ANNUAL REPORT
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[GRAPHIC OMITTED]
Growth and
Income Fund
DECEMBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
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:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
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[A 1" x 1 1/2" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
One lesson came through loud and clear this year: sticking out the tough
times paid off. After reaching new highs in mid-July, stocks plunged in August
in one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. This year, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The result for the
year: an average 14.52% return, as calculated by Lipper Analytical Services,
Inc.
Given the dramatic swings, investors who tried to time the market's ups and
downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during this summer of
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
As we begin 1999, volatility remains on many investors' minds. But at this
time of year, many investors' thoughts also turn to more taxing matters. In our
view, now is a perfect time to focus on how much of your hard-earned money you
are able to keep. Part of a good tax-planning strategy should involve a review
of your portfolio to ensure that you are taking advantage of all available ways
to minimize and defer your tax payments -- in an effort to maximize investment
returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
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BY TIMOTHY E. KEEFE, CFA, PORTFOLIO MANAGER
John Hancock
Growth and Income Fund
U.S. stocks post strong finish, despite volatile year
-----------------------------------------------------
For stock investors, 1998 was a roller coaster ride. U.S. stocks started the
year by climbing sharply, then stalled in the second quarter as uncertainties
mounted amidst signs that corporate earnings might fall short of forecasts.
During the summer, Asia's financial problems spread to Russia and Latin America,
causing a free-fall in even the most established, blue-chip names. By the end of
August, the U.S. stock market had tumbled 19% from its mid-July high. The
downslide ended when the Federal Reserve cut short-term interest rates in the
fall, sending the stock market soaring once again. With strong fourth-quarter
gains, the Standard & Poor's 500 Stock Index posted a surprising 28.58% return
for the year, including reinvested dividends.
In this volatile environment, large-company stocks far outpaced
smaller-company names with less predictable earnings, and a large part of the
market's advance was due to a small handful of select large companies.
Furthermore, growth stocks -- those with a history of steady earnings growth
- --beat value stocks (or stocks selling for less than their worth). The
technology sector, which took a hard hit in the third quarter, made an amazing
comeback and closed the year with outstanding gains.
Fortunately, our focus on large-company stocks allowed us to participate in a
good part of the market's advance. For the year ended December 31, 1998, John
Hancock Growth and Income Fund's Class A and Class B shares returned 15.94% and
15.05%, respectively, at net asset value. The Fund's Class C shares returned
0.83% from inception on May 1, 1998, through year end. Keep in mind that your
net
"...focus on large-company stocks allowed us to participate in much of the
market's advance."
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[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Growth and
Income Fund. Caption below reads "Fund management team members (l-r): "Tim
Keefe, Tim Quinlisk and Lisa Welch."]
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3
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John Hancock Funds - Growth and Income Fund
"...biggest gains came from technology, telecommunications and drug stocks."
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[Table at top left hand column entitled "Top Five Holdings." The first listing
is Fuji JGB 4.6%, the second is Tele-Communications, Inc. 4.0%, the third
Computer Associates International 3.9%, the fourth Ace, Ltd. 3.7% and the fifth
Progressive Corp. 2.8%. A note below the table reads "As a percentage of net
assets on December 31, 1998."]
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asset value will differ from these results if you were not invested in the Fund
for the entire period and did not reinvest all distributions. Our focus on value
stocks and our lower-than-average stake in the top-performing growth names
somewhat hampered performance. However, we were able to match the 15.61% return
of the average growth and income fund, according to Lipper Analytical Services,
Inc.(1) For historical performance information, please see pages six and seven.
Best and worst
Over the course of the year, our biggest gains came from technology,
telecommunications and drug stocks. In the technology sector, we focused on
software and service companies that seemed less susceptible to Southeast Asia's
problems. Galileo International, a leading provider of airline reservation
systems, was one of our largest positions and a top performer, up 57% for the
year. In the telecommunications sector, the Fund benefited from owning shares of
Lucent Technologies, a company that distributes telecommunications equipment.
After its stock price more than doubled, we decided to lock in profits and sell.
During the fourth quarter, we bought Tele-Communications, Inc., a cable company
that is being acquired by AT&T and whose stock has since appreciated nicely.
Newly formed MCI WorldCom was another winner for the Fund, up 137% for the year
as investors applauded the creation of a new telecommunications powerhouse that
rivals AT&T.
Finally, we took full advantage of good performance in the drug sector
through owning stakes in Eli Lilly, Warner-Lambert, Pharmacia & Upjohn, Inc. and
American Home Products. Thanks to strong revenue growth from patents that give
drug companies monopolies on their products, new product releases and increased
demand from an aging population, drug stocks climbed 47% for the year. Selected
other stocks also boosted the Fund's performance, including Progressive Corp., a
leading low-cost provider of auto insurance whose stock rose as the company
continued to grow premiums at an accelerating pace.
Unfortunately, it wasn't smooth sailing for all our stock picks. Computer
Associates International (CA), the world's second largest software company,
expected turmoil overseas to curb its clients' software spending. This led to
falling earnings estimates, which halved CA's stock price. Other disappointments
came largely from the insurance, finance and energy sectors. In the insurance
sector, a weak pricing environment hurt even strong companies like Ace, Ltd., a
Bermuda-based reinsurer. TCF Financial Corp., a savings and loan, suffered when
the drop in interest rates prompted many homeowners to
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Ambac
Financial Group followed by an up arrow with the phrase "Increased demand
following turmoil overseas." The second listing is Tele-Communications, Inc.
followed by an up arrow with the phrase "Acquisition announcement by AT&T." The
third listing is Computer Associates International followed by a down arrow with
the phrase "Curbed spending by international clients." A note below the table
reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
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See "Schedule of Investments." Investment holdings are subject to change.
4
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John Hancock Funds - Growth and Income Fund
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[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 15.94% Total return for John Hancock Growth and Income
Fund Class A. The second bar represents the 15.05% total return for John Hancock
Growth and Income Fund Class B. The third bar represents the 0.83%* total return
for John Hancock Growth and Income Fund Class C. The fourth bar represents the
15.61% total return for Average growth and income fund. A note below the chart
reads "Total returns for John Hancock Growth and Income Fund are at net asset
value with all distributions reinvested. The average growth and income fund is
tracked by Lipper Analytical Services, Inc. See the following two pages for
historical performance information. *From inception May 1, 1998 to December 31,
1998. "]
- --------------------------------------------------------------------------------
refinance at lower rates. As spreads -- the difference between lending and
borrowing rates -- narrowed, TCF's earnings slowed and the stock sank. During
the market downturn, we scooped up additional shares of all these names because
their long-term outlooks remained strong. But we made few changes to our stake
in energy stocks, which fell as oil prices reached a 12-year low.
Buys and sells
Our strategy is to sell stocks that have reached their full valuations and to
buy names whose prices look cheap compared to other measures such as earnings.
During the first half of the year, we pared back some of our finance stocks that
had reached high levels following several major merger announcements. When this
sector was hammered in the downturn, we were able to buy back the stock of
world-class companies like Citigroup and Ambac Financial Group, a leading
municipal bond insurer, at attractive prices. We also increased our stake in
Fuji Bank, one of Japan's six largest banks. Its preferred stock was selling at
especially undervalued prices, so we locked in a very high yield, with the
potential for price gains. We believe in the long-term prospects of the bank,
which has remained fundamentally sound despite the country's banking problems.
By buying its preferred stock, rather than its common stock, we have a more
secure position in the bank's capital structure. We also trimmed some of our
drug investments, but increased our stake in American Home Products after its
plans to acquire Monsanto fell through. Late in the year, we added Mattel, Inc.,
whose price was cheap relative to its improving prospects from purchasing The
Learning Company.
Going forward, we're optimistic that we'll continue to find more buying
opportunities like these. Continued low interest rates, low inflation and
moderate economic growth bode well for stocks in 1999. But unrest in
international financial markets could continue to rock the stock market here.
With prices on large-company growth stocks at or near full valuation, we believe
the best opportunities will come from value names and overlooked sectors.
Regardless of market conditions, we'll continue to be selective and look for
chances to buy stocks in good businesses that are selling at prices below their
worth and show evidence of improving prospects.
"...we're optimistic that we'll continue to find more buying opportunities..."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
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John Hancock Funds - Growth and Income Fund
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A LOOK AT PERFORMANCE
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The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Growth and Income Fund. Total return measures
the change in value of an investment from the beginning to the end of a period,
assuming the all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years). Class C performance
includes a contingent deferred sales charge of 1% (declining to 0% after one
year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
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CLASS A
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For the period ended December 31, 1998
ONE FIVE TEN
YEAR YEARS YEARS
------ ------- -------
Cumulative Total Returns 10.12% 130.21% 332.24%
Average Annual Total Returns(1) 10.12% 18.15% 15.76%
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CLASS B
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For the period ended December 31, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (8/22/91)
------ ------- ---------
Cumulative Total Returns 10.05% 131.67% 195.65%
Average Annual Total Returns(1) 10.05% 18.30% 15.87%
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CLASS C
- --------------------------------------------------------------------------------
For the period ended December 31, 1998
SINCE
INCEPTION
(5/1/98)
---------
Cumulative Total Return (0.13%)
Average Annual Total Return(1,2) (0.13%)
Notes to Performance
(1) The Adviser agreed to a one-time fee reduction of its management fee of
$150,000 for the fiscal year 1998 only. Without the limitation of expenses,
the average annualized returns for the one year period would have been
10.10%, 10.03% and (0.14%) for Class A, Class B and Class C shares,
respectively.
(2) Not annualized.
6
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John Hancock Funds - Growth and Income Fund
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WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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
Standard & Poor's 500 Stock Index and is equal to $53,919 as of December 31,
1998. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Growth and Income Fund, before sales charge,
on December 31, 1988, and is equal to $45,484 as of December 31, 1998. The third
line represents the same hypothetical investment made in the John Hancock Growth
and Income Fund, after sales charge, and is equal to $43,224 as of December 31,
1998.
Line chart with the heading John Hancock Growth and Income Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the Standard
& Poor's 500 Stock Index and is equal to $37,993 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock Growth and Income Fund on August 22, 1991, before sales charge,
and is equal to $29,565 as of December 31, 1998.
*No contingent deferred sales charge applicable.
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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, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks and rights (cost - $691,150,567) ............. $900,447,993
Preferred stocks (cost - $50,250,009) ..................... 58,072,313
Bonds (cost - $2,852,090) .................................. 2,690,000
Joint repurchase agreement (cost - $4,143,000) ............. 4,143,000
Corporate savings account .................................. 30,637
------------
965,383,943
Receivable for investments sold ............................. 5,343,330
Receivable for shares sold .................................. 565,419
Dividends receivable ........................................ 1,052,432
Interest receivable ......................................... 3,023,728
Other assets ................................................ 62,095
------------
Total Assets .............................. 975,430,947
------------------------------------------------------------
Liabilities:
Payable for forward foreign currency contracts
sold - Note A .............................................. 70,059
Payable for shares repurchased .............................. 603,733
Dividend payable ............................................ 349
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 735,161
Accounts payable and accrued expenses ....................... 147,772
------------
Total Liabilities ......................... 1,557,074
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Net Assets:
Capital paid-in ............................................. 746,716,084
Accumulated net realized gain on investments, financial
futures contracts and foreign currency transactions ........ 10,261,376
Net unrealized appreciation of investments and foreign
currency transactions ...................................... 216,889,930
Undistributed net investment income ......................... 6,483
------------
Net Assets ................................ $973,873,873
============================================================
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 - $421,217,523/19,813,185 ........................... $21.26
==============================================================================
Class B - $547,945,193/25,844,073 ........................... $21.20
==============================================================================
Class C* - $4,711,157/222,178 ............................... $21.20
==============================================================================
Maximum Offering Price Per Share**
Class A - ($21.26 x 105.26%) ................................ $22.38
==============================================================================
* Class C shares commenced operations on May 1, 1998.
** 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, 1998
- --------------------------------------------------------------------------------
Investment Income:
Dividends
(net of foreign withholding taxes of $47,758) ............ $11,382,340
Interest .................................................. 5,135,939
-----------
16,518,279
-----------
Expenses:
Investment management fee - Note B ....................... 5,265,071
Distribution and service fee - Note B
Class A ................................................ 941,943
Class B ................................................ 4,637,383
Class C ................................................ 18,961
Transfer agent fee - Note B .............................. 1,808,054
Registration and filing fees ............................. 309,850
Custodian fee ............................................ 165,902
Financial services fee - Note B .......................... 134,234
Trustees' fees ........................................... 53,167
Printing ................................................. 47,389
Auditing fee ............................................. 34,246
Miscellaneous ............................................ 19,959
Legal fees ............................................... 10,182
-----------
Total Expenses .......................... 13,446,341
-----------------------------------------------------------
Less Management Fee Reduction
- Note B ................................ (150,000)
-----------------------------------------------------------
Net Expenses ............................ 13,296,341
-----------------------------------------------------------
Net Investment Income ................... 3,221,938
-----------------------------------------------------------
Realized and Unrealized Gain (Loss) on
Investments, Financial Futures Contracts
and Foreign Currency Transactions:
Net realized gain on investments sold ..................... 39,201,072
Net realized gain on financial futures contracts .......... 5,940,355
Net realized loss on foreign currency transactions ........ (289,762)
Change in net unrealized appreciation/depreciation
of investments ........................................... 64,108,556
Change in net unrealized appreciation/depreciation
of foreign currency transactions ......................... (70,083)
-----------
Net Realized and Unrealized Gain
on Investments, Financial Futures
Contracts and Foreign Currency
Transactions ............................ 108,890,138
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............... $112,112,076
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Statement of Changes in Net Assets
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ................................................ $1,207,231 $3,221,938
Net realized gain on investments sold, financial futures contracts and
foreign currency transactions ....................................... 63,063,227 44,851,665
Change in net unrealized appreciation/depreciation of investments .... 72,108,994 64,038,473
------------ ------------
Net Increase in Net Assets Resulting from Operations ............... 136,379,452 112,112,076
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.0738 and $0.1410 per share, respectively) ............ (804,990) (2,610,127)
Class B - ($0.0096 and $0.0250 per share, respectively) ............ (101,491) (602,073)
Class C** - (none and $0.0224 per share, respectively) ............. -- (4,251)
Distributions from net realized gain on investments sold
Class A - ($1.9164 and $0.9336 per share, respectively) ............ (24,541,840) (17,816,814)
Class B - ($1.9164 and $0.9336 per share, respectively) ............ (26,375,037) (23,024,612)
Class C** - (none and $0.9336 per share, respectively) ............. -- (192,691)
------------ ------------
Total Distributions to Shareholders ................................ (51,823,358) (44,250,568)
------------ ------------
From Fund Share Transactions - Net: * ................................... 249,537,997 262,365,255
------------ ------------
Net Assets:
Beginning of period .................................................. 309,553,019 643,647,110
------------ ------------
End of period (including undistributed net investment income of
$294,359 and $6,483, respectively) .................................. $643,647,110 $973,873,873
============ ============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment and foreign currency gains and losses,
distributions paid to shareholders, and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last two periods, along with
the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Statement of Changes in Net Assets (continued)
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* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 9,873,058 $181,540,264 10,256,114 $212,230,572
Shares issued in reorganization - Note E ........................ 1,152,430 17,941,944 -- --
Shares issued to shareholders in reinvestment of distributions .. 1,192,715 22,651,383 912,189 18,363,770
------------ ------------ ------------ ------------
12,218,203 222,133,591 11,168,303 230,594,342
Less shares repurchased ......................................... (6,968,165) (124,529,510) (7,052,875) (144,843,808)
------------ ------------ ------------ ------------
Net increase .................................................... 5,250,038 $97,604,081 4,115,428 $85,750,534
============ ============ ============ ============
CLASS B
Shares sold ..................................................... 8,763,042 $168,420,351 13,511,072 $280,419,339
Shares issued in reorganization - Note E ........................ 2,252,005 34,935,449 -- --
Shares issued to shareholders in reinvestment of distributions .. 1,237,669 23,549,294 1,027,830 20,598,337
------------ ------------ ------------ ------------
12,252,716 226,905,094 14,538,902 301,017,676
Less shares repurchased ......................................... (3,973,150) (74,971,178) (6,320,416) (129,060,866)
------------ ------------ ------------ ------------
Net increase .................................................... 8,279,566 $151,933,916 8,218,486 $171,956,810
============ ============ ============ ============
CLASS C**
Shares sold ..................................................... -- -- 234,157 $4,901,912
Shares issued to shareholders in reinvestment of distributions .. -- -- 8,695 174,231
------------ ------------ ------------ ------------
-- -- 242,852 5,076,143
Less shares repurchased ......................................... -- -- (20,674) (418,232)
------------ ------------ ------------ ------------
Net increase .................................................... -- -- 222,178 $4,657,911
============ ============ ============ ============
</TABLE>
** Class C shares commenced operations on May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
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<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM YEAR ENDED DECEMBER 31,
---------------------------------- SEPTEMBER 1, 1996 TO ------------------------
1994 1995(3) 1996 DECEMBER 31, 1996(6) 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...... $12.08 $11.42 $13.38 $15.07 $15.62 $19.32
-------- -------- -------- -------- -------- --------
Net Investment Income(1) .................. 0.32 0.21 0.19 0.05 0.12 0.16
Net Realized and Unrealized Gain (Loss)
on Investments, Financial Futures
Contracts and Foreign Currency
Transactions ............................ (0.61) 1.95 1.84 2.15 5.57 2.85
-------- -------- -------- -------- -------- --------
Total from Investment Operations ........ (0.29) 2.16 2.03 2.20 5.69 3.01
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...... (0.37) (0.20) (0.19) (0.08) (0.07) (0.14)
Distributions from Net Realized Gain on
Investments Sold ........................ -- -- (0.15) (1.57) (1.92) (0.93)
-------- -------- -------- -------- -------- --------
Total Distributions ..................... (0.37) (0.20) (0.34) (1.65) (1.99) (1.07)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............ $11.42 $13.38 $15.07 $15.62 $19.32 $21.26
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset
Value(2) ................................ (2.39%) 19.22% 15.33% 14.53%(4) 36.71% 15.94%
Total Adjusted Investment Return at Net
Asset Value(2) .......................... -- -- -- -- -- 15.92%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .. $121,160 $130,183 $139,548 $163,154 $303,313 $421,218
Ratio of Expenses to Average Net Assets ... 1.31% 1.30% 1.17% 1.22%(5) 1.12% 1.16%(8)
Ratio of Net Investment Income to
Average Net Assets ...................... 2.82% 1.82% 1.28% 0.85%(5) 0.65% 0.79%(8)
Portfolio Turnover Rate ................... 195% 99% 74% 26% 102%(7) 64%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, PERIOD FROM YEAR ENDED DECEMBER 31,
---------------------------------- SEPTEMBER 1, 1996 TO ------------------------
1994 1995(3) 1996 DECEMBER 31, 1996(6) 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ...... $12.10 $11.44 $13.41 $15.10 $15.66 $19.31
-------- -------- -------- -------- -------- --------
Net Investment Income (Loss)(1) ........... 0.24 0.13 0.08 0.01 (0.02) 0.01
Net Realized and Unrealized Gain (Loss)
on Investments, Financial Futures
Contracts and Foreign Currency
Transactions ............................ (0.61) 1.96 1.85 2.14 5.60 2.84
-------- -------- -------- -------- -------- --------
Total from Investment Operations ........ (0.37) 2.09 1.93 2.15 5.58 2.85
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ...... (0.29) (0.12) (0.09) (0.02) (0.01) (0.03)
Distributions from Net Realized Gain
on Investments Sold ..................... -- -- (0.15) (1.57) (1.92) (0.93)
-------- -------- -------- -------- -------- --------
Total Distributions ..................... (0.29) (0.12) (0.24) (1.59) (1.93) (0.96)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ............ $11.44 $13.41 $15.10 $15.66 $19.31 $21.20
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset
Value(2) ................................ (3.11%) 18.41% 14.49% 14.15%(4) 35.80% 15.05%
Total Adjusted Investment Return at Net
Asset Value(2) .......................... -- -- -- -- -- 15.03%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .. $114,025 $114,723 $125,781 $146,399 $340,334 $547,945
Ratio of Expenses to Average Net Assets ... 2.06% 2.03% 1.90% 1.98%(5) 1.87% 1.91%(8)
Ratio of Net Investment Income (Loss) to
Average Net Assets ...................... 2.07% 1.09% 0.55% 0.10%(5) (0.10%) 0.05%(8)
Portfolio Turnover Rate ................... 195% 99% 74% 26% 102%(7) 64%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD
FROM MAY 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1998
-----------------
<S> <C>
CLASS C
Per Share Operating Performance
Net Asset Value, Beginning of Period .......................................... $22.03
------
Net Investment Income(1) ...................................................... 0.03
Net Realized and Unrealized Gain on Investments, Financial Futures Contracts
and Foreign Currency Transactions ........................................... 0.09
------
Total from Investment Operations ............................................ 0.12
------
Less Distributions:
Dividends from Net Investment Income .......................................... (0.02)
Distributions from Net Realized Gain on Investments Sold ...................... (0.93)
------
Total Distributions ......................................................... (0.95)
------
Net Asset Value, End of Period ................................................ $21.20
======
Total Investment Return at Net Asset Value(2) ................................. 0.83%(4)
Total Adjusted Investment Return at Net Asset Value(2) ........................ 0.82%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ...................................... $4,711
Ratio of Expenses to Average Net Assets ....................................... 1.92%(5)
Ratio of Net Investment Income to Average Net Assets .......................... 0.28%(5)
Portfolio Turnover Rate ....................................................... 64%
</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) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(4) Not annualized.
(5) Annualized.
(6) Effective December 31, 1996, the fiscal period end changed from August 31 to
December 31.
(7) Portfolio turnover rate excludes merger activity.
