<PAGE> 1
John Hancock Funds
- --------------------------------------------------------------------------------
SOVEREIGN
BALANCED
FUND
ANNUAL REPORT
December 31, 1995
<PAGE> 2
DIRECTORS
EDWARD J. BOUDREAU, JR.
THOMAS W.L. CAMERON
JAMES F. CARLIN*
CHARLES F. FRETZ*
HAROLD R. HISER JR.*
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
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
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
The stock market's record-breaking, whirlwind performance in 1995 will be a
tough act to follow in 1996. In fact, we've already seen greater market
volatility this year, particularly among last year's leaders -- technology
stocks. That's to be expected after a year that saw market indexes soar,
including the Standard & Poor's 500-Stock Index's 37% advance. While many of the
same economic conditions that fostered the stellar 1995 market are still in
place -- slow economic growth, muted inflation and decent corporate earnings --
it would be unrealistic to expect the market to stage a repeat in 1996. The old
saying "trees don't grow to the sky" comes to mind. Shareholders would do well
to temper expectations of investment returns and perhaps revisit their
investment allocations with their financial advisor to determine if rebalancing
their portfolio makes sense.
No matter how you scale back your market expectations, you should always be
able to count on consistent customer service performance. At John Hancock Funds,
we never stop working to find ways to sustain and improve the quality of
information and the level of assistance we provide you. Our commitment to this
task is no less than John Hancock's loyalty was to his fledgling country when he
is said to have uttered, "if it does the public good, burn Boston." We won't go
that far, of course, but we share our namesake's dedication to putting the
public before all else.
In our case, that public is you, our shareholders. We take very seriously the
role you have entrusted to us, that of helping you achieve your financial goals.
Part of that will always involve good customer service. So please do not
hesitate to call your Customer Service Representative at 1-800-225-5291 if you
have any questions or need information. We take pride in helping you with the
same spirit that John Hancock displayed at the dawning of America.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
BY JOHN F. SNYDER III, PORTFOLIO MANAGER
AND BARRY EVANS FOR THE PORTFOLIO MANAGEMENT TEAM
JOHN HANCOCK
SOVEREIGN BALANCED FUND
Stocks and bonds have a bang-up year; 1996 should bring
solid returns, butmore in line with historical averages
Investors couldn't have asked for much better in 1995. Falling interest rates,
soaring corporate earnings, tame inflation and investors' healthy appetite for
mutual funds drove stock prices virtually straight up. The Standard & Poor's
500-Stock Index -- the most commonly-used measure of the broad stock market --
gained a stunning 37.53%. Bonds also had a spectacular year. In fact, it was one
of the best on record. Long-term yields plunged from 7.84% to 5.94%, and the
benchmark 30-year Treasury bond returned a whopping 32.20%.
With both the stock and bond markets moving up strongly, John Hancock
Sovereign Balanced Fund posted solid returns. For the year ended December 31,
1995, the Fund's Class A and Class B shares had total returns of 24.23% and
23.30%, respectively, at net asset value. Those returns were in line with the
average balanced fund's return of 25.16%, according to Lipper Analytical
Services.(1)
[A 2 1/4" x 2" photo of John F. Snyder III centered at bottom of page. Caption
reads: "John Snyder III".]
STOCKS: WINNERS AND LOSERS
After being under the weather for most of 1994, drug stocks made a spectacular
recovery in 1995. Waning health-care reform fears, a slew of new drug approvals
and a shift toward more conservative growth stocks were just what the doctor
ordered. Our biggest winners were Merck, which we sold during the period, and
Johnson & Johnson. Other top performers included NationsBank and PepsiCo -- two
of our largest stock holdings. NationsBank benefited from low inflation, falling
interest rates and strong loan growth. Pepsi introduced new products in its
restaurant business to fend off competition, while its snack food and
[CAPTION]
"INVESTORS COULDN'T HAVE ASKED FOR MUCH BETTER IN 1995."
3
<PAGE> 4
John Hancock Funds - Sovereign Balanced Fund
soft drink businesses continued to grow rapidly. Our retail stocks, however,
continued to disappoint. Uncertainty about the economy and high debt levels have
kept consumers from spending money. All of our retail stocks from Wal-Mart to
Pep Boys, the auto parts chain, felt the pinch.
INVESTMENT THEMES
Even with the market rallying strongly this year, we've still found attractive
buying opportunities in stocks. Two trends, in particular, have caught our
attention. The first is the outsourcing phenomenon. Corporate America has cut
costs about as much as it can with layoffs. As a result, companies are now
outsourcing non-essential services as a way to bring costs down even further.
We're keeping an eye out for those companies that will be the biggest
beneficiaries of this trend. Automatic Data Processing (ADP) is one of our
favorites. The company is one of the leaders in processing payrolls. In fact,
one out seven employees in the U.S. receives a paycheck processed by ADP.
The second trend is the consolidation of distribution companies in
highly-fragmented industries. Another way companies are lowering costs is by
reducing the number of vendors they use. That way they can negotiate better
prices and manage their inventories more efficiently. As a result, we're seeing
consolidation pick up as distributors try to grow big enough to meet the
full-service needs of these companies. And that's presenting huge growth
opportunities for companies that can grab market share. A perfect example is
Alco Standard. Although Alco is the largest company in the office supply
industry, it still only has 8% of the market. However, the company is rapidly
acquiring smaller rivals. Rarely does a week go by without Alco buying at least
one local distributor.
[A 2" x 2" photo of barry Evans centered at bottom of page. Caption reads:
"Barry Evans."]
BONDS: REDUCING EXPOSURE, DECREASING CREDIT RISK
Throughout the period, we've continued with our strategy of paring our bond
exposure in order to increase our investment in stocks. We believe that stocks
offer much more upside potential, and that was certainly true this year. By the
end of 1995, our stake in bonds had fallen to 38% from 43% at the start of the
year.
We've also continued to upgrade the credit quality of the portfolio. It makes
sense to assume less credit risk now that we're 54 months into an economic
recovery that typically lasts only 46 months. So we've taken profits in some of
our top performing high-yield corporate bonds -- those with credit ratings of BB
or below. Examples include USAir, Beatrice and TransTexas Gas. We've also sold
some of our higher quality corporate bonds such as Great Western Bank and
Westpac Bancorp. In turn, we've put the proceeds to work in 30-year U.S.
Treasuries, U.S. government agency bonds and mortgage-backed securities.
WHAT'S AHEAD
After such a strong year, many are wondering where
[CAPTION]
"...DRUG STOCKS MADE A SPECTACULAR RECOVERY IN 1995."
