<PAGE> 1
JOHN HANCOCK FUNDS
- --------------------------------------------------------------------------------
SOVEREIGN
BALANCED
FUND
SEMI - ANNUAL REPORT
JUNE 30, 1995
<PAGE> 2
DIRECTORS
Edward J. Boudreau, Jr.
Thomas W.L. Cameron
James F. Carlin*
Charles F. Fretz*
Harold R. Hiser Jr.*
Robert J. Kennedy*
Charles L. Ladner*
Patricia P. McCarter*
Steven R. Pruchansky*
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
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
John F. Snyder, III
Senior 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 Investors 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:
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
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
2
<PAGE> 3
BY JOHN F. SNYDER III AND BARRY H. EVANS FOR THE
PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
SOVEREIGN BALANCED FUND
GROWTH STOCKS TAKE OFF AND BONDS RALLY
AS ECONOMY SHOWS SIGNS OF SLOWING
After flat performance in 1994, the stock market went straight up during the
first half of this year. In just six months, the Standard & Poor's 500-Stock
Index and the Dow Jones Industrial Average each returned more than 18%. The bond
market also rallied, with yields on the benchmark 30-year Treasury bond falling
from 8.5% to 6.5%.
Growth stocks led the stock market. Early on, the winners were large,
conservative growth stocks with a track record of steady earnings in all
economic conditions. Financial stocks also benefited from falling interest
rates. As the year progressed, people started believing we'd get just the right
amount of economic growth -- not so much that inflation would pick up, but not
so little that profits would disappear. While conservative growth stocks
continued to do well, their performance lagged compared to more aggressive
growth "Ethe stock market went straight up during the first half of this year."
John F. Snyder, Co-Portfolio Manager stocks, particularly technology stocks.
For the six months ended June 30, 1995, John Hancock Sovereign Balanced
Fund's Class A and B shares had total returns of 13.03% and 12.66%,
respectively, at net asset value. By comparison, the average balanced fund had a
total return of 13.70%, according to Lipper Analytical Services.1 We were
pleased with results, especially since, unlike some of our peers, the most we're
allowed to invest in stocks is 60% of our assets. Also, to minimize risk, we had
a relatively smaller investment in the technology sector, which may have
propelled the stock market recently but can be more volatile.
- --------------------------------------------------------------------------------
"...THE STOCK MARKET WENT STRAIGHT UP DURING THE FIRST HALF OF THIS YEAR."
- --------------------------------------------------------------------------------
[A 2 1/2" x 2" photo of John F. Snyder at bottom center. Caption reads "John F.
Snyder, Co-Portfolio Manager".]
3
<PAGE> 4
John Hancock Funds - Sovereign Balanced Fund
STOCKS: LEADERS AND LAGGARDS
On the stock side, the biggest boost came from our top names. Many were consumer
nondurables, including food, pharmaceutical and beverage companies. Among the
winners were both Abbott Laboratories and Johnson & Johnson, which delivered
strong gains as health-care reform worries disappeared. PepsiCo rebounded nicely
as it addressed problems in its restaurant business. One of our largest
investments, Procter & Gamble, appreciated more than expected as it eliminated
products with low returns and introduced important new ones. We also emphasized
capital goods -- an eclectic group that ranged from electrical equipment
manufacturers to office equipment suppliers. Our top name in this area, General
Electric, delivered a 12% return for the period, which was certainly solid
performance but somewhat below what we had hoped.
- --------------------------------------------------------------------------------
"SOME OF OUR BIGGEST GAINERS WERE CORPORATE BONDS..."
- --------------------------------------------------------------------------------
As always, there were some disappointments. Consumers weren't spending much,
especially on apparel. That hurt our retailers like V.F. Corporation, a blue
jeans manufacturer. Another investment that disappointed us was ALLTEL
Corporation, an independent telephone company in Little Rock, Arkansas. As its
information processing business softened, so did the stock.
BONDS: PARING BACK
All sectors of the bond market benefited from the recent rally. Some of our
biggest gainers were corporate bonds, especially high-yield cyclicals -- that
is, below investment grade bonds issued by companies whose businesses are
closely tied to the economy. These included companies that do well in the late
stages of the economic cycle, like Stone Container, a paper company, and Georgia
Pacific Corp., a lumber company. Our 4.7% stake in U.S. Treasuries -- whose
prices are more sensitive to changes in interest rates than other bond sectors
- -- also did quite well.
During the period, we cut back on bonds in order to increase our investment
in stocks, which we believe offer more potential. By the end of June, our bond
position stood at 37%, down from 43% six months ago. We sold corporate bonds,
especially those where we had concerns about the company's ability to meet its
interest and principal payments in a slower economy. This move also helped us
upgrade the credit quality of the bond portfolio. Assuming less credit risk
makes sense since we're now 48 months into an economic cycle that typically
lasts only 46 months. We also sold 30-year Treasuries and put some of the
proceeds into government agency and mortgage-backed bonds to pick up some
additional yield.
OPTIMISM LONG TERM, UNCERTAINTY NEAR TERM
Long term, we're optimistic, especially about stocks. While many companies are
putting extra cash to work buying back their shares, there aren't
[A 2 1/4" x 2 1/4" photo of Barry Evans at bottom center. Caption reads "Barry
Evans, Co-Portfolio Manager."]
4
<PAGE> 5
John Hancock Funds - Sovereign Balanced Fund
[A bar chart with heading "Fund Performance" at top 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% at the top and 0% at the
bottom. Within the chart there are three solid bars. The first represents the
13.03% total return of John Hancock Sovereign Balanced Fund: Class A. The second
represents the 12.66% total return of John Hancock Sovereign Balanced Fund:
Class B. The third represents the 13.70% 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.(1) See the following
page for historical performance information."]
many initial public offerings (IPOs) in the market right now. So supply isn't
increasing much. But demand for stocks is growing as the baby boomers age and
save more. What's more, interest from foreign investors should increase once the
dollar strengthens.
Having said that, though, we'd be hard pressed to say where the stock market
will be six months from now. A lot depends on what happens to interest rates and
economic growth. However, this much is clear: After two and a half years of
strong earnings, we may be close to a turning point where corporate earnings
will probably grow at a slower rate. There may also be an increased probability
of negative earnings surprises, especially from companies whose earnings are
closely tied to the economy. Given this, finding stocks with strong, reliable
earnings -- the kind we always focus on -- will become even more important.