(8) Reflects voluntary management fee reduction in effect during the year ended
December 31, 1998. As a result of such fee reductions, expenses of Class A,
Class B and Class C shares of the Fund reflect reductions of less than $0.01
per share. Absent such reductions the ratio of expenses to average net
assets would have been 1.18%, 1.93% and 1.94% for Class A, Class B and Class
C shares, respectively and the ratio of net investment income to average net
assets would have been 0.77%, 0.03% and 0.26% for Class A, Class B and Class
C shares, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Growth and Income Fund on December 31, 1998. It's divided into four main
categories: common stocks and rights, preferred stocks, bonds and short-term
investments. The common stocks and rights, preferred stocks and bonds are
further broken down by industry groups. Short-term investments, which represent
the Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
COMMON STOCKS
Aerospace (1.94%)
Northrop Grumman Corp. ......................... 70,000 $5,118,750
Raytheon Co. (Class A) ......................... 98,000 5,065,375
United Technologies Corp. ...................... 80,000 8,700,000
-----------
18,884,125
-----------
Automobile/Trucks (0.27%)
Dollar Thrifty Automotive Group, Inc. * ........ 200,000 2,575,000
-----------
Banks - United States (3.43%)
Bank One Corp. ................................. 179,548 9,168,170
TCF Financial Corp. ............................ 1,000,000 24,187,500
-----------
33,355,670
-----------
Beverages (1.01%)
Anheuser-Busch Cos., Inc. ...................... 150,000 9,843,750
-----------
Broker Services (1.55%)
Bear Stearns Cos., Inc. ........................ 300,000 11,212,500
Paine Webber Group, Inc. ....................... 100,000 3,862,500
-----------
15,075,000
-----------
Business Services - Misc. (2.29%)
ACNielsen Corp.* ............................... 290,791 8,214,846
Dun & Bradstreet Corp. ......................... 90,000 2,840,625
H & R Block, Inc. .............................. 250,000 11,250,000
-----------
22,305,471
-----------
Chemicals (2.65%)
Hoechst AG, American Depositary Receipt
(ADR) (Germany) .............................. 86,800 3,558,800
Monsanto Co. ................................... 402,200 19,104,500
Solutia, Inc. .................................. 139,400 3,119,075
-----------
25,782,375
-----------
Computers (7.87%)
Automatic Data Processing, Inc. ................ 67,500 5,412,656
Cisco Systems, Inc.* ........................... 100,000 9,281,250
Computer Associates International, Inc. ........ 890,100 37,940,512
Electronic Data Systems Corp. .................. 400,000 20,100,000
Pathways Group, Inc. (The)* .................... 80,000 1,365,000
Quantum Corp.* ................................. 120,000 2,550,000
-----------
76,649,418
-----------
Diversified Operations (1.53%)
Canadian Pacific, Ltd. (Canada) ................ 244,200 4,609,275
Loews Corp. .................................... 105,000 10,316,250
-----------
14,925,525
-----------
Electronics (2.73%)
CIENA Corp.* ................................... 3,000 43,875
Novellus Systems, Inc.* ........................ 70,200 3,474,900
SCI Systems, Inc.* ............................. 400,000 23,100,000
-----------
26,618,775
-----------
Energy (0.64%)
CalEnergy Co., Inc.* ........................... 178,980 6,208,369
-----------
Finance (6.93%)
Ambac Financial Group, Inc. .................... 409,100 24,622,706
American Express Co. ........................... 60,000 6,135,000
Astoria Financial Corp. ........................ 50,000 2,287,500
Citigroup, Inc. ................................ 507,500 25,121,250
FIRSTPLUS Financial Group, Inc.* ............... 60,000 165,000
Morgan Stanley, Dean Witter,
Discover & Co. ............................... 75,000 5,325,000
Washington Mutual, Inc. ........................ 100,800 3,849,300
-----------
67,505,756
-----------
Food (1.36%)
Bestfoods ...................................... 153,000 8,147,250
IBP, inc ....................................... 176,400 5,137,650
-----------
13,284,900
-----------
Insurance (10.39%)
Ace, Ltd. (Bermuda) ............................ 1,040,900 35,845,994
Allstate Corp. (The) ........................... 230,300 8,895,337
CMAC Investment Corp. .......................... 40,000 1,837,500
Financial Security Assurance
Holdings, Ltd. ............................... 210,000 11,392,500
MBIA, Inc. ..................................... 50,000 3,278,125
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Insurance (continued)
Mitsui Marine and Fire Insurance Co.,
Ltd. (Japan) ................................. 450,500 $2,376,387
PMI Group, Inc. (The) .......................... 135,000 6,665,625
Progressive Corp. .............................. 160,105 27,117,784
UNUM Corp. ..................................... 64,500 3,765,187
-----------
101,174,439
-----------
Leisure (5.56%)
Disney (Walt) Co. (The) ........................ 200,000 6,000,000
Galileo International, Inc. .................... 466,600 20,297,100
Hilton Hotels Corp. ............................ 70,300 1,344,487
Mattel, Inc. ................................... 1,161,000 26,485,312
-----------
54,126,899
-----------
Media (7.64%)
CBS Corp.* ..................................... 174,000 5,698,500
Central Newspapers, Inc. (Class A) ............. 175,000 12,501,562
Harcourt General, Inc. ......................... 224,000 11,914,000
News Corp., Ltd. (ADR) (Australia) ............. 200,000 5,287,500
Scripps (E.W.) Co. (Class A) ................. 5,000 248,750
Tele-Communications, Inc. (Class A)* ........... 700,000 38,718,750
-----------
74,369,062
-----------
Medical (9.50%)
American Home Products Corp. ................... 379,500 21,370,594
Baxter International, Inc. ..................... 200,000 12,862,500
DENTSPLY International, Inc. ................... 163,000 4,197,250
Johnson & Johnson .............................. 45,000 3,774,375
Lilly (Eli) & Co. .............................. 128,000 11,376,000
Pharmacia & Upjohn, Inc. ....................... 185,000 10,475,625
Respironics, Inc.* ............................. 87,600 1,754,742
Schering-Plough Corp. .......................... 96,000 5,304,000
Warner-Lambert Co. ............................. 145,000 10,902,188
Wellpoint Health Networks, Inc.* ............... 120,700 10,500,900
-----------
92,518,174
-----------
Mortgage Banking (1.99%)
Fannie Mae ..................................... 165,000 12,210,000
Freddie Mac .................................... 112,000 7,217,000
-----------
19,427,000
-----------
Oil & Gas (4.53%)
Coastal Corp. (The) ............................ 34,000 1,187,875
Columbia Energy Group .......................... 16,500 952,875
Conoco, Inc. (Class A)* ........................ 460,300 9,608,762
Mobil Corp. .................................... 139,000 12,110,375
Phillips Petroleum Co. ......................... 150,000 6,393,750
Triton Energy, Ltd.* ........................... 341,200 2,708,275
YPF Sociedad Anonima
(ADR) (Argentina) ............................ 400,000 11,175,000
-----------
44,136,912
-----------
Retail (1.35%)
SED International Holdings, Inc.* .............. 43,600 190,750
SYSCO Corp. .................................... 300,000 8,231,250
Wal-Mart Stores, Inc. .......................... 58,000 4,723,375
-----------
13,145,375
-----------
Telecommunications (5.42%)
AirTouch Communications, Inc. * ................ 70,300 5,070,388
American Tower Corp. (Class A)* ................ 10,900 322,231
Bell Atlantic Corp. ............................ 60,220 3,191,660
Commonwealth Telephone
Enterprises, Inc. ............................ 77,420 2,593,570
MCI WorldCom, Inc.* ............................ 298,536 21,419,958
MediaOne Group, Inc. * ......................... 395,100 18,569,700
Northern Telecom, Ltd. (Canada) ................ 21,000 1,052,625
U S WEST, Inc. ................................. 8,247 532,962
-----------
52,753,094
-----------
Tobacco (1.45%)
Philip Morris Cos., Inc. ....................... 264,800 14,166,800
-----------
Transport (3.89%)
Burlington Northern Santa Fe Corp. ............. 261,000 8,808,750
CSX Corp. ...................................... 86,100 3,573,150
GATX Corp. ..................................... 150,000 5,681,250
KLM Royal Dutch Airlines N.V.
(Netherlands) ................................ 470,800 14,124,000
Northwest Airlines Corp.* ...................... 222,672 5,692,053
-----------
37,879,203
-----------
Utilities (6.54%)
ALLTEL Corp. ................................... 153,328 9,170,931
Atmos Energy Corp. ............................. 54,000 1,741,500
Bay State Gas Co. .............................. 36,800 1,465,100
BEC Energy ..................................... 46,000 1,894,625
BellSouth Corp. ................................ 40,000 1,995,000
CMS Energy Corp. ............................... 47,000 2,276,563
DTE Energy Co. ................................. 30,000 1,286,250
Eastern Enterprises ............................ 27,000 1,181,250
Edison International ........................... 33,000 919,875
El Paso Energy Corp. ........................... 29,000 1,009,563
Energen Corp. .................................. 100,000 1,950,000
Florida Progress Corp. ......................... 26,500 1,187,531
IPALCO Enterprises, Inc. ....................... 29,000 1,607,688
KeySpan Energy ................................. 134,140 4,158,340
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
Utilities (continued)
KN Energy, Inc. ................................ 25,000 $909,375
MDU Resources Group, Inc. ...................... 52,500 1,381,406
National Fuel Gas Co. .......................... 36,000 1,626,750
New England Electric System .................... 37,000 1,780,625
Niagara Mohawk Power Corp.* .................... 75,000 1,209,375
NUI Corp. ...................................... 52,000 1,394,250
PacifiCorp ..................................... 50,000 1,053,125
People's Energy Corp. .......................... 30,000 1,196,250
Potomac Electric Power Co. ..................... 23,000 605,188
PowerGen Plc (ADR) (United Kingdom) ............ 13,000 695,500
Providence Energy Corp. ........................ 42,000 882,000
Puget Sound Energy, Inc. ....................... 32,000 892,000
SBC Communications, Inc. ....................... 110,000 5,898,750
Sempra Energy .................................. 75,190 1,907,946
Sierra Pacific Resources ....................... 30,000 1,140,000
Southern Co. ................................... 36,000 1,046,250
Texas Utilities Co. ............................ 14,500 676,969
UtiliCorp United, Inc. ......................... 47,000 1,724,313
Washington Gas Light Co. ....................... 36,000 976,500
Washington Water Power Co. ..................... 48,500 933,625
Wicor, Inc. .................................... 60,200 1,313,113
Williams Cos., Inc. ............................ 56,000 1,746,500
Yankee Energy System, Inc. ..................... 31,000 902,875
------------
63,736,901
------------
RIGHTS
Oil & Gas (0.00%)
Triton Energy, Ltd.* ........................... 24,567 --
------------
TOTAL RIGHTS
(Cost $0) (0.00%) --
-------- ------------
TOTAL COMMON STOCKS AND RIGHTS
(Cost $691,150,567) (92.46%) 900,447,993
-------- ------------
PREFERRED STOCKS
Banks - Foreign (4.55%)
Fuji JGB Inv LLC, 9.87%, Ser A (Japan) (R) .... 59,910 44,333,400
------------
Banks - United States (0.14%)
Chase Manhattan Corp., 10.84%, Ser C ........... 44,900 1,330,163
------------
Broker Services (0.78%)
Salomon, Inc., 7.625%, Ser FSA ................. 165,000 7,590,000
------------
Telecommunications (0.16%)
Sprint Corp., 8.25% ............................ 19,000 1,567,500
------------
Tobacco (0.15%)
DECS Trust, 8.50% .............................. 155,000 1,453,125
------------
Utilities (0.18%)
El Paso Tennessee Pipeline Co., 8.25%, Ser A ... 19,000 1,033,125
MCN Michigan, L.P., 9.375%, Ser A .............. 30,000 765,000
------------
1,798,125
------------
TOTAL PREFERRED STOCKS
(Cost $50,250,009) (5.96%) 58,072,313
-------- ------------
INTEREST CREDIT PAR VALUE
RATE RATING** (000s OMITTED)
-------- -------- --------------
BONDS
Government - Foreign (0.28%)
Brazil, Republic of,
Bond (Brazil)
05-15-27 ................. 10.125% BB- $4,000 2,690,000
------------
TOTAL BONDS
(Cost $2,852,090) (0.28%) 2,690,000
-------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (0.43%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
12-31-98, due 01-04-99
(Secured by U.S. Treasury
Bonds, 6.250% thru 9.125%,
due 05-15-18 thru 08-15-23)
- Note A ................... 4.750 4,143 4,143,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00% ............................. 30,637
------------
TOTAL SHORT-TERM INVESTMENTS (0.43%) 4,173,637
-------- ------------
TOTAL INVESTMENTS (99.13%) 965,383,943
-------- ------------
OTHER ASSETS AND LIABILITIES, NET (0.87%) 8,489,930
-------- ------------
TOTAL NET ASSETS (100.00%) $973,873,873
======== ============
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Growth and Income Fund
NOTES TO THE SCHEDULE OF INVESTMENTS
* Non-income producing security.
** Credit ratings are unaudited and rated by Standard & Poor's where available,
or Moody's Investors Service or John Hancock Advisers, Inc. where Standard &
Poor's ratings are not available.
(R)This security is exempt from registration under rule 144A of the Securities
Act of 1933. Such security may be resold, normally to qualified institutional
buyers, in transactions exempt from registration. Rule 144A securities
amounted to $44,333,400 or 4.55% of net assets as of December 31, 1998.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, security is U.S. dollar
denominated.
The percentage shown for each investment category is the total of that category
as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
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 four series portfolios: John Hancock Growth and Income Fund (the "Fund"),
John Hancock Real Estate Fund, John Hancock Sovereign Balanced Fund and John
Hancock Sovereign Investors Fund. The other three series of the Trust are
reported in separate financial statements. The investment objective of the Fund
is to obtain the highest total return, a combination of capital appreciation and
current income, consistent with reasonable safety of capital.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B and Class C shares. The Trustees
authorized the issuance of Class C shares effective May 1, 1998. The shares of
each class represent an interest in the same portfolio of investments of the
Fund and have equal rights to voting, redemptions, dividends and liquidation,
except that certain expenses, subject to the approval of the Trustees, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal Revenue
Service. Shareholders of a class which bears distribution and service expenses
under the terms of a distribution plan have exclusive voting rights regarding
such distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement. Aggregate cash balances
are invested in one or more repurchase agreements, whose underlying securities
are obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAX The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
Additionally, net currency losses of $46,367 attributable to security
transactions incurred after October 31, 1998 are treated as arising on the first
day (January 1, 1999) of the Fund's next taxable year.
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,
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
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 of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
fund had no borrowing activity for the year ended December 31, 1998.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities, other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
Open forward foreign currency contracts sold at December 31, 1998, were as
follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT MONTH DEPRECIATION
- -------- ------------------- ---------- ------------
Japanese Yen 258,827,182 MAR 99 $70,059
=======
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to 0.625% of the Fund's average daily net asset value. The
Adviser agreed to a one-time reduction of its management fee of $150,000 for the
fiscal year 1998 only.
19
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $2,528,532. Out of this amount, $379,231 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$1,484,473 was paid as sales commissions to unrelated broker-dealers and
$664,828 was paid as sales commissions to sales personnel of Signator Investors,
Inc. ("Signator Investors"), a related broker-dealer, formerly known as John
Hancock Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual
Life Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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,
1998, contingent deferred sales charges amounted to $834,182.
Class C shares which are redeemed within one year of purchase will be subject
to a CDSC at a rate of 1.00% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of Class C shares. For the year ended December
31, 1998, contingent deferred sales charges amounted to $2,044.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses at an annual rate not to exceed
0.25% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets to reimburse JH Funds for its distribution and service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on 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 periodic basis to
reflect any income earned by the investment as well as any unrealized gains or
losses. At December 31, 1998, 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, 1998, aggregated $801,970,518 and $485,358,143, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies during the year ended December 31, 1998, aggregated none and
$11,560,680, respectively.
20
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Growth and Income Fund
The cost of investments owned at December 31, 1998 (excluding the corporate
savings account) for federal income tax purposes was $751,289,857. Gross
unrealized appreciation and depreciation of investments aggregated $257,947,942
and $43,884,493, respectively, resulting in net unrealized appreciation of
$214,063,449.
NOTE D -
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended December 31, 1998, the Fund has reclassified amounts to
reflect an increase in capital paid-in of $2,523,689, a decrease in accumulated
net realized gain on investments, financial futures contracts and foreign
currency transactions of $2,230,326 and a decrease in accumulated net investment
income of $293,363. This represents the cumulative amount necessary to report
these balances on a tax basis, excluding certain temporary differences, as of
December 31, 1998. 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 net realized loss on foreign currency
transactions 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.
NOTE E -
REORGANIZATION
On November 12, 1997 the shareholders of John Hancock Utilities Fund ("JHUF")
approved a plan of reorganization between JHUF and the Fund providing for the
transfer of substantially all of the assets and liabilities of JHUF to the Fund
in exchange solely for Class A shares and Class B shares of the Fund. The
acquisition was accounted for as a tax free exchange of 1,152,430 Class A shares
and 2,252,005 Class B shares of the Fund for the net assets of JHUF, which
amounted to $22,250,320 and $43,474,047 for Class A and Class B shares,
respectively, including $12,846,974 of unrealized appreciation, after the close
of business at December 5, 1997.
21
<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 the John
Hancock Growth and Income Fund (the "Fund"), one of the portfolios constituting
the John Hancock Investment Trust, including the schedule of investments, as of
December 31, 1998, 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 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. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. 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, 1998, 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 the periods indicated therein, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 8, 1999
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, 1998.
99.06% of the distributions qualify for the dividends received deduction
available to corporations.
The Fund designated distributions of $43,532,084 as a capital gain dividend.
Shareholders will be mailed a 1998 U.S. Treasury Department Form 1099-DIV in
January of 1999. This will reflect the total of all distributions which are
taxable for calendar year 1998.
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Growth and Income Fund
23
<PAGE>
================================================================================
---------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds ---------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Growth
and Income Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 5000A 12/98
2/99
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Real Estate
Fund
DECEMBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
BROWN BROTHERS HARRIMAN & CO.
40 WATER STREET
BOSTON, MASSACHUSETTS 02109
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
DELOITTE & TOUCHE LLP
125 SUMMER STREET
BOSTON, MASSACHUSETTS 02110-1617
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
- --------------------------------------------------------------------------------
[A 1" x 1 1/2" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
One lesson came through loud and clear this year: sticking out the tough
times paid off. After reaching new highs in mid-July, stocks plunged in August
in one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. This year, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The result for the
year: an average 14.52% return, as calculated by Lipper Analytical Services,
Inc.
Given the dramatic swings, investors who tried to time the market's ups and
downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during this summer of
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
As we begin 1999, volatility remains on many investors' minds. But at this
time of year, many investors' thoughts also turn to more taxing matters. In our
view, now is a perfect time to focus on how much of your hard-earned money you
are able to keep. Part of a good tax-planning strategy should involve a review
of your portfolio to ensure that you are taking advantage of all available ways
to minimize and defer your tax payments -- in an effort to maximize investment
returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
John Hancock Funds - Real Estate Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The table on the right shows the cumulative total return and the average annual
total return for the John Hancock Real Estate Fund. Total return measures the
change in value of an investment from the beginning to the end of a period,
assuming the all distributions were reinvested.
Class A share total return figures include the maximum applicable sales charge
of 5.00%.
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, 1998
SINCE
INCEPTION
(9/30/98)
---------
Cumulative Total Return (4.58%)
Average Annual Total Return (1,2) (4.58%)
Notes to Performance
(1) Not annualized.
(2) The Adviser has agreed to limit the Fund's expenses to 1.35% (not
including 12b-1 fee) of the Fund's daily average net assets. Without the
limitation of expenses, the cumulative total return for the period since
inception would have been (6.65%).
3
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Real Estate 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, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - $932,361) ............................. $928,538
Corporate savings account .................................... 65,963
-----------
994,501
Receivable for investments sold ............................... 21,173
Receivable from John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 18,792
Dividends receivable .......................................... 8,720
-----------
Total Assets ................................ 1,043,186
-----------------------------------------------------------
Liabilities:
Payable for investments purchased ............................. 14,537
Accounts payable and accrued expenses ......................... 22,935
-----------
Total Liabilities ........................... 37,472
-----------------------------------------------------------
Net Assets:
Paid-in capital ............................................... 1,013,211
Accumulated net realized loss on investments .................. (6,163)
Net unrealized depreciation of investments .................... (3,823)
Undistributed net investment income ........................... 2,489
-----------
Net Assets .................................. $1,005,714
===========================================================
Net Asset Value Per Share:
(Based on net asset value and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value)
Class A - $1,005,714/101,325 ................................. $9.93
============================================================================
Maximum Offering Price Per Share*
($9.93 x 105.26%) ............................................. $10.45
============================================================================
* 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
For the period from September 30, 1998
(commencement of operations)
to December 31, 1998
- --------------------------------------------------------------------------------
Investment Income:
Dividends .................................................... $16,994
Interest ..................................................... 1,518
-----------
18,512
-----------
Expenses:
Auditing fee ................................................ 10,000
Custodian fee ............................................... 9,000
Legal fees .................................................. 2,025
Investment management fee - Note B .......................... 2,008
Distribution and service fee - Note B ....................... 753
Printing .................................................... 555
Transfer agent fee - Note B ................................. 300
Financial services fee - Note B ............................. 36
Miscellaneous ............................................... 30
Trustees' fees .............................................. 25
-----------
Total Expenses ............................. 24,732
-----------------------------------------------------------
Less Expense Reductions
- Note B ................................... (20,589)
-----------------------------------------------------------
Net Expenses ............................... 4,143
-----------------------------------------------------------
Net Investment Income ...................... 14,369
-----------------------------------------------------------
Realized and Unrealized Loss on Investments:
Net realized loss on investments sold ........................ (6,163)
Change in net unrealized appreciation/depreciation
of investments .............................................. (3,823)
-----------
Net Realized and Unrealized
Loss on Investments ........................ (9,986)
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $4,383
===========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Real Estate Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
SEPTEMBER 30, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
--------------------
<S> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ......................................................... $14,369
Net realized loss on investments sold ......................................... (6,163)
Change in net unrealized appreciation/depreciation of investments ............. (3,823)
-----------
Net Increase in Net Assets Resulting from Operations ......................... 4,383
-----------
From Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.1173 per share) ................................................ (11,880)
-----------
From Fund Share Transactions - Net: * ........................................... 1,013,211
-----------
Net Assets:
End of period (including undistributed net investment income of $2,489) ....... $1,005,714
===========
</TABLE>
*Analysis of Fund Share Transactions:
FOR THE PERIOD FROM
SEPTEMBER 30, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
---------------------
SHARES AMOUNT
------- ----------
CLASS A
Shares sold.......................................... 102,524 $1,025,004
Less shares repurchased.............................. (1,199) (11,793)
------- ----------
Net increase......................................... 101,325 $1,013,211
======= ==========
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed for the 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 period, along with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Real Estate Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
SEPTEMBER 30, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
--------------------
<S> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period.......................................................... $10.00
------
Net Investment Income(1)...................................................................... 0.14
Net Realized and Unrealized Loss on Investments............................................... (0.09)
------
Total From Investment Operations........................................................... 0.05
------
Less Distributions:
Dividends from Net Investment Income ........................................................ (0.12)
------
Net Asset Value, End of Period................................................................ $9.93
======
Total Investment Return at Net Asset Value (2)................................................ 0.47%(5)
Total Adjusted Investment Return at Net Asset Value (2,3)..................................... (1.60%)(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted)...................................................... $1,006
Ratio of Expenses to Average Net Assets ...................................................... 1.65%(6)
Ratio of Adjusted Expenses to Average Net Assets (4).......................................... 9.85%(6)
Ratio of Net Investment Income to Average Net Assets ......................................... 5.72%(6)
Ratio of Adjusted Net Investment Loss to Average Net Assets (4)............................... (2.48%)(6)
Portfolio Turnover Rate....................................................................... 109%
Fee Reduction Per Share (1)................................................................... $0.20
</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) An estimated total return calculation which does not take into
consideration fee reductions by the Adviser during the period shown.
(4) Unreimbursed, without fee reduction.
(5) Not annualized.
(6) Annualized.
The Financial Highlights summarizes the impact of the following factors on a
single share for the period indi cated: 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 for the period. Additionally, important rela
tionships between some items presented in the financial statements are expressed
in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Real Estate Fund
Schedule of Investments
December 31, 1998
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Real Estate Fund on December 31, 1998. It's divided into two main categories:
common stocks and short-term investments. The stocks are further broken down by
industry groups.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
COMMON STOCKS
REIT Equity - Apartments (18.21%)
Apartment Investment & Management Co.
