John Hancock Funds
Sovereign
Balanced
Fund
SEMIANNUAL REPORT
June 30, 1997
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISER
Sovereign Asset Management Corp.
1235 Westlakes Drive
Berwyn, Pennsylvania 19312
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the
year. Stocks began 1997 on the high wires, bolstered by a near-perfect
"Goldilocks" economy -- not too hot, not too cold. In almost a straight
shot, the Dow Jones Industrial Average soared through the 7000 level for
the first time in early March. Just days later, stocks lost their
footing and staged a month-long free-fall in a nervous reaction to
rising interest rates and economic data that showed the economy was
picking up steam. Stocks gave back all of their year's gain and suffered
their worst decline since 1990 during this period. No sooner had real
fears begun to beset investors then they were gone, erased in a euphoric
rally caused by strong earnings and no signs of inflation. By the end of
June, both the Dow and the broader Standard & Poor's 500 Stock Index had
risen by 20% -- a level not many thought the market would reach all
year, let alone in six months. Bondholders have not enjoyed the same
bounty, as the bond market has mostly stayed worried about the strength
of the economy, the direction of interest rates, and the Federal
Reserve's next moves to pre-empt inflation.
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more
expensive than it has been in decades. It's impossible to know what will
happen next in the markets. But whether it's another strong move forward
or a retreat, we recommend keeping a long-term perspective, rather than
over-focusing on the market's daily twists and turns. While the economic
backdrop seems to remain near perfect, the one thing we believe
investors should be prepared for is more market volatility. It also
makes sense to do something we've always advocated: set realistic
expectations, since, as we've also seen this year, markets can move down
as fast as they go up.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After
such a strong advance in equities over the last two and a half years, it
could be time to rebalance your portfolio, if you haven't already, to
maintain your desired targets of diversification. As part of that
process, make sure that your investment strategies still reflect your
individual time horizons, objectives and risk tolerance. Despite
turbulence, one thing remains constant. A well-constructed plan and a
cool head can be the best tools for reaching your financial goals.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
By John F. Snyder III and Barry Evans, CFA, Co-Portfolio Managers
John Hancock
Sovereign Balanced Fund
Bull market extends into first half of 1997;
bonds remain in trading range
It doesn't get much better than this for stock investors. Halfway into
1997, the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average have racked up gains of nearly 21%. And that comes on the heels
of a spectacular year in 1996 when most major market indices posted
returns well in excess of 20%.
The year got off to a bumpy start as investors fretted that a robust
U.S. economy and spiraling inflation would prompt a series of interest-
rate increases by the Federal Reserve Bank. Following the Fed's initial
rate hike in March, however, strong evidence of a slowing economy helped
investors shake off their inflationary fears. The potent combination of
moderate growth and tame inflation -- in addition to ample market
liquidity and continued strong corporate earnings -- fueled a stock
market rally that lasted through the end of the period.
The stock market's huge gains overshadowed the performance of the bond
market. Early in the period, bond prices fell and yields shot up as
signs of stronger growth rekindled inflation fears. Toward the end of
the period, bonds rallied back in response to more positive inflation
news. The net result was that bond prices traded in a narrow range
throughout the first half of the year, with the yield on the 30-year
U.S. Treasury bond remaining between 6% and 7%.
"...strong
evidence of
a slowing
economy
helped
investors
shake off
their
inflationary
fears."
A 2" x 3 1/4" photo of the Fund management team. Caption reads:
"Sovereign Balanced Fund management team members: (l-r)
John Snyder, Barry Evans, Jere Estes".
Against this backdrop, John Hancock Sovereign Balanced Fund turned in a
solid performance. For the six months ended June 30, 1997, John Hancock
Sovereign Balanced Fund's Class A and Class B shares returned 10.43% and
9.96%, respectively, at net asset value. By comparison, the average
balanced fund returned 10.21%, according to Lipper Analytical Services,
Inc.1 Please see pages six and seven for longer-term performance
information.
Pie chart entitled "Portfolio Diversification" at top left hand column.
The chart is divided into three sections. Going from top right to left:
Short-Term Investments & Other 6%; Stocks 65%; Bonds 29%. Footnote below
states "As a percentage of net assets on June 30, 1997."
"We
continued
to trim
our bond
exposure..."
Larger stock holdings boost performance
Much of the Fund's strong performance was due to our largest holdings.
Buoyed by successful new product developments and strong underlying
fundamentals, pharmaceutical companies Abbott Laboratories and Johnson &
Johnson posted attractive returns. Retail behemoths Wal-Mart and Home
Depot also turned in strong performances. After being the market
laggards in 1996, these stocks looked relatively inexpensive. Their
attractive valuations, coupled with their growing market shares, enticed
more investors into the stocks, pushing prices up steadily over the last
six months. Finally, McGraw-Hill was another winner. This publishing
giant is benefiting from its successful Standard & Poor's franchise and
from being a leading textbook publisher as many states are currently
ordering replacement textbooks.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left hand column is "Investment"; the header for the right column is
"Recent performance .. and what's behind the numbers." The first listing
is "Eli Lilly" followed by an up arrow and the phrase "New product
developments, strong fundamentals." The second listing is "Gannett Co."
followed by an up arrow and the phrase "Increased advertising, lower
paper costs." The third listing is "Rockwell International" followed by
a down arrow and the phrase "Price pressures in semiconductor business."
Footnote below states "See "Schedule of Investments." Investment
holdings are subject to change."
Rockwell International, on the other hand, didn't fare quite as well.
Heavy publicity surrounding price competition in the company's
semiconductor business has put pressure on the stock. However,
semiconductors comprise only about 20% of Rockwell's total revenues.
Once investors recognize this, we are confident that the stock will
bounce back.
As discussed in the annual report six months ago, we've continued to
pare back our larger stock holdings in favor of other investments. After
such strong performance, we felt holdings such as Procter & Gamble and
Pfizer had reached their fair valuations and were ripe for profit
taking. In turn, we've added to investments with more attractive
valuations and growth potential. Examples include Sigma Aldrich, a
specialty chemical manufacturer and Bemis, a flexible packaging company.
Both companies dominate their respective industries and continue to gain
market share by introducing new products and outdoing their weaker
competitors.
Trimming bonds; maintaining neutral duration
We continued to trim our bond exposure during the period and redeploy
the assets into stocks. We believed that stocks offered more potential
and that certainly held true in the first half of 1997. By the end of
June, our bond position was down to 29% of the Fund's net assets. Our
focus remained primarily on intermediate U.S. Treasuries. We did,
however, increase our stake in mortgage-backed securities, given their
attractive yields.
A bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the six months ended June 30,
1997." The chart is scaled in increments of 2% from top to bottom, with
12% at the top and 0% at the bottom. Within the chart there are three
solid bars. The first represents the 10.43% total return of John Hancock
Sovereign Balanced Fund: Class A. The second represents the 9.96% total
return of John Hancock Sovereign Balanced Fund: Class B. The third
represents the 10.21% total return of the average balanced fund.
Footnote below 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.1 See
the following two pages for historical performance information."
We also maintained a neutral duration -- in the range of 4.8 to 5.2
years. Duration is a measure of how sensitive the Fund's share price is
to interest-rate changes. The shorter the duration, the less sensitive
the share price. Given the interest-rate uncertainty plaguing market in
the first half of the year, we used a neutral duration to protect the
Fund's share price against price volatility.
Outlook
On the bond side, we expect to see more of the same over the next
several months. Bond prices are likely to remain in their current
trading range as investors anticipate the Federal Reserve's next
interest-rate hike. Given that, we plan to stick with our neutral bond
position for the time being.
On the stock side, we're still optimistic, even given the market's
current levels. Having said that, however, we caution investors to
temper their expectations for the future. It is unrealistic to expect
that stocks will continue to rack up returns of 20% and more -- as we
saw in 1996 and the first half of 1997. Eventually, stock returns will
drop back to their historical levels of 8% to 10% annually.
Now more than ever, investors will have to be more selective in their
stock selection. We believe our discipline of only investing in stocks
with a history of rising dividends will continue to serve shareholders,
especially if the market gets choppy. And if higher interest rates begin
to take hold in the second half of the year, we expect that the economy
and, in turn, corporate profits will start to weaken. In that event,
we're likely to see more earnings disappointments as 1997 progresses. It
will be critical to invest in those stable growth companies with clear
industry leadership. Companies that can grow earnings in the double
digits will be few and far between. That bodes well for the high-quality
growth companies in which Sovereign Balanced Fund invests.
"It will be
critical to
invest in
those stable
growth
companies
with clear
industry
leadership."
- ------------------------------------------------------------------------
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.
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 is a performance measure that equals the sum of all
income and capital gains distributions, assuming reinvestment of these
distributions and the change in the price of the Fund's net asset value
per share. Performance figures include the maximum applicable sales
charge of 5% for Class A shares. The effect of the maximum contingent
deferred sales charge for Class B shares (maximum 5% and declining to 0%
over six years) is included in Class B performance. Remember that all
figures represent past performance and are no guarantee of how the Fund
will perform in the future. Also, keep in mind that the total return and
share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
-------------- ----------------
John Hancock
Sovereign Balanced
Fund: Class A 11.70% 60.78%(1)
John Hancock
Sovereign Balanced
Fund: Class B 11.68% 61.77%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended June 30, 1997
ONE LIFE OF
YEAR FUND
-------------- ----------------
John Hancock
Sovereign Balanced
Fund: Class A 11.70% 10.55%(1)
John Hancock
Sovereign Balanced
Fund: Class B 11.68% 10.69%(1)
YIELDS
As of June 30, 1997
SEC 30-DAY
YIELD
----------------
John Hancock Sovereign
Balanced Fund: Class A 2.37%
John Hancock Sovereign
Balanced Fund: Class B 1.80%
Notes to Performance
(1) Class A and Class B shares started on October 5, 1992.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Sovereign Balanced Fund would be worth on June 30, 1997. They
assume that you either had invested on the day each class of shares
started, or that you have been invested for the most recent 10 years. In
either case, they also assume that you have reinvested all
distributions. For comparison, we've shown the same $10,000 investment
in the Standard & Poor's 500 Stock Index -- an unmanaged index that
includes 500 widely traded common stocks and is used often as a measure
of stock market performance.
Sovereign Balanced Fund
Class A shares
Line chart with the heading Sovereign Balanced Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock
Index and is equal to $23,880 as of June 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in the
Sovereign Balanced Fund on October 5, 1992, before sales charge, and is
equal to $16,924 as of June 30, 1997. The third line represents the
Sovereign Balanced Fund after sales charge and is equal to $16,078 as of
June 30, 1997.
Sovereign Balanced Fund
Class B shares
Line chart with the heading Sovereign Balanced Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock
Index and is equal to $23,880 as of June 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in the
Sovereign Balanced Fund on October 5, 1992, before sales charge, and is
equal to $16,377 as of June 30, 1997. The third line represents the
Sovereign Balanced Fund after sales charge and is equal to $16,177 as of
June 30, 1997.
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance sheet and shows the
value of what the Fund owns, is due and owes on June 30, 1997. You'll also find
the net asset value and the maximum offering price per share as of that date.
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks
(cost - $82,774,137) $112,763,875
Corporate bonds (cost - $25,621,100) 25,108,296
United States government and agencies securities
(cost - $24,461,360) 24,485,143
Joint repurchase agreement (cost - $7,391,000) 7,391,000
Corporate savings account 11,044
-------------
169,759,358
-------------
Receivable for investments sold 3,864,588
Receivable for shares sold 11,018
Dividends receivable 116,795
Interest receivable 1,125,229
Deferred organization expenses - Note A 6,353
Other assets 9,418
-------------
Total Assets 174,892,759
- --------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 1,535,600
Payable for shares repurchased 34,020
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 48,292
Accounts payable and accrued expenses 148,050
-------------
Total Liabilities 1,765,962
- --------------------------------------------------------------------------
Net Assets:
Capital paid-in 132,022,007
Accumulated net realized gain on investments 11,570,136
Net unrealized appreciation of investments 29,502,390
Undistributed net investment income 32,264
-------------
Net Assets $173,126,797
==========================================================================
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 - $77,267,799 / 5,784,691 $13.36
==========================================================================
Class B - $95,858,998 / 7,178,019 $13.35
==========================================================================
Maximum Offering Price Per Share*
Class A - ($13.36 x 105.26%) $14.06
==========================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
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
Six months ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $2,404,568
Dividends 1,035,884
-------------
3,440,452
-------------
Expenses:
Investment management fee - Note B 495,373
Distribution and service fee - Note B
Class A 110,491
Class B 457,320
Transfer agent fee - Note B 179,482
Registration and filing fees 27,348
Custodian fee 20,919
Auditing fee 18,579
Financial services fee - Note B 15,480
Organization expense - Note A 11,855
Trustees' fees 7,421
Printing 7,286
Miscellaneous 3,044
Legal fees 1,472
-------------
Total Expenses 1,356,070
- --------------------------------------------------------------------------
Net Investment Income 2,084,382
- --------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold 8,933,869
Change in net unrealized appreciation/depreciation
of investments 5,206,611
-------------
Net Realized and Unrealized
Gain on Investments 14,140,480
- --------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $16,224,862
==========================================================================
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $4,690,230 $2,084,382
Net realized gain on investments
sold 8,918,977 8,933,869
Change in net unrealized
appreciation/depreciation of
investments 4,175,398 5,206,611
------------- -------------
Net Increase in Net Assets
Resulting from Operations 17,784,605 16,224,862
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.4113 and $0.1825
per share, respectively) (2,342,425) (1,059,668)
Class B - ($0.3257 and $0.1369
per share, respectively) (2,357,069) (984,621)
Distributions from net realized
gain on investments sold
Class A - ($0.4733 and none per
share, respectively) (2,627,891) --
Class B - ($0.4733 and none per
share, respectively) (3,369,351) --
------------- -------------
Total Distributions to Shareholders (10,696,736) (2,044,289)
------------- -------------
From Fund Share Transactions - Net*: (2,627,744) (3,151,489)
------------- -------------
Net Assets:
Beginning of period 157,637,588 162,097,713
------------- -------------
End of period (including distributions
in excess of net investment income of
$7,829 and undistributed
net investment income of $32,264,
respectively) $162,097,713 $173,126,797
============= =============
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- -------------- -------------- --------------
CLASS A
Shares sold 816,219 $9,909,760 568,406 $7,213,293
Shares issued to shareholders in
reinvestment of distributions 391,011 4,778,423 78,357 1,012,523
------------- ------------- ------------- -------------
1,207,230 14,688,183 646,763 8,225,816
Less shares repurchased (1,345,458) (16,427,737) (667,123) (8,525,432)
------------- ------------- ------------- -------------
Net decrease (138,228) ($1,739,554) (20,360) ($299,616)
============= ============= ============= =============
CLASS B
Shares sold 839,251 $10,238,843 363,128 $4,602,113
Shares issued to shareholders
in reinvestment of distributions 425,371 5,201,478 68,233 881,672
------------- ------------- ------------- -------------
1,264,622 15,440,321 431,361 5,483,785
Less shares repurchased (1,338,200) (16,328,511) (658,165) (8,335,658)
------------- ------------- ------------- -------------
Net decrease (73,578) ($888,190) (226,804) ($2,851,873)
============= ============= ============= =============
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.
