<PAGE> 1
John Hancock Funds
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SOVEREIGN
INVESTORS FUND
ANNUAL REPORT
December 31, 1994
<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 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
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
CHAIRMAN'S MESSAGE
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
DEAR FELLOW SHAREHOLDERS:
With 1995 upon us, New Year's resolutions abound. Dieting and saving money --
Americans' long-time favorites -- are sure to top the list once again. And
once again, they'll probably be the most difficult to keep. This year,
however, Congress may give savers an additional incentive to stick to their
guns.
Both the Republicans and Democrats want to revive Individual
Retirement Accounts (IRAs). In an effort to encourage savings, IRAs were made
available to all working Americans in 1981. Anyone with earned income could
contribute up to $2,000 annually. The contributions were fully tax-deductible,
and the earnings weren't taxed until withdrawal. IRAs became the most
successful savings program in the U.S., drawing in more than $250 billion and
13 million new participants by 1985.
Sweeping tax reforms in 1986, however, changed all that. As it stands
now, the full deduction only applies to individuals who earn less than
$25,000, married couples who earn less than $40,000 and people without
employer-sponsored retirement plans. The result of this congressional
tinkering: the number of IRA contributors declined dramatically, from 16.2
million in 1985 to 4.2 million in 1992.
Legislators are now taking a closer look at expanding the
accessibility of IRAs once again. Several proposals are on the table: (1) the
Republicans' "Contract with America" includes the American Dream Savings
Account, a type of IRA; (2) President Clinton has proposed expanding
eligibility by raising income limits; and (3) several congressional
representatives have introduced legislation to restore the universal
availability of a fully tax-deductible IRA.
We enthusiastically support restoring IRAs to their original luster.
Not only will it provide a tax break to middle-income Americans, but it will
go a long way toward raising the nation's dangerously low personal savings
rate, which is the lowest of any major industrialized country. There's an
increasing awareness that Social Security and pension plans will no longer
provide for the retirement needs of middle-income Americans. Increasing IRA
accessibility for more working individuals and families is one of the most
sensible ways to help Americans take responsibility for their future financial
needs. We urge you to support the expanded IRA by contacting your congressional
representative or senator.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY JOHN F. SNYDER III FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
SOVEREIGN INVESTORS FUND
Economy gains while stocks suffer; slower growth in
1995 should favor high-quality growth stocks
Traffic on Main Street and Wall Street moved in different directions in
1994. Main Street headed north thanks to an excellent year of strong
employment gains, rising income, increasing consumer confidence and terrific
corporate earnings. Unfortunately, all the good economic news sent Wall
Street south.
[A 2 1/4" x 3 3/4" photo of the portfolio management team at bottom right.
Caption reads: "The Sovereign Investors management team (l-r): Jere Estes,
John Snyder, Tom Weary, and Jim Moorhead."]
Fears that a strong economy would ignite inflation drove interest rates
up and stocks and bonds down. While the Dow Jones Industrial Average and the
Standard & Poor's 500-Stock Index finished the year in slightly positive
territory, those returns masked a substantial correction in the roader market.
More than 80% of all stocks on the New York Stock Exchange declined 20% or more
in 1994. Meanwhile, the bond market experienced its worst decline in more than
50 years. 30-year Treasury bonds dropped nearly 11% while corporate bonds, as
measured by the Lehman Corporate Bond Index, lost 4%.
Against that backdrop, John Hancock Sovereign Investors Fund finished
the year down slightly. For the year ended December 31, 1994, the Fund's Class
A, B and C shares had total returns of -1.85%, -2.04% and -1.57%, respectively,
at net asset value. By comparison, the average growth and income fund had a
total return of -0.94%, according to Lipper Analytical Services.1
SCORECARD REVIEW
Our interest-rate sensitive holdings were among the hardest hit. Bank stocks
- -- which total
[CAPTION]
"...all the good economic news sent Wall Street south."
3
<PAGE> 4
John Hancock Funds - Sovereign Investors Fund
[Chart with heading "Top Five Common Stock Holdings" at top left hand column.
The chart lists five holdings: 1) General Electric 4.1%; 2) Procter & Gamble
2.8%; 3) Pepsico 2.7%; 4) Abbott Laboratories 2.4%; 5) Johnson & Johnson 2.3%.
A footnote below reads: "As a percentage of net assets on December 31, 1994."]
nearly 5% of the Fund's assets -- were our top performers in the first half of
the year, thanks to strong earnings gains and a wave of merger activity. But
concerns about the Fed's rate hikes finally caught up with the group in August.
Fears that rising rates would squeeze net interest margins -- that is, the gap
between deposit rates and lending rates -- drove bank stocks like NationsBank
and First Union down through the end of the year. Similar interest-rate worries
hurt some of our insurance holdings, including Chubb and NWNL Company. In our
view, however, this is more a case of perception than reality. Higher rates may
compress margins somewhat, but other factors, including increased fee income
and stronger loan demand, are likely to keep bank and insurance earnings strong
through 1995.
Our 20% stake in bonds was also hurt by rising interest rates. Because
interest rates and bond prices move in opposite directions, most of our bond
holdings dropped in value.
Our consumer stocks, on the other hand, were the big winners in 1994.
Procter & Gamble, for example, rebounded as investors realized that fears of
brand-name competition were overblown and the company's sales and earnings
were growing nicely. Drug stocks, particularly Johnson & Johnson and Abbott
Laboratories, also had a strong showing, thanks to abating fears of
health-care reform and better-than-expected earnings.
STRATEGY
With a new year upon us, we want to share our thoughts on some of our major
investment themes for 1995. For one, we see significant opportunities in
companies with large and growing overseas exposure. With higher interest
rates, the U.S. economy is likely to slow relative to most major
industrialized and emerging market economies. As a result, the relative
contribution to sales and profits of overseas operations of multinational
companies will rise dramatically. We will continue to look for companies most
likely to benefit from this trend. Current holdings include Procter & Gamble
with 52% of its sales outside the U.S.; Minnesota Mining & Manufacturing with
49%; and Sonoco Products with 21%.
We also believe that high-quality growth stocks will start to look
more attractive to investors in 1995. Attributes of dependability and
sustainability of earnings have been out of fashion for the past couple of
years. Investors have focused on the stronger, yet more volatile, earnings of
cyclical companies. But as a slowing economy clouds earnings projections for
cyclicals, investors will likely shift back to high-quality growth stocks with
more reliable earnings. With 15% earnings
[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 Abbott
Laboratories followed by an up arrow and the phrase "Abating fears of
health-care reform." The second listing is AFLAC followed by an up arrow and
the phrase "Strong sales/favorable currency translations." The third listing
is NationsBank followed by a down arrow and the phrase "Interest-rate worries."
Footnote below reads: "See "Schedule of Investments." Investment holdings are
subject to change."]
[CAPTION]
"Our consumer stocks... were the big winners in 1994."
4
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John Hancock Funds - Sovereign Investors Fund
[Bar chart with heading "Fund Performance" at top left hand column. Under the
heading is the footnote: "For the year ended December 31, 1994." The chart is
scaled in increments of 1% from bottom to top, with 0% at the top and -3% at
the bottom. Within the chart, there are four solid bars. The first represents
the -1.85% total return for John Hancock Sovereign Investors Fund: Class A.
The second represents the -2.04% total return for John Hancock Sovereign
Investors Fund: Class B. The third represents the -1.57% return for John
Hancock Sovereign Investors Fund: Class C. The fourth represents -0.94%
return for the average growth and income fund. The footnote below states:
"Total returns for John Hancock Sovereign Investors Fund are net asset value
with all distributions reinvested. The average growth and income fund is
tracked by Lipper Analytical Services. See following page for historical
performance information."]
growth, Sysco, the world's largest food service company, may not have looked
attractive last year when earnings on the S&P 500 Index were 18% to 19%. But
it certainly will be attractive as the market's earnings drop back to a more
normal level of 8% to 10%. What's more, high-quality growth stocks are
incredibly cheap right now, selling at historic lows relative to the broad
market. As Smith Barney's investment strategist recently said, "Growth is now
Value." We agree wholeheartedly.
SUMMARY
On a more personal note, I recently read The Warren Buffet Way by Robert
Hagstrom. The book gives valuable insights into the investment strategies of
the legendary investor. Buffet advises investors to invest in companies with:
simple and understandable businesses; a dominant market position; management
committed to enhancing shareholder value; consistently rising dividends and
earnings; and favorable long-term prospects.
During my 25 years in the investment business, I have advocated these
very principles. They are the cornerstone of Sovereign's investment philosophy
- -- and our long-term success. Our dividend performers approach of buying
high-quality companies with consistent earnings and dividend growth has stood
the test of time. It's important to realize, however, that no investment style
works consistently every year. Sovereign's 16-year streak of positive total
returns was interrupted in 1994.2 Still, we're confident that Buffet's advice
will ring true and the Sovereign-style companies -- and shareholders -- will be
rewarded over the long haul. As we've said many times before, the keys to
successful investing are discipline and patience. Having experienced the best
of markets and the worst of markets, I can attest to the fact that the lowest
risk and the highest returns are achieved by long-term investors who stay the
course with a sound investment approach.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance would be
lower.
(2) Total returns at net asset value with all distributions reinvested.
[CAPTION]
"...we see significant opportunities in companies
with large and growing overseas exposure."
5
<PAGE> 6
NOTES TO PERFORMANCE INFORMATION
John Hancock Funds - Sovereign Investors Fund
In accordance with the reporting requirements of the Securities and Exchange
Commission, the following data are supplied for the periods ended December
31, 1994 with all distributions reinvested in shares. The average annualized
total returns for Class A shares for the 1-year, 5-year and 10-year periods
were (6.73%), 7.56%, and 12.18%, respectively, and reflect payment of the
maximum sales charges of 5.00%. Total return (not annualized) since inception
in January 3, 1994 for Class B shares was (6.94%) and reflects the applicable
contingent deferred sales charge (maximum contingent deferred sales charge is
5% and declines to 0% over 6 years). The average annualized total returns for
Class C shares for the 1-year period and since inception on May 7, 1993 were
(1.57%) and 2.10%, respectively. All performance data shown represent past
performance and should not be considered indicative of future performance.
Returns and principal values of Fund investments will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost. Performance of Class A and Class B shares is affected by a
12b-1 plan, which commenced on July 1, 1989 and January 3, 1994 respectively.
Class C shares are sold at net asset value to certain institutions and
retirement accounts.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT OVER LIFE OF THE FUND (OR MOST
RECENT TEN YEARS)
[Sovereign Investors Fund
Class A shares
Line chart with the heading Sovereign Investors Fund: Class A, representing
the growth of a hypothetical $10,000 investment over the life of the fund (or
most recent 10 years). Within the chart are three lines. The first line
represents the value of the Standard & Poor's 500 Stock Index and is equal to
$38,268 as of December 31, 1994. The second line represents the value of the
hypothetical $10,000 investment made in Sovereign Investors Fund on December
31, 1994. The thrid line represents the Sovereign Investors Fund after sales
charge and is equal to $31,574 as of December 31, 1994.
Growth Fund Sovereign Investors Fund
Class B shares
Line chart with the heading Sovereign Investors Fund: Class B, representing
the growth of a hypothetical $10,000 investment over the life of the fund (or
most recent 10 years). Within the chart are three lines. The first line
represents the value of the Standard & Poor's 500 Stock Index and is equal to
$10,131 as of December 31, 1994. The second line represents the value of the
hypothetical $10,000 investment made in Sovereign Investors fund on January 3,
1994, before contingent deferred sales charge, and is equal to $9,796 as of
December 31, 1994. The third line represents Sovereign Investors Fund after
contingent deferred sales charge and is equal to $9,296 as of December 31, 1994.
Sovereign Investors Fund
Class C shares
Line chart with the heading Sovereign Investors Fund: Class C, representing
the growth of a hypothetical $10,000 investment over the life of the fund (or
most recent 10 years). Within the chart are two lines. The first line
represents the value of the Standard & Poor's 500 Stock Index and is equal to
$10,949 as of December 31, 1994. The second line represents the hypothetical
$10,000 investment made in the Sovereign Investors Fund on May 7, 1993, and is
equal to $10,348 as of December 31, 1994.
*The Standard & Poor's 500 Stock Index is an unmanaged index that include 500
widely traded common stock and is a commonly used measure of stock market
performance.]
6
<PAGE> 7
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON DECEMBER 31, 1994. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common and preferred stocks
(cost - $928,787,740)......................................... $ 948,142,537
Bonds (cost - $166,844,619)..................................... 158,120,535
United States government and agencies obligations
(cost - $85,588,225).......................................... 80,845,200
Short-term notes (cost - $44,023,340)........................... 44,023,340
Corporate savings account....................................... 46,459
--------------
1,231,178,071
Receivable for shares sold........................................ 1,765,799
Receivable for investments sold................................... 1,436,802
Interest receivable............................................... 5,197,805
Dividends receivable.............................................. 3,453,254
--------------
Total Assets.................... 1,243,031,731
----------------------------------------------------
LIABILITIES:
Payable for shares repurchased.................................. 1,538,553
Payable for investments purchased............................... 5,916,264
Payable to John Hancock Advisers, Inc.
and affiliates - Note B....................................... 2,052,940
Accounts payable and accrued expenses........................... 95,460
--------------
Total Liabilities............... 9,603,217
----------------------------------------------------
NET ASSETS:
Capital paid-in................................................. 1,228,767,231
Accumulated net realized loss on investments.................... ( 1,298,030)
Net unrealized appreciation of investments...................... 5,887,688
Undistributed net investment income............................. 71,625
--------------
Net Assets...................... 1,233,428,514
====================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding with $0.01 per share par value)
Class A - $1,090,231,331/76,585,860
(160,000,000 shares authorized)............................... $ 14.24
======================================================================================
Class B - $128,069,240/8,996,738
(100,000,000 shares authorized)............................... $ 14.24
======================================================================================
Class C - $15,127,943/1,062,699
(25,000,000 shares authorized)................................ $ 14.24
======================================================================================
MAXIMUM OFFERING PRICE *
Class A - ($14.24 x 105.26%).................................. $ 14.99
======================================================================================