(Class A) ................................... 900 $33,469
Archstone Communities Trust ................... 1,200 24,300
Associated Estates Realty Corp. ............... 100 1,181
Avalonbay Communities, Inc. ................... 700 23,975
Berkshire Realty Co., Inc. .................... 2,700 25,650
Colonial Properties Trust ..................... 900 23,962
Essex Property Trust, Inc. .................... 100 2,975
Equity Residential Properties Trust ........... 700 28,306
Home Properties of New York, Inc. ............. 500 12,875
Smith (Charles E.) Residential
Realty, Inc. ................................ 200 6,425
----------
183,118
----------
REIT Equity - Diversified (8.24%)
CCA Prison Realty Trust* ...................... 300 6,150
Entertainment Properties Trust ................ 200 3,400
Glenborough Realty Trust, Inc. ................ 1,300 26,487
Liberty Property Trust ........................ 800 19,700
National Golf Properties, Inc. ................ 100 2,894
Spieker Properties, Inc. ...................... 700 24,238
----------
82,869
----------
REIT Equity - Health Care (0.60%)
Meditrust Cos ................................ 400 6,050
----------
REIT Equity - Hotel/Restaurant (5.53%)
Innkeepers USA Trust .......................... 300 3,544
LaSalle Hotel Properties ...................... 1,100 11,413
Patriot American Hospitality, Inc. ............ 1,100 6,600
Starwood Hotels & Resorts
Worldwide, Inc.* ............................ 1,500 34,031
----------
55,588
----------
REIT Equity - Office Property (28.18%)
Alexandria Real Estate Equities, Inc. ......... 600 $18,562
Arden Realty, Inc. ............................ 500 11,594
Boston Properties, Inc. ....................... 900 27,450
Brandywine Realty Trust ....................... 1,400 25,025
CarrAmerica Realty Corp. ...................... 300 7,200
Corporate Office Properties Trust ............. 1,700 12,112
Cousins Properties, Inc. ...................... 100 3,225
Crescent Real Estate Equities Co. ............. 1,000 23,000
Equity Office Properties Trust ................ 1,600 38,400
Great Lakes REIT, Inc. ........................ 100 1,569
Highwood Properties, Inc. ..................... 700 18,025
Mack-Cali Realty Corp. ........................ 600 18,525
Prentiss Properties Trust ..................... 1,100 24,544
Reckson Associates Realty Corp. ............... 1,100 24,406
SL Green Realty Corp. ......................... 1,100 23,788
Tower Realty Trust, Inc. ...................... 300 6,038
----------
283,463
----------
REIT Equity - Regional Mall (8.63%)
General Growth Properties, Inc. ............... 500 18,937
Macerich Co. (The) ............................ 500 12,812
Rouse Co. (The) ............................... 500 13,750
Simon Property Group, Inc. .................... 1,400 39,900
Taubman Centers, Inc. ......................... 100 1,375
----------
86,774
----------
REIT Equity - Shopping Centers (11.98%)
First Washington Realty Trust, Inc. ........... 100 2,369
Developers Diversified Realty Corp. ........... 1,400 24,850
JDN Realty Corp. .............................. 200 4,312
Kimco Realty Corp. ............................ 600 23,812
New Plan Excel Realty Trust ................... 900 19,969
Realty Income Corp. ........................... 1,000 24,875
Vornado Realty Trust .......................... 600 20,250
----------
120,437
----------
REIT Equity - Storage (5.54%)
PS Business Parks, Inc. (Class A) ............ 100 2,388
Public Storage, Inc. .......................... 900 24,356
Storage Trust Realty .......................... 1,100 25,713
Storage USA, Inc. ............................. 100 3,231
----------
55,688
----------
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Real Estate Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- ------
REIT Equity - Warehouse/Industry (5.42%)
AMB Property Corp. .......................... 400 $8,800
First Industrial Realty Trust, Inc. ......... 200 5,363
Prime Group Realty Trust .................... 1,200 18,150
ProLogis Trust .............................. 800 16,600
Weeks Corp. ................................. 200 5,638
----------
54,551
----------
TOTAL COMMON STOCKS
(Cost $932,361) (92.33%) 928,538
------- ----------
SHORT-TERM INVESTMENTS
Corporate Savings Account (6.56%)
Brown Brothers Harriman Trust Co., Ltd.
Daily Interest Savings Account
Current Rate 4.00%......................... 65,963
----------
TOTAL SHORT-TERM INVESTMENTS (6.56%) 65,963
------- ----------
TOTAL INVESTMENTS (98.89%) 994,501
------- ----------
OTHER ASSETS AND LIABILITIES, NET (1.11%) 11,213
------- ----------
TOTALNET ASSETS (100.00%) $1,005,714
======= ==========
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Real Estate 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 four series portfolios: John Hancock Real Estate Fund (the "Fund"), John
Hancock Growth and Income Fund, John Hancock Sovereign Balanced Fund and John
Hancock Sovereign Investors Fund. The other three series of the Trust are
reported in separate financial statements. The investment objective is to seek
long-term growth of capital through investing in equity securities of real
estate companies.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. No Class B shares were
issued during the period ended December 31, 1998. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing sources
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 or
less are valued at amortized cost, which approximates market value. All
portfolio transactions initially expressed in terms of foreign currencies have
been translated into U.S. dollars as described in "Foreign Currency
Translation."
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in a joint repurchase agreement transaction. Aggregate
cash balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes which are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
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, or, in the case of some foreign securities,
on the date thereafter when the Fund identifies the dividend. Interest income on
investment securities is recorded on the accrual basis. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable.
The Fund records 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 calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on the
appropriate net assets of each class and the specific expense rate(s) applicable
to each class.
9
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Real Estate Fund
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not 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 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.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities, other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked to market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk if they are offset by the currency amount of the underlying
transaction.
There were no open forward foreign currency contracts at December 31, 1998.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. Buying futures tends to increase the Fund's exposure to
the underlying instrument. Selling futures tends to decrease the Fund's exposure
to the underlying instrument or hedge other Fund instruments. At the time the
Fund enters into a financial futures contract, it is required to deposit with
its custodian a specified amount of cash or U.S. government securities, known as
"initial margin," equal to a certain percentage of the value of the financial
futures contract being traded. Each day, the futures contract is valued at the
official settlement price of the board of trade or U.S. commodities exchange on
which it trades. Subsequent payments, known as "variation margin," to and from
the broker are made on a daily basis as the market price of the financial
futures contract fluctuates. Daily variation margin adjustments, arising from
this "mark to market," are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or
10
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Real Estate Fund
realizing the benefits of closing out futures positions because of position
limits or limits on daily price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At December 31, 1998, there were no open positions in financial futures
contracts.
OPTIONS Listed options are valued at the last quoted sales price on the exchange
on which they are primarily traded. Over-the-counter options are valued at the
mean between the last bid and asked prices. Upon the writing of a call or put
option, an amount equal to the premium received by the Fund is included in the
Statement of Assets and Liabilities as an asset and corresponding liability. The
amount of the liability is subsequently marked to market to reflect the current
market value of the written option.
The Fund may use options contracts to manage its exposure to the stock
market. Writing puts and buying calls tend to increase the Fund's exposure to
the underlying instrument and buying puts and writing calls tend to decrease the
Fund's exposure to the underlying instrument, or hedge other Fund investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value reflects the maximum exposure of
the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms ("credit risk"), or if the Fund is unable to offset a contract with a
counterparty on a timely basis ("liquidity risk"). Exchange-traded options have
minimal credit risk as the exchanges act as counterparties to each transaction
and only present liquidity risk in highly unusual market conditions. To minimize
credit risk and liquidity risks in over-the-counter option contracts, the Fund
will continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended December 31,
1998.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of 0.80% of the Fund's average daily net asset
value.
The Adviser has agreed to limit the Fund's expenses on Class A shares to
1.35% (not including the 12b-1 fee) of the Fund's daily average net assets.
Accordingly, the reduction in the Adviser's fee amounted to $20,589 for the
period ended December 31, 1998. The Adviser reserves the right to terminate this
limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. There were no net sales
charges received with regard to sales of Class A shares for the period ended
December 31, 1998.
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 pursuant to Rule 12b-1 under the Investment Company Act of
1940. Accordingly, the Fund will make payments to JH Funds at an annual rate not
to exceed 0.30% of Class A average daily net assets to reimburse JH Funds for
its distribution and service costs. Up to a maximum of 0.25% of these 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 John Hancock Mutual Life
Insurance Company. 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
11
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Real Estate Fund
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 directors 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. The investment had no impact on the operations of the Fund.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the year ended December 31, 1998, aggregated $1,967,324 and
$1,029,482, respectively. There were no purchases or sales of obligations of the
U.S. government and its agencies during the period ended December 31, 1998.
The cost of investments owned at December 31, 1998 (excluding the corporate
savings account) for federal income tax purposes was $938,482. Gross unrealized
appreciation and depreciation of investments aggregated $22,139 and $32,083,
respectively, resulting in net unrealized depreciation of $9,944.
12
<PAGE>
================================================================================
John Hancock Funds - Real Estate Fund
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
John Hancock Investment Trust
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Real Estate Fund (the "Fund")
(a series of John Hancock Investment Trust) as of December 31, 1998, the related
statements of operations and changes in net assets and the financial highlights
for the period from the commencement of operations, September 30, 1998, to
December 31, 1998. 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
audit.
We conducted our audit 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. Our
procedures included confirmation of securities owned at December 31, 1998 by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Fund at December
31, 1998, the results of its operations, the changes in its net assets and its
financial highlights for the period from the commencement of operations,
September 30, 1998, to December 31, 1998, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 5, 1999
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 period ended
December 31, 1998.
100% of the distributions qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1998 U.S. Treasury Department Form 1099-DIV in
January 1999. This will reflect the tax character of all distributions for
calendar year 1998.
13
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Real Estate Fund
14
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Real Estate Fund
15
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603
1-800-225-5291 1-800-554-6713 (TDD)
INTERNET: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Real
Estate Fund. It may be used as sales literature when preceded or accompanied by
the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 0500A 12/98
2/99
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Sovereign
Balanced Fund
DECEMBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
- --------------------------------------------------------------------------------
[A 1" x 1" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
One lesson came through loud and clear this year: sticking out the tough
times paid off. After reaching new highs in mid-July, stocks plunged in August
in one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. This year, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The result for the
year: an average 14.52% return, as calculated by Lipper Analytical Services,
Inc.
Given the dramatic swings, investors who tried to time the market's ups and
downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during this summer of
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
As we begin 1999, volatility remains on many investors' minds. But at this
time of year, many investors' thoughts also turn to more taxing matters. In our
view, now is a perfect time to focus on how much of your hard-earned money you
are able to keep. Part of a good tax-planning strategy should involve a review
of your portfolio to ensure that you are taking advantage of all available ways
to minimize and defer your tax payments -- in an effort to maximize investment
returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY JOHN F. SNYDER, III, AND BARRY H. EVANS, CFA, PORTFOLIO MANAGERS
John Hancock
Sovereign Balanced Fund
Overseas turmoil rocks both stocks and bonds in 1998
As of December 31, 1998, the Fund's trustees have approved the termination of
the Fund's subadviser, Sovereign Asset Management Corporation. This termination
will not change the Fund's portfolio management team. John F. Snyder, III, and
Barry H. Evans, CFA, are presently officers of John Hancock Advisers, Inc.
Volatility is what investors will probably remember most about 1998, as the year
was filled with many heart-wrenching ups and downs. During the first half of the
year, investors worried that troubled overseas economies -- particularly in
Southeast Asia, Russia and Latin America -- would lead to a global economic
slowdown. In fact, by the end of August, it looked as if U.S. stocks were headed
for a bear market, having fallen almost 20% from their mid-July highs. But then,
the Federal Reserve stepped in with a series of interest-rate cuts. The change
in fiscal policy propelled stock market averages to a record-setting fourth
consecutive year of double-digit gains. The broad market, as measured by the
Standard & Poor's 500 Stock Index, returned 28.58%, including reinvested
dividends.
It's important to point out, however, that only a handful of stocks, not the
broad market, drove the strong stock gains in 1998. Technology stocks were the
market's best-performing sector, powered by a few highflying names such as
Microsoft, Intel and Dell. The one thing that this year's small group of big
winners had in common was extremely high valuations. Those stocks with
reasonable valuations and solid fundamentals were, for the most part, left
behind in this year's market rally.
Performance scorecard
John Hancock Sovereign Balanced Fund turned in a solid performance for the year
in line with its peers. For the 12 months ended December 31, 1998, the Fund's
Class A and Class B shares returned 14.01% and 13.23%, respectively, at
"...only a handful of stocks... drove the strong stock gains in 1998."
- --------------------------------------------------------------------------------
[A 3" x 2 1/2" photo at bottom right side of page of John Hancock Sovereign
Balanced Fund. Caption below reads "Portfolio Managers John Snyder (l) and Barry
Evans (r)."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
"Retailers... were our biggest winners in 1998."
- --------------------------------------------------------------------------------
[Pie chart at top left hand column with heading "Portfolio Diversification." The
chart is divided into five sections (from top to left): Short-Term Investments
2%, Preferred Stocks 4%, U.S. Government & Agencies 15%, Corporate Bonds 16% and
Common Stocks 63 %. A note below the chart reads "As a percentage of net assets
on December 31, 1998."]
- --------------------------------------------------------------------------------
net asset value. By comparison, the average balanced fund returned 13.48% for
the same period, according to Lipper Analytical Services, Inc.(1) Keep in mind
that your net asset value return will be different from the Fund's performance
if you were not invested in the Fund for the entire period and did not reinvest
all distributions. See pages six and seven for historical performance
information.
Retailers -- such as Wal-Mart, Home Depot and Dayton Hudson -- were our
biggest winners in 1998. Despite worries of an economic slowdown, consumer
spending remained particularly strong throughout the year, thanks to high
employment levels and strong wage growth. Although strong consumer spending
certainly buoyed Wal-Mart, Home Depot and Dayton Hudson, what really drove
performance was their dominant market positions. Dayton Hudson, for example,
strengthened its market position with the aggressive expansion of its mass
merchandising chain, Target.
By the same token, the Fund's performance was also impacted by what we didn't
own, namely technology stocks. As we've explained in past reports, most
technology stocks simply don't meet our investment criterion. We focus on
companies that have increased their dividends consistently for at least the past
10 years. We call these companies "dividend performers" and most technology
stocks aren't in this category.
Stocks: A look at new holdings
Companies that make up the "dividend performers" universe have one thing in
common. They dominate the markets in which they compete. That will be
particularly important if the economy shows signs of slowing in 1999 and it
becomes more difficult for companies to show attractive sales and earnings
growth. Dominant companies, however, should have the ability to gain market
share, control pricing, expand into new markets and acquire new lines of
business. As we looked for new investment opportunities in 1998, we continued to
focus on those dominant companies that will be winners in a slowing economy.
Below are two key examples.
American International Group (AIG). We've added significantly to our position
in this worldwide property/casualty insurance leader. This is a perfect example
of a dominant industry leader that's been able to gain market share from weaker
competitors. With all of the financial turmoil in the Asian economies, AIG is
one of the few AAA-rated insurance companies left. It has been able to grab
tremendous market share in the wake of Asia's financial restructuring.
Albertson's. We've recently added this supermarket chain to the portfolio.
With the supermarket industry in the midst of consolidation, the larger, more
dominant players such as
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Home Depot
followed by an up arrow with the phrase "Strong home improvement market." The
second listing is Dayton Hudson followed by an up arrow with the phrase
"Expansion of Target chain." The third listing is Bemis Co., Inc. followed by a
down arrow with the phrase "Impact of weak foreign economics." A note below the
table reads "See `Schedule of Investments.' Investment holdings are subject to
change."]
- --------------------------------------------------------------------------------
4
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 3% with 0% at the bottom and 15% at the top. The
first bar represents the 14.01% Total return for John Hancock Sovereign Balanced
Fund Class A. The second bar represents the 13.23% total return for John Hancock
Sovereign Balanced Fund Class B and the third bar represents the 13.48% total
return for Average balanced fund. A note below the chart reads "Total returns
for John Hancock Sovereign Balanced Fund are at net asset value with all
distributions reinvested. The average balanced fund is tracked by Lipper
Analytical Services, Inc. See the following two pages for historical performance
information."]
- --------------------------------------------------------------------------------
Albertson's are likely to be the big winners as smaller chains are swallowed up.
In fact, the company's recent acquisition of American Stores should help improve
its profitability and pricing power.
Bonds: Maintaining low profile
As we discussed in the last shareholder reports, 1998 was a year in which we
believed that stocks offered more upside potential than bonds. As a result, we
kept our bond position relatively light. However, in September, as turmoil
increased, we upped our stake in 10- and 30-year Treasury bonds, which served us
well as they became the safe-haven investment of choice. At the end of December,
our bond position stood at approximately 31% of the portfolio, up from 26% six
months ago. Our holdings were split between U.S. Treasury and high-quality
corporate bonds.
Outlook
Looking ahead to 1999, we expect the U.S. economy to be more sluggish. Although
the worst seems to be over in Southeast Asia and Japan, we don't expect those
economies to make a quick recovery in 1999. As a result, lackluster demand from
overseas is likely to continue to put pressure on the earnings of American
multinationals. It's also hard to imagine that consumers will be able to
maintain the same high levels of spending in 1999. Lower consumer spending will
certainly impact top-line earnings growth at many companies. And finally, with
inflation likely to remain tame, pricing power will continue to diminish for
corporations. In this environment, increases in corporate earnings will be much
harder to come by and investors should temper their expectations accordingly.
As for stocks, we expect the market to broaden out in 1999. With this year's
robust market gains limited to such a small group of stocks, the opportunity
lies in those companies with more reasonable valuations and solid fundamentals
that have lagged the market in 1998. The key will be to invest in companies with
bulletproof earnings that won't disappoint investors. We believe that Sovereign
Balanced Fund is well positioned for this market environment. Our universe of
"dividend performers" historically have been able to grow their earnings
consistently in any economic environment, even an economic slowdown.
"...we expect the market to broaden out in 1999."
- --------------------------------------------------------------------------------
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, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/5/92)
------ ------- ------------
Cumulative Total Returns 8.32% 75.79% 100.46%
Average Annual Total Returns 8.32% 11.94% 11.79%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (10/5/92)
------ ------- ------------
Cumulative Total Returns 8.23% 76.80% 102.32%
Average Annual Total Returns 8.23% 12.07% 11.96%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of December 31, 1998
SEC 30-DAY
YIELD
----------
John Hancock Sovereign Balanced Fund: Class A 2.56%
John Hancock Sovereign Balanced Fund: Class B 2.05%
6
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock 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
Standard & Poor's 500 Stock Index and is equal to $33,994 as of December 31,
1998. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Sovereign Balanced Fund, before sales
charge, on October 5, 1992, and is equal to $21,108 as of December 31, 1998. The
third line represents the same hypothetical investment made in the John Hancock
Sovereign Balanced Fund, after sales charge, and is equal to $20,046 as of
December 31, 1998.
Line chart with the heading John Hancock Sovereign Balanced Fund Class B*,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are two lines. The first line represents the Standard
& Poor's 500 Stock Index and is equal to $33,994 as of December 31, 1998. The
second line represents the value of the hypothetical $10,000 investment made in
the John Hancock Sovereign Balanced Fund on October 5, 1992, before sales
charge, and is equal to $20,232 as of December 31, 1998.
*No contingent deferred sales charge applicable.
- --------------------------------------------------------------------------------
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, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common and preferred stocks (cost -- $98,381,638) ............ $142,517,600
Corporate bonds (cost -- $33,308,242) ........................ 33,955,344
U.S. government and agencies obligations
(cost-- $31,069,461) ....................................... 32,320,645
Joint repurchase agreement (cost-- $2,839,000) ............... 2,839,000
Corporate savings account .................................... 4,934
------------
211,637,523
Receivable for shares sold .................................... 76,926
Dividends receivable .......................................... 149,251
Interest receivable ........................................... 1,248,085
Other assets .................................................. 26,335
------------
Total Assets .................................... 213,138,120
----------------------------------------------------------------
Liabilities:
Payable for shares repurchased ................................ 162,614
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ...................................... 49,098
Accounts payable and accrued expenses ......................... 171,835
------------
Total Liabilities ............................... 383,547
----------------------------------------------------------------
Net Assets:
Capital paid-in ............................................... 163,623,932
Accumulated net realized gain on investments .................. 2,944,755
Net unrealized appreciation of investments .................... 46,035,921
Undistributed net investment income ........................... 149,965
------------
Net Assets ...................................... $212,754,573
----------------------------------------------------------------
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 - $97,072,259/6,901,903 .............................. $14.06
==============================================================================
Class B - $115,682,314/8,225,305 .............................. $14.06
==============================================================================
Maximum Offering Price Per Share*
Class A - ($14.06 x 105.26%) .................................. $14.80
==============================================================================
* 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, 1998
- --------------------------------------------------------------------------------
Investment Income:
Interest ..................................................... $4,994,395
Dividends (net of foreign withholding taxes of $13,897) ...... 2,466,587
-----------
7,460,982
-----------
Expenses:
Investment management fee - Note B .......................... 1,174,904
Distribution and service fee - Note B
Class A .................................................... 268,505
Class B .................................................... 1,031,921
Transfer agent fee - Note B ................................. 406,300
Custodian fee ............................................... 48,221
Auditing fee ................................................ 38,346
Financial services fee - Note B ............................. 31,356
Registration and filing fees ................................ 31,202
Printing .................................................... 19,303
Trustees' fees .............................................. 15,228
Miscellaneous ............................................... 5,365
Legal fees .................................................. 1,911
-----------
Total Expenses ................................. 3,072,562
----------------------------------------------------------------
Net Investment Income .......................... 4,388,420
----------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold ........................ 13,089,843
Change in net unrealized appreciation/depreciation
of investments .............................................. 8,135,130
-----------
Net Realized and Unrealized
Gain on Investments ............................ 21,224,973
----------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ...................... $25,613,393
================================================================
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,
------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................... $4,158,403 $4,388,420
Net realized gain on investments sold ........................... 14,306,942 13,089,843
Change in net unrealized appreciation/depreciation of
investments ................................................... 13,605,012 8,135,130
------------- -------------
Net Increase in Net Assets Resulting from Operations .......... 32,070,357 25,613,393
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.3717 and $0.3551 per share, respectively) ....... (2,166,268) (2,267,801)
Class B - ($0.2770 and $0.2593 per share, respectively) ....... (1,974,558) (1,980,839)
Distributions from net realized gain on investments sold
Class A - ($1.0829 and $0.7372 per share, respectively) ....... (6,328,684) (4,791,752)
Class B - ($1.0829 and $0.7372 per share, respectively) ....... (7,611,762) (5,780,678)
------------- -------------
Total Distributions to Shareholders ........................... (18,081,272) (14,821,070)
------------- -------------
From Fund Share Transactions - Net: * ............................. 9,426,144 16,449,308
------------- -------------
Net Assets:
Beginning of period ............................................. 162,097,713 185,512,942
------------- -------------
End of period (including undistributed net investment income
of $9,876 and $149,965, respectively) ......................... $185,512,942 $212,754,573
============= =============
</TABLE>
* Analysis of Fund Share Transactions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................................. 1,109,775 $14,711,593 1,706,479 $23,630,812
Shares issued to shareholders in reinvestment of
distributions .............................................. 617,926 8,180,033 494,608 6,784,234
------------ ------------ ------------ ------------
1,727,701 22,891,626 2,201,087 30,415,046
Less shares repurchased ...................................... (1,210,119) (16,051,956) (1,621,817) (22,566,492)
------------ ------------ ------------ ------------
Net increase ................................................. 517,582 $6,839,670 579,270 $7,848,554
============ ============ ============ ============
CLASS B
Shares sold .................................................. 778,364 $10,353,777 1,624,484 $22,535,756
Shares issued to shareholders in reinvestment of
distributions .............................................. 668,347 8,845,505 516,445 7,079,353
------------ ------------ ------------ ------------
1,446,711 19,199,282 2,140,929 29,615,109
Less shares repurchased ...................................... (1,253,224) (16,612,808) (1,513,934) (21,014,355)
------------ ------------ ------------ ------------
Net increase ................................................. 193,487 $2,586,474 626,995 $8,600,754
============ ============ ============ ============
</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,
------------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $10.74 $9.84 $11.75 $12.27 $13.33
-------- -------- -------- -------- --------
Net Investment Income .................................... 0.50 0.44(1) 0.41(1) 0.37(1) 0.36(1)
Net Realized and Unrealized Gain (Loss) on Investments ... (0.88) 1.91 0.99 2.14 1.47
-------- -------- -------- -------- --------
Total from Investment Operations ....................... (0.38) 2.35 1.40 2.51 1.83
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.50) (0.44) (0.41) (0.37) (0.36)
Distributions from Net Realized Gain on Investments
Sold ................................................. (0.02) -- (0.47) (1.08) (0.74)
-------- -------- -------- -------- --------
Total Distributions .................................... (0.52) (0.44) (0.88) (1.45) (1.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ........................... $9.84 $11.75 $12.27 $13.33 $14.06
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) ............ (3.51%) 24.23% 12.13% 20.79% 14.01%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $61,952 $69,811 $71,242 $84,264 $97,072
Ratio of Expenses to Average Net Assets .................. 1.23% 1.27% 1.29% 1.22% 1.21%
Ratio of Net Investment Income to Average Net Assets ..... 4.89% 3.99% 3.33% 2.77% 2.61%
Portfolio Turnover Rate .................................. 78% 45% 80% 115% 83%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ..................... $10.75 $9.84 $11.74 $12.27 $13.33
-------- -------- -------- -------- --------
Net Investment Income .................................... 0.43 0.36(1) 0.32(1) 0.28(1) 0.27(1)
Net Realized and Unrealized Gain (Loss) on Investments ... (0.89) 1.90 1.01 2.14 1.46
-------- -------- -------- -------- --------
Total from Investment Operations ....................... (0.46) 2.26 1.33 2.42 1.73
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ................... (0.43) (0.36) (0.33) (0.28) (0.26)
Distributions from Net Realized Gain on Investments
Sold ................................................. (0.02) -- (0.47) (1.08) (0.74)
-------- -------- -------- -------- --------
Total Distributions .................................... (0.45) (0.36) (0.80) (1.36) (1.00)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ........................... $9.84 $11.74 $12.27 $13.33 $14.06
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) ............ (4.22%) 23.30% 11.46% 19.96% 13.23%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ................. $79,176 $87,827 $90,855 $101,249 $115,682
Ratio of Expenses to Average Net Assets .................. 1.87% 1.96% 1.99% 1.91% 1.88%
Ratio of Net Investment Income to Average Net Assets ..... 4.25% 3.31% 2.63% 2.08% 1.93%
Portfolio Turnover Rate .................................. 78% 45% 80% 115% 83%
</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.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Balanced Fund
Schedule of Investments
December 31, 1998
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, and are not audited.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- ----------- -------- ------
<S> <C> <C>
COMMON STOCKS (63.25%)
Advertising (1.12%)
30,000 Interpublic Group of Companies,
Inc. (The) @ 79 3/4....................................................................... $2,392,500
------------
One of the largest advertising agencies
in the world
Earnings P/S........................$.70, .79, .82, .95, .99, 1.19, 1.36, 1.34, 1.81, 2.18 13.5%
Dividends P/S............................$.21, .25, .27, .30, .33, .36, .40, .44, .50, .58 11.9%
Price/Earnings Ratio..................................................................38.2
Banks (4.46%)
45,000 Banc One Corp. @ 51 1/16.................................................................. 2,297,813
Ohio-based bank holding company
Earnings P/S....................$.98, 1.10, 1.50, 1.88, 2.21, 2.49, 2.07, 2.60, 2.03, 3.13 13.8%
Dividends P/S.......................$.52, .57, .63, .73, .89, 1.02, 1.12, 1.24, 1.38, 1.52 12.7%
Price/Earnings Ratio..................................................................14.9
20,000 BankAmerica Corp. @ 60 1/8................................................................ 1,202,500
Third largest bank holding company in the U.S.