4
<PAGE> 5
John Hancock Funds - Sovereign Balanced Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended December 31, 1995." The chart is
scaled in increments of 10% from bottom to top, with 30% at the top and 0% at
the bottom. Within the chart, there are three solid bars. The first represents
the 24.23% total return for John Hancock Sovereign Balanced Fund: Class A. The
second represents the 23.30% total return for John Hancock Sovereign Balanced
Fund: Class B. The third represents the 25.16% 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."]
the stock market is headed. We're not likely to see stocks repeat their
spectacular 1995 gains. So investors should temper their expectations for the
coming year. Having said that, though, we're reasonably optimistic about the
long-term prospects for stocks.
We're sticking to our knitting, focusing on high-quality growth stocks with
reliable earnings. We believe that's going to be especially important in 1996 as
earnings growth begins to slow. For the last 10 quarters, earnings of companies
in the S&P 500 Index have grown at an unusually high rate of 20%. We've already
started to see signs that earnings have peaked. And in 1996, they're likely to
drop back to more normal levels of 8% to 10%.
By contrast, we expect the stable growth companies that we favor at Sovereign
Balanced Fund to increase earnings at about 15% to 17% in 1996. That's almost
twice the projected earnings growth of the market. What's more, the valuations
of these stocks are equal to the market multiple. (That is, high-quality growth
stocks have price-to-earnings multiples -- a measure of how much you're paying
for earnings power -- equal to that of the stock market as a whole.) Normally,
these stocks sell at a premium to the market and we believe that will eventually
happen again. Finally, many of our companies are generating enormous cash flows.
That's allowing them not only to increase their dividends, but also to buy back
their stock. For example, General Electric, one of our largest stock holdings,
recently announced a huge $9 billion repurchase program. We continue our
stock-picking discipline that focuses only on companies that have increased
their dividends every year for at least 10 years.
On the bond side, volatility may be the watchword in the near term. The
wrangling over the federal budget is currently putting downward pressure on bond
prices. Once the Republicans and the Clinton administration strike a deal,
however, prices are likely to bounce back. The next stumbling block will be the
U.S. Treasury auction in February, which is likely to send prices back down. In
our view, it will only be a temporary drop and, therefore, a good buying
opportunity. Finally, an inflation scare could also rattle the market, but a
scare is all it will be. And once again, we'd look for opportunities to buy on
weakness. Despite some potential ups and downs, we're relatively optimistic
about the prospects for 1996. A sluggish economy, subdued inflation and
relatively stable interest rates should create an attractive backdrop for bonds.
- --------------------------------------------------------------------------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is lower.
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
[CAPTION]
"WE'RE NOT LIKELY TO SEE STOCKS REPEAT THEIR SPECTACULAR 1995 GAINS."
5
<PAGE> 6
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Sovereign Balanced Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's average net assets. Performance figures include the maximum applicable
sales charge of 5% for Class A shares. The effect of the maximum contingent
deferred sales charge for Class B shares (maximum 5% and declining to 0% over
six years) is included in Class B performance. Performance is affected by a
12b-1 plan, which commenced on October 5, 1992 for both Class A and Class B
shares. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them.
CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1995
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
Sovereign Balanced Fund: Class A 18.01% 29.80%
Sovereign Balanced Fund: Class B 18.30% 31.63%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1995
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
Sovereign Balanced Fund: Class A 18.01% 8.38%
Sovereign Balanced Fund: Class B 18.30% 8.85%
</TABLE>
YIELDS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
SEC 30-DAY
YIELD
-----
<S> <C>
Sovereign Balanced Fund: Class A 2.67%
Sovereign Balanced Fund: Class B 2.11%
</TABLE>
NOTES TO PERFORMANCE
(1) Class A and B shares started on October 5, 1992.
6
<PAGE> 7
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Sovereign Balanced Fund would be worth on December 31, 1995, assuming you have
been invested since the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index -- an unmanaged index that includes 500 widely
traded common stocks and is used often as a measure of stock market performance.
[Sovereign Balanced Fund
Class A shares
Line chart with the heading Sovereign Balanced Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $16,106 as of December 31, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the Sovereign Balanced Fund
on October 5, 1992, before sales charge, and is equal to $13,668 as of December
31, 1995. The third line represents the Sovereign Balanced Fund after sales
charge and is equal to $12,980 as of December 31, 1995.]
[Sovereign Balanced Fund
Class B shares
Line chart with the heading Sovereign Balanced Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $16,106 as of December 31, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the Sovereign Balanced Fund
on October 5, 1992, before contingent deferred sales charge, and is equal to
$13,363 as of December 31, 1995. The third line represents the Sovereign
Balanced Fund after contingent deferred sales charge and is equal to $13,163 as
of December 31, 1995.]
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON DECEMBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS FOR THE PERIOD
STATED.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common and preferred stocks (cost - $75,843,852) ........ $ 94,446,500
Corporate bonds (cost - $32,825,954) .................... 33,377,857
United States government and agencies obligations
(cost - $24,500,700) .................................. 25,340,765
Canadian government obligations (cost - $838,525) ....... 964,290
Joint repurchase agreement (cost - $2,503,000) .......... 2,503,000
Corporate savings account ............................... 1,878
------------
156,634,290
Receivable for shares sold ............................... 18,382
Interest receivable ...................................... 1,332,024
Dividends receivable ..................................... 231,626
Other assets ............................................. 4,360
Deferred organization expenses - Note A .................. 42,170
------------
Total Assets ........................... 158,262,852
-----------------------------------------------------------
LIABILITIES:
Payable for shares repurchased ........................... 447,060
Payable to John Hancock Advisers, Inc. and
affiliates - Note B .................................... 124,931
Accounts payable and accrued expenses .................... 53,273
------------
Total Liabilities ...................... 625,264
-----------------------------------------------------------
NET ASSETS:
Capital paid-in .......................................... 137,801,240
Accumulated net realized loss on investments ............. (285,468)
Net unrealized appreciation of investments ............... 20,120,381
Undistributed net investment income ...................... 1,435
------------
Net Assets ............................. $157,637,588
===========================================================
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 - $69,810,394 / 5,943,279 ........................ $ 11.75
==============================================================================
Class B - $87,827,194 / 7,478,401 ........................ $ 11.74
==============================================================================
MAXIMUM OFFERING PRICE *
Class - A $(11.75 x 105.26)% ............................. $ 12.37
==============================================================================
</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.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest .................................................... $ 5,552,411
Dividends (net of foreign withholding taxes of $8,375) ...... 2,270,131
-----------
