,250
------------
1,857,625
------------
TOTAL PREFERRED STOCKS
(Cost $14,919,083) (2.67%) 17,169,400
------ ------------
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (000s OMITTED)
- ------------------- ---- --------------
BOND
Government - U.S. (1.72%)
United States Treasury,
STRIP 08-15-17 ..................... 8.875% $36,000 11,084,760
------------
TOTAL BOND
(Cost $9,900,018) (1.72%) 11,084,760
------ ------------
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000s OMITTED) VALUE
- ------------------- ---- -------------- ------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (13.69%)
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc. - Dated 12-31-97,
Due 01-02-98 (Secured by U.S.
Treasury Bonds, 7.25% thru 13.25%
Due 11-15-08 thru 11-15-16, and
U.S. Treasury Notes, 6.50%
Due 04-30-99) - Note A. .............. 6.60% $88,135 $88,135,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% .................. 10,867
------------
TOTAL SHORT-TERM INVESTMENTS (13.69%) 88,145,867
------- ------------
TOTAL INVESTMENTS (99.57%) 640,887,825
------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.43%) 2,759,285
------- ------------
TOTAL NET ASSETS (100.00%) $643,647,110
======= ============
* Non-income producing security.
Parenthetical disclosure of foreign country in the security description
represents country of a foreign issuer; however, the security is U.S.
dollar denominated.
The percentage shown for each investment category is the total of that
category as a percentage of net assets of the fund.
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
NOTE A -
ACCOUNTING POLICIES
John Hancock Investment Trust (the "Trust") is an open-end management investment
company registered under the Investment Company Act of 1940. The Trust consists
of three series portfolios: John Hancock Growth and Income Fund (the "Fund"),
John Hancock Sovereign Balanced Fund and John Hancock Sovereign Investors Fund.
The other two series of the Trust are reported in separate financial statements.
The investment objective of the Fund is to obtain the highest total return, a
combination of capital appreciation and current income, consistent with
reasonable safety of capital.
The Trustees have authorized the issuance of two classes of the Fund,
designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemptions, dividends and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under the terms of a distribution
plan have exclusive voting rights regarding such distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAX The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution and service fees, if any, are calculated daily at the class level
based on the appropriate net assets of each class and the specific expense
rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts
16
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
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 borrowing of up to $600 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 a
rate of 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 year ended December 31, 1997.
NOTE B -
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.625% of the Fund's average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the year ended December
31, 1997, net sales charges received with regard to sales of Class A shares
amounted to $1,420,957. Out of this amount, $222,283 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$812,843 was paid as sales commissions to unrelated broker-dealers and $385,831
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 year ended December 31,
1997, contingent deferred sales charges amounted to $340,301.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds for
distribution and service expenses at an annual rate not to exceed 0.25% of Class
A average daily net assets and 1.00% of Class B average daily net assets to
reimburse JH Funds for its distribution and service costs. Up to a maximum of
0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The
Fund pays transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the year 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 peri-
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
odic basis to reflect any income earned by the investment as well as any
unrealized gains or losses. At December 31, 1997, the Fund's 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 year
ended December 31, 1997, aggregated $471,945,695 and $410,458,897, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies, during the year ended December 31, 1997, aggregated $9,711,360 and
none, respectively.
The cost of investments owned at December 31, 1997 (excluding the
corporate savings account) for federal income tax purposes was $488,942,952.
Gross unrealized appreciation and depreciation of investments aggregated
$161,883,664 and $9,949,658, respectively, resulting in net unrealized
appreciation of $151,934,006.
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
acquistion 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.
NOTE E -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended December 31, 1997, the Fund has reclassified amounts to
reflect an increase in capital paid-in of $10,110,419, a decrease in accumulated
net realized gain on investments of $10,106,500 and a decrease in accumulated
net investment income of $3,919. This represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of December 31, 1997. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to the treatment of
foreign currency gains and losses in the computation of distributable income and
capital gains under federal tax rules versus generally accepted accounting
principles and the Fund's use of the tax accounting practice known as
equalization. The calculation of net investment income per share in the
financial highlights excludes these adjustments.
18
<PAGE>
================================================================================
John Hancock Funds - Growth and Income Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Investment Trust
John Hancock Growth and Income Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Growth and Income Fund (the "Fund"), one of the portfolios constituting
John Hancock Investment Trust, including the schedule of investments, as of
December 31, 1997, the related statement of operations for the year then ended,
the statement of changes in net assets and financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers, or other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
John Hancock Growth and Income Fund portfolio of John Hancock Investment Trust
at December 31, 1997, the results of its operations for the year then ended, the
changes in its net assets and financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during its fiscal year ended December
31, 1997.
The Fund designated distributions of $54,213,293 as a capital gain
dividend. $36,273,295 of this amount is a 28% rate gain distribution and
$17,939,998 is a 20% rate gain distribution.
For the fiscal year ending December 31, 1997, 89.12% of the ordinary
income distributions qualify for the dividends received deduction.
Shareholders will receive a 1997 U.S.Treasury Department Form 1099-DIV in
January of 1998. This will reflect the tax characters of all distributions
received during calendar year 1997.
19
<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.
[LOGO] Printed on Recycled Paper 5000A 12/97
2/98
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Sovereign
Investors Fund
DECEMBER 31, 1997
[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
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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
--------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 were anything but dull. Bond investors enjoyed the
benefits of a strong economy with no inflation. Stock investors were treated to
record-breaking performance by the Dow Jones Industrial Average, but with
record-breaking volatility. After two years of strong advances with relatively
minor swings, the stock market's recent sharp drops and enormous rebounds have
caused a fair share of investor concern.
The latest round began in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had bounced back, yet it and many markets remained edgy and more
volatile as investors sorted out the Asian turmoil and its implications on
economic growth, interest rates and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
2
<PAGE>
================================================================================
BY JOHN SNYDER III AND BARRY EVANS, CFA, CO-PORTFOLIO MANAGERS
John Hancock
Sovereign Investors Fund
Stocks rack up yet another year of great returns
1997 was yet another spectacular year for stock investors. The Dow Jones
Industrial Average -- one of the most commonly-watched market indices -- ended
the year up a healthy 22.64%. Following gains of 33% in 1995 and 26% in 1996,
this year marked a record third-straight year in which stocks rose more than
20%. It also marked the seventh consecutive year of market advances, making the
current bull market the longest in history.
It wasn't, however, all smooth sailing for investors. Much of the market's
gains came in the first half of the year. Then, as worries about corporate
profits and Asia's financial woes heightened, investors became more nervous.
Increasing jitters kept the market trading in a volatile range for most of the
second half.
The big winners in this year's market advance were large stocks. In a
"flight to quality," investors sought out those large companies with reliable
earnings and clear market leadership. Small stocks, on the other hand, didn't
fare as well. Aside from a short-lived rally in the third quarter, small stocks
lagged behind their larger brethren during the year.
Fund performance
Our long-time focus on "dividend performers" stocks -- those large stocks with
consistent dividends and reliable earnings -- paid off in 1997. In addition, our
above-average bond exposure allowed us to outperform our peers with less overall
risk. For the year ended December 31, 1997, the Fund's Class A, Class B and
Class C shares had total returns of 29.14%, 28.14% and 29.60%, respectively, at
net asset value. By comparison, the average growth and income fund returned
27.14%, according to Lipper Analytical Services, Inc.(1) Longer-term performance
can be found on pages six and seven.
"...a record third-straight year in which stocks rose more than 20%."
[A 2 1/4" x 3" photo of the portfolio management team at bottom right. Caption
reads: "Sovereign Investors Fund management team members: (l-r) John Snyder,
Barry Evans, Jere Estes."]
3
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
Retailers and banks were strong contributors to Fund performance.
Within Sovereign's investment universe, two important sectors contributed
significantly to the Fund's performance: retailers and banks. Retail giants
Wal-Mart and Home Depot rose more than 60% in 1997, thanks to market share gains
and strong consumer confidence levels.
Our bank stocks also yielded strong results. A favorable interest-rate
environment and strong loan demand have helped banks' underlying fundamentals.
Also, a sharp increase in merger activity has lifted the group. First Tennessee
National was among our strongest bank performers, buoyed by a healthy balance
sheet and increasing takeover speculation.
Along with the winners, there are always disappointments. Kimberly-Clark
Corp., one of the leading producers of personal-care products, fell short of
expectations. The company's acquisition of Scott Paper has been more difficult
to integrate than expected. Given that, we've halved our position in the stock.
Shift to growth cyclicals
After strong gains early in the year, we felt that many of our consumer staple
stocks were ripe for profit taking. We sold several core holdings -- such as
Procter & Gamble and Sara Lee -- in favor of companies that offered better
growth potential and valuations.
A perfect example is Grainger (W.W.), Inc. which is the leading
distributor of electrical equipment. Market leadership is critical in this
industry as customers strive to limit the number of vendors they use. With its
most recent acquisition of Ackland, Grainger has been able to strengthen its
market position. And because of its superb balance sheet, Grainger is
well-positioned to make further acquisitions.
Pitney Bowes, which manufactures office automation equipment, is another
favorite. The company has several things working in its favor. Technological
advancements, successful new product introductions and overseas expansion have
allowed Pitney Bowes to grow steadily over the last few years. What's more, the
increasing trend toward home offices has provided the company with an additional
channel for sales growth.
Outlook
A change from the generally ebullient stock market may be at hand. The expected
slowdown in the Asian economies may slow the world economy. At first glance, the
effect on the U.S. economy appears to be minimal, but the U.S. will not be
immune. Furthermore, we believe that the impact will extend beyond those
companies with direct exposure to Asia such as semiconductor manufacturers.
Companies with extensive retailing operations in the Far East -- such as
McDonald's and Coca-Cola -- are also likely to experience weaker demand. U.S.
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) DuPont 2.9%; 2) Emerson Electric 2.8%; 3)
General Electric 2.7%; 4) Dover Corp. 2.7%; 5) Grainger, W.W. 2.5%. A footnote
below reads: "As a percentage of net assets on December 31, 1997."]
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers." The first listing is Home Depot
followed by an up arrow and the phrase "Strong consumer confidence." The second
listing is First Tennessee National followed by an up arrow and the phrase
"Takeover speculation." The third listing is Kimberly-Clark followed by a down
arrow and the phrase "Scott Paper acquisition." Footnote below reads: "See
"Schedule of Investments." Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended December 31, 1997." The chart is
scaled in increments of 10% from bottom to top, with 30% at the top and 0% at
the bottom. Within the chart, there are four solid bars. The first represents
the 29.14% total return for John Hancock Sovereign Investors Fund: Class A. The
second represents the 28.14% total return for John Hancock Sovereign Investors
Fund: Class B. The third represents the 29.60% return for John Hancock Sovereign
Investors Fund: Class C. The fourth represents 27.14% return for the Average
growth and income fund. The footnote below states: "Total returns for John
Hancock Sovereign Investors 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."]
companies that are vulnerable to imports -- such as steel manufacturers and auto
makers -- will face stiffer competition, as Asian companies attempt to export
their way out of trouble.
In general, we believe companies will remain challenged in their quests to
produce top-line revenue growth. We also believe that 1998 will be a more
difficult year for earnings growth than any of the past five years. Pricing
power is non-existent and, in fact, a number of economists believe that prices
will go down in 1998. Of course, lower prices will benefit consumers, but not
companies. Deflation is a difficult environment for corporate profitability
because companies have difficulty recovering any increase in labor costs.
If an economic slowdown materializes, this will be the sweet spot of the
market cycle for the Fund's "dividend performers" universe of companies. At a
time when earnings disappointments are dealt with severely by the market,
consistency will be rewarded. We believe it will be a time when superior
corporate management teams with the most control over their own destiny will
succeed, while others struggle. We expect earnings growth this year for the
Fund's typical stock to be in the low double-digit range versus low
single-digits for the S&P 500. If the past is any guide, it will be a time when
investors are likely to fully appreciate the investment quality of these stable
growth companies and should be willing to pay premium prices for them.
"...consistency will be rewarded."
- --------------------------------------------------------------------------------
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).
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 December 31, 1997
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns 22.68% 93.28% 289.25%
Average Annual Total Returns 22.68% 14.09% 14.56%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns 23.14% 84.68%
Average Annual Total Returns 23.14% 16.61%
- --------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------
For the period ended December 31, 1997
SINCE
ONE INCEPTION
YEAR (5/7/93)
---- --------
Cumulative Total Returns 29.60% 105.20%
Average Annual Total Returns 29.60% 16.71%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of December 31, 1997
SEC 30-DAY
YIELD
----------
John Hancock Sovereign Investors Fund: Class A 1.29%
John Hancock Sovereign Investors Fund: Class B 0.52%
John Hancock Sovereign Investors Fund: Class C 1.69%
6
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors 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 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 & 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. Past performance is not indicative of
future results.
[GRAPHIC OMITTED]
[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 $52,448 as of December 31, 1997. The second line represents the
value of the hypothetical $10,000 investment made in the Sovereign Investors
Fund on June 30, 1987, before sales charge, and is equal to $40,974 as of
December 31, 1997. The third line represents the Sovereign Investors Fund after
sales charge and is equal to $38,925 as of December 31, 1997.]
[GRAPHIC OMITTED]
[Line chart with the heading Sovereign Investors 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 $22,845 as of December 31, 1997. The second line represents the
value of the hypothetical $10,000 investment made in the Sovereign Investors
Fund on January 3, 1994, before contingent deferred sales charge, and is equal
to $18,768 as of December 31, 1997. The third line represents the Sovereign
Investors Fund after contingent deferred sales charge and is equal to $18,468 as
of December 31, 1997.]
[GRAPHIC OMITTED]
[Line chart with the heading Sovereign Investors Fund: Class C, 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 $24,687 as of December 31, 1997. The second line represents the
hypothetical $10,000 investment made in the Sovereign Investors Fund on May 7,
1993,and is equal to $20,520 as of December 31, 1997.]