</TABLE>
<TABLE>
<CAPTION>
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:
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30, 1997
1992(1) 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $10.00 $10.19 $10.74 $9.84 $11.75 $12.27
-------- -------- -------- -------- -------- --------
Net Investment Income 0.04(2) 0.46 0.50 0.44(2) 0.41(2) 0.18(2)
Net Realized and Unrealized Gain (Loss)
on Investments 0.20 0.68 (0.88) 1.91 0.99 1.09
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.24 1.14 (0.38) 2.35 1.40 1.27
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.05) (0.45) (0.50) (0.44) (0.41) (0.18)
Distributions from Net Realized Gain
on Investments Sold -- (0.14) (0.02) -- (0.47) --
-------- -------- -------- -------- -------- --------
Total Distributions (0.05) (0.59) (0.52) (0.44) (0.88) (0.18)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.19 $10.74 $9.84 $11.75 $12.27 $13.36
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value (3) 2.37%(4) 11.38% (3.51%) 24.23% 12.13% 10.43%(4)
Total Adjusted Investment Return at
Net Asset Value (3,5) 2.34%(4) -- -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $5,796 $62,218 $61,952 $69,811 $71,242 $77,268
Ratio of Expenses to Average Net Assets 2.79%(6) 1.45% 1.23% 1.27% 1.29% 1.25%(6)
Ratio of Adjusted Expenses to
Average Net Assets (7) 2.94%(6) -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets 3.93%(6) 4.44% 4.89% 3.99% 3.33% 2.91%(6)
Ratio of Adjusted Net Investment
Income to Average Net Assets (7) 3.78%(6) -- -- -- -- --
Portfolio Turnover Rate 0% 85% 78% 45% 80% 75%
Fee Reduction Per Share $0.0016 N/A N/A N/A N/A N/A
Average Brokerage Commission Rate (8) N/A N/A N/A N/A $0.0700 $0.0700
The Financial Highlights summarizes the impact of the following factors on
a single share for each period indicated: net investment income, gains
(losses), dividends and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed since the end of the
previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30, 1997
1992(1) 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning
of Period $10.00 $10.20 $10.75 $9.84 $11.74 $12.27
-------- -------- -------- -------- -------- --------
Net Investment Income 0.03(2) 0.37 0.43 0.36(2) 0.32(2) 0.14(2)
Net Realized and Unrealized
Gain (Loss) on Investments 0.20 0.70 (0.89) 1.90 1.01 1.08
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.23 1.07 (0.46) 2.26 1.33 1.22
-------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net
Investment Income (0.03) (0.38) (0.43) (0.36) (0.33) (0.14)
Distributions from Net Realized
Gain on Investments Sold -- (0.14) (0.02) -- (0.47) --
-------- -------- -------- -------- -------- --------
Total Distributions (0.03) (0.52) (0.45) (0.36) (0.80) (0.14)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $10.20 $10.75 $9.84 $11.74 $12.27 $13.35
======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value (3) 2.29%(4) 10.63% (4.22%) 23.30% 11.46% 9.96%(4)
Total Adjusted Investment Return
at Net Asset Value (3,5) 2.26%(4) -- -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period
(000s omitted) $14,311 $78,775 $79,176 $87,827 $90,855 $95,859
Ratio of Expenses to Average
Net Assets 3.51%(6) 2.10% 1.87% 1.96% 1.99% 1.95%(6)
Ratio of Adjusted Expenses to
Average Net Assets (7) 3.66%(6) -- -- -- -- --
Ratio of Net Investment Income to
Average Net Assets 3.21%(6) 4.01% 4.25% 3.31% 2.63% 2.21%(6)
Ratio of Adjusted Net Investment
Income to Average Net Assets (7) 3.06%(6) -- -- -- -- --
Portfolio Turnover Rate 0% 85% 78% 45% 80% 75%
Fee Reduction Per Share $0.0012 N/A N/A N/A N/A N/A
Average Brokerage Commission Rate (8) N/A N/A N/A N/A $0.0700 $0.0700
(1) Class A and Class B shares commenced operations on October 5, 1992. This
period is covered by the report of other independent auditors (not included herein).
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculated that does not take into consideration fee
reductions by the Adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995
or later.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
June 30, 1997 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for the most
recently reported ten year periods on common stocks.
The Schedule of Investments is a complete list of all securities owned by the Sovereign
Balanced Fund on June 30, 1997. It's divided into five main categories: common stocks,
preferred stocks, corporate bonds, U.S. government and agencies obligations and short-term
investments. The common stocks are further broken down by industry group. Short-term
investments, which represent the Fund's "cash" position, are listed last.
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
--------- --------- ---------
<S> <C> <C> <C> <C>
COMMON STOCKS (64.84%)
Advertising (1.77%)
50,000 Interpublic Group, Inc. @ 61 5/16 $3,065,625
One of the largest advertising agencies -------------
in the world
Earnings P/S $ .91, 1.05, 1.12, 1.17, 1.32, 1.39, 1.69, 1.89, 1.69, 2.60 12.4%
Dividends P/S $ .22, .26, .32, .37, .41, .45, .49, .55, .61, .67 13.2%
Price/Earnings Ratio 24.6
Aerospace (1.19%)
35,000 Rockwell International Corp. @ 59 2,065,000
Leading producer of aerospace, automotive -------------
and electronics products
Earnings P/S $1.98, 2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79 7.5%
Dividends P/S $.66, .72, .77, .82, .88, .92, .96, 1.04, 1.10, 1.16 6.5%
Price/Earnings Ratio 14.7
Banks (4.88%)
44,000 Banc One Corp. @ 48 7/16 2,131,250
Ohio-based bank holding company
Earnings P/S $ 1.56, 1.66, 1.83, 1.64, 1.75, 2.27, 2.70, 2.16, 3.00, 3.32 8.8%
Dividends P/S $ .45, .50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36 13.1%
Price/Earnings Ratio 14.7
45,000 BB&T Corp. @ 45 2,025,000
Multi-regional bank holding company
Earnings P/S $ 1.14, 1.12, 1.33, 1.04, 1.43, 1.92, .09, 1.61, 2.43, 2.66 9.9%
Dividends P/S $ .34, .36, .39, .42, .46, .50, .64, .74, .86, 1.00 12.7%
Price/Earnings Ratio 17.1
30,000 First Tennessee National Corp. @ 48 1,440,000
Tennessee-based bank holding company
Earnings P/S $ 1.10, .65, .98, 1.23, 1.50, 1.62, 1.77, 2.08, 2.47, 2.72 10.6%
Dividends P/S $ .40, .43, .49, .54, .57, .63, .75, .87, .97, 1.10 11.9%
Price/Earnings Ratio 17.9
10,000 First Union Corp. @ 92 1/2 925,000
North Carolina-based bank holding company
Earnings P/S $ 1.10, .65, .98, 2.52, 2.37, 2.92, 4.71, 4.62, 4.70, 6.17 21.1%
Dividends P/S $ .77, .86, 1.00, 1.08, 1.12, 1.28, 1.50, 1.72, 1.96, 2.20 12.4%
Price/Earnings Ratio 15.7
30,000 NationsBank Corp. @ 64 1/2 1,935,000
Largest superregional bank in the Southeast
Earnings P/S $ 1.44, 2.22, 1.31, .38, .70, 2.21, 2.71, 3.10, 3.63, 4.12 12.4%
Dividends P/S $ .43, .47, .55, .71, .74, .755, .82, .94, 1.04, 1.20 12.1%
Price/Earnings Ratio 16.2
-------------
8,456,250
-------------
Beverages (1.52%)
70,000 PepsiCo, Inc. @ 37 9/16 2,629,375
Second largest soft drink company -------------
Earnings P/S $ .49, .57, .68, .70, .69, .82, 1.00, 1.14, 1.04, .75 4.8%
Dividends P/S $ .11, .14, .16, .19, .23, .26, .31, .35, .39, .45 16.9%
Price/Earnings Ratio 36.1
Building (1.27%)
120,000 RPM, Inc. @ 18 3/8 2,205,000
Manufacturer of specialty chemicals and -------------
coatings to waterproof and rustproof structures
Earnings P/S $ .38, .45, .42, .40, .50, .44, .73, .81, .89, .97 11.0%
Dividends P/S $.21, .25, .27, .30, .34, .37, .39, .42, .46, .49 9.9%
Price/Earnings Ratio 19.3
Chemicals (1.21%)
60,000 Sigma-Aldrich Corp. @ 35 1/16 2,103,750
Manufacturer of biochemical and organic -------------
products used for research and diagnostics
Earnings P/S $ .575, .65, .72, .59, .84, .99, .1.11, 1.14, 1.36, 1.52 11.4%
Dividends P/S $ .075, .085, .095, .10, .115, .13, .15, .17, .19, .2275 13.1%
Price/Earnings Ratio 22.9
Computers (3.84%)
60,000 Automatic Data Processing, Inc. @ 47 2,820,000
Largest independent computing services
firm in the U.S.
Earnings P/S $ .54, .62, .72, .79, .90, 1.01, 1.15, 1.34, 1.53, 1.74 13.9%
Dividends P/S $ .11, .13, .15, .17, .20, .23, .26, .29, .35, .42 16.1%
Price/Earnings Ratio 27.6
25,000 Electronic Data Systems Corp. @ 41 1,025,000
Provides information technology services
to companies worldwide
Earnings P/S $ .79, .91, 1.04, 1.03, 1.21, 1.37, 1.55, 1.77, 1.99, .84 0.7%
Dividends P/S $ .13, .17, .24, .28, .32, .36, .40, .48, .52, .60 18.5%
Price/Earnings Ratio 50.5
50,000 Hewlett-Packard Co. @ 56 2,800,000
Manufactures and services electronic
measurement, analysis and computation
instruments
Earnings P/S $ 1.25, 1.68, 1.76, .77, .83, .93, .86, 1.31, 1.92, 2.63 8.6%
Dividends P/S $ .06, .07, .10, .11, .13, .20, .24, .29, .38, .46 25.4%
Price/Earnings Ratio 22.1
-------------
6,645,000
-------------
Containers (1.50%)
60,000 Bemis Company, Inc. @ 43 1/4 2,595,000
Producer of a broad range of flexible -------------
packaging and equipment and pressure
sensitive materials
Earnings P/S $ .74, .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73, 1.86 10.8%
Dividends P/S $.18, .22, .30, .36, .42, .46, .50, .54, .64, .72 16.7%
Price/Earnings Ratio 24.4
Diversified Operations (4.27%)
50,000 DuPont (E.I.) De Nemours &
Co. @ 62 7/8 3,143,750
Nation's largest chemical manufacturer
Earnings P/S $ 1.52, 1.77, 1.70, 1.69, .92, .76, .52, 2.23, 2.89, 3.35 9.2%
Dividends P/S $ .55, .625, .725, .81, .84, .87, .88, .91, 1.015, 1.115 8.2%
Price/Earnings Ratio 19.0
70,000 Federal Signal Corp. @ 25 1/8 1,758,750
Manufactures fire trucks and street sweepers,
as well as public safety, signaling and
communications equipment
Earnings P/S $ .41, .50, .66, .62, .69, .70, .88, 1.08, 1.16, 1.40 14.6%
Dividends P/S $ .15, .16, .19, .22, .27, .32, .36, .42, .50, .58 16.2%
Price/Earnings Ratio 18.2
100,000 Ikon Office Solutions, Inc. @ 24 15/16 2,493,750
Distributor of office and paper products
Earnings P/S $ 1.15, 1.96, .91, .81, 1.04, 1.18, .05, .74, 1.55, .97 NMF
Dividends P/S $ .26, .28, .31, .34, .36, .37, .39, .41, .43, .45 6.3%
Price/Earnings Ratio 27.6
-------------
7,396,250
-------------
Electronics (8.86%)
80,000 AMP, Inc. @ 41 3/4 3,340,000
World's largest manufacturer of electrical/
electronic connectors
Earnings P/S $ 1.48, 1.32, 1.35, 1.31, 1.23, 1.39, 1.44, 1.83, 2.01, 1.24 NMF
Dividends P/S $ .43, .50, .60, .68, .72, .76, .80, .84, .92, 1.00 9.8%
Price/Earnings Ratio 36.7
64,000 Emerson Electric Co. @ 55 1/16 3,524,000
Produces and sells electrical/electronic
products and systems
Earnings P/S $ 1.16, 1.32, 1.38, 1.40, 1.44, 1.53, 1.91, 1.95, 2.15, 2.39 8.4%
Dividends P/S $ .49, .515, .58, .64, .67, .70, .735, .80, .92, 1.005 8.3%
Price/Earnings Ratio 23.1
54,000 General Electric Co. @ 65 3/8 3,530,250
Dominant force in home appliances,
electrical power, and financial services
Earnings P/S $ .94, 1.09, 1.22, 1.26, 1.28, 1.12, 1.57, 1.84, 2.07, 2.34 10.7%
Dividends P/S $ .325, .35, .41, .47, .51, .56, .63, .72, .82, .92 12.3%
Price/Earnings Ratio 29.7
50,000 Hubbell, Inc. Class B @ 44 2,200,000
Manufacturer of electrical and
electronic products
Earnings P/S $ .97, 1.13, 1.26, 1.21, 1.33, 1.42, 1.01, 1.66, 1.87, 2.16 9.3%
Dividends P/S $ .375, .425, .535, .625, .70, .755, .775, .81, .92, 1.02 11.8%
Price/Earnings Ratio 22.6
35,000 Grainger (W.W.), Inc. @ 78 3/16 2,736,562
Leading distributor of electrical equipment
Earnings P/S $ 1.57, 1.96, 2.19, 2.31, 2.38, 2.70, 3.04, 2.61, 3.70, 4.09 11.2%
Dividends P/S $ .39, .43, .50, .57, .61, .65, .71, .78, .89, .98 10.8%
Price/Earnings Ratio 20.7
-------------
15,330,812
-------------
Food (2.41%)
120,000 Archer-Daniel Midland Co. @ 23 1/2 2,820,000
Processes and merchandises
agricultural products
Earnings P/S $ .62, .75, .85, .73, .79, .87, .81, 1.25, 1.40, .74 2.0%
Dividends P/S $ .028, .029, .034, .048, .05, .053, .056, .066, .116, .193 23.9%
Price/Earnings Ratio 31.7
80,000 Flowers Industries @ 16 13/16 1,345,000
Produces and sells baked goods, snacks and
convenience foods to sell to groceries, food
services and restaurants throughout the U.S.