7,822,542
-----------
Expenses:
Investment management fee - Note B ......................... 891,221
Distribution/service fee - Note B
Class A .................................................. 195,975
Class B .................................................. 822,001
Transfer agent fee - Note B ................................ 331,448
Custodian fee .............................................. 47,233
Auditing fee ............................................... 40,714
Printing ................................................... 34,464
Miscellaneous .............................................. 29,116
Registration and filing fees ............................... 26,820
Organization expense ....................................... 23,687
Directors' fees ............................................ 15,202
Legal fees ................................................. 3,722
-----------
Total Expenses ....................... 2,461,603
-------------------------------------------------------
Net Investment Income ................ 5,360,939
-------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold ....................... 1,018,778
Change in net unrealized appreciation/depreciation
of investments ............................................ 25,174,426
-----------
Net Realized and Unrealized
Gain on Investments .................. 26,193,204
-------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............ $31,554,143
=======================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income .................................................................... $ 5,360,939 $ 6,507,861
Net realized gain (loss) on investments sold ............................................. 1,018,778 (1,231,584)
Change in net unrealized appreciation/depreciation of investments ........................ 25,174,426 (11,093,661)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ......................... 31,554,143 (5,817,384)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - $(0.4373 and $0.4951 per share, respectively) ................................. (2,613,933) (3,070,175)
Class B - $(0.3632 and $0.4296 per share, respectively) ................................. (2,759,067) (3,424,190)
Distributions from net realized gain on investments sold
Class A - (none and $0.0231 per share, respectively) .................................... ----- (140,283)
Class B - (none and $0.0231 per share, respectively) .................................... ----- (179,739)
------------ ------------
Total Distributions to Shareholders ................................................... (5,373,000) (6,814,387)
------------ ------------
FROM FUND SHARE TRANSACTIONS-- NET* ........................................................ (9,671,500) 12,766,526
------------ ------------
NET ASSETS:
Beginning of period ...................................................................... 141,127,945 140,993,190
------------ ------------
End of period (including undistributed net investment income of
$1,435 and $13,496, respectively) ..................................................... $157,637,588 $141,127,945
============ ============
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1995 1994
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .............................................. 731,880 $ 8,003,387 1,345,089 $ 13,926,996
Shares issued to shareholders
in reinvestment of distributions ....................... 225,314 2,478,514 305,566 3,035,107
---------- ------------ ---------- ------------
957,194 10,481,901 1,650,655 16,962,103
Less shares repurchased .................................. (1,309,813) (14,133,563) (1,146,920) (11,691,908)
---------- ------------ ---------- ------------
Net increase (decrease) .................................. (352,619) $ (3,651,662) 503,735 $ 5,270,195
========== ============ ========== ============
CLASS B
Shares sold .............................................. 752,142 $ 8,157,490 1,851,509 $ 19,139,945
Shares issued to shareholders in
reinvestment of distributions .......................... 222,136 2,441,524 322,144 3,200,787
---------- ------------ ---------- ------------
974,278 10,599,014 2,173,653 22,340,732
Less shares repurchased .................................. (1,542,113) (16,618,852) (1,454,476) (14,844,401)
---------- ------------ ---------- ------------
Net increase (decrease) .................................. (567,835) $ (6,019,838) 719,177 $ 7,496,331
========== ============ ========== ============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE
FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND
REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE CORRESPONDING DOLLAR
VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 10
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<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
CLASS A 1995 1994 1993 DECEMBER 31, 1992(a)(c)
------- ------- ------- -----------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ....................... $ 9.84 $ 10.74 $ 10.19 $10.00
------- ------- ------- ------
Net Investment Income ...................................... 0.44(e) 0.50 0.46 0.04(b)
Net Realized and Unrealized Gain (Loss) on Investments ..... 1.91 (0.88) 0.68 0.20
------- ------- ------- ------
Total from Investment Operations ........................ 2.35 (0.38) 1.14 0.24
------- ------- ------- ------
Less Distributions:
Dividends from Net Investment Income ..................... (0.44) (0.50) (0.45) (0.05)
Distributions from Net Realized Gain on Investments Sold.. ----- (0.02) (0.14) -----
------- ------- ------- ------
Total Distributions ..................................... (0.44) (0.52) (0.59) (0.05)
------- ------- ------- ------
Net Asset Value, End of Period ............................. $ 11.75 $ 9.84 $ 10.74 $10.19
======= ======= ======= ======
Total Investment Return at Net Asset Value (f) ............. 24.23% (3.51)% 11.38% 2.37%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) .................. $69,811 $61,952 $62,218 $5,796
Ratio of Expenses to Average Net Assets .................... 1.27% 1.23% 1.45% 2.79%*(b)
Ratio of Net Investment Income to Average Net Assets ....... 3.99% 4.89% 4.44% 3.93%*(b)
Portfolio Turnover Rate .................................... 45% 78% 85% 0%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES),
DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET
ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FOR THE PERIOD
----------------------------------- OCTOBER 5, 1992 TO
CLASS B 1995 1994 1993 DECEMBER 31, 1992(a)(c)
------- ------- ------- -----------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........................ $ 9.84 $ 10.75 $ 10.20 $ 10.00
------- ------- ------- -------
Net Investment Income ....................................... 0.36(e) 0.43 0.37 0.03(b)
Net Realized and Unrealized Gain (Loss) on Investments ...... 1.90 (0.89) 0.70 0.20
------- ------- ------- -------
Total from Investment Operations ......................... 2.26 (0.46) 1.07 0.23
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ...................... (0.36) (0.43) (0.38) (0.03)
Distributions from Net Realized Gain on Investments Sold .. ----- (0.02) (0.14) -----
------- ------- ------- -------
Total Distributions ...................................... (0.36) (0.45) (0.52) (0.03)
------- ------- ------- -------
Net Asset Value, End of Period .............................. $ 11.74 $ 9.84 $ 10.75 $ 10.20
======= ======= ======= =======
Total Investment Return at Net Asset Value (f) .............. 23.30% (4.22)% 10.63% 2.29%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ................... $87,827 $79,176 $78,775 $14,311
Ratio of Expenses to Average Net Assets ..................... 1.96% 1.87% 2.10% 3.51%*(b)
Ratio of Net Investment Income to Average Net Assets ........ 3.31% 4.25% 4.01% 3.21%*(b)
Portfolio Turnover Rate ..................................... 45% 78% 85% 0%
</TABLE>
* On an annualized basis.
(a) Fund commenced operations on October 5, 1992.
(b) Reflects expense limitation in effect during the period indicated (see note
B). As a result of such limitation, expenses for the period from October 5,
1992 to December 31, 1992 for Class A and Class B reflect a reduction of
$0.0016 and $0.0012 per share, respectively. Absent of such limitation the
ratio of expenses to average net assets would have been 2.94% and 3.66%,
respectively, and the ratio of net investment income to average net assets
would have been 3.78% and 3.06%, respectively. Without the reimbursement,
total investment return would have been lower.
