<PAGE> 1
John Hancock Funds
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Sovereign
Investors 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 Investor Services Corporation
P.O. BOX 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
john Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale And Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT AUDITORS
Ernst & Young Llp
200 Clarendon Street
Boston, Massachusetts 02116
CHAIRMAN'S MESSAGE
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
JOHN HANCOCK
SOVEREIGN INVESTORS FUND
Stocks have a bang-up year; slower
earnings in '96 bode well for
high-quality growth stocks
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 common measure of the broad stock market -- gained a
stunning 37.53% for the year.
[A 2 1/4" x 2 1/4" photo of John F. Snyder III centered at bottom of the page.
Caption reads: "John F. Snyder III, Portfolio Manager."]
With the market moving up so strongly, stock funds had a stellar year. John
Hancock Sovereign Investors Fund was no exception. For the year ended December
31, 1995, the Fund's Class A, Class B and Class C shares had total returns of
29.15%, 28.16% and 29.68%, respectively, at net asset value. Those returns were
in line with the average growth and income fund's return of 30.82%, according to
Lipper Analytical Services.1
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 was just what the doctor
ordered. Our biggest winners were Merck &Co. and Johnson & Johnson.
Other top performers during the period included NationsBank and PepsiCo -- two
of our largest holdings. NationsBank has benefited from low inflation, falling
interest rates and strong loan growth. PepsiCo has introduced new products to
fend off competition in its restaurant businesses such as Pizza Hut. What's
more, the company's snack food and soft drink businesses have continued to grow
rapidly, especially overseas.
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
[CAPTION]
"With the market moving up so strongly, stock funds had a stellar year."
3
<PAGE> 4
John Hancock Funds - Sovereign Investors Fund
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) General Electric 4.6 %; 2) PepsiCo 3.4%;
3)Procter & Gamble 3.2% 4) Johnson & Johnson 2.8% 5) NationsBank 2.6%. A
footnote below reads: "As a percentage of net assets on December 31, 1995."]
stocks from Wal-Mart to Pep Boys, the auto parts chain, felt the pinch. Despite
their disappointing performance this year, however, we're still holding onto our
retail stocks. Most of the bad news is already priced into the stocks. Plus,
we're confident that our retailers will come out on top in a more competitive
climate.
INVESTMENT THEMES
Even with the market rallying strongly this year, we've still found some
attractive buying opportunities. 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 and has now turned to 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 of seven employees in the U.S. receives a paycheck processed by ADP. The
company also handles back-office functions for brokerage firms, claims
processing for insurance companies and servicing agreements for auto dealers.
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 satisfy 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% market share. However, the
company is rapidly acquiring smaller rivals. Sysco Corp., the largest food
service company in the U.S., is another example. With only 10% market share, the
company still has plenty of room to grow. Much like Alco, Sysco has been buying
up smaller companies across the U.S. Its national presence gives Sysco a
distinct advantage in attracting larger accounts such as McDonald's.
WHAT'S AHEAD?
After such a strong year, many are wondering where the stock market is headed in
1996. It's almost impossible to know. But one thing is
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is NationsBank
followed by an up arrow and the phrase "Strong loan growth, falling rates, low
inflation boosts performance." The second listing is PepsiCo followed by an up
arrow and the phrase "Growth in snack food and soft drink business." The third
listing is Wal-Mart followed by a down arrow and the phrase "Pinched by sluggish
consumer spending." Footnote below reads: "See "Schedule of Investments."
Investment holdings are subject to change."]
[CAPTION]
"...drug stocks made a spectacular recovery in 1995."