</TABLE>
** 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.
** Class B shares commenced operations on January 3, 1994.
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
Year ended December 31, 1994
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $150,097)........ $ 29,197,554
Interest........................................................ 24,255,558
------------
53,453,112
------------
Expenses:
Investment management fee - Note B.............................. 7,452,980
Distribution/service fee - Note B
Class A....................................................... 3,472,008
Class B **.................................................... 718,184
Transfer agent fee - Note B
Class A....................................................... 2,073,942
Class B **.................................................... 143,780
Class C....................................................... 16,154
Trustees' fees.................................................. 270,740
Custodian fee................................................... 205,942
State taxes..................................................... 133,233
Registration and filing fees.................................... 117,319
Printing........................................................ 114,019
Miscellaneous................................................... 83,411
Legal fees...................................................... 68,243
Auditing fee.................................................... 37,750
------------
Total Expenses 14,907,705
----------------------------------------------------
Net Investment Income 38,545,407
----------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments sold........................... 4,097,671
Change in net unrealized appreciation/depreciation
of investments................................................ ( 66,910,292)
------------
Net Realized and Unrealized
Loss on Investments............. ( 62,812,621)
----------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations....... ($24,267,214)
====================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income...................................................... $ 38,545,407 $ 33,139,262
Net realized gain on investments sold...................................... 4,097,671 11,356,627
Change in net unrealized appreciation/depreciation of investments.......... ( 66,910,292) 21,365,000
-------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations........ ( 24,267,214) 65,860,889
-------------- -------------
INCOME EQUALIZATION - NOTE A:
Amount transferred to capital paid-in...................................... ----- (2,430,618)
-------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.4593 and $0.4226 per share, respectively).................. ( 35,871,209) ( 32,927,611)
Class B ** - ($0.3553 and none per share, respectively).................. ( 2,196,993) -----
Class C - ($0.5100 and $0.3405 per share, respectively).................. ( 479,108) ( 138,123)
Distributions from net realized gain on investments sold
Class A - ($0.1105 and $0.0894 per share, respectively).................. ( 8,643,183) ( 7,369,319)
Class B ** - ($0.1105 and none per share, respectively).................. ( 601,125) -----
Class C - ($0.1105 and $0.0894 per share, respectively).................. ( 99,934) ( 59,264)
-------------- -------------
Total Distributions to Shareholders.................................... ( 47,891,552) ( 40,494,317)
-------------- -------------
FROM FUND SHARE TRANSACTIONS -- NET*
Net increase from Fund share transactions.................................. 36,823,322 370,465,643
Amount transferred from undistributed net investment to capital paid-in - Note A ----- 2,430,618
-------------- -------------
Total from Fund Share Transactions - Net............................... 36,823,322 372,896,261
NET ASSETS:
Beginning of period.................................................... 1,268,763,958 872,931,743
-------------- -------------
End of period (including undistributed net investment income
of $71,625 and $73,528, respectively)................................ $1,233,428,514 $1,268,763,958
============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
Statement of Changes in Net Assets (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1994 1993
---------------------------- --------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ------------
<C> <C> <C> <C>
Shares sold..................................................... 10,349,215 $151,120,247 36,041,533 $535,178,205
Shares issued to shareholders in reinvestment of distributions . 2,834,406 40,225,646 2,363,969 35,296,030
----------- ------------ ---------- ------------
13,183,621 191,345,893 38,405,502 570,474,235
Less shares repurchased......................................... ( 19,930,271) ( 291,424,469) (14,126,521) ( 210,126,158)
----------- ------------ ---------- ------------
Net increase (decrease)......................................... ( 6,746,650) ($100,078,576) 24,278,981 $360,348,077
=========== ============ ========== ============
CLASS B **
Shares sold..................................................... 9,346,868 $136,349,532
Shares issued to shareholders in reinvestment of distributions . 181,850 2,588,170
----------- ------------
9,528,718 138,937,702
Less shares repurchased......................................... ( 531,980) ( 7,682,774)
----------- ------------
Net increase.................................................... 8,996,738 $131,254,928
=========== ============
CLASS C
Shares sold..................................................... 527,530 $ 7,700,516 677,564 $ 10,165,181
Shares issued to shareholders in reinvestment of distributions . 33,614 478,279 13,146 197,387
----------- ------------ ---------- ------------
561,144 8,178,795 690,710 10,362,568
Less shares repurchased......................................... ( 172,765) ( 2,531,825) ( 16,390) ( 245,002)
----------- ------------ ---------- ------------
Net increase.................................................... 388,379 $ 5,646,970 674,320 $ 10,117,566
=========== ============ ========== ============
</TABLE>
** Class B shares commenced operations on January 3, 1994.
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 fiscal year. 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 value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods indicated, investment returns, key ratios and supplemental data are
as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------
1994 1993 1992(f) 1991(f) 1990(f)
---------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 15.10 $ 14.78 $ 14.31 $ 11.94 $ 12.60
---------- ---------- -------- -------- -------
Net Investment Income..................................... 0.46 0.44 0.47 0.54 0.58
Net Realized and Unrealized Gain (Loss) on Investments.... ( 0.75) 0.39 0.54 3.03 ( 0.05)
---------- ---------- -------- -------- -------
Total from Investment Operations........................ ( 0.29) 0.83 1.01 3.57 0.53
---------- ---------- -------- -------- -------
Less Distributions:
Dividends from Net Investment Income...................... ( 0.46) ( 0.42) ( 0.45) ( 0.53) ( 0.59)
Distributions from Net Realized Gain on Investments Sold . ( 0.11) ( 0.09) ( 0.09) ( 0.67) ( 0.60)
---------- ---------- -------- -------- -------
Total Distributions..................................... ( 0.57) ( 0.51) ( 0.54) ( 1.20) ( 1.19)
---------- ---------- -------- -------- -------
Net Asset Value, End of Period............................ $ 14.24 $ 15.10 $ 14.78 $ 14.31 $ 11.94
========== ========== ======== ======== =======
Total Investment Return at Net Asset Value................ ( 1.85%) 5.71% 7.23% 30.48% 4.38%
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $1,090,231 $1,258,575 $872,932 $194,055 $83,470
Ratio of Expenses to Average Net Assets................... 1.16% 1.10% 1.13% 1.18% 1.14%
Ratio of Net Investment Income to Average Net Assets...... 3.13% 2.94% 3.32% 4.01% 4.77%
Portfolio Turnover Rate................................... 45% 46% 30% 67% 55%
CLASS B (a)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 15.02(d)
---------
Net Investment Income..................................... 0.38(e)
Net Realized and Unrealized Loss on Investments........... ( 0.69)
---------
Total from Investment Operations...................... ( 0.31)
---------
Less Distributions:
Dividends from Net Investment Income...................... ( 0.36)
Distributions from Net Realized Gain on Investments Sold . ( 0.11)
---------
Total Distributions................................... ( 0.47)
---------
Net Asset Value, End of Period............................ $ 14.24
=========
Total Investment Return at Net Asset Value................ ( 2.04%)(c)
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $ 128,069
Ratio of Expenses to Average Net Assets................... 1.86%*
Ratio of Net Investment Income to Average Net Assets...... 2.57%*
Portfolio Turnover Rate................................... 45%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 7, 1993
YEAR ENDED (COMMENCEMNET OF
DECEMBER 31, OPERATIONS) TO
1994 DECEMBER 31, 1993
------------ -----------------
<S> <C> <C>
CLASS C (b)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period....................... $ 15.11 $ 14.79(d)
--------- ---------
Net Investment Income...................................... 0.52 0.27(e)
Net Realized and Unrealized Gain (Loss) on Investments..... ( 0.77) 0.48
--------- ---------
Total from Investment Operations....................... ( 0.25) 0.75
--------- ---------
Less Distributions:
Dividends from Net Investment Income....................... ( 0.51) ( 0.34)
Distributions from Net Realized Gain on Investments Sold... ( 0.11) ( 0.09)
--------- ---------
Total Distributions.................................... ( 0.62) ( 0.43)
--------- ---------
Net Asset Value, End of Period............................. $ 14.24 $ 15.11
========= =========
Total Investment Return at Net Asset Value................. ( 1.57%) 5.13%(c)
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).................. $ 15,128 $ 10,189
Ratio of Expenses to Average Net Assets.................... 0.81% 0.88%*
Ratio of Net Investment Income to Average Net Assets....... 3.53% 3.17%*
Portfolio Turnover Rate.................................... 45% 46%
<FN>
* On an annualized basis.
</TABLE>
(a) Class Bshares commenced operations on January 3, 1994.
(b) Class C shares commenced operations on May 7, 1993.
(c) Not annualized.
(d) Initial price to commence operations.
(e) On average month end shares outstanding.
(f) These periods are covered by the report of other independent auditors
(not included herein).
The FINANCIAL HIGHLIGHTS summarize the impact of the following factors on a
single share for the period indicated: the net investment income, gains
(losses), distributions and total investment return of the Fund. It shows how
the Fund's net asset value for a share has changed since the end of the
previous period. Additionally, important relationships between some items
presented in the financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
SCHEDULE OF INVESTMENTS
December 31, 1994
Per share earnings and dividends and their compound growth rates are shown
for the years 1985 to 1994. This data and price/earnings ratios are
unaudited.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPOUND
Number Growth Market
OF SHARES COMMON STOCKS (74.73%) RATE VALUE
- --------- ---- -----
<S> <C> <C>
BANKS (4.54%)
324,000 First Union Corp. @ 41 3\8....................... $ 13,405,500
North Carolina-based bank holding company
EARNINGS P/S.....$2.16, 2.57, 2.55, 2.76,
2.40, 2.52, 2.55, 2.24, 4.73, 5.29 10.5%
DIVIDENDS P/S......$.58, .65, .77, .86,
1.00, 1.08, 1.12, 1.28, 1.50, 1.72 12.8%
Price/Earnings Ratio............................8
640,000* KeyCorp. @ 25.................................... 16,000,000
Multi-regional bank holding company
EARNINGS P/S....$1.41, 1.72, 1.88, 2.10,
2.32, 2.32, 2.45, 2.51, 2.89, 3.50 10.6%
DIVIDENDS P/S....$.46, .48, .60, .68, .80,
.88, .92, .98, 1.12, 1.28 12.0%
Price/Earnings Ratio............................7
590,000 NationsBank Corp. @ 45 1\8....................... 26,623,750
Largest superregional bank in the Southeast
EARNINGS P/S......$2.28, 2.51, 2.01, 2.87,
4.44, 2.61, .76, 4.60, 5.00, 6.21 11.8%
DIVIDENDS P/S......$.66, .78, .86, .94,
1.10, 1.42, 1.48, 1.51, 1.64, 1.88 12.3%
Price/Earnings Ratio............................7
------------
56,029,250
------------
BASIC INDUSTRY (.94%)
540,000 Sonoco Products Corp. @ 21 1\2................... 11,610,000
------------
Containers, paper products and packaging
EARNINGS P/S....$.57, .63, .77, 1.10, 1.18,
1.21, 1.10, .94, 1.35, 1.37 10.2%
DIVIDENDS P/S......$.18, .21, .25, .32,
.41, .45, .46, .49, .53, .56 13.4%
Price/Earnings Ratio...........................16
CHEMICALS (8.52%)
655,000 Air Products & Chemicals, Inc. @ 44 5\8.......... 29,229,375
Producer of industrial and specialty
chemicals and gases
EARNINGS P/S....$1.17, 1.17, 1.42, 1.95, 1.93,
2.08, 2.23, 2.45, 1.76, 2.05 6.4%
DIVIDENDS P/S....$ .32, .39, .45, .55, .63, .69,
.75, .83, .89, .95 12.9%
Price/Earnings Ratio...........................22
491,200* Cromp & Knowles Corp. @ 16 1\2................... 8,104,800
Produces and markets specialty chemicals
EARNINGS P/S....$.14, .17, .24, .36, .50,
.61, .73, .83, 1.00, 1.01 26.6%
DIVIDENDs P/S....$ .075, .079, .084, .11,
.15, .20, .25, .31, .38, .46 22.3%
Price/Earnings Ratio...........................16
415,000 Minnesota Mining & Manufacturing Co. @ 53 3\8.... 22,150,625
Diversified manufacturer of industrial,
commercial, health care and consumer products
EARNINGS P/S.....$1.51, 1.70, 2.01, 2.55, 2.80,
2.96, 2.63, 2.83, 2.91, 3.16 8.6%
DIVIDENDS P/S....$.88, .90, .93, 1.06, 1.30, 1.46,
1.56, 1.60, 1.66, 1.768.0%
Price/Earnings Ratio...........................17
</TABLE>
<PAGE>
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by
Sovereign Investors Fund on December 31, 1994. It's divided into five main
categories: common stocks, preferred stocks, corporate bonds, U.S. government
and agencies obligations and short-term investments. The common stocks are
further broken down by industry groups. Short-term investments, which
represent the Fund's "cash" position, are listed last.
<TABLE>
<CAPTION>
COMPOUND
Number Growth Market
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C>
CHEMICALS (continued)
640,000 PPG Inds., Inc. @ 37 1\8......................... $ 23,760,000
Manufacturer of specialty chemicals, coatings and
resins
EARNINGS P/S......$ 1.14, 1.33, 1.60, 2.13, 2.09,
2.22, .95, 1.61, 1.78, 2.60 9.6%
DIVIDENDS P/S.....$.41, .47, .56, .64, .74, .82,
.86, .94, 1.04, 1.12 11.8%
Price/Earnings Ratio...........................14
28,100 Rohm & Haas Co. @ 57 1\8......................... 1,605,212
Manufacturer of specialty chemicals and plastics
EARNINGS P/S.....$1.94, 2.50, 2.85, 3.46, 2.65,
3.10, 2.45, 2.56, 1.74, 3.69 7.4%
DIVIDENDS P/S....$.70, .78, .86, 1.02, 1.16, 1.22,
1.24, 1.28, 1.36, 1.448. 3%
Price/Earnings Ratio...........................16
145,000* RPM, Inc. @ 18 1\2............................... 2,682,500
Manufacturer of specialty chemicals and coatings
to waterproof and rustproof structures
EARNINGS P/S.....$ .33, .39, .43, .48, .56, .65,
.72, .73, .61, .93 12.2%
DIVIDENDS P/S.....$.21, .23, .27, .31, .34, .37,
.42, .46, .49, .53 10.8%
Price/Earnings Ratio...........................20
711,600 Witco Corp. @ 24 5\8............................. 17,523,150
Producer of special petroleum chemicals
Earnings P/S.......$1.28, 1.47, 1.46, 1.53, .80,
1.38, 1.61, 1.19, .64, 1.98 5.0%
Dividends P/S.....$.49, .54, .60, .72, .83, .86,
.91, .92, .96, 1.06 9.0%
Price/Earnings Ratio...........................12
------------
105,055,662
------------
COMPUTER & OFFICE EQUIPMENT (1.54%)
260,000 Alco Standard Corp @ 62 3\4...................... 16,315,000
Distributor of office and paper products
EARNINGS P/S......$1.52, 1.47, 1.50, 2.12, 2.68,
2.19, 1.95, 2.22, 2.34, 2.87 7.3%
DIVIDENDS P/S.....$.61, .63, .65, .70, .78, .85,
.89, .93, .97, 1.01 5.8%
Price/Earnings Ratio...........................22
86,300 Pitney Bowes, Inc. @ 31 3\4...................... 2,740,025
World's largest manufacturer of postage meters
and related mailing equipment
EARNINGS P/S......$.91, 1.05, 1.26, 1.50, 1.14,
1.30, 1.80, 1.56, 2.16, 2.41 11.4%
DIVIDENDS P/S.....$.30, .33, .38, .46, .52, .60,
.68, .78, .90, 1.04 14.8%
Price/Earnings Ratio...........................13
------------
19,055,025
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
Number Growth Market
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
CONSUMER CYCLICALS & SERVICES (5.77%)
<S> <C> <C> <C>
1,181,000 Hanson PLC ADR @ 18....................................... $ 21,258,000
U.K. based multi-subsidiary holding company
EARNINGS P/S......$.57, .72, 1.10, 1.71, 1.67, 1.83,
1.74, 1.66, .87, 1.20 8.6%
DIVIDENDS P/S*......$.15, .20, .27, .36, .56, .68,
.79, .80**, .86, .88 21.7%
** Gross ordinary dividends per ADR
**1992 Dividend excludes extra transition
dividend of $.23.