(c) This period is covered by the report of other independent auditors (not
included herein).
(d) Not annualized.
(e) On average month end shares outstanding.
(f) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
SCHEDULE OF INVESTMENTS
December 31, 1995
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks, as well as
price/earnings ratios, but are unaudited.
- --------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
SOVEREIGN BALANCED FUND ON DECEMBER 31, 1995. IT'S DIVIDED INTO SIX MAIN
CATEGORIES: COMMON STOCKS, PREFERRED STOCKS, CORPORATE BONDS, UNITED STATES
GOVERNMENT AND AGENCIES OBLIGATIONS, CANADIAN GOVERNMENT OBLIGATIONS AND
SHORT-TERM INVESTMENTS. THE INVESTMENTS ARE FURTHER BROKEN DOWN BY INDUSTRY
GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE
LISTED LAST.
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS (58.33)% RATE VALUE
- --------- -------- ------
<S> <C> <C>
ADVERTISING (1.93%)
70,000* Interpublic Group of Cos., Inc.
(The) @ 43 3/8........................................................... $3,036,250
----------
One of the largest advertising agencies in the world
Earnings P/S.... $.62, .75, .91, 1.05, 1.19, 1.23, 1.43, 1.49, 1.79, 2.04 14.20%
Dividends P/S.......... $.20, .22, .26, .32, .37, .41, .45, .49, .55, .61 13.20%
Price/Earnings Ratio.................................................20.1
BANKS (4.16%)
40,000* Banc One Corp. @ 37 3/4.................................................. 1,510,000
Offers depository and lending services to
individuals and commercial customers
Earnings P/S..$1.16, 1.19, 1.56, 1.66, 1.83, 1.81, 2.28, 2.68, 3.01, 2.50 8.90%
Dividends P/S....... $.45, .49, .55, .63, .69, .77, .89, 1.07, 1.24, 1.36 13.10%
Price/Earnings Ratio.................................................14.2
35,000* First Tennessee National Corp. @ 60 1/2 2,117,500
Tennessee-based bank holding company
Earnings P/S. $2.02, 1.55, 2.20, 1.30, 1.96, 2.51, 3.51, 3.03, 4.04, 4.67 9.80%
Dividends P/S.... $.75, .79, .85, .97, 1.08, 1.14, 1.26, 1.50, 1.73, 1.94 11.10%
Price/Earnings Ratio.................................................12.5
42,000 NationsBank Corp. @ 69 5/8............................................... 2,924,250
Largest superregional bank in the Southeast
Earnings P/S.. $2.51, 2.01, 2.87, 4.44, 2.61, .76, 2.60, 4.55, 6.02, 6.72 11.60%
Dividends P/S... $.78, .86, .94, 1.10, 1.42, 1.48, 1.51, 1.64, 1.88, 2.08 11.50%
Price/Earnings Ratio..................................................9.8
----------
6,551,750
----------
CHEMICALS (4.05%)
40,000 Air Products And Chemicals @ 52 3/4...................................... 2,110,000
Producer of industrial and speciality chemicals and gases
Earnings P/S.. $1.18, .04, 1.95, 2.02, 2.08, 2.23, 2.45, 1.76, 2.05, 3.29 12.10%
Dividends P/S.......... $.32, .39, .45, .55, .63, .69, .75, .83, .89, .95 12.90%
Price/Earnings Ratio.................................................16.7
35,000* E.I. du Pont de Nemours and Co. @ 69 7/8................................ 2,445,625
Nations largest chemical manufacturer
Earnings P/S.. $2.12, 2.46, 3.03, 3.53, 3.40, 3.13, 1.32, .23, 3.40, 5.43 11.00%
Dividends P/S.$1.02, 1.10, 1.23, 1.45, 1.62, 1.68, 1.74, 1.76, 1.82, 2.03 8.00%
Price/Earnings Ratio.................................................13.2
40,000 PPG Industries, Inc. @ 45 3/4............................................ 1,830,000
Manufacturer of specialty chemicals, coatings and resins
Earnings P/S. $1.33, 1.60, 2.13, 2.09, 2.22, 1.29, 1.33, 1.46, 1.97, 3.69 12.00%
Dividends P/S....... $.47, .56, .64, .74, .82, .86, .94, 1.04, 1.12, 1.18 10.80%
Price/Earnings Ratio.................................................12.3
----------
6,385,625
----------
COMMERCIAL SERVICES (1.44%)
70,000* Sysco Corp. @ 32 1/2..................................................... 2,275,000
----------
Distributes foodservice products to restaurants, hotels, etc.
Earnings P/S........ $.35, .45, .60, .73, .76, .86, .95, 1.10, 1.24, 1.42 16.80%
Dividends P/S.......... $.06, .07, .08, .09, .10, .14, .22, .28, .36, .44 24.80%
Price/Earnings Ratio.................................................21.3
COMPUTER AND OFFICE EQUIPMENT (2.13%)
73,600 Alco Standard Corp. @ 45 5/8............................................. 3,358,000
----------
Distributor of office and paper products
Earnings P/S.... $.64, .84, 1.15, 1.96, .91, .98, 1.11, (.025), .56, 1.82 12.30%
Dividends P/S.... $.315, .325, .35, .39, .425, .445, .465, .485, .51, .53 6.00%
Price/Earnings Ratio.................................................24.9
CONSUMER NON-DURABLES (8.70%)
35,000* CPC International, Inc. @ 68 5/8 2,401,875
Major international food company
Earnings P/S. $1.15, 2.17, 1.84, 2.11, 2.42, 2.56, 2.73, 2.90, 2.17, 3.54 13.30%
Dividends P/S $.5675, .645, .76, .875, 1.00, 1.10, 1.20, 1.28, 1.38, 1.48 11.20%
Price/Earnings Ratio.................................................19.5
25,000* Kimberly-Clark Corp. @ 82 3/4............................................ 2,068,750
Leading producer of consumer and personal care products
Earnings P/S. $1.47, 1.87, 2.36, 2.63, 2.70, 3.01, 3.37, 1.95, 3.55, 3.66 10.70%
Dividends P/S... $.60, .70, .78, 1.26, 1.32, 1.48, 1.59, 1.67, 1.71, 1.76 12.70%
Price/Earnings Ratio.................................................21.5
50,000 PepsiCo, Inc. @ 55 7/8................................................... 2,793,750
Second largest soft drink company
Earnings P/S.... $.58, .76, .97, 1.13, 1.35, 1.35, 1.63, 1.73, 2.13, 2.42 17.20%
Dividends P/S.......... $.21, .22, .27, .32, .38, .46, .51, .61, .70, .78 15.70%
Price/Earnings Ratio.................................................22.9
47,000 Procter & Gamble Co. (The) @ 83.......................................... $3,901,000
Leading producer of household consumer products
Earnings P/S... $1.04, .46, 1.48, 1.74, 2.25, 2.43, 2.57, 2.54, .70, 2.50 10.20%
Dividends P/S..... $.67, .68, .70, .83, .93, 1.00, 1.08, 1.17, 1.32, 1.50 9.40%
Price/Earnings Ratio.................................................21.7
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- -------- ------