We believe companies like this share one or more of three themes. First, a
large part of their revenues come from outside the United States. An example is
the Interpublic Group, the world's largest advertising agency which does over
60% of its business overseas. Second, they are companies -- like Alco Standard
Corporation, the largest distributor and servicer of copiers in the country --
that dominate their industry. Third, many of our companies have large cash flows
(that is, earnings after capital expenditures). E.I. duPont deNemours and Co., a
worldwide chemical company, is a good example, with cash flow building up to the
tune of $3 billion a year.
On the bond side, the market has already anticipated that the Federal Reserve
will lower rates at least half a percentage point. The question is: Where will
the economy -- and interest rates -- go from here? As long as we're concerned
about the possibility of economic growth stalling, we'll continue to upgrade
credit quality. As we do, we'll probably increase the Fund's investment in
mortgage-backed bonds, which offer the highest credit quality and a slightly
higher yield than U.S. Treasuries. We'll also probably continue to sell late
cycle cyclicals because once the economy does slow, their profit margins will
deteriorate.
- --------------------------------------------------------------------------------
"LONG TERM, WE'RE OPTIMISTIC, ESPECIALLY ABOUT STOCKS."
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[1] Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is lower.
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 Balanced 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 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.
<TABLE>
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30, 1995
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
Sovereign Balanced Fund: Class A(2) 9.12% 18.10%
Sovereign Balanced Fund: Class B(2) 9.10% 18.10%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
FOR THE PERIOD ENDED JUNE 30, 1995
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
Sovereign Balanced Fund: Class A(2) 9.12% 6.26%
Sovereign Balanced Fund: Class B(2) 9.10% 6.26%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
YIELDS
- --------------------------------------------------------------------------------
AS OF JUNE 30, 1995
<CAPTION>
SEC 30-DAY
YIELD
----------
<S> <C>
Sovereign Balanced Fund: Class A 3.20%
Sovereign Balanced Fund: Class B 2.67%
<FN>
NOTES TO PERFORMANCE
(1) Class A and Class B shares started on October 5, 1992.
(2) Performance is affected by a 12b-1 plan, which commenced on October 5, 1992,
for both Class A and Class B shares.
</TABLE>
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 Balanced Fund would be worth on June 30, 1995, assuming you invested
on the day each class of shares started and 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 an often used measure of stock market performance.
John Hancock Sovereign Balanced Fund
Class A Shares
[Line chart with the heading John Hancock Sovereign Balanced Fund: Class A,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $14,074 as of June 30, 1995. The second line represents the value of
the hypothetical $10,000 investment made in the John Hancock Sovereign Balanced
Fund on October 5, 1992, before sales charge, and is equal to $12,436 as of June
30, 1995. The third line represents the John Hancock Sovereign Balanced Fund
after sales charge and is equal to $11,810 as of June 30, 1995.]
John Hancock Sovereign Balanced Fund
Class B Shares
[Line chart with the heading John Hancock Sovereign Balanced Fund: Class B,
representing the growth of a hypothetical $10,000 investment over the life of
the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $14,074 as of June 30, 1995. The second line represents the value of
the hypothetical $10,000 investment made in the John Hancock Sovereign Balanced
Fund on October 5,1992, before contingent deferred sales charge, and is equal to
$12,210 as of June 30, 1995. The third line represents the John Hancock
Sovereign Balanced Fund after contingent deferred sales charge and is equal to
$11,810 as of June 30, 1995.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON 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:
Common and preferred stocks (cost - $77,255,527) ...... $ 87,499,525
Corporate bonds (cost - $37,863,271) .................. 37,576,548
United States government and agencies obligations
(cost - $15,507,014) ................................ 15,826,897
Canadian government obligations (cost - $838,525) ..... 898,582
Joint repurchase agreement (cost - $4,950,000) ........ 4,950,000
Corporate savings account ............................. 379
-------------
146,751,931
Receivable for shares sold .............................. 52,452
Receivable for investments sold ......................... 1,780,561
Interest receivable ..................................... 1,316,980
Dividends receivable .................................... 185,404
Deferred organization expenses - Note A ................. 53,934
-------------
Total Assets ......................... 150,141,262
-----------------------------------------------------------
LIABILITIES:
Payable for shares repurchased .......................... 25,124
Payable for investments purchased ....................... 1,757,276
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ................................... 120,416
Accounts payable and accrued expenses ................... 30,465
-------------
Total Liabilities .................... 1,933,281
-----------------------------------------------------------
NET ASSETS:
Capital paid-in ......................................... 139,917,038
Accumulated net realized loss on investments ............ (2,043,191)
Net unrealized appreciation of investments .............. 10,337,215
Distributions in excess of net investment income ........ (3,081)
-------------
Net Assets ........................... $148,207,981
===========================================================
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 - $65,342,855/6,001,727 ......................... $ 10.89
===============================================================================
Class B - $82,865,126/7,611,509 ......................... $ 10.89
===============================================================================
MAXIMUM OFFERING PRICE *
Class - A ($10.89 x 105.26%) ............................ $ 11.46
===============================================================================
<FN>
* On a single retail sale of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</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 .................................................. $ 2,868,876
Dividends (net of foreign withholding taxes of $4,939) .... 1,156,333
------------
4,025,209
------------
Expenses:
Investment management fee - Note B ...................... 432,782
Distribution/service fee - Note B
Class A ................................................ 95,245
Class B ................................................ 393,718
Transfer agent fee - Note B
Class A ................................................ 79,577
Class B ................................................ 97,093
Custodian fee ........................................... 27,194
Auditing fee ............................................ 20,099
Printing ................................................ 15,269
Miscellaneous ........................................... 12,742
Organization expense .................................... 11,923
