<PAGE> 1
JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SOVEREIGN
BOND
FUND
SEMI-ANNUAL REPORT
June 30, 1995
<PAGE> 2
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Gail D. Fosler*
Bayard Henry*
Richard S. Scipione
Edward J. Spellman*
*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
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Michael P. DiCarlo
Senior Vice President
James K. Ho
Senior Vice President
Barry H. Evans
Vice President
John A. Morin
Vice President
Susan S. Newton
Vice President, Assistant Secretary and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Educating shareholders has always been one of the most important
responsibilities of a mutual fund company. But that challenge has taken on new
significance in the past several years. Looking at the most recent statistics,
you can see why. According to the Investment Company Institute, the mutual fund
industry now manages more than $2.3 trillion for investors. More than half of
that money has come into mutual funds in just the last four years. Today, there
are more than 95 million mutual fund shareholder accounts. That's up from 12
million in 1980. These are people, like you, who are investing in mutual funds
to save for a home, to send their children to college or to build a nest egg for
a comfortable retirement. This explosive growth, coupled with the growing
complexity of the financial landscape, has made all of us in the mutual fund
industry work harder to inform our shareholders.
At John Hancock Funds, we strive to educate you about all aspects of your
fund: the performance, the strategies and the holdings. We want you to fully
understand what you own. We want you to have realistic expectations of the
potential rewards as well as the potential risks of your investment. These
shareholder reports -- which we send you twice a year -- are the best way to
give you the most in-depth and up-to-date information.
In the message that follows, the portfolio manager gives a candid commentary
on the market environment; the factors that affected performance; the Fund's
current investment strategies; and the outlook for the months ahead.
The ensuing financial statements provide a comprehensive look at the fund's
statistics and holdings.
We hope you find these shareholder reports a useful tool in evaluating your
investments. Of course, if you have any questions or need more information, feel
free to call one of our customer service representatives on our toll-free line
at 1-800-225-5291, from 8:00 a.m. to 8:00 p.m. eastern time, Monday through
Friday.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY JAMES K. HO, SENIOR VICE PRESIDENT AND PORTFOLIO MANAGER
JOHN HANCOCK
SOVEREIGN BOND FUND
SLOWDOWN IN THE ECONOMY LEADS TO FALLING INTEREST RATES
AND RISING BOND PRICES; FUND ADJUSTS SUCCESSFULLY TO NEW CLIMATE
After suffering sharp losses during most of 1994, bond investors were ready for
a change in the investment climate. They got their wish during the first six
months of 1995. As the period began, signs of an economic slowdown were
beginning to appear in key leading indicators such as employment, housing and
consumer confidence. Even so, the Federal Reserve raised short-term interest
rates another one-half of a percentage point in February 1995. It was the
seventh in a series of rate increases dating back to February 1994, when the Fed
began implementing a policy designed to rein in economic growth and prevent an
outbreak of inflation.
[A 2 1/2" x 3 1/2" photo of James K. Ho at bottom right. Caption reads: "James
K. Ho, Portfolio Manager."]
Confirmation that the economy was indeed slowing down came in April with the
release of the first-quarter growth rate in the gross domestic product. It was a
tame 2.8% compared to 5.1% in the fourth quarter of 1994. By June, the mood in
the market had shifted 180 degrees, and speculation centered around when the Fed
might lower interest rates again.
The upshot was a rewarding six months for investors in John Hancock Sovereign
Bond Fund. From December 31, 1994 through June 30, 1995, the Fund's Class A and
Class B shares had total returns of 12.23% and 11.89%, respectively, at net
asset value. Those results compared favorably with the average total return
[CAPTION
"Confirmation that the economy
was indeed slowing down came in April..."]
3
<PAGE> 4
John Hancock Funds - Sovereign Bond Fund
[A pie chart with the heading "Portfolio Diversification" at top of the left
hand column. The chart is divided into six sections. Going from top left to
right: High-Quality Corporate Bonds 40%; Foreign Government Bonds 3%; Mortgage-
Backed Securities 13%; Short-Term Investments 1%; U.S. Treasury Bonds 24%;
High-Yield Corporate Bonds 19%. Footnote below states: "As a percentage of net
assets on June 30, 1995."]
of 11.36% for all corporate debt A-rated funds, according to Lipper Analytical
Services.(1)
A BULLET FOR A BARBELL
Throughout 1994, while interest rates were rising, we divided the Fund's assets
among bonds with long and short maturities. For the most part, we left out
intermediate-term bonds. This is what's known as a barbell portfolio structure
because it's heavy on the ends and light in the middle. That followed from our
belief that the yield curve (or the difference between short- and long-term
yields) would flatten as the Fed raised rates, which, of course, is what
happened. Late in 1994, as we began to feel that rates had peaked and the yield
curve would soon steepen again, we took off the barbell in favor of a bullet
strategy. That simply meant that we began to concentrate more of the Fund's
assets in medium-term bonds.
While we were making that change, we also extended the Fund's average
duration slightly, from less than 5 years in late 1994 to 5.3 years by the end
of June. Duration is a calculation that takes into account maturity date, yield,
and the frequency of its interest payments. It measures how much a fund's share
price will vary as interest rates change. When rates are falling, it pays to
have a longer average duration. The bullet strategy, combined with a longer
average duration, served us well throughout the spring and early summer of 1995
as rates fell and the yield curve steepened.
SECURITY SELECTION AND CREDIT DECISIONS ARE KEY
The change in the investment climate from fast growth and rising interest rates
to slower growth and falling rates had implications for security selection as
well. Broadly speaking, the asset mix at the end of the period was about the
same as it was at the beginning: 40% high-quality corporate bonds, 24% U.S.
Treasury bonds, 19% high-yield bonds, 13% mortgage-backed securities, 3% foreign
government bonds and 1% cash. Nevertheless, as the economy slowed, we took steps
where appropriate to lessen the Fund's exposure to credit risk. For example, we
took profits on some corporate bonds early in the period as the yield advantage
of corporates over U.S. Treasuries narrowed. We also looked for opportunities to
shift out of cyclical industries such as steel and paper -- which are especially
sensitive to economic conditions. In turn, we moved into more stable industries,
including communications and utilities.