Price/Earnings Ratio....................................15
400,000 McDonald's Corp @ 29 1\4 ................................. 11,700,000
Dominant force in the fast food industry
EARNINGS P/S.......$1.09, 1.23, 1.42, 1.70, 1.91, 1.10,
1.18, 1.30, 1.46, 1.67 4.9%
DIVIDENDS P/S.......$.10, .11, .12, .14, .15, .17, .18,
.20, .21, .23 9.7%
Price/Earnings Ratio....................................18
725,000 Sysco Corp. @ 25 3\4...................................... 18,668,750
Largest distributer of food service products
EARNINGS P/S......$.29, .34, .35, .45, .60, .73, .84, .93,
1.08, 1.18 16.9%
DIVIDENDS P/S......$.05, .06, .07, .08, .09, .10, .14,
.22, .28, .36 24.5%
Price/Earnings Ratio....................................22
400,000 V.F. Corp. @ 48 5\8....................................... 19,450,000
International apparel manufacturer
EARNINGS P/S......$2.25, 2.05, 2.62, 2.54, 2.70, 1.35,
2.75, 3.97, 3.80, 4.19 7.2%
DIVIDENDS P/S......$.58, .66, .75, .85, .91, 1.00, 1.02,
1.11, 1.22, 1.30 9.4%
Price/Earnings Ratio....................................12
-------------
71,076,750
-------------
CONSUMER DURABLES (3.81%)
700,000 Leggett & Platt, Inc. @ 35................................ 24,500,000
Produces intermediate products for the home furnishings
industry
EARNINGS P/S......$.88, .95, 1.11, 1.09, 1.29, .84, 1.11,
1.64, 2.09, 2.68 13.2%
DIVIDENDS P/S.....$.17, .20, .28, .32, .37, .42, .43, .46,
.54, .62 15.5%
Price/Earnings Ratio....................................13
534,000 Masco Corp. @ 22 5\8...................................... 12,081,750
Leading manufacturer of brand-name building and home
improvement products
EARNINGS P/S......$1.26, 1.54, 1.61, 2.06, 1.41, .91, .30,
1.21, 1.45, 1.75 3.7%
DIVIDENDS P/S.....$.29, .34, .38, .44, .50, .54, .57,
.61, .65, .69 10.1%
Price/Earnings Ratio....................................13
700,000* Shaw Industries, Inc. @ 14 7\8........................... 10,412,500
Leading manufacturer of brand-name carpeting
EARNINGS P/S......$.19, .18, .21, .27, .39, .53, .29, .47,
.72, .91 19.0%
DIVIDENDS P/S......$.04, .05, .07, .08, .09, .11, .13,
.15, .18, .22 20.9%
Price/Earnings Ratio....................................16
-------------
46,994,250
-------------
CONSUMER NON-DURABLES (8.92%)
360,000 Campbell Soup Co. @ 44 1\8................................ 15,885,000
Leading food manufacturer and distributor
EARNINGS P/S....$.77, .86, .95, .94, .05, .02, 1.58, 1.95,
1.02, 2.51 14.0%
DIVIDENDS P/S.....$.31, .33, .36, .42, .46, .50, .58, .76,
.97, 1.12 15.3%
Price/Earnings Ratio....................................18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COMPOUND
Number Growth Market
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
CONSUMER NON-DURABLES(CONTINUED)
<S> <C> <C> <C>
126,700* Colgate-Palmolive Co. @ 63 3\8............................ $ 8,029,613
Global consumer products Co. which consists of oral
care, body care , household surface care etc,
EARNINGS P/S.....$1.06, 1.25, .01, 1.11, 1.90, 2.12, .76,
2.93, 3.38, 3.80 15.2%
DIVIDENDS P/S....$.65, .68, .70, .74, .78, .90, 1.07,
1.15, 1.34, 1.54 10.1%
Price/Earnings Ratio....................................17
935,000 PepsiCo, Inc. @ 36 1\4.................................... 33,893,750
Second largest soft drink company
EARNINGS P/S....$.50, .58, .77, .96, 1.13, 1.37, 1.35,
1.61, 1.96, 2.21 18.0%
DIVIDENDS P/S......$.19, .21, .22, .27, .32, .38, .46,
.51, .61, .70 15.6%
Price/Earnings Ratio....................................16
550,000 Procter & Gamble Co. (The) @ 62.......................... 34,100,000
Leading producer of household consumer products
EARNINGS P/S....$ .95, 1.04, .46, 1.48, 1.74, 2.25, 2.43,
2.62, .25, 1.90 8.0%
DIVIDENDS P/S......$.65, .67, .68, .70, .83, .93, 1.00,
1.08, 1.17, 1.32 8.2%
Price/Earnings Ratio....................................33
715,000 Sara Lee Corp. @ 25 1\4................................... 18,053,750
Manufacturer of brand name packaged food and consumer
products
EARNINGS P/S......$.45, .51, .59, .71, .85, .96, 1.08,
1.24, 1.40, 1.47 14.1%
DIVIDENDS P/S.....$.18, .20, .25, .30, .36, .42, .47,
.50, .58, .64 15.1%
Price/Earnings Ratio....................................17
------------
109,962,113
------------
DIVERSIFIED INDUSTRIAL (1.07%)
200,000* TRW Inc. @ 66............................................. 13,200,000
------------
Producer of space and defense products/services and
automotive components
EARNINGS P/S......$1.90, 3.56, 3.95, 4.23, 4.25, 3.36,
(2.30), 3.10, 3.40, 4.89 11.1%
DIVIDENDS P/S......$1.50, 1.53, 1.60, 1.63, 1.72, 1.74,
1.80, 1.82, 1.88, 1.94 7.1%
Price/Earnings Ratio....................................14
ELECTRICAL EQUIPMENT (6.16%)
400,000 Emerson Electric Co. @ 62 1\2............................. 25,000,000
Produces and sells electrical/electronic products and
systems
EARNINGS P/S.....$1.81, 1.87, 2.00, 2.31, 2.63, 2.75,
2.83, 2.96, 3.15, 4.04 9.3%
DIVIDENDS P/S.....$.88, .93, .98, 1.03, 1.16, 1.28, 1.34,
1.40, 1.47, 1.60 6.9%
Price/Earnings Ratio....................................16
1,000,000 General Electric Co. @ 51................................. 51,000,000
Dominant force in home appliances, electrical power,
and financial services
EARNINGS P/S......$1.28, 1.37, 1.60, 1.88, 2.18, 2.43,
2.55, 2.51, 3.03, 3.40 11.5%
DIVIDENDS P/S.....$.55, .58, .65, .70, .82, .94, 1.02,
1.12, 1.26, 1.44 11.3%
Price/Earnings Ratio....................................15
------------
76,000,000
------------
ENERGY (1.48%)
300,000 Exxon Corp. @ 60 3\4...................................... 18,225,000
------------
Major factor in the crude oil, natural gas and chemical
industry
EARNINGS P/S......$3.23, 3.71, 3.43, 3.95, 2.32, 3.96,
4.45, 3.82, 4.21, 3.63 1.3%
DIVIDENDS P/S......$1.73, 1.80, 1.90, 2.15, 2.30, 2.47,
2.68, 2.83, 2.88, 2.91 5.9%
Price/Earnings Ratio....................................17
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
Number GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
---------- ---- -----
<S> <C> <C> <C>
HEALTHCARE (5.92%)
893,000 Abbott Laboratories @ 32 5\8.............................. $ 29,134,125
Major pharmaceutical and healthcare firm
EARNINGS P/S....$.49, .58, .70, .83, .96, 1.11, 1.27, 1.47,
1.69, 1.86 16.0%
DIVIDENDS P/S.... $.17, .20, .24, .29, .34, .40, .48,
.58, .66, .74 17.8%
Price/Earnings Ratio....................................18
513,000 Johnson & Johnson @ 54 3\4................................ 28,086,750
Major producer of prescription and non-prescription
drugs, toiletries, medical instruments and supplies
EARNINGS P/S.....$.82, .45, 1.18, 1.41, 1.60, 1.72, 2.19,
2.46, 2.74, 3.13 16.0%
DIVIDENDS P/S.....$.32, .34, .40, .48, .56, .66, .77,
.89, 1.01, 1.13 15.0%
Price/Earnings Ratio....................................18
414,000 Merck & Co., Inc. @ 38 1\8................................ 15,783,750
World's largest drug manufacturer
EARNINGS P/S......$.42, .54, .73, 1.01, 1.25, 1.52, 1.83,
2.12, 1.87, 2.40 21.4%
DIVIDENDS P/S.....$.18, .21, .27, .43, .55, .64, .77,
.92, 1.03, 1.14 22.8%
Price/Earnings Ratio...................................16
-------------
73,004,625
-------------
INSURANCE (5.65%)
400,000 AFLAC Corp. @ 32......................................... 12,800,000
Global specialty insurer
EARNINGS P/S......$.54, .78, .93, 1.08, .80, 1.15, 1.46,
1.79, 2.32, 2.79 20.0%
DIVIDENDS P/S......$.14, .16, .18, .20, .23, .26, .30,
.34, .39, .45 13.9%
Price/Earnings Ratio...................................12
350,000 American General Corp. @ 28 1\4.......................... 9,887,500
Financial services company engaged in life/health
insurance and consumer finance
EARNINGS P/S.....$1.60, 2.17, 1.86, 1.72, 1.88, 2.35,
2.13, 2.45, 1.15, 2.99 7.2%
DIVIDENDS P/S......$.50, .56, .63, .70, .75, .79, 1.00,
1.04, 1.11, 1.16 9.8%
Price/Earnings Ratio....................................9
226,000 Chubb Corp. @ 77 3\8..................................... 17,486,750
Broadly based property-casualty insurance organization
EARNINGS P/S....$.95, 2.82, 3.81, 4.19, 4.70, 5.79, 6.32,
6.96, 3.91, 5.80 22.3%
DIVIDENDS P/S....$.76, .80, .89, 1.08, 1.16, 1.32, 1.48,
1.60, 1.72, 1.84 10.3%
Price/Earnings Ratio...................................13
500,000* NWNL Company, Inc. @ 29.................................. 14,500,000
Diversified holding company specializing in insurance
and financial services
EARNINGS P/S....$1.01, 1.67, 1.85, 1.76, 2.07, 2.09,
1.71, 2.06, 2.62, 3.24 13.8%
DIVIDENDS P/S...$.40, .43, .48, .54, .59, .65, .69,
.73, .79, .88 9.2%
Price/Earnings Ratio....................................9
150,000* Providian Corp. @ 30 7\8................................. 4,631,250
Financial service company providing
insurance, loan,annuity and pension products
EARNINGS P/S.....$1.29, 1.46, 1.67, 2.00, 2.93, 1.70,
2.67, 3.14, 3.13, 3.38 11.3%
DIVIDENDS P/S....$.38, .41, .44, .47, .50, .54,
.60, .66, .73, .80 8.6%
Price/Earnings Ratio....................................9
300,000 Torchmark Corp. @ 34 7\8................................. 10,462,500
Diversified financial services and insurance company
EARNINGS P/S....$1.45, 1.76, 1.87, 2.13, 2.59, 2.85,
3.13, 3.58, 3.76, 3.85 11.5%
DIVIDENDS P/S.....$.35, .53, .67, .73, .83, .93, 1.00,
1.07, 1.08, 1.12 13.8%
Price/Earnings Ratio....................................9
-------------
69,768,000
-------------
<PAGE>
MEDIA AND INFORMATION SERVICES (3.40%)
470,000 Gannett Co., Inc @ 53 1\4............................... $ 25,027,500
Publishes 81 daily/50 nondaily newspapers, operates 10
TV , 8 FM and 7 AM stations
EARNINGS P/S....$1.58, 1.71, 1.98, 2.26, 2.47, 2.36,
2.00, 2.40, 2.73, 3.19 8.1%
DIVIDENDS P/S....$.77, .86, .94, 1.02, 1.11, 1.21,
1.24, 1.26, 1.30, 1.34 6.3%
Price/Earnings Ratio...................................17
215,800* Interpublic Group Inc. @ 32 1\8.......................... 6,932,575
One of the largest advertising agencies in the world
EARNINGS P/S.....$.56, .62, .75, .91, 1.05, 1.19, 1.30,
1.37, 1.67, 1.86 14.3%
DIVIDENDS P/S....$.18, .20, .22, .26, .32, .37, .41,
.45, .49, .55 13.2%
Price/Earnings Ratio...................................17
150,000 McGraw-Hill, Inc @ 66 7\8............................... 10,031,250
Supplier of information products and services for
business and education industry
EARNINGS P/S....$2.92, 3.04, 3.27, 3.83, .82, 3.53,
3.03, 3.13, 3.23, 4.10 3.8%
DIVIDENDS P/S....$1.40, 1.52, 1.68, 1.84, 2.00, 2.16,
2.20, 2.24, 2.28, 2.32 5.8%
Price/Earnings Ratio...................................16
-------------
41,991,325
-------------
POLLUTION CONTROL (1.86%)
873,000 WMX Technologies Inc. @ 26 1\4........................... 22,916,250
-------------
Nation's largest provider of waste management services
EARNINGS P/S.....$.43, .88, .73, 1.03, 1.22, 1.49, 1.23,
1.86, .94, 1.65 16.1%
DIVIDENDS P/S....$.11, .13, .17, .21, .27, .34, .40,
.48, .56, .60 20.7%
Price/Earnings Ratio....................................16
RETAIL (3.33%)
585,900 May Dept. Stores @ 33 3\4................................. 19,774,125
Operates 318 department stores and 3,295 shoe stores
EARNINGS P/S....$1.35, 1.22, 1.45, 1.71, 1.82, 1.87,
2.01, 2.01, 2.36, 2.77 8.3%
DIVIDENDS P/S....$.46, .51, .56, .62, .69, .77, .81, .83,
.90, 1.01 9.1%
Price/Earnings Ratio....................................12
1,000,000* Wal-Mart Stores, Inc. @ 21 1\4............................ 21,250,000
Operates chain of discount department stores
EARNINGS P/S......$.12, .15, .20, .28, .37, .48, .57,
.70, .87, 1.03 27.0%
DIVIDENDS P/S.....$.018, .021, .03, .04, .06, .07, .09,
.11, .13, .17 28.3%
Price/Earnings Ratio....................................21
-------------
41,024,125
-------------
TECHNOLOGY (1.66%)
200,000* General Motors Corp. Class E @ 38 1\2..................... 7,700,000
Leading provider of information processing services
EARNINGS P/S......$.39, .53, .66, .79, .91, 1.04, 1.17,
1.33, 1.51, 1.68 17.6%
DIVIDENDS P/S.....$.05, .10, .13, .17, .24, .28, .32,
.36, .40, .48 28.6%
Price/Earnings Ratio.....................................23
200,000 Raytheon Co. @ 63 7\8...................................... 12,775,000
Manufacturer of electronic equipment, has operations in
aircraft products and is active in air defense missiles
EARNINGS P/S.....$ 2.29, 2.53, 3.03, 3.66, 3.98, 4.26,
4.48, 4.72, 5.11, 4.51 7.8%
DIVIDENDS P/S....$.80, .85, .90, 1.00, 1.08, 1.18, 1.20,
1.30, 1.40, 1.45 6.8%
Price/Earnings Ratio.....................................14
-------------
20,475,000
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
<S> <C> <C>
TELECOMMUNICATIONS (5.18%)
840,000 ALLTEL Corp. @ 30 1\8......................................................... $ 25,305,000
One of the country's largest telephone systems
Earnings P/S..........$.71, .77, .90, 1.04, 1.13, 1.18, 1.09, 1.22, 1.39, 1.63 9.7%
Dividends P/S................$.41, .44, .45, .51, .57, .64, .70, .74, .80, .88 8.9%
Price/Earnings Ratio....................................................... 19
250,000 Bell Atlantic Corp. @ 49 3\4.................................................. 12,437,500
Provides telephone services in Mid-Atlantic
states
Earnings P/S.......$2.74, 2.93, 3.12, 3.33, 2.72, 3.38, 2.90, 3.22, 3.39, 3.33 2.2%
Dividends P/S......$1.70, 1.80, 1.92, 2.04, 2.20, 2.36, 2.52, 2.60, 2.68, 2.76 5.5%
Price/Earnings Ratio....................................................... 15
592,700* Frontier Corp.- (Formerly Rochester
Telephone Corp.) @ 21 1\8..................................................... 12,520,787
Provides telephone service to the city of
Rochester N.Y. and outlying areas
Earnings P/S............$.97, .89, .93, 1.06, .99, .86, 1.18, 1.04, 1.21, 1.52 5.1%
Dividends P/S................$.61, .64, .66, .68, .71, .73, .75, .77, .79, .81 3.2%
Price/Earnings Ratio....................................................... 14
450,000 GTE Corp. @ 30 3\8............................................................ 13,668,750
Largest independent local telephone holding
company
Earnings P/S.......$1.72, 1.69, 1.62, 1.77, 2.08, 1.82, 1.69, 1.95, 1.03, 2.46 4.1%
Dividends P/S......$1.04, 1.10, 1.24, 1.30, 1.40, 1.52, 1.64, 1.76, 1.85, 1.88 6.8%
Price/Earnings Ratio....................................................... 12 -----------
63,932,037
-----------
TOBACCO (2.66%)
389,000 Philip Morris Cos., Inc. @ 57 1\2............................................. 22,367,500
Global tobacco, brewing and food company
Earnings P/S.......$1.31, 1.55, 1.94, 2.22, 3.18, 3.83, 4.24, 5.45, 4.05, 5.46 17.2%
Dividends P/S.........$.50, .62, .79, 1.01, 1.25, 1.55, 1.91, 2.35, 2.60, 3.03 22.2%
Price/Earnings Ratio....................................................... 11
375,000 UST Inc. @ 27 3\4............................................................. 10,406,250
Leading producer of smokeless tobacco
Earnings P/S.............$.40, .46, .56, .71, .82, .98, 1.18, 1.40, 1.70, 1.85 18.5%
Dividends P/S...............$.22, .25, .30, .37, .46, .55, .66, .80, .96, 1.12 19.8%
Price/Earnings Ratio....................................................... 15
-----------
32,773,750
-----------
UTILITIES (2.32%)
140,000* Dominion Resources, Inc. @ 35 3\4............................................. 5,005,000
Virginia based utility holding company
Earnings P/S.......$2.40, 2.65, 3.03, 3.01, 2.76, 2.92, 3.02, 4.65, 3.12, 3.13 3.0%
Dividends P/S......$1.83, 1.91, 1.99, 2.07, 2.15, 2.23, 2.31, 2.40, 2.48, 2.55 3.8%
Price/Earnings Ratio....................................................... 11
200,000* Florida Progress Corp. @ 30................................................... 6,000,000
Holding Co for Florida Power electric utility services
Earnings P/S.......$2.35, 2.47, 2.49, 2.35, 2.39, 2.14, 2.15, 2.05, 2.22, 2.30 NMF