Directors' fees ......................................... 9,718
Registration and filing fees ............................ 8,120
Legal fees .............................................. 3,523
------------
Total Expenses ......................... 1,207,003
-----------------------------------------------------------
Net Investment Income .................. 2,818,206
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold ..................... (738,945)
Change in net unrealized appreciation/depreciation
of investments .......................................... 15,391,260
------------
Net Realized and Unrealized
Gain on Investments .................... 14,652,315
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .............. $17,470,521
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ................................................................... $ 2,818,206 $ 6,507,861
Net realized loss on investments sold ................................................... (738,945) (1,231,584)
Change in net unrealized appreciation/depreciation of investments ....................... 15,391,260 (11,093,661)
-------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations ...................... 17,470,521 (5,817,384)
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.2261 and $0.4951 per share, respectively) .............................. (1,366,565) (3,070,175)
Class B - ($0.1912 and $0.4296 per share, respectively) .............................. (1,468,218) (3,424,190)
Distributions from net realized gain on investments sold
Class A - (none and $0.0231 per share, respectively) ................................. -- (140,283)
Class B - (none and $0.0231 per share, respectively) ................................. -- (179,739)
------------- -------------
Total Distributions to Shareholders ................................................. (2,834,783) (6,814,387)
------------- -------------
FROM FUND SHARE TRANSACTIONS -- NET* .................................................... (7,555,702) 12,766,526
------------- -------------
NET ASSETS:
Beginning of period .................................................................... 141,127,945 140,993,190
------------- -------------
End of period (including distributions in excess of net investment income of $3,081
and undistributed net investment income of $13,496 respectively) ..................... $148,207,981 $141,127,945
============= =============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<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...................................................... 315,763 $ 3,291,328 1,345,089 $13,926,996
Shares issued to shareholders in reinvestment of distributions... 121,018 1,291,651 305,566 3,035,107
------- ----------- --------- -----------
436,781 4,582,979 1,650,655 16,962,103
Less shares repurchased.......................................... (730,952) (7,629,932) (1,146,920) (11,691,908)
------- ----------- --------- -----------
Net increase (decrease).......................................... (294,171) $(3,046,953) 503,735 $ 5,270,195
======= =========== ========= ===========
CLASS B
Shares sold...................................................... 353,550 $3,698,379 1,851,509 $19,139,945
Shares issued to shareholders in reinvestment of distributions... 121,834 1,299,695 322,144 3,200,787
------- ----------- --------- -----------
475,384 4,998,074 2,173,653 22,340,732
Less shares repurchased.......................................... (910,111) (9,506,823) (1,454,476) (14,844,401)
------- ----------- --------- -----------
Net increase (decrease).......................................... (434,727) $(4,508,749) 719,177 $ 7,496,331
======= =========== ========= ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
Financial Statements
John Hancock Funds - Sovereign Balanced 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 YEAR ENDED DECEMBER 31, FOR THE PERIOD
JUNE 30, 1995 ----------------------- OCTOBER 5, 1992 TO
(UNAUDITED) 1994 1993 DECEMBER 31, 1992(a)(c)
--------- -------- ------- -----------------------
<S> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................ $ 9.84 $ 10.74 $ 10.19 $ 10.00
------- ------- ------- -------
Net Investment Income ........................................... 0.23 0.50 0.46 0.04(b)
Net Realized and Unrealized Gain (Loss) on Investments .......... 1.05 (0.88) 0.68 0.20
------- ------- ------- -------
Total from Investment Operations ............................. 1.28 (0.38) 1.14 0.24
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ........................... (0.23) (0.50) (0.45) (0.05)
Distributions from Net Realized Gain on Investments Sold ....... -- (0.02) (0.14) --
------- ------- ------- -------
Total Distributions .......................................... (0.23) (0.52) (0.59) (0.05)
------- ------- ------- -------
Net Asset Value, End of Period .................................. $ 10.89 $ 9.84 $ 10.74 $ 10.19
======= ======= ======= =======
Total Investment Return at Net Asset Value ...................... 13.03%(d) (3.51%) 11.38% 2.37%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ....................... $65,343 $61,952 $62,218 $ 5,796
Ratio of Expenses to Average Net Assets ......................... 1.30%* 1.23% 1.45% 2.79%*(b)
Ratio of Net Investment Income to Average Net Assets ............ 4.28%* 4.89% 4.44% 3.93%*(b)
Portfolio Turnover Rate ......................................... 24% 78% 85% 0%
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................ $ 9.84 $ 10.75 $ 10.20 $ 10.00
------- ------- ------- -------
Net Investment Income ........................................... 0.19 0.43 0.37 0.03(b)
Net Realized and Unrealized Gain (Loss) on Investments .......... 1.05 (0.89) 0.70 0.20
------- ------- ------- -------
Total from Investment Operations ............................. 1.24 (0.46) 1.07 0.23
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ........................... (0.19) (0.43) (0.38) (0.03)
Distributions from Net Realized Gain on Investments Sold ....... -- (0.02) (0.14) --
------- ------- ------- -------
Total Distributions .......................................... (0.19) (0.45) (0.52) (0.03)
------- ------- ------- -------
Net Asset Value, End of Period .................................. $ 10.89 $ 9.84 $ 10.75 $ 10.20
======= ======= ======= =======
Total Investment Return at Net Asset Value ...................... 12.66%(d) (4.22%) 10.63% 2.29%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ....................... $82,865 $79,176 $78,775 $14,311
Ratio of Expenses to Average Net Assets ......................... 1.97%* 1.87% 2.10% 3.51%*(b)
Ratio of Net Investment Income to Average Net Assets ............ 3.62%* 4.25% 4.01% 3.21%*(b)
Portfolio Turnover Rate ......................................... 24% 78% 85% 0%
<FN>
* On an annualized basis.
(a) Fund commenced operations on October 5, 1992.
(b) Reflects expense limitation in effect during the period indicated (see note
B). As a result of such limitation, expenses for the period from October 5,
1992 to December 31, 1992 for Class A and Class B reflect a reduction of
$0.0016 and $0.0012 per share, respectively. Absent of such limitation the
ratio of expenses to average net assets would have been 2.94% and 3.66%,
respectively, and the ratio of net investment income to average net assets
would have been 3.78% and 3.06%, respectively. Without the reimbursement,
total investment return would have been lower.
(c) This period is covered by the report of other independent auditors (not
included herein).