Earnings P/S....................$1.45, 2.31, 1.67, .38, 2.26, 2.47, 3.03, 3.53, 4.07, 4.16 12.4%
Dividends P/S........................$.55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.37, 1.59 12.5%
Price/Earnings Ratio..................................................................16.2
60,000 First Tennessee National Corp. @ 38 1/16.................................................. 2,283,750
Tennessee-based bank holding company
Earnings P/S........................$.57, .61, .63, .88, .76, 1.01, 1.12, 1.27, 1.49, 1.70 12.9%
Dividends P/S............................$.24, .27, .29, .32, .38, .43, .49, .55, .62, .69 12.5%
Price/Earnings Ratio..................................................................22.1
50,000 First Union Corp. @ 60 13/16.............................................................. 3,040,625
North Carolina-based bank holding company
Earnings P/S...................$1.20, 1.26, 1.16, 1.45, 1.81, 2.34, 2.44, 2.41, 3.03, 2.68 9.3%
Dividends P/S.........................$.50, .54, .56, .64, .75, .86, .98, 1.10, 1.22, 1.58 13.6%
Price/Earnings Ratio..................................................................16.1
17,000 Wells Fargo Co. @ 39 15/16................................................................ 678,937
Diversified financial services company providing
banking, insurance, investments and consumer finance
Earnings P/S........................$.57, .63, .68, .73, .86, 1.05, 1.21, 1.37, 1.55, 1.75 13.3%
Dividends P/S............................$.19, .21, .24, .27, .32, .38, .45, .53, .62, .70 15.6%
Price/Earnings Ratio..................................................................22.8
------------
9,503,625
------------
Beverages (1.54%)
80,000 PepsiCo, Inc. @ 40 15/16.................................................................. 3,275,000
------------
Second largest soft drink company
Earnings P/S..........................$.57, .68, .68, .82, .87, 1.07, 1.21, .74, .81, 1.40 10.5%
Dividends P/S............................$.16, .19, .23, .26, .31, .35, .39, .45, .49, .52 14.0%
Price/Earnings Ratio..................................................................35.2
</TABLE>
The Schedule of Investments is a complete list of all securities owned by the
Sovereign Balanced Fund on December 31, 1998. It's divided into five main
categories: common stocks, preferred stocks, corporate bonds, U.S. government
and agencies obligations and short-term investments. The common stocks are
further broken down by industry group. Short-term investments, which represent
the Fund's "cash" position, are listed last.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- ----------- -------- ------
<S> <C> <C>
Building (1.22%)
90,000 Masco Corp. @ 28 3/4...................................................................... $2,587,500
------------
Manufactures building, home improvement
and consumer products
Earnings P/S...........................$.71, .46, .14, .37, .68, .79, .55, .70, 1.14, 1.39 7.8%
Dividends P/S............................$.25, .27, .29, .31, .33, .35, .37, .39, .41, .43 6.2%
Price/Earnings Ratio..................................................................21.5
Chemicals (1.37%)
100,000 RPM, Inc. @ 16............................................................................ 1,600,000
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof structures
Earnings P/S.............................$.31, .34, .36, .43, .46, .64, .69, .65, .84, .91 12.7%
Dividends P/S............................$.22, .24, .27, .29, .31, .34, .36, .39, .42, .45 8.3%
Price/Earnings Ratio..................................................................18.8
45,000 Sigma - Aldrich Corp. @ 29 3/8............................................................ 1,321,875
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S.......................$.65, .72, .62, .93, 1.04, 1.11, 1.26, 1.44, 1.61, 1.68 11.1%
Dividends P/S............................$.09, .10, .11, .13, .15, .17, .19, .23, .26, .28 13.4%
Price/Earnings Ratio..................................................................17.7
------------
2,921,875
------------
Computers (0.94%)
25,000 Automatic Data Processing, Inc. @ 80 3/16................................................. 2,004,688
------------
Largest independent computing services firm in the U.S.
Earnings P/S............................$.72, .37, .42, .47, .53, .61, .71, .81, .90, 1.05 4.3%
Dividends P/S............................$.07, .08, .10, .11, .13, .15, .18, .21, .24, .28 16.7%
Price/Earnings Ratio..................................................................37.8
Containers (0.71%)
40,000 Bemis Co., Inc. @ 37 15/16................................................................ 1,517,500
------------
Producer of a broad range of flexible packaging
and equipment and pressure sensitive materials
Earnings P/S.......................$.90, .99, .98, 1.14, .84, 1.33, 1.55, 1.84, 1.95, 2.15 10.2%
Dividends P/S............................$.30, .36, .42, .46, .50, .54, .64, .72, .80, .88 12.7%
Price/Earnings Ratio..................................................................18.2
Diversified Operations (1.62%)
10,000 Johnson Controls, Inc. @ 59............................................................... 590,000
Manufactures automotive systems and
building controls
Earnings P/S...................$1.21, 1.07, 1.10, 1.43, 1.58, 1.90, 2.27, 2.55, 2.52, 3.89 13.9%
Dividends P/S............................$.59, .61, .63, .65, .69, .74, .79, .83, .88, .94 5.3%
Price/Earnings Ratio..................................................................18.2
</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>
Diversified Operations (continued)
40,000 Minnesota Mining & Manufacturing Co.
@ 71 1/8.................................................................................. $2,845,000
Manufactures industrial, commercial and
health care products
Earnings P/S...................$2.83, 2.94, 2.71, 2.76, 2.91, 2.81, 3.18, 3.36, 5.15, 3.28 1.7%
Dividends P/S..................$1.30, 1.46, 1.56, 1.60, 1.66, 1.76, 1.88, 1.92, 2.12, 2.20 6.0%
Price/Earnings Ratio..................................................................19.0
------------
3,435,000
------------
Electronics (5.91%)
60,000 Emerson Electric Co. @ 60 1/2............................................................. 3,630,000
Produces and sells electrical/electronic
products and systems
Earnings P/S...................$1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 1.95, 2.28, 2.52, 2.80 8.7%
Dividends P/S.........................$.58, .64, .67, .70, .74, .80, .92, 1.01, 1.11, 1.21 8.5%
Price/Earnings Ratio..................................................................21.5
45,000 General Electric Co. @ 102 1/16........................................................... 4,592,813
Dominant force in home appliances, electrical
power and financial services
Earnings P/S...................$1.09, 1.22, 1.27, 1.27, 1.16, 1.66, 1.89, 2.14, 2.42, 2.75 10.8%
Dividends P/S..........................$.43, .48, .52, .58, .65, .75, .85, .95, 1.08, 1.25 12.6%
Price/Earnings Ratio..................................................................36.3
45,000 Grainger (W.W.), Inc. @ 41 5/8............................................................ 1,873,125
Leading distributor of electrical equipment
Earnings P/S...................$1.10, 1.16, 1.18, 1.28, 1.38, 1.64, 1.34, 1.99, 2.21, 2.42 9.2%
Dividends P/S............................$.25, .28, .31, .33, .35, .39, .45, .49, .53, .59 10.0%
Price/Earnings Ratio..................................................................17.1
33,000 Honeywell, Inc. @ 75 5/16................................................................. 2,485,312
Makes automation and control systems
Earnings P/S...................$3.55, 2.52, 2.37, 3.41, 1.78, 2.19, 2.44, 2.96, 3.51, 4.32 2.2%
Dividends P/S........................$.57, .70, .77, .84, .91, .97, 1.01, 1.06, 1.09, 1.13 7.9%
Price/Earnings Ratio..................................................................17.2
------------
12,581,250
------------
Food (1.44%)
30,000 Campbell Soup Co. @ 55.................................................................... 1,650,000
Manufactures and markets branded
convenience food products.
Earnings P/S.......................$.01, .05, .84, 1.02, .54, 1.32, 1.45, 1.33, 1.75, 1.55 75.1%
Dividends P/S............................$.24, .26, .31, .40, .52, .58, .64, .71, .79, .86 15.2%
Price/Earnings Ratio..................................................................28.5
50,000 Sara Lee Corp. @ 28 3/16.................................................................. 1,409,375
Manufactures brand name packaged foods
and consumer products
Earnings P/S..........................$.47, .49, .71, .64, .72, .23, .84, .94, 1.05, (.43) NMF
Dividends P/S............................$.19, .22, .24, .26, .30, .33, .35, .39, .43, .47 10.6%
Price/Earnings Ratio...................................................................NMF
------------
3,059,375
------------
Furniture (1.40%)
135,000 Leggett & Platt, Inc. @ 22................................................................ 2,970,000
------------
Produces intermediate products for the
home furnishings industry
Earnings P/S...........................$.33, .33, .16, .38, .49, .65, .78, .81, 1.05, 1.23 15.7%
Dividends P/S..........................$.09, .105, .108, .12, .14, .16, .19, .23, .27, .32 15.1%
Price/Earnings Ratio..................................................................17.7
Insurance (5.36%)
40,000 AFLAC Corp. @ 44.......................................................................... $1,760,000
Global specialty insurer
Earnings P/S.........................$.27, .38, .46, .57, .72, .90, 1.14, 1.21, 2.28, 1.74 23.0%
Dividends P/S............................$.08, .09, .10, .11, .13, .15, .17, .19, .22, .25 13.5%
Price/Earnings Ratio..................................................................28.3
24,000 American International Group, Inc. @ 96 5/8............................................... 2,319,000
Broadly based property-casualty insurance
organization
Earnings P/S...................$1.31, 1.36, 1.42, 1.46, 1.74, 1.97, 2.27, 2.64, 3.04, 3.48 11.5%
Dividends P/S.............................$.07, .08, .09, .10, .11, 13, .14, .16, .19, .21 13.0%
Price/Earnings Ratio..................................................................30.2
70,000 ReliaStar Financial Corp. @ 46 1/8........................................................ 3,228,750
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S.......................$.68, .79, .86, .96, 1.26, 1.53, 2.08, 2.46, 2.61, 2.89 17.4%
Dividends P/S............................$.30, .32, .35, .37, .39, .44, .49, .55, .61, .71 10.0%
Price/Earnings Ratio..................................................................15.4
70,000 UNUM Corp. @ 58 3/8....................................................................... 4,086,250
Holding company for Unum Life Insurance
Company of America
Earnings P/S....................$.97, 1.35, 1.51, 1.78, 1.89, 1.20, 1.88, 1.72, 2.43, 2.69 12.0%
Dividends P/S............................$.14, .19, .25, .31, .38, .46, .52, .55, .57, .59 17.3%
Price/Earnings Ratio..................................................................21.6
------------
11,394,000
------------
Leisure (1.10%)
65,000 Hasbro, Inc. @ 36 1/8..................................................................... 2,348,125
------------
Designs, manufactures and markets toys,
games and interactive software
Earnings P/S.......................$.69, .69, .50, 1.18, 1.45, 1.30, 1.11, 1.43, 1.68, .71 0.3%
Dividends P/S............................$.07, .08, .10, .13, .15, .18, .21, .25, .31, .32 18.4%
Price/Earnings Ratio..................................................................22.2
Machinery (2.26%)
50,000 Dover Corp. @ 36 5/8...................................................................... 1,831,250
Manufactures a variety of specialized industrial products
Earnings P/S.........................$.57, .64, .56, .54, .66, .83, 1.17, 1.67, 1.72, 1.72 13.1%
Dividends P/S............................$.18, .19, .21, .22, .23, .25, .28, .32, .36, .40 9.3%
Price/Earnings Ratio..................................................................21.7
75,000 Pentair, Inc. @ 39 13/16.................................................................. 2,985,937
Manufactures enclosures for electrical,
electronic, woodworking and power tool equipment
Earnings P/S.....................$.93, .96, 1.01, 1.06, 1.19, 1.20, 1.40, 1.73, 2.11, 2.57 12.0%
Dividends P/S............................$.27, .29, .31, .33, .34, .36, .40, .50, .54, .60 9.3%
Price/Earnings Ratio..................................................................16.2
------------
4,817,187
------------
Media (2.52%)
20,000 Gannett Co., Inc. @ 64 1/2................................................................ 1,290,000
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S...................$1.23, 1.17, 1.04, 1.13, 1.32, 1.53, 1.67, 1.69, 2.73, 3.42 12.0%
Dividends P/S............................$.56, .61, .62, .63, .65, .67, .69, .71, .74, .78 3.8%
Price/Earnings Ratio..................................................................22.4
</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>
Media (continued)
40,000 McGraw-Hill Cos., Inc. @ 101 7/8.......................................................... $4,075,000
Provides informational products and services
for business and industry
Earnings P/S.....................$.49, 1.77, 1.58, 1.58, .12, 2.00, 2.25, 2.44, 5.36, 3.39 24.0%
Dividends P/S..................$1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44, 1.56 5.1%
Price/Earnings Ratio..................................................................30.4
------------
5,365,000
------------
Medical (6.83%)
60,000 Abbott Laboratories @ 49.................................................................. 2,940,000
Major pharmaceutical and healthcare firm
Earnings P/S.........................$.49, .56, .61, .71, .82, .91, 1.03, 1.17, 1.32, 1.49 13.2%
Dividends P/S.................................$.17, .20, .24, .29, .33, .37, .41, .53, .59 14.8%
Price/Earnings Ratio..................................................................33.3
60,000 Baxter International, Inc. @ 64 5/16...................................................... 3,858,750
The company operates four divisions: renal,
biotech, cardiovascular and intravenous
systems and international distribution
Earnings P/S..................$1.49, (.05), 2.10, 1.80, 1.69, (.62), 1.41, 2.07, .99, 1.03 NMF
Dividends P/S......................$.56, .64, .74, .86, 1.00, 1.03, 1.11, 1.17, 1.14, 1.16 8.4%
Price/Earnings Ratio..................................................................25.3
36,000 Becton, Dickinson & Co. @ 42 11/16........................................................ 1,536,750
Manufactures broad line of medical supplies
Earnings P/S...........................$.68, .58, .61, .65, .68, .76, .90, 1.06, 1.20, .95 3.8%
Dividends P/S...........................$.13, .14, .15, .154, .17, .19, .21, .24, .27, .30 9.7%
Price/Earnings Ratio..................................................................30.3
30,000 Bristol-Myers Squibb Co. @ 133 13/16...................................................... 4,014,375
Produces pharmaceuticals, medical devices,
non-prescription health products
Earnings P/S....................$.72, 1.67, 1.89, 2.00, 1.61, 1.97, 2.02, 1.98, 3.13, 3.55 19.4%
Dividends P/S..................$1.02, 1.10, 1.25, 1.40, 1.45, 1.47, 1.49, 1.51, 1.53, 1.60 5.1%
Price/Earnings Ratio..................................................................37.4
26,000 Johnson & Johnson @ 83 7/8................................................................ 2,180,750
Major producer of prescription and
non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S.....................$.80, .85, 1.07, 1.20, 1.35, 1.53, 1.80, 2.11, 2.42, 2.68 14.4%
Dividends P/S............................$.28, .33, .39, .45, .51, .57, .64, .74, .85, .97 14.8%
Price/Earnings Ratio..................................................................31.4
------------
14,530,625
------------
Office (1.55%)
50,000 Pitney Bowes, Inc. @ 66 1/16.............................................................. 3,303,125
------------
Manufactures office automation equipment
Earnings P/S........................$.60, .67, .88, .94, .95, 1.12, 1.28, 1.51, 1.73, 2.01 14.4%
Dividends P/S............................$.26, .30, .34, .39, .45, .52, .60, .69, .80, .90 14.8%
Price/Earnings Ratio..................................................................32.1
Oil & Gas (3.86%)
30,000 Chevron Corp. @ 82 15/16.................................................................. 2,488,125
One of the largest integrated, international oil
companies with interest in petrochemicals
Earnings P/S....................$.37, 3.05, 2.69, 1.69, 3.14, 2.09, 3.03, 2.64, 4.35, 3.68 29.1%
Dividends P/S..................$1.40, 1.48, 1.63, 1.65, 1.75, 1.85, 1.93, 2.08, 2.28, 2.44 6.4%
Price/Earnings Ratio..................................................................28.0
Oil & Gas (continued)
40,000 Mobil Corp. @ 87 1/8...................................................................... $3,485,000
One of the largest integrated, international oil
companies with interest in petrochemicals and plastics
Earnings P/S...................$2.20, 2.05, 2.63, 1.43, 2.74, 1.92, 2.61, 3.83, 4.05, 3.21 4.3%
Dividends P/S..................$1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12, 2.28 6.6%
Price/Earnings Ratio..................................................................29.7
60,000 Shell Transport & Trading Co., PLC
American Depositary Receipts
(Great Britain) @ 37 1/8.................................................................. 2,231,250
Involved in all phases in the petroleum industry
Earnings P/S.........................$.62, .76, .63, .70, .64, .87, 1.01, 1.27, 1.33, 1.57 10.9%
Dividends P/S............................$.08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio..................................................................20.8
------------
8,204,375
------------
Paper & Paper Products (0.69%)
27,000 Kimberly-Clark Corp. @ 54 1/2............................................................. 1,471,500
------------
Leading producer of consumer and personal
care products
Earnings P/S.....................$1.32, 1.35, 1.50, 1.69, .98, 1.78, 1.90, .37, 2.47, 1.43 0.9%
Dividends P/S...........................$.65, .68, .76, .82, .86, .88, .90, .92, .96, 1.00 4.9%
Price/Earnings Ratio..................................................................22.2
Retail (8.99%)
42,000 Albertson's, Inc. @ 63 11/16.............................................................. 2,674,875
One of the largest retail food-drug chains
in the United States
Earnings P/S.......................$.74, .83, .94, .95, 1.24, 1.58, 1.80, 1.96, 1.99, 2.24 13.1%
Dividends P/S............................$.19, .23, .27, .31, .35, .42, .50, .58, .63, .67 15.0%
Price/Earnings Ratio..................................................................28.4
75,000 Dayton Hudson Corp. @ 54 1/4.............................................................. 4,068,750
General merchandiser selling through Target
and Marvyn stores
Earnings P/S..........................$.89, .92, .75, .71, .76, .96, .80, 1.07, 1.48, 1.94 9.0%
Dividends P/S............................$.19, .22, .24, .25, .27, .28, .29, .31, .33, .36 7.4%
Price/Earnings Ratio..................................................................29.2
55,000 Home Depot, Inc. (The) @ 61 3/16.......................................................... 3,365,312
Operates a chain of retail building supply/home
improvement "warehouse" stores
Earnings P/S............................$.11, .14, .19, .25, .33, .42, .49, .61, .77, 1.03 28.2%
Dividends P/S............................$.01, .01, .02, .03, .04, .05, .06, .08, .10, .12 35.1%
Price/Earnings Ratio..................................................................61.2
23,000 McDonald's Corp. @ 76 5/8................................................................. 1,762,374
Develops, operates, franchises and services a
worldwide system of restaurants
Earnings P/S....................$.96, 1.07, 1.16, 1.28, 1.41, 1.61, 1.90, 2.14, 2.34, 2.35 10.5%
Dividends P/S............................$.15, .17, .18, .20, .21, .23, .26, .29, .32, .35 9.9%
Price/Earnings Ratio..................................................................30.5
175,000 SYSCO Corp. @ 27 7/16..................................................................... 4,801,563
Largest distributor of food service products
Earnings P/S.............................$.37, .38, .43, .47, .55, .62, .71, .68, .87, .98 11.4%
Dividends P/S...........................$.046, .05, .07, .11, .14, .18, .22, .26, .30, .36 25.7%
Price/Earnings Ratio..................................................................27.4
</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>
Retail (continued)
30,000 Wal-Mart Stores, Inc. @ 81 7/16........................................................... $2,443,125
Operates chain of discount department stores
Earnings P/S........................$.48, .55, .64, .80, .97, 1.11, 1.24, 1.27, 1.47, 1.85 16.2%
Dividends P/S............................$.06, .07, .09, .11, .13, .17, .20, .21, .27, .31 20.0%
Price/Earnings Ratio..................................................................44.0
------------
19,115,999
------------
Utilities (8.36%)
25,000 ALLTEL Corp. @ 59 13/16................................................................... 1,495,313
Provides wireline and wireless communications
and information services
Earnings P/S...................$1.13, 1.20, 1.18, 1.18, 1.35, 1.56, 1.61, 1.50, 2.53, 2.24 7.9%
Dividends P/S.........................$.59, .66, .71, .76, .82, .90, .98, 1.06, 1.12, 1.18 8.0%
Price/Earnings Ratio..................................................................28.5
45,000 Ameritech Corp. @ 63 3/8.................................................................. 2,851,875
One of the world's largest communications companies
Earnings P/S...................$1.15, 1.18, 1.19, 1.13, 1.33, 1.04, 1.83, 1.78, 2.06, 3.14 11.8%
Dividends P/S........................$.75, .81, .86, .89, .93, .97, 1.02, 1.08, 1.15, 1.22 5.6%
Price/Earnings Ratio..................................................................27.0
40,000 Bell Atlantic Corp. @ 53.................................................................. 2,120,000
Telecommunications company providing voice
and data services in the Mid-Atlantic region
Earnings P/S...................$1.36, 1.69, 1.09, 1.69, 1.63, 1.63, 2.04, 2.00, 1.45, 1.83 3.4%
Dividends P/S..................$1.10, 1.18, 1.26, 1.30, 1.34, 1.38, 1.40, 1.44, 1.51, 1.54 3.8%
Price/Earnings Ratio..................................................................19.9
25,000 Century Telephone Enterprises, Inc. @ 67 1/2.............................................. 1,687,500
Louisiana-based telecommunications company
Earnings P/S........................$.40, .42, .48, .72, .93, 1.06, 1.41, 1.43, 2.08, 3.02 25.2%
Dividends P/S...........................$.18, .19, .19, .196, .21, .21, .22, .24, .25, .26 4.2%
Price/Earnings Ratio..................................................................31.7
25,000 Duke Energy Corp. @ 64 1/16............................................................... 1,601,563
Generates, transmits, distributes and sells
electric energy in the Piedmont sections
of North and South Carolina
Earnings P/S...................$2.57, 2.40, 2.51, 2.08, 2.83, 3.00, 3.26, 2.73, 2.66, 3.60 3.8%
Dividends P/S..................$1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08, 2.16, 2.20 4.2%
Price/Earnings Ratio..................................................................19.6
110,000 Questar Corp. @ 19 3/8.................................................................... 2,131,250
Diversified holding company for Utah,
Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S.........................$.82, .78, .85, .80, 1.12, .99, .60, 1.15, 1.27, 1.21 4.4%
Dividends P/S............................$.47, .49, .51, .52, .55, .57, .58, .60, .62, .65 3.7%
Price/Earnings Ratio..................................................................16.2
73,000 SBC Communications, Inc. @ 53 5/8......................................................... 3,914,625
Provides telephone service throughout the
United States and internationally
Earnings P/S...................$.91, .92, .90, 1.09, (1.37), 1.53, (1.66), 1.74, .88, 2.01 9.2%
Dividends P/S............................$.64, .68, .71, .73, .75, .78, .82, .85, .89, .93 4.2%
Price/Earnings Ratio..................................................................25.7
70,000 Teco Energy, Inc. @ 28 3/16............................................................... $1,973,125
Holding company for Tampa Electric, which
provides regulated electric utility services
in Florida
Earnings P/S...................$1.18, 1.21, 1.24, 1.28, 1.30, 1.43, 1.46, 1.64, 1.67, 1.54 3.0%
Dividends P/S.......................$.75, .80, .85, .90, .95, 1.00, 1.05, 1.10, 1.17, 1.23 5.7%
Price/Earnings Ratio..................................................................16.6
------------
17,775,251
------------
TOTAL COMMON STOCKS
(Cost $90,360,557) 134,573,500
------------
PREFERRED STOCKS (3.73%)
22,627 CSC Holdings, Inc.,
11.125%, Ser M @ 111 1/2 .................................................................... 2,522,943
21,192 CSC Holdings, Inc.,
11.750%, Ser H @ 114 1/4 .................................................................... 2,421,157
30,000 Lasmo America Ltd.,
8.150% (R) @ 100 ............................................................................ 3,000,000
------------
TOTAL PREFERRED STOCKS
(Cost $8,021,081) 7,944,100
------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost $98,381,638) 142,517,600
------------
</TABLE>
PAR VALUE
(000s
OMITTED)
- ---------
CORPORATE BONDS (15.96%)
$1,000 Adelphia Communications Corp., Sr Note
9.25%, 10-01-02 @ 105.500...................... 1,055,000
1,000 Barclays North American Capital Corp., ........
