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John Hancock Funds
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Sovereign
Balanced
Fund
SEMI-ANNUAL REPORT
June 30, 1996
<PAGE>
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DIRECTORS
EDWARD J. BOUDREAU, JR.
THOMAS W.L. CAMERON
JAMES F. CARLIN*
WILLIAM H. CUNNINGHAM
CHARLES F. FRETZ*
HAROLD R. HISER JR.*
ANNE C. HODSDON
CHARLES L. LADNER*
LEO E. LINBECK, JR.
PATRICIA P. McCARTER*
STEVEN R. PRUCHANSKY*
LT. GEN. NORMAN H. SMITH, USMC (RET.)*
RICHARD S. SCIPIONE
JOHN P. TOOLAN*
*Members of the Audit Committee
OFFICERS
EDWARD J. BOUDREAU, JR.
Chairman and Chief Executive Officer
ROBERT G. FREEDMAN
Vice Chairman and
Chief Investment Officer
ANNE C. HODSDON
President
JAMES B. LITTLE
Senior Vice President and
Chief Financial Officer
SUSAN S. NEWTON
Vice President and Secretary
JAMES J. STOKOWSKI
Vice President and Treasurer
THOMAS H. CONNORS
Second Vice President and Compliance Officer
CUSTODIAN
INVESTORS BANK & TRUST COMPANY
89 SOUTH STREET
BOSTON, MASSACHUSETTS 02111
TRANSFER AGENT
JOHN HANCOCK INVESTORS SERVICES CORPORATION
P.O. BOX 9116
BOSTON, MASSAHCUSETTS 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
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.]
Since late 1994, prospectus simplification has been a major topic in the mutual
fund industry. At that time, Securities and Exchange Commission Chairman Arthur
Levitt called on fund companies to make their prospectuses more user-friendly.
He noted that prospectuses are often overloaded with technical detail and are
hard for most investors to understand. Many industry observers agreed, and
rightly so.
So it is my pleasure to let you know that John Hancock Funds has introduced
the first in a series of new prospectuses. Covering the John Hancock growth
funds, the new prospectus made its debut on July 1 after being under development
for a year. It is simplified, using shorter, clearer language with a streamlined
design, and consolidated, incorporating several funds with similar investment
objectives into one document. We are excited about our new prospectus because we
believe it is a bold but sensible step forward. And while it is easier to read,
it still complies with all federal and state guidelines.
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page spread
highlighting each fund's goals and investment strategy, the types of securities
it buys, its portfolio management and risk factors, all in plainer language.
Fund expenses and financial highlights are now found here, too, as is a new bar
chart that shows year-to-year volatility for each fund. Other features include a
better presentation of fund services, a new glossary of investment risks and a
discussion about how funds are organized, including a diagram showing the
connection of the various players that provide services to your Hancock fund(s).
In the coming months, we will introduce similar prospectuses for our growth
and income, income, tax-free income, international/global and money market
funds. We believe we have made a significant advancement in the drive toward
better mutual fund prospectuses. We hope you will agree because in the end, we
did it for you, our shareholders.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
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BY JOHN F. SNYDER III AND BARRY H. EVANS,
FOR THE PORTFOLIO MANAGEMENT TEAM
John Hancock
Sovereign Balanced Fund
Economy's strength surprises both stock and
bond markets during first half of '96
During the first half of 1996, stocks and bonds took different paths. But
neither was immune from the economy's shifts. In the stock market, results were
mixed with no one sector taking a sustained lead. Nevertheless, the Standard &
Poor's 500-Stock Index returned 10.10%. In the bond market, the economy's
strength fanned inflation fears and hurt bond prices. Long-term yields rose from
5.95% to 6.87%, with the benchmark 30-year Treasury posting a -8.10% return.
In this environment, John Hancock Sovereign Balanced Fund delivered solid
results. For the six months ended June 30, 1996, the Fund's Class A and Class B
shares had total returns of 5.31% and 5.04%, respectively, at net asset value.
By comparison, the average balanced fund returned 5.05%, according to Lipper
Analytical Services.1 Please see pages six and seven for longer-term performance
information.
Stocks: Leaders and laggards
Our biggest investment, General Electric, returned over 20% in the first half of
the year. Earnings grew faster than expected, thanks to GE's global franchise,
excess cash and terrific management. In the pharmaceuticals sector, both Johnson
& Johnson and American Home Products beat the market nicely. For both companies,
new products especially helped earnings.
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"During the first half of 1996, stocks and bonds took different paths."
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[A 2" x 3 1/4" photo of the Fund management team. Caption reads: "(l-r) Anne
McDermott, John Snyder, Barry Evans, Jere Estes".]
3
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
W.W. Grainger, which distributes electrical equipment, and PepsiCo, which
dominates the snack food business, also turned in strong results. Finally, the
stock of Pep Boys N an auto servicer and parts retailer N rebounded, fueled by
pent-up demand after the winter and continued market share gains in the service
area.
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"We continued to trim our investment in bonds..."
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Of course, some stocks fell short of our expectations. Alco Standard spun
off its office products and paper distribution divisions to shareholders as two
separate companies. The move disappointed many investors, who hoped the paper
division N which had suffered from weak paper prices N would be sold. The
stock's price fell. But we have held on, believing the parts are worth more than
the whole. The stock of AMP, the largest maker of electrical connectors
worldwide, also suffered as demand temporarily weakened overseas. At the same
time, expenses increased as the company invested heavily in new plants. We
remain positive about the company's long-term prospects.
Stock selection criteria
Our strategy has always been to buy the stock of large companies with
predictable, visible earnings growth. We believe one of the best indicators for
reliable earnings growth is a company's dividend history. So we look for
companies that have increased their dividends every year for at least 10 years.
That hasn't changed.
What's changed is that today companies have to find new ways to grow
earnings. The old fallback N raising prices N isn't always possible. So, we look
for companies that are finding other ways to grow and they can do this in a few
ways. One way is by restructuring N fixing or spinning off divisions that are
not meeting targets. Another way to grow is by gaining market share. Usually the
dominant companies in a particular sector N the ones that already have market
share N are in the best position to gain more. Finally, companies grow by going
global, since there are far more new markets overseas.
Bonds: Reducing stake and lowering
interest-rate risk
We continued to trim our investment in bonds both because of our concern that
interest rates would rise and our belief that stocks had greater return
potential. By the end of June, our stake in bonds had fallen to 30%, down from
38% at the start of the year. The remaining 9% of the Fund's investments were in
cash.
To reduce interest-rate risk, we shortened duration. Typically, the longer
a bond's duration, the more its price will fall as interest rates rise (or rise
as rates fall). The Fund's duration ended June at 4.2 years, down considerably
from 4.8 years in January. To adopt this more conservative stance, we sold some
longer-term Treasury and corporate bonds. We added shorter maturity Treasuries,
mortgage bonds, asset-backed securities and cash. Mortgages offer returns that
are comparable to corporate bonds, but with top credit quality N a measure of
the issuer's ability to meet payments. Asset-backed securities N in this case
issued by Citicorp to finance the balances on the credit cards it issues N yield
about a half a percentage point more than Treasuries and also offer top credit
quality.