(d) Not annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
SOVEREIGN BALANCED FUND ON JUNE 30, 1995. IT'S DIVIDED INTO SIX MAIN CATEGORIES:
COMMON STOCKS, PREFERRED STOCKS, CORPORATE BONDS, UNITED STATES GOVERNMENT AND
AGENCIES OBLIGATIONS, CANADIAN GOVERNMENT OBLIGATIONS AND SHORT-TERM
INVESTMENTS. THE INVESTMENTS ARE FURTHER BROKEN DOWN BY INDUSTRY GROUPS.
SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE LISTED
LAST.
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------------
<S> <C> <C>
COMMON STOCKS (57.57%)
ADVERTISING (1.77%)
70,000* Interpublic Group of Cos., Inc. (The) @ 37 1/2............................... $ 2,625,000
One of the largest advertising agencies in the world ------------
Earnings P/S........$ .62, .75, .91, 1.05, 1.19, 1.17, 1.32, 1.39, 1.69, 1.89 13.18%
Dividends P/S..............$ .18, .20, .22, .26, .32, .37, .41, .45, .49, .55 13.21%
Price/Earnings Ratio.....................................................19.1
BANKS (3.13%)
20,000* Compass Bancshares Inc. @ 28 7/8............................................. 577,500
Bank holding company
Earnings P/S.........$ .87, .98, .86, 1.20, 1.23, 1.56, 1.80, 2.01, 2.37 2.67 13.26%
Dividends P/S...............$ .34, .39, .44, .47, .51, .53, .59, .67 .76, .92 11.69%
Price/Earnings Ratio.....................................................11.9
40,000* First Union Corp. @ 45 1/4................................................... 1,810,000
North Carolina-based bank holding company
Earnings P/S.....$ 2.57, 2.55, 2.76, 2.40, 2.52, 2.52, 2.37, 2.92, 4.83, 5.03 7.74%
Dividends P/S........$ .58, .65, .77, .86, 1.00, 1.08, 1.12, 1.28, 1.50, 1.72 12.83%
Price/Earnings Ratio......................................................9.4
42,000 NationsBank Corp. @ 53 5/8................................................... 2,252,250
Largest superregional bank in the Southeast
Earnings P/S......$ 2.51, 2.01, 2.87, 4.44, 2.61, .76, 1.39, 4.42, 5.42, 6.19 10.54%
Dividends P/S........$ .66, .78, .86, .94, 1.10, 1.42, 1.48, 1.51, 1.64, 1.88 12.33%
Price/Earnings Ratio......................................................8.9
-----------
4,639,750
-----------
BASIC INDUSTRIES (1.75%)
105,000 Sonoco Products Co. @ 24 3/4................................................. 2,598,750
Containers, paper products and packaging -----------
Earnings P/S.........$ .63, .77, 1.10, 1.18, 1.21, .53, 1.04, .94, 1.24, 1.44 9.62%
Dividends P/S..............$ .16, .18, .21, .30, .39, .43, .44, .48, .50, .53 14.23%
Price/Earnings Ratio.....................................................17.7
CHEMICALS (6.05%)
40,000 Air Products And Chemicals @ 55 3/4.......................................... 2,230,000
Producer of industrial and specialty chemicals and gases
Earnings P/S.....$ 1.17, 1.42, 1.95, 1.93, 2.08, 2.23, 2.45, 1.76, 2.05, 2.84 10.35%
Dividends P/S..............$ .32, .39, .45, .55, .63, .69, .75, .83, .89, .95 12.85%
Price/Earnings Ratio.....................................................20.7
100,000 Crompton & Knowles Corp. @ 14 1/8............................................ 1,412,500
Produces and markets speciality chemicals
Earnings P/S..............$ .17, .24, .36, .50, .61, .73, .64, .72, .91, 1.02 22.02%
Dividends P/S...........$ .075. .079, .084, .11, .15, .20, .25, .31, .38, .46 22.32%
Price/Earnings Ratio.....................................................13.9
35,000* E.I. du Pont de Nemours and Co. @ 68 3/4..................................... 2,406,250
Nations largest chemical manufacturer
Earnings P/S.....$ 2.12, 2.46, 3.03, 3.53, 3.40, 3.38, 1.84, 1.52, 1.04, 4.46 8.61%
Dividends P/S....$ 1.00, 1.02, 1.10, 1.23, 1.45, 1.62, 1.68, 1.74, 1.76, 1.82 6.88%
Price/Earnings Ratio.....................................................16.2
68,000 PPG Industries, Inc. @ 43.................................................... 2,924,000
Manufacturer of specialty chemicals, coatings and resins
Earnings P/S....$ 1.33, 1.60, 2.13, 2.09, 2.22, .1.74, 1.22, 1.66, 1.45, 2.92 9.13%
Dividends P/S............$ .41, .47, .56, .64, .74, .82, .86, .94, 1.04, 1.12 11.81%
Price/Earnings Ratio.....................................................15.6
------------
8,972,750
------------
COMMERCIAL SERVICES (1.19%)
60,000* Sysco Corp. @ 29 1/2......................................................... 1,770,000
Distributes foodservice products to restaurants, hotels, etc. ------------
Earnings P/S............$ .34, .35, .45, .60, .73, .81, .90, 1.00, 1.16, 1.33 16.36%
Dividends P/S..............$ .05, .06, .07, .08, .09, .10, .14, .22, .28, .36 24.52%
Price/Earnings Ratio.....................................................22.4
CONSUMER CYCLICALS & SERVICES (1.81%)
50,000 VF Corp. @ 53 3/4............................................................ 2,687,500
International apparel manufacturer ------------
Earnings P/S.....$ 2.05, 2.65, 2.55, 2.72, 1.33, 1.44, 3.00, 4.07, 3.78, 4.28 8.52%
Dividends P/S.........$ .58, .66, .75, .85, .91, 1.00, 1.02, 1.11, 1.22, 1.30 9.38%
Price/Earnings Ratio.....................................................12.9
CONSUMER DURABLES (0.89%)
30,000 Leggett & Platt, Inc. @ 44................................................... 1,320,000
Produces intermediate products for the home furnishings industry ------------
Earnings P/S........$ .95, 1.11, 1.09, 1.29, .84, .70, 1.28, 1.74, 2.24, 2.93 13.33%
Dividends P/S..............$ .17, .20, .28, .32, .37, .42, .43, .46, .54, .62 15.46%
Price/Earnings Ratio.....................................................15.8
CONSUMER NON-DURABLES (6.78%)
25,000* Anheuser-Busch Cos., Inc. @ 56 7/8........................................... 1,421,875
Nation's largest brewer
Earnings P/S.....$ 1.69, 2.04, 2.45, 2.68, 2.95, 3.02, 3.31, 3.43, 2.22, 3.98 9.98%
Dividends P/S..........$ .37, .44, .54, .66, .80, .94, 1.06, 1.20, 1.36, 1.52 16.99%
Price/Earnings Ratio.....................................................13.9