[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
"Massachusetts Mutual" followed by an up arrow and the phrase "Market recognized
value". The second listing is "Wierton Steel" followed by an up arrow and the
phrase "Tender offer." The third listing is "Flagstar" followed by a down arrow
and the phrase "Troubles with restaurant chain." Footnote below states: "See
"Schedule of Investments". Investment holdings are subject to change."]
[CAPTION
"...we took steps where appropriate
to lessen the Fund's exposure to credit risk."]
4
<PAGE> 5
John Hancock Funds - Sovereign Bond Fund
[Bar chart with the heading "Fund Performance" at top of the left hand column.
Under the heading is the footnote: "For the six months ended June 30, 1995." The
chart is scaled in increments of 5% from top to bottom, with 15% on the top and
0% on the bottom. Within the chart, there are three solid bars. The first
represents the 12.23% total return for John Hancock Sovereign Bond Fund: Class
A. The second represents the 11.89% total return for John Hancock Sovereign Bond
Fund: Class B. The third represents the 11.36% total return for the average
corporate debt A-rated fund. Footnote below reads: "Total returns for John
Hancock Sovereign Bond Fund are at net asset value with all distributions
reinvested. The average corporate debt A-rated fund is tracked by Lipper
Analytical Services. See following page for historical performance
information."]
Among our top performers were high-quality corporate offerings by two
insurance companies: Massachusetts Mutual and New York Life. The bonds were
structured in an unusual way, and so escaped the attention of many market
participants. In time, however, investors recognized their value, prices rose
and the Fund profited. Other winners included high-yield bonds issued by Wierton
Steel, which we sold back to the company in a tender offer. Our so-called
"Yankee banks" -- foreign banks that issue bonds in the United States -- also
continued to perform well as many foreign economies recovered. Among the
disappointments during the period was Flagstar, which owns the struggling
Denny's restaurant chain.
An interesting footnote to performance was the Fund's small (less than 1%)
stake in Argentinean and Brazilian bonds, which had a disproportionately
positive impact on performance. We began buying Latin American bonds in March
and April of this year after they'd been hammered in 1994. Later, after the
Mexican bailout package was completed, bond prices rose through the region and
we successfully sold our Argentinian and Mexican issues.
OUTLOOK
Many market participants believe that we're on the verge of an extended
slowdown, perhaps even a recession. If we agreed, then we would probably
continue extending the Fund's duration, reducing credit risk and taking on
interest-rate risk as we've been doing all spring. But we don't fully buy into
that scenario. True, there are some signs of a slowdown, but declining interest
rates have lowered the cost of borrowing in recent months, making houses, cars
and other big-ticket items that much more affordable. Moreover, sharp increases
in domestic financial markets have left a significant portion of the population
feeling wealthier than it did at the beginning of the year. Together, those
factors point to the possibility of an increase in consumer spending and a
return to faster growth later this year or early in 1996.
If that scenario develops, then we'd look for opportunities to shorten the
Fund's duration, add more credit risk, and otherwise reverse some of the
strategic choices we made earlier this year. In any case, a repeat of the first
half's double-digit returns isn't likely in the second half of 1995, so
investors would do well to temper their expectations in the months ahead.
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
[CAPTION
"...a repeat of the first half's double-digit
returns isn't likely in the second half of 1995."]
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for John Hancock Sovereign Bond Fund. Total return is a
performance measure that equals the sum of all income and capital gains
dividends, assuming reinvestment of these distributions, and the change in the
price of the fund's shares, expressed as a percentage of the fund's 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 4.5% 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.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS(1) TEN YEARS(1)
---- -------- ------------
<S> <C> <C> <C>
Sovereign Bond Fund: Class A(2) 8.59% 52.86% 146.55%
Sovereign Bond Fund: Class B(2) 8.05% 5.34% N/A
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS(1) TEN YEARS(1)
---- -------- ------------
<S> <C> <C> <C>
Sovereign Bond Fund: Class A(2) 9.05% 8.86% 9.44%
Sovereign Bond Fund: Class B(2) 8.54% 3.30% N/A
</TABLE>
YIELDS
AS OF JUNE 30, 1995
<TABLE>
<CAPTION>
SEC 30-DAY
YIELD
-----------
<S> <C>
Sovereign Bond Fund: Class A 6.19%
Sovereign Bond Fund: Class B 5.84%
</TABLE>
NOTES TO PERFORMANCE
(1) Class B shares started on November 23, 1993.
(2) Performance is affected by a 12b-1 plan, which commenced on January 1, 1990
and November 23, 1993 for Class A shares and Class B shares, respectively.
For Class A shares, different sales charge schedules were in effect prior
to September 28, 1989 and are not reflected in the above performance
information.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Sovereign Bond Fund would be worth on June 30, 1995, assuming you have been
invested since the day each class of shares started or for the most recent ten
years and have reinvested all distributions. For comparison, we've shown the
same $10,000 investment in the Lehman Brothers Corporate Bond Index -- an
unmanaged index that mirrors the investment objectives and characteristics of
the Fund.
John Hancock Sovereign Bond Fund Class A shares
Line chart with the heading John Hancock Sovereign Bond Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund (or most recent 10 years). Within the chart are three lines.
The first line represents the value of the Lehman Brothers Corporate Bond Index
and is equal to $27,881 as of June 30, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the John Hancock Sovereign
Bond Fund on June 30, 1985, before sales charge, and is equal to $25,818 as of
June 30, 1995. The third line represents the John Hancock Sovereign Bond Fund
after sales charge and is equal to $24,656 as of June 30, 1995.