4
<PAGE> 5
John Hancock Funds - Sovereign Investors 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 40% at the top and 0% at
the bottom. Within the chart, there are four solid bars. The first represents
the 29.15% total return for John Hancock Sovereign Investors Fund: Class A. The
second represents the 28.16% total return for John Hancock Sovereign Investors
Fund: Class B. The third represents the 29.68% return for John Hancock Sovereign
Investors Fund: Class C. The fourth represents 30.82% return for the average
growth and income fund. The footnote below states: "Total returns for John
Hancock Sovereign Investors Fund are at net asset value with all distributions
reinvested. The average growth and income fund is tracked by Lipper Analytical
Services. See following page for historical performance information."]
certain. 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 and focusing on high-quality growth stocks with
reliable earnings and a history of increasing their dividends every year for at
least 10 years. We believe that maintaining a stock-picking discipline is 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%. When that happens, the risk of owning stocks is going to increase
dramatically, and it will be critical to be in stocks with reliable earnings.
In a year with record-breaking earnings and soaring stock prices, it's easy to
forget about how much risk you're taking. Without understanding that, though,
you're only getting half the story. We didn't achieve the eye-popping 40%
returns of some of the aggressive growth funds that made big bets in the red-hot
technology sector. But we also didn't take on nearly as much risk. Sovereign
Investors' beta -- a measure of the relative volatility of the stocks in the
portfolio -- is only 0.70. That's significantly lower than the stock market's
beta of 1.0 and the average growth and income fund's beta of .90. Having a lower
beta should serve us well in a more uncertain market environment.
We expect the stable growth companies that we favor 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 a price-to-earnings multiple
- -- a measure of how much you're paying for earnings power -- equal to that of
the stock market as a whole.) Normally, these growth companies 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. Together, we
believe these factors bode well for John Hancock Sovereign Investors Fund.
- --------------------------------------------------------------------------------
(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 Investors 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 July 1, 1993 and January 3, 1994 for Class A and
Class B shares, respectively. 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
FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- -----------
<S> <C> <C> <C>
Sovereign Investors Fund: Class A 22.69% 78.42% 212.77%
Sovereign Investors Fund: Class B 23.16% 20.53%(1) N/A
Sovereign Investors Fund: Class C 29.68% 34.19%(2) N/A
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- -----------
<S> <C> <C> <C>
Sovereign Investors Fund: Class A 22.69% 12.28% 12.08%
Sovereign Investors Fund: Class B 23.16% 9.84%(1) N/A
Sovereign Investors Fund: Class C 29.68% 11.74%(2) N/A
</TABLE>
YIELDS
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEC 30-DAY
YIELD
----------
<S> <C>
Sovereign Investors Fund: Class A 1.51%
Sovereign Investors Fund: Class B 0.76%
Sovereign Investors Fund: Class C 2.02%
</TABLE>
NOTES TO PERFORMANCE
(1) Class B shares started on January 3, 1994.
(2) Class C shares started on May 7, 1993.
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 Investors Fund would be worth on December 31, 1995, assuming you have
been invested for the past ten years or 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 Investors Fund
Class A shares
Line chart with the heading Sovereign Investors Fund: Class A, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $39,995 as of December 31, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the Sovereign Investors
Fund on December 31, 1985, before sales charge, and is equal to $32,936 as of
December 31, 1995. The third line represents the Sovereign Investors Fund after
sales charge and is equal to $31,277 as of December 31, 1995.
Sovereign Investors Fund
Class B shares
Line chart with the heading Sovereign Investors Fund: Class B, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $13,934 as of December 31, 1995. The second line represents the
value of the hypothetical $10,000 investment made in the Sovereign Investors
Fund on January 3, 1994, before contingent deferred sales charge, and is equal
to $12,553 as of December 31, 1995. The third line represents the Sovereign
Investors Fund after contingent deferred sales charge and is equal to $12,053 as
of December 31, 1995.
Sovereign Investors Fund
Class C shares
Line chart with the heading Sovereign Investors Fund: Class C, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $15,058 as of December 31, 1995. The second line represents the
hypothetical $10,000 investment made in the Sovereign Investors Fund on May 7,
1993, and is equal to $13,419 as of December 31, 1995.