4
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================================================================================
John Hancock Funds - Sovereign Balanced Fund
[A bar chart with heading "Fund Performance" at top of left hand column. Under
the heading is the footnote: "For the six months ended June 30, 1996." The chart
is scaled in increments of 2% from top to bottom, with 6% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first represents
the 5.31% total return of John Hancock Sovereign Balanced Fund: Class A. The
second represents the 5.04% total return of John Hancock Sovereign Balanced
Fund: Class B. The third represents the 5.05% total return of the average
balanced fund. Footnote below reads: "Total returns for John Hancock Sovereign
Balanced Fund are at net asset value with all distributions reinvested. The
average balanced fund is tracked by Lipper Analytical Services. See the
following page for historical performance information."]
Going gets tougher
We believe the economy could slow again sometime in the second half. This spring
a surge in refinancing activity, hefty tax refunds and declining mortgage rates
have fueled increased consumer spending. At the same time, consumer debt is at
record highs. As these cash infusions end, it's likely that consumer spending
will slow, in turn causing the economy to slow. A hike in short-term interest
rates by the Federal Reserve would have a similar effect.
On the stock side, we're optimistic, given the market's steady inflows from
both individual and institutional investors. But a slower economy would lower
corporate earnings growth. Over the last three years, earnings of companies in
the S&P 500 have grown at a 20% annual rate. We expect them to grow more around
the market's average rate of 8% in 1996 and 1997. By comparison, we estimate
that the Fund's stocks will grow earnings 12% to 13% in 1996 and 1997. In
addition, the Fund's valuation N the price we're paying for earnings power N is
lower than the market's. As growth becomes scarce, the valuations on companies
with steady earnings growth should rise and benefit the Fund.
- --------------------------------------------------------------------------------
"...it's likely that consumer spending will slow..."
- --------------------------------------------------------------------------------
On the bond side, investors have already anticipated a rise in inflation
and short-term interest rates by lowering bond prices. They're waiting for
reassurance that the economy is slowing and inflation is not a concern. Either a
hike in short-term interest rates or weaker economic numbers would calm
investors. Until that happens, the market will probably be choppy, especially
given the new Treasury supply coming out this summer. To weather this period,
we'll keep the Fund's stake in bonds light, its credit quality relatively high
and its duration relatively short.
- --------------------------------------------------------------------------------
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 managers through the
end of the Fund's period discussed in this report. Of course, the managers'
views are subject to change as market and other conditions warrant.
5
<PAGE>
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A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Sovereign Balanced Fund. Total return is a
performance measure that equals the sum of all income and capital gain
distributions, assuming reinvestment of these distributions and the change in
the price of the Fund's net asset value per share. Performance figures include
the maximum applicable sales charge of 5% for Class A shares. The effect of the
maximum contingent deferred sales charge for Class B shares (maximum 5% and
declining to 0% over six years) is included in Class B performance. 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 p erform in the future. Also, keep in mind
that the total return and share price of the Fund's investments will fluctuate.
As a result, your Fund's shares may be worth more or less than their original
cost, depending on when you sell them.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Sovereign Balanced Fund: Class A(1) 9.99% 36.69%
John Hancock Sovereign Balanced Fund: Class B(1) 9.95% 38.36%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended June 30, 1996
ONE LIFE OF
YEAR FUND
---- ----
John Hancock Sovereign Balanced Fund: Class A(1) 9.99% 8.72%
John Hancock Sovereign Balanced Fund: Class B(1) 9.95% 9.07%
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YIELDS
- --------------------------------------------------------------------------------
As of June 30, 1996
SEC 30-DAY
YIELD
-----
John Hancock Sovereign Balanced Fund: Class A 2.87%
John Hancock Sovereign Balanced Fund: Class B 2.32%
Notes to Performance
(1) Class A and B shares started on October 5, 1992.
6
<PAGE>
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WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Sovereign Balanced Fund would be worth on June 30, 1996, assuming you had been
invested and reinvested all distributions for the entire time periods presented.
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.
[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 $17,731 as of June 30, 1996. 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 $14,394 as of June 30,
1996. The third line represents the Sovereign Balanced Fund after sales charge
and is equal to $13,669 as of June 30, 1996.]
[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 $17,731 as of June 30, 1996. 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
$14,036 as of June 30, 1996. The third line represents the Sovereign Balanced
Fund after contingent deferred sales charge and is equal to $13,836 as of June
30, 1996.]
7
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
The STATEMENT OF ASSETS AND LIABILITIES is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on June 30, 1996. 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.
Statement of Assets and Liabilities
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common and preferred stocks (cost - $74,002,487)............ $ 95,825,625
Corporate bonds (cost - $29,327,965)........................ 28,525,833
United States government and agencies obligations
(cost - $19,723,614)...................................... 19,265,898
Joint repurchase agreement (cost - $13,989,000)............. 13,989,000
Corporate savings account................................... 580
------------
157,606,936
Receivable for shares sold.................................... 23,182
Interest receivable........................................... 1,111,921
Dividends receivable.......................................... 235,235
Other assets.................................................. 9,285
Deferred organization expenses - Note A....................... 30,254
------------
Total Assets...................... 159,016,813
-------------------------------------------------
Liabilities:
Payable for shares repurchased................................ 44,770
Payable to John Hancock Advisers, Inc. and
affiliates - Note B........................................... 125,466
Accounts payable and accrued expenses......................... 44,517
------------
Total Liabilities................. 214,753
-------------------------------------------------
Net Assets:
Capital paid-in............................................... $133,501,844
Accumulated net realized gain on investments.................. 4,778,901
Net unrealized appreciation of investments.................... 20,564,124
Distributions in excess of net investment income.............. ( 42,809)
------------
Net Assets........................ $158,802,060
=================================================
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 - $70,457,681/5,795,257............................... $ 12.16
=============================================================================
Class B - $88,344,379/7,267,307............................... $ 12.16
=============================================================================
Maximum Offering Price *
Class - A ($12.16 x 105.26%).................................. $ 12.80
=============================================================================
* 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.
Statement of Operations
Six months ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest...................................................... $2,553,983
Dividends..................................................... 1,145,534
----------
3,699,517
----------
Expenses:
Investment management fee - Note B.......................... 467,672
Distribution/service fee - Note B...........................