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors 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 December 31, 1997. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and preferred stock
(cost - $1,394,378,307) ................................. $2,082,891,257
Corporate bonds (cost - $76,495,226) ...................... 79,481,649
U.S. government and agencies obligations
(cost - $105,249,781) ................................... 106,876,214
Joint repurchase agreement (cost - $117,636,000) .......... 117,636,000
Short-term investments (cost - $10,000,257) ............... 10,000,257
Corporate savings account ................................. 778
--------------
2,396,886,155
Receivable for investments sold ............................ 9,005,759
Receivable for shares sold ................................. 972,312
Dividends receivable ....................................... 3,205,388
Interest receivable ........................................ 3,895,280
Other assets ............................................... 103,609
--------------
Total Assets ............................. 2,414,068,503
------------------------------------------------------------
Liabilities:
Payable for investments purchased .......................... 1,979,878
Payable for shares repurchased ............................. 462,583
Dividend payable ........................................... 4,804
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 3,784,071
Accounts payable and accrued expenses ...................... 114,514
--------------
Total Liabilities ........................ 6,345,850
------------------------------------------------------------
Net Assets:
Paid-in capital ............................................ 1,695,552,616
Accumulated net realized gain on investments ............... 18,980,345
Net unrealized appreciation of investments ................. 693,141,125
Undistributed net investment income ........................ 48,567
--------------
Net Assets ............................... $2,407,722,653
============================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding with $0.01 par value)
Class A - $1,748,489,818 / 78,031,449 ...................... $22.41
==============================================================================
Class B - $610,976,421 / 27,296,833 ........................ $22.38
==============================================================================
Class C - $48,256,414 / 2,153,172 .......................... $22.41
==============================================================================
Maximum Offering Price Per Share*
Class A - ($22.41 x 105.26%) ............................... $23.59
==============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Dividends ................................................... $33,166,422
Interest .................................................... 20,592,426
------------
53,758,848
------------
Expenses:
Investment management fee - Note B ....................... 11,885,521
Distribution and service fee - Note B
Class A ................................................ 4,797,311
Class B ................................................ 5,138,418
Transfer agent fee - Note B .............................. 3,509,744
Financial services fee - Note B .......................... 390,993
Custodian fee ............................................ 314,625
Registration and filing fees ............................. 275,238
Trustees' fees ........................................... 175,382
Miscellaneous ............................................ 56,366
Auditing fee ............................................. 45,467
Legal fees ............................................... 31,959
------------
Total Expenses ............................ 26,621,024
------------------------------------------------------------
Net Investment Income ..................... 27,137,824
------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ....................... 240,406,642
Change in net unrealized appreciation/depreciation
of investments ........................................... 274,962,970
------------
Net Realized and Unrealized
Gain on Investments ....................... 515,369,612
------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................. $542,507,436
============================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income .............................................. $29,453,896 $27,137,824
Net realized gain on investments sold .............................. 132,393,369 240,406,642
Change in net unrealized appreciation/depreciation of investments .. 112,475,113 274,962,970
-------------- --------------
Net Increase in Net Assets Resulting from Operations ............. 274,322,378 542,507,436
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.3585 and $0.3203 per share, respectively) .......... (25,069,146) (22,908,079)
Class B - ($0.2155 and $0.1480 per share, respectively) .......... (3,858,864) (3,461,817)
Class C - ($0.4290 and $0.4017 per share, respectively) .......... (549,349) (719,361)
Distributions from net realized gain on investments sold
Class A - ($1.1552 and $2.3840 per share, respectively) .......... (80,116,607) (168,473,550)
Class B - ($1.1552 and $2.3840 per share, respectively) .......... (22,820,809) (58,671,765)
Class C - ($1.1552 and $2.3840 per share, respectively) .......... (1,639,314) (4,607,424)
-------------- --------------
Total Distributions to Shareholders .............................. (134,054,089) (258,841,996)
-------------- --------------
From Fund Share Transactions -- Net* .................................. 167,161,216 258,579,708
-------------- --------------
Net Assets:
Beginning of period ................................................ 1,558,048,000 1,865,477,505
-------------- --------------
End of period (including undistributed net investment income
of none and $48,567, respectively) ............................... $1,865,477,505 $2,407,722,653
============== ==============
</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 Investors Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1997
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ....................................................... 18,780,738 $361,408,507 19,232,348 $415,010,041
Shares issued to shareholders in reinvestment of distributions .... 5,004,684 97,643,950 8,011,937 178,596,078
------------ ------------- ------------ -------------
23,785,422 459,052,457 27,244,285 593,606,119
Less shares repurchased ........................................... (22,048,259) (423,528,648) (22,602,919) (489,814,527)
------------ ------------- ------------ -------------
Net increase ...................................................... 1,737,163 $35,523,809 4,641,366 $103,791,592
============ ============= ============ =============
CLASS B
Shares sold ....................................................... 9,159,545 $176,783,839 9,793,231 $212,352,695
Shares issued to shareholders in reinvestment of distributions .... 1,269,661 24,792,933 2,605,792 58,050,121
------------ ------------- ------------ -------------
10,429,206 201,576,772 12,399,023 270,402,816
Less shares repurchased ........................................... (3,973,684) (77,636,976) (5,990,391) (129,781,552)
------------ ------------- ------------ -------------
Net increase ...................................................... 6,455,522 $123,939,796 6,408,632 $140,621,264
============ ============= ============ =============
CLASS C
Shares sold ....................................................... 369,676 $7,183,772 581,603 $12,802,728
Shares issued to shareholders in reinvestment of distributions .... 112,176 2,188,658 238,907 5,326,777
------------ ------------- ------------ -------------
481,852 9,372,430 820,510 18,129,505
Less shares repurchased ........................................... (87,535) (1,674,819) (177,952) (3,962,563)
------------ ------------- ------------ -------------
Net increase ...................................................... 394,317 $7,697,611 642,558 $14,166,852
============ ============= ============ =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<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,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
<S> <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
---------- ---------- ---------- ---------- ----------
Net Investment Income .................................. 0.44 0.46 0.40 0.36(3) 0.32(3)
Net Realized and Unrealized Gain (Loss) on Investments . 0.39 (0.75) 3.71 2.77 5.31
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ................... 0.83 (0.29) 4.11 3.13 5.63
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ................. (0.42) (0.46) (0.40) (0.36) (0.32)
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)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ......................... $15.10 $14.24 $17.87 $19.48 $22.41
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value(2) .......... 5.71% (1.85%) 29.15% 17.57% 29.14%
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
Ratio of Expenses to Average Net Assets ................ 1.10% 1.16% 1.14% 1.13% 1.06%
Ratio of Net Investment Income to Average Net Assets ... 2.94% 3.13% 2.45% 1.86% 1.44%
Portfolio Turnover Rate ................................ 46% 45% 46% 59% 62%
Average Brokerage Commission Rate (6) .................. N/A N/A N/A $0.0696 $0.0659
<CAPTION>
CLASS B (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ................................ $15.02 $14.24 $17.86 $19.46
---------- ---------- ---------- ----------
Net Investment Income (3) ........................................... 0.38 0.27 0.21 0.16
Net Realized and Unrealized Gain (Loss) on Investments .............. (0.69) 3.71 2.77 5.29
---------- ---------- ---------- ----------
Total from Investment Operations ................................ (0.31) 3.98 2.98 5.45
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .............................. (0.36) (0.28) (0.22) (0.15)
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)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ...................................... $14.24 $17.86 $19.46 $22.38
========== ========== ========== ==========
Total Investment Return at Net Asset Value(2) ....................... (2.04%)(4) 28.16% 16.67% 28.14%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............................ $128,069 $257,781 $406,523 $610,976
Ratio of Expenses to Average Net Assets ............................. 1.86%(5) 1.90% 1.91% 1.83%
Ratio of Net Investment Income to Average Net Assets ................ 2.57%(5) 1.65% 1.10% 0.67%
Portfolio Turnover Rate ............................................. 45% 46% 59% 62%
Average Brokerage Commission Rate (6) ............................... N/A N/A $0.0696 $0.0659
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CLASS C (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ....................... $14.79 $15.11 $14.24 $17.87 $19.48
------ ------ ------ ------ ------
Net Investment Income ...................................... 0.27 0.52 0.46 0.44(3) 0.41(3)
Net Realized and Unrealized (Loss) on Investments .......... 0.48 (0.77) 3.71 2.76 5.30
------ ------ ------ ------ ------
Total from Investment Operations ....................... 0.75 (0.25) 4.17 3.20 5.71
------ ------ ------ ------ ------
Less Distributions:
Dividends from Net Investment Income ..................... (0.34) (0.51) (0.46) (0.43) (0.40)
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)
------ ------ ------ ------ ------
Net Asset Value, End of Period ............................. $15.11 $14.24 $17.87 $19.48 $22.41
====== ====== ====== ====== ======
Total Investment Return at Net Asset Value (2) ............. 5.13%(4) (1.57%) 29.68% 17.99% 29.60%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................... $10,189 $15,128 $19,946 $29,431 $48,256
Ratio of Expenses to Average Net Assets .................... 0.88%(5) 0.81% 0.74% 0.75% 0.71%
Ratio of Net Investment Income to Average Net Assets ....... 3.17%(5) 3.53% 2.84% 2.26% 1.79%
Portfolio Turnover Rate .................................... 46% 45% 46% 59% 62%
Average Brokerage Commission Rate (6) ...................... N/A N/A N/A $0.0696 $0.0659
</TABLE>
(1) Class B and Class C shares commenced operations on January 3, 1994, and
May 7, 1993, respectively.
(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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Schedule of Investments
December 31, 1997
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, but are unaudited.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
COMMON STOCKS (86.43%)
Advertising (1.45%)
700,000 Interpublic Group, Inc. @ 49 13/16........................................ $34,868,750
-------------
One of the largest advertising agencies in
the world
Earnings P/S.......$.60, .70, .79, .87, 1.00, 1.11, 1.25, 1.11, 1.71, 1.82 13.1%
Dividends P/S............$.17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7%
Price/Earnings Ratio..................................................27.4
Banks (6.59%)
725,000 Banc One Corp. @ 54 5/16.................................................. 39,376,562
Ohio-based bank holding company
Earnings P/S...$1.43, 1.45, 1.66, 1.72, 2.08, 2.62, 2.20, 2.91, 3.23, 2.25 5.2%
Dividends P/S........$.50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36, 1.52 13.1%
Price/Earnings Ratio..................................................24.7
200,000 Corestates Financial Corp. @ 80 1/16...................................... 16,012,500
Operates 334 full service offices located
in PA, NJ and DE
Earnings P/S....$1.96, .76, 1.03, 2.01, 2.27, 2.49, 1.75, 2.95, 2.97, 3.82 7.7%
Dividends P/S......$.77, .87, .96, .97, 1.02, 1.14, 1.24, 1.44, 1.73, 1.91 10.6%
Price/Earnings Ratio..................................................21.3
422,500 First Tennessee National Corp.
@ 66 3/4............................................................... 28,201,875
Tennessee-based bank holding company
Earnings P/S....$1.10, .61, 1.00, 1.32, 1.60, 1.66, 2.15, 2.42, 2.68, 2.97 11.7%
Dividends P/S..........$.43, .49, .54, .57, .63, .75, .87, .97, 1.10, 1.23 12.4%
Price/Earnings Ratio..................................................22.3
312,300 First Union Corp. @ 51 1/4................................................ 16,005,375
North Carolina-based bank holding company
Earnings P/S...$1.38, 1.20, 1.26, 1.28, 1.12, 2.37, 2.29, 2.52, 2.68, 3.43 10.6%
Dividends P/S..........$.43, .50, .54, .56, .64, .75, .86, .98, 1.10, 1.22 12.3%
Price/Earnings Ratio..................................................14.9
244,500 KeyCorp. @ 70 13/16....................................................... 17,313,656
Bank holding company with offices from
coast to coast
Earnings P/S....$2.10, 2.32, 2.32, 1.31, 2.39, 2.89, 3.45, 3.3, 3.37, 3.73 6.6%
Dividends P/S.......$.68, .80, .88, .92, .98, 1.12, 1.28, 1.44, 1.52, 1.68 10.6%
Price/Earnings Ratio..................................................18.9
400,000 NationsBank Corp. @ 60 13/16.............................................. 24,325,000
Largest superregional bank in the Southeast
Earnings P/S....$1.44, 2.22, 1.31, .38, 2.30, 2.50, 3.06, 3.57, 4.00, 4.22 12.7%
Dividends P/S.........$.47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.32 12.2%
Price/Earnings Ratio..................................................14.4
450,000 Norwest Corp. @ 38 5/8.................................................... $17,381,250
The 12th largest bank holding company
in the U.S.
Earnings P/S.........$.57, .63, .22, .73, .71, .95, 1.23, 1.38, 1.54, 1.69 12.8%
Dividends P/S............$.16, .19, .21, .24, .27, .32, .38, .45, .53, .62 16.2%
Price/Earnings Ratio..................................................22.5
-------------
158,616,218
-------------
Beverages (0.75%)
500,000 PepsiCo, Inc. @ 36 7/16................................................... 18,218,750
-------------
Second largest soft drink company
Earnings P/S..........$.48, .57, .69, .68, .81, .98, 1.11, 1.00, .72, 1.07 9.3%
Dividends P/S............$.12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4%
Price/Earnings Ratio..................................................33.6
Building (1.64%)
775,000 Masco Corp. @ 50 7/8...................................................... 39,428,125
-------------
Manufactures buildings, home improvement
and consumer products
Earnings P/S.....$2.03, 1.42, .91, .30, 1.21, 1.45, 1.09, 1.25, 1.84, 2.23 1.1%
Dividends P/S............$.44, .50, .54, .57, .61, .65, .69, .73, .77, .81 7.0%
Price/Earnings Ratio..................................................22.7
Chemicals (5.41%)
327,000 Air Products & Chemicals, Inc.
@ 82 1/4............................................................... 26,895,750
Producer of industrial gases
Earnings P/S...$1.95, 2.02, 2.08, 2.23, 2.45, 1.76, 2.05, 3.29, 3.73, 3.90 8.0%
Dividends P/S.........$.55, .63, .69, .75, .83, .89, .95, 1.01, 1.07, 1.15 8.5%
Price/Earnings Ratio..................................................21.4
570,000 BetzDearborn,Inc. @ 61 1/16............................................... 34,805,625
Produces and markets a wide range of
engineered programs and specialty
chemical products for process systems
Earnings P/S...$1.58, 1.77, 2.12, 2.47, 2.71, 2.05, 2.43, 2.27, 2.10, 2.47 5.1%
Dividends P/S....$.80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49, 1.51 7.3%
Price/Earnings Ratio..................................................24.9
1,026,563 RPM, Inc. @ 15 1/4........................................................ 15,655,078
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof structures
Earnings P/S.............$.30, .37, .34, .44, .47, .47, .60, .68, .72, .80 11.5%
Dividends P/S............$.20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6%
Price/Earnings Ratio..................................................19.2
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Chemicals (continued)
465,800 Schulman (A), Inc. @ 25 1/8............................................... $11,703,225
Manufactures proprietary and custom plastic
compounds, buys and sells plastic resins and distributes plastic
products and synthetic rubber for prime producers in domestic and
international markets
Earnings P/S......$.73, .82, .64, 1.15, 1.18, 1.04, 1.19, 1.43, 1.12, 1.37 7.2%
Dividends P/S............$.11, .14, .16, .19, .22, .26, .30, .34, .38, .42 16.1%
Price/Earnings Ratio..................................................16.3
1,035,000 Sigma - Aldrich Corp. @ 39 3/4............................................ 41,141,250
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S........$.57, .65, .72, .80, .96, 1.08, 1.11, 1.32, 1.48, 1.61 12.2%
Dividends P/S............$.08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0%
Price/Earnings Ratio..................................................24.7
-------------
130,200,928
-------------
Computers (3.63%)
660,000 Automatic Data Processing, Inc.