John Hancock Sovereign Bond Fund Class B shares
Line chart with the heading John Hancock Sovereign Bond 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 hypothetical $10,000 investment made
in the John Hancock Sovereign Bond Fund on October 23, 1993, before contingent
deferred sales charge, and is equal to $10,934 as of June 30, 1995. The second
line represents the value of the Lehman Brothers Corporate Bond Index and is
equal to $10,862 as of June 30, 1995. The third line represents the John Hancock
Sovereign Bond Fund after contingent deferred sales charge and is equal to
$10,534 as of June 30, 1995.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON JUNE 30, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE PER SHARE AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- -----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Publicly traded bonds (cost - 1,430,816,047) ............................ $1,439,588,152
Joint repurchase agreement
(cost - $17,577,000) .................................................. 17,577,000
Corporate savings account ............................................... 56,691
--------------
1,457,221,843
Receivable for shares sold ................................................ 615,667
Receivable for investments sold ........................................... 45,020,423
Interest receivable ....................................................... 29,685,317
--------------
Total Assets ........................................... 1,532,543,250
---------------------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased ............................................ 76,589
Payable for investments purchased ......................................... 38,914,952
Dividend payable .......................................................... 380,032
Payable for futures variation margin ...................................... 43,750
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................................. 1,204,291
Accounts payable and accrued expenses ..................................... 377,752
--------------
Total Liabilities ...................................... 40,997,366
---------------------------------------------------------------------------
NET ASSETS:
Capital paid-in ........................................................... 1,499,209,093
Accumulated net realized loss on investments
and financial futures contracts ......................................... (16,178,283)
Net unrealized appreciation of investments
and financial futures contracts ......................................... 8,543,980
Distributions in excess of net investment income .......................... (28,906)
--------------
Net Assets ............................................. $1,491,545,884
===========================================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value, respectively)
Class A - $1,431,216,568/95,368,886 ....................................... $ 15.01
==============================================================================================
Class B - $60,329,316/4,019,611 ........................................... $ 15.01
==============================================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($15.01 x 104.71%) .............................................. $ 15.72
==============================================================================================
<FN>
* On single retail sales of less than $100,000. On sales of $100,000 or more
and on group sales the offering price is reduced.
** All Class C shares were redeemed on May 22, 1995.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
Statement of Operations
Six months ended June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest ................................................. $ 63,918,989
-------------
Expenses:
Investment management fee - Note B ..................... 3,542,771
Transfer agent fee - Note B
Class A ............................................... 2,210,380
Class B ............................................... 53,271
Class C ** ............................................ 326
Distribution/service fee - Note B
Class A ............................................... 2,050,090
Class B ............................................... 245,550
Custodian fee .......................................... 207,605
Trustees' fees ......................................... 114,446
Printing ............................................... 107,006
Registration and filing fees ........................... 79,539
Miscellaneous .......................................... 57,764
Legal fees ............................................. 40,402
Auditing fee ........................................... 32,611
-------------
Total Expenses ........................ 8,741,761
-----------------------------------------------------------
Net Investment Income ................. 55,177,228
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FINANCIAL FUTURES CONTRACTS
Net realized gain on investments sold .................... 4,400,095
Net realized loss on futures contracts ................... (2,215,420)
Change in net unrealized appreciation/depreciation
of investments ......................................... 105,933,799
Change in net unrealized appreciation/depreciation
of financial futures contracts ......................... 601,250
-------------
Net Realized and Unrealized
Gain on Investments and
Financial Futures Contracts ........... 108,719,724
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............. $ 163,896,952
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31,
(UNAUDITED) 1994
---------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.............................................................. $ 55,177,228 $ 110,094,190
Net realized gain (loss) on investments sold and financial futures contracts....... 2,184,675 (18,179,593)
Change in net unrealized appreciation/depreciation of investments.................. 106,535,049 (133,477,882)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations.................. 163,896,952 (41,563,285)
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.5631 and $1.1202 per share, respectively).......................... (53,416,359) (108,234,785)
Class B - ($0.5203 and $1.0443 per share, respectively).......................... (1,762,662) (1,784,944)
Class C - ($0.4338 and $1.1929 per share, respectively)**........................ (27,113) (74,461)
Distributions from net realized gain on investments sold and financial
futures contracts
Class A - (none and $0.0801 per share, respectively)............................. -- (7,707,353)
Class B - (none and $0.0801 per share, respectively)............................. -- (84,479)
Class C - (none and $0.0801 per share, respectively)**........................... -- (4,864)
-------------- --------------
Total Distributions to Shareholders............................................. (55,206,134) (117,890,886)
-------------- --------------
FROM FUND SHARE TRANSACTIONS-- NET*................................................. 14,827,860 16,735,156
-------------- --------------
NET ASSETS:
Beginning of period................................................................ 1,368,027,206 1,510,746,221
-------------- --------------
End of period (including distributions in excess of net investment income of
$28,906 and none, respectively) .................................................. $1,491,545,884 $1,368,027,206
============== ==============
</TABLE>
The Statement of Changes in Net Assets shows how the value of the Fund's net
assets has changed since the end of the previous period. The difference reflects