Class A................................................... 103,320
Class B................................................... 435,053
Transfer agent fee - Note B................................. 165,436
Custodian fee............................................... 23,156
Registration and filing fees................................ 23,037
Printing.................................................... 15,693
Auditing fee................................................ 14,800
Financial services fee - Note B............................. 14,614
Organization expense........................................ 11,916
Miscellaneous............................................... 10,244
Trustees' fees.............................................. 7,069
Legal fees.................................................. 2,520
----------
Total Expenses............... 1,294,530
--------------------------------------------
Net Investment Income........ 2,404,987
--------------------------------------------
Realized and Unrealized Gain on Investments:
Net realized gain on investments sold......................... 5,064,369
Change in net unrealized appreciation/depreciation
of investments.............................................. 443,743
----------
Net Realized and Unrealized
Gain on Investments.......... 5,508,112
--------------------------------------------
Net Increase in Net Assets
Resulting from Operations.... $7,913,099
============================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
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FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1996
DECEMBER 31, 1995 (UNAUDITED)
----------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income.................................................................... $ 5,360,939 $ 2,404,987
Net realized gain on investments sold.................................................... 1,018,778 5,064,369
Change in net unrealized appreciation/depreciation of investments........................ 25,174,426 443,743
------------ ------------
Net Increase in Net Assets Resulting from Operations................................... 31,554,143 7,913,099
------------ ------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.4373 and $0.2107 per share, respectively)................................ ( 2,613,933) ( 1,216,882)
Class B - ($0.3632 and $0.1687 per share, respectively)................................ ( 2,759,067) ( 1,232,349)
------------ ------------
Total Distributions to Shareholders.................................................. ( 5,373,000) ( 2,449,231)
------------ ------------
From Fund Share Transactions - Net*........................................................ ( 9,671,500) ( 4,299,396)
------------ ------------
Net Assets:
Beginning of period...................................................................... 141,127,945 157,637,588
------------ ------------
End of period (including undistributed net investment income of $1,435 and
distributions in excess of net investment income of $42,809, respectively)............. $157,637,588 $158,802,060
============ ============
* Analysis of Fund Share Transactions:
</TABLE>
<TABLE>
<CAPTION>
SIX MONTH ENDED
YEAR ENDED JUNE 30, 1996
DECEMBER 31, 1995 (UNAUDITED)
------------------------ --------------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................ 731,880 $ 8,003,387 441,206 $ 5,278,783
Shares issued to shareholders in reinvestment of distributions 225,314 2,478,514 95,973 1,153,576
--------- ----------- ------------ ------------
957,194 10,481,901 537,179 6,432,359
Less shares repurchased............................................ (1,309,813) ( 14,133,563) ( 685,201) ( 8,202,155)
--------- ----------- ------------ ------------
Net decrease....................................................... ( 352,619) ($ 3,651,662) ( 148,022) ($ 1,769,796)
========= =========== ============ ============
CLASS B
Shares sold........................................................ 752,142 $ 8,157,490 418,713 $ 5,021,361
Shares issued to shareholders in reinvestment of distributions 222,136 2,441,524 91,171 1,095,839
--------- ----------- ------------ ------------
974,278 10,599,014 509,884 6,117,200
Less shares repurchased............................................ (1,542,113) ( 16,618,852) ( 720,978) ( 8,646,800)
--------- ----------- ------------ ------------
Net decrease....................................................... ( 567,835) ($ 6,019,838) ( 211,094) ($ 2,529,600)
========= =========== ============ ============
</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>
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FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
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:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------- JUNE 30, 1996
1992(1) 1993 1994 1995 UNAUDITED)
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period.............................. $ 10.00 $ 10.19 $ 10.74 $ 9.84 $ 11.75
------- ------- ------- ------- -------
Net Investment Income............................................. 0.04 0.46 0.50 0.44(2) 0.21
Net Realized and Unrealized Gain (Loss) on Investments............ 0.20 0.68 ( 0.88) 1.91 0.41
------- ------- ------- ------- -------
Total from Investment Operations.............................. 0.24 1.14 ( 0.38) 2.35 0.62
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income............................ ( 0.05) ( 0.45) ( 0.50) ( 0.44) ( 0.21)
Distributions from Net Realized Gain on Investments Sold -- ( 0.14) ( 0.02) -- --
------- ------- ------- ------- -------
Total Distributions........................................... ( 0.05) ( 0.59) ( 0.52) ( 0.44) ( 0.21)
------- ------- ------- ------- -------
Net Asset Value, End of Period.................................... $ 10.19 $ 10.74 $ 9.84 $ 11.75 $ 12.16
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (3).................... 2.37%(4) 11.38% ( 3.51%) 24.23% 5.31%(4)
Total Adjusted Investment Return at Net Asset Value (3,5)......... 2.22%(4) -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted)......................... $ 5,796 $62,218 $61,952 $69,811 $70,458
Ratio of Expenses to Average Net Assets........................... 2.79%(6) 1.45% 1.23% 1.27% 1.27%(6)
Ratio of Adjusted Expenses to Average Net Assets (7).............. 2.94%(6) -- -- -- --
Ratio of Net Investment Income to Average Net Assets.............. 3.93%(6) 4.44% 4.89% 3.99% 3.48%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets (7) 3.78%(6) -- -- -- --
Portfolio Turnover Rate........................................... 0% 85% 78% 45% 15%
Fee Reduction Per Share........................................... $0.0016 N/A N/A N/A N/A
Average Brokerage Commission Rate (8)............................. N/A N/A N/A N/A $ 0.07
</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>
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FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------------------------- JUNE 30, 1996
1992(1) 1993 1994 1995 UNAUDITED)
------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period....................... $ 10.00 $ 10.20 $ 10.75 $ 9.84 $ 11.74
------- ------- ------- ------- -------
Net Investment Income...................................... 0.03 0.37 0.43 0.36(2) 0.17
Net Realized and Unrealized Gain (Loss) on Investments..... 0.20 0.70 ( 0.89) 1.90 0.42
------- ------- ------- ------- -------
Total from Investment Operations..................... 0.23 1.07 ( 0.46) 2.26 0.59
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income................... ( 0.03) ( 0.38) ( 0.43) ( 0.36) ( 0.17)
Distributions from Net Realized Gain on Investments Sold -- ( 0.14) ( 0.02) -- --
------- ------- ------- ------- -------
Total Distributions.................................. ( 0.03) ( 0.52) ( 0.45) ( 0.36) ( 0.17)
------- ------- ------- ------- -------
Net Asset Value, End of Period............................. $ 10.20 $ 10.75 $ 9.84 $ 11.74 $ 12.16
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (3)............. 2.29%(4) 10.63% ( 4.22%) 23.30% 5.04%(4)
Total Adjusted Investment Return at Net Asset Value (3,5).. 2.14%(4) -- -- -- --
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted).................. $14,311 $78,775 $79,176 $87,827 $88,344
Ratio of Expenses to Average Net Assets.................... 3.51%(6) 2.10% 1.87% 1.96% 1.97%(6)
Ratio of Adjusted Expenses to Average Net Assets(7)........ 3.66%(6) -- -- -- --
Ratio of Net Investment Income to Average Net Assets....... 3.21%(6) 4.01% 4.25% 3.31% 2.78%(6)
Ratio of Adjusted Net Investment Income to Average Net Assets(7) 3.06%(6) -- -- -- --
Portfolio Turnover Rate.................................... 0% 85% 78% 45% 15%
Fee Reduction Per Share.................................... $0.0012 N/A N/A N/A $ 0.07
Average Brokerage Commission Rate (8)...................... N/A N/A N/A N/A $ 0.07
</TABLE>
(1) Class A and Class B shares commenced operations on October 5, 1992. This
period is covered by the report of other independent auditors (not included
herein).