Earnings P/S $ ..53, .38, .37, .36, .35, .46, .45, .42, .44, .62 1.8%
Dividends P/S $ ..18, .21, .24, .28, .30, .32, .34, .35, .37, .40 9.3%
Price/Earnings Ratio 27.6
-------------
4,165,000
-------------
Insurance (3.47%)
35,000 AFLAC Corp. @ 47 1/4 1,653,750
Global specialty insurer
Earnings P/S $ .72, .53, .77, .82, 1.03, 1.26, 1.65, 2.01, 2.38, 2.78 16.2%
Dividends P/S $ .12, .13, .15, .18, .20, .23, .26, .30, .34, .39 14.0%
Price/Earnings Ratio 18.4
10,000 General RE Corp. @ 182 1,820,000
Broadly based re-insurance organization
Earnings P/S $ 5.04, 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02 10.59, 11.08 9.2%
Dividends P/S $ 1.00, 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04 8.2%
Price/Earnings Ratio 17.2
34,700 Reliastar Financial Corp. @ 73 1/8 2,537,437
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S $ 1.58, 2.07, 1.99, 1.96, 1.67, 2.26, 2.83, 3.48, 4.62, 5.04 13.8%
Dividends P/S $ .47, .57, .59, .65, .69, .73, .79, .88, .98, 1.09 9.8%
Price/Earnings Ratio 15.4
-------------
6,011,187
-------------
Machinery (3.14%)
35,000 Dover Corp. @ 61 1/2 2,152,500
Manufactures a variety of specialized
industrial products
Earnings P/S $ 1.11, 1.14, 1.28, 1.23, 1.09, 1.16, 1.46, 1.93, 2.60, 3.47 13.5%
Dividends P/S $ .26, .31, .35, .38, .41, .43, .45, .49, .56, .64 10.5%
Price/Earnings Ratio 18.3
100,000 Pentair, Inc. @ 32 7/8 3,287,500
Manufactures enclosures for electrical,
electronic, woodworking and power
tool equipment
Earnings P/S $ 1.12, .95, .80, .89, 1.11, 1.11, 1.14, 1.32, 1.54, 1.91 6.1%
Dividends P/S $ .21, .22, .27, .29, .31, .33, .34, .36, .40, .50 10.1%
Price/Earnings Ratio 18.1
-------------
5,440,000
-------------
Media (1.02%)
30,000 McGraw-Hill Companies, Inc.
@ 58 13/16 1,764,375
Provides informational products and services -------------
for business and industry
Earnings P/S $ 1.92, .91, 1.77, 1.73, 1.51, 1.60, .11, 2.04, 2.30, 4.95 11.1%
Dividends P/S $ .84, .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32 5.2%
Price/Earnings Ratio 12.3
Medical (7.67%)
50,000 Abbott Laboratories @ 66 3/4 3,337,500
Major pharmaceutical and healthcare firm
Earnings P/S $ .84, .97, 1.11, 1.19, 1.38, 1.58, 1.77, 2.01, 2.28, 2.57 5.2%
Dividends P/S $ .24, .29, .34, .40, .48, .58, .66, .74, .82, .93 16.2%
Price/Earnings Ratio 24.9
30,000 American Home Products Corp.
@ 76 1/2 2,295,000
Leading manufacturer of ethical
pharmaceuticals
Earnings P/S $ 1.60, 1.77, 1.96, 3.07, 1.85, 2.26, 2.39, 3.48, 1.84, 3.09 7.6%
Dividends P/S $ .83, .90, .98, 1.08, 1.19, 1.33, 1.43, 1.47, 1.51, 1.57 7.3%
Price/Earnings Ratio 25.2
45,000 Baxter International, Inc. @ 52 1/4 2,351,250
The company operates four divisions: renal,
biotech, cardiovascular and intravenous
systems for international distribution
Earnings P/S $ 1.30, 1.49, (.05), 1.91, 1.81, 1.73, (.70), 2.01, 1.50, .86 NMF
Dividends P/S $ .41, .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11 11.7%
Price/Earnings Ratio 67.1
57,000 Johnson & Johnson @ 64 3/8 3,669,375
Major producer of prescription and
non-prescription drugs, toiletries,
medical instruments and supplies
Earnings P/S $ .71, .80, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.94, 2.26 13.7%
Dividends P/S $ .20, .24, .28, .33, .39, .45, .51, .57, .64, .74 15.7%
Price/Earnings Ratio 27.7
20,000 Medtronic, Inc. @ 81 1,620,000
Leading manufacturer of medical devices
and instruments
Earnings P/S $ .40, .46, .48, .56, .68, .89, 1.01, 1.28, 1.94, 2.23 21.0%
Dividends P/S $ .06, .07, .09, .10, .12, .14, .17, .21, .26, .32 20.4%
Price/Earnings Ratio 41.2
-------------
13,273,125
-------------
Metal (0.85%)
80,000 Worthington Industries, Inc. @ 18 5/16 1,465,000
Manufactures metal and plastic products -------------
Earnings P/S $ .61, .70, .61, .50, .63, .74, .94, 1.29, 1.01, .96 5.2%
Dividends P/S $ .17, .19, .23, .26, .28, .32, .34, .39, .43, .47 20.8%
Price/Earnings Ratio 20.4
Office (1.00%)
25,000 Pitney Bowes, Inc. @ 69 1/2 1,737,500
Manufactures office automation equipment -------------
Earnings P/S $ 1.54, 1.19, 1.34, 1.35, 1.79, 1.98, 1.99, 2.33, 2.75, 3.23 8.6%
Dividends P/S $ .38, .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38 15.4%
Price/Earnings Ratio 22.1
Oil & Gas (3.07%)
40,000 Mobil Corp. @ 69 7/8 2,795,000
One of the largest integrated, international
oil companies with interest in petrochemicals
and plastics
Earnings P/S $ 5.07, 4.40, 4.60, 4.65, 2.70, 1.60, 2.02, 2.60, 2.27, 3.07 NMF
Dividends P/S $ 1.10, 1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96 6.6%
Price/Earnings Ratio 18.9
20,000 Shell Transport & Trading Co., PLC
American Depositary Receipts
(United Kingdom) @ 125 3/4 2,515,000
Explores, processes and delivers petroleum
Earnings P/S $ 3.34, 2.99, 3.57, 3.48, 3.45, 3.18, 2.68, 3.62, 3.90, 4.57 3.6%
Dividends P/S $ 16.0, 17.0, 18.4, 20.1, 20.9, 21.9, 24.0, 27.1, 28.8, 34.8 9.0%
Price/Earnings Ratio 15.7
* Earnings per share per ADR in $
** Dividends in pence per ordinary share
-------------
5,310,000
-------------
Paper & Paper Products (1.44%)
50,000 Kimberly-Clark Corp. @ 49 3/4 2,487,500
Leading producer of consumer and
personal care products
Earnings P/S $ 1.18, 1.315, 1.35, 1.36, 1.63, 1.06, 1.63, 1.60, .27, 2.59 9.1%
Dividends P/S $ .35, .39, .63, .66, .74, .795, .835, .855, .88, .92 11.3%
Price/Earnings Ratio 20.4
Retail (5.81%)
20,000 Home Depot, Inc. @ 68 15/16 1,378,750
Operates a chain of retail building supply/
home improvement "warehouse" stores
Earnings P/S $ .42, .46, .23, .32, .43, .59, .73, .91, 1.08, 1.38 14.1%
Dividends P/S $ .053, .06, .073, .08, .087, .093, .10, .113, .126, .14 11.4%
Price/Earnings Ratio 32.5
82,000 Pep Boys - Manny, Moe & Jack (The)
@ 34 1/16 2,793,125
Retailer of automotive parts and accessories
Earnings P/S $ .76, .63, .66, .63, .75, .93, 1.13, 1.30, 1.40, 1.66 9.1%
Dividends P/S $ .08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio 20.5
80,000 Sysco Corp. @ 36 1/2 2,920,000
Largest distributor of food service products
Earnings P/S $ .45, .60, .73, .81, .90, 1.00, 1.16, 1.33, 1.48, 1.65 15.5%
Dividends P/S $ .07, .08, .09, .10, .14, .22, .28, .36, .44, .52 25.0%
Price/Earnings Ratio 22.8
80,000 Unisource Worldwide @ 16 1,280,000
Markets and distributes paper products and
supply systems in North America.
Earnings P/S $.83, (.96),1.31,1.56,.89 2.3%
Dividends P/S $.23,.24,.27,.30,.31,.33,.34,.36,.37,.40 8.0%
Price/Earnings Ratio 18
50,000 Wal-Mart Stores, Inc. @ 33 13/16 1,690,625
Operates chain of discount department stores
Earnings P/S $ .37, .48, .50, .59, .73, .90, 1.05, 1.20, 1.21, 1.38 15.4%
Dividends P/S $ .03, .04, .06, .07, .09, .11, .13, .17, .20, .21 24.1%
Price/Earnings Ratio 25.7
-------------
10,062,500
-------------
Utilities (4.65%)
50,000 Century Telephone Enterprise, Inc.
@ 33 11/16 1,684,375
Louisiana based telecommunications company
Earnings P/S $ .51, .67, .63, .67, .89, 1.32, 1.39, 1.99, 1.99, 2.20 17.6%
Dividends P/S $ .253, .264, .272, .280, .287, .293, .310, .320, .330, .360 9.0%
Price/Earnings Ratio 15.9
30,000 Duke Energy Corp. @ 47 15/16 1,438,125
Generates, transmits, distributes and sells
electric energy in the Piedmont sections of
North and South Carolina
Earnings P/S $ 2.57, 2.40, 2.60, 2.44, 2.44, 2.39, 2.96, 3.01, 3.21, 3.31 2.9%
Dividends P/S $ 1.37, 1.42, 1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08 4.8%
Price/Earnings Ratio 14.7
50,000 National Fuel Gas Co. @ 41 15/16 2,096,875
Integrated natural gas system serving
N.Y., PA. and Ohio
Earnings P/S $ 1.65, 1.93, 1.83, 1.95, 1.89, 1.88, 2.05, 2.27, 2.40, 2.96 6.7%
Dividends P/S $ 1.19, 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67 3.8%
Price/Earnings Ratio 14.2
70,000 Questar Corp. @ 40 3/8 2,826,250
Diversified holding company for Utah,
Wyoming and Colorado natural gas
transmission, distribution and storage
Earnings P/S $ .64, 1.27, 1.46, 1.57, 1.53, 2.00, 1.97, 1.11, 2.23, 2.54 16.6%
Dividends P/S $ .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19 3.0%
Price/Earnings Ratio 16.7
-------------
8,045,625
-------------
TOTAL COMMON STOCKS
(Cost $82,274,137) 112,253,874
-------------
PREFERRED STOCKS (0.29%)
10,000 Wang Laboratories, Inc. 6.50% Ser B
Conv. Pfd. @51 510,000
-------------
TOTAL PREFERRED STOCKS
(Cost $500,000) 510,000
-------------
<CAPTION>
PAR VALUE
(000s MARKET
OMITTED) VALUE
--------- ---------
<S> <C> <C> <C>
CORPORATE BONDS (14.50%)
$ 1,000 Banc One Credit Card Corp.,
Sr Sub Note 7.55%, 12-15-99
@ 100.625 1,006,250
1,000 Barclays North American Capital,
Deb. 9.75%, 05-15-21 @ 111.573 1,115,730
1,000 Comcast Corp., Sr. Sub Deb. 10.625%,
07-15-12 @ 118.00 1,180,000
1,500 Continental Cablevision, Inc., Deb. 9.50%,
08-01-13 @ 113.149 1,697,235
1,500 Georgia-Pacific Corp., Deb 9.75%,
01-15-18 @ 104.376 1,565,640
1,300 GTE Corp., Deb 10.25%, 11-01-20
@ 112.979 1,468,727
1,800 Landeskreditbank Baden-Wurttemberg,
Sub Note 7.625%, 02-01-23
@ 104.221 1,875,978
1,822 Long Island Lighting Co., Deb 8.90%,
07-15-19 @ 104.227 1,899,016
600 Mass Mutual Life, Sub Note 7.625%,
11-15-23 @ 99.478 (R) 596,868
1,000 Midland American Capital Corp.,
Gtd Note 12.75%, 11-15-03
@ 108.145 1,081,450
2,275 Midland Cogeneration Venture L.P.,Sec
Deb Ser C-91 10.33%, 07-23-02
@ 107.00 2,434,206
670 National Westminster Bancorp,
Deb 12.125%, 11-15-02 @ 102.186 684,646
750 New York Life 7.50%, 12-15-23
@ 94.295 (R) 707,213
400 RJR Nabisco Capital Corp., Sr Sub
Deb 8.75%, 04-15-04 @ 101.459 405,836
500 Scandinavian Airlines System,
Deb 9.125%, 07-20-99 @ 104.8125 524,063
1,100 Security Pacific Corp., Sub Note
11.50%, 11-15-00 @ 114.059 1,254,649
750 Standard Credit Card Master Trust,
Credit Card Participation Certificates,
8.25%, 01-08-07 @ 107.031 802,732
1,000 Standard Credit Card Master Trust,
Credit Card Participation Certificates,
7.25%, 04-07-08 @ 101.312 1,013,120
1,000 Tele-Communications, Inc., 8.00%,
08-01-05 @ 101.598 1,015,980
500 Tele-Communications, Inc., 9.80%,
02-01-12 @ 114.459 572,295
1,550 TKR Cable 1, Inc. Deb 10.50%,
10-30-07 @ 110.285 1,709,417
500 360 Communications Co., Sr. Notes
7.125%, 03-01-03 @ 99.449 497,245
-------------
TOTAL CORPORATE BONDS
(Cost $25,621,100) 25,108,296
-------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (14.14%)
5,345 Federal Home Loan Mort. Corp. Deb
6.85%, 04-10-00 @ 100.328 5,362,532
1,879 Federal National Mortgage Assn.,
7.50%, 08-01-08 @ 101.875 1,913,972
2,717 Federal National Mortgage Assn.,
7.00%, 02-01-11 @ 99.947 2,715,511
1,790 Financing Corp., Bond 9.65%,
11-02-18 @ 127.562 2,283,360
135 Government National Mort. Assn.,
9.00%, 04-15-21 @ 106.874 144,206
1,789 Government National Mort. Assn.,
7.00%, 06-15-23 @ 98.688 1,765,648
2,250 United States Treasury, Bond 12.00%,
08-15-13 @ 140.766 3,167,235
2,768 United States Treasury, Bond 8.125%,
08-15-19 @ 114.078 3,157,679
2,000 United States Treasury, Bond 6.625%,
02-15-27 @ 97.844 1,956,880
2,000 United States Treasury, Note 6.625%,
03-31-02 @ 100.906 2,018,120
-------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $24,461,360) 24,485,143
-------------
<CAPTION>
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
--------- -------- ---------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (4.28%)
7,391 Joint Repurchase Agreement (4.27%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities
USA, Inc. - Dated 06-30-97,
Due 07-01-97 (Secured by
U.S. Treasury Notes, 5.625%
thru 8.125% Due 07-31-97
thru 11-15-04) - Note A 5.97% $7,391,000
-------------
Corporate Savings Account (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 11,044
-------------
TOTAL SHORT-TERM INVESTMENTS (4.28%) 7,402,044
------- -------------
TOTAL INVESTMENTS (98.05%) $169,759,358
======= =============
(R) These securities are exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified institutional buyers,
in transactions exempt from registration. See Note A of the Notes to Financial Statements
for valuation policy rule. Rule 144A securities amounted to $1,304,081 as of June 30, 1997.