@ 61 3/8............................................................... 40,507,500
Largest independent computing services firm
in the U.S.
Earnings P/S........$.55, .63, .72, .82, .92, 1.04, 1.19, 1.38, 1.57, 1.76 13.8%
Dividends P/S............$.13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6%
Price/Earnings Ratio..................................................33.3
750,000 Hewlett-Packard Co. @ 62 1/2.............................................. 46,875,000
Manufactures and services electronic
measurement, analysis and computation
instruments
Earnings P/S........$.84, .88, .77, .76, .87, 1.16, 1.54, 2.32, 2.46, 2.95 15.0%
Dividends P/S............$.07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5%
Price/Earnings Ratio..................................................21.9
-------------
87,382,500
-------------
Containers (2.65%)
997,000 Bemis Company, Inc. @ 44 1/16............................................. 43,930,313
Producer of a broad range of flexible
packaging and equipment and pressure
sensitive materials
Earnings P/S.......$.74, .90, .99, 1.03, 1.10, .89, 1.40, 1.63, 1.90, 1.93 11.2%
Dividends P/S............$.22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4%
Price/Earnings Ratio..................................................22.7
576,300 Sonoco Products Corp. @ 34 11/16.......................................... 19,990,406
Leading manufacturer of containers,
paper products and packaging
Earnings P/S.....$1.05, 1.12, .55, 1.05, .89, 1.29, 1.33, 1.72, 1.81, 1.81 6.2%
Dividends P/S............$.30, .39, .43, .44, .48, .50, .53, .59, .65, .71 10.0%
Price/Earnings Ratio..................................................18.9
-------------
63,920,719
-------------
Diversified Operations (4.99%)
1,150,000 DuPont (E.I.) De Nemours & Co.
@ 60 1/16.............................................................. $69,071,875
Nation's largest chemical manufacturer
Earnings P/S.....$1.52, 1.77, 1.70, 1.04, .72, .42, 2.00, 2.81, 3.24, 2.65 6.4%
Dividends P/S.........$.62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9%
Price/Earnings Ratio..................................................22.9
620,000 Federal Signal Corp. @ 21 5/8............................................. 13,407,500
Manufactures fire trucks and street sweepers,
as well as public safety, signaling and
communications equipment
Earnings P/S.........$.41, .48, .61, .68, .75, .86, 1.02, 1.13, 1.35, 1.40 14.6%
Dividends P/S............$.16, .19, .22, .27, .32, .36, .42, .50, .58, .67 17.2%
Price/Earnings Ratio..................................................15.3
1,000,000 Ikon Office Solutions, Inc. @ 28 1/8...................................... 28,125,000
Distributor of office and paper products
Earnings P/S.......$1.06, 1.14, .88, .85, 1.11, (.02), .55, .86, 1.12, .77 NMF
Dividends P/S..$.080, .089, .097, .103, .106, .111, .117, .123, .129, .160 8.0%
Price/Earnings Ratio..................................................36.3
200,000 Johnson Controls, Inc. @ 47 3/4........................................... 9,550,000
Manufactures automotive systems and
building controls
Earnings P/S...$1.42, 1.28, 1.07, 1.10, 1.43, 1.58, 1.90, 2.27, 2.55, 2.48 6.4%
Dividends P/S............$.56, .59, .61, .63, .65, .69, .74, .79, .83, .88 5.2%
Price/Earnings Ratio..................................................19.1
-------------
120,154,375
-------------
Electronics (11.69%)
875,000 AMP, Inc. @ 42............................................................ 36,750,000
World's largest manufacturer of
electrical/electronic connectors
Earnings P/S.........$1.48, 1.32, 1.35, 1.23, 1.38, 1.42, 1.72, 1.96, 1.31 NMF
Dividends P/S..........$.50, .60, .68, .72, .76, .80, .84, .92, 1.00, 1.04 8.5%
Price/Earnings Ratio..................................................32.0
1,200,000 Emerson Electric Co. @ 56 7/16............................................ 67,725,000
Produces and sells electrical/electronic
products and systems
Earnings P/S...$1.16, 1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 2.08, 2.28, 2.52 9.0%
Dividends P/S..........$.52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8%
Price/Earnings Ratio..................................................22.5
900,000 General Electric Co. @ 73 3/8............................................. 66,037,500
Dominant force in home appliances,
electrical power, and financial services
Earnings P/S....$.94, 1.09, 1.21, 1.28, 1.26, 1.23, 1.73, 1.95, 2.20. 2.42 11.1%
Dividends P/S...........$.35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9%
Price/Earnings Ratio..................................................30.6
625,000 Grainger (W.W.), Inc. @ 97 3/16........................................... 60,742,188
Leading distributor of electrical equipment
Earnings P/S...$1.96, 2.20, 2.31, 2.37, 2.58, 2.88, 2.50, 3.64, 4.04, 4.36 9.3%
Dividends P/S...........$.43, .50, .57, .61, .65, .71, .78, .89, .98, 1.06 10.5%
Price/Earnings Ratio..................................................22.4
150,000 Honeywell, Inc. @ 68 1/2.................................................. 10,275,000
Makes automation and control systems
Earnings P/S.$(2.73), 3.12, 2.45, 2.35, 2.89, 2.40, 2.15, 2.62, 3.18, 3.51 NMF
Dividends P/S.........$.51, .55, .69, .77, .84, .91, .97, 1.01, 1.06, 1.09 8.8%
Price/Earnings Ratio..................................................19.9
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
Electronics (continued)
300,000 Parker Hannifin Corp. @ 45 7/8............................................ $13,762,500
Operates in the Industrial and Aerospace
industries producing a wide range of
motion control devices and designs and
manufactures products for the aircraft,
missile and spacecraft markets
Earnings P/S.........$.98, .94, 1.00, .55, .59, .60, .48, 1.97, 2.15, 2.46 10.8%
Dividends P/S..$.366, .373, .393, .406, .413, .426, .433, .453, .480, .567 5.0%
Price/Earnings Ratio..................................................16.9
500,000 Rockwell International Corp.
@ 52 1/4............................................................... 26,125,000
Leading producer of aerospace, automotive
and electronics products
Earnings P/S...$2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79, 2.74 2.3%
Dividends P/S...........$.58, .63, .68, .72, .77, .81, .84, .91, .97, 1.02 6.5%
Price/Earnings Ratio..................................................16.9
-------------
281,417,188
-------------
Food (2.28%)
1,475,000 Archer-Daniel Midland Co.
@ 21 11/16............................................................. 31,989,062
Processes and merchandises agricultural
products
Earnings P/S...........$.53, .65, .74, .71, .81, .86, .81, 1.34, 1.20, .66 2.5%
Dividends P/S..$.028, .033, .046, .048, .050, .053, .063, .110, .184, .193 23.9%
Price/Earnings Ratio..................................................24.2
700,000 ConAgra, Inc. @ 32 13/16.................................................. 22,968,750
Leader in frozen & processed foods, and
distributes agricultural supplies
Earnings P/S...........$.43, .54, .62, .71, .75, .79, .91, 1.03, .40, 1.34 13.5%
Dividends P/S............$.15, .18, .21, .24, .28, .32, .37, .43, .49, .57 16.0%
Price/Earnings Ratio..................................................23.4
-------------
54,957,812
-------------
Furniture (1.29%)
745,000 Leggett & Platt, Inc. @ 41 7/8............................................ 31,196,875
-------------
Produces intermediate products for the home
furnishings industry
Earnings P/S........$.35, .66, .42, .56, .82, 1.05, 1.39, 1.49, 1.67, 2.08 21.9%
Dividends P/S............$.16, .19, .21, .22, .23, .27, .31, .38, .46, .54 14.5%
Price/Earnings Ratio..................................................20.4
Insurance (7.52%)
425,000 AFLAC Corp. @ 51 1/8...................................................... 21,728,125
Global specialty insurer
Earnings P/S.......$.72, .53, .77, .97, 1.19, 1.55, 1.89, 2.33, 2.73, 4.39 22.2%
Dividends P/S............$.13, .15, .18, .20, .23, .26, .30, .34, .39, .45 14.8%
Price/Earnings Ratio..................................................11.4
150,000 American International Group
@ 108 3/4.............................................................. 16,312,500
Broadly based property-casualty insurance
organization
Earnings P/S...$1.74, 1.97, 2.05, 2.16, 2.27, 2.68, 3.05, 3.53, 4.10, 4.57 11.3%
Dividends P/S............$.08, .10, .12, .14, .16, .17, .19, .22, .25, .28 14.9%
Price/Earnings Ratio..................................................24.1
525,000 Chubb Corp. @ 75 5/8...................................................... $39,703,125
Property and casualty insurance
Earnings P/S...$2.14, 2.46, 3.04, 3.16, 3.48, 1.96, 2.98, 3.70, 2.75, 3.46 5.5%
Dividends P/S..........$.54, .58, .66, .74, .80, .86, .92, .98, 1.08, 1.16 8.9%
Price/Earnings Ratio..................................................22.0
200,000 General RE Corp. @ 212.................................................... 42,400,000
Broadly based re-insurance organization
Earnings P/S..$5.09, 6.52, 6.89, 7.46, 6.84, 8.11, 7.97, 9.92, 11.0, 11.91 9.9%
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..................................................17.8
926,400 Reliastar Financial Corp. @ 41 3/16....................................... 38,156,100
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S.....$1.04, 1.00, .98, .86, 1.04, 1.32, 1.65, 2.18, 2.52, 2.57 10.6%
Dividends P/S............$.29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6%
Price/Earnings Ratio..................................................16.0
425,000 Travelers Group, Inc. @ 53 7/8............................................ 22,896,875
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..................................................17.8
-------------
181,196,725
-------------
Machinery (3.99%)
1,800,000 Dover Corp. @ 36 1/8...................................................... 65,025,000
Manufactures a variety of specialized
industrial products
Earnings P/S..........$.56, .57, .64, .54, .56, .69, .89, 1.23, 1.72, 1.73 13.4%
Dividends P/S............$.16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4%
Price/Earnings Ratio..................................................20.8
862,900 Pentair, Inc. @ 35 15/16.................................................. 31,010,469
Manufactures enclosures for electrical,
electronic, woodworking and power tool
equipment
Earnings P/S.....$1.23, .99, .84, 1.10, 1.07, 1.13, 1.21, 1.48, 1.83, 2.07 6.0%
Dividends P/S............$.22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5%
Price/Earnings Ratio..................................................16.8
-------------
96,035,469
-------------
Media (3.94%)
750,000 Gannett Co., Inc. @ 61 13/16.............................................. 46,359,375
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV , 8 FM and 7 AM stations
Earnings P/S...$1.13, 1.24, 1.18, 1.00, 1.20, 1.36, 1.62, 1.64, 2.22, 2.74 10.3%
Dividends P/S............$.51, .56, .61, .62, .63, .65, .67, .69, .71, .74 4.2%
Price/Earnings Ratio..................................................22.1
655,600 McGraw-Hill Companies, Inc. @ 74.......................................... 48,514,400
Provides informational products and services
for business and industry
Earnings P/S.....$1.92, .41, 1.77, 1.52, 1.57, .12, 2.05, 2.28, 4.96, 5.32 12.0%
Dividends P/S...$.92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44 5.1%
Price/Earnings Ratio..................................................13.6
-------------
94,873,775
-------------
</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> <C>
Medical (8.17%)
550,000 Abbott Laboratories @ 65 9/16............................................. $36,059,375
Major pharmaceutical and healthcare firm
Earnings P/S.....$.83, .96, 1.11, 1.28, 1.47, 1.69, 1.87, 2.12, 2.41, 2.64 13.7%
Dividends P/S...........$.29, .34, .40, .48, .58, .66, .74, .82, .93, 1.05 15.4%
Price/Earnings Ratio..................................................25.5
800,000 Baxter International, Inc. @ 50 7/16...................................... 40,350,000
The company operates four divisions: renal,
biotech, cardiovascular and intravenous
systems and international distribution
Earnings P/S..$1.31, 1.50, (.05), 1.73, 1.99, (.97), 1.45, 1.34, 2.11. .99 NMF
Dividends P/S.........$.47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3%
Price/Earnings Ratio..................................................50.6
200,000 Becton, Dickinson & Co. @ 50.............................................. 10,000,000
Manufactures broad line of medical supplies
Earnings P/S....$.92, 1.00, 1.17, 1.22, 1.29, 1.36, 1.53, 1.79, 2.11, 2.30 10.7%
Dividends P/S............$.22, .26, .28, .29, .31, .34, .38, .42, .48, .54 10.5%
Price/Earnings Ratio..................................................21.7
726,000 Johnson & Johnson @ 65 7/8................................................ 47,825,250
Major producer of prescription and
non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S......$.72, .81, .86, 1.10, 1.23, 1.37, 1.56, 1.86, 2.17, 2.42 14.4%
Dividends P/S............$.24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1%
Price/Earnings Ratio..................................................26.9
250,000 Lilly (Eli) & Co. @ 69 5/8................................................ 17,406,250
Major producer of prescription and
non-prescription drugs, health products
Earnings P/S........$.67, .80, .98, 1.13, .70, .40, 1.03, 1.15, 1.39, 1.61 10.2%
Dividends P/S............$.29, .34, .41, .50, .55, .61, .63, .65, .69, .74 11.0%
Price/Earnings Ratio..................................................42.8
250,000 Medtronic, Inc. @ 52 5/16................................................. 13,078,125
Leading manufacturer of medical devices and
instruments
Earnings P/S............$.20, .23, .24, .28, .34, .45, .51, .64, .94, 1.11 21.0%
Dividends P/S..........$.035, .045, .05, .06, .07, .09, .11, .13, .16, .21 22.0%
Price/Earnings Ratio..................................................41.7
300,000 Merck & Co., Inc. @ 106 1/4............................................... 31,875,000
World's largest ethical drug manufacturer
Earnings P/S...$1.02, 1.26, 1.52, 1.83, 2.12, 1.87, 2.38, 2.70, 3.20, 3.66 15.3%
Dividends P/S.......$.43, .55, .64, .77, .92, 1.03, 1.14, 1.24, 1.42, 1.69 16.4%
Price/Earnings Ratio..................................................29.4
-------------
196,594,000
-------------
Metal (0.96%)
200,000 Illinois Tool Works, Inc. @ 60 1/8........................................ 12,025,000
Manufactures construction fasteners and
packaging systems
Earnings P/S.........$.67, .77, .84, .82, .86, .92, 1.23, 1.65, 1.97, 2.26 14.5%
Dividends P/S............$.11, .14, .17, .20, .23, .25, .27, .31, .35, .43 16.4%
Price/Earnings Ratio..................................................26.4
670,000 Worthington Industries, Inc. @ 16 1/2..................................... 11,055,000
Manufactures metal and plastic products
Earnings P/S...........$.61, .70, .61, .50, .63, .76, .94, 1.29, 1.05, .97 5.3%
Dividends P/S............$.19, .23, .26, .28, .32, .34, .39, .43, .47, .51 11.6%
Price/Earnings Ratio..................................................18.6
-------------
23,080,000
-------------
Office (1.49%)
400,000 Pitney Bowes, Inc. @ 89 15/16............................................. $35,975,000
-------------
Manufactures office automation equipment
Earnings P/S...$1.50, 1.13, 1.30, 1.80, 1.96, 1.92, 2.21, 2.68, 3.12, 3.43 9.6%
Dividends P/S........$.46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38, 1.60 14.9%
Price/Earnings Ratio..................................................26.1
Oil & Gas (2.05%)
100,000 Exxon Corp. @ 61 3/16..................................................... 6,118,750
Major factor in the crude oil, natural gas and
chemical industry
Earnings P/S...$1.98, 1.16, 1.98, 2.23, 1.91, 2.11, 2.04, 2.59, 3.01, 3.40 6.2%
Dividends P/S..$1.08, 1.15, 1.24, 1.34, 1.42, 1.44, 1.46, 1.50, 1.56, 1.63 4.7%
Price/Earnings Ratio..................................................18.2
600,000 Mobil Corp. @ 72 3/16..................................................... 43,312,500
One of the largest integrated, international
oil companies with interest in petrochemicals ............................