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------------
<S> <C> <C>
COMMON STOCKS
CONSUMER NON-DURABLES (CONTINUED)
65,000 PepsiCo, Inc. @ 45 5/8........................................................ $ 2,965,625
Second largest soft drink company
Earnings P/S.........$ .58, .76, .97, 1.13, 1.35, 1.40, 1.38, 1.64, 1.99, 2.27 16.37%
Dividends P/S...............$ .19, .21, .22, .27, .32, .38, .46, .51, .61, .70 15.59%
Price/Earnings Ratio......................................................19.4
47,000 Procter & Gamble Co. (The) @ 71 7/8........................................... 3,378,125
Leading producer of household consumer products
Earnings P/S........$ 1.04, .46, 1.48, 1.74, 2.25, 2.43, 2.57, 2.54, .70, 2.50 10.23%
Dividends P/S...........$ .65, .67, .68, .70, .83, .93, 1.00, 1.08, 1.17, 1.32 8.18%
Price/Earnings Ratio......................................................27.7
80,000* Sara Lee Corp. @ 28 1/2....................................................... 2,280,000
Manufacturer of brand name packaged foods and consumer products
Earnings P/S............$ .51, .59, .71, .88, .94, 1.03, 1.49, 1.36, 1.47, .52 0.21%
Dividends P/S...............$ .20, .25, .30, .36, .42, .47, .50, .58, .64, .68 14.56%
Price/Earnings Ratio......................................................53.9
-----------
10,045,625
-----------
DIVERSIFIED OPERATIONS (5.02%)
36,800 Alco Standard Corp. @ 79 7/8.................................................. 2,939,400
Distributor of office and paper products
Earnings P/S.......$ 1.28, 1.68, 2.29, 3.91, 2.56, 1.62, 2.07, 2.36, .10, 1.48 1.62%
Dividends P/S..............$ .61, .63, .65, .70, .78, .85, .89, .93, .97, 1.01 5.76%
Price/Earnings Ratio......................................................53.6
50,000* Corning Inc. @ 32 3/4......................................................... 1,637,500
Worldwide technology and healthcare services company
Earnings P/S......$ .93, 1.03, 1.63, 1.40, 1.54, 1.55, 1.75, 1.32, (.07), 1.39 4.56%
Dividends P/S...............$ .33, .35, .36, .38, .41, .46, .53, .62, .68, .69 8.54%
Price/Earnings Ratio......................................................25.9
50,000 Minnesota Mining and Manufacturing Co. @ 57 1/4............................... 2,862,500
Diversified manufacturer of industrial, commercial, health care and
consumer products
Earnings P/S......$ 1.70, 2.01, 2.55, 2.80, 2.96, 2.89, 2.65, 2.88, 2.87, 3.31 7.68%
Dividends P/S........$ .88, .90, .93, 1.06, 1.30, 1.46, 1.56, 1.60, 1.66, 1.76 8.00%
Price/Earnings Ratio......................................................17.8
-----------
7,439,400
-----------
ELECTRICAL EQUIPMENT (6.81%)
34,000 Emerson Electric Co. @ 71 1/2................................................. 2,431,000
Produces and sells electrical/electronic products and systems
Earnings P/S......$ 1.87, 2.00, 2.31, 2.63, 2.75, 2.79, 2.88, 3.05, 3.81, 3.89 8.47%
Dividends P/S........$ .88, .93, .98, 1.03, 1.16, 1.28, 1.34, 1.40, 1.47, 1.60 6.86%
Price/Earnings Ratio......................................................19.3
54,000 General Electric Co. @ 56 3/8................................................. 3,044,250
Dominant force in home appliances, electrical power and financial services
Earnings P/S......$ 1.37, 1.60, 1.88, 2.18, 2.43, 2.48, 2.54, 2.55, 2.57, 3.56 11.19%
Dividends P/S...........$ .55, .58, .65, .70, .82, .94, 1.02, 1.12, 1.26, 1.44 11.28%
Price/Earnings Ratio......................................................16.8
40,000 Hubbell Inc. Class B @ 56 1/2................................................ 2,260,000
Manufacturer of electrical and electronic products
Earnings P/S.....$ 1.49, 1.69, 1.94, 2.25, 2.52, 2.74, 2.66, 2.83, 2.00, 3.24 9.01%
Dividends P/S........$ .58, .64, .75, .85, 1.07, 1.25, 1.40, 1.51, 1.55, 1.62 12.08%
Price/Earnings Ratio.....................................................16.4
40,000* W.W. Grainger, Inc. @ 58 1/4................................................. 2,350,000
Leading distributor of electrical equipment
Earnings P/S.....$ 1.24, 1.48, 1.57, 1.96, 2.19, 2.31, 2.38, 2.70, 3.04, 2.61 8.62%
Dividends P/S..............$ .33, .36, .39, .43, .50, .57, .61, .65, .71, .78 10.02%
Price/Earnings Ratio.....................................................23.2
------------
10,085,250
------------
ENERGY (2.80%)
30,000 Exxon Corp. @ 70 5/8......................................................... 2,118,750
Major factor in the crude oil, natural gas and chemical industry
Earnings P/S.....$ 3.71, 3.43, 3.95, 2.32, 3.96, 4.73, 3.73, 3.70, 4.19, 4.48 2.11%
Dividends P/S....$ 1.73, 1.80, 1.90, 2.15, 2.30, 2.47, 2.68, 2.83, 2.88, 2.91 5.94%
Price/Earnings Ratio.....................................................15.9
70,000 Questar Corp. @ 28 3/4....................................................... 2,012,500
Diversified holding company operating in the natural gas and property
management businesses
Earnings P/S......$ 1.60, 1.47, .96, 1.16, 1.27, 1.46, 1.63, 1.85, 1.56, 1.99 2.45%
Dividends P/S..........$ .82, .87, .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13 3.62%
Price/Earnings Ratio.....................................................13.8
------------
4,131,250
------------
FINANCIAL (1.19%)
120,000 United Dominion Realty Trust @ 14 3/4....................................... . 1,770,000
Portfolio of income-producing real estate in the southeastern U.S. ------------
Earnings P/S...............$ .14, .10, .08, .13, .28, .21, .15, .19, .28, .52 15.69%
Dividends P/S..............$ .47, .48, .51, .56, .61, .62, .63, .66, .70, .78 5.78%
Price/Earnings Ratio.....................................................27.6
HEALTHCARE (4.12%)
84,000 Abbott Laboratories @ 40 1/2................................................. 3,402,000
Major pharmaceutical and healthcare firm