NMF = No Meaningful Figure
The percentage shown for each investment category is the total value of that category as
a percentage of the net assets of the Fund.
See notes to financial statements.
</TABLE>
Notes to Financial Statements
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust (the "Trust") is an open-end management
investment company, registered under the Investment Company Act of 1940.
The Trust consists of three series portfolios: John Hancock Sovereign
Balanced Fund (the "Fund"), John Hancock Growth and Income Fund and John
Hancock Sovereign Investors Fund. The other two series of the Trust are
reported in separate financial statements. The investment objectives of
the Fund are to provide current income, long-term growth of capital and
income and preservation of capital.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends and
liquidation, except that certain expenses subject to the approval of the
Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan, have exclusive voting rights regarding such
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investment, to its
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date. Interest income on
investment securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting 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, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the Funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to
the Fund's operations ratably over a five-year period that began with
the commencement of investment operations of the Fund.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund had no borrowing activity for the period ended June
30, 1997.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of 0.60% of the
Fund's average daily net asset value. The Adviser has entered into a
sub-advisory agreement with Sovereign Asset Management Corporation
("SAMCORP"), an affiliate of the Adviser, to provide certain investment
research and portfolio management services for the stock portion of the
Fund, for which the Adviser pays SAMCORP 40% of its management fee.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
June 30, 1997, net sales charges received with regard to sales of Class
A shares amounted to $109,341. Out of this amount, $18,164 was retained
and used for printing prospectuses, advertising, sales literature and
other purposes, $42,491 was paid as sales commissions to unrelated
broker-dealers and $48,686 was paid as sales commissions to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), a related
broker-dealer. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of
Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the period ended June 30, 1997, contingent deferred
sales charges paid to JH Funds amounted to $86,187.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution
Plan with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00%
of Class B average daily net assets to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's
12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of
JHMLICo. The Fund pays transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Funds. The compensation for the
period was at an annual rate of 0.01875% of the average net assets of
each Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and/or officers of the Adviser and/or its
affiliates, as well as Trustees of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees
may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The
Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover
the Fund's deferred compensation liability are recorded on the Fund's
books as an other asset. The deferred compensation liability and the
related other asset are always equal and are marked to market on a
periodic basis to reflect any income earned by the investment as well as
any unrealized gains or losses. At June 30, 1997, the Fund's investments
to cover the deferred compensation liability had unrealized appreciation
of $1,673.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended June 30, 1997, aggregated $36,124,314 and
$46,992,640, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies aggregated
$78,802,740 and $69,800,261, respectively.
The cost of investments owned at June 30, 1997 (excluding the corporate
savings account), for federal income tax purposes was $140,247,597.
Gross unrealized appreciation and depreciation of investments aggregated
$31,048,105 and $1,547,388, respectively, resulting in net unrealized
appreciation of $29,500,717.
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* 5,784,691 0.1825 13.36 --
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* 7,178,019 0.1369 13.35 --
(1) For the period October 5, 1992 (commencement of operations) to
December 31, 1992.
* For the period ended June 30, 1997.
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common
stocks held in the Sovereign Balanced Fund as of June 30, 1997.
- -------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------------------------------- -----------------
AFLAC Corp. 15.0%
Abbott Laboratories, Inc. 12.5
American Home Products Corp. 6.5
AMP, Inc. 4.0
Archer-Daniel Midland Co. 5.0
Automatic Data Processing, Inc. 15.0
BB&T Corp. 14.8
BankOne Corp. 11.8
Baxter International, Inc. 0.4
Bemis Company, Inc. 11.1
Century Telephone Enterprise, Inc. 2.8
Dover Corp. 13.3
DuPont (E.I.) De Nemours & Co. 10.5
Duke Energy Corp. 3.9
Electronic Data Systems Corp. 15.4
Emerson Electric Co. 10.2
Federal Signal Corp. 15.5
First Tennessee National Corp. 13.2
First Union Corp. 11.5
Flowers Industries, Inc 9.3
General Electric Co. 13.0
General RE Corp. 7.8
Grainger (W.W.), Inc. 1.1
Hewlett Packard Co. 16.7
Home Depot, Inc. 1.3
Ikon Office Solutions, Inc. 7.7
Illinois Tool Works, Inc. 26.3
Interpublic Group, Inc. 14.7
Johnson & Johnson 15.8
Kimberly-Clark Corp. 4.3
McGraw-Hill Companies, Inc. 9.1
Medtronic, Inc. 15.8
Mobil Corp. 6.0
National Fuel Gas Co. 3.6
NationsBank Corp. 13.8
Pentair, Inc. 8.0
Pep Boys - Manny, Moe, & Jack (The) 14.3
PepsiCo, Inc. 8.7
Pitney Bowes, Inc. 15.9
Questar Corp. 3.4
Reliastar Financial Corp. 10.7
Rockwell International Corp. 5.5
RPM, Inc. 8.3
Sigma-Aldrich Corp. 13.6
Sysco Corp. 15.4
Unisource Worldwide, Inc. 8.1
Wal-Mart Stores, Inc. 28.6
Worthington Industries, Inc. 8.3
-------
The average dividend increase
for this group was 10.6%
=======
Notes
John Hancock Funds - Sovereign Balanced Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
Notes
John Hancock Funds - Sovereign Balanced Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads "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
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
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.
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper." 360SA 6/97
8/97
John Hancock Funds
Sovereign
Investors
Fund
SEMIANNUAL REPORT
June 30, 1997
TRUSTEES
Edward J. Boudreau, Jr.
James F. Carlin*
William H. Cunningham*
Charles F. Fretz*
Harold R. Hiser, Jr.*
Anne C. Hodsdon
Charles L. Ladner*
Leo E. Linbeck, Jr.*
Patricia P. McCarter*
Steven R. Pruchansky*
Richard S. Scipione
Lt. Gen. Norman H. Smith, USMC (Ret.)*
John P. Toolan*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISER
Sovereign Asset Management Corp.
1235 Westlakes Drive
Berwyn, Pennsylvania 19312
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
The stock market has certainly put on a show since the start of the
year. Stocks began 1997 on the high wires, bolstered by a near-perfect
"Goldilocks" economy -- not too hot, not too cold. In almost a straight
shot, the Dow Jones Industrial Average soared through the 7000 level for
the first time in early March. Just days later, stocks lost their
footing and staged a month-long free-fall in a nervous reaction to
rising interest rates and economic data that showed the economy was
picking up steam. Stocks gave back all of their year's gain and suffered
their worst decline since 1990 during this period. No sooner had real
fears begun to beset investors then they were gone, erased in a euphoric
rally caused by strong earnings and no signs of inflation. By the end of
June, both the Dow and the broader Standard & Poor's 500 Stock Index had
risen by 20% -- a level not many thought the market would reach all
year, let alone in six months. Bondholders have not enjoyed the same
bounty, as the bond market has mostly stayed worried about the strength
of the economy, the direction of interest rates, and the Federal
Reserve's next moves to pre-empt inflation.
But the stock market's latest advance has amazed many analysts and left
them pondering their valuation models, since the market is now more
expensive than it has been in decades. It's impossible to know what will
happen next in the markets. But whether it's another strong move forward
or a retreat, we recommend keeping a long-term perspective, rather than
over-focusing on the market's daily twists and turns. While the economic
backdrop seems to remain near perfect, the one thing we believe
investors should be prepared for is more market volatility. It also
makes sense to do something we've always advocated: set realistic
expectations, since, as we've also seen this year, markets can move down
as fast as they go up.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. After
such a strong advance in equities over the last two and a half years, it
could be time to rebalance your portfolio, if you haven't already, to
maintain your desired targets of diversification. As part of that
process, make sure that your investment strategies still reflect your
individual time horizons, objectives and risk tolerance. Despite
turbulence, one thing remains constant. A well-constructed plan and a
cool head can be the best tools for reaching your financial goals.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
By John F. Snyder III and Barry Evans, CFA, Co-Portfolio Managers
John Hancock
Sovereign Investors Fund
Bull market extends into first half of 1997;
Fund benefits from larger holdings
It doesn't get much better than this for stock investors. Halfway into
1997, the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average have racked up gains of nearly 21%. And that comes on the heels
of a spectacular year in 1996 when most major market indices posted
returns well in excess of 20%.
The year got off to a bumpy start as investors fretted that a robust
U.S. economy and spiraling inflation would prompt a series of interest-
rate increases by the Federal Reserve Bank. Following the Fed's initial
rate hike in March, however, strong evidence of a slowing economy helped
investors shake off their inflationary fears. The potent combination of
moderate growth and tame inflation -- in addition to ample market
liquidity and continued strong corporate earnings -- fueled a stock
market rally that lasted through the end of the period.
Performance scorecard
John Hancock Sovereign Investors Fund performed particularly well in
this favorable market environment. For the six months ended June 30,
1997, the Fund's Class A, Class B and Class C shares had total returns
of 16.51%, 16.09% and 16.78%, respectively, at net asset value. By
comparison, the average growth and income fund returned 15.52%,
according to Lipper Analytical Services, Inc.1 Please see pages six and
seven for longer-term performance information.
"The potent
combination
of moderate
growth and
tame
inflation...
fueled a
stock market
rally..."
A 2" x 3 1/4" photo of the Fund management team. Caption reads:
"Sovereign Investors Fund management team members: (l-r) John Snyder,
Barry Evans, Jere Estes."
Much of the strong performance was due to the Fund's largest holdings.
Buoyed by successful new product developments and strong underlying
fundamentals, pharmaceutical giants Eli Lilly and Johnson & Johnson
posted attractive returns. Retail behemoths Wal-Mart and Home Depot also
turned in strong performances. After being the market laggards in 1996,
these stocks looked relatively inexpensive. Their attractive valuations,
coupled with their growing market shares, enticed more investors into
the stocks, pushing prices up steadily over the last six months.
Finally, Gannett Co., the publisher of USA Today, was another winner.
The media giant benefited not only from increased advertising revenues,
but also declining paper costs.
A chart with the heading "Top Five Common Stock Holdings" at the top of
the left hand column. The chart lists five holdings: 1) General Electric
4.2%; 2) DuPont 3.6%; 3) Emerson Electric 3.0%; 4) Mobil Corp. 2.6%; 5)
AMP Inc. 2.2%. Footnote below reads: "As a percentage of net assets on
June 30, 1997."
"Much of
the strong
performance
was due to
the Fund's
largest
holdings."
Given the strong performance of stocks in the first half of the year,
our 8% position in bonds, while providing stability, detracted somewhat
from the Fund's overall performance. In addition, Ikon Office Solutions
and Rockwell International disappointed us. Ikon, which was recently
spun off from former office supply company Alco Standard, has suffered
from higher-than-expected transition costs and employee turnover in some
foreign operations. Once this transition period is over, we believe that
Ikon will be able to grow at least 15% for the next several years. For
Rockwell International, heavy publicity surrounding price competition in
its semiconductor business has put pressure on the stock. However,
semiconductors comprise only about 20% of Rockwell's revenues. Once
investors recognize this, we are confident that the stock will bounce
back.
Table entitled "Scorecard" at bottom of left hand column. The header for
the left column is 'Investment"; the header for the right column is
"Recent performance...and what's behind the numbers." The first listing
is "Gannett Co." followed by an up arrow and the phrase "Increased
advertising, lower paper costs." The second listing is "Eli Lilly"
followed by an up arrow and the phrase "New products, strong earnings."
The third listing is "Ikon Office Solutions" followed by a down arrow
and the phrase "High transition costs associated with spinoff."
Footnote below reads: "See "Schedule of Investments." Investment
holdings are subject to change."
Investment strategy
As long-time shareholders know, the Fund invests exclusively in what we
call "dividend achievers" -- that is, companies that have raised their
dividends consecutively for at least the last 10 years. The theory is
simple. Rising dividends are usually a result of rising earnings, which
are the best indicator of a stock's price over the long term. We believe
that "dividend achievers" companies offer the most consistent,
predictable and visible earnings growth.
There are fewer than 400 companies that meet these investment criteria.
From this universe, we target companies that are -- and will remain --
leaders in their industry. As competitive forces diminish pricing power,
companies must find other ways to grow earnings. We look for those
companies that are gaining market share, aggressively restructuring
their businesses, or expanding globally.
Portfolio adjustments
In the past six months, we eliminated some of the Fund's larger holdings
- -- such as Pfizer and Procter & Gamble. After their recent strong
performance, we felt they had reached their fair valuations and were
ripe for profit taking. In turn, we've added to investments with more
attractive growth potential and valuations. Examples include Sigma
Aldrich, a specialty chemical manufacturer and Bemis, a flexible
packaging company. Both companies dominate their respective industries
and continue to gain market share by introducing new products or
outdoing their weaker competitors.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is a footnote reading: "For the six months ended June
30, 1997." The chart is scaled in increments of 5% from top to bottom,
with 20% at the top and 0% at the bottom. Within the chart there are
four solid bars. The first represents the 16.51% total return for John
Hancock Sovereign Investors Fund: Class A. The second represents the
16.09% total return for John Hancock Sovereign Investors Fund: Class B.