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculated that does not take into consideration
fee reductions by adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
Schedule of Investments
June 30, 1996 (Unaudited)
Per share earnings and dividends and their compound growth rates are shown for
the most recently reported ten year periods on common stocks.
- --------------------------------------------------------------------------------
The SCHEDULE OF INVESTMENTS is a complete list of all securities owned by
Sovereign Balanced Fund on June 30, 1996. It's divided into five main
categories: common stocks, preferred stocks, corporate bonds, United States
government and agencies 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 (55.96%) RATE VALUE
- --------- ---- -----
<S> <C> <C> <C>
Advertising (1.48%)
50,000 Interpublic Group of Cos., Inc.
(The) @ 467\8........................................................... $ 2,343,750
-----------
One of the largest advertising agencies in
the world
Earnings P/S...$.75, .91, 1.05, 1.19, 1.17, 1.32, 1.39, 1.69, 1.89, 1.69 9.50%
Dividends P/S.........$.20, .22, .26, .32, .37, .41, .45, .49, .55, .61 13.20%
Price/Earnings Ratio................................................27.6
Banks (4.13%)
44,000 Banc One Corp. @ 34..................................................... 1,496,000
Ohio-based bank holding company offering
depository and lending services to
individuals and commercial customers
Earnings P/S...$1.19, 1.56, 1.66, 1.83, 1.64, 1.75, 2.27, 2.70, 2.16, 3.00 10.80%
Dividends P/S$...........41, .45, .50, .57, .63, .70, .81, .98, 1.13, 1.24 13.10%
Price/Earnings Ratio..................................................11.3
70,000 First Tennessee National Corp. @ 30 5\8................................... 2,143,750
Tennessee-based bank holding company
Earnings P/S......$.78, 1.10, .65, .98, 1.23, 1.50, 1.62, 1.77, 2.08, 2.48 13.70%
Dividends P/S............$.38, .40, .43, .49, .54, .57, .63, .75, .87, .97 11.00%
Price/Earnings Ratio..................................................12.6
20,000 NationsBank Corp. @ 82 5\8................................................ 1,652,500
Largest superregional bank in the Southeast
Earnings P/S$2.01, 2.87, 4.44, 2.61, .76, 1.39, 4.42, 5.42, 6.19, 7.23 15.30%
Dividends P/S$.......78, .86, .94, 1.10, 1.42, 1.48, 1.51, 1.64, 1.88, 2.08 11.50%
Price/Earnings Ratio...................................................11.2
40,000 Southern National Corp. @ 31 3\4........................................... 1,270,000
Multi-bank holding company
Earnings P/S.......$.95, 1.13, 1.14, 1.12, 1.04, 1.43, 1.92, .09, 1.61, 2.46 11.20%
Dividends P/S$...............33, .34, .36, .39, .42, .46, .50, .64, .74, .86 11.20%
Price/Earnings Ratio....................................................11.8
-----------
6,562,250
-----------
Chemicals (2.23%)
20,000 Air Products And Chemicals @ 57 3\4......................................... 1,155,000
Producer of industrial and speciality
chemicals and gases
Earnings P/S......$.04, 1.95, 2.02, 2.08, 2.21, 2.32, 2.50, 1.26, 2.84, 3.74 65.60%
Dividends P/S.............$.39, .45, .55, .63, .69, .75, .83, .89, .95, 1.01 11.20%
Price/Earnings Ratio....................................................15.3
20,000 E.I. du Pont de Nemours and Co.
@ 79 1\8.................................................................... 1,582,500
Nations largest chemical manufacturer
Earnings P/S.....$2.46, 3.03, 3.53, 3.40, 3.38, 1.84, 1.52, 1.04, 4.46, 5.78 10.00%
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....................................................13.7
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
Chemicals (continued)
15,000 Sigma-Aldrich Corp. @ 53 1\2................................................ $ 802,500
Manufacturer of biochemical and organic
products used for research
Earnings P/S......$.85, 1.15, 1.30, 1.44, 1.17, 1.67, 1.98, 2.21, 2.27, 2.72 13.80%
Dividends P/S..............$.13, .15, .17, .19, .20, .23, .26, .30, .34, .38 12.70%
Price/Earnings Ratio....................................................19.8
-----------
3,540,000
-----------
Commercial Services (1.51%)
70,000 Sysco Corp. @ 34 1\4........................................................ 2,397,500
-----------
Largest distributor of food service products
Earnings P/S........$.35, .45, .60, .73, .81, .90, 1.00, 1.16, 1.33, 1.48 17.40%
Dividends P/S.............$.06, .07, .08, .09, .10, .14, .22, .28, .36, .44 24.80%
Price/Earnings Ratio....................................................20.3
Computer and Office Equipment (1.71%)
60,000 Alco Standard Corp. @ 45 1\4................................................ 2,715,000
-----------
Distributor of office and paper products
Earnings P/S.........$.84, 1.15, 1.96, .91, .89, 1.04, 1.18, .05, .74, 2.01 10.20%
Dividends P/S.............$.32, .33, .35, .39, .43, .45, .47, .49, .51, .53 6.00%
Price/Earnings Ratio....................................................22.9
Consumer Durables (0.53%)
40,000 Worthington Industries, Inc. @ 20 7\8....................................... 835,000
-----------
Manufactures metals and plastic products
Earnings P/S.............$.45, .61, .70, .61, .50, .63, .74, .94, 1.29, 1.01 9.40%
Dividends P/S..............$.14, .17, .19, .23, .26, .28, .32, .34, .39, .43 13.30%
Price/Earnings Ratio....................................................19.7
Consumer Non-Durables (8.67%)
35,000 CPC International, Inc. @ 72................................................ 2,520,000
Major international food company
Earnings P/S.....$2.17, 1.84, 2.11, 2.42, 2.45, 2.63, 2.81, 3.00, 2.35, 3.52 5.50%
Dividends P/S.......$.57, .65, .76, .88, 1.00, 1.10, 1.20, 1.28, 1.38, 1.48 11.20%