7
<PAGE> 8
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on December 31, 1995. You'll
also find the net asset value per share as of that date.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
ASSETS:
Investments at value - Note C:
Common and preferred stocks
(cost - $1,039,926,804) . ............................... $1,344,264,988
Corporate bonds and notes
(cost - $70,927,173) .................................... 71,092,644
United States government and agencies obligations
(cost - $39,376,713) .................................... 40,576,100
Joint repurchase agreement (cost - $99,076,000) ........... 99,076,000
Corporate savings account ................................. 36,657
-------------
1,555,046,389
Receivable for shares sold ................................. 2,218,071
Interest receivable ........................................ 2,666,311
Dividends receivable ....................................... 3,694,464
Other assets ............................................... 38,688
-------------
Total Assets .............................. 1,563,663,923
-------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased ............................. 436,203
Payable for investments purchased .......................... 2,506,250
Payable to John Hancock Advisers, Inc.
and affiliates - Note B ................................... 2,574,267
Accounts payable and accrued expenses ...................... 99,203
-------------
Total Liabilities ......................... 5,615,923
-------------------------------------------------------------
NET ASSETS:
Capital paid-in ............................................ 1,240,630,349
Accumulated net realized gain on investments ............... 11,691,146
Net unrealized appreciation of investments ................. 305,703,042
Undistributed net investment income ........................ 23,463
-------------
Net Assets ................................ $1,558,048,000
=============================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding with $0.01 per share par value)
Class A - $1,280,320,940/71,652,920 ........................ $ 17.87
==============================================================================
Class B - $257,781,228/14,432,679 .......................... $ 17.86
==============================================================================
Class C - $19,945,832/1,116,297 ............................ $ 17.87
==============================================================================
MAXIMUM OFFERING PRICE *
Class A - ($17.87 x 105.26%) ................................ $ 18.81
==============================================================================
* On a single retail sale of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</TABLE>
The Statement of Operations summarizes the Fund's investment income earned and
expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes
of $48,864) ................................................ $ 29,977,700
Interest .................................................... 19,738,678
-----------
49,716,378
-----------
Expenses:
Investment management fee - Note B ......................... 8,017,834
Distribution/service fee - Note B
Class A .................................................... 3,545,600
Class B .................................................... 1,907,573
Transfer agent fee - Note B
Class A .................................................... 2,367,135
Class B .................................................... 500,436
Class C .................................................... 16,983
Custodian fee .............................................. 226,557
State taxes ................................................ 149,548
Directors' fees ............................................ 134,499
Printing ................................................... 93,525
Miscellaneous .............................................. 78,607
Registration and filing fees ............................... 77,817
Auditing fee ............................................... 35,714
Legal fees ................................................. 33,516
-----------
Total Expenses ............................. 17,185,344
-------------------------------------------------------------
Net Investment Income ...................... 32,531,034
-------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments sold ....................... 20,230,031
Change in net unrealized appreciation/depreciation
of investments ............................................. 299,815,354