Dividends P/S......$1.44, 1.54, 1.61, 1.67, 1.72, 1.78, 1.84, 1.90, 1.95, 1.99 3.7%
Price/Earnings Ratio....................................................... 13
UTILITIES (CONTINUED)
400,000 National Fuel Gas Co. @ 25 1\2................................................ $ 10,200,000
Integrated natural gas system serving New
York, Pennsylvania and Ohio
Earnings P/S.......$1.90, 1.75, 1.49, 1.65, 1.93, 1.83, 1.63, 1.94, 2.21, 2.23 1.8%
Dividends P/S......$1.02, 1.12, 1.19, 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57 4.9%
Price/Earnings Ratio........................................................11
210,000* Union Electric Co. @ 35 3\8................................................... 7,428,750
Largest electric utility in Missouri
Earnings P/S.......$2.86, 2.89, 2.91, 2.56, 2.91, 2.74, 3.01, 2.83, 2.77, 3.02 0.6%
Dividends P/S......$1.78, 1.86, 1.92, 1.94, 2.02, 2.10, 2.18, 2.26, 2.34, 2.40 3.4%
Price/Earnings Ratio....................................................... 12
-----------
28,633,750
-----------
TOTAL COMMON STOCKS
(Cost $902,738,090) 921,726,912
-----------
PREFERRED STOCKS (2.14%)
150,000 AMR Corp., 6% Conv @ 39 1\8.................................................. 5,868,750
415,000 American Express Co. DECS, 6 1\4%
Conv @ 42 5\8................................................................ 17,689,375
60,000 Sonoco Products Co. 4 1\2% Conv
Ser AA @ 475\8................................................................ 2,857,500
TOTAL PREFERRED STOCKS -----------
(Cost $26,049,650) 26,415,625
PARVALUE -----------
(000's
OMITTED
- --------
CORPORATE BONDS (12.82%)
5,000 BankAmerica Corp., Sub Note 8.125%,
02-01-02 @ 97.083............................................................. 4,854,150
5,000* Black & Decker Corp. , Note 7.00%,
02-01-06 @ 85.078............................................................. 4,253,900
4,000* Bowater Inc. , Deb 9.50%,
10-15-12 @ 101.102............................................................ 4,044,080
10,000 Coastal Corp.(The), Sr Deb 11.75%,
06-15-06 @ 109.375............................................................ 10,937,500
5,000 Comcast Corp., Sr Sub Deb 10.25%,
10-15-01 @ 98.000............................................................. 4,900,000
5,000* Digital Equipment Corp. , Deb 8.625%,
11-01-12 @ 83.485............................................................. 4,174,250
10,000 Federal Express Corp., Note 9.65%,
06-15-12 @ 105.487............................................................ 10,548,700
5,000* GTE North Inc. ,Telephone Facility Lease
Bonds, 9.60%, 01-01-21 @ 105.242.............................................. 5,262,100
8,500 Georgia-Pacific Corp., Deb 9.50%,
02-15-18 @ 100.091............................................................ 8,507,735
5,000* Hechinger Co., Deb 9.45%,
11-15-12 @ 98.054............................................................. 4,902,700
</TABLE>
15
<PAGE> 16
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
PAR VALUE
(000's MARKET
OMITTED) CORPORATE BONDS VALUE
- -------- --------------- -----
<S> <C> <C>
10,000* IBM Corp., Deb 7.50%,
06-15-13 @ 88.998........................ $ 8,899,800
5,000* Morgan Stanley Corp., Deb 7.00%,
10-01-13 @ 81.325........................ 4,067,600
5,000 NCNB Corp., Sub Note 9.125%,
10-15-01 @ 101.892....................... 5,094,600
5,000* NationsBank Corp., Sub Note 6.875%,
02-15-05 @ 86.831........................ 4,341,550
5,000* NationsBank Corp., Sub Note 9.375%,
09-15-09 @ 102.798....................... 5,139,900
5,000* Owen-Illinois, Inc., Sr Deb 11.00%,
12-01-03 @ 103.750....................... 5,187,500
4,000 Owen-Illinois, Inc., Sr Sub Note 10.00%,
08-01-02 @ 97.750........................ 3,910,000
2,000* Protective Life Corp., Sr. Note 7.95%,
7-1-04 @ 94.932.......................... 1,898,640
10,000 RBSG Capital Corp., Gtd Cap Note
10.125%, 03-01-04 @ 108.942.............. 10,894,200
10,000* RJR Nabisco, Inc., Note 8.625%,
12-01-02 @ 92.753....................... 9,275,300
4,000* Ralston Purina Co. , Deb 9.25%,
10-15-09 @ 101.387....................... 4,055,480
5,000* Sears Reobuck & Co., Note 9.375%,
11-01-11 @ 104.502....................... 5,225,100
5,000* Standard Credit Card Master Trust 1,
7.25%, 04-07-08 @ 91.125................. 4,556,250
4,500 Titan Wheel International Inc. Conv
Deb 4.75%, 12-01-00 @ 106.00............. 4,770,000
5,000* USF&G Corp. , Sr Notes 8.375%,
06-15-01 @ 95.392........................ 4,769,600
10,000 United Air Lines Inc., Deb 9.125%,
01-15-12 @ 86.605........................ 8,660,500
5,000 Wells Fargo & Co., Deb 8.20%,
11-01-96 @ 99.788........................ 4,989,400
_____________
TOTAL CORPORATE BONDS
(Cost $166,844,619) 158,120,535
_____________
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (6.56%)
5,000 Federal Home Loan Mort. Corp. Sr
Sub 6.55%, 04-02-03 @ 88.969............. 4,448,450
5,000* Federal Home Loan Mort. Corp. Sr
Sub 7.50%, 07-23-07 @ 91.580............. 4,579,000
10,000* Federal Home Loan Mort. Corp. Sr
Sub 6.63%, 01-12-09 @ 83.750............. 8,375,000
10,000 Federal National Mort. Assn. Sr
Sub 7.30%, 07-10-02 @ 94.687............. 9,468,700
5,000* Tennessee Valley Auth., Pwr Bond
Ser C 7.875%, 09-15-01 @ 97.187.......... $ 4,859,350
5,000 United States Treasury, Note 7.875%,
11-15-99 @ 100.250....................... 5,012,500
10,000 United States Treasury, Note 8.00%,
05-15-01 @ 100.781....................... 10,078,100
25,000* United States Treasury, Note 7.25%,
08-15-04 @ 95.984........................ 23,996,000
10,000* United States Treasury, Note 7.875%,
11-15-04 @ 100.281....................... 10,028,100
_____________
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $85,588,225) 80,845,200
_____________
SHORT-TERM INVESTMENTS (3.57%)
SHORT TERM NOTES (3.57%)
3,300 Countrywide Funding Corp., 4.95%
01-05-95................................. 3,327,248
1,536 Ford Motor Credit Corp., 6.05%
01-03-95................................. 1,535,225
1,234 Ford Motor Credit Corp., 6.05%
01-06-95................................. 1,232,756
2,438 Ford Motor Credit Corp., 5.82%
01-10-95................................. 2,434,058
4,000 Ford Motor Credit Corp., 5.82%
01-12-95................................. 3,992,240
3,946 Ford Motor Credit Corp., 5.82%
01-13-95................................. 3,937,707
5,432 Goldman Sachs Co., 6.20% 01-03-95........ 5,429,194
4,005 ITT Financial Corp., 6.00% 01-04-95...... 4,002,331
3,500 ITT Financial Corp., 6.00% 01-05-95...... 3,497,083
1,607 ITT Financial Corp., 6.10% 01-05-95...... 1,605,366
3,000 ITT Financial Corp., 6.09% 01-06-95...... 2,996,955
2,050 ITT Financial Corp., 6.02% 01-10-95...... 2,046,572
4,000 ITT Financial Corp., 6.05% 01-11-95...... 3,992,605
4,000 Merrill Lynch & Co., 6.00% 01-09-95...... 3,994,000
_____________
TOTAL SHORT-TERM NOTES 44,023,340
_____________
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
PAR VALUE
(000's MARKET
OMITTED) SHORT-TERM INVESTMENTS VALUE
- -------- -----
<S> <C>
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%........ $ 46,459
______________
TOTAL SHORT-TERM INVESTMENTS 44,069,799
______________
TOTAL INVESTMENTS (99.82%) $1,231,178,071
====== ==============
<FN>
* Securities, other than short-term investments, newly added to the
portfolio for period ended December 31, 1994.
NMF No meaningful figure.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
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 Investors Fund (the "Fund") and John Hancock Sovereign
Balanced Fund.
The Directors 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, 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 Trustees. Short-term debt investments maturing
within 60 days are valued at amortized cost which approximates market value.
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. Therfore, no Federal income
tax provision is required. Additionally, net capital losses of $1,217,935
attributable to security transactions incurred 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 Dividend income on investment
securities is recorded on the ex-dividend date. Interest income on investment
securities is recorded on the accrual basis.
The Fund records all distributions to shareholders from net
investment income and realized gains on the ex-dividend date. Such
distributions are determined in conformity with income tax regulations, which
may differ from generally accepted accounting principles. Dividends paid by
the Fund, with respect to each class of shares will be calculated in the same
manner and 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.
Transfer agent expenses and 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 purchased from either the date of issue or the date of purchase
over the life of the security, as required by the Internal Revenue Code.
INCOME EQUALIZATION Prior to January 1, 1993, the Fund followed the
accounting practice known as income equalization by which a portion of the
proceeds from sales and costs of repurchases of Fund shares, equivalent on a
per share basis to the amount of undistributed net investment income on the
date of the transaction, was credited or charged to undistributed net
investment income. As a result, undistributed net income per share was not
affected by sales or redemptions of Fund shares. The Fund discontinued
equalization accounting
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
as of January 1, 1993, and reclassified net equalization credits in the amount
of $2,430,618 from undistributed net investment income to capital paid-in. In
management's opinion, discontinuation of equalization accounting will result in
less distortion of undistributed net investment income as compared to income
available to shareholders for distribution for Federal tax purposes. This change
in accounting policy, shown on the Statement of Changes in Net Assets for the
year ended December 31, 1993, has no effect on the net assets, the results of
operations, or the net asset value per share of the Fund and did not have a
material effect on the per share amounts shown in the Financial Highlights.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a quarterly
management fee to John Hancock Advisers, Inc. (the "Adviser"), a wholly-owned
subsidiary of The Berkeley Financial Group, 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. Effective March 31, 1995, the Fund will pay a
quarterly management fee to the Adviser, equivalent on an annual basis, to
the sum of (a) 0.60% of the first $750,000,000 of the Fund's average daily
net asset value, (b) 0.55% of the next $750,000,000, (c) 0.50% of the next
$1,000,000,000 and (d) 0.45% of the Fund's average daily net asset value in
excess of $2,500,000,000. The Adviser has entered into a service agreement
with Sovereign Asset Management Corporation ("SAMCORP") an affiliate of the
Adviser, to provide certain investment research and portfolio management
services to the Fund, for which the Adviser pays SAMCORP 40% of its
management fee.
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. Prior to January 1,
1995, JH Funds was known as John Hancock Broker Distribution Services, Inc.
For the period ended December 31, 1994, JH Funds received net sales charges
of $5,068,113 with regard to sales of Class A shares. Out of this amount,
$798,216 was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $2,458,300 was paid as sales commissions to
unrelated broker-dealers, and $1,811,597 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
December 31, 1994 contingent deferred sales charges received by JH Funds
amounted to $133,135.
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
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
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, which became effective July 7, 1993. 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 The
Berkeley Financial Group. Prior to January 1, 1995, Investor Services was known
as John Hancock Fund Services, Inc. The Fund pays Investor Services a monthly
transfer agent fee equivalent, on an annual basis, to 0.17%, 0.19% and 0.10%
(0.17% prior to April 1, 1994) of the average daily net asset value,
attributable to Class A, Class B and Class C shares of the Fund, respectively,
plus out of pocket expenses incurred by Investor Services on behalf of the Fund
for proxy mailings. Effective January 1, 1995, Class A and Class B shares will
pay transfer agent fees based on transaction volume and the number of
shareholder accounts.
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.
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 December 31, 1994, aggregated $464,823,355 and $392,300,033,
respectively. Purchases and proceeds from sales of obligations of the U.S.
government and its agencies aggregated $111,742,650 and $136,373,759,
respectively, during the period ended December 31, 1994.
The cost of investments owned at December 31, 1994 (including the
joint repurchase agreement), for Federal income tax purposes was
$1,225,522,373. Gross unrealized appreciation and depreciation of investments
aggregated $61,338,140 and $55,728,901, respectively, resulting in net
unrealized appreciation of $5,609,239.
20
<PAGE> 21
JOHN HANCOCK FUNDS - SOVEREIGN INVESTORS FUND
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Sovereign Investors Fund,Inc. --
John Hancock Sovereign Investors Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Sovereign Investors Fund (the "Fund"), one of the portfolios
constituting John Hancock Sovereign Investors Fund, Inc., including the
schedule of investments, as of December 31, 1994, and the related statement
of operations for the year then ended and the statement of changes in net
assets and the financial highlights for each of the two years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of John Hancock Sovereign Investors Fund for
each of the three years in the period ended December 31, 1992 were audited by
other auditors whose report dated February 3, 1993 expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of John Hancock Sovereign Investors Fund portfolio of John Hancock
Sovereign Investors Fund, Inc. at December 31, 1994, the results of its
operations for the year then ended, and the changes in its net assets and
financial highlights for each of the two years in the period then ended, in
conformity with generally accepted accounting principles.
Boston, Massachusetts
February 13, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended December
31, 1994.
The Fund designated distributions to shareholders of $4,311,900 as
long-term capital gain dividends. Shareholders were mailed a 1994 U.S.
Treasury Department Form 1099-DIV in January 1995 representing their
proportionate share.
United States Government Obligations: Income from these investments
may be exempt from certain state and local taxes. The percentage of assets
invested in U.S. Treasury bonds, bills and notes was 3.95% at year end. The
percentage of income derived from U.S. Treasury bonds, bills and notes was
8.81%. The percentage of assets invested in obligations of other U.S.
government agencies (excluding securities issued by Federal National Mortgage
Association and Government National Mortgage Association) was 1.79% at year
end. The percentage of income derived from these investments was 3.88%.
With respect to the Fund's ordinary taxable income for the fiscal
year ended December 31, 1994, 70.54% qualifies for the corporate dividends
received deduction.
For specific information on exemption provisions in your state,
consult your local state tax office or your tax adviser.