and plastics
Earnings P/S...$2.47, 2.20, 2.30, 2.33, 1.57, 2.54, 2.14, 2.94, 3.69, 4.05 5.6%
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..................................................17.9
-------------
49,431,250
-------------
Paper & Paper Products (0.68%)
330,000 Kimberly-Clark Corp. @ 49 5/16............................................ 16,273,125
-------------
Leading producer of consumer and personal
care products
Earnings P/S....$1.18, 1.32, 1.35, 1.59, 1.08, 1.59, 1.38, .06, 2.49, 2.47 8.6%
Dividends P/S............$.39, .63, .66, .74, .80, .84, .86, .88, .92, .96 10.5%
Price/Earnings Ratio..................................................20.2
Retail (7.56%)
275,000 Dayton Hudson Corp. @ 67 1/2.............................................. 18,562,500
General merchandiser selling through Target
and Marvyn stores
Earnings P/S....$.80, 1.15, 1.79, 1.80, 1.29, 1.67, 1.66, 1.92, 1.34, 2.07 11.1%
Dividends P/S............$.34, .37, .44, .48, .51, .53, .56, .58, .61, .66 7.6%
Price/Earnings Ratio..................................................23.5
1,000,000 Home Depot, Inc. @ 58 7/8................................................. 58,875,000
Operates a chain of retail building
supply/home improvement 'warehouse' stores
Earnings P/S..........$.15, .21, .30, .40, .55, .67, .88, 1.03, 1.29, 1.50 29.2%
Dividends P/S............$.01, .02, .03, .04, .06, .08, .10, .13, .15, .19 38.7%
Price/Earnings Ratio....................................................39
453,500 Pep Boys - Manny, Moe & Jack (The)
@ 23 7/8............................................................... 10,827,313
Retailer of automotive parts and accessories
Earnings P/S........$.68, .63, .67, .69, .90, 1.06, 1.32, 1.34, 1.62, 1.58 9.8%
Dividends P/S............$.09, .11, .12, .13, .14, .15, .17, .19, .21, .24 11.5%
Price/Earnings Ratio..................................................15.5
1,105,800 Sysco Corp. @ 45 9/16..................................................... 50,383,012
Largest distributor of food service products
Earnings P/S........$.45, .60, .73, .84, .93, 1.08, 1.18, 1.38, 1.52, 1.71 16.0%
Dividends P/S............$.08, .09, .10, .14, .22, .28, .36, .44, .52, .60 25.1%
Price/Earnings Ratio..................................................25.3
</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> <C>
Retail (continued)
1,100,000 Wal-Mart Stores, Inc. @ 39 7/16........................................... $43,381,250
Operates chain of discount department stores
Earnings P/S........$.37, .48, .57, .70, .87, 1.02, 1.17, 1.19, 1.33, 1.47 16.6%
Dividends P/S............$.04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6%
Price/Earnings Ratio..................................................26.8
-------------
182,029,075
-------------
Soap & Cleaning Preparations (1.15%)
500,000 Ecolab, Inc. @ 55 7/16.................................................... 27,718,750
-------------
Develops and markets premium institutional
cleansing, sanitizing and maintenance
products and services
Earnings P/S......$.82, .05, 1.07, .96, 1.03, 1.23, 1.25, 1.50, 1.75, 2.01 10.5%
Dividends P/S............$.32, .33, .34, .35, .36, .40, .46, .52, .58, .67 8.6%
Price/Earnings Ratio..................................................27.6
Steel (0.71%)
353,600 Nucor Corp. @ 48 5/16..................................................... 17,083,300
-------------
Manufactures steel and steel products
Earnings P/S........$.84, .68, .88, .75, .92, 1.42, 2.60, 3.14, 2.83, 3.42 16.9%
Dividends P/S.............$.10, .11, .12, .13, .14, .16, .18, 28, .32, .40 16.6%
Price/Earnings Ratio..................................................14.4
Tobacco (0.85%)
450,000 Philip Morris Cos., Inc. @ 45 5/16........................................ 20,390,625
-------------
Global tobacco, brewing and food company
Earnings P/S....$.74, 1.06, 1.28, 1.42, 1.82, 1.35, 1.82, 2.17, 2.56, 2.67 15.3%
Dividends P/S........$.34, .42, .52, .64, .78, .87, 1.01, 1.22, 1.47, 1.60 18.8%
Price/Earnings Ratio..................................................17.0
Transport (0.04%)
40,300 C.H. Robinson Worldwide, Inc.
@ 22 3/8............................................................... 901,713
-------------
Provides intermodal transportation services.
Earnings P/S......................................$.28, .36, .52, .67, .78 NMF
Dividends P/S$.036, .045, .058, .062, .067, .073, .087, .108, .130, .185, .20 21.0%
Price/Earnings Ratio..................................................25.5
Utilities (4.95%)
400,000 Century Telephone Enterprise, Inc.
@ 49 13/16............................................................. 19,925,000
Louisiana based telecommunications
company
Earnings P/S.......$.57, .49, .67, .80, 1.25, 1.35, 1.88, 1.97, 2.15, 3.11 20.7%
Dividends P/S..$.264, .272, .280, .287, .293, .310, .320, .330, .360, .370 3.8%
Price/Earnings Ratio..................................................15.9
200,000 Duke Energy Corp. @ 55 3/8................................................ 11,075,000
Generates, transmits, distributes and sells
electric energy in the Piedmont sections
of North and South Carolina
Earnings P/S...$1.95, 2.57, 2.40, 2.60, 2.21, 2.80, 2.88, 3.25, 3.37, 2.61 3.3%
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..................................................21.2
500,000 National Fuel Gas Co. @ 48 11/16.......................................... 24,343,750
Integrated natural gas system serving
N.Y., PA. and Ohio
Earnings P/S...$1.65, 1.93, 1.83, 1.63, 1.94, 2.15, 2.23, 2.03, 2.78, 3.01 6.9%
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..................................................16.0
Utilities (continued)
700,600 Questar Corp. @ 44 5/8.................................................... $31,264,275
Diversified holding company for Utah,
Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S....$.64, 1.28, 1.46, 1.63, 1.85, 2.10, 1.21, 2.05, 2.39, 2.55 16.6%
Dividends P/S.....$.94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19, 1.24 3.1%
Price/Earnings Ratio..................................................17.2
350,000 SBC Communications, Inc. @ 73 1/4......................................... 25,637,500
Provides telephone service throughout the
United States and internationally
Earnings P/S...$1.74, 1.76, 1.82, 1.84, 1.93, 2.17, 2.39, 2.74, 3.10, 3.46 7.9%
Dividends P/S.$1..22, 1.29, 1.36, 1.41, 1.45, 1.50, 1.56, 1.63, 1.70, 1.77 4.2%
Price/Earnings Ratio..................................................20.5
160,000 Union Electric Co. @ 43 1/4............................................... 6,920,000
Largest electric utility in Missouri
Earnings P/S...$2.56, 2.91, 2.74, 2.68, 3.01, 2.83, 2.77, 3.01, 2.95, 2.86 1.2%
Dividends P/S..$1.94, 2.02, 2.10, 2.18, 2.26, 2.34, 2.40, 2.46, 2.51, 2.54 3.0%
Price/Earnings Ratio..................................................15.1
-------------
119,165,525
-------------
TOTAL COMMON STOCKS
(Cost $1,392,764,088) 2,081,110,572
-------------
PREFERRED STOCK (0.07%)
15,417 Cablevision Systems Corp., 11.125%,
Ser M @ 115.500........................................................ 1,780,685
-------------
TOTAL PREFERRED STOCK
(Cost $1,614,219) 1,780,685
-------------
<CAPTION>
PAR VALUE
(000s
OMITTED)
- ----------
<S> <C> <C>
CORPORATE BONDS (3.30%)
$6,000 Adelphia Communications Corp., Sr Note
9.25%, 10-01-02 @ 102.000............................................... 6,120,000
4,000 BankAmerica Corp., Sub Note 8.125%,
02-01-02 @ 106.505...................................................... 4,260,200
1,000 BankAmerica Corp., Sub Note 8.95%,
11-15-04 @ 104.399...................................................... 1,043,990
5,000 Cablevision Systems Corp., Sr NT 7.875%,
12-15-07 @ 102.708...................................................... 5,135,400
8,000 Citibank Credit Card Master Trust,
Series 1997-3A 6.839%, 02-10-04
@ 101.371............................................................... 8,109,687
5,000 Comcast Corp., Sr Sub Deb 10.25%,
10-15-01 @ 110.594...................................................... 5,529,700
1,500 Continental Cablevision, Inc., Deb 9.50%,
08-01-13 @ 117.915...................................................... 1,768,725
3,000 First Union Corp., Sub Note 8.00%,
08-15-09 @ 107.260...................................................... 3,217,800
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
PAR VALUE
(000s MARKET
OMITTED) VALUE
- ---------- ------
<S> <C> <C>
CORPORATE BONDS (continued)
$5,000 Georgia-Pacific Corp., Deb 9.50%,
02-15-18 @ 104.253...................................................... $5,212,650
5,000 GTE North Inc., Telephone Facility Lease
Bonds, 9.60%, 01-01-21 @ 118.453........................................ 5,922,650
14,136 Guaranteed Trade Trust, Notes 7.39%,
06-26-06 @ 104.700...................................................... 14,800,610
5,652 Long Island Lighting Co., Deb 8.90%,
07-15-19 @ 106.409...................................................... 6,014,237
2,000 Nationsbank Corp, Deb 9.125%,
10-15-01 @ 109.439...................................................... 2,188,780
2,000 North Atlantic Energy Corp.,1st Mtg Bond
9.050%, 06-01-02 @ 102.764.............................................. 2,055,280
3,500 Tele-Communications, Inc., Sr Notes
8.00%, 08-01-05 @ 107.163............................................... 3,750,705
3,500 Tele-Communications, Inc., Deb 9.80%,
02-01-12 @ 124.321...................................................... 4,351,235
-------------
TOTAL CORPORATE BONDS
(Cost $76,495,226) 79,481,649
-------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (4.44%)
15,000 Federal Home Loan Mort. Corp. Sr Sub
6.31%,07-31-00 @ 99.859................................................. 14,978,850
8,669 Federal Home Loan Mort. Corp. Sr Sub
7.50%, 08-01-11 @ 102.718............................................... 8,904,781
5,000 Federal Home Loan Mort. Corp. Sr Sub
8.00%, 12-15-08 @ 107.093............................................... 5,354,650
5,000 Federal National Mort. Assn. Sr Sub
6.21%, 11-07-07 @ 100.391............................................... 5,019,550
8,799 Federal National Mort. Assn. Sr Sub
6.50%, 02-01-12 @ 100.094............................................... 8,806,876
10,000 Federal National Mort. Assn. Sr Sub
8.50%, 02-01-05 @ 104.781............................................... 10,478,100
3,000 Federal National Mort. Assn. Sr Sub
9.50%, 07-01-17@ 136.257................................................ 4,087,710
4,677 Government National Mort. Assn.,
8.00% 08-15-24 @ 103.781................................................ 4,853,350
4,653 Government National Mort. Assn.,
7.50% 07-15-26 @ 102.437................................................ 4,766,566
4,898 Government National Mort. Assn.,
7.50% 11-15-26 @ 102.437................................................ 5,017,159
100 United States Treasury, Note 7.875%,
11-15-99 @ 103.844...................................................... 103,844
12,000 United States Treasury, Note 7.75%,
2-31-99 @ 103.891....................................................... 12,466,920
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (continued)
$6,000 United States Treasury, Note 6.25%,
01-31-02 @ 101.781...................................................... $6,106,860
8,000 United States Treasury, Note 6.625%,
03-31-02 @ 103.234...................................................... 8,258,720
3,325 United States Treasury, Bond 10.75%,
08-15-05 @ 130.0940..................................................... 4,325,625
250 United States Treasury, Bond 6.375%,
08-15-27 @ 105.469...................................................... 263,673
3,000 United States Treasury, Bond 6.125%,
11-15-27 @ 102.766...................................................... 3,082,980
-------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $105,249,781) 106,876,214
-------------
<CAPTION>
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
-------- -------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (5.30%)
117,636 Joint Repurchase Agreement (4.88%)
Investment in a joint repurchase agreement transaction with HSBC
Securities, Inc. Dated 12-31-97, Due 01-02-98 (Secured by U.S.
Treasury Notes, 6.500% thru 8.750%, due 04-30-99 thru 11-15-08 and
by U.S. Treasury bonds, 7.250% thru 13.250%, due 05-15-09
thru 11-15-16) - Note A................................................. 6.60% 117,636,000
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
-------- -------- ------
<S> <C> <C> <C>
Certificates of Deposit (0.42%)
$5,000 Industrial Bank of Japan, 6.90%
DTD 12-08-97, Due 01-08-98.............................................. 6.90% $5,000,214
5,000 Sanwa Bank, 6.96%
DTD 12-08-97, Due 01-08-98.............................................. 6.96 5,000,043
--------------
TOTAL CERTIFICATES OF DEPOSIT 10,000,257
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%...................................................... 778
--------------
TOTAL SHORT-TERM INVESTMENTS (5.30%) 127,637,035
------- --------------
TOTAL INVESTMENTS (99.54%) 2,396,886,155
------- --------------
OTHER ASSETS AND LIABILITIES (0.46%) 10,836,498
------- --------------
TOTAL NET ASSETS (100.00%) $2,407,722,653
------- --------------
</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.