Earnings P/S..........$ .49, .58, .70, .84, .97, 1.11, 1.15, 1.32, 1.53, 1.73 15.04%
Dividends P/S..............$ .17, .20, .24, .29, .34, .40, .48, .58, .66, .74 17.75%
Price/Earnings Ratio.....................................................19.6
40,000 Johnson & Johnson @ 67 5/8................................................... 2,705,000
Major producer of prescription/non-prescription drugs, toiletries,
and medical instruments and supplies
Earnings P/S......$ .45, 1.18, 1.41, 1.60, 1.72, 1.98, 2.25, 2.55, 2.82, 3.29 24.73%
Dividends P/S............$ .32, .34, .40, .48, .56, .66, .77, .89, 1.01, 1.13 15.04%
Price/Earnings Ratio.....................................................19.8
------------
6,107,000
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES RATE VALUE
- --------- -------- ------------
<S> <C> <C>
COMMON STOCKS
INSURANCE (2.19%)
21,000 Chubb Corp. (The) @ 80 1/8................................................. $ 1,682,625
Broadly based property/casualty insurer
Earnings P/S...$ 3.53, 3.97, 4.27, 4.91, 6.07, 6.29, 6.44, 6.98, 3.10, 6.78 7.52%
Dividends P/S.....$ .76, .80, .89, 1.08, 1.16, 1.32, 1.48, 1.60, 1.72, 1.84 10.32%
Price/Earnings Ratio...................................................11.9
41,000 Reliastar Financial Corp. @ 38 1/4......................................... 1,568,250
Specialities in life and health insurance and annuity businesses
Earnings P/S....$2.29, 1.86, 1.58, 2.07, 1.99, 1.96, 1.67, 2.26, 2.83, 3.48 4.75%
Dividends P/S............$ .40, .43, .47, .57, .59, .65, .69, .73, .79, .88 9.15%
Price/Earnings Ratio...................................................10.8
------------
3,250,875
------------
POLLUTION CONTROL (1.44%)
75,000 WMX Technologies, Inc. @ 28 3/8............................................ 2,128,125
Nation's largest provider of waste management services ------------
Earnings P/S......$ .88, .73, 1.03, 1.22, 1.49, 1.52, 1.28, 1.88, .87, 1.49 6.02%
Dividends P/S............$ .11, .13, .17, .21, .27, .34, .40, .48, .56, .60 20.74%
Price/Earnings Ratio...................................................20.6
RETAIL (4.46%)
61,000 Hannaford Brothers Co. @ 28 1/2............................................ 1,738,500
Operates chains of retail food and drug stores
Earnings P/S........$ .44, .51, .65, .77, .96, 1.07, 1.08, 1.21, 1.33, 1.51 14.68%
Dividends P/S............$ .12, .13, .14, .16, .18, .22, .26, .30, .34, .38 13.66%
Price/Earnings Ratio...................................................16.8
82,000* Pep Boys - Manny, Moe & Jack (The) @ 26 3/4................................ 2,193,500
Retailer of automotive parts and accessories
Earnings P/S...........$ .52, .62, .76, .63, .66, .63, .73, .93, 1.13, 1.30 10.71%
Dividends P/S............$ .06, .07, .08, .09, .11, .12, .13, .14, .15, .17 12.26%
Price/Earnings Ratio...................................................22.3
100,000 Wal-Mart Stores, Inc. @ 26 3/4............................................. 2,675,000
Operates chain of discount department store
Earnings P/S...........$ .20, .28, .37, .48, .50, .59, .73, .90, 1.05, 1.20 22.02%
Dividends P/S..........$ .018, .021, .03, .04, .06, .07, .09, .11, .13, .17 28.33%
Price/Earnings Ratio...................................................21.9
------------
6,607,000
------------
TECHNOLOGY (1.27%)
30,000* Automatic Data Processing, Inc. @ 62 7/8................................... 1,886,250
Largest independent computing services firm in the U.S. ------------
Earnings P/S.....$ .70, .84, 1.07, 1.23, 1.44, 1.58, 1.79, 2.02, 2.29, 2.67 16.03%
Dividends P/S............$ .17, .19, .21, .25, .29, .34, .39, .45, .51, .58 14.60%
Price/Earnings Ratio.....................................................24
TELECOMMUNICATIONS (3.14%)
65,000 ALLTEL Corp. @ 25 3/8...................................................... 1,649,375
One of the country's largest telephone systems
Earnings P/S.....$ .77, .90, 1.04, 1.13, 1.18, 1.18, 1.10, 1.29, 1.43, 1.46 7.36%
Dividends P/S............$ .41, .44, .45, .51, .57, .64, .70, .74, .80, .88 8.86%
Price/Earnings Ratio...................................................17.7
125,000 Frontier Corp. @ 24........................................................ $ 3,000,000
Provides telephone service to city of Rochester NY and outlaying areas
Earnings P/S........$ .89, .93, 1.06, .99, .86, .87, 1.20, 1.09, 1.26, 1.56 6.43%
Dividends P/S............$ .61, .64, .66, .68, .71, .73, .75, .77, .79, .81 3.20%
Price/Earnings Ratio...................................................15.7
------------
4,649,375
------------
TOBACCO (1.76%)
35,000 Philip Morris Cos. Inc. @ 74 3/8........................................... 2,603,125
Global tobacco, brewing and food company ------------
Earnings P/S...$ 1.55, 1.94, 2.22, 3.18, 3.83, 3.98, 4.45, 5.63, 4.02, 5.71 15.59%
Dividends P/S.....$ .50, .62, .79, 1.01, 1.25, 1.55, 1.91, 2.35, 2.60, 3.03 22.16%
Price/Earnings Ratio...................................................13.4
TOTAL COMMON STOCKS
(Cost $75,526,152)........................................... 85,317,025
------------
PREFERRED STOCKS (1.47%)
45,000 American Express Co. "DECS" @ 48 1/2....................................... 2,182,500
------------
TOTAL PREFERRED STOCKS
(Cost $1,729,375)........................................... 2,182,500
------------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
(000'S
OMITTED)
- ---------
<S> <C>
CORPORATE BONDS (25.35%)
$ 250 Abbey National First Capital, Sr Sub
Note 8.20%, 10-15-04 @ 108.499........................... 271,248
1,000 Banc One Credit Card Corp., Sr Sub
Note 7.55%, 12-15-99 @ 102.562........................... 1,025,620
1,000 Bank of Scotland, Sub Note 8.85%,
11-01-06 @ 112.1973...................................... 1,121,973
1,000 Banque Paribas New York Corp., Sub
Note 6.875%, 03-01-09 @ 94.416........................... 944,160
1,000 Barclays North American Capital, Deb.