Gtd Cap Note (United Kingdom) 9.750%,
05-15-21 @ 112.773............................. 1,127,730
2,250 Cablevison Systems Corp., Sr Deb Ser B
8.125%, 08-15-09 @ 107.155..................... 2,410,986
1,500 Continental Cablevision, Inc., Deb 9.50%,
08-01-13 @ 116.136............................. 1,742,040
1,300 GTE Corp., Deb 10.25%,
11-01-20 @ 112.421............................. 1,461,473
2,500 Inter-American Development Bank, Bond
(Supra National) 12.250%,
12-15-08 @ 153.424............................. 3,835,600
1,800 Landeskreditbank Baden Wuerttemberg,
Sub Note (Germany) 7.625%, 02-01-23
@ 115.721...................................... 2,082,978
2,500 Long Island Lighting Co., Deb 8.20%,
03-15-23 @ 111.000............................. 2,775,000
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
PAR VALUE
(000s MARKET
OMITTED) VALUE
- --------- ------
CORPORATE BONDS (continued)
$600 Massachusetts Mutual Life Insurance Co.,
Surplus Note 7.625%, 11-15-23 (R)
@ 113.250...................................... $679,500
1,695 Midland Cogeneration Venture L.P., Sec Deb
Ser C-91 10.33%, 07-23-02 @ 105.983............ 1,796,417
750 New York Life Insurance Co., Surplus Note
7.50%, 12-15-23 (R) @ 106.221.................. 796,658
1,531 North Atlantic Energy Corp., 1st Mtg Bond
9.050%, 06-01-02 @ 103.899..................... 1,590,694
2,500 Northwest Airlines Corp., Note 7.625%,
03-15-05 @ 94.796.............................. 2,369,900
3,000 Quebec, Province of, Deb (Canada) 7.50%,
07-15-23 @ 113.831............................. 3,414,930
400 RJR Nabisco, Inc., Sr Note 8.75%,
04-15-04 @ 101.567............................. 406,268
1,000 Rogers Cablesystems Ltd., Note 9.625%, ........
01-01-02 @ 107.500............................. 1,075,000
500 Scandinavian Airline System, Deb (Sweden)
9.125%, 07-20-99 @ 101.875..................... 509,375
1,100 Security Pacific Corp., Sub Note 11.50%,
11-15-00 @ 110.672............................. 1,217,392
1,000 Standard Credit Card Master Trust I,
Class A Credit Card Part Ctf Ser 1994-2,
7.250%, 04-07-08 @ 108.125..................... 1,081,250
750 Standard Credit Card Master Trust,
Ser 1995-1 8.25%, 01-08-07 @ 111.656........... 837,420
1,550 TKR Cable I, Inc., Sr Deb 10.50%, 10-30-07
@ 109.015...................................... 1,689,733
------------
TOTAL CORPORATE BONDS
(Cost $33,308,242) 33,955,344
------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (15.19%)
1,843 Federal National Mort. Assn., Sr Sub
7.00%, 07-01-11 @ 102.142...................... 1,882,472
1,178 Federal National Mort. Assn., Sr Sub
7.50%, 08-01-08 @ 102.847...................... 1,211,540
1,790 Financing Corp., Bond
9.65%, 11-02-18 @ 146.078...................... 2,614,796
5,043 Government National Mort. Assn.,
6.00%, 11-15-28 @ 99.125....................... 4,999,169
1,475 Government National Mort. Assn.,
7.00%, 06-15-23 @ 102.343...................... 1,509,833
80 Government National Mort. Assn.,
9.00%, 04-15-21 @ 107.405...................... 86,444
4,000 United States Treasury, Bond
5.250%, 11-15-28 @ 102.375..................... 4,095,000
6,768 United States Treasury, Bond
8.125%, 08-15-19 @ 133.547..................... $9,038,461
1,000 United States Treasury, Bond
10.75%, 08-15-05 @ 133.375..................... 1,333,750
2,250 United States Treasury, Bond
12.00%, 08-15-13 @ 152.672..................... 3,435,120
2,000 United States Treasury, Note
6.625%, 03-31-02 @ 105.703..................... 2,114,060
------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $31,069,461) 32,320,645
------------
INTEREST
RATE
--------
SHORT-TERM INVESTMENTS (1.34%)
2,839 Joint Repurchase Agreement (1.34%)
Investment in a joint repurchase
agreement transaction with SBC
Warburg, Inc. - Dated 12-31-98,
due 01-04-99 (Secured by U.S.
Treasury Bonds, 6.25% thru 9.125%
due 05-15-18 thru 08-15-23)
- Note A............................ 4.75% 2,839,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%.................. 4,934
------------
TOTAL SHORT-TERM INVESTMENTS (1.34%) 2,843,934
------ ------------
TOTAL INVESTMENTS (99.47%) 211,637,523
------ ------------
OTHER ASSETS AND LIABILITIES, NET (0.53%) 1,117,050
------ ------------
TOTAL NET ASSETS (100.00%) $212,754,573
====== ============
NMF = No Meaningful Figure
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $4,476,158 or 2.10% of the Fund's net
assets as of December 31, 1998.
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.
16
<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 four series portfolios: John Hancock Sovereign Balanced Fund (the "Fund"),
John Hancock Growth and Income Fund, John Hancock Real Estate Fund and John
Hancock Sovereign Investors Fund. The other three 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. Effective December 8, 1998,
the Board of Trustees has authorized the issuance of Class C shares in 1999. The
shares of each class represent an interest in the same portfolio of investments
of the Fund and have equal rights to voting, redemptions, dividends and
liquidation, except that certain expenses, subject to the approval of the
Trustees, may be applied differently to each class of shares in accordance with
current regulations of the Securities and Exchange Commission and the Internal
Revenue Service. Shareholders of a class which bears distribution and service
expenses under terms of a distribution plan have exclusive voting rights
regarding such distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST 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.
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,
17
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Balanced Fund
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 of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the year ended December 31, 1998.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of 0.60% of the Fund's average daily net asset
value. The Adviser had 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 paid SAMCorp 40% of the stock portion of its
management fee. Effective at the close of business on December 31, 1998, the
service agreement with SAMCorp has been eliminated. The Adviser will now employ
SAMCorp portfolio management.
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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $260,721. Out of this amount, $40,598 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$101,764 was paid as sales commissions to unrelated broker-dealers and $118,359
was paid as sales commissions to sales personnel of Signator Investors, Inc.,
("Signator Investors"), a related broker-dealer, formerly known as John Hancock
Distributors, Inc. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Signator
Investors.
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,
1998, contingent deferred sales charges paid to JH Funds amounted to $131,818.
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.
18
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Balanced 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.
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, 1998, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $1,673.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the year
ended December 31, 1998, aggregated $94,949,851 and $85,785,465, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies, during the year ended December 31, 1998, aggregated $63,749,031 and
$64,876,681, respectively.
The cost of investments owned at December 31, 1998 (excluding the corporate
savings account) for federal income tax purposes was $165,759,073. Gross
unrealized appreciation and depreciation of investments aggregated $47,366,627
and $1,493,111, respectively, resulting in net unrealized appreciation of
$45,873,516.
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended December 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$1,382,993, an increase in undistributed net investment income of $309 and an
increase in capital paid-in of $1,382,684. This represents the amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of December 31, 1998. 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 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 practice known as equalization. The calculation of net investment
income per share in the financial highlights excludes these adjustments.
19
<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 the John
Hancock Sovereign Balanced Fund (the "Fund"), one of the portfolios constituting
the John Hancock Investment Trust, including the schedule of investments as of
December 31, 1998, 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 period 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. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. 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, 1998, 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 8, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the taxable distributions of the Fund during its fiscal year ended
December 31, 1998.
The Fund has designated distributions to shareholders of $12,016,155 as
long-term capital gain dividends.
With respect to the dividends paid by the Fund for the fiscal year ended
December 31, 1998, 54.27% qualify for the corporate dividends received
deduction.
Shareholders were mailed a 1998 U.S. Treasury Department Form 1099-DIV in
January 1999 representing their proportionate share.
20
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
Historical Data (Unaudited)
The table below shows the record of the Fund since inception in 1992.
- --------------------------------------------------------------------------------
CLASS A PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
--------- ------------- ------------- --------- ---------------
1992(1) 568,842 $0.0473 $10.19 --
1993 5,792,163 0.4539 10.74 $0.1390
1994 6,295,898 0.4951 9.84 0.0231
1995 5,943,279 0.4373 11.75 --
1996 5,805,051 0.4113 12.27 0.4733
1997 6,322,633 0.3717 13.33 1.0829
1998 6,901,903 0.3551 14.06 0.7372
CLASS B PER SHARE
YEAR -------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
--------- ------------- ------------- --------- ---------------
1992(1) 1,403,452 $0.0292 $10.20 --
1993 7,327,059 0.3816 10.75 $0.1390
1994 8,046,236 0.4296 9.84 0.0231
1995 7,478,401 0.3632 11.74 --
1996 7,404,823 0.3257 12.27 0.4733
1997 7,598,310 0.2770 13.33 1.0829
1998 8,225,305 0.2593 14.06 0.7372
(1) For the period October 5, 1992 (commencement of operations) to December
31, 1992.
21
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the Sovereign Balanced Fund as of December 31, 1998.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories ...................................... 11.1%
AFLAC Corp. .............................................. 13.0
Air Products & Chemicals, Inc. ........................... 13.3
Albertson's, Inc. ........................................ 6.3
Alltel Corp. ............................................. 5.2
American International Group, Inc. ....................... 12.0
Ameritech Corp. .......................................... 5.8
Archer-Daniels-Midland Co. ............................... 5.0
Automatic Data Processing, Inc. .......................... 15.1
Banc One Corp. ........................................... 10.0
BankAmerica Corp. ........................................ 18.4
Baxter International, Inc. ............................... 3.0
Becton, Dickinson & Co. .................................. 17.2
Bell Atlantic Corp. ...................................... 4.1
Bemis Co., Inc. .......................................... 10.0
Bristol-Myers Squibb Co. ................................. 10.3
Campbell Soup Co. ........................................ 7.1
Century Telephone Enterprises, Inc. ...................... 5.4
Chevron Corp. ............................................ 5.2
Dayton Hudson Corp. ...................................... 12.5
Dover Corp. .............................................. 10.5
Duke Energy Corp. ........................................ 3.8
Emerson Electric Co. ..................................... 10.2
First Tennessee National Corp. ........................... 15.2
First Union Corp. ........................................ 11.9
Gannett Co., Inc. ........................................ 5.3
Grainger (W.W.), Inc. .................................... 11.1
Hasbro, Inc. ............................................. 20.0
Home Depot, Inc. (The) ................................... 20.0
Interpublic Group of Companies, Inc. (The) ............... 15.4
Johnson & Johnson ........................................ 13.6
Johnson Controls, Inc. ................................... 8.7
Kimberly-Clark Corp. ..................................... 4.2
Leggett & Platt, Inc. .................................... 6.7
Masco Corp. .............................................. 4.8
McDonald's Corp. ......................................... 9.1
McGraw-Hill Cos., Inc. ................................... 8.3
Minnesota Mining & Manufacturing Co. ..................... 3.8
Pentair, Inc. ............................................ 6.7
PepsiCo, Inc. ............................................ 4.0
Philip Morris Cos., Inc. ................................. 10.0
Pitney Bowes, Inc. ....................................... 12.5
Questar Corp. ............................................ 4.8
ReliaStar Financial Corp. ................................ 19.4
RPM, Inc. ................................................ 4.9
SBC Communications, Inc. ................................. 4.5
Sigma - Aldrich Corp. .................................... 3.6
Sonoco Products Co. ...................................... 10.0
SYSCO Corp. .............................................. 11.1
Teco Energy, Inc. ........................................ 5.1
UNUM Corp. ............................................... 3.5
Wal-Mart Stores, Inc. .................................... 14.8
Wells Fargo Co. .......................................... 12.1
----
The average dividend increase for this group was ......... 9.4%
====
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
======================================NOTES=====================================
John Hancock Funds - Sovereign Balanced Fund
23
<PAGE>
================================================================================
---------------
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 HUNTINGTON AVENUE, BOSTON, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
INTERNET: www.jhancock.com/funds ---------------
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Sovereign Balanced Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 3600A 12/98
2/99
<PAGE>
ANNUAL REPORT
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Sovereign
Investors Fund
DECEMBER 31, 1998
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
<PAGE>
------------------------------------------
TRUSTEES
EDWARD J. BOUDREAU, JR.
JAMES F. CARLIN
WILLIAM H. CUNNINGHAM*
RONALD R. DION*
HAROLD R. HISER, JR.
ANNE C. HODSDON
CHARLES L. LADNER
LEO E. LINBECK, JR.
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
ANNE C. HODSDON
President, Chief Operating Officer
and Chief Investment Officer
OSBERT M. HOOD
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
TRANSFER AGENT
JOHN HANCOCK SIGNATURE SERVICES, INC.
1 JOHN HANCOCK WAY, SUITE 1000
BOSTON, MASSACHUSETTS 02217-1000
INVESTMENT ADVISER
JOHN HANCOCK ADVISERS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
PRINCIPAL DISTRIBUTOR
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
LEGAL COUNSEL
HALE AND DORR LLP
60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1803
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116-5072
------------------------------------------
===============================CHAIRMAN'S MESSAGE===============================
DEAR FELLOW SHAREHOLDERS:
Nineteen ninety-eight was a year that gave even veteran financial market
investors pause -- and not a little heartburn. The stock market produced a
record fourth straight year of double-digit returns, but volatility was
breathtaking along the way. With the exception of the U.S. Treasury market, even
bonds -- considered a safer alternative to stocks -- went on a roller coaster
ride.
- --------------------------------------------------------------------------------
[A 1" x 1 1/2" photo of Edward J. Boudreau, Jr., Chairman and Chief Executive
Officer, flush right next to second paragraph.]
- --------------------------------------------------------------------------------
One lesson came through loud and clear this year: sticking out the tough
times paid off. After reaching new highs in mid-July, stocks plunged in August
in one of their worst sell-offs in years. The average U.S. diversified-equity
mutual fund fell 16.8% in the month of August alone. For many mutual fund
investors, it was the largest one-month loss they had ever experienced, since
the average equity fund had only had three such double-digit monthly losses in
the previous 20 years, most recently in October 1987. This year, in a dramatic
reversal of fortune, the market staged a stunning rebound in the fourth quarter.
The average U.S. diversified-equity fund made up all its August lost ground and
then some, returning 18.8% between October and December. The result for the
year: an average 14.52% return, as calculated by Lipper Analytical Services,
Inc.
Given the dramatic swings, investors who tried to time the market's ups and
downs encountered a sharp whipsaw. We are very encouraged to report that an
overwhelming majority of mutual fund investors sat tight during this summer of
discontent; some even used the market's drop to pick up bargains. It was a clear
sign that long-term investors are willing to accept the reality of shorter-term
volatility.
As we begin 1999, volatility remains on many investors' minds. But at this
time of year, many investors' thoughts also turn to more taxing matters. In our
view, now is a perfect time to focus on how much of your hard-earned money you
are able to keep. Part of a good tax-planning strategy should involve a review
of your portfolio to ensure that you are taking advantage of all available ways
to minimize and defer your tax payments -- in an effort to maximize investment
returns.
We encourage you to work with your investment professional to consider the
various options. These include focusing on tax-exempt funds, contributing the
maximum to retirement plans, establishing or adding to IRAs and funding a
variable annuity. After all, while it's every American's responsibility to pay
taxes, there's no reason to pay more than your fair share.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
BY JOHN F. SNYDER, III, AND BARRY H. EVANS, CFA, PORTFOLIO MANAGERS
John Hancock
Sovereign Investors Fund
Stocks produce double-digit gains
As of December 31, 1998, the Fund's trustees have approved the termination of
the Fund's subadviser, Sovereign Asset Management Corporation. This termination
will not change the Fund's portfolio management team. John F. Snyder III and
Barry H. Evans, CFA, are presently officers of John Hancock Advisers, Inc.
Volatility is what investors will probably remember most about 1998, as the year
was filled with many heart-wrenching ups and downs. During the first half of the
year, investors worried that troubled overseas economies -- particularly in
Southeast Asia, Russia and Latin America -- would lead to a global economic
slowdown. In fact, by the end of August, it looked as if U.S. stocks were headed
for a bear market, having fallen almost 20% from their mid-July highs. But then,
the Federal Reserve stepped in with a series of interest-rate cuts. The change
in fiscal policy propelled stock market averages to a record-setting fourth
consecutive year of double-digit gains. The broad market, as measured by the
Standard & Poor's 500 Stock Index, returned 28.58%, including reinvested
dividends.
It's important to point out, however, that only a handful of stocks, not the
broad market, drove the strong stock gains in 1998. Without question, technology
stocks were the market's best-performing sector, powered by a few highflying
names such as Microsoft, Intel and Dell. The one thing that this year's small
group of big winners had in common was extremely high valuations. Those stocks
with reasonable valuations and solid fundamentals were, for the most part, left
behind in this year's market rally.
Performance scorecard
John Hancock Sovereign Investors Fund turned in a solid performance for the year
that was in line with its peers. For the 12 months ended December 31, 1998, the
Fund's Class A, Class B and Class Y shares returned 15.62%, 14.79% and 16.05%,
respectively, at net asset value.
"...technology stocks were the market's best-performing sector..."
- --------------------------------------------------------------------------------
[A 3 1/2" x 2 1/2" photo at bottom right side of page of John Hancock Sovereign
Investors Fund. Caption below reads "Portfolio Managers John Snyder (l) and
Barry Evans (r)."]
- --------------------------------------------------------------------------------
3
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
"Retailers...were our biggest winners in 1998."
- --------------------------------------------------------------------------------
[Table at top left hand column entitled "Top Five Common Stock Holdings." The
first listing is General Electric 2.8%, the second is Interpublic Group 2.8%,
the third Bristol-Myers Squibb 2.7%, the fourth Emerson Electric 2.7% and the
fifth SYSCO Corp. 2.6%. A note below the table reads "As a percentage of net
assets on December 31, 1998."]
- --------------------------------------------------------------------------------
Class C shares, which were introduced on May 1, 1998, returned 5.18% at net
asset value from inception to December 31. By comparison, the average growth and
income fund returned 15.61% for the year, according to Lipper Analytical
Services, Inc.1 Keep in mind that your net asset value return will be different
from the Fund's performance if you were not invested in the Fund for the entire
period and did not reinvest all distributions. See pages six and seven for
historical performance information.