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Investors Fund
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 and Class C shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights 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,
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 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, 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
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Investors Fund
estimates made by management in determining the reported amounts of assets,
liabilities, revenues and expenses of the Fund. Actual results could differ from
these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. 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 $600 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 a
rate of 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 year ended December 31, 1997.
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 service
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 year ended December
31, 1997, net sales charges received with regard to sales of Class A shares
amounted to $3,557,117. Out of this amount, $557,524 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$1,565,881 was paid as sales commissions to unrelated broker-dealers and
$1,433,712 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 year ended December 31, 1997
contingent deferred sales charges paid to JH Funds amounted to $981,045.
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/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"), a wholly owned subsidiary of The Berkeley
Financial Group. Class A and Class B shares pay transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses. Class C
shares pay a monthly transfer agent fee equivalent, on an annual basis, to 0.10%
of the average daily net asset value of Class C 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 year was at
an annual rate of less than 0.02% of the average net assets of the Fund.
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Investors Fund
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and officers of the Adviser and 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 annual basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At December 31, 1997, the Fund's investment to cover the deferred
compensation 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 year
ended December 31, 1997, aggregated $895,813,731 and $880,565,486, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $347,736,951 and $349,115,379, respectively. The cost of
investments owned at December 31, 1997 (excluding the corporate savings
account), for Federal income tax purposes was $1,703,950,003. Gross unrealized
appreciation and depreciation of investments aggregated $702,688,336 and
$9,752,962, respectively, resulting in net unrealized appreciation of
$692,935,374.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended December 31, 1997, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$29,181,343, and an increase in capital paid-in of $29,181,343. This represents
the amount necessary to report these balances on a tax basis, excluding certain
temporary differences, as of December 31, 1997. Additional adjustments may be
needed in subsequent reporting years. These reclassifications, which have no
impact on the net asset value of the Fund, are primarily attributable to the
Fund's use of the tax accounting practice known as equalization. The calculation
of net investment income per share in the financial highlights excludes these
adjustments.
22
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Investment Trust --
John Hancock Sovereign Investors Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Sovereign Investors Fund (the "Fund"), one of the portfolios
constituting John Hancock Investment Trust, including the schedule of
investments, as of December 31, 1997, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers, or other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
John Hancock Sovereign Investors Fund portfolio of John Hancock Investment Trust
at December 31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during its taxable year ended December
31, 1997.
The Fund designated a distribution to shareholders of $215,848,389 as
long-term capital gain dividends. Of this amount, $133,835,042 is a 28% rate
gain distribution and $82,013,347 is a 20% rate gain distribution.
With respect to the dividends paid by the fund for the fiscal year ended
December 31, 1997, 51.64% qualify for the corporate dividends received
deduction.
Shareholders will be mailed a 1997 U.S. Treasury Department Form 1099-DIV
in January 1998. This will reflect the tax character of all distributions for
the calendar year 1997.
23
<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
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
CLASS C PER SHARE
YEAR -------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- ----- ------------
1993(1) 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
(1) Class B and Class C shares commenced operations on January 3, 1994 and May
7, 1993, respectively.
24
<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 December 31, 1997.
- --------------------------------------------------------------------------------
PERCENT OF
DIVIDEND INCREASE
-----------------
AFLAC Corp. ........................................... 15.0%
Abbott Laboratories, Inc. ............................. 12.5
Air Products & Chemicals .............................. 9.1
American International Group .......................... 12.4
AMP, Inc. ............................................. 4.0
Archer-Daniel Midland Co. ............................. 5.0
Automatic Data Processing, Inc. ....................... 15.2
BankOne Corp. ......................................... 11.7
Baxter International, Inc. ............................ 3.0
Becton Dickinson & Co. ................................ 11.5
Bemis Company, Inc. ................................... 11.1
Betz Laboratories ..................................... 1.3
C.H. Robinson, Inc. ................................... 8.1
Century Telephone Enterprise, Inc. .................... 2.8
Chubb Corp. ........................................... 7.4
Conagra, Inc. ......................................... 14.7
CoreStates Financial Corp. ............................ 6.4
Dayton Hudson Corp. ................................... 12.5
Dover Corp. ........................................... 11.5
DuPont (E.I.) De Nemours & Co. ........................ 10.5
Duke Energy Corp. ..................................... 3.8
Ecolab, Inc. .......................................... 18.8
Emerson Electric Co. .................................. 9.3
Exxon Corp. ........................................... 3.8
Federal Signal Corp. .................................. 15.5
First Tennessee National Corp. ........................ 10.0
First Union Corp. ..................................... 15.6
Gannett Co., Inc. ..................................... 5.6
General Electric Co. .................................. 15.4
General RE Corp. ...................................... 7.8
Grainger (W.W.), Inc. ................................. 8.0
Hewlett Packard Co. ................................... 16.7
Home Depot, Inc. ...................................... 25.0
Honeywell, Inc. ....................................... 3.7
Ikon Office Solutions, Inc. ........................... 24.0
Illinois Tool Works, Inc. ............................. 26.3
Interpublic Group, Inc. ............................... 14.7
Johnson & Johnson ..................................... 15.8
Johnson Controls ...................................... 7.0
Key Corp. ............................................. 10.5
Kimberly-Clark Corp. .................................. 4.3
Leggett & Platt, Inc. ................................. 7.7
Lilly (Eli) & Co. ..................................... 11.1
Masco Corp. ........................................... 5.0
McGraw-Hill Companies, Inc. ........................... 9.1
Medtronic, Inc. ....................................... 15.8
Merck & Co., Inc. ..................................... 7.1
Mobil Corp. ........................................... 6.0
National Fuel Gas Co. ................................. 3.6
NationsBank Corp. ..................................... 15.2
Norwest Corp. ......................................... 10.0
Nucor Corp. ........................................... 25.0
Parker-Hannifin Corp. ................................. 12.5
Pentair, Inc. ......................................... 11.1
Pep Boys - Manny, Moe, & Jack (The) ................... 14.3
PepsiCo, Inc. ......................................... 8.8
Philip Morris Cos., Inc. .............................. 20.0
Pitney Bowes, Inc. .................................... 15.9
Questar Corp. ......................................... 3.3
Reliastar Financial Corp. ............................. 10.7
Rockwell International Corp. .......................... 5.2
RPM, Inc. ............................................. 7.7
SBC Communications, Inc. .............................. 4.1
Schulman A., Inc. ..................................... 10.5
Sigma-Aldrich Corp. ................................... 12.0
Sonoco Products Corp. ................................. 9.1
Sysco Corp. ........................................... 13.3
Travelers, Inc. ....................................... 25.0
Union Electric Co. .................................... 1.6
Wal-Mart Stores, Inc. ................................. 28.6
Worthington Industries, Inc. .......................... 8.3
----
11.1%
====
The average dividend increase for this group was 11.1%
25
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Sovereign Investors Fund
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
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 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.
[LOGO] Printed on Recycled Paper 2900A 12/97
2/98
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Sovereign
Balanced Fund
DECEMBER 31, 1997
[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
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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
The financial markets in 1997 were anything but dull. Bond investors enjoyed the
benefits of a strong economy with no inflation. Stock investors were treated to
record-breaking performance by the Dow Jones Industrial Average, but with
record-breaking volatility. After two years of strong advances with relatively
minor swings, the stock market's recent sharp drops and enormous rebounds have
caused a fair share of investor concern.
The latest round began in October and was largely due to uncertainty in
foreign markets. Southeast Asia sneezed and the rest of the world caught a cold.
On October 27, the Dow experienced its largest one-day point decline, dropping
554 points. In percentage terms, however, that roughly 7% decline didn't even
register on the list of 10 largest drops. The next day, the market bounced right
back, as the Dow had a record one-day vault of 337 points. In short order, the
U.S. market had bounced back, yet it and many markets remained edgy and more
volatile as investors sorted out the Asian turmoil and its implications on
economic growth, interest rates and corporate earnings.
In the face of such uncertainty, a trusted investment professional can be
your best ally. Now, more than ever, your investment professional can help you
take the emotion out of investment decisions. At a time when your instincts
might have you react to the heat of the market's moment, your investment
professional can serve as an objective voice to put current events in a
longer-term perspective. He or she can also help you evaluate your investments
in any market environment to ensure that they fit your risk tolerance and time
horizons. On an ongoing basis, your investment professional is there for you to
check out new investment ideas or to get an informed opinion about current
economic and market conditions.
We encourage you to take advantage of this important resource. Working
together, you can draw up a detailed road map to help reach your financial
destination regardless of the conditions along the way.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
2
<PAGE>
================================================================================
BY JOHN F. SNYDER III AND BARRY EVANS, CFA, CO-PORTFOLIO MANAGERS
John Hancock
Sovereign Balanced Fund
Stocks and bonds rack up another year of great returns
1997 was yet another spectacular year for stock investors. The Dow Jones
Industrial Average -- one of the most commonly-watched market indices -- ended
the year up a healthy 22.64%. Following gains of 33% in 1995 and 26% in 1996,
this year marked a record third-straight year in which stocks rose more than
20%. It also marked the seventh consecutive year of market advances, making the
current bull market the longest in history.
Bonds also had reason to celebrate in 1997. Tame inflation and falling
interest rates drove bond prices up and yields down. In fact, the yield on the
30-year Treasury bond ended the year at 5.92% -- its lowest level in more than
four years.
Against this backdrop, the John Hancock Sovereign Balanced Fund turned in
strong performance. The Fund's Class A and Class B shares had total returns of
20.79% and 19.96%, respectively, at net asset value. By comparison, the average
balanced fund returned 19.00%, according to Lipper Analytical Services, Inc.(1)
Longer-term performance can be found on pages six and seven.
Stock performance
Two important sectors contributed significantly to the Fund's performance:
retailers and banks. Retail giants Wal-Mart and Home Depot rose more than 60% in
1997, thanks to market share gains and strong consumer confidence levels.
Our bank stocks also yielded strong results. A favorable interest-rate
environment and strong loan demand has helped banks' underlying fundamentals.
Also, a sharp increase in merger activity has lifted the group. First Tennessee
National Corp. was among our strongest performers, buoyed by a healthy balance
sheet and increasing
"1997 was yet another spectacular year for stock investors."
[A 2 1/4" x 3" photo of fund management team members at bottom right. Caption
reads "Sovereign Balanced Fund management team members: (l -r) John Snyder,
Barry Evans, Jere Estes."]
3
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
"...we kept our bond exposure relatively light..."
takeover speculation.
Kimberly-Clark Corp., one of the leading producers of personal-care
products, however, fell short of expectations. The company's acquisition of
Scott Paper has been more difficult to integrate than expected. Given that,
we've halved our position in the stock.
Shift to growth cyclicals
After strong gains early in the year, we felt that many of our consumer stocks
were ripe for profit taking. We sold several core holdings -- such as Procter &
Gamble and Sara Lee -- in favor of companies that offered better growth
potential and valuations.
A perfect example is Grainger (W.W.), Inc, which is the leading
distributor of electrical equipment. Market leadership is critical in this
industry as customers strive to limit the number of vendors they use. With its
most recent acquisition of Ackland, Grainger has been able to strengthen its
market position. And because of its superb balance sheet, Grainger is
well-positioned to make further acquisitions.
Bonds: maintaining light exposure
Because we believed that stocks offered more potential, we kept our bond
exposure relatively light throughout the year. By the end of 1997, our bond
position stood at 33%. Our holdings were split between U.S. Treasury bonds, at
17% of the Fund's net assets, and high-quality corporate bonds, at 16%.
Throughout the first half of the year, we maintained a neutral duration of
4.8 to 5.0 years. Duration measures how sensitive the Fund's share price is to
interest rate changes. The shorter the duration, the less sensitive the share
price. Because of the interest-rate uncertainty in the first half of the year,
we used a neutral duration to help protect the Fund from price volatility. In
the second half, however, we extended our duration to 5.3 years as deflationary
pressures and worries about the financial crisis in Asia drove the bond market
higher. With a longer duration, the Fund was well-positioned to take advantage
of the market's rally.
Outlook
A change from the generally ebullient stock market may be at hand. The expected
slowdown in the Asian economies may slow the world economy. At first glance, the
effect on the U.S. economy appears to be minimal, but the U.S. will not be
immune. Furthermore, we believe that the impact will extend beyond those
companies with direct exposure to Asia such as semiconductor manufacturers.
Companies with extensive retailing operations in the Far East --
[Pie chart entitled "Portfolio Diversification" at top left hand column. The
chart is divided into four sections: Going from top left to right; Short-term
Investments 1%; Other 2%; Stocks 64%; Bonds 33%. A footnote below reads: "As a
percentage of net assets on December 31, 1997."]
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers." The first listing is U.S.
Treasuries followed by an up arrow and the phrase "Bond market rally". The
second listing is First Tennessee National followed by an up arrow and the
phrase "Takeover speculation." The third listing is Kimberly Clark followed by a
down arrow and the phrase "Scott Paper acquisition." A footnote below reads:
"See "Schedule of Investments." Investment holdings are subject to change."]
4
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended December 31, 1997." The chart is
scaled in increments of 5% from bottom to top, with 25% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
20.79% total return for John Hancock Sovereign Balanced Fund: Class A. The
second represents the 19.96% total return for John Hancock Sovereign Balanced
Fund: Class B. The third represents the 19.00% total return for the Average
balanced fund. The footnote below states: "Total returns for John Hancock
Sovereign Balanced Fund are at net asset value with all distributions
reinvested. The average balanced fund is tracked by Lipper Analytical Services,
Inc.(1) See the following two pages for historical performance information."]
such as McDonald's and Coca-Cola -- are also likely to experience weaker demand.
U.S. companies that are vulnerable to imports -- such as steel manufacturers and
auto makers -- will face stiffer competition, as Asian companies attempt to
export their way out of trouble.
In general, we believe companies will remain challenged in their quests to
produce top line revenue growth. We also believe that 1998 will be a more
difficult year for earnings growth than any of the past five years. Pricing
power is non-existent and, in fact, a number of economists believe that prices
will go down in 1998. Of course, lower prices will benefit consumers, but not
companies. Deflation is a difficult environment for corporate profitability
because companies have difficulty recovering any increase in labor costs.
If an economic slowdown materializes, this will be the sweet spot of the
market cycle for the Fund's "dividend performers" universe of companies. At a
time when earnings disappointments are dealt with severely by the market,
consistency will be rewarded. We believe it will be a time when superior
corporate management teams with the most control over their own destiny will
succeed, while others struggle. We expect earnings growth this year for the
Fund's typical stock to be in the low double-digit range versus low
single-digits for the S&P 500. If the past is any guide, it will be a time when
investors are likely to fully appreciate the investment quality of these stable
growth companies and should be willing to pay premium prices for them.