<S> <C> <C>
CONSUMER NON-DURABLES (CONTINUED)
80,000* Sara Lee Corp. @ 31 7/8.................................................... $ 2,550,000
Manufacturer of brand name packaged foods and consumer products
Earnings P/S......... $.59, .71, .88, .94, .98, 1.41, 1.28, 1.43, .46, 1.66 12.20%
Dividends P/S............ $.20, .25, .30, .36, .42, .47, .50, .58, .64, .68 14.60%
Price/Earnings Ratio...................................................18.2
-----------
13,715,375
-----------
DIVERSIFIED OPERATIONS (1.52%)
75,000* Corning Inc. @ 32.......................................................... 2,400,000
-----------
Worldwide technology and healthcare services company
Earnings P/S..... $.93, 1.03, 1.63, 1.40, 1.54, 1.60, 1.69, .72, .54, (.46) NMF
Dividends P/S............ $.35, .36, .38, .41, .46, .53, .62, .68, .69, .72 8.30%
Price/Earnings Ratio...................................................19.3
ELECTRICAL EQUIPMENT (9.40%)
75,000* AMP, Inc. @ 38 3/8......................................................... 2,878,125
Worldwide producer of electronic and electrical connection devices
Earnings P/S.... $.75, 1.16, 1.48, 1.32, 1.35, 1.24, 1.34, 1.41, 1.62, 1.94 11.10%
Dividends P/S............ $.37, .43, .50, .60, .68, .72, .76, .80, .84, .92 10.70%
Price/Earnings Ratio...................................................20.3
34,000 Emerson Electric Co. @ 81 3/4.............................................. 2,779,500
Produces and sells electrical/electronic products and systems
Earnings P/S... $1.87, 2.00, 2.31, 2.63, 2.75, 2.83, 2.96, 3.15, 4.04, 4.16 9.30%
Dividends P/S.... $.93, .98, 1.03, 1.16, 1.28, 1.34, 1.40, 1.47, 1.60, 1.84 7.90%
Price/Earnings Ratio...................................................18.9
54,000 General Electric Co. @ 72.................................................. 3,888,000
Dominant force in home appliances, electrical power and financial services
Earnings P/S....$1.37, 1.60, 1.88, 2.18, 2.43, 2.54, 2.54, 2.33, 3.31, 3.78 11.19%
Dividends P/S....... $.58, .65, .70, .82, .94, 1.02, 1.12, 1.26, 1.44, 1.64 12.20%
Price/Earnings Ratio...................................................18.6
40,000 Hubbell Inc. Class B @ 65 3/4.............................................. 2,630,000
Manufacturer of electrical and electronic products
Earnings P/S... $1.49, 1.69, 1.94, 2.25, 2.52, 2.74, 2.66, 2.83, 2.00, 3.24 9.01%
Dividends P/S...... $.58, .64, .75, .85, 1.07, 1.25, 1.40, 1.51, 1.55, 1.62 12.08%
Price/Earnings Ratio...................................................16.4
40,000* W.W. Grainger, Inc. @ 66 1/4............................................... 2,650,000
Leading distributor of electrical equipment
Earnings P/S... $1.24, 1.48, 1.57, 1.96, 2.19, 2.36, 2.55, 2.76, 3.28, 2.67 8.90%
Dividends P/S............ $.36, .39, .43, .50, .57, .61, .65, .71, .78, .89 10.60%
Price/Earnings Ratio...................................................23.6
-----------
14,825,625
-----------
ENERGY (4.56%)
30,000 Exxon Corp. @ 80 1/8....................................................... 2,403,750
Major factor in the crude oil, natural gas and chemical industry
Earnings P/S... $3.71, 3.43, 3.95, 2.32, 3.96, 4.79, 3.59, 4.13, 3.74, 5.36 4.20%
Dividends P/S.. $1.80, 1.90, 2.15, 2.30, 2.47, 2.68, 2.83, 2.88, 2.91, 3.00 5.80%
Price/Earnings Ratio...................................................15.0
70,000 Questar Corp. @ 33 1/2..................................................... 2,345,000
Diversified holding company operating in the natural gas and property
management businesses
Earnings P/S..... $1.20, .67, .64, 1.27, 1.46, 1.69, 1.59, 2.24, 1.97, 1.19 NMF
Dividends P/S....... $.87, .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16 3.30%
Price/Earnings Ratio...................................................26.9
30,000* Shell Transport & Trading Co. ADR @ 81 3/8 2,441,250
Part of the Royal Dutch/Shell group
Earnings P/S*.. $2.97, 2.35, 2.98, 3.35, 4.19, 4.60, 2.80, 2.95, 3.62, 3.68 2.40%
Dividends P/S** $14.3, 16.0, 17.0, 18.4, 20.1, 20.9, 21.9, 24.0, 27.1, 28.8 8.10%
Price/Earnings Ratio....................................................9.0
* Earnings per share per ADR in $
** Dividends in pence per ordinary share
-----------
7,190,000
-----------
HEALTHCARE (6.98%)
84,000 Abbott Laboratories @ 41 3/4............................................... 3,507,000
Major pharmaceutical and healthcare firm
Earnings P/S....... $.58, .70, .84, .97, 1.11, 1.27, 1.47, 1.69, 1.87, 2.12 15.50%
Dividends P/S............ $.20, .24, .29, .34, .40, .48, .58, .66, .74, .82 17.00%
Price/Earnings Ratio...................................................20.4
16,000* American Home Products Corp. @ 97.......................................... 1,552,000
Research-based pharmaceutical and healthcare products company
Earnings P/S..$2.73, (2.64), 3.22, 3.54, 6.06, 4.10, 3.69, 4.66, 4.90, 6.49 10.10%
Dividends P/S.. $1.55, 1.67, 1.80, 1.95, 2.15, 2.38, 2.66, 2.86, 2.94, 3.02 7.70%
Price/Earnings Ratio...................................................14.7
40,000 Johnson & Johnson @ 85 5/8................................................. 3,425,000
Major producer of prescription/non-prescription drugs, toiletries, and
medical instruments and supplies
Earnings P/S.... $.45, 1.18, 1.41, 1.60, 1.72, 2.13, 2.40, 2.69, 3.05, 3.59 26.00%
Dividends P/S......... $.34, .40, .48, .56, .66, .77, .89, 1.01, 1.13, 1.28 15.90%
Price/Earnings Ratio...................................................23.3
40,000* Pfizer, Inc. @ 63.......................................................... 2,520,000
Leading ethical pharmaceutical producer
Earnings P/S..... $.98, 1.02, 1.18, 1.01, 1.19, 1.30, 1.21, .99, 1.20, 2.38 10.40%
Dividends P/S........... $.41, .45, .50, .55, .60, .66, .74, .84, .94, 1.04 10.90%
Price/Earnings Ratio...................................................26.0
-----------
11,004,000
-----------
INFORMATION SERVICES (1.41%)
30,000* Automatic Data Processing, Inc. @ 74 1/4................................... 2,227,500
-----------
Largest independent computing services firm in the U.S.