earnings less expenses, any investment gains and losses, distributions paid to
shareholders, and any increase or decrease in money shareholders invested in the
Fund. The footnote illustrates the number of Fund shares sold, reinvested and
redeemed during the last two periods, along with the corresponding dollar
values.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................................. 4,088,850 $ 59,286,535 7,211,540 $ 105,031,130
Shares issued to shareholders in reinvestment
of distributions .......................................... 2,875,173 41,698,595 6,285,614 90,586,929
---------- ------------- ----------- -------------
6,964,023 100,985,130 13,497,154 195,618,059
Less shares repurchased ...................................... (6,994,585) (100,712,364) (15,075,386) (218,252,651)
---------- ------------- ----------- -------------
Net increase (decrease) .................................... (30,562) $ 272,766 (1,578,232) $ (22,634,592)
========== ============= =========== =============
CLASS B
Shares sold .................................................. 1,346,563 $ 19,532,260 2,846,673 $ 41,518,783
Shares issued to shareholders in reinvestment
of distributions .......................................... 76,359 1,109,994 84,680 1,203,433
---------- ------------- ----------- -------------
1,422,922 20,642,254 2,931,353 42,722,216
Less shares repurchased ...................................... (302,197) (4,380,740) (298,214) (4,254,708)
---------- ------------- ----------- -------------
Net increase ............................................... 1,120,725 $ 16,261,514 2,633,139 $ 38,467,508
========== ============= =========== =============
CLASS C**
Shares sold .................................................. -- -- 63,842 $ 895,248
Shares issued to shareholders in reinvestment
of distributions .......................................... -- -- 5,491 78,992
---------- ------------- ----------- -------------
-- -- 69,333 974,240
Less shares repurchased ...................................... (120,133) (1,706,420) (5,071) (72,000)
---------- ------------- ----------- -------------
Net increase (decrease) .................................... (120,133) $ (1,706,420) 64,262 $ 902,240
========== ============= =========== =============
<FN>
** All Class C shares were redeemed on May 22, 1995.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------------
Selected data for each share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios, and supplemental data are as
follows:
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1995 -------------------------------------------------------------------
(UNAUDITED) 1994 1993 1992 1991 1990
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........ $ 13.90 $ 15.53 $ 15.29 $ 15.31 $ 14.33 $ 14.77
---------- ---------- ---------- ---------- ---------- ----------
Net Investment Income ....................... 0.56 1.12 1.14 1.20 1.29 1.32
Net Realized and Unrealized Gain (Loss) on
Investments and Financial Futures
Contracts ................................. 1.11 (1.55) 0.62 (0.01) 0.98 (0.40)
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations ......... 1.67 (0.43) 1.76 1.19 2.27 0.92
---------- ---------- ---------- ---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ........ (0.56) (1.12) (1.14) (1.21) (1.29) (1.35)
Distributions from Net Realized Gain on
Investments Sold and Financial
Futures Contracts ......................... -- (0.08) (0.38) -- -- --
Distributions to Shareholders from Capital
Paid-in ................................... -- -- -- -- -- (0.01)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions ...................... (0.56) (1.20) (1.52) (1.21) (1.29) (1.36)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period .............. $ 15.01 $ 13.90 $ 15.53 $ 15.29 $ 15.31 $ 14.33
========== ========== ========== ========== ========== ==========
Total Investment Return at Net Asset Value .. 12.23%(d) (2.75)% 11.80% 8.08% 16.59% 6.71%
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ... $1,431,217 $1,326,058 $1,505,754 $1,386,260 $1,249,980 $1,103,391
Ratio of Expenses to Average Net Assets ..... 1.21%* 1.26% 1.41% 1.44% 1.27% 1.31%
Ratio of Net Investment Income to Average
Net Assets ................................. 7.81%* 7.74% 7.18% 7.89% 8.81% 9.18%
Portfolio Turnover Rate ..................... 43% 85% 107% 87% 90% 92%
CLASS B (a)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........ $ 13.90 $ 15.52 $ 15.90(b)
---------- ---------- ----------
Net Investment Income ....................... 0.52 1.04 0.11
Net Realized and Unrealized Loss on
Investments and Financial Futures
Contracts ................................. 1.11 (1.54) --
---------- ---------- ----------
Total from Investment Operations ......... 1.63 (0.50) 0.11
---------- ---------- ----------
Less Distributions:
Dividends from Net Investment Income ........ (0.52) (1.04) (0.11)
Distributions from Net Realized Gain on
Investments Sold and Financial
Futures Contracts ......................... -- (0.08) (0.38)
---------- ---------- ----------
Total Distributions ...................... (0.52) (1.12) (0.49)
---------- ---------- ----------
Net Asset Value, End of Period .............. $ 15.01 $ 13.90 $ 15.52
========== ========== ===========
Total Investment Return at Net Asset Value .. 11.89%(d) (3.13)% 0.90%
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ... $ 60,329 $ 40,299 $ 4,125
Ratio of Expenses to Average Net Assets ..... 1.81%* 1.78% 1.63%*
Ratio of Net Investment Income to Average
Net Assets ................................. 7.17%* 7.30% 0.57%*
Portfolio Turnover Rate ..................... 43% 85% 107%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- ------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED
MAY 22, 1995 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CLASS C (c)
PER SHARE OPERATING PERFOMANCE
Net Asset Value, Beginning of Period ................................. $13.90 $15.52 $15.86(b)
------ ------ ------
Net Investment Income ................................................ 0.42 1.19 0.81
Net Realized and Unrealized Gain (Loss) on Investments and Financial
Futures Contracts ................................................... 0.91 (1.54) 0.04
------ ------ ------
Total from Investment Operations .................................. 1.33 (0.35) 0.85
------ ------ ------
Less Distributions:
Dividends from Net Investment Income ................................. (0.43) (1.19) (0.81)
Distributions from Net Realized Gain on Investments Sold and Financial
Futures Contracts ................................................... -- (0.08) (0.38)
------ ------ ------
Total Distributions ............................................... (0.43) (1.27) (1.19)
------ ------ ------
Net Asset Value, End of Period ....................................... $14.80 $13.90 $15.52
====== ====== ======
Total Investment Return at Net Asset Value ........................... 9.73%(d) (2.19%) 5.45%
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000s omitted) ............................. $ 142 $1,670 $ 867
Ratio of Expenses to Average Net Assets .............................. 0.67%* 0.73% 0.90%*
Ratio of Net Investment Income to Average Net Assets ................. 7.82%* 8.28% 4.90%*
Portfolio Turnover Rate .............................................. N/A 85% 107%
<FN>
* On an annualized basis.
(a) Class B shares commenced operations on November 23, 1993.
(b) Initial price to commence operations.
(c) Class C shares commenced operations on May 7, 1993. Net asset value and net
assets at the end of the period reflect amounts prior to the redemption of
all shares on May 22, 1995.
(d) Not annualized.
N/A Not applicable.