9.75%, 05-15-21 @ 114.559................................ 1,145,590
1,100 CTC Mansfield Funding Corp., Secured
Lease Oblgation Bonds 11.125%, 09-30-16
@ 101.794................................................ 1,119,734
1,653 Coastal Corp.(The), Sr Deb 11.75%,
06-15-06 @ 108.000....................................... 1,785,240
1,300 GTE Corp., Deb 10.25%, 11-01-20
@ 116.840................................................ 1,518,920
1,500 Georgia-Pacific Corp., Deb 9.75%, 01-15-18
@ 104.960................................................ 1,574,400
1,500 Hydro-Quebec Corp. Deb Ser HS 9.40%,
02-01-21 @ 117.863....................................... 1,767,945
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
(000'S MARKET
OMITTED) VALUE
- --------- ------
<S> <C>
CORPORATE BONDS
$ 1,800 Landeskreditbank Baden-Wurttemberg,
Sub Note 7.625%, 02-01-23 @ 105.724................ $ 1,903,032
1,000 Magna Copper Company, Sub Note 12.00%,
12-15-01 @ 110.500................................. 1,105,000
600 Mass Mutual Life, Sub Note 7.625%,
11-15-23 @ 97.091(R)............................... 582,546
2,000 Medusa Corp. Convertible Sub Note 6.00%,
11-15-03 @ 98.000.................................. 1,960,000
1,000 Midland American Capital Corp., Gtd
Note 12.75%, 11-15-03 @ 118.256.................... 1,182,560
794 Midland Funding Corp. Sr Sec Lease
Oblig 10.33%, 07-23-02 @ 103.500................... 821,662
670 National Westminster Bancorp,
Deb 12.125%, 11-15-02 @ 112.069.................... 750,862
750 New York Life 7.50%, 12-15-23
@ 95.366(R)........................................ 715,245
1,950 NWA Inc., Sub Note 8.625%, 08-01-96
@ 100.500.......................................... 1,959,750
400 Occidental Petroleum Corp., Sr Deb 11.75%,
03-15-11 @ 108.095................................. 432,380
750 RBSG Capital Corp., Gtd Cap Note 10.125%,
03-01-04 @ 119.539................................. 896,543
400 RJR Nabisco Capital Corp., Sr Sub Deb
8.75%, 04-15-04 @ 102.644.......................... 410,576
500 Scandinavian Airlines System, Deb 9.125%,
07/20/99 @ 107.405................................. 537,025
1,100 Security Pacific Corp., Sub Note 11.50%,
11-15-00 @ 120.711................................. 1,327,821
1,000 Standard Credit Card Master Trust, Credit
Card Participation Certificates, 7.25%,
04/07/08 @ 102.687................................. 1,026,870
500 Stone Container, Sub Note 9.875%,
02-01-01 @ 99.125.................................. 495,625
1,000 Thrifty Payless, Inc., Sr. Sub Note, 12.25%,
04/15/01 @ 102.750................................. 1,027,500
1,900 TKR Cable 1, Inc. Deb 10.50%, 10-30-07
@ 114.576.......................................... 2,176,944
1,450 Unisys Corp., Credit Sensitive Notes 13.50%,
07-01-97 @ 110.500................................. 1,602,250
260 United Air Lines Inc., Deb 10.25%, 07-15-21
@ 113.607.......................................... 295,378
1,594 USAir Inc., Deb 10.55%, 01-15-05
@ 86.750........................................... 1,382,795
500 Viacom International, Sub Deb. 8.00%,
07-07-06 @ 97.375.................................. 486,875
1,050* Weirton Steel Corporation, Sr. Notes
10.75%, 06-01-05 @ 94.500.......................... 992,250
1,100 Westpac Banking Corp., Sub Deb 9.125%,
08-15-01 @ 111.839................................. 1,230,229
------------
TOTAL CORPORATE BONDS
(Cost $37,863,271) 37,576,548
------------
UNITED STATES GOVERNMENT
AND AGENCIES
OBLIGATIONS (10.68%)
3,000 Federal National Mort. Assn. 8.50%,
02-01-05 @ 107.693................................. 3,230,790
2,676 Federal National Mort. Assn. 7.50%,
08-01-08 @ 101.656................................. 2,719,872
313 Federal National Mort. Assn. REMIC 9.80%,
05-25-19 @ 102.250................................. 320,024
1,790 Financing Corp., Bond 9.65%, 11-02-18
@ 129.266.......................................... 2,313,861
227 Government National Mort. Assn. 9.00%,
04-15-21 @ 105.031................................. 238,735
1,768 United States Treasury, Bond 8.875%,
08-15-17 @ 124.500................................. 2,201,160
500 United States Treasury, Bond 7.125%,
02-15-23 @ 105.359................................. 526,795
1,000 United States Treasury, Note 9.375%,
04-15-96 @ 102.766................................. 1,027,660
2,900 United States Treasury, Note 8.75%,
08-15-00 @ 112.000................................. 3,248,000
------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $15,507,014) 15,826,897
------------
CANADIAN GOVERNMENT
OBLIGATIONS (0.61%)
750 Nova Scotia, Province of, Deb 9.50%,
02-01-19 @ 119.811................................. 898,582
------------
TOTAL CANADIAN GOVERNMENT
OBLIGATIONS
(Cost $838,525) 898,582
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
(000's INTEREST MARKET
OMITTED) RATE VALUE
- --------- -------- ------
<S> <C> <C>
SHORT-TERM
INVESTMENTS (3.34%)
JOINT REPURCHASE AGREEMENT
$ 4,950 Investment in a joint repurchase
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 ................ 6.18% $ 4,950,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% .................... 379
------------
TOTAL SHORT-TERM INVESTMENTS 4,950,379
------------
TOTAL INVESTMENTS (99.02%) $146,751,931
====== ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio
for the six months ended June 30, 1995.