Retailers -- such as Wal-Mart, Home Depot and Dayton Hudson -- were our
biggest winners in 1998. Despite worries of an economic slowdown, consumer
spending remained particularly strong throughout the year, thanks to high
employment levels and strong wage growth. Although strong consumer spending
certainly buoyed Wal-Mart, Home Depot and Dayton Hudson, what really drove their
performance was their dominant market positions. Home Depot, for example, has
been able to gain market share from struggling competitors and Dayton Hudson has
grown market share with the aggressive expansion of its mass merchandise chain,
Target.
By the same token, the Fund's performance was also impacted by what we didn't
own in the portfolio, namely technology stocks. As we've explained in past
reports, technology stocks simply don't meet our investment criteria. We focus
on companies that have increased their dividends consistently for at least the
past 10 years. We call these companies "dividend performers" and most technology
stocks aren't in this category. While this tends to be a cautious approach, it
provides the Fund with a strong risk profile and has helped the Fund generate
positive returns in 19 out of the past 20 calendar years. And while we certainly
can't guarantee future results, we believe that this approach may help
shareholders weather a more difficult investment environment in 1999.
A look at new holdings
Companies that make up the "dividend performers" universe have one thing in
common. They dominate the markets in which they compete. That is particularly
important if the economy shows signs of slowing in 1999 and it becomes more
difficult for companies with poor fundamentals to show attractive sales and
earnings growth. By contrast, those dominant companies will have the ability to
gain market share, control pricing, expand into new markets and acquire new
lines of business. As we looked for new investment opportunities in 1998, we
continued to focus on those dominant companies that will be winners in a slowing
economy. Below are some examples.
American International Group (AIG). We've added significantly to our position
in this worldwide property/casualty insurance leader. This is a perfect example
of a dominant industry leader that has been able to gain market share from
weaker competitors. With all of the
- --------------------------------------------------------------------------------
[Table at bottom of left hand column entitled "Scorecard". The header for the
left column is "Investment" and the header for the right column is "Recent
Performance...and What's Behind the Numbers". The first listing is Home Depot
followed by an up arrow with the phrase "Strong home improvement market." The
second listing is Dayton Hudson followed by an up arrow with the phrase
"Expansion of Target chain." The third listing is Bemis Co., Inc.followed by a
down arrow with the phrase "Impacted by weak foreign economies." A note below
the table reads "See `Schedule of Investments.' Investment holdings are subject
to change."]
- --------------------------------------------------------------------------------
4
<PAGE>
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John Hancock Funds - Sovereign Investors Fund
- --------------------------------------------------------------------------------
[Bar chart at top of left hand column with heading "Fund Performance". Under the
heading is a note that reads "For the year ended December 31, 1998." The chart
is scaled in increments of 5% with 0% at the bottom and 20% at the top. The
first bar represents the 15.62% Total return for John Hancock Sovereign
Investors Fund Class A. The second bar represents the 14.79% total return for
John Hancock Sovereign Investors Fund Class B. The third bar represents the
5.18%* total return for John Hancock Sovereign Investors Fund Class C. The
fourth bar represents the 16.05% total return for John Hancock Sovereign
Investors Fund Class Y and the fifth bar represents the 15.61% total return for
Average growth and income fund. A note below the chart reads "Total returns for
John Hancock Sovereign Investors Fund are at net asset value with all
distributions reinvested. The average growth and income fund is tracked by
Lipper Analytical Services, Inc. See the following two pages for historical
performance information. *From inception May 1, 1998 to December 31, 1998."]
- --------------------------------------------------------------------------------
financial turmoil in the Asian economies, AIG is one of the few AAA-rated
insurance companies left. As a result, it has been able to grab tremendous
market share in the wake of Asia's financial restructuring.
Albertson's. We've recently added this supermarket chain to the portfolio.
With the supermarket industry in the midst of consolidation, the larger, more
dominant players such as Albertson's are likely to be the big winners as smaller
chains are swallowed up. In fact, the company's recent acquisition of American
Stores should help improve its profitability and pricing power.
Masco. This manufacturer of home-building and home-improvement products is
one of Home Depot's largest and most favored suppliers. Needless to say, Masco
has benefited tremendously from the strong growth of the world's largest
home-improvement retailer. As Home Depot's dominance has grown, so has Masco's.
Outlook
Looking ahead to 1999, we expect the U.S. economy to be more sluggish. Although
the worst seems to be over in Southeast Asia and Japan, we don't expect those
economies to make a quick recovery in 1999. As a result, lackluster demand from
overseas is likely to continue to put pressure on the earnings of American
multinationals. It's also hard to imagine that consumers will be able to
maintain the same high levels of spending in 1999. Lower consumer spending will
certainly impact top-line earnings growth at many companies. And finally, with
inflation likely to remain tame, pricing power will continue to diminish for
corporations. In this environment, increases in corporate earnings will be much
harder to come by and investors should temper their expectations accordingly.
As for stocks, we expect the market to broaden out in 1999. With this year's
robust market gains limited to such a small group of stocks, the opportunity
lies in those companies with more reasonable valuations and solid fundamentals
that have lagged the market in 1998. The key will be to invest in companies with
bulletproof earnings that won't disappoint investors. We believe that Sovereign
Investors Fund is well positioned for this market environment. Our universe of
"dividend performers" historically have been able to grow their earnings
consistently in any economic environment, even an economic slowdown.
"...we expect the market to broaden out in 1999."
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
(1) Figures from Lipper Analytical Services, Inc. include reinvested dividends
and do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Sovereign Investors Fund. Total return
measures the change in value of an investment from the beginning to the end of a
period, assuming all distributions were reinvested.
For Class A shares, total return figures include a maximum applicable sales
charge of 5%. Class B performance reflects a maximum contingent deferred sales
charge (maximum 5% and declining to 0% over six years). Class C performance
includes a contingent deferred sales charge of 1% (declining to 0% after one
year).
All figures represent past performance and are no guarantee of future results.
Keep in mind that the total return and share price of the Fund's investments
will fluctuate. As a result, your Fund's shares may be worth more or less than
their original cost, depending on when you sell them. Please read your
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------------------
For the period ended December 31, 1998
ONE FIVE TEN
YEAR YEARS YEARS
---- ----- -----
Cumulative Total Returns 9.83% 111.47% 304.63%
Average Annual Total Returns 9.83% 16.16% 15.00%
- --------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------
For the period ended December 31, 1998
SINCE
ONE INCEPTION
YEAR (1/3/94)
---- --------
Cumulative Total Returns 9.79% 113.44%
Average Annual Total Returns 9.79% 16.40%
- --------------------------------------------------------------------------------
CLASS C*
- --------------------------------------------------------------------------------
For the period ended December 31, 1998
SINCE
INCEPTION
(5/1/98)
--------
Cumulative Total Return 4.19%
Average Annual Total Return(1) 4.19%
- --------------------------------------------------------------------------------
CLASS Y**
- --------------------------------------------------------------------------------
For the period ended December 31, 1998
SINCE
ONE FIVE INCEPTION
YEAR YEARS (5/7/93)
---- ----- --------
Cumulative Total Returns 16.05% 126.54% 138.16%
Average Annual Total Returns 16.05% 17.77% 16.59%
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
As of December 31, 1998
SEC 30-DAY
YIELD
-----
John Hancock Sovereign Investors Fund: Class A 1.18%
John Hancock Sovereign Investors Fund: Class B 0.52%
John Hancock Sovereign Investors Fund: Class C 0.66%
John Hancock Sovereign Investors Fund: Class Y 1.57%
Notes to Performance
* The new Class C shares commenced operations on May 1, 1998.
** The original Class C shares were renamed Class Y shares effective May 1,
1998.
(1) Not annualized.
6
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
Line chart with the heading John Hancock Sovereign Investors 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
Standard & Poor's 500 Stock Index and is equal to $57,864 as of December 31,
1998. The second line represents the value of the hypothetical $10,000
investment made in the John Hancock Sovereign Investors Fund, before sales
charge, on December 31, 1988, and is equal to $42,597 as of December 31, 1998.
The third line represents the same hypothetical investment made in the John
Hancock Sovereign Investors Fund, after sales charge, and is equal to $40,463 as
of December 31, 1998.
Chart representing the growth of $10,000 investment for the Fund's Class B, C
and Y shares in lower right hand corner of page. Within the chart there are
three columns and four rows.
Going from left to right, the first column represents information for Class B
shares. From top to bottom the information is as follows: Inception Date:
1/3/94; Without Sales Charge: $21,544; With Maximum Sales Charge: $21,344;
Standard and Poor's 500 Stock Index: $29,424. The second column represents Class
C shares. Top to bottom information is as follows: Inception Date: 5/1/98;
Without Sales Charge: $10,518; With Maximum Sales Charge: $10,418; Standard and
Poor's 500 Stock Index: $11,185. The third column represents Class Y shares.
From top to bottom information is as follows: Inception Date: 5/7/93; Without
Sales Charge: $23,816; With Maximum Sales Charge: N/A; Standard and Poor's 500
Stock Index: $31,552.
- --------------------------------------------------------------------------------
Class B Class C Class Y
Inception Date 1/3/94 5/1/98 5/7/93
Without Sales Charge $21,544 $10,518 $23,816
With Maximum Sales Charge $21,344 $10,418 N/A
Standard and Poor's
500 Stock Index $29,424 $11,185 $31,552
7
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks (cost - $1,555,634,285) ..................... $2,415,736,551
Corporate bonds (cost - $95,129,144) .................................... 97,912,266
U.S. government and agencies obligations (cost - $101,792,234) .......... 103,193,709
Joint repurchase agreement (cost - $137,799,000) ........................ 137,799,000
Corporate savings account ............................................... 25,652
--------------
2,754,667,178
Receivable for shares sold ............................................... 819,454
Dividends receivable ..................................................... 3,201,415
Interest receivable ...................................................... 3,171,339
Other assets ............................................................. 206,860
--------------
Total Assets ........................................... 2,762,066,246
-------------------------------------------------------------------------
Liabilities:
Payable for investments purchased ........................................ 15,462,725
Payable for shares repurchased ........................................... 680,428
Payable to John Hancock Advisers, Inc. ...................................
and affiliates - Note B ................................................. 4,210,248
--------------
Total Liabilities ...................................... 20,353,401
-------------------------------------------------------------------------
Net Assets:
Capital paid-in .......................................................... 1,852,538,012
Accumulated net realized gain on investments ............................. 20,604,734
Net unrealized appreciation of investments ............................... 864,302,182
Undistributed net investment income ...................................... 4,267,917
--------------
Net Assets ............................................. $2,741,712,845
========================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value)
Class A - $1,884,460,320/77,765,266 ...................................... $24.23
===========================================================================================
Class B - $790,276,726/32,655,983 ........................................ $24.20
===========================================================================================
Class C* - $4,626,786/191,053 ............................................ $24.22
===========================================================================================
Class Y** - $62,349,013/2,572,181 ........................................ $24.24
===========================================================================================
Maximum Offering Price Per Share***
Class A - ($24.23 x 105.26%) ............................................. $25.51
===========================================================================================
</TABLE>
* The new Class C shares commenced operations on May 1, 1998.
** The original Class C shares were renamed Class Y shares effective May 1,
1998.
*** On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on December 31, 1998. You'll
also find the net asset value and the maximum offering price per share as of
that date.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Statement of Operations
Year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income:
Dividends .......................................................... $37,067,284
Interest ........................................................... 23,459,753
------------
60,527,037
------------
Expenses:
Investment management fee - Note B ................................ 13,903,829
Distribution and service fee - Note B
Class A ......................................................... 5,422,067
Class B ......................................................... 6,885,899
Class C ......................................................... 15,306
Transfer agent fee - Note B ....................................... 4,018,640
Financial services fee - Note B ................................... 410,748
Custodian fee ..................................................... 351,484
Trustees' fees .................................................... 197,343
Registration and filing fees ...................................... 109,114
Printing .......................................................... 98,832
Miscellaneous ..................................................... 69,796
Auditing fee ...................................................... 47,746
Legal fees ........................................................ 30,855
------------
Total Expenses ................................... 31,561,659
-----------------------------------------------------------------
Net Investment Income ............................ 28,965,378
-----------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold .............................. 165,892,837
Change in net unrealized appreciation/depreciation of investments .. 171,161,057
------------
Net Realized and Unrealized Gain on
Investments ...................................... 337,053,894
-----------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ........................ $366,019,272
=================================================================
</TABLE>
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains for the period
stated.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998
-------------- --------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income ........................................... $27,137,824 $28,965,378
Net realized gain on investments sold ........................... 240,406,642 165,892,837
Change in net unrealized appreciation/depreciation of investments 274,962,970 171,161,057
-------------- --------------
Net Increase in Net Assets Resulting from Operations .......... 542,507,436 366,019,272
-------------- --------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.3203 and $0.3139 per share, respectively) ....... (22,908,079) (23,712,516)
Class B - ($0.1480 and $0.1358 per share, respectively) ....... (3,461,817) (4,062,580)
Class C** - (none and $0.1235 per share, respectively) ........ -- (14,721)
Class Y*** - ($0.4017 and $0.3935 per share, respectively) .... (719,361) (927,523)
Distributions from net realized gain on investments sold
Class A - ($2.3840 and $1.2878 per share, respectively) ....... (168,473,550) (95,145,395)
Class B - ($2.3840 and $1.2878 per share, respectively) ....... (58,671,765) (39,824,856)
Class C** - (none and $1.2878 per share, respectively) ........ -- (204,020)
Class Y*** - ($2.3840 and $1.2878 per share, respectively) .... (4,607,424) (3,140,420)
-------------- --------------
Total Distributions to Shareholders ......................... (258,841,996) (167,032,031)
-------------- --------------
From Fund Share Transactions - Net: * .............................. 258,579,708 135,002,951
-------------- --------------
Net Assets:
Beginning of period ............................................. 1,865,477,505 2,407,722,653
-------------- --------------
End of period (including undistributed net investment
income of $48,467 and $4,267,917, respectively) ............... $2,407,722,653 $2,741,712,845
============== ==============
</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.
10
<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,
------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ..................................................... 19,232,348 $415,010,041 13,387,027 $315,833,546
Shares issued to shareholders in reinvestment of distributions .. 8,011,837 178,596,078 4,746,128 110,630,538
------------ ------------ ------------ ------------
27,244,185 593,606,119 18,133,155 426,464,084
Less shares repurchased ......................................... (22,602,919) (489,814,527) (18,399,338) (432,577,451)
------------ ------------ ------------ ------------
Net increase (decrease) ......................................... 4,641,266 $103,791,592 (266,183) ($6,113,367)
============ ============ ============ ============
CLASS B
Shares sold ..................................................... 9,793,231 $212,352,695 8,792,974 $207,827,824
Shares issued to shareholders in reinvestment of distributions .. 2,605,792 58,050,121 1,764,977 41,005,639
------------ ------------ ------------ ------------
12,399,023 270,402,816 10,557,951 248,833,463
Less shares repurchased ......................................... (5,990,391) (129,781,552) (5,198,801) (122,125,680)
------------ ------------ ------------ ------------
Net increase .................................................... 6,408,632 $140,621,264 5,359,150 $126,707,783
============ ============ ============ ============
CLASS C**
Shares sold ..................................................... -- -- 193,199 $4,581,484
Shares issued to shareholders in reinvestment of distributions .. -- -- 8,781 203,952
------------ ------------ ------------ ------------
-- -- 201,980 4,785,436
Less shares repurchased ......................................... -- -- (10,927) (253,063)
------------ ------------ ------------ ------------
Net increase .................................................... -- -- 191,053 $4,532,373
============ ============ ============ ============
CLASS Y***
Shares sold ..................................................... 581,603 $12,802,638 601,499 $14,196,937
Shares issued to shareholders in reinvestment of distributions .. 238,907 5,326,777 174,378 4,066,776
------------ ------------ ------------ ------------
820,510 18,129,415 775,877 18,263,713
Less shares repurchased ......................................... (177,952) (3,962,563) (356,868) (8,387,551)
------------ ------------ ------------ ------------
Net increase .................................................... 642,558 $14,166,852 419,009 $9,876,162
============ ============ ============ ============
</TABLE>
** The new Class C shares commenced operations on May 1, 1998.
*** The original Class C shares were renamed Class Y shares effective May 1,
1998.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ...... $15.10 $14.24 $17.87 $19.48 $22.41
---------- ---------- ---------- ---------- ----------
Net Investment Income ..................... 0.46 0.40 0.36(3) 0.32(3) 0.31(3)
Net Realized and Unrealized Gain (Loss)
on Investments ........................... (0.75) 3.71 2.77 5.31 3.11
---------- ---------- ---------- ---------- ----------
Total from Investment Operations ........ (0.29) 4.11 3.13 5.63 3.42
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income .... (0.46) (0.40) (0.36) (0.32) (0.31)
Distributions from Net Realized Gain
on Investments Sold .................... (0.11) (0.08) (1.16) (2.38) (1.29)
---------- ---------- ---------- ---------- ----------
Total Distributions ..................... (0.57) (0.48) (1.52) (2.70) (1.60)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ............ $14.24 $17.87 $19.48 $22.41 $24.23
========== ========== ========== ========== ==========
Total Investment Return at Net
Asset Value(2) ........................... (1.85%) 29.15% 17.57% 29.14% 15.62%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .. $1,090,231 $1,280,321 $1,429,523 $1,748,490 $1,884,460
Ratio of Expenses to Average Net Assets ... 1.16% 1.14% 1.13% 1.06% 1.03%
Ratio of Net Investment Income to
Average Net Assets ....................... 3.13% 2.45% 1.86% 1.44% 1.33%
Portfolio Turnover Rate ................... 45% 46% 59% 62% 51%
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS B (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period ...... $15.02 $14.24 $17.86 $19.46 $22.38
-------- -------- -------- -------- --------
Net Investment Income(3) .................. 0.38 0.27 0.21 0.16 0.14
Net Realized and Unrealized Gain (Loss)
on Investments ........................... (0.69) 3.71 2.77 5.29 3.11
-------- -------- -------- -------- --------
Total from Investment Operations ...... (0.31) 3.98 2.98 5.45 3.25
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .... (0.36) (0.28) (0.22) (0.15) (0.14)
Distributions from Net Realized Gain
on Investments Sold .................... (0.11) (0.08) (1.16) (2.38) (1.29)
-------- -------- -------- -------- --------
Total Distributions ................... (0.47) (0.36) (1.38) (2.53) (1.43)
-------- -------- -------- -------- --------
Net Asset Value, End of Period ............ $14.24 $17.86 $19.46 $22.38 $24.20
======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(2) ........................... (2.04%)(4) 28.16% 16.67% 28.14% 14.79%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .. $128,069 $257,781 $406,523 $610,976 $790,277
Ratio of Expenses to Average Net Assets ... 1.86%(5) 1.90% 1.91% 1.83% 1.79%
Ratio of Net Investment Income to
Average Net Assets ....................... 2.57%(5) 1.65% 1.10% 0.67% 0.58%
Portfolio Turnover Rate ................... 45% 46% 59% 62% 51%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
FROM MAY 1, 1998
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31, 1998
-----------------
<S> <C>
CLASS C (7)
Per Share Operating Performance
Net Asset Value, Beginning of Period .................................. $24.43
------
Net Investment Income(3) .............................................. 0.13
Net Realized and Unrealized Gain on Investments ....................... 1.07
------
Total from Investment Operations .................................. 1.20
------
Less Distributions:
Dividends from Net Investment Income ................................ (0.12)
Distributions from Net Realized Gain on Investments Sold ............ (1.29)
------
Total Distributions ............................................... (1.41)
------
Net Asset Value, End of Period ........................................ $24.22
======
Total Investment Return at Net Asset Value(2) ......................... 5.18%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............................. $4,627
Ratio of Expenses to Average Net Assets ............................... 1.67%(5)
Ratio of Net Investment Income to Average Net Assets .................. 0.84%(5)
Portfolio Turnover Rate ............................................... 51%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Financial Highlights (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS Y(6)
Per Share Operating Performance
Net Asset Value, Beginning of Period ...... $15.11 $14.24 $17.87 $19.48 $22.41
------- ------- ------- ------- -------
Net Investment Income ..................... 0.52 0.46 0.44(3) 0.41(3) 0.40(3)
Net Realized and Unrealized Gain (Loss)
on Investments ........................... (0.77) 3.71 2.76 5.30 3.11
------- ------- ------- ------- -------
Total from Investment Operations ...... (0.25) 4.17 3.20 5.71 3.51
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .... (0.51) (0.46) (0.43) (0.40) (0.39)
Distributions from Net Realized Gain
on Investments Sold .................... (0.11) (0.08) (1.16) (2.38) (1.29)
------- ------- ------- ------- -------
Total Distributions ................... (0.62) (0.54) (1.59) (2.78) (1.68)
------- ------- ------- ------- -------
Net Asset Value, End of Period ............ $14.24 $17.87 $19.48 $22.41 $24.24
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value(2) ........................... (1.57%) 29.68% 17.99% 29.60% 16.05%
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .. $15,128 $19,946 $29,431 $48,256 $62,349
Ratio of Expenses to Average Net Assets ... 0.81% 0.74% 0.75% 0.71% 0.69%
Ratio of Net Investment Income to
Average Net Assets ....................... 3.53% 2.84% 2.26% 1.79% 1.67%
Portfolio Turnover Rate ................... 45% 46% 59% 62% 51%
</TABLE>
(1) Class B shares commenced operations on January 3, 1994.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Not annualized.
(5) Annualized.
(6) Effective May 1, 1998, the original Class C shares were renamed Class Y
shares.
(7) The new Class C shares commenced operations on May 1, 1998.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
Schedule of Investments
December 31, 1998
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, and are unaudited.
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Sovereign Investors Fund on December 31, 1998. It's divided into five main
categories: common stocks, preferred stocks, corporate bonds, U.S. government
and agencies obligations and short-term investments. The common stocks are
further broken down by industry group. Short-term investments, which represent
the Fund's "cash" position, are listed last.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------
<S> <C> <C>
COMMON STOCKS (87.49%)
Advertising (2.76%)
950,000 Interpublic Group of Companies,
Inc. (The) @ 79 3/4............................................................. $75,762,500
--------------
One of the largest advertising agencies in
the world
Earnings P/S................$.70, .79, .82, .95, .99, 1.19, 1.36, 1.34, 1.81, 2.18 13.5%
Dividends P/S....................$.21, .25, .27, .30, .33, .36, .40, .44, .50, .58 11.9%
Price/Earnings Ratio..........................................................38.2
Banks (6.50%)
797,500 Banc One Corp. @ 51 1/16.......................................................... 40,722,344
Ohio-based bank holding company
Earnings P/S............$.98, 1.10, 1.50, 1.88, 2.21, 2.49, 2.07, 2.60, 2.03, 3.13 4.9%
Dividends P/S...............$.52, .57, .63, .73, .89, 1.02, 1.12, 1.24, 1.38, 1.52 13.0%
Price/Earnings Ratio..........................................................14.9
450,000 BankAmerica Corp. @ 60 1/8........................................................ 27,056,250
Third largest bank holding company in the U.S.