The third represents the 16.78% total return for John Hancock Sovereign
Investors Fund: Class C. The fourth represents the 15.52% total return
for the average growth and income fund. Footnote below reads: "The 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.1 See the following two pages for
historical performance information."
Outlook
Looking ahead, we're still optimistic about stocks, even at their
current levels. Having said that, however, we caution investors to
temper their expectations for the future. It is unrealistic to expect
that stocks will continue to rack up returns of 20% and more -- as we
saw in 1996 and the first half of 1997. Eventually, stock returns will
drop back to their historical levels of 8% to 10% annually.
Now more than ever, investors will have to be more selective in their
stock selection. If higher interest rates begin to take hold in the
second half of the year, we expect that the economy and, in turn,
corporate profits will start to weaken. In that event, we're likely to
see more earnings disappointments as 1997 progresses. Companies that can
grow earnings in the double digits will be few and far between. It will
be critical to invest in those stable, high-quality growth companies
with clear industry leadership. In this economic environment, our
"dividend achievers" are likely to maintain an important competitive
advantage.
"...we're still optimistic about stocks, even at
their current levels."
- ------------------------------------------------------------------------
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.
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 is a performance measure that equals the sum of all
income and capital gains distributions, assuming reinvestment of these
distributions and the change in the price of the Fund's net asset value
per share. Performance figures include the maximum applicable sales
charge of 5% for Class A shares. The effect of the maximum contingent
deferred sales charge for Class B shares (maximum 5% and declining to 0%
over six years) is included in Class B performance. Remember that all
figures represent past performance and are no guarantee of how the Fund
will perform in the future. Also, keep in mind that the total return and
share price of the Fund's investments will fluctuate. As a result, your
Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
CUMULATIVE TOTAL RETURNS
For the period ended June 30, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
-------- ------ -------------
John Hancock Sovereign Investors
Fund: Class A 19.41% 87.87% 209.85%
John Hancock Sovereign Investors
Fund: Class B 19.78% 67.02%(1) N/A
John Hancock Sovereign Investors
Fund: Class C(3) 26.28% 84.91%(2) N/A
AVERAGE ANNUAL TOTAL RETURNS
For the period ended June 30, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
-------- ------ -------------
John Hancock Sovereign Investors
Fund: Class A 19.41% 13.44% 11.97%
John Hancock Sovereign Investors
Fund: Class B 19.78% 15.84%(1) N/A
John Hancock Sovereign Investors
Fund: Class C(3) 26.28% 15.97%(2) N/A
YIELDS
As of June 30, 1997
SEC 30-DAY
YIELD
------------
John Hancock Sovereign Investors
Fund: Class A 1.30%
John Hancock Sovereign Investors
Fund: Class B 0.62%
John Hancock Sovereign Investors
Fund: Class C 1.73%
Notes to Performance
(1) Class B shares commenced on January 3, 1994.
(2) Class C shares commenced on May 7, 1993.
(3) Class C shares are sold at net asset value to certain
institutions and retirement accounts.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Sovereign Investors Fund would be worth on June 30, 1997,
assuming you have been invested and have reinvested all distributions
for the entire time periods represented in the graphs. For comparison,
we've shown the same $10,000 investment in the Standard & Poor's 500
Stock Index -- an unmanaged index that includes 500 widely traded common
stocks and is used often as a measure of stock market performance.
Sovereign Investors Fund
Class A shares
Line chart with the heading Sovereign Investors Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the
most recent ten years. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock
Index and is equal to $49,992 as of June 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in
the Sovereign Investors Fund on June 30, 1987, before sales charge,
and is equal to $37,041 as of June 30, 1997. The third line
represents the Sovereign Investors Fund after sales charge and is
equal to $35,189 as of June 30, 1997.
Sovereign Investors Fund
Class B shares
Line chart with the heading Sovereign Investors Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock
Index and is equal to $20,660 as of June 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in
the Sovereign Investors Fund on January 3, 1994, before contingent
deferred sales charge, and is equal to $17,002 as of June 30, 1997.
The third line represents the Sovereign Investors Fund after
contingent deferred sales charge and is equal to $16,702 as of June
30, 1997.
Sovereign Investors Fund
Class C shares
Line chart with the heading Sovereign Investors Fund: Class C,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock
Index and is equal to $22,326 as of June 30, 1997. The second line
represents the hypothetical $10,000 investment made in the Sovereign
Investors Fund on May 7, 1993,and is equal to $18,491 as of June 30,
1997.
<TABLE>
<CAPTION>
The Statement of Assets and Liabilities is the Fund's balance sheet
and shows the value of what the Fund owns, is due and owes on June 30,
1997. You'll also find the net asset value and the maximum offering
price per share as of that date.
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks
(cost - $1,346,684,322) $1,918,516,981
Corporate bonds (cost - $79,940,801) 81,042,540
Canadian government obligations
(cost - $4,822,000) 4,915,550
U.S. government and agencies obligations
(cost - $76,801,568) 77,113,567
Joint repurchase agreement (cost - $97,314,000) 97,314,000
Corporate savings account 1,019
--------------
2,178,903,657
Receivable for investments sold 5,501,562
Receivable for shares sold 818,323
Dividends receivable 2,204,325
Interest receivable 3,670,486
Other assets 87,768
--------------
Total Assets 2,191,186,121
- ---------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 4,011,044
Payable for shares repurchased 920,487
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 3,648,696
Accounts payable and accrued expenses 120,193
--------------
Total Liabilities 8,700,420
- ---------------------------------------------------------------------------
Net Assets:
Capital paid-in 1,429,343,115
Accumulated net realized gain on investments 179,953,491
Net unrealized appreciation of investments 573,355,266
Distributions in excess of net investment income ( 166,171)
--------------
Net Assets $2,182,485,701
===========================================================================
Net Asset Value Per Share:
(Based on net asset values and shares of beneficial
interest outstanding with $0.01 par value)
Class A - $1,622,638,892 / 72,009,337 $ 22.53
===========================================================================
Class B - $520,117,416 / 23,102,596 $ 22.51
===========================================================================
Class C - $39,729,393 / 1,762,648 $ 22.54
===========================================================================
Maximum Offering Price Per Share*
Class A - ($22.53 x 105.26%) $ 23.72
===========================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
See Notes to Financial Statments.
</TABLE>
<TABLE>
<CAPTION>
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
Six months ended June 30, 1997 (Unaudited)
- ---------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends $ 15,474,944
Interest 10,506,976
--------------
25,981,920
--------------
Expenses:
Investment management fee - Note B 5,519,026
Distribution and service fee - Note B
Class A 2,243,516
Class B 2,273,784
Transfer agent fee - Note B 1,970,555
Financial services fee - Note B 186,043
Custodian fee 151,366
Registration and filing fees 133,791
Trustees' fees 84,361
Printing 41,147
Miscellaneous 25,049
Legal fees 20,266
Auditing fee 19,571
--------------
Net Expenses 12,668,475
- ---------------------------------------------------------------------------
Net Investment Income 13,313,445
- ---------------------------------------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold 140,445,706
Change in net unrealized appreciation/depreciation
of investments 155,177,111
--------------
Net Realized and Unrealized
Gain on Investments 295,622,817
- ---------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 308,936,262
===========================================================================
See Notes to Financial Statments.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
------------------- -------------------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income $ 29,453,896 $ 13,313,445
Net realized gain on investments sold 132,393,369 140,445,706
Change in net unrealized appreciation/depreciation of investments 112,475,113 155,177,111
-------------- --------------
Net Increase in Net Assets Resulting from Operations 274,322,378 308,936,262
-------------- --------------
Distributions to Shareholders:
Distributions from net investment income
Class A - ($0.3585 and $0.1581 per share, respectively) ( 25,069,146) ( 11,413,676)
Class B - ($0.2155 and $0.0766 per share, respectively) ( 3,858,864) ( 1,728,097)
Class C - ($0.4290 and $0.1985 per share, respectively) ( 549,349) ( 337,843)
Distributions from net realized gain on investments sold
Class A - ($1.1552 and none per share, respectively) ( 80,116,607) --
Class B - ($1.1552 and none per share, respectively) ( 22,820,809) --
Class C - ($1.1552 and none per share, respectively) ( 1,639,314) --
-------------- --------------
Total Distributions to Shareholders ( 134,054,089) ( 13,479,616)
-------------- --------------
From Fund Share Transactions - Net*: 167,161,216 21,551,550
-------------- --------------
Net Assets:
Beginning of period 1,558,048,000 1,865,477,505
-------------- --------------
End of period (including distributions in excess of net investment income
of none and $166,171, respectively) $1,856,477,505 $2,182,485,701
============== ==============
See Notes to Financial Statments.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------------------------------------------------
* Analysis of Fund Share Transactions:
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 18,780,738 $361,408,507 12,435,009 $254,792,762
Shares issued to shareholders in reinvestment of
distributions 5,004,684 97,643,950 486,786 10,427,137
------------ ------------ ------------ ------------
23,785,422 459,052,457 12,921,795 265,219,899
Less shares repurchased ( 22,048,259) ( 423,528,648) ( 14,302,541) ( 294,164,962)
------------ ------------ ------------ ------------
Net increase (decrease) 1,737,163 $ 35,523,809 ( 1,380,746) ($ 28,945,063)
============ ============ ============ ============
CLASS B
Shares sold 9,159,545 $176,783,839 6,228,492 $128,596,147
Shares issued to shareholders in reinvestment of
distributions 1,269,661 24,792,933 75,498 1,616,851
------------ ------------ ------------ ------------
10,429,206 201,576,772 6,303,990 130,212,998
Less shares repurchased ( 3,973,684) ( 77,636,976) ( 4,089,595) ( 84,921,338)
------------ ------------ ------------ ------------
Net increase 6,455,522 $123,939,796 2,214,395 $ 45,291,660
============ ============ ============ ============
CLASS C
Shares sold 369,676 $ 7,183,772 327,137 $ 6,770,344
Shares issued to shareholders in reinvestment of
distributions 112,176 2,188,658 15,755 337,842
------------ ------------ ------------ ------------
481,852 9,372,430 342,892 7,108,186
Less shares repurchased ( 87,535) ( 1,674,819) ( 90,858) ( 1,903,233)
------------ ------------ ------------ ------------
Net increase 394,317 $ 7,697,611 252,034 $ 5,204,953
============ ============ ============ ============
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 Statments.
</TABLE>
<TABLE>
<CAPTION>
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:
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------------------------- JUNE 30, 1997
1992(1) 1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 14.31 $ 14.78 $ 15.10 $ 14.24 $ 17.87 $ 19.48
--------- --------- -------- -------- -------- --------
Net Investment Income 0.47 0.44 0.46 0.40 0.36(4) 0.16(4)
Net Realized and Unrealized Gain (Loss)
on Investments 0.54 0.39 ( 0.75) 3.71 2.77 3.05
--------- --------- -------- -------- -------- --------
Total from Investment Operations 1.01 0.83 ( 0.29) 4.11 3.13 3.21
--------- --------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income ( 0.45) ( 0.42) ( 0.46) ( 0.40) ( 0.36) ( 0.16)
Distributions from Net Realized Gain on
Investments Sold ( 0.09) ( 0.09) ( 0.11) ( 0.08) ( 1.16) --
--------- --------- -------- -------- -------- --------
Total Distributions ( 0.54) ( 0.51) ( 0.57) ( 0.48) ( 1.52) ( 0.16)
--------- --------- -------- -------- -------- --------
Net Asset Value, End of Period $ 14.78 $ 15.10 $ 14.24 $ 17.87 $ 19.48 $ 22.53
========= ========= ========= ======== ======== ========
Total Investment Return at Net Asset Value (3) 7.23% 5.71% ( 1.85%) 29.15% 17.57% 16.51%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 872,932 $1,258,575 $1,090,231 $1,280,321 $1,429,523 $1,622,639
Ratio of Expenses to Average Net Assets 1.13% 1.10% 1.16% 1.14% 1.13% 1.11%(6)
Ratio of Net Investment Income to Average
Net Assets 3.32% 2.94% 3.13% 2.45% 1.86% 1.51%(6)
Portfolio Turnover Rate 30% 46% 45% 46% 59% 40%
Average Brokerage Commission Rate (7) N/A N/A N/A N/A $ 0.0696 $ 0.0700
CLASS B (2)
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 15.02 $ 14.24 $ 17.86 $ 19.46
---------- ---------- ---------- ----------
Net Investment Income (4) 0.38 0.27 0.21 0.08(4)
Net Realized and Unrealized Gain (Loss)
on Investments ( 0.69) 3.71 2.77 3.05
---------- ---------- ---------- ----------
Total from Investment Operations ( 0.31) 3.98 2.98 3.13
---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ( 0.36) ( 0.28) ( 0.22) ( 0.08)
Distributions from Net Realized Gain on
Investments Sold ( 0.11) ( 0.08) ( 1.16) --
---------- ---------- ---------- ----------
Total Distributions ( 0.47) ( 0.36) ( 1.38) ( 0.08)
---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 14.24 $ 17.86 $ 19.46 $ 22.51
========== ========== ========== ==========
Total Investment Return at Net Asset Value (3) ( 2.04%)(5) 28.16% 16.67% 16.09%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $ 128,069 $ 257,781 $ 406,523 $ 520,117
Ratio of Expenses to Average Net Assets 1.86%(6) 1.90% 1.91% 1.88%(6)
Ratio of Net Investment Income to Average Net
Assets 2.57%(6) 1.65% 1.10% 0.75%(6)
Portfolio Turnover Rate 45% 46% 59% 40%
Average Brokerage Commission Rate (7) N/A N/A $ 0.0696 $ 0.0700
<CAPTION>
Financial Highlights (continued)
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------------- JUNE 30, 1997
1993 1994 1995 1996 (UNAUDITED)
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
CLASS C (2)
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 14.79 $ 15.11 $ 14.24 $ 17.87 $ 19.48
---------- ---------- ---------- ---------- ----------
Net Investment Income 0.27 0.52 0.46 0.44(4) 0.20(4)
Net Realized and Unrealized (Loss) on
Investments 0.48 ( 0.77) 3.71 2.76 3.06
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.75 ( 0.25) 4.17 3.20 3.26
---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ( 0.34) ( 0.51) ( 0.46) ( 0.43) ( 0.20)
Distributions from Net Realized Gain
on Investments Sold ( 0.09) ( 0.11) ( 0.08) ( 1.16) --
---------- ---------- ---------- ---------- ----------
Total Distributions ( 0.43) ( 0.62) ( 0.54) ( 1.59) ( 0.20)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 15.11 $ 14.24 $ 17.87 $ 19.48 $ 22.54
========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value (3) 5.13%(5) ( 1.57%) 29.68% 17.99% 16.78%(5)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) $10,189 $ 15,128 $ 19,946 $29,431 $39,729
Ratio of Expenses to Average Net Assets 0.88%(6) 0.81% 0.74% 0.75% 0.72%(6)
Ratio of Net Investment Income to Average Net
Assets 3.17%(6) 3.53% 2.84% 2.26% 1.90%(6)
Portfolio Turnover Rate 46% 45% 46% 59% 40%
Average Brokerage Commission Rate (7) N/A N/A N/A $0.0696 $0.0700
(1) This period is covered by the report of other independent auditors (not included herein).