21
<PAGE> 22
John Hancock Funds - Sovereign Investors Fund
HISTORICAL DATA (Unaudited)
<TABLE>
The table below shows the record of the Fund during the past periods.
- ------------------------------------------------------------------------------
<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>
1985 2,105,220 $.53 $11.31 $.435
1986 2,807,182 .55 12.36 .865
1987 3,701,248 .58 10.96 .90
1988 4,099,131 .604 11.19 .382
1989 5,274,426 .607 12.60 .58
1990 6,991,411 .59 11.94 .60
1991 13,560,178 .53 14.31 .67
1992 59,053,529 .45 14.78 .09
1993 83,332,510 .42 15.10 .09
1994 76,585,860 .46 14.24 .11
</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>
1994 8,996,738 $.36 $14.24 $.11
</TABLE>
<TABLE>
<CAPTION>
CLASS C PER SHARE
YEAR --------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- ----- ------------
<S> <C> <C> <C> <C>
1993 674,320 $.34 $15.11 $.09
1994 1,062,699 .51 14.24 .11
</TABLE>
<TABLE>
<CAPTION>
DIVIDEND INCREASES (UNAUDITED)
Listed below are the most recent dividend increases for the common stocks
held in the Sovereign Investors Fund as of December 31, 1994
- ------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
<S> <C>
Abbott Laboratories..................... 11.8%
AFLAC Corp.............................. 15.0
Air Products & Chemicals, Inc........... 6.5
Alco Standard .......................... 4.0
ALLTEL Corp............................. 9.1
American General Corp................... 5.5
Bell Atlantic Corp...................... 3.0
Campbell Soup, Co....................... 12.0
Chubb Corp.............................. 7.0
Colgate-Palmolive....................... 13.9
Crompton & Knowles...................... 20.0
Dominion Resources...................... 1.6
Emerson Electric Co..................... 10.3
Exxon Corp.............................. 4.2
First Union Corp........................ 15.0
Florida Progress Corp................... 2.0
Frontier Corp........................... 2.5
Gannett Co., Inc........................ 3.0
General Electric Co..................... 13.9
General Motors, Corp. CI E.............. 20.0
GTE Corp................................ 3.3
Hanson PLC.............................. 5.3
Interpublic Group....................... 12.0
Johnson & Johnson....................... 11.5
KeyCorp................................. 14.3
Legget & Platt, Inc..................... 6.7
Masco Corp.............................. 5.9
May Department Stores................... 13.0
McDonald's.............................. 11.5
McGraw-Hill............................. 1.8
Merck................................... 7.1
Minnesota Mining & Manufacturing........ 6.0
National Fuel Gas....................... 2.6
NationsBank Corp........................ 8.7
NWNL Company, Inc....................... 12.5
PepsiCo, Inc............................ 12.5
Phillip Morris.......................... 19.6
Pitney Bowes............................ 15.6
PPG Industries.......................... 3.6
Procter & Gamble........................ 12.9
Providian Corp.......................... 9.6
Raytheon................................ 7.1
Rohm and Haas........................... 5.7
RPM, Inc. .............................. 7.7
Sara Lee Corp........................... 6.3
Shaw Industries, Inc.................... 22.2
Sonoco Products Corp.................... 3.7
Sysco Corp.............................. 28.6
Torchmark Corp.......................... 5.0
TRW, Inc. .............................. 6.4
Union Electric Co....................... 2.5
UST, Inc................................ 16.7
V F Corp. .............................. 6.3
Wal-Mart................................ 30.8
Witco Corp.............................. 12.0
WMX Technologies, Inc................... 15.4
----
The average dividend increase for this group was 9.9%
====
</TABLE>
22
<PAGE> 23
NOTES
John Hancock Funds - Sovereign Investors Fund
23
<PAGE> 24
[A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of the page.
A box sectioned in quadrants with a triangle in upper left, a circle in upper
right, a cube in lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Managament Firm."
A recycled logo in lower left hand corner with the caption "Printed on Recycled
Paper."]
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
101 Huntington Avenue Boston, MA 02199-7603
This report is for the information of shareholders of the John
Hancock Sovereign Investors Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
<PAGE> 25
- --------------------------------------------------------------------------------
JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SOVEREIGN
BALANCED
FUND
ANNUAL REPORT
DECEMBER 31, 1994
<PAGE> 26
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
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
With 1995 upon us, New Year's resolutions abound. Dieting and saving
money -- Americans' long-time favorites -- are sure to top the list once again.
And once again, they'll probably be the most difficult to keep. This year,
however, Congress may give savers an additional incentive to stick to their
guns.
Both the Republicans and Democrats want to revive Individual Retirement
Accounts (IRAs). In an effort to encourage savings, IRAs were made available to
all working Americans in 1981. Anyone with earned income could contribute up
to $2,000 annually. The contributions were fully tax-deductible, and the
earnings weren't taxed until withdrawal. IRAs became the most successful
savings program in the U.S., drawing in more than $250 billion and 13 million
new participants by 1985.
Sweeping tax reforms in 1986, however, changed all that. As it stands
now, the full deduction only applies to individuals who earn less than $25,000,
married couples who earn less than $40,000 and people without
employer-sponsored retirement plans. The result of this congressional
tinkering: the number of IRA contributors declined dramatically, from 16.2
million in 1985 to 4.2 million in 1992.
Legislators are now taking a closer look at expanding the accessibility
of IRAs once again. Several proposals are on the table: (1) the Republicans'
"Contract with America" includes the American Dream Savings Account, a type of
IRA; (2) President Clinton has proposed expanding eligibility by raising income
limits; and (3) several congressional representatives have introduced
legislation to restore the universal availability of a fully tax-deductible
IRA.
We enthusiastically support restoring IRAs to their original luster.
Not only will they provide a tax break to middle-income Americans, but they'll
go a long way toward raising the nation's dangerously low personal savings rate
- -- the lowest of any major industrialized country. There's an increasing
awareness that Social Security and pension plans will no longer provide for the
retirement needs of middle-income Americans. Increasing IRA accessibility for
more working individuals and families is one of the most sensible ways to help
Americans take responsibility for their future financial needs. We urge you to
support the expanded IRA by contacting your congressional representative or
senator.
Sincerely,
/s/ EDWARD J. BOUDREAU, JR.,
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 27
BY JOHN SNYDER AND BARRY EVANS FOR THE
PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
SOVEREIGN BALANCED FUND
Economy gains while stocks and bonds suffer;
-------------------------------------------
slower growth in 1995 signals better times ahead
------------------------------------------------
Main Street and Wall Street moved in different directions in 1994. Main
Street headed north thanks to an excellent year of strong employment gains,
rising income, increasing consumer confidence and terrific corporate earnings.
Unfortunately, all the good economic news sent Wall Street south.
Fears that a strong economy would ignite inflation drove interest rates
up and stocks and bonds down. While the major stock market indices finished the
year in slightly positive territory, those returns masked a substantial
correction in the broader market. More than 80% of all stocks on the New York
Stock Exchange declined 20% or more in 1994. Meanwhile, the bond market
experienced its worst decline in more than 50 years.
Against that backdrop, John Hancock Sovereign Balanced Fund finished
the year down slightly. For the year ended December 31, 1994, the Fund's Class
A and B shares had total returns of -3.51% and -4.22%, respectively, at net
asset value. By comparison, the average balanced fund had a total return of
- -2.52%, according to Lipper Analytical Services.1
STOCKS: A SCORECARD REVIEW.
Our interest-rate sensitive stocks were among the hardest hit.
Bank stocks -- which total nearly 3% of the Fund's assets -- were
our top performers in the first half of the year, thanks to strong
earnings gains and a wave of merger activity. But concerns about
the Fed's rate hikes finally caught up with the group in August.
Fears that rising rates would squeeze net interest margins -- that
is, the gap between
". . . ALL THE GOOD ECONOMIC NEWS SENT WALL STREET SOUTH."
A 2 1/4" x 2" photo of John Snyder centered at bottom of page.
Caption reads: "John Snyder, Co-Portfolio Manager."
3
<PAGE> 28
John Hancock Funds - Sovereign Balanced Fund
"OUR CONSUMER STOCKS.
WERE THE BIG
WINNERS IN 1994."
PORTFOLIO DIVERSIFICATION
Pie chart with the heading "Portfolio Diversification" at top of left hand
column. The chart is divided into four sections. Going from left to right:
Cash/Other 7%; Common Stocks 51%; U.S. Government/Agency Issues 15%; and
Corporate Bonds 27%. A footnote below states. "As a percentage of net assets on
December 31, 1994."
deposit rates and lending rates -- drove bank stocks like NationsBank down
through the end of the year. In our view, this is more a case of perception
than reality. Higher rates may compress margins somewhat, but other factors,
including increased fee income and stronger loan demand, are likely to keep
bank earnings strong through 1995.
Our consumer stocks, on the other hand, were the big winners in 1994.
Procter & Gamble, for example, rebounded as investors realized that fears of
brand-name competition were overblown and the company's sales and earnings
were growing nicely. Drug stocks, particularly Johnson & Johnson and Abbott
Laboratories, also had a strong showing, thanks to the demise of health-care
reform and better-than-expected earnings.
BONDS: A TWO-PART STRATEGY
To cope with the hostile environment for bonds, we followed a two-pronged
strategy. The first part involved taking on above-average credit risk. Credit
risk is the risk that a bond issuer will be unable to meet its interest and
principal oblig- ations. The lower a bond's credit rating, the higher the risk
- -- and usually the more interest the bond pays. When the, economy is expanding
and interest rates are rising -- as was the case in 1994 -- it often makes
sense to assume more credit risk. That's because as corporate cash flows
improve, companies find themselves better able to pay down debt. Among the
biggest beneficiaries of improved cash flows last year were companies issuing
high-yield bonds -- those with credit ratings of BB or lower. We had the most
success in cyclical sectors of the economy that are more sensitive to economic
upturns (and downturns). Those included Stone Container, a paper company;
Northwest Airlines; and Weirton Steel.
The second part of our strategy was to lower interest-rate risk.
That's the risk that bond prices will fall as interest rates rise. One measure
of interest-rate risk is duration, a calculation that takes into account when a
bond matures as well as the frequency and amount of interest payments. When
rates are rising, it makes sense to lower the average duration. That's what we
did -- lowering it from 5.6 years in the months before the period began to 5.1
years throughout most of 1994. We achieved that lower
A 2" x 2" photo of Barry Evans at bottom center. Caption reads:
"Barry Evans, Co-Portfolio Manager."
BARRY EVANS, CO-PORTFOLIO MANAGER
4
<PAGE> 29
John Hancock Funds - Sovereign Balanced Fund
- -------------------------------------------------------------------
FUND PERFORMANCE
Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended December 31, 1994." The chart is
scaled in increments of 1% from bottom to top, with 0% at the top and -5% at
the bottom. Within the chart, there are three solid bars. The first represents
the -3.51% total return for John Hancock Sovereign Balanced Fund: Class A. The
second represents the -4.22% return for John Hancock Sovereign Balanced Fund:
Class B. The third represents the -2.52% return for the average balanced fund.
The footnote below states: "Total returns for John Hancock Sovereign Balanced
Fund are at net asset value with all distributions reinvested. The average
balanced fund is tracked by Lipper Analytical Services. See following page for
historical performance information."
- -------------------------------------------------------------------
duration by balancing long-term bonds with short-term bonds and avoiding
intermediate-term bonds. That's known as a barbell strategy. It works best when
the yield curve is flattening -- that is, when interest rates from one end of
the maturity scale to the other are leveling off -- as was the case throughout
1994.
OUTLOOK FOR 1995
The big theme for 1995 will be a slower U.S. economy. The Fed's aggressive
interest-rate hikes will eventually curb growth. Exactly when and by how much?
Well, that's anyone's guess. But sometime this year, we're likely to see a
moderating economy. And that phenomenon will likely influence our investment
strategy for 1995.
On the stock side, we see significant opportunities in companies with
large and growing overseas exposure. As the U.S. economy slows relative to most
major industrialized and emerging market economies, the relative contribution
to sales and profits of overseas operations of multinational companies will
rise dramatically. Given that, we'll continue to look for companies most likely
to benefit from this trend. Current holdings include Procter & Gamble with 52%
of its sales outside the U.S. and Minnesota Mining & Manufacturing with 49%. We
also believe that high-quality growth stocks will start to look more attractive
to investors in 1995. Attributes of dependability and sustainability of
earnings have been out of fashion for the past couple of years. Investors have
focused on the stronger, yet more volatile, earnings of cyclical companies. But
as a slowing economy clouds earnings projections for cyclicals, investors will
likely shift back to high-quality growth stocks with more reliable earnings.
PepsiCo's 13% earnings growth, for example, may not have looked attractive last
year when earnings on the S&P 500 Index were 18% to 19%. But it certainly will
as earnings drop back to a more normal range of 8% to 10%.
On the bond side, we'll probably make a couple of strategic changes as
the recovery loses steam and rates level off. Junk bonds will likely become
less attractive going forward, while high-quality corporate bonds and
Treasuries will become more attractive. Then as the yield curve begins to
steepen again, we'll probably take off the barbell and add more intermediate
securities. Mortgage-backed securities -- because they're high- quality
government securities of mainly intermediate maturity -- could help us achieve
both goals and will likely become an increasingly important part of the Fund.
"THE BIG THEME FOR 1995 WILL BE A SLOWER U.S. ECONOMY."
- --------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested
dividends and do not take into account sales charges. Actual
load-adjusted performance would be lower.
5
<PAGE> 30
NOTES TO PERFORMANCE INFORMATION
---------------------------------------------------------------
John Hancock Funds - Sovereign Balanced Fund
In accordance with the reporting requirements of the Securities
and Exchange Commission, the following data are supplied for the
period ended December 31, 1994 with all distributions reinvested
in shares. The average annualized total returns for Class A
shares for the 1-year period and since inception on October 5,
1992 were (8.37%) and 1.98%, respectively, and reflect payment of
the maximum sales charge of 5.00%. The average annualized total
returns for Class B shares for the 1-year period and since
inception on October 5, 1992 were (9.01%) and 1.93%,
respectively, and reflect the applicable contingent deferred
sales charge (maximum contingent deferred sales charge of 5%
declines to 0% over six years). All performance data shown
represents past performance and should not be considered indicative
of future performance. Returns and principal values of Fund
investments will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
Performance is affected by a 12b-1 plan, which commenced on
October 5, 1992 for both Class A and Class B shares.
HYPOTHETICAL $10,000 INVESTMENT OVER LIFE OF THE FUND
Sovereign Balanced Fund
Class A shares
Line chart with the heading Sovereign Balanced Fund: Class A,
representing the growth of a hypothetical $10,000 investment
over the life of the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's
500 Stock Index and is equal to $11,700 as of December 31, 1994.
The second line represents the value of hypothetical $10,000 as
of December 31, 1994 and is equal to $11,002. The third line
represents the Sovereign Balanced Fund after sales charge and is
equal to $10,449 as of December 31, 1994.
Soveriegn Balanced Fund
Class B shares
Line chart with the heading Sovereign Balanced Fund: Class B,
representing the growth of a hypothetical $10,000 investment
over the life of the fund. Within the chart are three lines.
The first line represents the value of the Standard & Poor's
500 Stock Index and is equal to $11,710 as of December 31,1994.
The second line represents the value of the hypothetical $10,000
made in the Sovereign Balanced Fund on October 5, 1992, before
contingent deferred sales charge and is equal to $10,838 as of
December 31, 1994. The third line represents the Sovereign Balanced
Fund after contingent deferred sales charge and is equal to $10,438
as of December 31, 1994.
*The Standard & Poor's 500 Stock Index is an unmanaged index that
includes 500 widely traded common stocks and is a commonly used
measure of stock market performance.