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES),
DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET
ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
Financial Statements
John Hancock Funds - Sovereign Bond Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
SOVEREIGN BOND FUND ON JUNE 30, 1995. IT'S DIVIDED INTO TWO MAIN CATEGORIES:
PUBLICLY TRADED BONDS AND SHORT-TERM INVESTMENTS. THE BONDS ARE FURTHER BROKEN
DOWN BY INDUSTRY GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S
"CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED BONDS
BANKS (11.07%)
Abbey National First Capital B.V.,
Sub Note 10-15-04 .................................. 8.200% AA- $ 7,000 $ 7,594,930
African Development Bank,
Sub Note 12-15-03 .................................. 9.750 AA 8,000 9,465,120
Bank of Montreal - Chicago Branch,
Sub Note 11-01-00 .................................. 9.800 A+ 8,500 8,571,910
Barclays North American Capital Corp.,
Gtd Cap Note 05-15-21 .............................. 9.750 AA- 8,450 9,680,235
Den Danske Bank Aktieselskab,
*Sub Note 06-15-05 (R) .............................. 7.250 BBB+ 8,000 7,936,640
First Interstate Bancorp.,
Sub Note 05-01-97 .................................. 12.750 BBB+ 3,250 3,599,343
International Bank for Reconstruction and Development,
30 Yr Bond 09-01-16 ................................ 8.250 AAA 5,000 5,665,950
30 Yr Bond 07-15-17 ................................ 9.250 AAA 15,550 19,266,294
Midland American Capital Corp.,
Gtd Note 11-15-03 .................................. 12.750 A 19,932 23,570,786
National Westminster Bank PLC - New York Branch,
Sub Note 05-01-01 .................................. 9.450 AA- 10,000 11,296,400
RBSG Capital Corp.,
Gtd Cap Note 03-01-04 .............................. 10.125 A+ 10,630 12,706,996
Scotland International Finance No. 2 B.V.,
Sub Gtd Note 11-01-06 (R) .......................... 8.850 A+ 10,250 11,500,223
Security Pacific Corp.,
Medium Term Sub Note 05-09-01 ...................... 10.360 A- 6,000 7,113,300
Sub Note 11-15-00 .................................. 11.500 A- 6,400 7,725,504
Toronto Dominion Bank - New York Branch,
Sub Note 01-15-09 .................................. 6.450 AA- 10,000 9,474,100
Westdeutsche Landesbank Girozentrale - New York Branch,
Sub Note 06-15-05 .................................. 6.750 AA+ 10,000 9,998,200
-------------
165,165,931
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- -----------
<S> <C> <C> <C> <C>
BROADCASTING (5.07%)
Cablevision Systems Corp.,
Sr Sub Deb 04-01-04 ........................................... 10.750% B $ 8,000 $ 8,400,000
Century Communications Corp.,
Sr Sub Deb 10-15-03 ........................................... 11.875 B+ 12,200 12,932,000
Comcast Corp.,
*Sr Sub Deb 05-15-05 ........................................... 9.375 B+ 4,000 4,000,000
Continental Cablevision, Inc.,
*Sr Sub Deb 06-01-07 ........................................... 11.000 BB- 10,000 11,100,000
Jones Intercable, Inc.,
*Sr Note 03-15-02 .............................................. 9.625 BB 5,250 5,486,250
Sr Sub Deb 07-15-04 ........................................... 11.500 B+ 5,000 5,525,000
Le Groupe Videotron Ltee
*Sr Note 02-15-05 .............................................. 10.625 BB+ 1,750 1,841,875
Rogers Cablesystems Ltd.,
*Sr Sec Second Priority Note 03-15-05 .......................... 10.000 BBB 5,000 5,137,500
TKR Cable I, Inc.,
Sr Deb 10-30-07 ............................................... 10.500 BBB- 10,000 11,457,600
Viacom International,
Sub Deb 07-07-06 .............................................. 8.000 B+ 10,000 9,737,500
-----------
75,617,725
-----------
COMPUTERS (1.59%)
Unisys Corp.,
Credit Sensitive Note 07-01-97 ................................ 13.500 BB- 21,500 23,757,500
-----------
COSMETICS & TOILETRIES (0.43%)
Johnson & Johnson,
Deb 11-15-23 .................................................. 6.730 AAA 6,750 6,476,422
-----------
FINANCE (4.77%)
American Express Co.,
Euronote 12-12-00 ............................................. 11.625 A+ 8,670 9,789,384
Banc One Credit Card Master Trust,
Class A Asset Backed Cert, Ser 1994-B 12-15-99 ................ 7.550 AAA 10,000 10,256,200
Chrysler Financial Corp.,
Note 11-01-99 ................................................. 12.750 A- 3,000 3,665,910
CIT Group Holdings, Inc. (The),
Medium Term Sr Sub Cap Note 03-15-01 .......................... 9.250 A 5,000 5,627,200
DR Structured Finance Corp.,
Sec Pass thru Ctf Ser 1993K-1 08-15-18 ........................ 7.430 BBB 8,000 6,938,768
Great Western Financial Corp.,
Note 02-01-02 ................................................. 8.600 BBB+ 11,000 11,836,000
Merrill Lynch Mortgage Investors, Inc.,
Sr/Sub Pass thru Ctf Ser 1992 B, Class B (Sub) 04-15-12 ....... 8.500 AA 3,525 3,628,347
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
Financial Statements
John Hancock Funds - Sovereign Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C>
FINANCE (CONTINUED)
Santander Financial Issuances Ltd.,
*Sub Gtd Note 04-15-05 .............................. 7.875% A+ $ 8,000 $ 8,404,160
Standard Credit Card Master Trust I,
*Class A Credit Card Part Ctf Ser 1995-2 01-07-00 ... 8.625 AAA 10,750 11,052,290
------------
71,198,259
------------
FOODS (0.93%)
Dominick's Finer Foods, Inc.,
*Sr Sub Note 05-01-05 ............................... 10.875 B- 4,700 4,758,750
Flagstar Corp.,
Sr Sub Deb 11-01-04 ................................ 11.250 CCC+ 5,000 3,900,000
Nabisco, Inc., (Exchanged formerly RJR Nabisco, Inc.)