-----------
Net Realized and Unrealized
Gain on Investments ........................ 320,045,385
-------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations .................. $352,576,419
=============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 9
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,531,034 $ 38,545,407
Net realized gain on investments sold . . . . . . . . . . . . . . . . . . . . 20,230,031 4,097,671
Change in net unrealized appreciation/depreciation of investments . . . . . . 299,815,354 (66,910,292)
-------------- --------------
Net Increase (Decrease) in Net Assets Resulting from Operations . . . . . . 352,576,419 (24,267,214)
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.3959 and $0.4593 per share, respectively) . . . . . . . . . . (28,762,733) (35,871,209)
Class B - ($0.2764 and $0.3553 per share, respectively) . . . . . . . . . . (3,339,275) (2,196,993)
Class C - ($0.4637 and $0.5100 per share, respectively) . . . . . . . . . . (477,188) (479,108)
Distributions from net realized gain on investments sold
Class A - ($0.0837 and $0.1105 per share, respectively) . . . . . . . . . . (5,956,805) (8,643,183)
Class B - ($0.0837 and $0.1105 per share, respectively) . . . . . . . . . . (1,191,400) (601,125)
Class C - ($0.0837 and $0.1105 per share, respectively) . . . . . . . . . . (92,650) (99,934)
------------- -------------
Total Distributions to Shareholders . . . . . . . . . . . . . . . . . . . (39,820,051) (47,891,552)
------------- --------------
FROM FUND SHARE TRANSACTIONS -- NET* . . . . . . . . . . . . . . . . . . . . . 11,863,118 36,823,322
------------- --------------
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,233,428,514 1,268,763,958
------------- --------------
End of period (including undistributed net investment income of $23,463 and
$71,625, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,558,048,000 $1,233,428,514
============= ==============
</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 Investors Fund
STATEMENT OF CHANGES IN NET ASSETS (continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994
------------------------- -----------------------------
CLASS A SHARES AMOUNT SHARES AMOUNT
----------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Shares sold . . . . . . . . . . . . . . . . . . . . . 13,351,175 $214,650,741 10,349,215 $151,120,247
Shares issued to shareholders in reinvestment of
distributions . . . . . . .. . . . . . .. . . . . . 1,912,922 31,795,613 2,834,406 40,225,646
----------- ------------ ------------- --------------
15,264,097 246,446,354 13,183,621 191,345,893
Less shares repurchased . . . . . . . . . . . . . . . (20,197,037) (323,191,321) (19,930,271) (291,424,469)
----------- ------------ ------------- --------------
Net increase (decrease) . . . . . . . . . . . . . . . (4,932,940) ($76,744,967) (6,746,650) ($100,078,576)
=========== ============ ============= ==============
CLASS B
Shares sold . . . . . . . . . . . . . . . . . . . . . 6,957,758 $112,134,961 9,346,868 $136,349,532
Shares issued to shareholders in reinvestment of
distributions . . . . . . .. . . . . . .. . . . . . 251,051 4,209,585 181,850 2,588,170
----------- ------------ ------------- --------------
7,208,809 116,344,546 9,528,718 138,937,702
Less shares repurchased . . . . . . . . . . . . . . . (1,772,868) (28,714,271) (531,980) (7,682,774)
----------- ------------ -------------- --------------
Net increase . . . . . . . . . . . . . . . . . . . . 5,435,941 $87,630,275 8,996,738 $131,254,928
=========== ============ ============== ==============
CLASS C
Shares sold . . . . . . . . . . . . . . . . . . . . . 325,074 $5,184,377 527,530 $7,700,516
Shares issued to shareholders in reinvestment of
distributions . . . . . . .. . . . . . .. . . . . . 34,194 569,771 33,614 478,279
----------- ------------ -------------- --------------
359,268 5,754,148 561,144 8,178,795
Less shares repurchased . . . . . . . . . . . . . . . (305,670) (4,776,338) (172,765) (2,531,825)
----------- ------------ -------------- --------------
Net increase . . . . . . . . . . . . . . . . . . . . 53,598 $977,810 388,379 $5,646,970
=========== ============ ============== ==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 11
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors 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,
----------------------------------------------------
1995 1994 1993 1992(f) 1991(f)(h)