(2) Class B and Class C shares commenced operations on January 3, 1994, and May 7, 1993, respectively.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated: net
investment income, gains (losses), dividends and total investment return of the Fund. It shows how the Fund's net asset value
for a share has changed since the end of the previous period. Additionally, important relationships between some items presented
in the financial statements are expressed in ratio form.
See Notes to Financial Statments.
</TABLE>
<TABLE>
<CAPTION>
Schedule of Investments
June 30, 1997 (Unaudited)
Per share earnings and dividends and their compound growth rates are
shown for the most recently reported ten year periods on common stocks.
- ----------------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by
the Sovereign Investors Fund on June 30, 1997. It's divided into six main
categories: common stocks, preferred stocks, corporate bonds, Canadian
government obligations, U.S. government and agencies 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.
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- ------- -------
<S> <C> <C> <C> <C>
COMMON STOCKS (87.50%)
Advertising (1.69%)
600,000 Interpublic Group, Inc. @ 61 5/16 $ 36,787,500
One of the largest advertising agencies -------------
in the world
Earnings P/S $ .91, 1.05, 1.12, 1.17, 1.32, 1.39, 1.69, 1.89, 1.69, 2.60 12.4%
Dividends P/S $ .22, .26, .32, .37, .41, .45, .49, .55, .61, .67 13.2%
Price/Earnings Ratio 24.6
Aerospace (1.89%)
700,000 Rockwell International Corp. @ 59 41,300,000
Leading producer of aerospace, -------------
automotive and electronics products
Earnings P/S $1.98, 2.23, 3.01, 2.84, 2.47, 2.20, 2.47, 2.80, 3.15, 3.79 7.5%
Dividends P/S $.66, .72, .77, . 82, .88, .92, .96, 1.04, 1.10, 1.16 6.5%
Price/Earnings Ratio 14.7
Banks (5.40%)
475,000 Banc One Corp. @ 48 7/16 23,007,813
Ohio-based bank holding company
Earnings P/S $ 1.56, 1.66, 1.83, 1.64, 1.75, 2.27, 2.70, 2.16, 3.00, 3.32 8.8%
Dividends P/S $ .45, .50, .57, .63, .70, .81, .98, 1.13, 1.24, 1.36 13.1%
Price/Earnings Ratio 14.7
50,000 BB&T Corp. @ 45 2,250,000
Multi-regional bank holding company
Earnings P/S $ 1.14, 1.12, 1.33, 1.04, 1.43, 1.92, .09, 1.61, 2.43, 2.66 9.9%
Dividends P/S $ .34, .36, .39, .42, .46, .50, .64, .74, .86, 1.00 12.7%
Price/Earnings Ratio 17.1
250,000 Corestates Financial Corp. @ 53 3/4 13,437,500
Operates 334 full service offices located
in PA, NJ and DE
Earnings P/S $ 2.25, 1.02, .78, .95, 2.05, 2.31, 1.73, 2.45, 3.27, 3.10 3.6%
Dividends P/S $ .70, .77, .87, .96, .97, 1.02, 1.14, 1.24, 1.44, 1.73 10.6%
Price/Earnings Ratio 17.6
500,000 First Tennessee National Corp. @ 48 24,000,000
Tennessee-based bank holding company
Earnings P/S $ 1.10, .65, .98, 1.23, 1.50, 1.62, 1.77, 2.08, 2.47, 2.72 10.6%
Dividends P/S $ .40, .43, .49, .54, .57, .63, .75, .87, .97, 1.10 11.9%
Price/Earnings Ratio 17.9
100,000 First Union Corp. @ 92 1/2 9,250,000
North Carolina-based bank holding
company
Earnings P/S $ 1.10, .65, .98, 2.52, 2.37, 2.92, 4.71, 4.62, 4.70, 6.17 21.1%
Dividends P/S $ .77, .86, 1.00, 1.08, 1.12, 1.28, 1.50, 1.72, 1.96, 2.20 12.4%
Price/Earnings Ratio 15.7
450,000 NationsBank Corp. @ 64 1/2 29,025,000
Largest superregional bank in the
Southeast
Earnings P/S $ 1.44, 2.22, 1.31, .38, .70, 2.21, 2.71, 3.10, 3.63, 4.12 12.4%
Dividends P/S $ .43, .47, .55, .71, .74, .755, .82, .94, 1.04, 1.20 12.1%
Price/Earnings Ratio 16.2
300,000 Norwest Corp. @ 56 1/4 16,875,000
The 12th largest bank holding company in the U.S.
Earnings P/S $ 1.12, 1.25, 1.36, .46, 1.49, 1.53, 1.99, 2.52, 2.84, 3.17 12.3%
Dividends P/S .$ .30, .32, .38, .42, .47, .54, .64, .77, .90, 1.05 14.9%
Price/Earnings Ratio 18.7
-------------
117,845,313
-------------
Beverages (1.29%)
750,000 PepsiCo, Inc. @ 37 9/16 28,171,875
-------------
Second largest soft drink company
Earnings P/S $ .49, .57, .68, .70, .69, .82, 1.00, 1.14, 1.04, .75 4.8%
Dividends P/S $ .11, .14, .16, .19, .23, .26, .31, .35, .39, .45 16.9%
Price/Earnings Ratio 36.1
Building (1.76%)
600,000 Masco Corp. @ 41 3/4 25,050,000
Manufactures buildings, home improvement
and consumer products
Earnings P/S $ 2.10, 1.42, .91, .57, .46, 1.30, 1.48, 1.14, 1.20, 1.97 NMF
Dividends P/S $ .38, .44, .50, .54, .57, .61, .65, .69, .73, .77 8.2%
Price/Earnings Ratio 21
721,250 RPM, Inc. @ 18 3/8 13,252,968
Manufacturer of specialty chemicals and
coatings to waterproof and rustproof
structures
Earnings P/S $ .38, .45, .42, .40, .50, .44, .73, .81, .89, .97 11.0%
Dividends P/S $.21, .25, .27, .30, .34, .37, .39, .42, .46, .49 9.9%
Price/Earnings Ratio 19.3
-------------
38,302,968
-------------
Chemicals (3.83%)
270,000 BetzDearborn, Inc. @ 66 17,820,000
Produces and markets a wide range of
engineered programs and specialty
chemical products for process systems
Earnings P/S $ 1.58, 1.73, 2.02, 1.47, 2.53, 2.67, 2.04, 2.45, 2.30, 2.04 2.9%
Dividends P/S $ .74, .80, .89, 1.01, 1.16, 1.30, 1.38, 1.42, 1.46, 1.49 8.1%
Price/Earnings Ratio 30.94
225,000 PPG Inds., Inc. @ 58 1/8 13,078,125
Manufacturer of specialty chemicals,
coatings and resins
Earnings P/S $ 2.13, 2.09, 2.22, 1.74, 1.22, 1.66, 1.45, 2.92, 3.64, 3.97 7.2%
Dividends P/S $ .56, .64, .74, .82, .86, .94, 1.04, 1.12, 1.18, 1.26 9.4%
Price/Earnings Ratio 15.3
385,000 Schulman (A), Inc. @ 24 5/8 9,480,625
Manufactures plastic compounds, buys and
sells plastic resins and distributes plastic
products and synthetic rubber for prime
producers in domestic and international
markets
Earnings P/S $ .73, .82, .95, .76, 1.11, 1.01, 1.14, 1.48, 1.07, 1.32 6.8%
Dividends P/S $ .09, .11, .14, .16, .19, .22, .26, .30, .34, .38 17.4%
Price/Earnings Ratio 17.5
1,235,000 Sigma-Aldrich Corp. @ 35 1/16 43,302,188
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S $ .575, .65, .72, .59, .84, .99, .1.11, 1.14, 1.36, 1.52 11.4%
Dividends P/S $ .075, .085, .095, .10, .115, .13, .15, .17, .19, .2275 13.1%
Price/Earnings Ratio 22.9
-------------
83,680,938
-------------
Computers (4.83%)
810,000 Automatic Data Processing, Inc. @ 47 38,070,000
Largest independent computing services firm
in the U.S.
Earnings P/S $ .54, .62, .72, .79, .90, 1.01, 1.15, 1.34, 1.53, 1.74 13.9%
Dividends P/S $ .11, .13, .15, .17, .20, .23, .26, .29, .35, .42 16.1%
Price/Earnings Ratio 27.6
550,000 Electronic Data Systems Corp. @ 41 22,550,000
Provides information technology services
to companies worldwide
Earnings P/S $ .79, .91, 1.04, 1.03, 1.21, 1.37, 1.55, 1.77, 1.99, .84 0.7%
Dividends P/S $ .13, .17, .24, .28, .32, .36, .40, .48, .52, .60 18.5%
Price/Earnings Ratio 50.5
800,000 Hewlett-Packard Co. @ 56 44,800,000
Manufactures and services electronic
measurement, analysis and computation
instruments
Earnings P/S $ 1.25, 1.68, 1.76, .77, .83, .93, .86, 1.31, 1.92, 2.63 8.6%
Dividends P/S $ .06, .07, .10, .11, .13, .20, .24, .29, .38, .46 25.4%
Price/Earnings Ratio 22.1
-------------
105,420,000
-------------
Containers (2.44%)
897,000 Bemis Company, Inc. @ 43 1/4 38,795,250
Producer of a broad range of flexible
packaging and equipment and pressure
sensitive materials
Earnings P/S $ .74, .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73, 1.86 10.8%
Dividends P/S $.18, .22, .30, .36, .42, .46, .50, .54, .64, .72 16.7%
Price/Earnings Ratio 24.4
475,000 Sonoco Products Corp. @ 30 7/16 14,457,813
Leading manufacturer of containers,
paper products and packaging
Earnings P/S $ 1.10, 1.18, .52, .53, 1.04, .94, 1.24, 1.42, 1.78, 1.79 5.6%
Dividends P/S $.21, .30, .39, .43, .44, .48, .50, .53, .59, .65 13.4%
Price/Earnings Ratio 18.8
-------------
53,253,063
-------------
Diversified Operations (5.34%)
1,250,000 DuPont (E.I.) De Nemours & Co.