Note 04-15-99 ...................................... 8.300 BBB 5,000 5,243,700
------------
13,902,450
------------
GLASS PRODUCTS (0.55%)
Owens-Illinois, Inc.,
Sr Deb 12-01-03 .................................... 11.000 BB 7,500 8,231,250
------------
GOLD MINING AND PROCESSING (1.06%)
Magma Copper Co.,
Sr Sub Note 12-15-01 ............................... 12.000 BB+ 14,250 15,746,250
------------
GOVERNMENTAL - FOREIGN (3.37%)
Brazil, Republic of,
*Par Bond YL4 04-15-24 .............................. 4.250 NR 5,000 2,200,000
Nova Scotia, Province of,
Deb 04-01-22 ....................................... 8.750 A- 7,500 8,421,975
SF Deb 05-15-13 .................................... 11.500 A- 8,400 9,727,704
Ontario, Province of,
Deb 08-31-12 ....................................... 15.250 AA- 6,595 8,094,307
Deb 04-25-13 ....................................... 11.750 AA- 6,000 7,022,220
Quebec, Province of,
Deb 10-01-13 ....................................... 13.000 A+ 11,000 13,462,790
Deb 09-15-14 ....................................... 13.250 A+ 1,000 1,258,510
------------
50,187,506
------------
GOVERNMENTAL - U.S. (24.03%)
United States Treasury,
Bond 11-15-02 ...................................... 11.625 AAA 8,500 11,216,005
Bond 08-15-05 ...................................... 10.750 AAA 14,685 19,498,890
Bond 08-15-17 ...................................... 8.875 AAA 60,890 75,808,050
Bond 05-15-18 ...................................... 9.125 AAA 47,100 60,148,113
Bond 02-15-23 ...................................... 7.125 AAA 28,095 29,600,611
Note 11-15-96 ...................................... 7.250 AAA 15,000 15,271,800
Note 05-15-98 ...................................... 9.000 AAA 36,275 39,188,245
Note 11-30-99 ...................................... 7.750 AAA 43,650 46,555,344
Note 05-15-01 ...................................... 8.000 AAA 55,750 61,098,655
------------
358,385,713
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
Financial Statements
John Hancock Funds - Sovereign Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C>
GOVERNMENTAL - U.S. AGENCIES (12.94%)
Federal National Mortgage Association,
15 Yr SF Pass thru Ctf 02-01-08 .............. 7.500% AAA $ 3,885 $ 3,949,228
15 Yr SF Pass thru Ctf 01-25-05 .............. 8.000 AAA 10,000 10,456,200
*30 Yr SF Pass thru Ctf 11-01-24+ ............. 7.000 AAA 9,830 9,661,022
Financing Corp.,
Bond Ser A 02-08-18 .......................... 9.400 AAA 7,000 8,792,630
Bond Ser B 04-06-18 .......................... 9.800 AAA 1,700 2,216,375
Bond Ser D 09-26-19 .......................... 8.600 AAA 9,250 10,915,000
Government National Mortgage Association,
30 Yr SF Pass thru Ctf 10-15-23 .............. 7.000 AAA 9,964 9,805,464
*30 Yr SF Pass thru Ctf 02-15-24 to 02-15-25+.. 7.500 AAA 9,677 9,725,275
*30 Yr SF Pass thru Ctf 09-15-22 to 06-15-25... 8.000 AAA 50,871 52,300,150
30 Yr SF Pass thru Ctf 12-15-22 to 09-15-24... 8.500 AAA 37,197 38,615,319
30 Yr SF Pass thru Ctf 11-15-16 to 07-15-21... 9.000 AAA 23,565 24,802,358
30 Yr SF Pass thru Ctf 11-15-19 to 05-15-21... 9.500 AAA 7,298 7,736,380
30 Yr SF Pass thru Ctf 06-15-20 to 11-15-20... 10.000 AAA 3,085 3,357,835
30 Yr SF Pass thru Ctf 01-15-16 .............. 10.500 AAA 240 265,174
30 Yr SF Pass thru Ctf 01-15-16 .............. 11.000 AAA 327 362,572
------------
192,960,982
------------
INSURANCE (2.14%)
Liberty Mutual Insurance Co.,
*Surplus Note 05-04-07 (R) .................... 8.200 A2 3,000 3,142,410
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) .................... 7.625 AA- 6,000 5,825,460
Metropolitan Life Insurance Co.,
Surplus Note 11-01-03 (R) .................... 6.300 AA 9,000 8,576,550
New York Life Insurance Co.,
Surplus Note 12-15-23 (R) .................... 7.500 AA 15,000 14,304,900
------------
31,849,320
------------
OIL & GAS (2.50%)
Ashland Oil, Inc.,
SF Deb 10-15-17 ............................ 11.125 BBB 5,000 5,676,950
Coastal Corp. (The),
Sr Deb 06-15-06 ............................ 11.750 BB+ 10,500 11,340,000
Oryx Energy Co.,
Note 05-01-96 .............................. 9.300 BB 5,000 5,067,000
Note 09-15-98 .............................. 9.750 BB 8,000 8,040,000
TransTexas Gas Corp.,
*Sr Note 06-15-02 ........................... 11.500 BB- 7,000 7,140,000
------------
37,263,950
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- -----------
<S> <C> <C> <C> <C>
PAPER (1.33%)
Georgia Pacific Corp.,
Deb 01-15-18 .............. 9.750% BBB- $ 7,500 $ 7,872,000
S.D. Warren Co.,
*Sr Sub Note 12-15-04 (R) .. 12.000 B+ 2,500 2,687,500
Stone Container Corp.,
Sr Note 02-01-01 .......... 9.875 B+ 4,010 3,974,912
Sr Note 10-01-04 .......... 11.500 B+ 5,000 5,287,500
-----------
19,821,912
-----------
PUBLISHING (1.90%)
News America Holdings, Inc.,
Sr Note 10-15-99 .......... 9.125 BBB- 7,500 8,134,875
Sr Note 12-15-01 .......... 12.000 BBB- 8,700 9,813,078
Time Warner, Inc.,
Deb 01-15-13 .............. 9.125 BBB- 10,000 10,392,900
-----------
28,340,853
-----------
RETAIL (1.30%)
K mart Corp.,
Lease Ctf 01-01-09 ........ 13.500 BBB 2,000 2,333,740
Pathmark Stores, Inc.,
Sub Note 06-15-02 ......... 11.625 B 2,600 2,749,500
Sub Note 06-15-02 ......... 12.625 B 5,000 5,350,000
Safeway Stores, Inc.,
Lease Ctf 01-15-09 ........ 13.500 BBB- 2,750 3,093,750
Thrifty Payless, Inc.,
Sr Note 04-15-03 .......... 11.750 B 5,500 5,802,500
-----------
19,329,490
-----------
STEEL (0.96%)
UCAR Global Enterprises, Inc.,
*Sr Sub Note 01-15-05 ...... 12.000 B 5,000 5,387,500
Weirton Steel Corp.,
*Sr Note 03-01-98 .......... 11.500 B 2,500 2,600,000
*Sr Note 06-01-05 (R) ...... 10.750 B 6,750 6,378,750
-----------
14,366,250
-----------
TELECOMMUNICATIONS (1.10%)
British Telecom Finance, Inc.,
Gtd Deb 02-15-19 .......... 9.625 AAA 9,000 10,210,230
Tele-Communications, Inc.,
*Sr Deb 02-01-12 ........... 9.800 BBB- 5,700 6,267,492
-----------
16,477,722
-----------
TEXTILES (0.16%)
Westpoint Stevens, Inc. ......