6
<PAGE> 31
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
John Hancock Funds - Sovereign Balanced Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON DECEMBER 31, 1994. YOU'LL
ALSO FIND THE NET ASSET VALUE PER SHARE FOR EACH CLASS AS OF THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
- -------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common and preferred stocks (cost - $73,957,095)...... $ 73,453,050
Corporate Bonds (cost - $41,506,951).................. 38,162,271
United States government and agencies
obligations (cost - $21,409,819).................... 20,419,131
Canadian government obligations
(cost - $2,275,607)................................. 2,060,975
Joint repurchase agreement (cost - $5,477,000)........ 5,477,000
Corporate savings account............................. 1,449
------------
139,573,876
Receivable for shares sold.............................. 9,018
Interest receivable..................................... 1,440,907
Dividends receivable.................................... 248,803
Deferred organization expenses - Note A................. 65,857
------------
Total Assets...................... 141,338,461
----------------------------------------------------
LIABILITIES:
Payable for shares repurchased.......................... 61,256
Payable to John Hancock Advisers, Inc. and
affiliates - Note B................................... 96,723
Accounts payable and accrued expenses................... 52,537
------------
Total Liabilities................. 210,516
----------------------------------------------------
NET ASSETS:
Capital paid-in......................................... 147,472,740
Accumulated net realized loss on investments............ (1,304,246)
Net unrealized depreciation of investments.............. (5,054,045)
Undistributed net investment income..................... 13,496
------------
Net Assets........................ $141,127,945
====================================================
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 - $61,951,754 / 6,295,898....................... $ 9.84
==========================================================================
Class B - $79,176,191 / 8,046,236....................... $ 9.84
==========================================================================
MAXIMUM OFFERING PRICE *
Class A - ($9.84 x 105.26%)............................. $ 10.36
==========================================================================
<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
Year ended December 31, 1994
- -----------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest................................................ $ 6,147,667
Dividends (net of foreign withholding tax of $13,980)... 2,642,264
------------
8,789,931
------------
Expenses:
Investment management fee - Note B.................... 864,666
Distribution/service fee - Note B
Class A............................................. 189,037
Class B............................................. 742,706
Transfer agent fee - Note B
Class A............................................. 115,099
Class B............................................. 162,030
Custodian fee......................................... 56,436
Registration and filing fees.......................... 34,562
Auditing fee.......................................... 32,355
Trustees' fees........................................ 30,833
Printing.............................................. 30,304
Organization expense.................................. 24,042
------------
Total Expenses.................... 2,282,070
----------------------------------------------------
Net Investment Income............. 6,507,861
----------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments sold................... (1,231,584)
Change in net unrealized appreciation/depreciation
of investments........................................ (11,093,661)
------------
Net Realized and Unrealized
Loss on Investments............... (12,325,245)
----------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations......... $ (5,817,384)
====================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE> 32
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income......................................................... $ 6,507,861 $ 3,295,566
Net realized gain (loss) on investments sold.................................. (1,231,584) 2,051,455
Change in net unrealized appreciation/depreciation of investments............. (11,093,661) 2,123,828
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations......... (5,817,384) 7,470,849
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.4951 and $0.4539 per share, respectively)..................... (3,070,175) (1,220,690)
Class B - ($0.4296 and $0.3816 per share, respectively)..................... (3,424,190) (2,077,457)
Distributions from net realized gain on investments sold
Class A - ($0.0231 and $0.1390 per share, respectively)..................... (140,283) (802,165)
Class B - ($0.0231 and $0.1390 per share, respectively)..................... (179,739) (1,001,930)
------------ ------------
Total Distributions to Shareholders..................................... (6,814,387) (5,102,242)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*............................................ 12,766,526 118,517,317
------------ ------------
NET ASSETS:
Beginning of period........................................................... 140,993,190 20,107,266
------------ ------------
End of period (including undistributed net investment income of
$13,496 and none, respectively) ........................................... $141,127,945 $140,993,190
============ ============
<FN>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1993
--------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.......................................................... 1,345,089 $ 13,926,996 2,417,337 $25,625,592
Shares issued in reorganization - Note D............................. -- -- 3,185,896 34,314,653
Shares issued to shareholders in reinvestment of distributions....... 305,566 3,035,107 179,420 1,919,915
---------- ------------ --------- -----------
1,650,655 16,962,103 5,782,653 61,860,160
Less shares repurchased.............................................. (1,146,920) (11,691,908) (559,332) (6,003,391)
---------- ------------ --------- -----------
Net increase......................................................... 503,735 $ 5,270,195 5,223,321 $55,856,769
========== ============ ========= ===========
CLASS B
Shares sold.......................................................... 1,851,509 $ 19,139,945 6,244,398 $66,088,653
Shares issued to shareholders in reinvestment of distributions....... 322,144 3,200,787 263,224 2,814,189
---------- ------------ --------- -----------
2,173,653 22,340,732 6,507,622 68,902,842
Less shares repurchased.............................................. (1,454,476) (14,844,401) (584,015) 6,242,294)
---------- ------------ --------- -----------
Net increase......................................................... 719,177 $ 7,496,331 5,923,607 $62,660,548
========== ============ ========= ===========
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAVE 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 VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 33
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------------------------------------------
John Hancock Funds - Sovereign Balanced Fund
<CAPTION>
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:
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FOR THE PERIOD
----------------------- OCTOBER 5, 1992 TO
1994 1993 DECEMBER 31, 1992(a)(d)
---------- ---------- ----------------------
<S> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .......................... $ 10.74 $ 10.19 $ 10.00
------- ------- -------
Net Investment Income ......................................... 0.50 0.46 0.04(b)
Net Realized and Unrealized Gain (Loss) on Investments ........ (0.88) 0.68 0.20
------- ------- -------
Total from Investment Operations ......................... (0.38) 1.14 0.24
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ........................ (0.50) (0.45) (0.05)
Distributions from Net Realized Gain on Investments Sold .... (0.02) (0.14) --
------- ------- -------
Total Distributions ....................................... (0.52) (0.59) (0.05)
------- ------- -------
Net Asset Value, End of Period ................................ $ 9.84 $ 10.74 $ 10.19
======= ======= =======
Total Investment Return at Net Asset Value .................... (3.51%) 11.38% 2.37%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ..................... $61,952 $62,218 $ 5,796
Ratio of Expenses to Average Net Assets ....................... 1.23% 1.45% 2.79%*(b)
Ratio of Net Investment Income to Average Net Assets .......... 4.89% 4.44% 3.93%*(b)
Portfolio Turnover Rate ....................................... 78% 85% 0%
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .......................... $ 10.75 $ 10.20 $ 10.00
------- ------- -------
Net Investment Income ......................................... 0.43 0.37 0.03(b)
Net Realized and Unrealized Gain (Loss) on Investments ........ (0.89) 0.70 0.20
------- ------- -------
Total from Investment Operations ............................ (0.46) 1.07 0.23
------- ------- -------
Less Distributions:
Dividends from Net Investment Income ........................ (0.43) (0.38) (0.03)
Distributions from Net Realized Gain on Investments Sold .... (0.02) (0.14) --
------- ------- -------
Total Distributions ....................................... (0.45) (0.52) (0.03)
------- ------- -------
Net Asset Value, End of Period ................................ $ 9.84 $ 10.75 $ 10.20
======= ======= =======
Total Investment Return at Net Asset Value .................... (4.22%) 10.63% 2.29%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ..................... $79,176 $78,775 $14,311
Ratio of Expenses to Average Net Assets ....................... 1.87% 2.10% 3.51%*(b)
Ratio of Net Investment Income to Average Net Assets .......... 4.25% 4.01% 3.21%*(b)
Portfolio Turnover Rate ....................................... 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) Not annualized.
(d) This period is covered by the report of other independent auditors (not included herein).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 34
FINANCIAL STATEMENTS
- ---------------------------------------------------------------------
John Hancock Funds - Sovereign Balanced Fund
SCHEDULE OF INVESTMENTS
December 31, 1994
Per share earnings and dividends and their compound growth rates
are shown for the years 1985 to 1994. This data and price/earnings
ratios are unaudited.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES
OWNED BY SOVEREIGN BALANCED FUND ON DECEMBER 31, 1994. 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.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS (50.69%) RATE VALUE
- ----------- ----- -----
<S> <C> <C>
BANKS (2.58%)
70,000 KeyCorp @ 25............................... $ 1,750,000
Multi-regional bank holding company
EARNINGS P/S...... $1.41, 1.72, 1.88, 2.10,
2.32, 2.32, 2.45, 2.51, 2.89, 3.50 10.6%
DIVIDENDS P/S........ $.46, .48, .60, .68,
.80, .88, .92, .98, 1.12, 1.20 12.0%
Price/Earnings Ratio................... 7.1
42,000 NationsBank Corp. @ 45 1\8.............. 1,895,250
Largest superregional bank in the Southeast
EARNINGS P/S.......$2.28, 2.51, 2.01, 2.87,
4.44, 2.61, .76, 4.60, 5.00, 6.21 11.8%
DIVIDENDS P/S.........$.66, .78, .86, .94,
1.10, 1.42, 1.48, 1.51, 1.64, 1.88 12.3%
Price/Earnings Ratio....................7.3
-----------
3,645,250
-----------
BASIC INDUSTRIES (0.91%)
60,000* Sonoco Products Co. @ 21 1\2............. 1,290,000
-----------
Containers, paper products and packaging
EARNINGS P/S.......$ .57, .63, .77, 1.10,
1.18, 1.21,1.10, .94, 1.35, 1.37 10.2%
DIVIDENDS P/S..........$ .18, .21, .25,
.32, .41, .45, .46, .49, .53, .56 13.4%
Price/Earnings Ratio.....................16
CHEMICALS (6.48%)
40,000* Air Products And Chemicals
Inc. @ 44 5\8.............................. 1,785,000
Producer of industrial and speciality
chemicals and gases
EARNINGS P/S.......$ 1.17, 1.17, 1.42, 1.95,
1.93, 2.08, 2.23, 2.45, 1.76, 2.05 6.4%
DIVIDENDS P/S $ .32, .39, .45, .55, .63,
.69, .75, .83, .89, .95 12.9%
Price/Earnings Ratio...................21.8
70,000* Crompton & Knowles
Corporation @ 16 1\2....................... 1,155,000
Produces and markets speciality chemicals
EARNINGS P/S........$.14, .17, .24, .36, .50,
.61, .73, .83, 1.00, 1.01 26.6%
DIVIDENDS P/S...$ .075. .079, .084, .11, .15,
.20, .25, .31, .38, .46 22.3%
Price/Earnings Ratio...................16.3
40,000 Minnesota Mining and
Manufacturing Co. @ 53 3\8................. 2,135,000
Diversified manufacturer of industrial,
commercial, health care and consumer products
EARNINGS P/S......$ 1.51, 1.70, 2.01, 2.55, 2.80,
2.96, 2.63, 2.83, 2.91, 3.16 8.6%
DIVIDENDS P/S $ .88, .90, .93, 1.06, 1.30,
1.46, 1.56, 1.60, 1.66, 1.76 8.0%
Price/Earnings Ratio...................16.9
58,000 PPG Industries, Inc. @ 37 1\8 ............ 2,153,250
Manufacturer of specialty chemicals,
coatings and resins
EARNINGS P/S.....$ 1.14, 1.33, 1.60, 2.13,
2.09, 2.22, .95, 1.61, 1.78, 2.60 9.6%
DIVIDENDS P/S $ .41, .47, .56, .64, .74,
.82, .86, .94, 1.04, 1.12 11.8%
Price/Earnings Ratio...................14.3
CHEMICALS (CONTINUED)
77,000 Witco Corporation @ 24 5\8 ............... $ 1,896,125
Producer of special petroleum chemicals
EARNINGS P/S......$ 1.28, 1.47, 1.46, 1.53,
.80, 1.38, 1.61, 1.19, .64, 1.98 5.0%
DIVIDENDS P/S......$ .49, .54, .60, .72,
.83, .86, .91, .92, .96, 1.06 9.0%
Price/Earnings Ratio..................12.4
-----------
9,124,375
-----------
CONSUMER CYCLICALS & SERVICES (2.61%)
110,000 Hanson PLC ADR @ 18....................... 1,980,000
U.K. based multi-subsidiary holding company
EARNINGS P/S........$ .57, .72, 1.10, 1.71,
1.67, 1.83, 1.74, 1.66, .87, 1.20 8.6%
Dividends P/S* .......$ .15, .20, .27, .36,
.56, .68, .79, .80**, .86, .88 21.7%
* Gross ordinary dividends per ADR.
** 1992 Dividend excludes extra transition
dividend of $.23.
Price/Earnings Ratio...................15
35,000 VF Corp. @ 48 5\8......................... 1,701,875
International apparel manufacturer
EARNINGS P/S......$ 2.25, 2.05, 2.62, 2.54,
2.70, 1.35, 2.75, 3.97, 3.80, 4.19 7.2%
DIVIDENDS P/S.......$ .58, .66, .75, .85,
.91, 1.00, 1.02, 1.11, 1.22, 1.30 9.4%
Price/Earnings Ratio..................11.6
-----------
3,681,875
-----------
Consumer Durables (3.85%)
66,800* Leggett & Platt, Inc. @ 35 ............... 2,338,000
Produces intermediate products for the home
furnishings industry
EARNINGS P/S........$ .88, .95, 1.11, 1.09,
1.29, .84, 1.11, 1.64, 2.09, 2.68 13.2%
DIVIDENDS P/S.......$ .17, .20, .28, .32,
.37, .42, .43, .46, .54, .62 15.5%
Price/Earnings Ratio..................13.1
67,000 Masco Corp. @ 22 5\8 .................... 1,515,875
Leading manufacturer of brand-name building
and home improvement products
EARNINGS P/S......$ 1.26, 1.54, 1.61, 2.06,
1.41, .91, .30, 1.21, 1.45, 1.75 3.7%
DIVIDENDS P/S......$ .29, .34, .38, .44,
.50, .54, .57, .61, .65, .69 10.1%
Price/Earnings Ratio....................13
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 35
<TABLE>
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
John Hancock Funds - Sovereign Balanced Fund
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ------ -----------
<S> <C> <C> <C>
CONSUMER DURABLES (CONTINUED)
60,000* Superior Industries
International, Inc. @ 26 3/8 . . . . . . . . . . . . . . . . . . . . . . . $ 1,582,500
Manufacturer of automotive wheels
EARNINGS P/S . . . . $ .27, .26, .32, .46, .56, .54, .62, .95, 1.48, 1.83 23.7%
DIVIDENDS P/S . . . . $ 85, .04, .05, .053, .07, .08, .09, .10, .11, .15 25.1%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . 14.4 -----------
5,436,375
-----------
CONSUMER NON-DURABLES (4.41%)
15,000* Colgate - Palmolive Company @ 63 3/8 . . . . . . . . . . . . . . . . . . . 950,625
Global consumer products company which
consists of oral care, body care,
household surface care, etc.
EARNINGS P/S . . $ 1.06, 1.25, .01, 1.11, 1.90, 2.12, .76, 2.93, 3.38, 3.80 15.2%
DIVIDENDS P/S . . . $. 65, .68, .70, .74, .78, .90, 1.07, 1.15, 1.34, 1.54 10.1%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 16.7
65,000 PepsiCo, Inc. @ 36 1\4 . . . . . . . . . . . . . . . . . . . . . . . . . . 2,356,250
Second largest soft drink company
EARNINGS P/S . . . $ .50, .58, .77, .96, 1.13, 1.37, 1.35, 1.61, 1.96, 2.21 18.0%
DIVIDENDS P/S . . . . . $ .19, .21, .22, .27, .32, .38, .46, .51, .61, .70 15.6%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . .16.4
47,000 Procter & Gamble Co. (The) @ 62. . . . . . . . . . . . . . . . . . . . . . 2,914,000
Produces laundry and cleaning products,
personal care items, food, beverages, etc.