Price/Earnings Ratio....................................................20.0
25,000 Kimberly-Clark Corp. @ 77 1\4............................................... 1,931,250
Leading producer of consumer and personal
care products
Earnings P/S.....$1.87, 2.36, 2.63, 2.70, 2.72, 3.25, 2.11, 3.25, 3.19, .52 NMF
Dividends P/S.......$.60, .70, .78, 1.26, 1.32, 1.48, 1.59, 1.67, 1.71, 1.76 12.70%
Price/Earnings Ratio....................................................17.2
80,000 PepsiCo, Inc. @ 35 3\8...................................................... 2,830,000
Second largest soft drink company
Earnings P/S............$.38, .49, .57, .68, .70, .69, .82, 1.00, 1.14, 1.04 11.80%
Dividends P/S.............$.105, .11, .14, .16, .19, .23, .26, .31, .35, .39 15.70%
Price/Earnings Ratio....................................................32.3
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
Consumer Non-Durables (continued)
43,000 Procter & Gamble Co. (The) @ 90 5\8......................................... $ 3,896,875
Leading producer of household
consumer products
Earnings P/S.......$.46, 1.48, 1.74, 2.25, 2.43, 2.57, 2.54, .70, 2.43, 4.17 27.80%
Dividends P/S.........$.67, .68, .70, .83, .93, 1.00, 1.08, 1.17, 1.32, 1.50 9.40%
Price/Earnings Ratio....................................................20.8
80,000 Sara Lee Corp. @ 32 3\8..................................................... 2,590,000
Manufacturer of brand name packaged
foods and consumer products
Earnings P/S..........$.59, .71, .88, .94, 1.03, 1.49, 1.36, 1.47, .52, 1.76 12.90%
Dividends P/S..............$.20, .25, .30, .36, .42, .47, .50, .58, .64, .68 14.60%
Price/Earnings Ratio......................................................18
-----------
13,768,125
-----------
Diversified Operations (1.81%)
75,000 Corning Inc. @ 38 3\8....................................................... 2,878,125
-----------
Operations are in laboratory services,
fiber optics, specialty materials and
consumer products
Earnings P/S..$1.03, 1.63, 1.40, 1.54, 1.55, 1.75, 1.32, (.071), 1.39, (.27) NMF
Dividends P/S..............$.35, .36, .38, .41, .46, .53, .62, .68, .69, .72 8.30%
Price/Earnings Ratio....................................................24.2
Electrical Equipment (9.77%)
70,000 AMP, Inc. @ 40 1\8.......................................................... 2,808,750
World's largest manufacturer of electrical/
electronic connectors
Earnings P/S.....$1.16, 1.48, 1.32, 1.35, 1.31, 1.23, 1.39, 1.44, 1.83, 2.01 6.30%
Dividends P/S..............$.37, .43, .50, .60, .68, .72, .76, .80, .84, .92 10.70%
Price/Earnings Ratio....................................................20.0
34,000 Emerson Electric Co. @ 90 3\8............................................... 3,072,750
Produces and sells electrical/electronic
products and systems
Earnings P/S.....$2.00, 2.31, 2.63, 2.75, 2.79, 2.88, 3.05, 3.81, 3.89, 4.30 8.90%
Dividends P/S......$.93, .98, 1.03, 1.16, 1.28, 1.34, 1.40, 1.47, 1.60, 1.84 7.90%
Price/Earnings Ratio....................................................20.7
46,000 General Electric Co. @ 86 1\2............................................... 3,979,000
Dominant force in home appliances,
electrical power and financial services
Earnings P/S....$1.60, 1.88, 2.18, 2.43, 2.48, 2.54, 2.55, 2.57, 3.56, 4.01 10.80%
Dividends P/S.........$.58, .65, .70, .82, .94, 1.02, 1.12, 1.26, 1.44, 1.64 12.20%
Price/Earnings Ratio....................................................21.4
25,000 Hubbell Inc. Class B @ 66 1\4............................................... 1,656,250
Manufacturer of electrical and
electronic products
Earnings P/S.....$1.69, 1.94, 2.25, 2.52, 2.42, 2.66, 2.85, 2.01, 3.32, 3.74 9.20%
Dividends P/S.......$.64, .75, .85, 1.07, 1.25, 1.40, 1.51, 1.55, 1.62, 1.84 12.50%
Price/Earnings Ratio....................................................18.5
30,000 Pentair, Inc. @ 30.......................................................... 900,000
Manufacturer of enclosures for
electrical equipment
Earnings P/S.........$.65, 1.12, .95, .81, .89, 1.11, 1.11, 1.14, 1.32, 1.54 10.10%
Dividends P/S..............$.20, .21, .22, .27, .29, .31, .33, .34, .36, .40 8.00%
Price/Earnings Ratio....................................................18.5
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
Electrical Equipment (continued)
40,000 W.W. Grainger, Inc. @ 77 1\2................................................ $ 3,100,000
Leading distributor of electrical equipment
Earnings P/S.....$1.48, 1.57, 1.96, 2.19, 2.31, 2.38, 2.70, 3.04, 2.61, 3.70 10.70%
Dividends P/S..............$.36, .39, .43, .50, .57, .61, .65, .71, .78, .89 10.60%
Price/Earnings Ratio......................................................21
-----------
15,516,750
-----------
Energy (3.43%)
15,000 Exxon Corp. @ 86 7\8........................................................ 1,303,125
Major factor in the crude oil, natural gas and
chemical industry
Earnings P/S.....$3.71, 3.43, 3.95, 2.32, 3.96, 4.45, 3.82, 4.21, 4.07, 5.18 3.80%
Dividends P/S....$1.80, 1.90, 2.15, 2.30, 2.47, 2.68, 2.83, 2.88, 2.91, 3.00 5.80%
Price/Earnings Ratio....................................................15.5
70,000 Questar Corp. @ 34.......................................................... 2,380,000
Diversified holding company for Utah,
Wyoming and Colorado natual gas
transmission, distribution and storage
Earnings P/S......$.67, .64, 1.27, 1.46, 1.57, 1.53, 2.00, 1.97, 1.11, 2.23 14.30%
Dividends P/S.........$.87, .91, .94, .95, .97, 1.01, 1.04, 1.09, 1.13, 1.16 3.30%
Price/Earnings Ratio....................................................15.1
20,000 Shell Transport & Trading Co.