@ 62 7/8 78,593,750
Nation's largest chemical manufacturer
Earnings P/S $ 1.52, 1.77, 1.70, 1.69, .92, .76, .52, 2.23, 2.89, 3.35 9.2%
Dividends P/S $ .55, .625, .725, .81, .84, .87, .88, .91, 1.015, 1.115 8.2%
Price/Earnings Ratio 19.05
670,000 Federal Signal Corp. @ 25 1/8 16,833,750
Manufactures fire trucks and street
sweepers, as well as public safety,
signaling and communications equipment
Earnings P/S $ .41, .50, .66, .62, .69, .70, .88, 1.08, 1.16, 1.40 14.6%
Dividends P/S $ .15, .16, .19, .22, .27, .32, .36, .42, .50, .58 16.2%
Price/Earnings Ratio 18.2
850,000 Ikon Office Solutions, Inc. @ 24 15/16 21,196,875
Distributor of office and paper products
Earnings P/S $ 1.15, 1.96, .91, .81, 1.04, 1.18, .05, .74, 1.55, .97 NMF
Dividends P/S $ .26, .28, .31, .34, .36, .37, .39, .41, .43, .45 6.3%
Price/Earnings Ratio 27.6
-------------
116,624,375
-------------
Electronics (11.50%)
1,150,000 AMP, Inc. @ 41 3/4 48,012,500
World's largest manufacturer of
electrical/electronic connectors
Earnings P/S $ 1.48, 1.32, 1.35, 1.31, 1.23, 1.39, 1.44, 1.83, 2.01, 1.24 NMF
Dividends P/S $ .43, .50, .60, .68, .72, .76, .80, .84, .92, 1.00 9.8%
Price/Earnings Ratio 36.7
1,200,000 Emerson Electric Co. @ 55 1/16 66,075,000
Produces and sells electrical/electronic
products and systems
Earnings P/S $ 1.16, 1.32, 1.38, 1.40, 1.44, 1.53, 1.91, 1.95, 2.15, 2.39 8.4%
Dividends P/S $ .49, .515, .58, .64, .67, .70, .735, .80, .92, 1.005 8.3%
Price/Earnings Ratio 23.1
1,400,000 General Electric Co. @ 65 3/8 91,525,000
Dominant force in home appliances,
electrical power, and financial services
Earnings P/S $ .94, 1.09, 1.22, 1.26, 1.28, 1.12, 1.57, 1.84, 2.07, 2.34 10.7%
Dividends P/S $ .325, .35, .41, .47, .51, .56, .63, .72, .82, .92 12.3%
Price/Earnings Ratio 29.7
425,000 Grainger (W.W.), Inc. @ 78 3/16 33,229,687
Leading distributor of electrical equipment
Earnings P/S $ 1.57, 1.96, 2.19, 2.31, 2.38, 2.70, 3.04, 2.61, 3.70, 4.09 11.2%
Dividends P/S $ .39, .43, .50, .57, .61, .65, .71, .78, .89, .98 10.8%
Price/Earnings Ratio 20.7
200,000 Parker Hannifin Corp. @ 60 11/16 12,137,500
Operates in the Industrial and Aerospace
industries producing a wide range of motion
control devices and designs and manufactures
products for the aircraft, missile and
spacecraft markets
Earnings P/S $ 1.18, 1.46, 1.70, 1.52, .82, .15, .89, .65, 2.96, 3.23 11.8%
Dividends P/S $ .53, .55, .56, .59, .61, .62, .64, .65, .68, .72 3.5%
Price/Earnings Ratio 18.8
-------------
250,979,687
-------------
Food (2.98%)
1,400,000 Archer-Daniel Midland Co. @ 23 1/2 32,900,000
Processes and merchandises agricultural
products
Earnings P/S $ .62, .75, .85, .73, .79, .87, .81, 1.25, 1.40, .74 2.0%
Dividends P/S $ .028, .029, .034, .048, .05, .053, .056, .066, .116, .193 23.9%
Price/Earnings Ratio 31.7
500,000 ConAgra, Inc. @ 64 1/8 32,062,500
Leader in frozen & processed foods,
and distributor of agricultural supplies
Earnings P/S $ .85, 1.08, 1.25, 1.41, 1.49, 1.58, 1.81, 2.06, .79, 2.68 13.6%
Dividends P/S $ .27, .31, .36, .42, .48, .56, .65, .75, .86, .99 15.5%
Price/Earnings Ratio 24.2
-------------
64,962,500
-------------
Furniture (1.47%)
745,000 Leggett & Platt, Inc. @ 43 32,035,000
Produces intermediate products for the -------------
home furnishings industry
Earnings P/S $ .278, .273, .323, .35, .64, .87, 1.12, 1.47, 1.62, 1.76 22.8%
Dividends P/S $ .14, .16, .185, .21, .215, .23, .27, .31, .38, .46 14.1%
Price/Earnings Ratio 24.3
Insurance (4.74%)
425,000 AFLAC Corp. @ 47 1/4 20,081,250
Global specialty insurer
Earnings P/S $ .72, .53, .77, .82, 1.03, 1.26, 1.65, 2.01, 2.38, 2.78 16.2%
Dividends P/S $ .12, .13, .15, .18, .20, .23, .26, .30, .34, .39 14.0%
Price/Earnings Ratio 18.4
100,000 American International Group @ 149 3/8 14,937,500
Broadly based property-casualty insurance
organization
Earnings P/S $ 4.42, 4.61, 4.86, 3.09, 3.31, 3.55, 4.09, 4.72, 5.52, 6.39 4.2%
Dividends P/S $ .09, .13, .16, .18, .21, .24, .26, .29, .32, .37 17.0%
Price/Earnings Ratio 23.92
200,000 General RE Corp. @ 182 36,400,000
Broadly based re-insurance organization
Earnings P/S $ 5.04, 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02 10.59, 11.08 9.2%
Dividends P/S $ 1.00, 1.20, 1.36, 1.52, 1.68, 1.80, 1.88, 1.92, 1.96, 2.04 8.2%
Price/Earnings Ratio 17.15
438,200 Reliastar Financial Corp. @ 73 1/8 32,043,375
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S $ 1.58, 2.07, 1.99, 1.96, 1.67, 2.26, 2.83, 3.48, 4.62, 5.04 13.8%
Dividends P/S $ .47, .57, .59, .65, .69, .73, .79, .88, .98, 1.09 9.8%
Price/Earnings Ratio 15.4
-------------
103,462,125
-------------
Machinery (3.26%)
700,000 Dover Corp. @ 61 1/2 43,050,000
Manufactures a variety of specialized
industrial products
Earnings P/S $ 1.11, 1.14, 1.28, 1.23, 1.09, 1.16, 1.46, 1.93, 2.60, 3.47 13.5%
Dividends P/S $ .26, .31, .35, .38, .41, .43, .45, .49, .56, .64 10.5%
Price/Earnings Ratio 18.3
856,800 Pentair, Inc. @ 32 7/8 28,167,300
Manufactures enclosures for electrical,
electronic, woodworking and power tool
equipment
Earnings P/S $ 1.12, .95, .80, .89, 1.11, 1.11, 1.14, 1.32, 1.54, 1.91 6.1%
Dividends P/S $ .21, .22, .27, .29, .31, .33, .34, .36, .40, .50 10.1%
Price/Earnings Ratio 18.1
-------------
71,217,300
-------------
Media (3.99%)
400,000 Gannett Co., Inc. @ 98 3/4 39,500,000
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S $ 2.26, 2.47, 2.36, 2.21, 2.06, 2.48, 2.81, 3.33, 3.28, 4.90 9.0%
Dividends P/S $ .94, 1.02, 1.11, 1.21, 1.24, 1.26, 1.30, 1.34, 1.38, 1.42 4.7%
Price/Earnings Ratio 21.1
810,700 McGraw-Hill Companies, Inc.
@ 58 13/16 47,679,293
Provides informational products and services
for business and industry
Earnings P/S $ 1.92, .91, 1.77, 1.73, 1.51, 1.60, .11, 2.04, 2.30, 4.95 11.1%
Dividends P/S $ .84, .92, 1.00, 1.08, 1.10, 1.12, 1.14, 1.16, 1.20, 1.32 5.2%
Price/Earnings Ratio 12.3
-------------
87,179,293
-------------
Medical (8.62%)
400,000 Abbott Laboratories @ 66 3/4 26,700,000
Major pharmaceutical and healthcare firm
Earnings P/S $ .84, .97, 1.11, 1.19, 1.38, 1.58, 1.77, 2.01, 2.28, 2.57 5.2%
Dividends P/S $ .24, .29, .34, .40, .48, .58, .66, .74, .82, .93 16.2%
Price/Earnings Ratio 24.9
750,000 Baxter International, Inc. @ 52 1/4 39,187,500
The company operates four divisions: renal,
biotech, cardiovascular and intravenous
systems and international distribution
Earnings P/S $ 1.30, 1.49, (.05), 1.91, 1.81, 1.73, (.70), 2.01, 1.50, .86 NMF
Dividends P/S $ .41, .47, .52, .60, .69, .80, .93, .95, 1.03, 1.11 11.7%
Price/Earnings Ratio 67.1
676,000 Johnson & Johnson @ 64 3/8 43,517,500
Major producer of prescription and
non-prescription drugs, toiletries, medical
instruments and supplies
Earnings P/S $ .71, .80, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.94, 2.26 13.7%
Dividends P/S $ .20, .24, .28, .33, .39, .45, .51, .57, .64, .74 15.7%
Price/Earnings Ratio 27.7
250,000 Lilly (Eli) & Co. @ 109 5/16 27,328,125
Major producer of prescription and
non-prescription drugs, health products
Earnings P/S $ 1.34, 1.60, 1.95, 2.05, 2.33, 1.29, .73, 2.18, 2.36, 2.86 8.8%
Dividends P/S $ .50, .57, .67, .82, 1.00, 1.10, 1.21, 1.25, 1.31, 1.37 11.9%
Price/Earnings Ratio 40
250,000 Medtronic, Inc. @ 81 20,250,000
Leading manufacturer of medical devices
and instruments
Earnings P/S $ .40, .46, .48, .56, .68, .89, 1.01, 1.28, 1.94, 2.23 21.0%
Dividends P/S $ .06, .07, .09, .10, .12, .14, .17, .21, .26, .32 20.4%
Price/Earnings Ratio 41.2
300,000 Merck & Co., Inc. @ 103 1/2 31,050,000
World's largest ethical drug manufacturer
Earnings P/S $ 1.02, 1.26, 1.52, 1.59, 1.89, 2.18, 1.87, 2.45, 2.79, 3.34 14.1%
Dividends P/S $ .27, .43, .55, .64, .77, .92, 1.03, 1.14, 1.24, 1.42 20.3%
Price/Earnings Ratio 30.5
-------------
188,033,125
-------------
Metal (1.02%)
200,000 Illinois Tool Works, Inc. @ 49 15/16 9,987,500
Manufactures construction fasteners
and packaging systems
Earnings P/S $ .67, .77, .84, .84, .81, .87, .96, 1.33, 1.74, 2.06 13.3%
Dividends P/S $ .10, .11, .135, .165, .20, .225, .245, .27, .31, .35 14.9%
Price/Earnings Ratio 25.7
670,000 Worthington Industries, Inc. @ 18 5/16 12,269,375
Manufactures metal and plastic products
Earnings P/S $ .61, .70, .61, .50, .63, .74, .94, 1.29, 1.01, .96 5.2%
Dividends P/S $ .17, .19, .23, .26, .28, .32, .34, .39, .43, .47 20.8%
Price/Earnings Ratio 20.4
-------------
22,256,875
-------------
Office (1.59%)
500,000 Pitney Bowes, Inc. @ 69 1/2 34,750,000
Manufactures office automation equipment -------------
Earnings P/S $ 1.54, 1.19, 1.34, 1.35, 1.79, 1.98, 1.99, 2.33, 2.75, 3.23 8.6%
Dividends P/S $ .38, .46, .52, .60, .68, .78, .90, 1.04, 1.20, 1.38 15.4%
Price/Earnings Ratio 22.1
Oil & Gas (3.27%)
250,000 Exxon Corp. @ 61 1/2 15,375,000
Major factor in the crude oil, natural gas
and chemical industry
Earnings P/S $ 2.01, 2.15, 1.17, 2.37, 1.87, 1.85, 2.10, 2.24, 2.68, 3.13 5.0%
Dividends P/S $ .95, 1.075, 1.15, 1.235, 1.34, 1.415, 1.44, 1.455, 1.50, 1.56 5.7%
Price/Earnings Ratio 19.9
800,000 Mobil Corp. @ 69 7/8 55,900,000
One of the largest integrated, international
oil companies with interest in petrochemicals
and plastics
Earnings P/S $ 5.07, 4.40, 4.60, 4.65, 2.70, 1.60, 2.02, 2.60, 2.27, 3.07 NMF
Dividends P/S $ 1.10, 1.18, 1.28, 1.41, 1.56, 1.60, 1.63, 1.70, 1.81, 1.96 6.6%
Price/Earnings Ratio 18.9
-------------
71,275,000
-------------
Paper & Paper Products (1.09%)
480,000 Kimberly-Clark Corp. @ 49 3/4 23,880,000
Leading producer of consumer and -------------
personal care products
Earnings P/S $ 1.18, 1.315, 1.35, 1.36, 1.63, 1.06, 1.63, 1.60, .27, 2.59 9.1%
Dividends P/S $ .35, .39, .63, .66, .74, .795, .835, .855, .88, .92 11.3%
Price/Earnings Ratio 20.41
Retail (6.79%)
600,000 Home Depot, Inc. @ 68 15/16 41,362,500
Operates a chain of retail building supply/
home improvement "warehouse" stores
Earnings P/S $ .42, .46, .23, .32, .43, .59, .73, .91, 1.08, 1.38 14.1%
Dividends P/S $ .053, .06, .073, .08, .087, .093, .10, .113, .126, .14 11.4%
Price/Earnings Ratio 32.5
811,400 Pep Boys - Manny, Moe & Jack (The)
@ 34 1/16 27,638,313
Retailer of automotive parts and accessories
Earnings P/S $ .76, .63, .66, .63, .75, .93, 1.13, 1.30, 1.40, 1.66 9.1%
Dividends P/S $ .08, .09, .11, .12, .13, .14, .15, .17, .19, .21 11.3%
Price/Earnings Ratio 20.5
1,055,800 Sysco Corp. @ 36 1/2 38,536,700
Largest distributor of food service products
Earnings P/S $ .45, .60, .73, .81, .90, 1.00, 1.16, 1.33, 1.48, 1.65 15.5%
Dividends P/S $ .07, .08, .09, .10, .14, .22, .28, .36, .44, .52 25.0%
Price/Earnings Ratio 22.8
1,200,000 Wal-Mart Stores, Inc. @ 33 13/16 40,575,000
Operates chain of discount department stores
Earnings P/S $ .37, .48, .50, .59, .73, .90, 1.05, 1.20, 1.21, 1.38 15.4%
Dividends P/S $ .03, .04, .06, .07, .09, .11, .13, .17, .20, .21 24.1%
Price/Earnings Ratio 25.7
-------------
148,112,513
-------------
Soap & Cleaning Preparations (1.09%)
500,000 Ecolab, Inc. @ 47 3/4 23,875,000
Develops and markets premium institutional -------------
cleansing, sanitizing and maintenance
products and services
Earnings P/S $ .88, .18, 1.04, .93, 1.00, 1.05, 1.26, 1.27, 1.53, 1.85 8.6%
Dividends P/S $ .30, .32, .33, .34, .35, .36, .40, .46, .52, .58 7.6%
Price/Earnings Ratio 26.5
Steel (1.17%)
450,000 Nucor Corp. @ 56 1/2 25,425,000
Manufactures steel and steel products -------------
Earnings P/S $ .84, .68, .88, .86, .78, .98, 1.57, 2.97, 2.97, 2.97 15.1%
Dividends P/S $ .09, .10, .11, .12, .13, .14, .16, .18, 28, .32 15.1%
Price/Earnings Ratio 19.6
Tobacco (0.92%)
450,000 Philip Morris Cos., Inc. @ 44 3/8 19,968,750
Global tobacco, brewing and food company -------------
Earnings P/S $ .74, 1.06, 1.28, 1.33, 1.48, 1.88, 1.34, 1.90, 2.27, 2.66 15.3%
Dividends P/S $ .26, .34, .42, .52, .64, .78, .87, 1.01, 1.22, 1.47 21.2%
Price/Earnings Ratio 16.3
Utilities (5.53%)
400,000 Century Telephone Enterprise, Inc.