On the bond side, we are also relatively optimistic. We believe the
Federal Reserve will likely lower interest rates in the coming year. However, an
interest-rate cut is already priced into the market. Bonds have had a good run
in the last several months and a good portion of the upside may be behind us.
Given that, we may begin to shorten our duration in the first half of the year.
For the time being, we will maintain our light bond exposure in favor of
higher-yielding stocks.
"...1998 will be a more difficult year for earnings growth..."
- --------------------------------------------------------------------------------
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 December 31, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/5/92)
---- ----- ---------
Cumulative Total Returns 14.75% 71.80% 75.87%
Average Annual Total Returns 14.75% 11.43% 11.38%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1997
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/5/92)
---- ----- ---------
Cumulative Total Returns 14.96% 72.66% 76.66%
Average Annual Total Returns 14.96% 11.54% 11.48%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of December 31, 1997
SEC 30-DAY
YIELD
----------
John Hancock Sovereign Balanced Fund: Class A 2.44%
John Hancock Sovereign Balanced Fund: Class B 1.90%
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. Past performance is not indicative of
future results.
[GRAPHIC OMITTED]
[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 $26,405 as of December 31, 1997. 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 $18,513 as of December
31, 1997. The third line represents the Sovereign Balanced Fund after sales
charge and is equal to $17,587 as of December 31, 1997.]
[GRAPHIC OMITTED]
[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 $26,405 as of December 31, 1997. 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 $17,866 as of December
31, 1997. The third line represents the Sovereign Balanced Fund after sales
charge and is equal to $17,766 as of December 31, 1997.]
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced 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 December 31, 1997. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
Assets:
Investments at value -- Note C:
Common stocks and preferred stocks
(cost -- $82,688,788) .................................... $119,339,188
Corporate bonds (cost -- $29,628,587) ...................... 30,037,678
United States government and agencies obligations
(cost -- $30,860,721) .................................... 31,700,348
Joint repurchase agreement (cost -- $1,632,000) ............ 1,632,000
Corporate savings account .................................. 807
------------
182,710,021
Receivable for investments sold ............................. 2,522,116
Receivable for shares sold .................................. 79,593
Dividends receivable ........................................ 166,075
Interest receivable ......................................... 1,409,848
Other assets ................................................ 17,315
------------
Total Assets .............................. 186,904,968
------------------------------------------------------------
Liabilities:
Payable for investments purchased ........................... 1,129,900
Payable for shares repurchased .............................. 49,487
Payable to John Hancock Advisers, Inc.
and affiliates -- Note B ................................... 158,123
Accounts payable and accrued expenses ....................... 54,516
------------
Total Liabilities ......................... 1,392,026
------------------------------------------------------------
Net Assets:
Capital paid-in ............................................. 145,791,940
Accumulated net realized gain on investments ................ 1,810,335
Net unrealized appreciation of investments .................. 37,900,791
Undistributed net investment income ......................... 9,876
------------
Net Assets ................................ $185,512,942
============================================================
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 -- $84,263,923 / 6,322,633 .......................... $ 13.33
==============================================================================
Class B -- $101,249,019 / 7,598,310 ......................... $ 13.33
==============================================================================
Maximum Offering Price Per Share*
Class A -- ($13.33 x 105.26%) ............................... $ 14.03
==============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
Statement of Operations
Year ended December 31, 1997
- --------------------------------------------------------------------------------
Investment Income:
Interest ...................................................... $ 4,814,006
Dividends (net of foreign withholding taxes of $5,754) ........ 2,132,936
-----------
6,946,942
-----------
Expenses:
Investment management fee -- Note B ........................ 1,043,923
Distribution and service fee -- Note B
Class A .................................................. 234,624
Class B .................................................. 945,151
Transfer agent fee -- Note B ............................... 359,524
Custodian fee .............................................. 46,613
Registration and filing fees ............................... 40,109
Auditing fee ............................................... 38,966
Financial services fee -- Note B ........................... 31,635
Trustees' fees ............................................. 15,056
Printing ................................................... 12,516
Organization expense -- Note A ............................. 11,856
Miscellaneous .............................................. 6,073
Legal fees ................................................. 2,493
-----------
Total Expenses .............................. 2,788,539
------------------------------------------------------------
Net Investment Income ....................... 4,158,403
------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ......................... 14,306,942
Change in net unrealized appreciation/depreciation
of investments ............................................... 13,605,012
-----------
Net Realized and Unrealized
Gain on Investments ......................... 27,911,954
------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ................... $32,070,357
============================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................................... $ 4,690,230 $ 4,158,403
Net realized gain on investments sold ................................................... 8,918,977 14,306,942
Change in net unrealized appreciation/depreciation of investments ....................... 4,175,398 13,605,012
------------- -------------
Net Increase in Net Assets Resulting from Operations .................................. 17,784,605 32,070,357
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A -- ($0.4113 and $0.3717 per share, respectively) .............................. (2,342,425) (2,166,268)
Class B -- ($0.3257 and $0.2770 per share, respectively) .............................. (2,357,069) (1,974,558)
Distributions from net realized gain on investments sold
Class A -- ($0.4733 and $1.0829 per share, respectively) .............................. (2,627,891) (6,328,684)
Class B -- ($0.4733 and $1.0829 per share, respectively) .............................. (3,369,351) (7,611,762)
------------- -------------
Total Distributions to Shareholders ................................................... (10,696,736) (18,081,272)
------------- -------------
From Fund Share Transactions-- Net:* ....................................................... (2,627,744) 9,426,144
------------- -------------
Net Assets:
Beginning of period ..................................................................... 157,637,588 162,097,713
------------- -------------
End of period (including distributions in excess of net investment income
of $7,829 and undistributed net investment income of $9,876, respectively) ............ $ 162,097,713 $ 185,512,942
============= =============
* Analysis of Fund Share Transactions:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1996 1997
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........................................................... 816,219 $ 9,909,760 1,109,775 $ 14,711,593
Shares issued to shareholders in reinvestment of distributions ........ 391,011 4,778,423 617,926 8,180,033
----------- ------------ ----------- ------------
1,207,230 14,688,183 1,727,701 22,891,626
Less shares repurchased ............................................... (1,345,458) (16,427,737) (1,210,119) (16,051,956)
----------- ------------ ----------- ------------
Net increase (decrease) ............................................... (138,228) ($ 1,739,554) 517,582 $ 6,839,670
=========== ============ =========== ============
CLASS B
Shares sold ........................................................... 839,251 $ 10,238,843 778,364 $ 10,353,777
Shares issued to shareholders in reinvestment of distributions ........ 425,371 5,201,478 668,347 8,845,505
----------- ------------ ----------- ------------
1,264,622 15,440,321 1,446,711 19,199,282
Less shares repurchased ............................................... (1,338,200) (16,328,511) (1,253,224) (16,612,808)
----------- ------------ ----------- ------------
Net increase (decrease) ............................................... (73,578) ($ 888,190) 193,487 $ 2,586,474
=========== ============ =========== ============
</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,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <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
------- ------- ------- ------- -------
Net Investment Income ........................................ 0.46 0.50 0.44(1) 0.41(1) 0.37(1)
Net Realized and Unrealized Gain (Loss) on Investments ....... 0.68 (0.88) 1.91 0.99 2.14
------- ------- ------- ------- -------
Total from Investment Operations .......................... 1.14 (0.38) 2.35 1.40 2.51
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ....................... (0.45) (0.50) (0.44) (0.41) (0.37)
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)
------- ------- ------- ------- -------
Net Asset Value, End of Period ............................... $10.74 $9.84 $11.75 $12.27 $13.33
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (2) ............... 11.38% (3.51%) 24.23% 12.13% 20.79%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $62,218 $61,952 $69,811 $71,242 $84,264
Ratio of Expenses to Average Net Assets ...................... 1.45% 1.23% 1.27% 1.29% 1.22%
Ratio of Net Investment Income to Average Net Assets ......... 4.44% 4.89% 3.99% 3.33% 2.77%
Portfolio Turnover Rate ...................................... 85% 78% 45% 80% 115%
Average Brokerage Commission Rate (3) ........................ N/A N/A N/A $0.0700 $0.0700
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
dividends and total investment return of the Fund. It shows how the Fund's net
asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- --------
<S> <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
------- ------- ------- ------- --------
Net Investment Income .......................................... 0.37 0.43 0.36(1) 0.32(1) 0.28(1)
Net Realized and Unrealized Gain (Loss) on Investments ......... 0.70 (0.89) 1.90 1.01 2.14
------- ------- ------- ------- --------
Total from Investment Operations ............................ 1.07 (0.46) 2.26 1.33 2.42
------- ------- ------- ------- --------
Less Distributions:
Dividends from Net Investment Income ......................... (0.38) (0.43) (0.36) (0.33) (0.28)
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)
------- ------- ------- ------- --------
Net Asset Value, End of Period ................................. $10.75 $9.84 $11.74 $12.27 $13.33
======= ======= ======= ======= ========
Total Investment Return at Net Asset Value (2) ................. 10.63% (4.22%) 23.30% 11.46% 19.96%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ....................... $78,775 $79,176 $87,827 $90,855 $101,249
Ratio of Expenses to Average Net Assets ........................ 2.10% 1.87% 1.96% 1.99% 1.91%
Ratio of Net Investment Income to Average Net Assets ........... 4.01% 4.25% 3.31% 2.63% 2.08%
Portfolio Turnover Rate ........................................ 85% 78% 45% 80% 115%
Average Brokerage Commission Rate (3) .......................... N/A N/A N/A $0.0700 $0.0700
</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) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Schedule of Investments
December 31, 1997
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, but are unaudited.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- -------- ------
<S> <C> <C> <C>
COMMON STOCKS (63.71%)
Advertising (1.34%)
50,000 Interpublic Group of Companies, Inc.
@ 49 13/16.............................................................. $2,490,625
------------
One of the largest advertising agencies
in the world
Earnings P/S........$.60, .70, .79, .87, 1.00, 1.11, 1.25, 1.11, 1.71, 1.82 13.1%
Dividends P/S.............$.17, .21, .25, .27, .30, .33, .36, .40, .44, .50 12.7%
Price/Earnings Ratio...................................................27.4
Banks (5.41%)
44,000 Banc One Corp. @ 54 5/16................................................... 2,389,750
Ohio-based bank holding company
Earnings P/S....$1.43, 1.45, 1.66, 1.72, 2.08, 2.62, 2.20, 2.91, 3.23, 2.25 5.2%
Dividends P/S.........$.50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36, 1.52 13.1%
Price/Earnings Ratio...................................................24.7
30,000 First Tennessee National Corp. @ 66 3/4.................................... 2,002,500
Tennessee-based bank holding company
Earnings P/S.....$1.10, .61, 1.00, 1.32, 1.60, 1.66, 2.15, 2.42, 2.68, 2.97 11.7%
Dividends P/S...........$.43, .49, .54, .57, .63, .75, .87, .97, 1.10, 1.23 12.4%
Price/Earnings Ratio...................................................22.3
35,000 First Union Corp. @ 51 1/4................................................. 1,793,750
North Carolina-based bank holding company
Earnings P/S....$1.38, 1.20, 1.26, 1.28, 1.12, 2.37, 2.29, 2.52, 2.68, 3.43 10.6%
Dividends P/S...........$.43, .50, .54, .56, .64, .75, .86, .98, 1.10, 1.22 12.3%
Price/Earnings Ratio...................................................14.9
20,000 KeyCorp. @ 70 13/16........................................................ 1,416,250
Bank holding company with offices from
coast to coast
Earnings P/S.....$2.10, 2.32, 2.32, 1.31, 2.39, 2.89, 3.45, 3.3, 3.37, 3.73 6.6%
Dividends P/S........$.68, .80, .88, .92, .98, 1.12, 1.28, 1.44, 1.52, 1.68 10.6%
Price/Earnings Ratio...................................................18.9
40,000 NationsBank Corp. @ 60 13/16............................................... 2,432,500
Largest superregional bank in the Southeast
Earnings P/S.....$1.44, 2.22, 1.31, .38, 2.30, 2.50, 3.06, 3.57, 4.00, 4.22 12.7%
Dividends P/S..........$.47, .55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.32 12.2%
Price/Earnings Ratio...................................................14.4
------------
10,034,750
------------
Beverages (0.59%)
30,000 PepsiCo, Inc. @ 36 7/16.................................................... 1,093,125
------------
Second largest soft drink company
Earnings P/S...........$.48, .57, .69, .68, .81, .98, 1.11, 1.00, .72, 1.07 9.3%
Dividends P/S.............$.12, .15, .18, .21, .23, .28, .32, .36, .41, .47 16.4%
Price/Earnings Ratio...................................................33.6
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the
Sovereign Balanced Fund on December 31, 1997. 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> <C>
Chemicals (5.32%)
25,000 Air Products & Chemicals, Inc. @ 82 1/4.................................... $2,056,250
Producer of industrial gases
Earnings P/S....$1.95, 2.02, 2.08, 2.23, 2.45, 1.76, 2.05, 3.29, 3.73, 3.90 8.0%
Dividends P/S..........$.55, .63, .69, .75, .83, .89, .95, 1.01, 1.07, 1.15 8.5%
Price/Earnings Ratio...................................................21.4
45,000 BetzDearborn,Inc. @ 61 1/16................................................ 2,747,813
Produces and markets a wide range of
engineered programs and specialty
chemical products for process systems
Earnings P/S....$1.58, 1.77, 2.12, 2.47, 2.71, 2.05, 2.43, 2.27, 2.10, 2.47 5.1%
Dividends P/S.....$.80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49, 1.51 7.3%
Price/Earnings Ratio...................................................24.9
150,000 RPM, Inc. @ 15 1/4......................................................... 2,287,500
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof structures
Earnings P/S..............$.30, .37, .34, .44, .47, .47, .60, .68, .72, .80 11.5%
Dividends P/S.............$.20, .22, .24, .27, .29, .31, .34, .36, .39, .42 8.6%
Price/Earnings Ratio...................................................19.2
70,000 Sigma-Aldrich Corp. @ 39 3/4............................................... 2,782,500
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S.........$.57, .65, .72, .80, .96, 1.08, 1.11, 1.32, 1.48, 1.61 12.2%
Dividends P/S.............$.08, .09, .10, .11, .13, .15, .17, .19, .23, .26 14.0%
Price/Earnings Ratio...................................................24.7
------------
9,874,063
------------
Computers (2.34%)
35,000 Automatic Data Processing, Inc. @ 61 3/8................................... 2,148,125
Largest independent computing services firm
in the U.S.