ADR @ 88.................................................................... 1,760,000
Explores, processes and delivers petroleum
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
-----------
5,443,125
-----------
Finance (0.63%)
30,000 Federal National Mortgage
Association @ 33 1\2........................................................ 1,005,000
-----------
Issues and sells guaranteed mortgage-
backed securities
Earnings P/S.....$1.55, 2.11, 3.10, 4.49, 1.16, 1.39, 1.59, 1.89, 2.03, 2.06 3.20%
Dividends P/S..............$.02, .03, .06, .11, .18, .26, .35, .46, .60, .68 48.00%
Price/Earnings Ratio....................................................15.2
Healthcare (6.93%)
50,000 Abbott Laboratories @ 43 1\2................................................ 2,175,000
Major pharmaceutical and healthcare firm
Earnings P/S........$.70, .84, .97, 1.11, 1.15, 1.32, 1.53, 1.73, 1.94, 2.21 13.60%
Dividends P/S..............$.20, .24, .29, .34, .40, .48, .58, .66, .74, .82 17.00%
Price/Earnings Ratio1....................................................9.6
40,000 American Home Products Corp. @ 60 1\8....................................... 2,405,000
Research-based pharmaceutical and
healthcare products company
Earnings P/S...$(1.32), 1.61, 1.77, 3.03, 3.07, 1.85, 2.26, 2.39, 3.48, 1.84 NMF
Dividends P/S........$.78, .84, .90, .98, 1.08, 1.19, 1.33, 1.43, 1.47, 1.51 7.60%
Price/Earnings Ratio....................................................32.5
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
Healthcare (continued)
72,000 Johnson & Johnson @ 49 1\2.................................................. $ 3,564,000
Major producer of prescription/non-
prescription drugs, toiletries, and medical
instruments and supplies
Earnings P/S..........$.59, .71, .80, .86, .99, 1.12, 1.28, 1.41, 1.65, 1.95 14.20%
Dividends P/S..............$.17, .20, .24, .28, .33, .39, .45, .51, .57, .64 15.90%
Price/Earnings Ratio....................................................24.9
40,000 Pfizer, Inc. @ 71 3\8....................................................... 2,855,000
Leading ethical pharmaceutical producer
Earnings P/S.....$1.02, 1.18, 1.01, 1.19, 1.21, 1.11, 1.69, 1.11, 2.15, 2.61 11.00%
Dividends P/S.............$.41, .45, .50, .55, .60, .66, .74, .84, .94, 1.04 10.90%
Price/Earnings Ratio....................................................27.3
-----------
10,999,000
-----------
Information Services (1.46%)
60,000 Automatic Data Processing,
Inc. @ 385\8................................................................ 2,317,500
-----------
Largest independent computing services firm
in the U.S.
Earnings P/S...........$.42, .54, .62, .72, .79, .90, 1.01, 1.15, 1.34, 1.53 15.50%
Dividends P/S.......$.093, .105, .125, .145, .17, .195, .225, .255, .29, .35 15.90%
Price/Earnings Ratio....................................................24.8
Insurance (2.20%)
5,000 General Re Corp. @ 152 1\4.................................................. 761,250
Reinsurance and holding company
Earnings P/S....$5.04, 5.04, 6.52, 6.89, 6.96, 7.44, 7.07, 7.38, 9.02, 10.59 8.60%
Dividends P/S......$.88, 1.00, 1.20, 1.36, 1.52, 1.68, 1.80,1.88, 1.92, 1.96 9.30%
Price/Earnings Ratio....................................................14.1
30,000 Providian Corp. @ 42 7\8.................................................... 1,286,250
Provides consumer financial services
Earnings P/S.....$1.68, 2.00, 2.93, 1.70, 2.00, 2.70, 3.14, 3.11, 3.11, 3.98 10.10%
Dividends P/S..............$.41, .44, .47, .50, .54, .60, .66, .73, .80, .90 9.10%
Price/Earnings Ratio....................................................10.4
33,600 Reliastar Financial Corp. @ 43 1\8.......................................... 1,449,000
Financial services company engaged in
life/health insurance and consumer finance
Earnings P/S.....$1.86, 1.58, 2.07, 1.99, 1.96, 1.67, 2.26, 2.83, 3.48, 4.62 10.60%
Dividends P/S..............$.43, .47, .57, .59, .65, .69, .73, .79, .88, .98 9.60%
Price/Earnings Ratio.....................................................9.4
-----------
3,496,500
-----------
Packaging (2.60%)
45,000 Bemis Co. @ 35.............................................................. 1,575,000
Producer of a broad range of flexible
packaging and equipment and pressure
sensitive materials
Earnings P/S...........$.59, .74, .90, .99, .97, 1.08, 1.10, .94, 1.45, 1.73 12.70%
Dividends P/S..............$.15, .18, .22, .30, .36, .42, .46, .50, .54, .64 17.50%
Price/Earnings Ratio....................................................20.3
90,000 Sonoco Products Co. @ 28 3\8................................................ 2,553,750
Leading manufacturer of containers, paper
products and packaging
Earnings P/S.........$.77, 1.10, 1.18, .52, .53, 1.04, .94, 1.24, 1.42, 1.74 9.50%
Dividends P/S..............$.18, .21, .30, .39, .43, .44, .48, .50, .53, .59 14.10%
Price/Earnings Ratio....................................................15.9
-----------
4,128,750
-----------
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- ---- -----
Retail (3.01%)
20,000 Lowe's Companies, Inc. @ 36 1\8............................................. $ 722,500
Retailer of building materials and supplies,
lumber, hardware, and appliances
Earnings P/S............$.39, .46, .51, .55, .41, .13, .62, 1.05, 1.47, 1.33 14.10%
Dividends P/S........$.098, .105, .113, .12, .13, .135, 1.14, .16, .17, .185 7.40%
Price/Earnings Ratio....................................................26.7
82,000 Pep Boys-Manny, Moe &
Jack (The) @ 34............................................................. 2,788,000
Retailer of automotive parts and accessories
Earnings P/S............$.62, .76, .63, .66, .63, .75, .93, 1.13, 1.30, 1.40 9.50%
Dividends P/S..............$.07, .08, .09, .11, .12, .13, .14, .15, .17, .19 11.70%
Price/Earnings Ratio....................................................23.8
50,000 Wal-Mart Stores, Inc. @ 25 3\8.............................................. 1,268,750
Operates chain of discount department stores
Earnings P/S............$.28, .37, .48, .50, .59, .73, .90, 1.05, 1.20, 1.21 17.70%
Dividends P/S..............$.02, .03, .04, .06, .07, .09, .11, .13, .17, .20 30.70%
Price/Earnings Ratio....................................................19.8
-----------
4,779,250
-----------
Telecommunications (1.80%)
32,000 Century Telephone Enterprises,
Inc. @ 31 7\8............................................................... 1,020,000
Louisiana based telecommunications company
Earnings P/S...........$.60, .58, .51, .67, .67, .89, 1.32, 1.39, 1.99, 1.99 14.30%
Dividends P/S....$.247, .253, .264, .272, .280, .287, .293, .310, .320, .330 3.30%
Price/Earnings Ratio....................................................16.4
60,000 Frontier Corp. @ 30 5\8..................................................... 1,837,500
Provides telephone service to city of
Rochester NY and outlaying areas
Earnings P/S.........$.93, 1.06, .99, .86, .87, 1.20, 1.09, 1.26, 1.56, 1.08 1.70%
Dividends P/S..............$.64, .66, .68, .71, .73, .75, .77, .79, .81, .83 2.90%
Price/Earnings Ratio......................................................28
-----------
2,857,500
-----------
Transportation (0.61%)
20,000 CSX Corp. @ 48 1\4.......................................................... 965,000
-----------
International transportation company with
interests in rail and ocean container shipping
Earnings P/S..$2.78, (.30), 4.11, 3.62, 1.99, (.33), (.25), 2.13, 3.34, 3.05 1.00%
Dividends P/S..............$.58, .59, .62, .64, .70, .72, .76, .79, .88, .92 5.30%
Price/Earnings Ratio....................................................15.1
Utilities (1.45%)
30,000 Central & South West Corp. @ 29............................................. 870,000
Dallas-based utility holding company
Earnings P/S.....$1.96, 1.72, 1.63, 1.90, 1.53, 1.99, 1.96, 1.40, 2.03, 2.12 0.90%
Dividends P/S....$1.07, 1.14, 1.22, 1.30, 1.38, 1.46, 1.54, 1.62, 1.70, 1.72 5.40%
Price/Earnings Ratio......................................................13
40,000 National Fuel Gas Co. @ 36.................................................. 1,440,000
Integrated gas holding company serving NY,
PA and Ohio
Earnings P/S.....$1.49, 1.65, 1.93, 1.83, 1.95, 1.89, 1.88, 2.05, 2.27, 2.40 5.40%
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....................................................14.7
-----------
2,310,000
-----------
TOTAL COMMON STOCKS
(Cost $68,070,337) 88,858,125
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
NUMBER MARKET
OF SHARES PREFERRED STOCKS (4.39%) VALUE
- --------- -----
40,000 American Express Co. 6.25% Conv.