EARNINGS P/S . . $ .95, 1.04, .46, 1.48, 1.74, 2.25, 2.43, 2.62, .25, 1.90 8.0%
DIVIDENDS P/S . . . $ .65, .67, .68, .70, .83, .93, 1.00, 1.08, 1.17, 1.32 8.2%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . 32.6 -----------
6,220,875
-----------
DIVERSIFIED INDUSTRIALS (1.17%)
25,000 TRW Inc. @ 66. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650,000
-----------
Producer of space and defense
products/services and automotive
components
EARNINGS P/S $ 1.90, 3.56, 3.95, 4.23, 4.25, 3.36, (2.30), 3.10, 3.40, 4.89 11.1%
DIVIDENDS P/S $ 1.50, 1.53, 1.60, 1.63, 1.72, 1.74, 1.80, 1.82, 1.88, 1.94 7.1%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 13.5
DIVERSIFIED OPERATIONS (3.34%)
25,000* Alco Standard Corporation @ 62 3\4 . . . . . . . . . . . . . . . . . . . . 1,568,750
Distributor of office and paper products
EARNINGS P/S . $ 1.52, 1.47, 1.50, 2.12, 2.68, 2.19, 1.95, 2.22, 2.34, 2.87 7.3%
DIVIDENDS P/S . . . . $ .61, .63, .65, .70, .78, .85, .89, .93, .97, 1.01 5.8%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . 21.9
25,000 Johnson Controls, Inc. @ 49. . . . . . . . . . . . . . . . . . . . . . . . 1,225,000
Supplies building controls, manufacturer of
seats and batteries to the auto industry, and
a leader of soft drink containers
EARNINGS P/S . $ 2.40, 2.36, 2.20, 2.71, 2.42, 2.13, 2.19, 2.86, 3.16, 3.80 5.2%
DIVIDENDS P/S $ .95, 1.00, 1.07, 1.12, 1.17, 1.21, 1.25, 1.30, 1.38, 1.47 5.0%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . 12.9
DIVERSIFIED OPERATIONS (CONTINUED)
70,000 Questar Corporation @ 27 1\2 . . . . . . . . . . . . . . . . . . . . . . . $ 1,925,000
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 2.5%
DIVIDENDS P/S . . . $ .82, .87, .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13 3.6%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 13.8
-----------
4,718,750
-----------
ELECTRICAL EQUIPMENT (4.78%)
34,000* Emerson Electric Co. @ 62 1\2 . . . . . . . . . . . . . . . . . . . . . . . 2,125,000
Produces and sells electrical/electronic
products and systems
EARNINGS P/S . $ 1.81, 1.87, 2.00, 2.31, 2.63, 2.75, 2.83, 2.96, 3.15, 4.04 9.3%
DIVIDENDS P/S. . $ .88, .93, .98, 1.03, 1.16, 1.28, 1.34, 1.40, 1.47, 1.60 6.9%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 15.5
54,000 General Electric Co. @ 51 . . . . . . . . . . . . . . . . . . . . . . . . . 2,754,000
Dominant force in home appliances,
electrical power and financial services
EARNINGS P/S . $ 1.28, 1.37, 1.60, 1.88, 2.18, 2.43, 2.55, 2.51, 3.03, 3.40 11.5%
DIVIDENDS P/S . . . $ .55, .58, .65, .70, .82, .94, 1.02, 1.12, 1.26, 1.44 11.3%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 15
35,000 Hubbell Incorporated
Class B @ 53 1\4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,863,750
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 9.0%
DIVIDENDS P/S . . $ .58, .64, .75, .85, 1.07, 1.25, 1.40, 1.51, 1.55, 1.62 12.1%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 16.4
-----------
6,742,750
-----------
ENERGY (1.29%)
30,000 Exxon Corp. @ 60 3\4. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,822,500
-----------
Major factor in the crude oil, natural gas and
chemical industry
EARNINGS P/S . $ 3.23, 3.71, 3.43, 3.95, 2.32, 3.96, 4.45, 3.82, 4.21, 3.63 1.3%
DIVIDENDS P/S . $ 1.73, 1.80, 1.90, 2.15, 2.30, 2.47, 2.68, 2.83, 2.88, 2.91 5.9%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 16.7
FINANCIAL (1.22%)
120,000* United Dominion Realty Trust @ 14 3\8. . . . . . . . . . . . . . . . . . . . 1,725,000
-----------
Portfolio of income-producing real estate in
the southeastern U.S.
EARNINGS P/S . . . . . . $ .14, .10, .08, .13, .28, .21, .15, .19, .28, .52 15.7%
DIVIDENDS P/S . . . . . $ .47, .48, .51, .56, .61, .62, .63, .66, .70, .78 5.8%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 27.6
HEALTHCARE (3.49%)
84,000 Abbott Laboratories @ 32 5\8 . . . . . . . . . . . . . . . . . . . . . . . . 2,740,500
Major pharmaceutical and healthcare firm
EARNINGS P/S . . . . $ .49, .58, .70, .83, .96, 1.11, 1.27, 1.47, 1.69, 1.86 16.0%
DIVIDENDS P/S . . . . . . $ .17, .20, .24, .29, .34, .40, .48, .58, .66, .74 17.8%
Price/Earnings Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 17.5
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 36
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
HEALTHCARE (CONTINUED)
<S> <C> <C>
40,000 Johnson & Johnson @ 54 3\4.................. $ 2,190,000
Major producer of prescription/non-
prescription drugs, toiletries, and
medical instruments and supplies
EARNINGS P/S......$ .82, .45, 1.18, 1.41,
1.60, 1.72, 2.19, 2.46, 2.74, 3.13 16.0%
DIVIDENDS P/S.....$ .32, .34, .40, .48,
.56, .66, .77, .89, 1.01, 1.13 15.0%
Price/Earnings Ratio.....................17.5
-----------
4,930,500
-----------
INSURANCE (1.99%)
21,000* Chubb Corporation (The) @ 77 3\8 ........... 1,624,875
Broadly based property/casualty insurer
EARNINGS P/S....$ .95, 2.82, 3.81, 4.19,
4.70, 5.79, 6.32, 6.96, 3.91, 5.80 22.3%
DIVIDENDS P/S......$ .76, .80, .89, 1.08,
1.16, 1.32, 1.48, 1.60, 1.72, 1.84 10.3%
Price/Earnings Ratio.....................13.3
41,000* NWNL Companies, Inc. (The) @ 29 ............ 1,189,000
Specialities in life and health insurance
and annuity businesses
EARNINGS P/S.......$ 1.01, 1.67, 1.85, 1.76,
2.07, 2.09, 1.71, 2.06, 2.62, 3.24 13.8%
DIVIDENDS P/S......$ .40, .43, .48, .54,
.59, .65, .69, .73, .79, .88 9.2%
Price/Earnings Ratio......................9
-----------
2,813,875
-----------
POLLUTION CONTROL (1.40%)
75,000* WMX Technologies, Inc. @ 26 1\4 .............. 1,968,750
Nation's largest provider of waste ---------
management services
EARNINGS P/S.......$ .43, .88, .73, 1.03,
1.22, 1.49, 1.23, 1.86, .94, 1.65 16.1%
DIVIDENDS P/S.....$ .11, .13, .17, .21,
.27, .34, .40, .48, .56, .60 20.7%
Price/Earnings Ratio.....................15.9
PUBLISHING (1.62%)
43,000 Gannett Co., Inc. @ 53 1\4 .................. 2,289,750
Publishes 81 daily /50 non-daily ---------
newspapers, operates 10 TV, 8 FM and
7 AM Stations
EARNINGS P/S.....$ 1.58, 1.71, 1.98, 2.26,
2.47, 2.36, 2.00, 2.40, 2.73, 3.19 8.1%
DIVIDENDS P/S......$ .77, .86, .94, 1.02,
1.11, 1.21, 1.24, 1.26, 1.30, 1.34 6.3%
Price/Earnings Ratio.....................16.7
RETAIL (3.32%)
32,800* Hannaford Brothers Co. @ 25 3\8 ............. 832,300
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 14.7%
DIVIDENDS P/S.......$ .12, .13, .14, .16,
.18, .22, .26, .30, .34, .38 13.7%
Price/Earnings Ratio.....................16.8
51,000 May Dept. Stores Company @ 33 3\4 ...... 1,721,250
Operates 318 department stores and 3,295
shoe stores
EARNINGS P/S.....$ 1.35, 1.22, 1.45, 1.71,
1.82, 1.87, 2.01, 2.01, 2.36, 2.77 8.3%
DIVIDENDS P/S......$ .46, .51, .56, .62,
.69, .77, .81, .83, .90, 1.01 9.1%
Price/Earnings Ratio.....................12.2
RETAIL (CONTINUED)
100,000* Wal-Mart Stores, Inc. @ 21 1\4.............. $ 2,125,000
Operates chain of discount department
stores
EARNINGS P/S......$ .12, .15, .20, .28,
.37, .48, .57, .70, .87, 1.03 27.0%
DIVIDENDS P/S.....$ .018, .021, .03, .04,
.06, .07, .09, .11, .13, .17 28.3%
Price/Earnings Ratio.....................20.6
-----------
4,678,550
-----------
TELECOMMUNICATIONS (2.57%)
75,000 ALLTEL Corporation @ 30 1\8 ............... 2,259,375
One of the country's largest telephone
systems
EARNINGS P/S......$ .71, .77, .90, 1.04,
1.13, 1.18, 1.09, 1.22, 1.39, 1.63 9.7%
DIVIDENDS P/S......$ .41, .44, .45, .51,
.57, .64, .70, .74, .80, .88 8.9%
Price/Earnings Ratio.....................18.5
65,000* Frontier Corp. - formerly Rochester
Telephone Corporation @ 21 1\8............. 1,373,125
Provides telephone service to city of
Rochester NY and outlying areas
EARNINGS P/S....$ .97, .89, .93, 1.06,
.99, .86, 1.18, 1.04, 1.21, 1.52 5.1%
DIVIDENDS P/S.....$ .61, .64, .66, .68,
.71, .73, .75, .77, .79, .81 3.2%
Price/Earnings Ratio.....................13.9
-----------
3,632,500
-----------
TOBACCO (2.61%)
35,000* Philip Morris Companies Inc. @ 57 1\2 .... 2,012,500
Global tobacco, brewing and food company
EARNINGS P/S....$ 1.31, 1.55, 1.94, 2.22,
3.18, 3.83, 4.24, 5.45, 4.05, 5.46 17.2%
DIVIDENDS P/S......$ .50, .62, .79, 1.01,
1.25, 1.55, 1.91, 2.35, 2.60, 3.03 22.2%
Price/Earnings Ratio.....................10.5
60,000 UST Inc. @ 27 3\4......................... 1,665,000
Leading producer of smokeless tobacco
EARNINGS P/S....$ .40, .46, .56, .71, .82,
.98, 1.18, 1.40, 1.70, 1.85 18.5%
DIVIDENDS P/S $ .22, .25, .30, .37, .46,
.55, .66, .80, .96, 1.12 19.8%
Price/Earnings Ratio.....................15
-----------
3,677,500
-----------
UTILITIES (1.05%)
42,000* Union Electric Company @ 35 3\8........... 1,485,750
Largest electric utility in Missouri ----------
EARNINGS P/S......$ 2.86, 2.89, 2.91, 2.56,
2.91, 2.74, 3.01, 2.83, 2.77, 3.02 0.6%
DIVIDENDS P/S $ 1.78, 1.86, 1.92, 1.94,
2.02, 2.10, 2.18, 2.26, 2.34, 2.40 3.4%
Price/Earnings Ratio.....................11.7
TOTAL COMMON STOCKS
(Cost $72,227,720) 71,534,925
-----------
PREFERRED STOCKS (1.36%)
45,000 American Express Co. "DECS" @ 42 5\8 1,918,125
-----------
TOTAL PREFERRED STOCKS
(Cost $1,729,375) 1,918,125
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 37
<TABLE>
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<CAPTION>
PAR VALUE
(000'S MARKET
OMITTED) CORPORATE BONDS (27.04%) VALUE
- --------- -------
<S> <C> <C>
$ 250* Abbey National First Capital, Sr Sub
Note 8.20%, 10-15-04 @ 97.306............. $ 243,265
1,000* Banc One Credit Card Corp., Sr Sub
Note 7.55%, 12-15-99 @ 98.531............. 985,313
1,000* Bank of Scotland, Sub Note 8.85%,
11-01-06 @ 99.688......................... 996,880
1,000* Banque Paribas New York Corp., Sub
Note 6.875%, 03-01-09 @ 82.654............ 826,540
1,000* Barclays North American Capital, Deb.
9.75%, 05-15-21 @ 106.348................. 1,063,480
1,015 BFI Acquisition Corp., Sr Sub Note 12.00%,
12-01-01 @ 98.5........................... 999,775
1,100 CTC Mansfield Funding Corp., Secured Lease
Obligation Bonds 11.125%,
09-30-16 @ 92.657......................... 1,019,227
1,653 Coastal Corp.(The), Sr Deb 11.75%,
06-15-06 @ 109.375........................ 1,807,969
1,300 GTE Corp., Deb 10.250%,
11-01-20 @ 105.181........................ 1,367,353
1,500 Georgia-Pacific Corp., Deb 9.75%,
01-15-18 @ 101.022........................ 1,515,330
300 Great Western Bank, Sub Note 10.25%,
06-15-00 @ 105.671........................ 317,013
1,500 Hydro-Quebec Corp. Deb Ser HS 9.40%,
02-01-21 @ 103.693........................ 1,555,395
1,800* Landeskreditbank Baden-Wurttemberg,
Sub Note 7.625% 2-01-23 @ 91.004.......... 1,638,072
1,000* Magna Copper Company, Sub
Note 12.00% 12-15-01 @ 108.000............ 1,080,000
600* Mass Mutual Life, Sub Note 7.625%,
11-15-23 @ 85.121(R)...................... 510,726
2,000 Medusa Corp. Convertible Sub Note 6.00%,
11-15-03 @ 87.000......................... 1,740,000
1,000 Midland American Capital Corp., Gtd Note
12.75%, 11-15-03 @ 113.715................ 1,137,150
820 Midland Funding Corp. Sr Sec Lease
Oblig 10.33%, 07-23-02 @ 94.500........... 775,153
670 National Westminster Bancorp,
Deb 12.125%, 11-15-02 @ 109.162........... 731,385
500 News America Holdings Corp.,
Sr Note 9.125%, 10-15-99 @ 100.795........ 503,975
500 News America Holdings Corp., Sr Note
8.50%, 02-15-05 @ 95.794.................. 478,970
750 New York Life 7.50%,
12-15-23 @ 82.710(R)...................... 620,325
1,950 NWA Inc., Sub Note 8.625%,
8-01-96 @ 96.000.......................... 1,872,000
CORPORATE BONDS
$ 400 Occidental Petroleum Corp., Sr Deb
11.75%, 03-15-11 @ 108.246............. $ 432,984
500* Pathmark Stores Inc., Sub Note A 11.625%,
06-15-02 @ 96.000......................... 480,000
750 RBSG Capital Corp., Gtd Cap Note 10.125%,
03-01-04 @ 109.036........................ 817,065
400 RJR Nabisco Capital Corp., Sr Sub Deb 8.75%,
04-15-04 @ 92.114......................... 368,456
500 Scandinavian Airlines System, Deb 9.125%,
7-20-99 @ 100.488......................... 502,440
1,100 Security Pacific Corp., Sub Note 11.50%,
11-15-00 @ 112.918........................ 1,242,098
1,000* Standard Credit Card Master Trust,
Credit Card Participation Certificates, 7.25%,
4-07-08 @ 91.125.......................... 911,250
500 Stone Container, Sub Note 9.875%,
02-01-01 @ 94.000......................... 470,000
1,000* Thrifty Payless, Inc., Sr. Sub Note, 12.25%,
4-15-01 @ 94.500.......................... 945,000
1,900 TKR Cable 1, Inc. Deb 10.50%,
10-30-07 @ 102.271........................ 1,943,149
700* Trans Texas Gas Corp., Sr. Secured Note,
10.50%, 9-01-00 @ 95.5.................... 668,500
1,450 Unisys Corp., Credit Sensitive Notes
14.0765%, 07-01-97 @ 107.000.............. 1,551,500
260 United Air Lines Inc., Deb 10.25%,
07-15-21 @ 94.240......................... 245,024
1,594 USAir Inc., Deb 10.55%,
01-15-05 @ 78.750......................... 1,255,275
500* Viacom International, Sub Deb. 8.00%,
07-07-06 @ 85.75.......................... 428,750
1,000* Weirton Steel Corporation, Sr. Notes
10.875%, 10-15-99 @ 98.750................ 987,500
1,100 Westpac Banking Corp., Sub Deb 9.125%,
08-15-01 @ 102.544........................ 1,127,984
-----------
TOTAL CORPORATE BONDS
(Cost $41,506,951) 38,162,271
-----------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (14.47%)
2,831* Federal National Mort. Assn. 7.5%,
08-01-08 @ 95.718......................... 2,710,607
396 Federal National Mort. Assn. REMIC 9.8%,
05-25-19 @ 100.500........................ 397,986
1,790 Financing Corp., Bond 9.65%,
11-02-18 @ 112.930........................ 2,021,447
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 38
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
(000'S UNITED STATES GOVERNMENT MARKET
OMITTED) AND AGENCIES OBLIGATIONS VALUE
- --------- -------
<S> <C> <C>
$ 236* Government National Mort. Assn. 9.00%,
04-15-21 @ 100.875..................... $ 238,555
2,768 United States Treasury, Bond 8.875%,
08-15-17 @ 108.937....................... 3,015,376
500 United States Treasury, Bond 7.125%,
02-15-23 @ 91.000........................ 455,000
1,000 United States Treasury, Note 9.375%,
04-15-96 @ 102.219....................... 1,022,190
4,000* United States Treasury, Note 7.25%,
11-15-96 @ 99.219........................ 3,968,760
2,000* United States Treasury, Note 9.00%,
05-15-98 @ 103.359....................... 2,067,180
2,500 United States Treasury, Note 8.75%,
08-15-00 @ 104.094....................... 2,602,350
2,000* United States Treasury, Note 7.25%,
08-15-04 @ 95.984........................ 1,919,680
-----------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $21,409,819) 20,419,131
-----------
CANADIAN GOVERNMENT
OBLIGATIONS (1.46%)
$ 750 Nova Scotia, Province of, Deb 9.50%,
02-01-19 @ 104.690..................... $ 785,175
1,250 Saskatchewan, Province of, Deb 9.125%,
02-15-21 @ 102.064....................... 1,275,800
-----------
TOTAL CANADIAN GOVERNMENT
OBLIGATIONS
(Cost $2,275,607) 2,060,975
-----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST
RATE
----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (3.88%)
JOINT REPURCHASE AGREEMENT (3.88%)
5,477 Investment in a joint repurchase
agreement transaction with
Lehman Brothers Corp., Dated
12-30-94, Due 01-03-95 (secured
by U.S. Treasury Bonds, 9.250%
Due 02-15-16, and 8.125%
Due 08-15-21, and by U.S.Treasury
Notes, 5.500% Due 02-15-95,
and 4.625% Due 08-15-95)
Note A .......................... 5.85% 5,477,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% ............... 1,449
------------
TOTAL SHORT-TERM INVESTMENTS 5,478,449
------------
TOTAL INVESTMENTS ( 98.90%) $139,573,876
====== ============
<FN>
* Securities, other than short-term investments, newly added to the
portfolio for year ended December 31, 1994.