*Sr Sub Deb 12-15-05 ....... 9.375 B+ 2,500 2,406,250
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 18
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------------
<S> <C> <C> <C> <C>
TOBACCO (0.51%)
RJR Nabisco, Inc.,
Note 12-01-02 ........................................................ 8.625% BBB- $ 5,000 $ 5,136,200
*Note 09-15-03 ........................................................ 7.625 BBB- 2,500 2,412,725
------------
7,548,925
------------
TRANSPORTATION (6.77%)
American Airlines, Inc.,
1991-A Pass thru Trust 01-02-07 ...................................... 9.710 BBB- 7,465 8,288,969
AMR Corp.,
Deb 05-15-01 ......................................................... 9.500 BB+ 4,250 4,680,270
NWA Inc.,
Note 08-01-96 ........................................................ 8.625 B 14,165 14,235,825
Rail Car Trust No. 1992-1,
Trust Note Ser 92-1 06-01-04 ......................................... 7.750 AAA 17,025 17,923,779
Scandinavian Airlines System,
Bond 07-20-99 ........................................................ 9.125 A3 10,234 10,991,828
Sea-Land Service, Inc.,
Sec Bond Ser A 01-02-11 .............................................. 10.600 BBB+ 5,000 5,344,800
Sec Bond Ser B 01-02-11 .............................................. 10.600 BBB+ 7,000 7,482,720
Sec Bond Ser C 01-02-11 .............................................. 10.600 BBB+ 6,000 6,386,880
United Air Lines, Inc.,
Deb Ser A 05-01-04 ................................................... 10.670 BB 4,275 4,925,014
Deb Ser B 05-01-14 ................................................... 11.210 BB 6,310 7,663,306
USAir 1990-A Pass Through Trusts,
Pass thru Ctf Ser 1990-A1 03-19-05 ................................... 11.200 B+ 13,733 13,097,561
------------
101,020,952
------------
UTILITIES (12.04%)
ALLTEL Corp.,
Deb 04-01-09 ......................................................... 10.375 A+ 5,000 5,304,800
British Columbia Hydro and Power Auth. (Gtd by Prov of British Columbia),
Bond Ser FN 09-01-13 ................................................. 12.500 AA+ 6,175 7,448,594
BVPS II Funding Corp.,
*Collateralized Lease Bond 06-01-17 ................................... 8.890 BB 8,733 8,168,586
Cleveland Electric Illuminating Co.,
*1st Mtg Ser 2005-B 05-15-05 .......................................... 9.500 BB 3,500 3,509,695
CTC Mansfield Funding Corp.,
Sec Lease Oblig 09-30-16 ............................................. 11.125 B+ 20,685 21,056,089
E.I.P. Refunding Corp.,
Sec Fac Bond 10-01-12 ................................................ 10.250 B+ 9,795 10,089,242
First PV Funding Corp.,
*Lease Oblig Ser 1986 B 01-15-16 ...................................... 10.150 B+ 10,801 11,111,529
GTE Corp.,
Deb 11-15-17 ......................................................... 10.300 BBB+ 8,750 10,006,675
*Deb 11-01-20 ......................................................... 10.250 BBB+ 6,000 7,010,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 19
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
UTILITIES (continued)
Hydro-Quebec (Gtd by Province of Quebec),
Deb 02-01-03 ......................... 7.375% A+ $ 4,710 $ 4,815,504
Deb Ser FV 02-01-12 .................. 11.750 A+ 5,000 6,993,500
Deb Ser HS 02-01-21 .................. 9.400 A+ 10,000 11,786,300
Iberdrola International B.V.,
Gtd Note 10-01-02 (R) ................ 7.500 AA- 8,000 8,254,888
Gtd Note 06-01-03 (R) ................ 7.125 AA- 8,654 8,748,415
Long Island Lighting Co.,
Deb 03-15-03 ......................... 7.050 BB+ 6,000 5,496,180
*Deb 07-15-19 ......................... 8.900 BB+ 4,000 3,669,840
Gen Ref 05-01-21 ..................... 9.750 BBB- 3,100 3,158,280
Louisiana Power & Light Co.,
Sec Lease Oblig Ser B 01-02-17 ....... 10.670 BBB- 9,500 10,166,710
Midland Funding Corp. I,
Sr Sec Lease Oblig Ser C 07-23-02 .... 10.330 BB- 11,700 12,109,160
System Energy Resources, Inc.,
1st Mtg 09-01-96 ..................... 10.500 BBB- 10,870 11,361,759
Sec Lease Oblig 01-15-14 ............. 8.200 BBB- 3,000 2,901,594
Tenaga Nasional Berhad,
Note 06-15-04 (R) .................... 7.875 A+ 6,000 6,364,800
------------
179,532,540
-------------
TOTAL PUBLICLY TRADED BONDS
(Cost 1,430,816,047) (96.52%) 1,439,588,152
------ -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE> 20
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER, DESCRIPTION RATE OMITTED) VALUE
- ------------------- -------- --------- -------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.18%)
Investment in a joint repurchurse agreement transaction with Lehman Bros.,
Inc., Dated 06-30-95, due 07-03-95 (Secured by U.S. Treasury Bill, 5.45% due
12-28-95, and U.S. Treasury Note, 6.875% due 12-28-95) - Note A ............ 6.180% $17,577 $ 17,577,000
-------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account Current Rate 3.00% .......................... 56,691
--------------
TOTAL SHORT-TERM INVESTMENTS ( 1.18%) 17,633,691
------- --------------
TOTAL INVESTMENTS (97.70%) $1,457,221,843
======= ==============
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
(R) These securites are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securites amounted to $83,720,536 as of June 30, 1995. See Note A
of the Notes to Financial Statements for valuation policy.