Pfd. @ 65 5\8................................... $ 2,625,000
120,000 Santander Overseas Bank 10.64% @ 26 1\2 3,180,000
25,000 U.S. West Inc. 7.625% Conv. Pfd. @ 27 1\4 681,250
10,000 Wang Laboratories Inc. 6.50% Conv.
Pfd. @ 48 1\8................................... 481,250
-----------
TOTAL PREFERRED STOCKS
(Cost $5,932,150) 6,967,500
-----------
PAR VALUE
(000's
OMITTED) CORPORATE BONDS (17.96%)
$1,000 Banc One Credit Card Corp., Sr Sub
Note 7.55%, 12-15-99 @ 101.750.................. 1,017,500
1,000 Bank of Scotland, Sub Note 8.85%,
11-01-06 @ 110.195.............................. 1,101,954
1,000 Barclays North American Capital, Deb.
9.75%, 05-15-21 @ 113.750....................... 1,137,500
1,100 CTC Mansfield Funding Corp., Secured Lease
Obligation Bonds 11.125%,
09-30-16 @ 102.512.............................. 1,127,632
1,300 GTE Corp., Deb 10.25%, 11-01-20
@ 113.588....................................... 1,476,644
1,500 Georgia-Pacific Corp., Deb 9.75%,
01-15-18 @ 104.717.............................. 1,570,755
1,500 Hydro-Quebec Corp. Deb Ser HS 9.40%,
02-01-21 @ 115.908.............................. 1,738,620
1,800 Landeskreditbank Baden-Wurttemberg,
Sub Note 7.625%, 02-01-23 @ 101.469. 1,826,442
1,000 Magna Copper Company, Sub Note 12.00%,
12-15-01 @ 107.882.............................. 1,078,820
600 Mass Mutual Life, Sub Note 7.625%,
11-15-23 @ 96.628(R)............................ 579,768
1,000 Midland American Capital Corp., Gtd
Note 12.75%, 11-15-03 @ 112.968................. 1,129,680
720 Midland Funding Corp. Sr Sec Lease Oblig
10.33%, 07-23-02 @ 105.375...................... 758,508
670 National Westminster Bancorp, Deb
12.125%, 11-15-02 @ 107.451..................... 719,922
75 New York Life 7.50%, 12-15-23
@ 93.326(R)..................................... 699,945
1,950 NWA Inc., Sub Note 8.625%, 08-01-96
@ 100.000....................................... 1,950,000
400 RJR Nabisco Capital Corp., Sr Sub
Deb 8.75%, 04-15-04 @ 99.612.................... 398,448
PAR VALUE
(000'S MARKET
OMITTED) CORPORATE BONDS VALUE
- -------- -----
$1,000 Royal Bank of Scotland, Sub Notes 6.375%,
02-01-11 @ 89.082............................... $ 890,820
500 Scandinavian Airlines System, Deb 9.125%,
07-20-99 @ 106.125.............................. 530,625
1,100 Security Pacific Corp., Sub Note 11.50%,
11-15-00 @ 116.505.............................. 1,281,555
750 Standard Credit Card Master Trust, Credit
Card Participation Certificates, 8.25%,
01-07-05 @ 105.968.............................. 794,760
1,000 Standard Credit Card Master Trust, Credit
Card Participation Certificates, 7.25%,
04-07-08 @ 99.968............................... 999,680
1,000 TCI Communications Inc., Deb 8.75%,
08-01-15 @ 98.288............................... 982,880
650 Thrifty Payless, Inc., Sr. Sub Note, 12.25%,
04-15-04 @ 110.750.............................. 719,875
1,900 TKR Cable 1, Inc. Deb 10.50%, 10-30-07
@ 109.625....................................... 2,082,875
500 Viacom International, Sub Deb. 8.00%,
07-07-06 @ 91.500............................... 457,500
1,050 Weirton Steel Corporation, Sr. Notes 10.75%,
06-01-05 @ 95.000............................... 997,500
500 360 Communications Co., Sr. Notes 7.125%,
03-01-03 @ 95.125............................... 475,625
-----------
TOTAL CORPORATE BONDS
(Cost $29,327,965) 28,525,833
-----------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (12.13%)
3,000 Federal National Mort. Assn. 8.50%,
02-01-05 @ 104.198.............................. 3,125,940
2,226 Federal National Mort. Assn. 7.50%,
08-01-08 @ 100.725.............................. 2,242,071
82 Federal National Mort. Assn. REMIC 9.80%,
05-25-19 @ 100.437.............................. 82,218
1,790 Financing Corp., Bond 9.65%, 11-02-18
@ 125.031....................................... 2,238,055
177 Government National Mort. Assn. 9.00%,
04-15-21 @ 105.281.............................. 186,658
1,887 Government National Mort. Assn. 7.00%,
06-15-23 @ 96.437............................... 1,819,687
2,768 United States Treasury, Bond 8.875%,
08-15-17 @ 120.062.............................. 3,323,316
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
PAR VALUE
(000'S UNITED STATES GOVERNMENT MARKET
OMITTED) AND AGENCIES OBLIGATIONS VALUE
- -------- -----
$ 2,900 United States Treasury, Note 8.75%,
08-15-00 @ 108.297.............................. $ 3,140,613
3,000 United States Treasury, Note 7.25%,
08-15-04 @ 103.578.............................. 3,107,340
------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $19,723,614) 19,265,898
------------
SHORT-TERM INTEREST
INVESTMENTS (8.81%) RATE
----
Joint Repurchase Agreement
13,989 Investment in a joint repurchase
agreement transaction with
Toronto-Dominion Bank Ltd. -
Dated 06-28-96, Due 07-01-96
(secured by U.S. Treasury Bills,
5.38% due 12-12-96, and 5.69%
due 06-26-97, by U.S. Treasury Bonds,
7.25% due 05-15-16 and 7.50%
due 11-15-16, and by U.S. Treasury
Notes, 4.375%-7.75% due 08-15-96
thru 11-15-01) Note A................... 5.50% 13,989,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 580
------------
TOTAL SHORT-TERM INVESTMENTS 13,989,580
------------
TOTAL INVESTMENTS (99.25%) $157,606,936
====== ============
(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 $1,279,713 as of June 30, 1996.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund. NMF No Meaningful Figure
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Sovereign Investors Fund, Inc. (the "Corporation") is an open-end
management investment 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 multiple classes of shares of the Fund, designated as
Class A and Class B shares. The shares of each class represent an interest in
the same portfolio of investments of the Fund and have equal rights to voting,
redemptions, dividends, and liquidation, except that certain expenses subject to
the approval of the 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 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 $259,999 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforward is used by the Fund, no
capital gains distribution 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, INTEREST AND DISTRIBUTIONS Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis. The Fund records all distributions to
shareholders from net investment income and realized gains on the ex-dividend
date. Such distributions are determined in conformity with income tax
regulations, which may differ from generally accepted accounting principals.