Earnings P/S.........$.55, .63, .72, .82, .92, 1.04, 1.19, 1.38, 1.57, 1.76 13.8%
Dividends P/S.............$.13, .15, .17, .20, .23, .26, .29, .35, .42, .48 15.6%
Price/Earnings Ratio...................................................33.3
35,000 Hewlett-Packard Co. @ 62 1/2............................................... 2,187,500
Manufactures and services electronic
measurement, analysis and computation
instruments
Earnings P/S.........$.84, .88, .77, .76, .87, 1.16, 1.54, 2.32, 2.46, 2.95 15.0%
Dividends P/S.............$.07, .10, .11, .13, .20, .24, .29, .38, .46, .54 25.5%
Price/Earnings Ratio...................................................21.9
------------
4,335,625
------------
</TABLE>
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> <C>
Containers (2.07%)
40,000 Bemis Company, Inc. @ 44 1/16.............................................. $1,762,500
Producer of a broad range of flexible
packaging and equipment and pressure
sensitive materials
Earnings P/S........$.74, .90, .99, 1.03, 1.10, .89, 1.40, 1.63, 1.90, 1.93 11.2%
Dividends P/S.............$.22, .30, .36, .42, .46, .50, .54, .64, .72, .80 15.4%
Price/Earnings Ratio...................................................22.7
60,000 Sonoco Products Corp. @ 34 11/16........................................... 2,081,250
Leading manufacturer of containers,
paper products and packaging
Earnings P/S......$1.05, 1.12, .55, 1.05, .89, 1.29, 1.33, 1.72, 1.81, 1.81 6.2%
Dividends P/S.............$.30, .39, .43, .44, .48, .50, .53, .59, .65, .71 10.0%
Price/Earnings Ratio...................................................18.9
------------
3,843,750
------------
Diversified Operations (3.08%)
50,000 DuPont (E.I.) De Nemours & Co.
@ 60 1/16............................................................... 3,003,125
Nation's largest chemical manufacturer
Earnings P/S......$1.52, 1.77, 1.70, 1.04, .72, .42, 2.00, 2.81, 3.24, 2.65 6.4%
Dividends P/S..........$.62, .73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23 7.9%
Price/Earnings Ratio...................................................22.9
60,000 Federal Signal Corp. @ 21 5/8.............................................. 1,297,500
Manufactures fire trucks and street sweepers,
as well as public safety, signaling
and communications equipment
Earnings P/S..........$.41, .48, .61, .68, .75, .86, 1.02, 1.13, 1.35, 1.40 14.6%
Dividends P/S.............$.16, .19, .22, .27, .32, .36, .42, .50, .58, .67 17.2%
Price/Earnings Ratio...................................................15.3
50,000 Ikon Office Solutions, Inc. @ 28 1/8....................................... 1,406,250
Distributor of office and paper products
Earnings P/S........$1.06, 1.14, .88, .85, 1.11, (.02), .55, .86, 1.12, .77 NMF
Dividends P/S...$.080, .089, .097, .103, .106, .111, .117, .123, .129, .160 8.0%
Price/Earnings Ratio...................................................36.3
------------
5,706,875
------------
Electronics (7.92%)
55,000 AMP, Inc. @ 42............................................................. 2,310,000
World's largest manufacturer of
electrical/electronic connectors
Earnings P/S..........$1.48, 1.32, 1.35, 1.23, 1.38, 1.42, 1.72, 1.96, 1.31 NMF
Dividends P/S...........$.50, .60, .68, .72, .76, .80, .84, .92, 1.00, 1.04 8.5%
Price/Earnings Ratio...................................................32.0
60,000 Emerson Electric Co. @ 56 7/16............................................. 3,386,250
Produces and sells electrical/electronic
products and systems
Earnings P/S....$1.16, 1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 2.08, 2.28, 2.52 9.0%
Dividends P/S...........$.52, .58, .64, .67, .70, .74, .80, .92, 1.01, 1.11 8.8%
Price/Earnings Ratio...................................................22.5
40,000 General Electric Co. @ 73 3/8.............................................. 2,935,000
Dominant force in home appliances,
electrical power, and financial services
Earnings P/S.....$.94, 1.09, 1.21, 1.28, 1.26, 1.23, 1.73, 1.95, 2.20. 2.42 11.1%
Dividends P/S............$.35, .41, .47, .51, .56, .63, .72, .82, .92, 1.04 12.9%
Price/Earnings Ratio...................................................30.6
35,000 Grainger (W.W.), Inc. @ 97 3/16............................................ $3,401,563
Leading distributor of electrical equipment
Earnings P/S....$1.96, 2.20, 2.31, 2.37, 2.58, 2.88, 2.50, 3.64, 4.04, 4.36 9.3%
Dividends P/S............$.43, .50, .57, .61, .65, .71, .78, .89, .98, 1.06 10.5%
Price/Earnings Ratio...................................................22.4
40,000 Hubbell, Inc.(Class B) @ 49 5/16........................................... 1,972,500
Manufactures a variety of electrical products
Earnings P/S........$.93, 1.04,1.18, 1.30,1.41,1.00, 1.60, 1.83, 2.10, 2.28 10.5%
Dividends P/S...........$.43, .53, .63, .70, .76, .78, .81, .92, 1.02, 1.13 11.3%
Price/Earnings Ratio...................................................22.0
15,000 Parker Hannifin Corp. @ 45 7/8............................................. 688,125
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..........$.98, .94, 1.00, .55, .59, .60, .48, 1.97, 2.15, 2.46 10.8%
Dividends P/S...$.366, .373, .393, .406, .413, .426, .433, .453, .480, .567 5.0%
Price/Earnings Ratio...................................................16.9
------------
14,693,438
------------
Food (1.40%)
120,000 Archer-Daniel Midland Co. @ 21 11/16....................................... 2,602,500
------------
Processes and merchandises agricultural
products
Earnings P/S............$.53, .65, .74, .71, .81, .86, .81, 1.34, 1.20, .66 2.5%
Dividends P/S...$.028, .033, .046, .048, .050, .053, .063, .110, .184, .193 23.9%
Price/Earnings Ratio...................................................24.2
Furniture (0.34%)
15,000 Leggett & Platt, Inc. @ 41 7/8............................................. 628,125
------------
Produces intermediate products for the home
furnishings industry
Earnings P/S.........$.35, .66, .42, .56, .82, 1.05, 1.39, 1.49, 1.67, 2.08 21.9%
Dividends P/S.............$.16, .19, .21, .22, .23, .27, .31, .38, .46, .54 14.5%
Price/Earnings Ratio...................................................20.4
Insurance (4.46%)
35,000 AFLAC Corp. @ 51 1/8....................................................... 1,789,375
Global specialty insurer
Earnings P/S........$.72, .53, .77, .97, 1.19, 1.55, 1.89, 2.33, 2.73, 4.39 22.2%
Dividends P/S.............$.13, .15, .18, .20, .23, .26, .30, .34, .39, .45 14.8%
Price/Earnings Ratio...................................................11.4
10,000 General RE Corp. @ 212..................................................... 2,120,000
Broadly based re-insurance organization
Earnings P/S...$5.09, 6.52, 6.89, 7.46, 6.84, 8.11, 7.97, 9.92, 11.0, 11.91 9.9%
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...................................................17.8
80,000 Reliastar Financial Corp. @ 41 3/16........................................ 3,295,000
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S......$1.04, 1.00, .98, .86, 1.04, 1.32, 1.65, 2.18, 2.52, 2.57 10.6%
Dividends P/S.............$.29, .30, .32, .35, .37, .39, .44, .49, .55, .61 8.6%
Price/Earnings Ratio...................................................16.0
</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> <C>
Insurance (continued)
20,000 Travelers Group, Inc. @ 53 7/8............................................. $1,077,500
Diversified financial services company
Earnings P/S.......$.91, .71, .82, 1.07, 1.67, 1.94, 1.93, 2.75, 3.50, 3.00 14.2%
Dividends P/S...........$.045, .048, .06, .08, .12, .16, .19, .27, .30, .40 27.5%
Price/Earnings Ratio...................................................17.8
------------
8,281,875
------------
Machinery (3.51%)
86,000 Dover Corp. @ 36 1/8....................................................... 3,106,750
Manufactures a variety of specialized
industrial products
Earnings P/S...........$.56, .57, .64, .54, .56, .69, .89, 1.23, 1.72, 1.73 13.4%
Dividends P/S.............$.16, .18, .19, .21, .22, .23, .25, .28, .32, .36 9.4%
Price/Earnings Ratio...................................................20.8
95,000 Pentair, Inc. @ 35 15/16................................................... 3,414,063
Manufactures enclosures for electrical,
electronic, woodworking and power tool
equipment
Earnings P/S......$1.23, .99, .84, 1.10, 1.07, 1.13, 1.21, 1.48, 1.83, 2.07 6.0%
Dividends P/S.............$.22, .27, .29, .31, .33, .34, .36, .40, .50, .54 10.5%
Price/Earnings Ratio...................................................16.8
------------
6,520,813
------------
Media (1.20%)
30,000 McGraw-Hill Companies, Inc. @ 74........................................... 2,220,000
------------
Provides informational products and services
for business and industry
Earnings P/S......$1.92, .41, 1.77, 1.52, 1.57, .12, 2.05, 2.28, 4.96, 5.32 12.0%
Dividends P/S....$.92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44 5.1%
Price/Earnings Ratio...................................................13.6
Medical (6.23%)
45,000 Abbott Laboratories @ 65 9/16.............................................. 2,950,312
Major pharmaceutical and healthcare firm
Earnings P/S......$.83, .96, 1.11, 1.28, 1.47, 1.69, 1.87, 2.12, 2.41, 2.64 13.7%
Dividends P/S............$.29, .34, .40, .48, .58, .66, .74, .82, .93, 1.05 15.4%
Price/Earnings Ratio...................................................25.5
10,000 American Home Products Corp.
@ 76 1/2................................................................ 765,000
Pharmaceutical and healthcare company
Earnings P/S....$1.61, 1.77, 3.01, 2.18, 1.83, 2.37, 2.49, 2.71, 2.96, 3.08 7.5%
Dividends P/S......$.90, .98, 1.08, 1.19, 1.33,1.43, 1.47, 1.51, 1.57, 1.66 7.0%
Price/Earnings Ratio.....................................................25
50,000 Baxter International, Inc. @ 50 7/16....................................... 2,521,875
The company operates four divisions: renal,
biotech, cardiovascular and intravenous systems
and international distribution
Earnings P/S...$1.31, 1.50, (.05), 1.73, 1.99, (.97), 1.45, 1.34, 2.11. .99 NMF
Dividends P/S..........$.47, .52, .60, .69, .80, .93, .95, 1.03, 1.11, 1.14 10.3%
Price/Earnings Ratio...................................................50.6
53,000 Johnson & Johnson @ 65 7/8................................................. 3,491,375
Major producer of prescription and
non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S.......$.72, .81, .86, 1.10, 1.23, 1.37, 1.56, 1.86, 2.17, 2.42 14.4%
Dividends P/S.............$.24, .28, .33, .39, .45, .51, .57, .64, .74, .85 15.1%
Price/Earnings Ratio...................................................26.9
35,000 Medtronic, Inc. @ 52 5/16.................................................. $1,830,937
Leading manufacturer of medical devices
and instruments
Earnings P/S.............$.20, .23, .24, .28, .34, .45, .51, .64, .94, 1.11 21.0%
Dividends P/S...........$.035, .045, .05, .06, .07, .09, .11, .13, .16, .21 22.0%
Price/Earnings Ratio...................................................41.7
------------
11,559,499
------------
Metal (0.54%)
60,000 Worthington Industries, Inc. @ 16 1/2...................................... 990,000
------------
Manufactures metal and plastic products
Earnings P/S............$.61, .70, .61, .50, .63, .76, .94, 1.29, 1.05, .97 5.3%
Dividends P/S.............$.19, .23, .26, .28, .32, .34, .39, .43, .47, .51 11.6%
Price/Earnings Ratio...................................................18.6
Office (1.45%)
30,000 Pitney Bowes, Inc. @ 89 15/16.............................................. 2,698,125
------------
Manufactures office automation equipment
Earnings P/S...$ 1.50, 1.13, 1.30, 1.80, 1.96, 1.92, 2.21, 2.68, 3.12, 3.43 9.6%
Dividends P/S.........$.46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38, 1.60 14.9%
Price/Earnings Ratio...................................................26.1
Oil & Gas (2.97%)
40,000 Mobil Corp. @ 72 3/16...................................................... 2,887,500
One of the largest integrated, international
oil companies with interest in petrochemicals
and plastics
Earnings P/S....$2.47, 2.20, 2.30, 2.33, 1.57, 2.54, 2.14, 2.94, 3.69, 4.05 5.6%
Dividends P/S...$1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12 6.7%
Price/Earnings Ratio...................................................17.9
60,000 Shell Transport & Trading Co.,
PLC American Depositary Receipts
(Great Britain) @ 43 3/4................................................ 2,625,000
Involved in all phases of the petroleum
industry
Earnings P/S..........$.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
------------
5,512,500
------------
Paper & Paper Products (0.72%)
27,000 Kimberly-Clark Corp. @ 49 5/16............................................. 1,331,437
------------
Leading producer of consumer and
personal care products
Earnings P/S.....$1.18, 1.32, 1.35, 1.59, 1.08, 1.59, 1.38, .06, 2.49, 2.47 8.6%
Dividends P/S.............$.39, .63, .66, .74, .80, .84, .86, .88, .92, .96 10.5%
Price/Earnings Ratio...................................................20.2
Retail (5.66%)
30,000 Arbor Drugs, Inc. @ 18 1/2................................................. 555,000
Operates 201 drug stores in Michigan
Earnings P/S..............$.14, .19, .23, .26, .29, .13, .26, .42, .48, .58 17.1%
Dividends P/S.....$.0436, .0476, .0608, .0624, .09, .11, .13, .19, .24, .36 26.4%
Price/Earnings Ratio...................................................30.6
</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> <C>
Retail (continued)
30,000 Dayton Hudson Corp. @ 67 1/2............................................... $2,025,000
General merchandiser selling through Target
and Marvyn stores
Earnings P/S.....$.80, 1.15, 1.79, 1.80, 1.29, 1.67, 1.66, 1.92, 1.34, 2.07 11.1%
Dividends P/S.............$.34, .37, .44, .48, .51, .53, .56, .58, .61, .66 7.6%
Price/Earnings Ratio...................................................23.5
39,000 Home Depot, Inc. @ 58 7/8.................................................. 2,296,125
Operates a chain of retail building
supply/home improvement 'warehouse' stores
Earnings P/S...........$.15, .21, .30, .40, .55, .67, .88, 1.03, 1.29, 1.50 29.2%
Dividends P/S.............$.01, .02, .03, .04, .06, .08, .10, .13, .15, .19 38.7%
Price/Earnings Ratio.....................................................39
80,000 Sysco Corp. @ 45 9/16...................................................... 3,645,000
Largest distributor of food service products
Earnings P/S.........$.45, .60, .73, .84, .93, 1.08, 1.18, 1.38, 1.52, 1.71 16.0%
Dividends P/S.............$.08, .09, .10, .14, .22, .28, .36, .44, .52, .60 25.1%
Price/Earnings Ratio...................................................25.3
50,000 Wal-Mart Stores, Inc. @ 39 7/16............................................ 1,971,875
Operates chain of discount department stores
Earnings P/S.........$.37, .48, .57, .70, .87, 1.02, 1.17, 1.19, 1.33, 1.47 16.6%
Dividends P/S.............$.04, .06, .07, .09, .11, .13, .17, .20, .21, .27 23.6%
Price/Earnings Ratio...................................................26.8
------------
10,493,000
------------
Utilities (7.16%)
20,000 Ameritech Corp. @ 80 1/2................................................... 1,610,000
Provider of local telephone service
Earnings P/S.....$2.27, 2.30, 2.37,2.20, 2.51, 2.78, 2.13, 3.63, 3.87, 4.10 6.8%
Dividends P/S...$1.35, 1.46, 1.58, 1.70, 1.76, 1.84, 1.92, 2.00, 2.12, 2.26 5.9%
Price/Earnings Ratio...................................................20.0
50,000 Century Telephone Enterprise, Inc.