+ These securities having an aggregate value of $19,386,297 or 1.30% of the
Fund's net assets, have been purchased on a when issued basis subsequent to
the date of this schedule. The purchase price and the interest rate of such
securities are fixed at trade date, although the Fund does not earn any
interest on such securities until settlement date. The Fund has instructed
its Custodian Bank to segregated assets with a current value at least equal
to the amount of its when issued commitments. Accordingly, the market value
of $19,920,000 of U.S. Treasury Bond 8.875%, 08-15-17 has been segregated
to cover the when issued commitments.
* Securities, other than short-term investments, newly added to the portfolio
during the six months ended June 30, 1995.
** Credit ratings are rated by Moody's Investor Services or John Hancock
Advisers, Inc. where Standard and Poors ratings are not available.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Sovereign Bond Fund (the "Fund") is a diversified open-end
investment management company, registered under the Investment Company Act of
1940.
The Trustees have authorized the issuance of multiple classes of the Fund,
designated as Class A, Class B and Class C. The shares of each class represent
an interest in the same portfolio of investments of the Fund and have equal
rights to voting, redemption, 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/service expenses under the terms of a
distribution plan, have exclusive voting rights regarding such distribution
plan. Class C shares were outstanding in the current fiscal year during the
period from January 1, 1995 through May 22, 1995. 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 transaction. 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. For federal income tax purposes, the Fund has $11,341,446 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforward is used by the Fund, no
capital gain distributions will be made. The carryforward expires December 31,
2002. Additionally, net capital losses of $3,227,839 attributable to security
transactions occurring after October 31, 1994 are treated as arising on the
first day (January 1, 1995) of the Fund's current taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST 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 as explained previously.
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/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.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
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<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts to hedge against the effects of fluctuations in interest rates and
other market conditions. At the time the Fund enters into a financial futures
contract, it will be required to deposit with its custodian a specified amount
of cash or U.S. government securities, known as "initial margin". Each day, the
futures contract is valued at the official settlement price of the board of
trade or U.S. commodities exchange. Subsequent payments, known as "variation
margin", to and from the broker are made on a daily basis as the market price of
the financial futures contract fluctuates. Daily variation margin adjustments,
arising from this "mark to market", are recorded by the Fund as unrealized gains
or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures transactions.
At June 30, 1995, open positions in financial futures contracts are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
EXPIRATION OPEN CONTRACTS POSITION DEPRECIATION
- ---------- -------------- -------- ------------
<S> <C> <C> <C>
JUNE, 1995 100 U.S. TREASURY NOTE SHORT $(228,125)
=========
</TABLE>
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly fee to
the Adviser for a continuous investment program equivalent on an annual basis to
the sum of (a) 0.50% of the first $1,500,000,000 of the Fund's average daily net
asset value, (b) 0.45% of the next $500,000,000, (c) 0.40% of the next
$500,000,000 and (d) 0.35% of the Fund's average daily net asset value in excess
of $2,500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended June 30,
1995, JH Funds received net sales charges of $1,025,621 with regard to sales of
Class A shares. Out of this amount, $118,802 was retained and used for printing
of prospectuses, advertising, sales literature and other purposes, and $107,423
was paid as sales commissions and first year service fees to unrelated
broker-dealers and $799,396 was paid as sales commissions and first year service
fees to sales personnel of John Hancock Distributors, Inc. ("Distributors"),
Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"),
all of which are broker dealers. The Adviser's indirect parent, John Hancock
Mutual Life Insurance Company, is the indirect sole shareholder of Distributors
and John Hancock Freedom Securities Corporation and its subsidiaries, which
include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC")
22
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Bond Fund
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 sale of Class B shares. For the period
ended May 31, 1995, contingent deferred sales charges received by JH Funds
amounted to $99,415.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A 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 these payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of John Hancock
Funds. The Fund pays transfer agent fees based on the number of shareholder
accounts plus out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors and/or
officers of the Adviser, and/or its affiliates, as well as Trustees of the Fund.
The compensation of unaffiliated Trustees is borne by the Fund. Effective with
the fees paid for 1995, 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 will make 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
will be recorded on the Fund's books as an other asset. The deferred
compensation liability will be marked to market on a periodic basis and income
earned by the investment will be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of securities, other than
obligations of the U.S. government and its agencies and short-term securities,
during the period ended June 30, 1995, aggregated $227,733,069 and $242,079,857,
respectively. Purchases and proceeds from sales of obligations of the U.S.
government and its agencies, during the period ended June 30, 1995, aggregated
$370,527,804 and $346,669,861, respectively.
The cost of investments owned at June 30, 1995 (excluding the corporate
savings account) for Federal income tax purposes was $1,452,187,142. Gross
unrealized appreciation and depreciation of investments aggregated $34,805,881
and $29,827,871, respectively, resulting in net unrealized appreciation of
$4,978,010.
23
<PAGE> 24
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOGAL INVESTMENT MANAGEMENT FIRM U.S. Postage
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Brockton, MA
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This report is for the information of shareholders of the John Hancock
Sovereign Bond 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."]
JHD 210SA 6/95