Earnings P/S.......... $.42, .54, .62, .72, .74, .83, .94, 1.07, 1.22, 1.43 14.60%
Dividends P/S..... $.093, .105, .125, .145, .17, .195, .225, .255, .29, .35 15.90%
Price/Earnings Ratio...................................................26.8
INSURANCE (1.15%)
41,000 Reliastar Financial Corp. @ 44 3/8......................................... 1,819,375
-----------
Specialities in life and health insurance and annuity businesses
Earnings P/S... $2.29, 1.86, 1.58, 2.07, 1.99, 1.71. 1.92, 2.52, 3.05, 4.15 6.80%
Dividends P/S............ $.43, .47, .57, .59, .65, .69, .73, .79, .88, .98 9.60%
Price/Earnings Ratio...................................................10.2
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- -------- ------
<S> <C> <C>
PACKAGING (2.89%)
70,000* Bemis Co. @ 25 5/8....................................................... $ 1,793,750
Producer of a broad range of flexible packaging and equipment and
pressure sensitive materials
Earnings P/S.........$.47, .59, .74, .90, .99, .98, 1.14, .84, 1.33, 1.55 14.20%
Dividends P/S.......... $.15, .18, .22, .30, .36, .42, .46, .50, .54, .64 17.50%
Price/Earnings Ratio.................................................17.4
105,000 Sonoco Products Co. @ 26 1/4............................................. 2,756,250
Containers, paper products and packaging
Earnings P/S..... $.63, .77, 1.10, 1.18, .52, 1.07, 1.13, .99, 1.24, 1.65 11.30%
Dividends P/S.......... $.18, .21, .30, .39, .43, .44, .48, .50, .53, .59 14.10%
Price/Earnings Ratio.................................................16.0
-----------
4,550,000
-----------
RETAIL (2.40%)
82,000* Pep Boys-Manny, Moe & Jack (The) @ 25 5/8 ............................... 2,101,250
Retailer of automotive parts and accessories
Earnings P/S........ $.52, .62, .76, .63, .70, .64, .87, 1.01, 1.27, 1.33 11.00%
Dividends P/S.......... $.07, .08, .09, .11, .12, .13, .14, .15, .17, .19 11.70%
Price/Earnings Ratio.................................................18.6
75,000 Wal-Mart Stores, Inc. @ 22 3/8 .......................................... 1,678,125
Operates chain of discount department stores
Earnings P/S......... $.20, .28, .37, .48, .55, .64, .80, .97, 1.11, 1.24 22.50%
Dividends P/S......... $.021, .03, .04, .06, .07, .09, .11, .13, .17, .20 30.70%
Price/Earnings Ratio.................................................17.9
-----------
3,779,375
-----------
TELECOMMUNICATIONS (2.55%)
32,000* Century Telephone Enterprises, Inc. @ 31 3/4............................. 1,016,000
Louisiana based telecommunications company
Earnings P/S....... $.46, .60, .58, .51, .63, .72, 1.09, 1.39, 1.59, 2.12 18.50%
Dividends P/S $.247, .253, .264, .272, .280, .287, .293, .310, .320, .330 3.30%
Price/Earnings Ratio.................................................15.5
100,000 Frontier Corp. @ 30...................................................... 3,000,000
Provides telephone service to city of Rochester NY and outlaying areas
Earnings P/S..... $.89, .93, 1.06, .99, .86, 1.14, 1.01, 1.15, 1.44, 1.02 1.50%
Dividends P/S.......... $.64, .66, .68, .71, .73, .75, .77, .79, .81, .83 2.90%
Price/Earnings Ratio.................................................29.5
-----------
4,016,000
-----------
TOBACCO (2.01%)
35,000 Philip Morris Cos. Inc. @ 90 1/2 ........................................ 3,167,500
-----------
Global tobacco, brewing and food company
Earnings P/S. $1.55, 1.94, 2.22, 3.18, 3.83, 4.36, 4.95, 5.01, 4.56, 6.25 16.80%
Dividends P/S.. $.62, .79, 1.01, 1.25, 1.55, 1.91, 2.35, 2.60, 3.03, 3.65 21.80%
Price/Earnings Ratio.................................................14.1
UTILITIES (1.05%)
49,000* National Fuel Gas Co. @ 33 5/8 .......................................... $ 1,647,625
-----------
Integrated gas holding company
Earnings P/S. $1.75, 1.49, 1.65, 1.93, 1.83, 1.68, 1.94, 2.21, 2.23, 2.03 1.70%
Dividends P/S $1.12, 1.19, 1.25, 1.32, 1.40, 1.45, 1.49, 1.53, 1.57, 1.61 4.10%
Price/Earnings Ratio.................................................16.4
TOTAL COMMON STOCKS (Cost $74,114,477) ..................... 91,949,000
-----------
PREFERRED STOCKS (1.58%)
45,000 American Express Co. "DECS" @ 55 1/2 .................................... 2,497,500
-----------
TOTAL PREFERRED STOCKS (Cost $1,729,375) ...................... 2,497,500
-----------
<CAPTION>
PAR VALUE
(000'S
OMITTED) CORPORATE BONDS (21.17%)
- ---------
<S> <C> <C>
$1,000 Banc One Credit Card Corp., Sr Sub
Note 7.55%, 12-15-99 @ 103.656 ................................................ 1,036,560
1,000 Bank of Scotland, Sub Note 8.85%,
11-01-06 @ 118.726 ............................................................ 1,187,256
1,000 Banque Paribas New York Corp., Sub Note
6.875%, 03-01-09 @ 100.336 .................................................... 1,003,360
1,000 Barclays North American Capital, Deb.