Earnings P/S............$1.45, 2.31, 1.67, .38, 2.26, 2.47, 3.03, 3.53, 4.07, 4.16 12.4%
Dividends P/S................$.55, .71, .74, .76, .82, .94, 1.04, 1.20, 1.37, 1.59 12.5%
Price/Earnings Ratio..........................................................16.2
700,000 First Tennessee National Corp. @ 38 1/16.......................................... 26,643,750
Tennessee-based bank holding company
Earnings P/S................$.57, .61, .63, .88, .76, 1.01, 1.12, 1.27, 1.49, 1.70 12.9%
Dividends P/S....................$.24, .27, .29, .32, .38, .43, .49, .55, .62, .69 12.5%
Price/Earnings Ratio..........................................................22.1
824,300 First Union Corp. @ 60 13/16...................................................... 50,127,744
North Carolina-based bank holding company
Earnings P/S...........$1.20, 1.26, 1.16, 1.45, 1.81, 2.34, 2.44, 2.41, 3.03, 2.68 9.3%
Dividends P/S.................$.50, .54, .56, .64, .75, .86, .98, 1.10, 1.22, 1.58 13.6%
Price/Earnings Ratio..........................................................16.1
550,000 KeyCorp. @ 32..................................................................... 17,600,000
Bank holding company with offices from
coast to coast
Earnings P/S...........$1.16, 1.18, 1.23, 1.20, 1.49, 1.58, 1.62, 1.78, 1.87, 2.23 7.5%
Dividends P/S....................$.40, .44, .46, .49, .56, .64, .72, .76, .84, .94 10.0%
Price/Earnings Ratio..........................................................14.2
400,000 Wells Fargo Co. @ 39 15/16........................................................ 15,975,000
Diversified financial services company providing
banking, insurance, investments and consumer
finance
Earnings P/S................$.57, .63, .68, .73, .86, 1.05, 1.21, 1.37, 1.55, 1.75 13.3%
Dividends P/S....................$.19, .21, .24, .27, .32, .38, .45, .53, .62, .70 15.6%
Price/Earnings Ratio..........................................................22.8
--------------
178,125,088
--------------
Beverages (1.64%)
1,100,000 PepsiCo, Inc. @ 40 15/16.......................................................... $45,031,250
--------------
Second largest soft drink company
Earnings P/S..................$.57, .68, .68, .82, .87, 1.07, 1.21, .74, .81, 1.40 10.5%
Dividends P/S....................$.16, .19, .23, .26, .31, .35, .39, .45, .49, .52 14.0%
Price/Earnings Ratio..........................................................35.2
Building (1.94%)
1,850,000 Masco Corp. @ 28 3/4.............................................................. 53,187,500
--------------
Manufactures building, home improvement
and consumer products
Earnings P/S...................$.71, .46, .14, .37, .68, .79, .55, .70, 1.14, 1.39 7.8%
Dividends P/S....................$.25, .27, .29, .31, .33, .35, .37, .39, .41, .43 6.2%
Price/Earnings Ratio..........................................................21.5
Business Services - Misc. (0.30%)
367,500 ServiceMaster Co. (The) @ 22 1/16................................................. 8,107,969
--------------
Provides management services to health care,
educational and industrial clients
Earnings P/S.....................$.18, .29, .38, .50, .54, .51, .62, .52, .56, .64 15.1%
Dividends P/S...................$.23, .24, .25, .26, .27, .273, .28, .30, .32, .34 4.4%
Price/Earnings Ratio..........................................................34.5
Chemicals (2.76%)
844,000 Air Products & Chemicals, Inc. @ 40............................................... 33,760,000
Producer of industrial gases
Earnings P/S.............$.99, 1.04, 1.11, 1.23, .88, 1.03, 1.65, 1.87, 1.95, 2.54 11.0%
Dividends P/S....................$.32, .35, .38, .42, .45, .48, .51, .54, .59, .66 8.4%
Price/Earnings Ratio..........................................................17.9
1,026,562 RPM, Inc. @ 16.................................................................... 16,424,992
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof structures
Earnings P/S.....................$.31, .34, .36, .43, .46, .64, .69, .65, .84, .91 12.7%
Dividends P/S....................$.22, .24, .27, .29, .31, .34, .36, .39, .42, .45 8.3%
Price/Earnings Ratio..........................................................18.8
865,000 Sigma - Aldrich Corp. @ 29 3/8.................................................... 25,409,375
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S...............$.65, .72, .62, .93, 1.04, 1.11, 1.26, 1.44, 1.61, 1.68 11.1%
Dividends P/S....................$.09, .10, .11, .13, .15, .17, .19, .23, .26, .28 13.4%
Price/Earnings Ratio..........................................................17.7
--------------
75,594,367
--------------
</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>
Computers (1.95%)
410,000 Automatic Data Processing, Inc. @ 80 3/16 ........................................ $32,876,875
Largest independent computing services firm
in the U.S.
Earnings P/S....................$.72, .37, .42, .47, .53, .61, .71, .81, .90, 1.05 4.3%
Dividends P/S....................$.07, .08, .10, .11, .13, .15, .18, .21, .24, .28 16.7%
Price/Earnings Ratio..........................................................37.8
300,000 Hewlett-Packard Co. @ 68 5/16 .................................................... 20,493,750
Manufactures and services electronic
measurement, analysis and computation
instruments
Earnings P/S...............$.88, .77, .76, .87, 1.16, 1.54, 2.32, 2.46, 3.00, 2.84 13.9%
Dividends P/S....................$.10, .11, .13, .20, .24, .29, .38, .46, .54, .62 22.5%
Price/Earnings Ratio..........................................................23.7
--------------
53,370,625
--------------
Containers (2.12%)
947,000 Bemis Co., Inc. @ 37 15/16 ....................................................... 35,926,813
Producer of a broad range of flexible packaging
and equipment and pressure sensitive materials
Earnings P/S...............$.90, .99, .98, 1.14, .84, 1.33, 1.55, 1.84, 1.95, 2.15 10.2%
Dividends P/S....................$.30, .36, .42, .46, .50, .54, .64, .72, .80, .88 12.7%
Price/Earnings Ratio..........................................................18.2
750,080 Sonoco Products Co. @ 29 5/8 ..................................................... 22,221,120
Leading manufacturer of containers,
paper products and packaging
Earnings P/S................$.53, .48, .97, 1.03, .90, 1.13, 1.50, 1.64, 1.67, .35 NMF
Dividends P/S....................$.35, .39, .40, .43, .46, .48, .54, .59, .64, .70 8.0%
Price/Earnings Ratio..........................................................17.2
--------------
58,147,933
--------------
Diversified Operations (2.47%)
300,000 DuPont (E.I.) De Nemours & Co. @ 53 1/16 ......................................... 15,918,750
Nation's largest chemical manufacturer
Earnings P/S.............$1.77, 1.70, 1.57, .66, .12, 1.70, 2.72, 3.05, 2.43, 1.38 NMF
Dividends P/S................$.73, .81, .84, .87, .88, .91, 1.02, 1.12, 1.23, 1.37 7.2%
Price/Earnings Ratio..........................................................16.1
276,700 Johnson Controls, Inc. @ 59 ...................................................... 16,325,300
Manufactures automotive systems and
building controls
Earnings P/S...........$1.21, 1.07, 1.10, 1.43, 1.58, 1.90, 2.27, 2.55, 2.52, 3.89 13.9%
Dividends P/S....................$.59, .61, .63, .65, .69, .74, .79, .83, .88, .94 5.3%
Price/Earnings Ratio..........................................................18.2
500,000 Minnesota Mining & Manufacturing Co. @ 71 1/8 .................................... 35,562,500
Manufactures industrial, commercial and
health care products
Earnings P/S...........$2.83, 2.94, 2.71, 2.76, 2.91, 2.81, 3.18, 3.36, 5.15, 3.28 1.7%
Dividends P/S..........$1.30, 1.46, 1.56, 1.60, 1.66, 1.76, 1.88, 1.92, 2.12, 2.20 6.0%
Price/Earnings Ratio..........................................................19.0
--------------
67,806,550
--------------
Electronics (8.50%)
1,200,000 Emerson Electric Co. @ 60 1/2 .................................................... $72,600,000
Produces and sells electrical/electronic products
and systems
Earnings P/S...........$1.32, 1.38, 1.42, 1.48, 1.58, 2.02, 1.95, 2.28, 2.52, 2.80 8.7%
Dividends P/S.................$.58, .64, .67, .70, .74, .80, .92, 1.01, 1.11, 1.21 8.5%
Price/Earnings Ratio..........................................................21.5
750,000 General Electric Co. @ 102 1/16 .................................................. 76,546,875
Dominant force in home appliances, electrical
power and financial services
Earnings P/S...........$1.09, 1.22, 1.27, 1.27, 1.16, 1.66, 1.89, 2.14, 2.42, 2.75 10.8%
Dividends P/S..................$.43, .48, .52, .58, .65, .75, .85, .95, 1.08, 1.25 12.6%
Price/Earnings Ratio..........................................................36.3
750,000 Grainger (W.W.), Inc. @ 41 5/8 ................................................... 31,218,750
Leading distributor of electrical equipment
Earnings P/S...........$1.10, 1.16, 1.18, 1.28, 1.38, 1.64, 1.34, 1.99, 2.21, 2.42 9.2%
Dividends P/S....................$.25, .28, .31, .33, .35, .39, .45, .49, .53, .59 10.0%
Price/Earnings Ratio..........................................................17.1
700,000 Honeywell, Inc. @ 75 5/16.... .................................................... 52,718,750
Makes automation and control systems
Earnings P/S...........$3.55, 2.52, 2.37, 3.41, 1.78, 2.19, 2.44, 2.96, 3.51, 4.32 2.2%
Dividends P/S................$.57, .70, .77, .84, .91, .97, 1.01, 1.06, 1.09, 1.13 7.9%
Price/Earnings Ratio..........................................................17.2
--------------
233,084,375
--------------
Finance (0.77%)
425,000 Citigroup, Inc. @ 49 1/2 ......................................................... 21,037,500
--------------
Diversified global financial services company
offering commercial/consumer banking,
investment banking, brokerage services and
insurance to consumer and corporate
customers around the world
Earnings P/S................$.46, .47, .55, .71, .88, 1.29, 1.28, 1.64, 2.55, 2.76 22.0%
Dividends P/S...................$.05, .06, .075, .12, .16, .19, .27, .30, .40, .56 30.8%
Price/Earnings Ratio..........................................................19.0
Food (2.92%)
430,000 Archer-Daniels-Midland Co. @ 17 3/16 ............................................. 7,390,625
Processes and merchandises agricultural
products
Earnings P/S....................$.73, .68, .70, .72, .73, .91, 1.29, .89, .84, .66 NMF
Dividends P/S..................$.03, .04, .045, .047, .05, .06, .10, .17, .18, .19 22.8%
Price/Earnings Ratio..........................................................29.5
500,000 Campbell Soup Co. @ 55 ........................................................... 27,500,000
Manufactures and markets branded
convenience food products
Earnings P/S...............$.01, .05, .84, 1.02, .54, 1.32, 1.45, 1.33, 1.75, 1.55 75.1%
Dividends P/S....................$.24, .26, .31, .40, .52, .58, .64, .71, .79, .86 15.2%
Price/Earnings Ratio..........................................................28.5
1,600,000 Sara Lee Corp. @ 28 3/16 ......................................................... 45,100,000
Manufactures brand name packaged foods
and consumer products
Earnings P/S...................$.47, .49, .71, .64, .72, .23, .84, .94, 1.05, (.43) NMF
Dividends P/S....................$.19, .22, .24, .26, .30, .33, .35, .39, .43, .47 10.6%
Price/Earnings Ratio..................................................................NMF
--------------
79,990,625
--------------
</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>
Furniture (1.28%)
1,590,000 Leggett & Platt, Inc. @ 22 ....................................................... $34,980,000
--------------
Produces intermediate products for the home
furnishings industry
Earnings P/S...................$.33, .33, .16, .38, .49, .65, .78, .81, 1.05, 1.23 15.7%
Dividends P/S..................$.09, .105, .108, .12, .14, .16, .19, .23, .27, .32 15.1%
Price/Earnings Ratio..........................................................17.7
Insurance (6.44%)
800,000 AFLAC Corp. @ 44 ................................................................. 35,200,000
Global specialty insurer
Earnings P/S.................$.27, .38, .46, .57, .72, .90, 1.14, 1.21, 2.28, 1.74 23.0%
Dividends P/S....................$.08, .09, .10, .11, .13, .15, .17, .19, .22, .25 13.5%
Price/Earnings Ratio..........................................................28.3
450,000 American International Group, Inc. @ 96 5/8 ...................................... 43,481,250
Broadly based property-casualty insurance
organization
Earnings P/S...........$1.31, 1.36, 1.42, 1.46, 1.74, 1.97, 2.27, 2.64, 3.04, 3.48 11.5%
Dividends P/S.....................$.07, .08, .09, .10, .11, 13, .14, .16, .19, .21 13.0%
Price/Earnings Ratio..........................................................30.2
814,300 ReliaStar Financial Corp. @ 46 1/8 ............................................... 37,559,587
Financial services company engaged in life/health
insurance and consumer finance
Earnings P/S...............$.68, .79, .86, .96, 1.26, 1.53, 2.08, 2.46, 2.61, 2.89 17.4%
Dividends P/S....................$.30, .32, .35, .37, .39, .44, .49, .55, .61, .71 10.0%
Price/Earnings Ratio..........................................................15.4
1,035,000 UNUM Corp. @ 58 3/8.......... .................................................... 60,418,125
Holding company for Unum Life Insurance
Company of America
Earnings P/S............$.97, 1.35, 1.51, 1.78, 1.89, 1.20, 1.88, 1.72, 2.43, 2.69 12.0%
Dividends P/S....................$.14, .19, .25, .31, .38, .46, .52, .55, .57, .59 17.3%
Price/Earnings Ratio..........................................................21.6
--------------
176,658,962
--------------
Leisure (0.92%)
700,000 Hasbro, Inc. @ 36 1/8 ............................................................ 25,287,500
--------------
Designs, manufactures and markets toys,
games and interactive software
Earnings P/S...............$.69, .69, .50, 1.18, 1.45, 1.30, 1.11, 1.43, 1.68, .71 0.3%
Dividends P/S....................$.07, .08, .10, .13, .15, .18, .21, .25, .31, .32 18.4%
Price/Earnings Ratio..........................................................22.2
Machinery (2.59%)
1,000,000 Dover Corp. @ 36 5/8 ............................................................. 36,625,000
Manufactures a variety of specialized
industrial products
Earnings P/S.................$.57, .64, .56, .54, .66, .83, 1.17, 1.67, 1.72, 1.72 13.1%
Dividends P/S....................$.18, .19, .21, .22, .23, .25, .28, .32, .36, .40 9.3%
Price/Earnings Ratio..........................................................21.7
862,900 Pentair, Inc. @ 39 13/16 ......................................................... 34,354,206
Manufactures enclosures for electrical, electronic,
woodworking and power tool equipment
Earnings P/S.............$.93, .96, 1.01, 1.06, 1.19, 1.20, 1.40, 1.73, 2.11, 2.57 12.0%
Dividends P/S....................$.27, .29, .31, .33, .34, .36, .40, .50, .54, .60 9.3%
Price/Earnings Ratio..........................................................16.2
--------------
70,979,206
--------------
Media (4.55%)
900,000 Gannett Co., Inc. @ 64 1/2........................................................ $58,050,000
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S...........$1.23, 1.17, 1.04, 1.13, 1.32, 1.53, 1.67, 1.69, 2.73, 3.42 12.0%
Dividends P/S....................$.56, .61, .62, .63, .65, .67, .69, .71, .74, .78 3.8%
Price/Earnings Ratio..........................................................22.4
655,600 McGraw-Hill Cos., Inc. @ 101 7/8 ................................................. 66,789,250
Provides informational products and services
for business and industry
Earnings P/S.............$.49, 1.77, 1.58, 1.58, .12, 2.00, 2.25, 2.44, 5.36, 3.39 24.0%
Dividends P/S..........$1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32, 1.44, 1.56 5.1%
Price/Earnings Ratio..........................................................30.4
--------------
124,839,250
--------------
Medical (10.07%)
850,000 Abbott Laboratories @ 49.......................................................... 41,650,000
Major pharmaceutical and healthcare firm
Earnings P/S.................$.49, .56, .61, .71, .82, .91, 1.03, 1.17, 1.32, 1.49 13.2%
Dividends P/S.........................$.17, .20, .24, .29, .33, .37, .41, .53, .59 14.8%
Price/Earnings Ratio..........................................................33.3
750,000 Baxter International, Inc. @ 64 5/16 ............................................. 48,234,375
The company operates four divisions: renal,
biotech, cardiovascular and intravenous
systems and international distribution
Earnings P/S..........$1.49, (.05), 2.10, 1.80, 1.69, (.62), 1.41, 2.07, .99, 1.03 NMF
Dividends P/S..............$.56, .64, .74, .86, 1.00, 1.03, 1.11, 1.17, 1.14, 1.16 8.4%
Price/Earnings Ratio..........................................................25.3
500,000 Becton, Dickinson & Co. @ 42 11/16 ............................................... 21,343,750
Manufactures broad line of medical supplies
Earnings P/S...................$.68, .58, .61, .65, .68, .76, .90, 1.06, 1.20, .95 3.8%
Dividends P/S...................$.13, .14, .15, .154, .17, .19, .21, .24, .27, .30 9.7%
Price/Earnings Ratio..........................................................30.3
550,000 Bristol-Myers Squibb Co. @ 133 13/16 ............................................. 73,596,875
Produces pharmaceuticals, medical devices,
non-prescription health products
Earnings P/S............$.72, 1.67, 1.89, 2.00, 1.61, 1.97, 2.02, 1.98, 3.13, 3.55 19.4%
Dividends P/S..........$1.02, 1.10, 1.25, 1.40, 1.45, 1.47, 1.49, 1.51, 1.53, 1.60 5.1%
Price/Earnings Ratio..........................................................37.4
626,000 Johnson & Johnson @ 83 7/8 ....................................................... 52,505,750
Major producer of prescription and
non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S.............$.80, .85, 1.07, 1.20, 1.35, 1.53, 1.80, 2.11, 2.42, 2.68 14.4%
Dividends P/S....................$.28, .33, .39, .45, .51, .57, .64, .74, .85, .97 14.8%
Price/Earnings Ratio..........................................................31.4
150,000 Merck & Co., Inc. @ 147 11/16 .................................................... 22,153,125
World's largest ethical drug manufacturer
Earnings P/S...........$1.26, 1.52, 1.75, 2.05, 1.84, 2.33, 2.61, 3.03, 3.66, 4.27 14.5%
Dividends P/S..............$.57, .67, .79, .96, 1.06, 1.16, 1.28, 1.48, 1.74, 1.98 14.8%
Price/Earnings Ratio..........................................................34.3
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------
<S> <C> <C>
Medical (continued)
300,000 Schering-Plough Corp. @ 55 1/4 ................................................... $16,575,000
Discovers, develops, manufactures and markets
pharmaceutical and health care products worldwide
Earnings P/S....................$.27, .32, .36, .43, .51, .59, .69, .80, .94, 1.15 17.5%
Dividends P/S....................$.11, .13, .16, .19, .22, .25, .28, .32, .37, .43 16.4%
Price/Earnings Ratio..........................................................46.8
--------------
276,058,875
--------------
Metal (0.21%)
100,000 Illinois Tool Works, Inc. @ 58 ................................................... 5,800,000
--------------
Manufactures construction fasteners and
packaging systems
Earnings P/S...............$0.76, .83, .81, .84, .89, 1.11, 1.59, 1.88, 2.25, 2.60 14.6%
Dividends P/S....................$.14, .17, .20, .23, .25, .27, .31, .35, .43, .51 15.4%
Price/Earnings Ratio..........................................................22.5
Office (2.17%)
900,000 Pitney Bowes, Inc. @ 66 1/16. .................................................... 59,456,250
--------------
Manufactures office automation equipment
Earnings P/S................$.60, .67, .88, .94, .95, 1.12, 1.28, 1.51, 1.73, 2.01 14.4%
Dividends P/S....................$.26, .30, .34, .39, .45, .52, .60, .69, .80, .90 14.8%
Price/Earnings Ratio..........................................................32.1
Oil & Gas (3.27%)
400,000 Chevron Corp. @ 82 15/16 ......................................................... 33,175,000
One of the largest integrated, international oil
companies with interest in petrochemicals
Earnings P/S............$.37, 3.05, 2.69, 1.69, 3.14, 2.09, 3.03, 2.64, 4.35, 3.68 29.1%
Dividends P/S..........$1.40, 1.48, 1.63, 1.65, 1.75, 1.85, 1.93, 2.08, 2.28, 2.44 6.4%
Price/Earnings Ratio..........................................................28.0
650,000 Mobil Corp. @ 87 1/8 ............................................................. 56,631,250
One of the largest integrated, international oil
companies with interest in petrochemicals and
plastics
Earnings P/S...........$2.20, 2.05, 2.63, 1.43, 2.74, 1.92, 2.61, 3.83, 4.05, 3.21 4.3%
Dividends P/S..........$1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96, 2.12, 2.28 6.6%
Price/Earnings Ratio..........................................................29.7
--------------
89,806,250
--------------
Paper & Paper Products (0.89%)
450,000 Kimberly-Clark Corp. @ 54 1/2 .................................................... 24,525,000
--------------
Leading producer of consumer and personal
care products
Earnings P/S.............$1.32, 1.35, 1.50, 1.69, .98, 1.78, 1.90, .37, 2.47, 1.43 0.9%
Dividends P/S...................$.65, .68, .76, .82, .86, .88, .90, .92, .96, 1.00 4.9%
Price/Earnings Ratio..........................................................22.2
Retail (10.45%)
700,000 Albertson's, Inc. @ 63 11/16. .................................................... 44,581,250
One of the largest retail food-drug chains in
the United States
Earnings P/S...............$.74, .83, .94, .95, 1.24, 1.58, 1.80, 1.96, 1.99, 2.24 13.1%
Dividends P/S....................$.19, .23, .27, .31, .35, .42, .50, .58, .63, .67 15.0%
Price/Earnings Ratio..........................................................28.4
1,050,000 Dayton Hudson Corp. @ 54 1/4 ..................................................... 56,962,500
General merchandiser selling through Target
and Marvyn stores
Earnings P/S..................$.89, .92, .75, .71, .76, .96, .80, 1.07, 1.48, 1.94 9.0%
Dividends P/S....................$.19, .22, .24, .25, .27, .28, .29, .31, .33, .36 7.4%
Price/Earnings Ratio..........................................................29.2
500,000 Home Depot, Inc. (The) @ 61 3/16 ................................................. $30,593,750
Operates a chain of retail building suppy/home
improvement "warehouse" stores
Earnings P/S....................$.11, .14, .19, .25, .33, .42, .49, .61, .77, 1.03 28.2%
Dividends P/S..................$.008, .012, .02, .03, .04, .05, .06, .08, .10, .12 35.1%
Price/Earnings Ratio..........................................................61.2
566,000 McDonald's Corp. @ 76 5/8 ........................................................ 43,369,750
Develops, operates, franchises and services
a worldwide system of restaurants
Earnings P/S............$.96, 1.07, 1.16, 1.28, 1.41, 1.61, 1.90, 2.14, 2.34, 2.35 10.5%
Dividends P/S....................$.15, .17, .18, .20, .21, .23, .26, .29, .32, .35 9.9%
Price/Earnings Ratio..........................................................30.5
2,561,600 SYSCO Corp. @ 27 7/16 ............................................................ 70,283,900
Largest distributor of food service products
Earnings P/S.....................$.37, .38, .43, .47, .55, .62, .71, .68, .87, .98 11.4%
Dividends P/S...................$.046, .05, .07, .11, .14, .18, .22, .26, .30, .36 25.7%
Price/Earnings Ratio..........................................................27.4
500,000 Wal-Mart Stores, Inc. @ 81 7/16 .................................................. 40,718,750
Operates chain of discount department stores
Earnings P/S................$.48, .55, .64, .80, .97, 1.11, 1.24, 1.27, 1.47, 1.85 16.2%
Dividends P/S....................$.06, .07, .09, .11, .13, .17, .20, .21, .27, .31 20.0%
Price/Earnings Ratio..........................................................44.0
--------------
286,509,900
--------------
Soap & Cleaning Preparations (1.06%)
800,000 Ecolab, Inc. @ 36 3/16 28,950,000
--------------
Develops and markets premium institutional
cleansing, sanitizing and maintenance
products and services
Earnings P/S....................$.03, .49, .47, .48, .59, .68, .67, .84, .99, 1.16 50.1%