--------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period . . . . . . . . . . . . $ 14.24 $ 15.10 $ 14.78 $ 14.31 $ 11.94
---------- ---------- ---------- -------- --------
Net Investment Income . . . . . . . . . . . . . . . . . . . . 0.40 0.46 0.44 0.47 0.54
Net Realized and Unrealized Gain (Loss) on Investments . . . 3.71 (0.75) 0.39 0.54 3.03
---------- ---------- ---------- -------- --------
Total from Investment Operations . . . . . . . . . . . . . 4.11 (0.29) 0.83 1.01 3.57
---------- ---------- ---------- -------- --------
Less Distributions:
Dividends from Net Investment Income . . . . . . . . . . . . (0.40) (0.46) (0.42) (0.45) (0.53)
Distributions from Net Realized Gain on Investments Sold . . (0.08) (0.11) (0.09) (0.09) (0.67)
---------- ---------- ---------- -------- --------
Total Distributions . . . . . . . . . . . . . . . . . . . . (0.48) (0.57) (0.51) (0.54) (1.20)
---------- ---------- ---------- -------- --------
Net Asset Value, End of Period . . . . . . . . . . . . . . . $ 17.87 $ 14.24 $ 15.10 $ 14.78 $ 14.31
========== ========== ========== ======== ========
Total Investment Return at Net Asset Value (g) . . . . . . . 29.15% (1.85%) 5.71% 7.23% 30.48%
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) . . . . . . . . . . $1,280,321 $1,090,231 $1,258,575 $872,932 $194,055
Ratio of Expenses to Average Net Assets . . . . . . . . . . . 1.14% 1.16% 1.10% 1.13% 1.18%
Ratio of Net Investment Income to Average Net Assets . . . . 2.45% 3.13% 2.94% 3.32% 4.01%
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . 46% 45% 46% 30% 67%
CLASS B (a)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period . . . . . . . . . . . . $ 14.24 $ 15.02(d)
---------- ----------
Net Investment Income . . . . . . . . . . . . . . . . . . . . 0.27(e) 0.38(e)
Net Realized and Unrealized Loss on Investments . . . . . . . 3.71 ( 0.69)
---------- ----------
Total from Investment Operations . . . . . . . . . . . . . 3.98 (0.31)
---------- ----------
Less Distributions:
Dividends from Net Investment Income . . . . . . . . . . . . (0.28) (0.36)
Distributions from Net Realized Gain on Investments Sold . . (0.08) (0.11)
---------- ----------
Total Distributions . . . . . . . . . . . . . . . . . . . . (0.36) (0.47)
---------- ----------
Net Asset Value, End of Period . . . . . . . . . . . . . . . $ 17.86 $ 14.24
========== ==========
Total Investment Return at Net Asset Value (g) . . . . . . . 28.16% (2.04%)(c)
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) . . . . . . . . . . $ 257,781 $ 128,069
Ratio of Expenses to Average Net Assets . . . . . . . . . . . 1.90% 1.86%*
Ratio of Net Investment Income to Average Net Assets . . . . 1.65% 2.57%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . 46% 45%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 12
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
FINANCIAL HIGHLIGHTS (continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 7, 1993
YEAR ENDED DECEMBER 31, (COMMENCEMENT OF
----------------------- OPERATIONS) TO
CLASS C (b) 1995 1994 DECEMBER 31, 1993
------- ------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period . . . . . . . . . . . . . . . . . . . . $ 14.24 $ 15.11 $ 14.79(d)
------- ------- -------
Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.46(e) 0.52 0.27(e)
Net Realized and Unrealized Gain (Loss) on Investments . . . . . . . . . . . 3.71 (0.77) 0.48
------- ------- -------
Total from Investment Operations . . . . . . . . . . . . . . . . . . . . . 4.17 (0.25) 0.75
------- ------- -------
Less Distributions:
Dividends from Net Investment Income . . . . . . . . . . . . . . . . . . . . (0.46) (0.51) (0.34)
Distributions from Net Realized Gain on Investments Sold . . . . . . . . . . (0.08) (0.11) (0.09)
------- ------- -------
Total Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.54) (0.62) (0.43)
------- ------- -------
Net Asset Value, End of Period . . . . . . . . . . . . . . . . . . . . . . . $ 17.87 $ 14.24 $ 15.11
======= ======= =======
Total Investment Return at Net Asset Value (g) . . . . . . . . . . . . . . . 29.68% (1.57%) 5.13%(c)
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) . . . . . . . . . . . . . . . . . . $19,946 $15,128 $10,189
Ratio of Expenses to Average Net Assets . . . . . . . . . . . . . . . . . . . 0.74% 0.81% 0.88%*
Ratio of Net Investment Income to Average Net Assets . . . . . . . . . . . . 2.84% 3.53% 3.17%*
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 46% 45% 46%
</TABLE>
* On an annualized basis.