9.75%, 05-15-21 @ 120.500 ..................................................... 1,205,000
1,653 Coastal Corp. (The), Sr Deb 11.75%,
06-15-06 @ 106.375 ............................................................ 1,758,379
1,100 CTC Mansfield Funding Corp., Secured
Lease Obligation Bonds 11.125%,
09-30-16 @ 106.460 ............................................................ 1,171,060
1,500 Georgia-Pacific Corp., Deb 9.75%,
01-15-18 @ 104.598 ............................................................ 1,568,970
1,300 GTE Corp., Deb 10.25%, 11-01-20
@ 119.210 ..................................................................... 1,549,730
1,500 Hydro-Quebec Corp. Deb Ser HS 9.40%,
02-01-21 @ 126.923 ............................................................ 1,903,845
1,800 Landeskreditbank Baden-Wurttemberg,
Sub Note 7.625%, 02-01-23 @ 113.569 ........................................... 2,044,242
1,000 Magna Copper Company, Sub Note 12.00%,
12-15-01 @ 111.375 ............................................................ 1,113,750
600 Mass Mutual Life, Sub Note 7.625%,
11-15-23 @ 104.475(R) ......................................................... 626,850
1,000 Midland American Capital Corp., Gtd
Note 12.75%, 11-15-03 @ 118.025 ............................................... 1,180,250
750 Midland Funding Corp. Sr Sec Lease Oblig
10.33%, 07-23-02 @ 104.000 .................................................... 780,226
670 National Westminster Bancorp, Deb
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
(000'S MARKET
OMITTED) CORPORATE BONDS VALUE
- --------- ------
<S> <C> <C>
12.125%, 11-15-02 @ 111.482 ....................................... 746,929
$ 750 New York Life 7.50%, 12-15-23
@ 102.505(R) ...................................................... $ 768,788
1,950 NWA Inc., Sub Note 8.625%, 08-01-96
@ 101.000 ......................................................... 1,969,500
400 Occidental Petroleum Corp., Sr Deb 11.75%,
03-15-11 @ 105.885 ................................................ 423,540
750 RBSG Capital Corp., Gtd Cap Note 10.125%,
03-01-04 @ 124.279 ................................................ 932,093
400 RJR Nabisco Capital Corp., Sr Sub Deb
8.75%, 04-15-04 @ 103.393 ......................................... 413,572
500 Scandinavian Airlines System, Deb 9.125%,
07/20/99 @ 109.75 ................................................. 548,750
1,100 Security Pacific Corp., Sub Note 11.50%,
11-15-00 @ 122.943 ................................................ 1,352,373
1,000 Standard Credit Card Master Trust, Credit
Card Participation Certificates, 7.25%,
04/07/08 @ 107.781 ................................................ 1,077,810
500 Stone Container, Sub Note 9.875%,
02-01-01 @ 97.25 .................................................. 486,250
1,000 Thrifty Payless, Inc., Sr. Sub Note, 12.25%,
04/15/01 @ 106.500 ................................................ 1,065,000
1,900 TKR Cable 1, Inc. Deb 10.50%, 10-30-07
@ 119.082 ......................................................... 2,262,558
1,450 Unisys Corp., Credit Sensitive Notes 13.50%,
07-01-97 @ 95.000 ................................................. 1,377,500
260 United Air Lines Inc., Deb 10.25%, 07-15-21
@ 125.131 ......................................................... 325,341
500 Viacom International, Sub Deb. 8.00%,
07-07-06 @ 101.750 ................................................ 508,750
1,050* Weirton Steel Corporation, Sr. Notes
10.75%, 06-01-05 @ 94.250 ......................................... 989,625
-----------
TOTAL CORPORATE BONDS
(Cost $32,825,954) 33,377,857
-----------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (16.08)%
3,000* Federal National Mort. Assn. 8.50%,
02-01-05 @ 109.562 .................................................. 3,286,860
2,443 Federal National Mort. Assn. 7.50%,
08-01-08 @ 102.843 .................................................. 2,512,338
204 Federal National Mort. Assn. REMIC 9.80%,
05-25-19 @ 101.281 .................................................. 207,068
1,790 Financing Corp., Bond 9.65%, 11-02-18
@ 139.109 ........................................................... 2,490,051
199 Government National Mort. Assn. 9.00%,
04-15-21 @ 106.453 .................................................. 212,014
$1,967* Government National Mort. Assn. 7.00%,
06-15-23 @ 101.356 .................................................. 1,993,472
4,268 United States Treasury, Bond 8.875%,
08-15-17 @ 133.937 .................................................. 5,716,430
500 United States Treasury, Bond 7.125%,
02-15-23 @ 114.344 .................................................. 571,720
5,000 United States Treasury, Note 9.375%,
04-15-96 @ 101.141 .................................................. 5,057,050
2,900 United States Treasury, Note 8.75%,
08-15-00 @ 113.578 .................................................. 3,293,762
-----------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $24,500,700) 25,340,765
-----------
CANADIAN GOVERNMENT
OBLIGATIONS (0.61)%
750 Nova Scotia, Province of, Deb 9.50%,
02-01-19 @ 128.5720 ................................................. 964,290
-----------
TOTAL CANADIAN GOVERNMENT
OBLIGATIONS
(Cost $838,525) 964,290
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
<TABLE>
<CAPTION>
PAR VALUE
(000'S SHORT-TERM INTEREST MARKET
OMITTED) INVESTMENTS (1.59%) RATE VALUE
- --------- ------- ------
<S> <C> <C> <C>
JOINT REPURCHASE AGREEMENT
$2,503 Investment in a joint repurchase
agreement transaction with SBC
Capital Markets Inc., Dated 12-29-95,
Due 01-02-96 (secured by U.S.
Treasury Bonds, 7.500% Due
11-15-16, and 10.375%,
due 11-15-12) Note A ...................... 5.90% $ 2,503,000
------------
CORPORATE SAVINGS ACCOUNT (0.00)%
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 5.00% ........................ 1,878
------------
TOTAL SHORT-TERM INVESTMENTS 2,504,878
------------
TOTAL INVESTMENTS (99.36)% $156,634,290
====== ============
</TABLE>
* Securities, other than short-term investments, newly added to the portfolio
for the period ended December 31, 1995.
(R) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
See note A of the Notes to Financial Statements for valuation policy rule.
Rule 144A securities amounted to $1,395,638 as of December 31, 1995.
NMF No Meaningful Figure
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
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
investment objectives of the Fund are to provide current income, long-term
growth of capital and income, and preservation of capital.