@ 33 11/16 13,475,000
Louisiana based telecommunications company
Earnings P/S $ .51, .67, .63, .67, .89, 1.32, 1.39, 1.99, 1.99, 2.20 17.6%
Dividends P/S $ .253, .264, .272, .280, .287, .293, .310, .320, .330, .360 9.0%
Price/Earnings Ratio 15.9
200,000 Duke Energy Corp. @ 47 15/16 9,587,500
Generates, transmits, distributes and sells
electric energy in the Piedmont sections of
North and South Carolina
Earnings P/S $ 2.57, 2.40, 2.60, 2.44, 2.44, 2.39, 2.96, 3.01, 3.21, 3.31 2.9%
Dividends P/S $ 1.37, 1.42, 1.52, 1.60, 1.68, 1.76, 1.84, 1.92, 2.00, 2.08 4.8%
Price/Earnings Ratio 14.7
692,700 Frontier Corp. @ 19 15/16 13,810,706
Fifth largest long distance telephone company
Earnings P/S $ 1.06, .99, .96, .87, 1.20, 1.09, 1.26, 1.56, .97, .85 NMF
Dividends P/S $ .66, .68, .71, .73, .75, .77, .79, .81, .83, .85 2.9%
Price/Earnings Ratio 24.1
500,000 National Fuel Gas Co. @ 41 15/16 20,968,750
Integrated natural gas system serving N.Y.,
PA. and Ohio
Earnings P/S $ 1.65, 1.93, 1.83, 1.95, 1.89, 1.88, 2.05, 2.27, 2.40, 2.96 6.7%
Dividends P/S $ 1.19, 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61, 1.67 3.8%
Price/Earnings Ratio 14.2
700,600 Questar Corp. @ 40 3/8 28,286,725
Diversified holding company for Utah, Wyoming
and Colorado natural gas transmission,
distribution and storage
Earnings P/S $ .64, 1.27, 1.46, 1.57, 1.53, 2.00, 1.97, 1.11, 2.23, 2.54 16.6%
Dividends P/S $ .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16, 1.19 3.0%
Price/Earnings Ratio 16.7
400,000 SBC Communications, Inc. @ 61 7/8 24,750,000
Provides telephone service throughout
the United States and internationally
Earnings P/S $ 1.74, 1.76, 1.82, 1.84, 1.85, 2.11, 2.34, 2.67, 2.96, 3.40 7.7%
Dividends P/S $ 1.14, 1.22, 1.29, 1.36, 1.41, 1.45, 1.50, 1.56, 1.63, 1.70 4.5%
Price/Earnings Ratio 17.1
260,000 Union Electric Co. @ 37 11/16 9,798,750
Largest electric utility in Missouri
Earnings P/S $ 2.56, 2.91, 2.74, 2.68, 2.98, 2.95, 2.71, 3.01, 2.97, 2.79 1.0%
Dividends P/S $ 1.92, 1.94, 2.02, 2.10, 2.18, 2.26, 2.34, 2.40, 2.46, 2.51 3.0%
Price/Earnings Ratio 13.5
-------------
120,677,431
-------------
TOTAL COMMON STOCKS
(Cost $1,339,732,272) 1,909,475,631
-------------
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- -------
<S> <C> <C>
PREFERRED STOCKS (0.41%)
13,600 Enron Corp. ACES,
Conv Pfd 6.25% @ 19 1/8 $ 260,100
250,000 Salomon, Inc.,
Conv Pfd 7.625% @ 35 1/8 8,781,250
-------------
TOTAL PREFERRED STOCKS
(Cost $6,952,050) 9,041,350
-------------
<CAPTION>
PAR VALUE
(000s
OMITTED)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CORPORATE BONDS (3.71%)
$ 3,500 Arkla Power, Inc., Deb 10.00%,
11-15-19 @ 110.049 3,851,715
4,000 BankAmerica Corp., Sub Note 8.125%,
02-01-02 @ 105.017 4,200,680
1,000 BankAmerica Corp., Sub Note 8.95%,
11-15-04 @ 105.316 1,053,160
5,000 Cablevision Systems Corp., Sr Sub Deb
10.75%, 04-01-04 @ 103.375 5,168,750
8,000 Citibank Credit Card Master Trust,
Series 1997-3A 6.839%, 02-10-04
@101.490 8,119,200
5,000 Comcast Corp., Sr Sub Deb 10.25%,
10-15-01 @ 109.000 5,450,000
6,500 Continental Cablevision, Inc., Deb 9.50%,
08-01-13 @ 113.149 7,354,685
3,000 First Union Corp., Sub Note 8.00%,
08-15-09 @ 103.213 3,096,390
5,000 Georgia-Pacific Corp., Deb 9.50%,
02-15-18 @ 104.221 5,211,050
5,000 GTE North Inc., Telephone Facility Lease
Bonds, 9.60%, 01-01-02 @ 109.395 5,469,750
14,143 Guaranteed Trade Trust, Notes 7.39%,
06-26-06 @ 102.960 14,561,375
5,485 Long Island Lighting Co., Deb 8.90%,
07-15-19 @ 104.227 5,716,850
2,000 Nationsbank Corp, Deb 9.125%,
10-15-01 @ 108.557 2,171,140
3,500 Tele-Communications, Inc., Sr Notes
8.00%, 08-01-05 @ 101.598 3,555,930
3,500 Tele-Communications, Inc., Deb 9.80%,
02-01-12 @ 114.459 4,006,065
2,000 Tenaga Nasional Berhad, Notes 7.625%,
04-29-07 @ 102.790 2,055,800
----------------
TOTAL CORPORATE BONDS
(Cost $79,940,801) 81,042,540
----------------
CANADIAN GOVERNMENT
OBLIGATIONS (0.23%)
$ 5,000 Quebec, Province of, Deb 7.50%,
07-15-23 @ 98.311 $ 4,915,550
----------------
TOTAL CANADIAN GOVERNMENT
OBLIGATIONS
(Cost $4,822,000) 4,915,550
----------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (3.53%)
9,367 Federal Home Loan Mort. Corp.
Sr Sub 7.50%, 07-01-26 @ 101.562 9,513,079
5,000 Federal Home Loan Mort. Corp.
Sr Sub 8.00%, 12-15-08 @ 103.843 5,192,150
9,325 Federal National Mort. Assn. Sr Sub
6.50%, 02-01-12 @ 98.094 9,147,086
4,896 Government National Mort. Assn.,
8.00% 08-15-24 @ 102.530 5,019,535
4,817 Government National Mort. Assn., 7.50%
07-15-26 @ 100.281 4,831,038
4,923 Government National Mort. Assn., 7.50%
11-15-26 @100.281 4,936,457
12,000 United States Treasury, Note 7.75%,
12-31-99 @ 103.578 12,429,360
6,000 United States Treasury, Note 6.25%,
01-31-02 @ 99.453 5,967,180
8,000 United States Treasury, Note 6.625%,
03-31-02 @ 100.906 8,072,480
225 United States Treasury, Bond 10.75%,
08-15-05 @ 126.125 283,782
3,000 United States Treasury, Bond 12.00%,
08-15-13 @ 140.766 4,222,980
4,000 United States Treasury, Bond 8.125%,
08-15-19 @ 114.078 4,563,120
3,000 United States Treasury, Bond 6.625%,
02-15-27 @ 97.844 2,935,320
----------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $76,801,568) 77,113,567
----------------
<CAPTION>
PAR VALUE
(000s INTEREST MARKET
OMITTED) RATE VALUE
--------- -------- ----------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (4.46%)
$ 97,314 Joint Repurchase Agreement (4.46%)
Investment in a joint repurchase
agreement transaction with
Toronto Dominion Securities USA,
Inc. - Dated 06-30-97, Due
07-01-97 (secured by U.S.
Treasury Notes, 5.625% thru
8.125% Due 07-31-97 thru
11-15-04) - Note A 5.97% $ 97,314,000
----------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 1,019
----------------
TOTAL SHORT-TERM INVESTMENTS ( 4.46%) 97,315,019
----------------
TOTAL INVESTMENTS ( 99.84%) $ 2,178,903,657
========== ================
NMF = No Meaningful Figure
The percentage shown for each investment category is the total value of that category
as a percentage of the net assets of the Fund.
See Notes to Financial Statments.
</TABLE>
Notes to Financial Statements
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust (the "Trust") is an open-end investment
management company registered under the Investment Company Act of 1940.
The Trust consists of three series portfolios: John Hancock Sovereign
Investors Fund (the "Fund"), John Hancock Growth and Income Fund and
John Hancock Sovereign Balanced Fund. The other two series of the Trust
are reported in separate financial statements. The investment objective
of the Fund is to provide long term growth of capital and of income
without assuming undue market risks.
The Trustees have authorized the issuance of multiple classes of the
Fund, designated as Class A, Class B and Class C shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights regarding such
distribution plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all its taxable income,
including any net realized gain on investments, to its shareholders.
Therefore, no federal income tax provision is required.
DIVIDENDS, INTEREST AND DISTRIBUTIONS Dividend income on investment
securities is recorded on the ex-dividend date. Interest income on
investment securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations. Dividends paid
by the Fund with respect to each class of shares will be calculated in
the same manner, at the same time and will be in the same amount, except
for the effect of expenses that may be applied differently to each
class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on
investment securities from either the date of issue or date of purchase
over the life of the security, as required by the Internal Revenue Code.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are determined at the Fund level and allocated daily to
each class of shares based on the appropriate net assets of the
respective classes. Distribution and service fees, if any, are
calculated daily at the class level based on the appropriate net assets
of each class and the specific expense rate(s) applicable to each class.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual Fund. Expenses which are not readily
identifiable to a specific Fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative size of the Funds.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues and expenses of the Fund. Actual results
could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for
temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of
securities. The Fund had no borrowing activity for the period ended June
30, 1997.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
quarterly management fee to the Adviser for a continuous investment
program equivalent on an annual basis, to the sum of (a) 0.60% of the
first $750,000,000 of the Fund's average daily net asset value, (b)
0.55% of the next $750,000,000 (c) 0.50% of the next $1,000,000,000 and
(d) 0.45% of the Fund's average daily net asset value in excess of
$2,500,000,000. The Adviser has entered into a sub-advisory agreement
with Sovereign Asset Management Corporation ("SAMCORP") an affiliate of
the Adviser, to provide certain investment research and portfolio
management services for the stock portion of the Fund, for which the
Adviser pays SAMCORP 40% of its management fee.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended
June 30, 1997, net sales charges received with regard to sales of Class
A shares amounted to $1,730,804. Out of this amount, $282,398 was
retained and used for printing prospectuses, advertising, sales
literature and other purposes, $689,157 was paid as sales commissions to
unrelated broker-dealers and $759,249 was paid as sales commissions to
sales personnel of John Hancock Distributors, Inc. ("Distributors"), a
related broker-dealer. The Adviser's indirect parent, John Hancock
Mutual Life Insurance Company ("JHMLICo"), is the indirect sole
shareholder of Distributors.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses related to providing
distribution related services to the Fund in connection with the sale of
Class B shares. For the period ended June 30, 1997 contingent deferred
sales charges paid to JH Funds amounted to $495,243.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution
Plan with respect to Class A and Class B pursuant to Rule 12b-1 under
the Investment Company Act of 1940. Accordingly, the Fund will make
payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00%
of Class B average daily net assets to reimburse JH Funds for its
distribution/service costs. Up to a maximum of 0.25% of such payments
may be service fees as defined by the amended Rules of Fair Practice of
the National Association of Securities Dealers. Under the amended Rules
of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), a wholly owned subsidiary of The
Berkeley Financial Group. Class A and Class B shares pay transfer agent
fees based on the number of shareholder accounts and certain out-of-
pocket expenses. Class C shares pay a monthly transfer agent fee
equivalent, on an annual basis, to 0.10% of the average daily net asset
value of Class C shares of the Fund.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the
period was at an annual rate of 0.01875% of the average net assets of
the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S.
Scipione are trustees and 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 a periodic basis to reflect
any income earned by the investment as well as any unrealized gains or
losses. At June 30, 1997, the Fund's investment to cover the deferred
compensation had unrealized appreciation of $15,319.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations
of the U.S. government and its agencies and short-term securities,
during the period ended June 30, 1997, aggregated $528,036,282 and
$448,859,907, respectively. Purchases and proceeds from sales of
obligations of the U.S. government and its agencies aggregated
$250,932,503 and $284,160,667, respectively. The cost of investments
owned at June 30, 1997 (excluding the corporate savings account), for
federal income tax purposes was $1,605,562,691. Gross unrealized
appreciation and depreciation of investments aggregated $576,337,231 and
$2,997,284, respectively, resulting in net unrealized appreciation of
$573,339,947.
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* 72,009,337 .16 22.53 --
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* 23,102,596 .08 22.51 --
CLASS C PER SHARE
YEAR ------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- -------- ----------- ----------- --------- ---------------
1993(1) 674,320 $.34 $15.11 $.09
1994 1,062,699 .51 14.24 .11
1995 1,116,297 .46 17.87 .08
1996 1,510,614 .43 19.48 1.16
1997* 1,762,648 .20 22.54 --
(1) Class B and Class C shares commenced operations on January 3, 1994
and May 7, 1993, respectively.
* For the period ended June 30, 1997.
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common
stocks held in the Sovereign Investors Fund as of June 30, 1997.
- ------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- --------------------------- -----------------
AFLAC Corp. 15.0%
Abbott Laboratories, Inc. 12.5
American International Group 17.6
AMP, Inc. 4.0
Archer-Daniel Midland Co. 5.0
Automatic Data Processing, Inc. 15.0
BB&T Corp. 14.8
BankOne Corp. 11.8
Baxter International, Inc. 0.4
Bemis Company, Inc. 11.1
BetzDearborn, Inc. 1.4
Century Telephone Enterprise, Inc. 2.8
ConAgra, Inc. 14.7
CoreStates Financial Corp. 11.9
Dover Corp. 13.3
DuPont (E.I.) De Nemours & Co. 10.5
Duke Energy Corp. 3.9
Ecolab, Inc. 14.3
Electronic Data Systems Corp. 15.4
Emerson Electric Co. 10.2
Exxon Corp. 3.8
Federal Signal Corp. 15.5
First Tennessee National Corp. 13.2
First Union Corp. 11.5
Frontier Corp. 2.4
Gannett Co., Inc. 2.9
General Electric Co. 13.0
General RE Corp. 7.8
Grainger (W.W.), Inc. 1.1
Hewlett Packard Co. 16.7
Home Depot, Inc. 1.3
Ikon Office Solutions, Inc. 7.7
Illinois Tool Works, Inc. 26.3
Interpublic Group, Inc. 14.7
Johnson & Johnson 15.8
Kimberly-Clark Corp. 4.3
Leggett & Platt, Inc. 8.5
Lilly (Eli) & Co. 5.1
Masco Corp. 5.3
McGraw-Hill Companies, Inc. 9.1
Medtronic, Inc. 15.8
Merck & Co., Inc. 5.0
Mobil Corp. 6.0
National Fuel Gas Co. 3.6
NationsBank Corp. 13.8
Norwest Corp. 11.1
Nucor Corp. 25.0
Parker-Hannifin Corp. 12.5
Pentair, Inc. 8.0
Pep Boys - Manny, Moe, & Jack (The) 14.3
PepsiCo, Inc. 8.7
Philip Morris Cos., Inc. 20.0
Pitney Bowes, Inc. 15.9
PPG Industries, Inc. 3.1
Questar Corp. 3.4
Reliastar Financial Corp. 10.7
Rockwell International Corp. 5.5
RPM, Inc. 8.3
SBC Communications, Inc. 4.1
Schulman A., Inc. 10.5
Sigma-Aldrich Corp. 13.6
Sonoco Products Corp. 9.1
Sysco Corp. 15.4
Union Electric Co. 1.6
Wal-Mart Stores, Inc. 28.6
Worthington Industries, Inc. 8.3
------------
The average dividend increase for
this group was 10.2%
============
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