@ 49 13/16.............................................................. 2,490,625
Louisiana based telecommunications company
Earnings P/S........$.57, .49, .67, .80, 1.25, 1.35, 1.88, 1.97, 2.15, 3.11 20.7%
Dividends P/S...$.264, .272, .280, .287, .293, .310, .320, .330, .360, .370 3.8%
Price/Earnings Ratio...................................................15.9
30,000 Duke Energy Corp. @ 55 3/8................................................. 1,661,250
Generates, transmits, distributes and sells
electric energy in the Piedmont sections
of North and South Carolina
Earnings P/S....$1.95, 2.57, 2.40, 2.60, 2.21, 2.80, 2.88, 3.25, 3.37, 2.61 3.3%
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...................................................21.2
45,000 National Fuel Gas Co. @ 48 11/16........................................... 2,190,938
Integrated natural gas system serving
N.Y., PA. and Ohio
Earnings P/S....$1.65, 1.93, 1.83, 1.63, 1.94, 2.15, 2.23, 2.03, 2.78, 3.01 6.9%
Dividends P/S...$1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67, 1.73 0.5%
Price/Earnings Ratio...................................................16.0
70,000 Questar Corp. @ 44 5/8..................................................... 3,123,750
Diversified holding company for Utah, Wyoming
and Colorado natural gas transmission,
distribution and storage
Earnings P/S.....$.64, 1.28, 1.46, 1.63, 1.85, 2.10, 1.21, 2.05, 2.39, 2.55 16.6%
Dividends P/S......$.94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19, 1.24 3.1%
Price/Earnings Ratio...................................................17.2
30,000 SBC Communications, Inc. @ 73 1/4.......................................... $2,197,500
Provides telephone service throughout the
United States and internationally
Earnings P/S....$1.74, 1.76, 1.82, 1.84, 1.93, 2.17, 2.39, 2.74, 3.10, 3.46 7.9%
Dividends P/S..$1..22, 1.29, 1.36, 1.41, 1.45, 1.50, 1.56, 1.63, 1.70, 1.77 4.2%
Price/Earnings Ratio...................................................20.5
------------
13,274,063
------------
TOTAL COMMON STOCKS
(Cost $81,556,288) 118,184,188
------------
PREFERRED STOCKS (0.62%)
10,000 Cablevision Systems Corp., 11.125%,
Ser M @ 115.50.......................................................... 1,155,000
------------
TOTAL PREFERRED STOCKS
(Cost $1,132,500) 1,155,000
------------
<CAPTION>
PAR VALUE
(000s
OMITTED)
---------
<S> <C> <C>
CORPORATE BONDS (16.19%)
$1,000 Adelphia Communications Corp.,
Sr Note 9.25%, 10-01-02 @ 102.............................................. 1,020,000
1,000 Barclays North American Capital Corp.,
Gtd Cap Note 9.75% 05-15-21 @112.777....................................... 1,127,770
1,000 Comcast Corp., Sr Sub Deb 10.625%,
07-15-12 @ 123.857......................................................... 1,238,570
1,500 Continental Cablevision, Inc., Deb 9.50%,
08-01-13 @ 117.915......................................................... 1,768,725
1,300 GTE Corp., Deb 10.25% 11-01-20
@ 112.954.................................................................. 1,468,402
1,500 Georgia-Pacific Corp., Deb 9.75%,
01-15-18 @ 103.957......................................................... 1,559,355
1,800 Landeskreditbank Baden- Wuerttemberg,
Sub Note(Germany) 7.625% 02-01-23,
@ 113.331.................................................................. 2,039,958
2,484 Long Island Lighting Co., Deb 8.90%,
07-15-19 @ 106.409......................................................... 2,643,199
600 Massachusetts Mutual Life Insurance Co.,
Surplus Note 7.625% 11-15-23 (R)
@ 109.278.................................................................. 655,668
1,000 Midland American Capital Corp.,
Gtd Deb 12.75% 11-15-03
@ 105.312.................................................................. 1,053,120
2,091 Midland Cogeneration Venture L.P.,
Sec Deb Ser C-91 10.33% 07-23-02
@ 107.50................................................................... 2,248,335
</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 (continued)
$750 New York Life Insurance Co., Surplus
Notes 7.50% 12-15-23 (R) @ 101.538......................................... $761,535
1,646 North Atlantic Energy Corp., 1st Mtg
Bond 9.05% 06-01-02 @ 102.764.............................................. 1,691,496
3,000 Quebec, Province of, Deb(Canada)
7.50% 07-15-23, @ 107.824.................................................. 3,234,720
400 RJR Nabisco Capital Corp., Sr Notes
8.75% 04-15-04 @ 107.055................................................... 428,220
1,100 Security Pacific Corp., Sub Notes 11.5%
11-15-00 @ 113.545......................................................... 1,248,995
1,000 Standard Credit Card Card Master Trust I,
Class A Credit Card Part Ctf Ser 1994-2
7.25% 04-07-08 @ 105.781................................................... 1,057,810
750 Standard Credit Card Master Trust,
Ser 1995-1 8.25% 01-08-07 @ 110.50......................................... 828,750
1,000 Tele-Communications, Inc., Sr Notes
8.00%, 08-01-05 @ 107.163.................................................. 1,071,630
500 Tele-Communications, Inc., Sr Notes
9.80%, 02-01-12 @ 124.321.................................................. 621,605
1,550 TKR Cable I, Inc., Sr Deb 10.5%
10-30-07 @ 112.730......................................................... 1,747,315
500 Scandinavian Airline System, Deb
(Sweden) 9.125% 07-20-99,
@ 104.50................................................................... 522,500
------------
TOTAL CORPORATE BONDS
(Cost $29,628,587) 30,037,678
------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (17.09%)
5,345 Federal Home Loan Mort. Corp. Deb
6.85%, 04-01-00 @ 100.172.................................................. 5,354,194
3,000 Federal Home Loan Mort. Corp. Deb
6.31%, 07-31-00 @ 99.859................................................... 2,995,770
1,674 Federal National Mort. Assn. Sr Sub
7.50%, 08-01-08 @ 102.76................................................... 1,720,523
2,474 Federal National Mort. Assn. Sr Sub
7.00%, 07-01-11 @ 101.604.................................................. 2,513,341
2,000 Federal National Mort. Assn. Sr Sub
9.50%, 07-01-17 @ 136.257.................................................. 2,725,140
1,790 Financing Corp., Bond 9.65% 11-02-18
@ 138.797.................................................................. 2,484,466
119 Government National Mort. Assn.,
9.00% 04-15-21 @ 108.342................................................... 128,839
1,728 Government National Mort. Assn.,
7.00% 06-15-23 @ 101.156................................................... 1,747,965
$2,000 United States Treasury, Note 6.625%,
3-31-02 @ 103.234.......................................................... $2,064,680
1,000 United States Treasury, Bond 10.75%,
08-15-05 @ 130.094......................................................... 1,300,940
2,250 United States Treasury, Bond 12.00%,
08-15-13 @ 147.344......................................................... 3,315,240
1,768 United States Treasury, Bond 8.125%,
08-15-19 @ 125.125......................................................... 2,212,210
2,000 United States Treasury, Bond 6.375%,
08-15-27 @ 105.469......................................................... 2,109,380
1,000 United States Treasury, Bond 6.125%,
11-15-27 @ 102.766......................................................... 1,027,660
------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $30,860,721) 31,700,348
------------
</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 (0.88%)
1,632 Joint Repurchase Agreement (0.88%)
Investment in a joint repurchase
agreement transaction with HSBC
Securities, Inc., Dated 12-31-97,
Due 01-02-98 (Secured by U. S.
Treasury Bonds, 7.25% thru 13.25%,
due 05-15-09 thru 11-15-16 and by
U.S. Treasury Notes, 6.50% thru
8.75%,due 04-30-99 thru 11-15-08)
- Note A................................................................... 6.60% 1,632,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95%......................................................... 807
------------
TOTAL SHORT-TERM INVESTMENTS (0.88%) 1,632,807
------- ------------
TOTAL INVESTMENTS (98.49%) 182,710,021
------- ------------
OTHER ASSETS AND LIABILITIES (1.51%) 2,802,921
------- ------------
TOTAL NET ASSETS (100.00%) $185,512,942
------- ------------
</TABLE>
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.
See Note A of the Notes to Financial Statements for valuation policy rule.
Rule 144A securities amounted to $1,417,203 or 0.76% of net assets as of
December 31, 1997.
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
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Balanced Fund
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.
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,
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 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 expense and the
relative sizes of the Funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Balanced Fund
the Fund's operations ratably over a five-year period that began with the
commencement of investment operations of the 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 permits borrowings up to $600 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 a
rate of 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 year ended December 31, 1997.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, 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 service 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 year ended December
31, 1997, net sales charges received with regard to sales of Class A shares
amounted to $189,374. Out of this amount, $30,586 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $65,500
was paid as sales commissions to unrelated broker-dealers and $91,288 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 year ended December 31,
1997, contingent deferred sales charges paid to JH Funds amounted to $172,005.
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 year 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 December 31, 1997, 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 year
ended December 31, 1997, aggregated $66,450,899 and $71,397,273, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $123,347,883 and $115,322,280, respectively.
The cost of investments owned at December 31, 1997 (excluding the corporate
savings account), for federal income tax purposes was $144,850,817. Gross
unrealized appreciation and depreciation of investments aggregated $39,087,868
and $1,229,471, respectively, resulting in net unrealized appreciation of
$37,858,397.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the period ended December 31, 1997, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gains on investments of
$1,192,428, an increase in accumulated net investment income of $128 and an
increase in capital paid-in of $1,192,300. This represents the amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of December 31, 1997. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains under
federal tax rules versus generally accepted accounting principles and the Fund's
use of the tax accounting pratice known as equalization. The calculation of net
investment income per share in the financial highlights excludes these
adjustments.
20
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Investment Trust
John Hancock Sovereign Balanced Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Sovereign Balanced Fund (the "Fund"), one of the portfolios constituting
John Hancock Investment Trust, including the schedule of investments, as of
December 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the periods then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1997, by correspondence with the custodian
and brokers, or other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
John Hancock Sovereign Balanced Fund portfolio of John Hancock Investment Trust
at December 31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 6, 1998
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended December
31, 1997.
The Fund designated distributions to shareholders of $13,834,764 as
long-term capital gain dividend. Of this amount $7,387,333 is a 28% rate gain
distribution and $6,447,431 is a 20% rate gain distribution.
With respect to the Fund's ordinary taxable income for the fiscal year
ended December 31, 1997, 46.67% of the dividends qualify for the corporate
dividends received deductions.
Shareholders were mailed a 1997 U.S. Treasury Department Form 1099-DIV in
January 1998 representing their proportionate share.
21
<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 0.37165 13.33 1.08288
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 1.08288
(1) For the period October 5, 1992 (commencement of operations) to December
31, 1992.
22
<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 December 31, 1997.
- --------------------------------------------------------------------------------
PERCENT OF
DIVIDEND INCREASE
-----------------
AFLAC Corp. ................................ 15.0%
Abbott Laboratories, Inc. .................. 12.5
Air Products & Chemicals ................... 9.1
American Home Products ..................... 4.9
Ameritech Corp. ............................ 6.2
AMP, Inc. .................................. 4.0
Arbor Drugs, Inc. .......................... 50.0
Archer-Daniel Midland Co. .................. 5.0
Automatic Data Processing, Inc. ............ 15.2
BankOne Corp. .............................. 11.7
Baxter International, Inc. ................. 3.0
Bemis Company, Inc. ........................ 11.1
Betz Dearborn, Inc. ........................ 1.3
Century Telephone Enterprise, Inc. ......... 2.8
Dayton Hudson Corp. ........................ 12.5
Dover Corp. ................................ 11.5
DuPont (E.I.) De Nemours & Co. ............. 10.5
Duke Energy Corp. .......................... 3.8
Emerson Electric Co. ....................... 9.3
Federal Signal Corp. ....................... 15.5
First Tennessee National Corp. ............. 10.0
First Union Corp. .......................... 15.6
General Electric Co. ....................... 15.4
General RE Corp. ........................... 7.8
Grainger (W.W.), Inc. ...................... 8.0
Hewlett Packard Co. ........................ 16.7
Home Depot, Inc. ........................... 25.0
Hubbell Inc. (Class B) ..................... 11.5
Ikon Office Solutions, Inc. ................ 24.0
Interpublic Group, Inc. .................... 14.7
Johnson & Johnson .......................... 15.8
Key Corp. .................................. 10.5
Kimberly-Clark Corp. ....................... 4.3
Leggett & Platt, Inc. ...................... 7.7
McGraw-Hill Companies, Inc. ................ 9.1
Medtronic, Inc. ............................ 15.8
Mobil Corp. ................................ 6.0
National Fuel Gas Co. ...................... 3.6
NationsBank Corp. .......................... 15.2
Parker-Hannifin Corp. ...................... 12.5
Pentair, Inc. .............................. 11.1
PepsiCo, Inc. .............................. 8.8
Pitney Bowes, Inc. ......................... 15.9
Questar Corp. .............................. 3.3
RPM, Inc. .................................. 7.7
Reliastar Financial Corp. .................. 10.7
SBC Communications, Inc. ................... 4.1
Sigma-Aldrich Corp. ........................ 12.0
Sonoco Products Corp. ...................... 9.1
Shell Transport & Trading Co., PLC(ADR) .... 10.5
Sysco Corp. ................................ 13.3
Travelers, Inc. ............................ 25.0
Wal-Mart Stores, Inc. ...................... 28.6
Worthington Industries, Inc. ............... 8.3
----
11.7%
====
The average dividend increase for this group was 11.7%
23
<PAGE>
================================================================================
--------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
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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.
[LOGO] Printed on Recycled Paper 3600A 12/97
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