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 sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the
17
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Balanced Fund
respective classes. Distribution/service fees if any, are calculated daily at
the class level based on the appropriate net assets of each class and the
specific expense rate(s) applicable to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or 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.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates estimates
made by management in determining the reported amounts of assets, liabilities,
revenues, and expenses of the Fund. Actual results could differ from these
estimates.
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. The
Adviser pays SAMCORP 40% of its management fee with respect to the equity
securities held in the portfolio of the Fund during such month
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended June 30,
1996, net sales charges received with regard to sales of Class A shares amounted
to $115,825. Out of this amount, $15,629 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $36,178 was paid
as sales commissions to unrelated broker-dealers and $64,018 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 June 30, 1996,
contingent deferred sales charges paid to JH Funds amounted to $116,127.
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
18
<PAGE>
================================================================================
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.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
On March 26, 1996, the Board of Trustees approved retroactively to January
1, 1996, an agreement with the Adviser to perform necessary tax and financial
management services for the Funds. The compensation for 1996 is estimated to be
at an annual rate of 0.01875% of the average net assets of each Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C. Hodson
are directors and/or officers of the Adviser and/or its affiliates, as well as
Directors of the Fund. The compensation of unaffiliated Directors is borne by
the Fund. Effective with the fees paid for 1995, the unaffiliated Trustees may
elect to defer for tax purposes their receipt of this compensation under the
John Hancock Group of Funds Deferred Compensation Plan. The Fund makes
investments into other John Hancock funds, as applicable, to cover its liability
for the deferred compensation. Investmen ts to cover the Fund's deferred
compensation liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always equal and
are marked to market on a periodic basis to reflect any income earned by the
investment as well as any unrealized gains or losses. At June 30, 1996, the
Fund's investments to cover the deferred compensation liability had unrealized
appreciation of $834.
NOTE C -
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1996, aggregated $17,105,695 and $28,752,551, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $5,979,531 and $3,371,372, respectively.
The cost of investments owned at June 30, 1996 (excluding the corporate
savings account), for federal income tax purposes was $137,043,066. Gross
unrealized appreciation and depreciation of investments aggregated $22,548,239
and $1,984,949, respectively, resulting in net unrealized appreciation of
$20,563,290.
19
<PAGE>
================================================================================
John Hancock Funds - Sovereign Balanced Fund
Historical Data (Unaudited)
The table below shows the record of the Fund since inception in 1992.
- --------------------------------------------------------------------------------
CLASS A
YEAR PER SHARE
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- ----- ------------
1992(1) 568,842 $0.0473 $10.19 --
1993 5,792,163 0.4539 10.74 $0.1390
1994 6,295,898 0.4951 9.84 0.0231
1995 5,943,279 0.4373 11.75 --
1996* 5,795,257 0.2107 12.16 --
CLASS B
YEAR PER SHARE
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- ----- ------------
1992(1) 1,403,452 $0.0292 $10.20 --
1993 7,327,059 0.3816 10.75 $0.1390
1994 8,046,236 0.4296 9.84 0.0231
1995 7,478,401 0.3632 11.74 --
1996* 7,267,307 0.1687 12.16 --
(1) For the period October 5, 1992 (commencement of operations) to December 31,
1992.
* For the period ended June 30, 1996.
Dividend Increases (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the Sovereign Balanced Fund as of June 30, 1996
- --------------------------------------------------------------------------------
PERCENT OF
COMPANY DIVIDEND INCREASE
Abbott Laboratories................................ 14.29%
Air Products....................................... 5.8
Alco Standard...................................... 7.7
American Home Products............................. 2.7
AMP, Inc........................................... 8.7
Automatic Data Processing, Inc. ................... 14.3
BankOne............................................ 10.0
Bemis.............................................. 12.5
Central and Southwest.............................. 1.2
Century Telephone.................................. 9.1
Corning, Inc. ..................................... 5.9
CPCInternational................................... 5.6
CSX Corp. ......................................... 18.2
E.I. DuPont De Nemours & Co., Inc.................. 9.6
Emerson Electric................................... 14.0
Exxon.............................................. 5.3
Federal National Mortgage.......................... 11.8
First Tennessee National Corp. .................... 12.8
Frontier Corp. .................................... 2.4
General Electric................................... 12.2
General Re Insurance Corp. ........................ 4.1
W W Grainger, Inc. ................................ 8.7
Hubbell, Inc., Cl. B............................... 10.6
Interpublic Group.................................. 9.7
Johnson & Johnson.................................. 15.2
Kimberly Clark..................................... 2.2
Lowe's Department Stores........................... 11.1
National Fuel Gas.................................. 3.7
NationsBank........................................ 16.0
Pentair, Inc. ..................................... 25.0
Pep Boys (The)..................................... 10.5
PepsiCo............................................ 15.0
Pfizer, Inc. ...................................... 15.4
Procter & Gamble................................... 12.5
Providian Corp..................................... 11.1
Questar............................................ 3.5
Reliastar Financial................................ 12.0
Sara Lee........................................... 11.8
Shell Transport.................................... 6.3
Sigma Aldrich...................................... 22.2
Sonoco Products.................................... 10.0
Southern National.................................. 17.4
Sysco.............................................. 18.2
Wal-Mart........................................... 5.0
Worthington Industries............................. 9.1
-----
The average dividend increase for this group was... 10.45%
=====
20
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NOTES
John Hancock Funds - Sovereign Balanced Fund
21
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NOTES
John Hancock Funds - Sovereign Balanced Fund
22
<PAGE>
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NOTES
John Hancock Funds - Sovereign Balanced Fund
23
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[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603 PAID
Randolph, MA
Permit No. 75
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Sovereign
Balanced Fund. It may be used as sales literature when preceded or accompanied
by the current prospectus, which details charges, investment objectives and
operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 360SA 6/96
8/96