(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 $1,297,791 as of June 30, 1995.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Sovereign Investors Fund, Inc. (the "Corporation"), is an open-end
investment management company, registered under the Investment Company Act of
1940. The Corporation consists of two series portfolios: John Hancock Sovereign
Balanced Fund (the "Fund") and John Hancock Sovereign Investors Fund.
The Directors have authorized the issuance of two classes 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 Directors, 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 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 Directors. 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. For federal income tax purposes, the Fund has $340,120 of capital loss
carryforward available, to the extent provided by regulations, to offset future
net realized capital gains. To the extent that 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 $938,657 attributable to
security transactions occurring after October 31, 1994 are treated as arising on
the first day (January 1, 1995) of the Fund's next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations. 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.
EXPENSES The majority of the expenses of the Corporation 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.
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 are calculated
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
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 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.
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.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent on
an annual basis, to the sum of 0.60% of the Fund's average daily net asset
value. The Adviser has entered into a service agreement with Sovereign Asset
Management Corporation ("SAMCORP") an affiliate of the Adviser, to provide
certain investment research and portfolio management services to the Fund, for
which the Adviser pays SAMCORP 40% of its management fee with respect to equity
securities in the Funds' portfolio.
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, 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 $86,769 with regard to sales of
Class A shares. Out of this amount, $13,542 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $13,405 was paid
as sales commissions to unrelated broker-dealers and $59,822 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"). 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, all of which are broker-dealers.
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, 1995
contingent deferred sales charges paid to JH Funds amounted to $157,842.
In addition, to compensate 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 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. Accordingly, the 12b-1 fees for Class B
shares were reduced during a portion of 1995.
The Fund has a transfer agent agreement with John Hancock Investor Services,
Corp. ("Investor Services"), a wholly-owned
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
subsidiary of John Hancock Funds. The Fund pays transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
Mr. Edward J. Boudreau, Jr. is director and officer of the Adviser as well as
Director of the Fund. The compensation of unaffiliated Directors is borne by the
Fund. The Adviser owns 11,291 Class A shares of beneficial interest of 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 with regard to
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 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 $28,922,158 and $30,117,323, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $4,608,156 and $9,376,383, respectively.
The cost of investments owned at June 30, 1995 (excluding the corporate
savings account), for Federal income tax purposes was $136,439,743. Gross
unrealized appreciation and depreciation of investments aggregated $12,522,865
and $2,211,056, respectively, resulting in net unrealized appreciation of
$10,311,809.
18
<PAGE> 19
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
HISTORICAL DATA (Unaudited)
The table below shows the record of the Fund since inception in 1992.
- --------------------------------------------------------------------------------
<CAPTION>
CLASS A PER SHARE
YEAR --------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C>
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* 6,001,727 0.2261 10.89 --
</TABLE>
<TABLE>
<CAPTION>
CLASS B PER SHARE
YEAR --------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C>
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* 7,611,509 0.1912 10.89 --
<FN>
(1) For the period October 5, 1992 (commencement of operations) to
December 31, 1992.
* For the period ended June 30, 1995.
</TABLE>
<TABLE>
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, 1995
- --------------------------------------------------------------------------------
<CAPTION>
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
<S> <C>
Abbott Labortories.......................... 10.53%
Air Products................................ 6.1
Alco Standard............................... 4.0
ALLTEL Corp................................. 9.1
Anheuser Busch.............................. 10.0
Automatic Data Processing, Inc.............. 16.7
Chubb....................................... 6.5
Compass Bancshares.......................... 21.7
Corning, Inc................................ 5.9
Crompton & Knowles........................... 12.5
E.I. DuPont De Nemours & Co., Inc........... 10.6
Emerson Electric............................ 10.3
Exxon....................................... 4.2
First Union Corp............................ 13.0
Frontier Corp............................... 2.5
General Electric Co......................... 13.9
Hannaford Brothers.......................... 10.6
Hubbell, Inc., Cl. B........................ 9.3
Interpublic Group........................... 10.7
Johnson & Johnson........................... 13.8
Leggett & Platt Inc.......................... 12.5
Minnesota Mining & Manufacturing............. 6.8
NationsBank................................. 8.7
Pep Boys (The).............................. 11.8
PepsiCo, Inc................................ 11.1
Phillip Morris.............................. 19.6
PPG Industries.............................. 3.4
Procter & Gamble............................ 14.3
Questar..................................... 3.6
Reliastar Financial......................... 11.1
Sara Lee.................................... 6.3
Sonoco Products............................. 18.2
Sysco....................................... 22.2
United Dominion Realty...................... 15.4
V F Corp.................................... 6.3
W. W. Grainger, Inc......................... 15.0
Wal-Mart.................................... 17.6
WMX Technologies, Inc. ..................... 15.4
-----
The average dividend increase for this
group was ................................ 11.08%
=====
</TABLE>
19
<PAGE> 20
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
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- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Sovereign Balanced Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
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