Dividends P/S................$.165, .168, .175, .179, .20, .23, .26, .29, .34, .49 12.9%
Price/Earnings Ratio..........................................................32.3
Tobacco (1.46%)
750,000 Philip Morris Cos., Inc. @ 53 1/2 40,125,000
--------------
Global tobacco, brewing and food company
Earnings P/S...........$1.05, 1.27, 1.45, 1.65, 1.67, 1.52, 2.08, 2.47, 2.68, 2.64 10.8%
Dividends P/S...............$.42, .52, .64, .78, .87, 1.01, 1.22, 1.47, 1.60, 1.68 16.7%
Price/Earnings Ratio..........................................................17.0
Utilities (7.50%)
300,000 ALLTEL Corp. @ 59 13/16 .......................................................... 17,943,750
Provides wireline and wireless communications
and information services
Earnings P/S...........$1.13, 1.20, 1.18, 1.18, 1.35, 1.56, 1.61, 1.50, 2.53, 2.24 7.9%
Dividends P/S.................$.59, .66, .71, .76, .82, .90, .98, 1.06, 1.12, 1.18 8.0%
Price/Earnings Ratio..........................................................28.5
350,000 Ameritech Corp. @ 63 3/8 ......................................................... 22,181,250
One of the world's largest communications
companies
Earnings P/S...........$1.15, 1.18, 1.19, 1.13, 1.33, 1.04, 1.83, 1.78, 2.06, 3.14 11.8%
Dividends P/S................$.75, .81, .86, .89, .93, .97, 1.02, 1.08, 1.15, 1.22 5.6%
Price/Earnings Ratio..........................................................27.0
550,000 Bell Atlantic Corp. @ 53 ......................................................... 29,150,000
Telecommunications company providing voice
and data services in the Mid-Atlantic region
Earnings P/S...........$1.36, 1.69, 1.09, 1.69, 1.63, 1.63, 2.04, 2.00, 1.45, 1.83 3.4%
Dividends P/S..........$1.10, 1.18, 1.26, 1.30, 1.34, 1.38, 1.40, 1.44, 1.51, 1.54 3.8%
Price/Earnings Ratio..........................................................19.9
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------
<S> <C> <C>
Utilities (continued)
300,000 Century Telephone Enterprises, Inc. @ 67 1/2 ..................................... $20,250,000
Louisiana-based telecommunications company
Earnings P/S................$.40, .42, .48, .72, .93, 1.06, 1.41, 1.43, 2.08, 3.02 25.2%
Dividends P/S.................$.18, .19, .191, .196, .21, .213, .22, .24, .25, .26 4.2%
Price/Earnings Ratio..........................................................31.7
200,000 Duke Energy Corp. @ 64 1/16 ...................................................... 12,812,500
Generates, transmits, distributes and sells
electric energy in the Piedmont sections
of North and South Carolina
Earnings P/S...........$2.57, 2.40, 2.51, 2.08, 2.83, 3.00, 3.26, 2.73, 2.66, 3.60 3.8%
Dividends P/S..........$1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08, 2.16, 2.20 4.2%
Price/Earnings Ratio..........................................................19.6
450,000 National Fuel Gas Co. @ 45 3/16 .................................................. 20,334,375
Integrated natural gas system serving N.Y., PA
and Ohio
Earnings P/S............$1.93, 1.83, 1.68, 1.94, 2.21, 2.23, 2.03, 2.79, 3.02, .84 NMF
Dividends P/S..........$1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67, 1.73, 1.79 3.4%
Price/Earnings Ratio..........................................................15.6
250,000 Northern States Power Co. @ 27 3/4 ............................................... 6,937,500
Provides electric, utility and gas services to
Midwestern states
Earnings P/S...........$1.62, 1.42, 1.47, 1.21, 1.35, 1.76, 1.88, 1.77, 1.74, 1.69 0.5%
Dividends P/S..........$1.10, 1.15, 1.20, 1.25, 1.28, 1.31, 1.34, 1.37, 1.40, 1.43 3.0%
Price/Earnings Ratio..........................................................13.9
1,401,200 Questar Corp. @ 19 3/8 ........................................................... 27,148,250
Diversified holding company for Utah, Wyoming
and Colorado natural gas transmission,
distribution and storage
Earnings P/S.................$.82, .78, .85, .80, 1.12, .99, .60, 1.15, 1.27, 1.21 4.4%
Dividends P/S....................$.47, .49, .51, .52, .55, .57, .58, .60, .62, .65 3.7%
Price/Earnings Ratio..........................................................16.2
700,000 SBC Communications, Inc. @ 53 5/8 37,537,500
Provides telephone service throughout the
United States and internationally
Earnings P/S...........$.91, .92, .90, 1.09, (1.37), 1.53, (1.66), 1.74, .88, 2.01 9.2%
Dividends P/S....................$.64, .68, .71, .73, .75, .78, .82, .85, .89, .93 4.2%
Price/Earnings Ratio..........................................................25.7
400,000 Teco Energy, Inc. @ 28 3/16 ...................................................... 11,275,000
Holding company for Tampa Electric, which
provides regulated electric utility services
in Florida
Earnings P/S...........$1.18, 1.21, 1.24, 1.28, 1.30, 1.43, 1.46, 1.64, 1.67, 1.54 3.0%
Dividends P/S...............$.75, .80, .85, .90, .95, 1.00, 1.05, 1.10, 1.17, 1.23 5.7%
Price/Earnings Ratio..........................................................16.6
--------------
205,570,125
--------------
TOTAL COMMON STOCKS
(Cost $1,538,737,272) 2,398,792,600
--------------
</TABLE>
NUMBER MARKET
OF SHARES VALUE
- --------- ------
PREFERRED STOCKS (0.62%)
23,975 CSC Holdings, Inc., 11.125%,
Ser M @ 111 1/2 ................................ $2,673,185
72,392 CSC Holdings, Inc., 11.750%,
Ser H @ 114 1/4 ................................ 8,270,766
60,000 Lasmo America, Ltd., 8.150% (R) @ 100 .......... 6,000,000
--------------
TOTAL PREFERRED STOCKS
(Cost $16,897,013) 16,943,951
--------------
TOTAL COMMON AND PREFERRED STOCKS
(Cost $1,555,634,285) 2,415,736,551
--------------
PAR VALUE
(000s
OMITTED)
---------
CORPORATE BONDS (3.57%)
$6,000 Adelphia Communications Corp.,
Sr Note 9.25%, 10-01-02 @ 105.500 .............. 6,330,000
4,000 BankAmerica Corp., Sub Note
8.125%, 02-01-02 @ 107.297 ..................... 4,291,880
1,000 BankAmerica Corp., Sub Note
8.95%, 11-15-04 @ 102.789 ...................... 1,027,890
4,000 Beaver Valley Funding Corp II, Deb
9.00%, 06-01-17 @ 112.500 ...................... 4,500,000
4,000 Cablevison Systems Corp., Sr Deb
Ser B 8.125%, 08-15-09 @ 107.155 ............... 4,286,200
8,000 Citibank Credit Card Master Trust,
Series 1997-3A 6.839%, 02-10-04
@ 100.633 ...................................... 8,050,625
5,000 CMS Energy Corp., Sr Note
8.125%, 05-15-02 @ 103.735 ..................... 5,186,750
5,000 Comcast Corp., Sr Sub Deb
10.25%, 10-15-01 @ 108.686 ..................... 5,434,300
1,500 Continental Cablevision, Inc., Deb
9.50%, 08-01-13 @ 116.136 ...................... 1,742,040
5,000 CSC Holdings, Inc., Sr Note
7.875%, 12-15-07 @ 105.125 ..................... 5,256,250
3,000 First Union Corp., Sub Note
8.00%, 08-15-09 @ 110.230 ...................... 3,306,900
5,000 GTE North, Inc., Sr Sub Note
9.60%, 01-01-21 @ 122.576 ...................... 5,628,350
12,473 Guaranteed Trade Trust, Note
7.39%, 06-26-06 @ 107.340 ...................... 13,388,653
16,000 Long Island Lighting Co., Deb
8.20%, 03-15-23 @ 111.000 ...................... 17,760,000
2,077 Midland Funding Corp. I, Deb
Ser C-94 10.33%, 07-23-02 @ 106.666 ............ 2,214,937
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
==============================FINANCIAL STATEMENTS==============================
John Hancock Funds - Sovereign Investors Fund
PAR VALUE
(000s MARKET
OMITTED) VALUE
--------- ------
CORPORATE BONDS (continued)
$2,000 NationsBank Corp., Deb
9.125%, 10-15-01 @ 109.261 ..................... $2,185,220
1,865 North Atlantic Energy Corp., 1st Mtg Bond
9.050%, 06-01-02 @ 103.899 ..................... 1,937,716
5,500 Northwest Airlines Corp., Note 8.375%,
03-15-04 @ 97.901 .............................. 5,384,555
--------------
TOTAL CORPORATE BONDS
(Cost $95,129,144) 97,912,266
--------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (3.76%)
3,000 Federal Home Loan Mort. Corp.,
Sr Sub 5.75%, 04-15-08 @ 103.391 ............... 3,101,730
5,000 Federal Home Loan Mort. Corp.,
Sr Sub 8.00%, 12-15-08 @ 104.718 ............... 5,235,900
6,088 Federal Home Loan Mort. Corp.,
Sr Sub 7.50%, 08-01-11 @ 102.843 ............... 6,261,350
10,000 Federal National Mort. Assn.,
Sr Sub 8.50%, 02-01-05 @ 103.594 ............... 10,359,400
5,000 Federal National Mort. Assn.,
Sr Sub 6.21%, 11-07-07 @ 105.672 ............... 5,283,600
7,095 Federal National Mort. Assn.,
Sr Sub 6.50%, 02-01-12 @ 101.406 ............... 7,195,280
13,708 Federal National Mort. Assn.,
Sr Sub 6.00%, 11-01-13 @ 100.282 ............... 13,746,389
2,918 Government National Mort. Assn.,
8.00%, 08-15-24 @ 104.000 ...................... 3,035,020
3,611 Government National Mort. Assn.,
7.50%, 07-15-26 @ 103.093 ...................... 3,722,283
3,081 Government National Mort. Assn.,
7.50%, 11-15-26 @ 103.093 ...................... 3,176,205
5,500 United States Treasury,
Bond 10.75%, 08-15-05 @ 133.375 ................ 7,335,625
8,000 United States Treasury,
Bond 8.125%, 08-15-19 @ 133.547 ................ 10,683,760
5,000 United States Treasury,
Bond 6.00%, 02-15-26 @ 109.078 ................. 5,453,900
6,000 United States Treasury,
Bond 5.25%, 11-15-28 @ 102.375 ................. 6,142,500
100 United States Treasury,
Note 7.875%, 11-15-99 @ 102.687 ................ 102,687
12,000 United States Treasury,
Note 7.75%, 12-31-99 @ 102.984 ................. 12,358,080
--------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $101,792,234) 103,193,709
--------------
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
--------- -------- ------
SHORT-TERM INVESTMENTS (5.03%)
$137,799 Joint Repurchase Agreement (5.03%)
Investment in a joint repurchase
agreement transaction with
SBC Warburg, Inc. - Dated
12-31-98, due 01-04-99
(Secured by U.S. Treasury
Bonds, 6.250% thru 9.125%
due 05-15-18 thru 08-15-23)
- Note A....................... 4.75% $137,799,000
--------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.00%............. 25,652
--------------
TOTAL SHORT-TERM INVESTMENTS (5.03%) 137,824,652
------- --------------
TOTAL INVESTMENTS (100.47%) 2,754,667,178
------- --------------
OTHER ASSETS AND LIABILITIES, NET (0.47%) (12,954,333)
------- --------------
TOTAL NET ASSETS (100.00%) $2,741,712,845
======= ==============
NMF = No Meaningful Figure
(R) This security is exempt from registration under rule 144A of the
Securities Act of 1933. Such security may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $6,000,000 or 0.22% of the Fund's net assets as of
December 31, 1998.
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
20
<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 four series portfolios: John Hancock Sovereign Investors Fund (the "Fund"),
John Hancock Growth and Income Fund, John Hancock Real Estate Fund and John
Hancock Sovereign Balanced Fund. The other three series of the Trust are
reported in separate financial statements. The investment objective of the Fund
is to provide long-term growth of capital and of income without assuming undue
market risks.
The Trustees have authorized the issuance of multiple classes of the Fund,
designated as Class A, Class B, Class C and Class Y shares. The shares of each
class represent an interest in the same portfolio of investments of the Fund and
have equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights regarding such
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost, which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
Inc., may participate in 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 qualifies as a "regulated investment company" by
complying with the applicable provisions of the Internal Revenue Code and will
not be subject to federal income tax on taxable income which is distributed to
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.
21
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Investors Fund
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. These agreements enable
the Fund to participate with other funds managed by the Adviser in unsecured
lines of credit with banks which permit borrowings up to $800 million,
collectively. Interest is charged to each fund, based on its borrowing, at a
rate equal to 0.50% over the Fed Funds Rate. In addition, a commitment fee, at
rates ranging from 0.070% to 0.075% per annum based on the average daily unused
portion of the line of credit, is allocated among the participating funds. The
Fund had no borrowing activity for the year ended December 31, 1998.
NOTE B -
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a quarterly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.60% of the first $750,000,000 of the Fund's
average daily net asset value, (b) 0.55% of the next $750,000,000, (c) 0.50% of
the next $1,000,000,000 and (d) 0.45% of the Fund's average daily net asset
value in excess of $2,500,000,000. The Adviser had 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 paid SAMCorp
40% of its management fee. Effective at the close of business on December 31,
1998, the service agreement with SAMCorp has been eliminated. The Adviser will
now employ SAMCorp portfolio management.
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, 1998, net sales charges received with regard to sales of Class A shares
amounted to $3,807,415. Out of this amount, $449,748 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$1,950,331 was paid as sales commissions to unrelated broker-dealers and
$1,407,336 was paid as sales commissions to sales personnel of Signator
Investors, Inc. ("Signator Investors"), a related broker-dealer, formerly known
as John Hancock Distributors, Inc. The adviser's indirect parent, John Hancock
Mutual Life Insurance Company ("JHMLICo"), is the indirect sole shareholder of
Signator Investors.
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,
1998, contingent deferred sales charges paid to JH Funds amounted to $1,203,371.
Class C shares which are redeemed within one year of purchase will be subject
to a CDSC at a rate of 1.00% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being redeemed.
Proceeds from the CDSC are paid to JH Funds and are used in whole or in part to
defray its expenses related to providing distribution related services to the
Fund in connection with the sale of Class C shares. For the year ended December
31, 1998, contingent deferred sales charges paid to JH Funds amounted to $1,516.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets, to reimburse
22
<PAGE>
==========================NOTES TO FINANCIAL STATEMENTS=========================
John Hancock Funds - Sovereign Investors Fund
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, Class B and Class C shares pay transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses. Class Y
shares pay a monthly transfer agent fee equivalent, on an annual basis, to 0.10%
of the average daily net asset value of Class Y shares of the Fund.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the 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 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, 1998, the Fund's investment to cover the deferred
compensation liability had unrealized appreciation of $15,319.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the year
ended December 31, 1998, aggregated $1,049,334,862 and $1,014,055,347,
respectively. Purchases and proceeds from sales of obligations of the U.S.
government and its agencies, during the year ended December 31, 1998, aggregated
$166,866,562 and $191,642,519, respectively. The cost of investments owned at
December 31, 1998 (excluding the corporate savings account) for federal income
tax purposes was $1,892,908,606. Gross unrealized appreciation and depreciation
of investments aggregated $875,977,522 and $14,244,602, respectively, resulting
in net unrealized appreciation of $861,732,920
NOTE D -
RECLASSIFICATION OF ACCOUNTS
During the year ended December 31, 1998, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized gain on investments of
$25,953,757, an increase in accumulated net investment income of $3,971,312 and
an increase in capital paid-in of $21,982,445. This represents the amount
necessary to report these balances on a tax basis, excluding certain temporary
differences, as of December 31, 1998. 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 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.
23
<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 the John
Hancock Sovereign Investors Fund (the "Fund"), one of the portfolios
constituting the John Hancock Investment Trust, including the schedule of
investments as of December 31, 1998, 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 period 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. Our procedures included confirmation of securities owned as of
December 31, 1998, 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, 1998, 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 8, 1999
TAX INFORMATION NOTICE (UNAUDITED)
For federal income tax purposes, the following information is furnished with
respect to the taxable distributions of the Fund during its fiscal year ended
December 31, 1998.
The Fund has designated distributions to shareholders of $160,305,127 as
capital gain dividends.
92.9% of the distributions qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1998 U.S. Treasury Department Form 1099-DIV in
January 1999. This will reflect the total of all distributions which are
taxable for calendar year 1998.
24
<PAGE>
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John Hancock Funds - Sovereign Investors Fund
Historical Data (Unaudited)
The table below shows the record of the Fund during the past periods.
- --------------------------------------------------------------------------------
CLASS A PER SHARE
YEAR ------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ----------- ----------- --------- -------------
1985 2,105,220 $.53 $11.31 $.44
1986 2,807,182 .55 12.36 .87
1987 3,701,248 .58 10.96 .90
1988 4,099,131 .60 11.19 .38
1989 5,274,426 .61 12.60 .58
1990 6,991,411 .59 11.94 .60
1991 13,560,178 .53 14.31 .67
1992 59,053,529 .45 14.78 .09
1993 83,332,510 .42 15.10 .09
1994 76,585,860 .46 14.24 .11
1995 71,652,920 .40 17.87 .08
1996 73,390,083 .36 19.48 1.16
1997 78,031,449 .32 22.41 2.38
1998 77,765,266 .31 24.23 1.29
CLASS B PER SHARE
YEAR ------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ----------- ----------- --------- -------------
1994(1) 8,996,738 $.36 $14.24 $.11
1995 14,432,679 .28 17.86 .08
1996 20,888,201 .22 19.46 1.16
1997 27,296,833 .15 22.38 2.38
1998 32,655,983 .14 24.20 1.29
CLASS C PER SHARE
YEAR ------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ----------- ----------- --------- -------------
1998(2) 191,053 $.12 $24.22 $1.29
CLASS Y PER SHARE
YEAR ------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31, OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ----------- ----------- --------- -------------
1993(3) 674,320 $.34 $15.11 $.09
1994 1,062,699 .51 14.24 .11
1995 1,116,297 .46 17.87 .08
1996 1,510,614 .43 19.48 1.16
1997 2,153,172 .40 22.41 2.38
1998 2,572,181 .39 24.24 1.29
(1) Class B shares commenced operations on January 3, 1994.
(2) The new Class C shares commenced operations on May 1, 1998.
(3) Effective May 1, 1998, Class C shares, which commenced operations on May
7, 1993, were renamed Class Y shares.
25
<PAGE>
================================================================================
John Hancock Funds - Sovereign Investors Fund
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the Sovereign Investors Fund as of December 31, 1998.
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
Abbott Laboratories, Inc. ..................................... 11.1%
AFLAC Corp. ................................................... 13.0
Air Products & Chemicals, Inc. ................................ 13.3
Albertson's, Inc. ............................................. 6.3
ALLTEL Corp. .................................................. 5.2
American International Group, Inc. ............................ 12.0
Ameritech Corp. ............................................... 5.8
Archer-Daniels-Midland Co. .................................... 5.0
Automatic Data Processing, Inc. ............................... 15.1
Banc One Corp. ................................................ 10.0
BankAmerica Corp. ............................................. 18.4
Baxter International, Inc. .................................... 3.0
Becton, Dickinson & Co. ....................................... 17.2
Bell Atlantic Corp. ........................................... 4.1
Bemis Co., Inc. ............................................... 10.0
Bristol-Myers Squibb Co. ...................................... 10.3
Campbell Soup Co. ............................................. 7.1
Century Telephone Enterprises, Inc. ........................... 5.4
Chevron Corp. ................................................. 5.2
Citigroup, Inc. ............................................... 44.0
Dayton Hudson Corp. ........................................... 12.5
Dover Corp. ................................................... 10.5
Duke Energy Corp. ............................................. 3.8
DuPont (E.I.) De Nemours & Co. ................................ 11.1
Ecolab, Inc. .................................................. 10.5
Emerson Electric Co. .......................................... 10.2
First Tennessee National Corp. ................................ 15.2
First Union Corp. ............................................. 11.9
Gannett Co., Inc. ............................................. 5.3
General Electric Co. .......................................... 16.7
Grainger (W.W.), Inc. ......................................... 11.1
Hasbro, Inc. .................................................. 20.0
Hewlett-Packard Co. ........................................... 14.3
Home Depot, Inc. (The) ........................................ 20.0
Honeywell, Inc. ............................................... 3.6
Illinois Tool Works, Inc. ..................................... 25.0
Interpublic Group of Companies, Inc. .......................... 15.4
Johnson & Johnson ............................................. 13.6
Johnson Controls, Inc. ........................................ 8.7
KeyCorp ....................................................... 11.9
Kimberly-Clark Corp. .......................................... 4.2
Leggett & Platt, Inc. ......................................... 6.7
Masco Corp. ................................................... 4.8
McDonald's Corp. .............................................. 9.1
McGraw-Hill Cos., Inc. ........................................ 8.3
Merck & Co., Inc. ............................................. 20.0
Minnesota Mining & Manufacturing Co. .......................... 3.8
Mobil Corp. ................................................... 7.5
National Fuel Gas Co. ......................................... 3.4
Northern States Power Co. ..................................... 1.4
Pentair, Inc. ................................................. 6.7
PepsiCo, Inc. ................................................. 4.0
Philip Morris Cos., Inc. ...................................... 10.0
Pitney Bowes, Inc. ............................................ 12.5
Questar Corp. ................................................. 4.8
ReliaStar Financial Corp. ..................................... 19.4
RPM, Inc. ..................................................... 4.9
Sara Lee Corp. ................................................ 8.7
SBC Communications, Inc. ...................................... 4.5
Schering-Plough Corp. ......................................... 15.8
ServiceMaster Co. ............................................. 12.5
Sigma-Aldrich Corp. ........................................... 3.6
Sonoco Products Corp. ......................................... 10.0
SYSCO Corp. ................................................... 11.1
Teco Energy, Inc. ............................................. 5.1
UNUM Corp. .................................................... 3.5
Wal-Mart Stores, Inc. ......................................... 14.8
Wells Fargo Co. ............................................... 12.1
----
The average dividend increase for this group was .............. 10.4%
====
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.
[RECYCLE LOGO] Printed on Recycled Paper 2900A 12/98
2/99