(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 $1,131,051 as of December 31, 1994.
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.
14
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
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 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, 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. No Class C shares of the Fund were issued and outstanding
during the period ended December 31, 1994. Significant accounting policies of
the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial
Group, may participate in a joint repurchase agreement. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account, on the Fund's behalf. The Adviser is responsible for ensuring
that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of
the Internal Revenue Code that are applicable to regulated investment companies
and to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $340,120 of a 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
15
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
to each class of shares based on the appropriate net assets of the respective
classes. Transfer agent expenses and 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
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 amonthly
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. Prior to January
1, 1995, JH Funds was known as John Hancock Broker Distribution Services,
Inc. For the period ended December 31, 1994, JH Funds received net sales
charges of $416,947 with regard to sales of Class A shares. Out of this
amount, $64,941 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $78,926 was paid as sales commissions
to unrelated broker-dealers and $273,080 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
December 31, 1994 contingent deferred sales charges paid to JH Funds amounted
to $248,315.
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 such payments may be service fees as
defined by the amended Rules of Fair Practice of the National Association of
16
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
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 1994.
The Fund has a transfer agent agreement with John Hancock Investor
Services, Corp. ("Investor Services"), a wholly-owned subsidiary of The
Berkeley Financial Group. Prior to January 1, 1995, Investor Services was known
as John Hancock Fund Services, Inc. For the period ended December 31, 1994, the
Fund paid Investor Services a monthly transfer agent fee equivalent, on an
annual basis, to 0.18% and 0.20% of the average daily net asset value of Class
A and Class B shares of the Fund, respectively, plus out of pocket expenses
incurred by Investor Services on behalf of the Fund for proxy mailings.
Effective January 1, 1995, the Fund will pay transfer agent fees based on
transaction volume and the number of shareholder accounts.
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.
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 December 31, 1994, aggregated $93,996,810 and $84,249,995,
respectively. Purchases and proceeds from sales of obligations of the U.S.
government and its agencies aggregated $57,620,132 and $60,200,915,
respectively.
The cost of investments owned at December 31, 1994 (including the joint
repurchase agreement), for Federal income tax purposes was $144,651,878. Gross
unrealized appreciation and depreciation of investments aggregated $3,435,807
and $8,515,258, respectively, resulting in net unrealized depreciation of
$5,079,451.
NOTE D --
REORGANIZATION
On September 21, 1993, the shareholders of John Hancock Asset Allocation Fund
(JHAA) approved a plan of reorganization between JHAA and the Fund providing
for the transfer of substantially all of the assets and liabilities of JHAA to
the Fund in exchange solely for Class A shares of the Fund. The acquisition was
accounted for as a tax free exchange of 3,185,896 Class A shares for the net
assets of JHAA which amounted to $34,314,653, including $3,788,008 of
unrealized appreciation, after the close of business at September 24, 1993.
17
<PAGE> 42
John Hancock Funds - Sovereign Balanced Fund
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Sovereign Investors Fund, Inc. --
John Hancock Sovereign Balanced Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Sovereign Balanced Fund (the "Fund"), one of the portfolios
constituting John Hancock Sovereign Investors Fund, Inc., including the
schedule of investments, as of December 31, 1994, and the related statements of
operations for the year ended, and the statement of changes in net assets and
financial highlights for each of the two years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The financial
highlights of John Hancock Sovereign Balanced Fund for the year ended
December 31, 1992 were audited by other auditors whose report dated
February 3, 1993 expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1994, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the John Hancock Sovereign Balanced Fund portfolio of John Hancock
Sovereign Investors Fund, Inc. at December 31, 1994, the results of its
operations for the year ended, and the changes in its net assets and financial
highlights for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.
Boston, Massachusetts
February 13, 1995
/S/ Ernst & Young LLP
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the taxable distributions of the Fund for its fiscal year ended
December 31, 1994.
The Fund designated a distribution to shareholders of $320,000 as
long-term capital gain dividends. Shareholders were mailed a 1994 U.S. Treasury
Department Form 1099-DIV in January 1995 representing their proportionate
share.
U.S. Government Obligations: Income from these investments may be
exempt from certain state and local taxes. The percentage of assets invested in
U.S. Treasury bonds, bills, and notes was 10.65% at year end. The percentage of
income derived from U.S. Treasury bonds, bills, and notes was 12.75%. The
percentage of assets invested in obligations of other U.S. government agencies
(excluding securities issued by Federal National Mortgage Association and
Government National Mortgage Association) was 1.43% at year end. The
percentage of income derived from these investments was 1.96% For specific
information on exemption provisions in your state, consult your local state tax
office or your tax adviser.
With respect to the Fund's ordinary taxable income for the fiscal year
ended December 31, 1994, 38.76% qualifies for the dividends received deduction
available to corporations.
18
<PAGE> 43
John Hancock Funds - Sovereign Balanced Fund
HISTORICAL DATA (Unaudited)
The table below shows the record of the Fund since inception.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
YEAR PER SHARE
------------------------------------------------
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
CLASS B
YEAR PER SHARE
------------------------------------------------
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
<FN>
(1) For the period October 5, 1992 (commencement of operations)
to December 31, 1992.
</TABLE>
DIVIDEND INCREASES (UNAUDITED)
Listed below are the most recent dividend increases for the common stocks
held in the Sovereign Balanced Fund as of December 31, 1994
<TABLE>
<CAPTION>
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
<S> <C>
Abbott Laboratories..................... 11.8%
Air Products and Chemicals Inc.......... 6.5
Alco Standard Corp. .................... 4.0
ALLTEL Corp............................. 9.1
Chubb Corp.............................. 7.0
Colgate-Palmolive Co. .................. 13.9
Crompton & Knowles...................... 20.0
Emerson Electric Co. ................... 10.3
Exxon Corp.............................. 4.2
Frontier Corp........................... 2.5
Gannett Co. Inc......................... 3.0
General Electric Co..................... 13.9
Hannaford Brothers Co. ................. 11.8
Hanson PLC ............................. 5.3
Hubbell, Inc., Cl. B.................... 4.9
Johnson & Johnson....................... 11.5
Johnson Controls Inc.................... 8.3
KeyCorp................................. 14.3
Leggett & Platt Inc..................... 6.7
Masco Corp. ............................ 5.9
May Department Stores Co................ 13.0
Minnesota Mining & Manufacturing Co..... 6.0
NationsBank Corp. ...................... 8.7
NWNL Cos., Inc.......................... 12.5
PepsiCo, Inc............................ 12.5
Phillip Morris Cos., Inc................ 19.6
PPG Industries, Inc..................... 3.6
Procter & Gamble Co..................... 12.9
Questar Corp............................ 3.6
Sonoco Products Co. .................... 3.7
Superior Industries Intl, Inc........... 50.0
TRW Inc................................. 6.4
Union Electric Co. ..................... 2.5
United Dominion Realty Trust............ 11.4
UST Inc................................. 16.7
V F Corp................................ 6.3
Wal-Mart Stores, Inc. .................. 30.8
Witco Corp.............................. 12.0
WMX Technologies, Inc. ................. 15.4
-----
The average dividend increase for this
group was .............................. 10.83%
=====
</TABLE>
19
<PAGE> 44
Back Cover
A 1/2" by 1/2" John Hancock Funds logo in upper left hand corner of
the page. A box sectioned in quadrants with a triangle in upper
left, a circle in upper right, a cube in lower left and a diamond
in lower right. A tag line below reads: "A Global Investment
Management Firm."
101 Huntington Avenue Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
This report is for the information of shareholders of the John Hancock
Sovereign Balanced Fund. It may be used as sales literature when preceded
or accompanied by the current prospectus, which details charges,
investment objectives and operating policies.
A recycled logo in lower left hand corner with the caption
"Printed on Recycled Paper." JH 3600A 12/94
<PAGE> 45
John Hancock Sovereign Bond Fund
By James K. Ho, Senior Vice President and Portfolio Manager
Rising interest rates erode bond prices; defensive posture and
exposure to high-yield market softens blow
1994 was one of the worst years on record for bond investors.
Surprising economic growth and persistent fears of inflation
(despite modest numbers) led to higher interest rates and lower
bond prices. The downward trend began on February 4, 1994, when
the Federal Reserve reversed policy and encouraged the benchmark
federal funds rate--what banks charge each other for overnight
loans--to rise from 3.0% to 3.25%. Afterwards, there were two
more quarter-point increases in March and April, followed by a
half-point increase in May, another half-point increase in August
and a three-quarter-point increase in November. That brought the
rate up to 5.50% and most analysts predicting still more
increases down the road.
Short-term interest rates weren't the only ones going up. Five-
year Treasury yields rose more than 2.5 percentage points during
the year and three-year Treasury yields climbed more than 3
percentage points. Because more than enough, in most cases, to
erase the income from interest payments. That said, John Hancock
Sovereign Bond Fund fared better than most of its peers. During
the year ended December 31, 1994, the Fund's Class A, Class B and
Class C shares had total returns of -2.75%, -3.14%, and -2.14%,
respectively. During the same period, the average corporate A-
rated debt fund returned -4.64%, according to Lipper Analytical
Services. (1)
Why the Fund did better than its peers
One reason the Fund did better than its peers was its above-
average exposure to high-yield bonds or junk bonds -- those with
credit-quality ratings of BB or lower. The Fund will never invest
too heavily in junk bonds; they totalled less than 20% of the
assets at the end of the period. But that 20% had a significant
positive impact on performance during the past year. Not only do
junk bonds pay more interest than investment-grade bonds, but
they generally have shorter maturities, too. Both factors help
make junk bonds less vulnerable to rising rates. But more
importantly, junk bonds tend to outperform most other bonds in an
expanding economy as corporate cash flows improve and companies
find themselves better able to pay down debt.
That was the case in 1994, especially with junk bonds in so-
called cyclical industries: paper, steel, transportation and
other sectors that are especially sensitive to increased economic
activity. Examples included Stone Container, a paper company;
Northwest Airlines, whose fortunes improved dramatically after it
was able to sign a new collective-bargaining agreement with its
pilots; Weirton Steel; and RJR Nabisco. We dodged a bullet with
Grand Union. We were able to sell our stake at a premium shortly
before the bonds plunged to 80% of face value. Our success
identifying credit trends once again helped our performance.
A lesser factor contributing to performance was the Fund's 12%
stake in mortgage-backed securities. We began buying mortgages in
late 1993 and held onto them throughout the year. Mortgages
outperformed other bonds when interest rates bottomed out and the
pace of home refinancings slowed.
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Coping with higher rates
The bulk of the Fund's investments -- both the 38% stake in high-
quality corporate bonds and the 24% stake in Treasuries -- were
extremely sensitive to fluctuations in interest rates. With that
portion of the Fund, we tried to find ways to minimize the
damage. One way we did that was reducing the Fund's duration.
Duration measures how much a bond's price will fall in response
to a given increase in rates; when rates are rising, it pays to
have a shorter duration. In late 1993, we shortened from 5.5
years to 4.7 years. Only at the end of 1994 did we begin to
extend again, for reasons we'll explain in the outlook section.
To achieve that shorter duration, we emphasized bonds at either
end of the maturity scale, balancing long-term bonds with short-
term bonds in what's known as a barbell. A barbell works best
when the yield curve is flattening; that is, when interest rates
from one end of the maturity scale to the other are leveling off.
That's what happened in 1994. Had we owned more bonds with
intermediate maturities, it's likely the Fund's performance would
have suffered.
Outlook seems to be improving
While 1994 was unquestionably a disappointing year, it's worth
noting that bond prices stopped falling around the middle of last
summer and have risen slightly since then. The timing of the
turnaround coincides roughly with the Fed's decision to go with
larger, more widely-spaced rate increases instead of the smaller,
one-after-the-other increases that occurred during the early part
of the year. That slight tactical shift seems to have brought
greater stability to the bond market as it helped convince
investors that the Fed was serious about staying ahead of
inflation.
As 1994 came to an end, bonds, especially long-term bonds, were
starting to look attractive again. When you can earn close to 8%
on a 30-year Treasury and inflation is hovering around 3%, that's
a real rate of return of 5%, which is very good by historical
standards. That's one reason we chose to extend the Fund's
duration again, going back out to 5.1 years by the end of the
period. The other reason is that eventually the Fed's actions are
likely to have the intended effect: a slowdown in economic
growth. When that happens -- late this year or early next --
having a longer duration should help the Fund take advantage of
flat or falling interest rates.
As the economy slows down and the yield curve begins to steepen,
we'll think about making other changes to the portfolio. One
might be to move away from the barbell structure and buy more
intermediate securities. Another would almost certainly be to
reduce the Fund's stake in junk bonds and other lower-rated
corporate bonds in favor of high-quality corporates and
Treasuries. In 1994, it was those funds that avoided excess
interest-rate risk while taking on credit risk that outperformed
their peers. In 1995, however, the best strategy may be just the
opposite: to take on extra interest-rate risk and minimize credit
risk.