The Directors have authorized the issuance of two classes of the Fund,
designated as Class A and Class B shares. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemptions, dividends, and liquidation, except that certain
expenses, subject to the approval of the Directors, may be applied differently
to each class of shares in accordance with current regulations of the Securities
and Exchange Commission and the Internal Revenue Service. Shareholders of a
class, which bears distribution/service expenses under terms of a distribution
plan, have exclusive voting rights regarding such distribution plan. Significant
accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account, on
the Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $259,999 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. Expired capital loss carryforwards are reclassified
to capital paid-in, in the year of expiration.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations. Dividends paid by the Fund
with respect to each class of shares will be calculated in the same manner, at
the same time and will be in the same amount, except for the effect of expenses
that may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Corporation are directly
identifiable to an individual Fund. Expenses which are not readily identifiable
to a specific Fund are allocated in such a manner as deemed equitable, taking
into consideration, among other things, the nature and type of expense and the
relative size of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are 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
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
purchase over the life of the security, as required by the Internal Revenue
Code.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent on
an annual basis, to the sum of 0.60% of the Fund's average daily net asset
value. The Adviser has entered into a service agreement with Sovereign Asset
Management Corporation ("SAMCORP") an affiliate of the Adviser, to provide
certain investment research and portfolio management services to the Fund, for
which the Adviser pays SAMCORP 40% of its management fee with respect to equity
securities in the Funds' portfolio.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended December
31, 1995, net sales charges received with regard to sales of Class A shares
amounted to $158,821. Out of this amount, $24,668 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $2,746
was paid as sales commissions to unrelated broker-dealers and $131,407 was paid
as sales commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"), all of which are broker dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company, is the indirect sole
shareholder of Distributors and John Hancock Freedom Securities Corporation and
its subsidiaries, which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") 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,
1995 contingent deferred sales charges paid to JH Funds amounted to $262,781.
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 shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses, at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B average daily net
assets to reimburse JH Funds for its distribution/service costs. Up to a maximum
of 0.25% of such payments may be service fees as defined by the amended Rules of
Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In order to comply with this
rule, the 12b-1 fee on Class B shares was decreased to 0.85% during the period
from January 1, 1995 through January 31, 1995.
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 October 1, 1995, the Fund paid transfer agent fees as
a class specific expense based on the number of shareholder accounts and certain
out-of-pocket expenses. For the nine months ended September 30, 1995, the
transfer agent expense, calculated as a class specific expense, was
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
$123,635 for Class A and $149,473 for Class B, respectively. Effective October
1, 1995, transfer agent expense is a fund expense.
Edward J. Boudreau, Jr. is director and officer of the Adviser and its
affiliates, as well as Director of the Fund. The compensation of unaffiliated
Directors is borne by the Fund. The Adviser owns 11,291 Class A shares of
beneficial interest of the Fund. Effective with the fees paid for 1995, the
unaffiliated Directors may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund makes investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover the
Fund's deferred compensation liability are recorded on the Fund's books as an
other asset. The deferred compensation liability is marked to market on a
periodic basis and income earned by the investment is recorded on the Fund's
books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended December 31, 1995, aggregated $52,182,917 and $61,399,880, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $14,509,436 and $11,548,778, respectively.
The cost of investments owned at December 31, 1995 (including the joint
repurchase agreement), for Federal income tax purposes was $136,537,437. Gross
unrealized appreciation and depreciation of investments aggregated $21,997,585
and $1,902,610, respectively, resulting in net unrealized appreciation of
$20,094,975.
19
<PAGE> 20
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, 1995, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
three 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 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, 1995, 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, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 9, 1996
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, 1995.
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 9.25% at year end. The percentage of income
derived from U.S. Treasury bonds, bills, and notes was 11.17%. 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 1.57% at year end. The Fund did not derive
any income from these investments. 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, 1995, 41.45% qualifies for the dividends received deduction
available to corporations.
20
<PAGE> 21
John Hancock Funds - Sovereign Balanced Fund
Historical Data (Unaudited)
The table below shows the record of the Fund since inception in 1992.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
CLASS A PER SHARE
YEAR ------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C>
1992(1) 568,842 $0.0473 $10.19 --
1993 5,792,163 0.4539 10.74 $0.1390
1994 6,295,898 0.4951 9.84 0.0231
1995 5,943,279 0.4373 11.75 --
<CAPTION>
CLASS B PER SHARE
YEAR ------------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C>
1992(1) 1,403,452 $0.0292 $10.20 --
1993 7,327,059 0.3816 10.75 $0.1390
1994 8,046,236 0.4296 9.84 0.0231
1995 7,478,401 0.3632 11.74 --
</TABLE>
(1) For the period October 5, 1992 (commencement of operations) to December 31,
1992.
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, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
<S> <C>
Abbott Laboratories .............................................. 10.53%
Air Products ..................................................... 6.1
Alco Standard .................................................... 7.7
American Home Products ........................................... 2.7
AMP, Inc. ........................................................ 9.5
Automatic Data Processing, Inc. .................................. 14.3
BankOne .......................................................... 9.7
Bemis ............................................................ 18.5
Century Telephone ................................................ 3.1
Corning, Inc. .................................................... 5.9
CPC International ................................................ 5.6
E.I. DuPont De Nemours & Co., Inc. ............................... 10.6
Emerson Electric ................................................. 14.0
Exxon ............................................................ 4.2
First Tennessee .................................................. 12.8
Frontier Corp. ................................................... 2.4
General Electric Co. ............................................. 12.2
Hubbell, Inc., Cl. B ............................................. 9.3
Interpublic Group ................................................ 10.7
Johnson & Johnson ................................................ 13.8
Kimberly Clark ................................................... 3.0
National Fuel Gas ................................................ 2.5
NationsBank ...................................................... 16.0
Pep Boys (The) ................................................... 11.8
PepsiCo, Inc. .................................................... 11.1
Pfizer, Inc. ..................................................... 10.6
Phillip Morris ................................................... 21.2
PPG Industries ................................................... 3.4
Procter & Gamble ................................................. 14.3
Questar .......................................................... 3.5
Reliastar Financial .............................................. 11.1
Sara Lee ......................................................... 11.8
Shell Transport .................................................. 6.3
Sonoco Products .................................................. 12.5
Sysco ............................................................ 18.2
W. W. Grainger, Inc. ............................................. 15.0
Wal-Mart ......................................................... 17.6
-----
The average dividend increase for this group was ................. 10.30%
=====
</TABLE>
21
<PAGE> 22
NOTES
John Hancock Funds - Sovereign Balanced Fund
22
<PAGE> 23
NOTES
John Hancock Funds - Sovereign Balanced Fund
23
<PAGE> 24
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A GLOBAL INVESTMENT MANAGEMENT FIRM U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Brockton, MA
Permit No. 582
[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."]
- --------------------------------------------------------------------------------
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."]
JHD 3600A 12/95
2/96