(a) Class B shares commenced operations on January 3, 1994.
(b) Class C shares commenced operations on May 7, 1993.
(c) Not annualized.
(d) Initial price to commence operations.
(e) On average month end shares outstanding.
(f) These periods are covered by the report of other independent auditors (not
included herein).
(g) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(h) On October 23, 1991, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES),
DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET
ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 13
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors 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.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS (84.09%) RATE VALUE
- --------- -------- ------
<S> <C> <C>
ADVERTISING (2.09%)
750,000 Interpublic Group Inc. @ 43 3/8 .............................. $ 32,531,250
-------------
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 14.2%
Dividends P/S
$.20, .22, .26, .32, .37, .41, .45, .49, .55, .61 13.2%
Price/Earnings Ratio ...... 20.1
AEROSPACE (0.34%)
100,000* Rockwell International Corp. @ 52 7/8 ........................ 5,287,500
-------------
Leading producer of aerospace, automotive
and electronics products
Earnings P/S
$1.98, 2.23, 3.01, 2.84, 2.56, 2.57, 2.16, 2.53, 2.87, 3.42 6.3%
Dividends P/S
$.59, .66, .72, .77, .82, .88, .92, .98, 1.04, 1.10 7.2%
Price/Earnings Ratio ...... 15.6
BANKS (5.01%)
250,000* Banc One Corp. @ 37 3/4 ...................................... 9,437,500
Ohio-based bank holding company
Earnings P/S
$1.16, 1.19, 1.56, 1.66, 1.83, 1.81, 2.28, 2.68, 3.01, 2.50 8.9%
Dividends P/S
$.45, .49, .55, .63, .69, .77, .89, 1.07, 1.24, 1.36 13.1%
Price/Earnings Ratio ...... 14.2
275,000* First Tennessee National Corp. @ 60 1/2 ...................... 16,637,500
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 9.8%
Dividends P/S
$.75, .79, .85, .97, 1.08, 1.14, 1.26, 1.50, 1.73, 1.94 11.1%
Price/Earnings Ratio ...... 12.5
300,000 KeyCorp. @ 36 1/4 ............................................ 10,875,000
Multi-regional bank holding company
Earnings P/S
$1.72, 1.88, 2.10, 2.32, 2.32, 2.45, 2.52, 2.98, 3.15, 3.23 7.3%
Dividends P/S
$.48, .60, .68, .80, .88, .92, .98, 1.12, 1.28, 1.44 13.0%
Price/Earnings Ratio ...... 10.6
590,000 NationsBank Corp. @ 69 5/8 ................................... 41,078,750
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 11.6%
Dividends P/S
$.78, .86, .94, 1.10, 1.42, 1.48, 1.51, 1.64, 1.88, 2.08 11.5%
Price/Earnings Ratio ...... 9.8 -------------
78,028,750
-------------
CHEMICALS (6.80%)
550,000 Air Products & Chemicals, Inc. @ 52 3/4 ...................... 29,012,500
Producer of industrial and specialty 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 12.1%
Dividends P/S
$.32, .39, .45, .55, .63, .69, .75, .83, .89, .95 12.9%
Price/Earnings Ratio ...... 16.7
</TABLE>
The Schedule of Investments is a complete list of all securities owned by
Sovereign Investors Fund on December 31, 1995. It's divided into six main
categories: common stocks, preferred stocks, corporate bonds, notes, U.S.
government and agencies obligations and short-term investments. The common
stocks are further broken down by industry groups. Short-term investments, which
represent the Fund's "cash" position, are listed last.
<TABLE>
<CAPTION> COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- -------- ------
<S> <C> <C>
CHEMICALS (continued)
491,200 Crompton & Knowles Corp. @ 13 1/4 ............................ $ 6,508,400
Produces and markets specialty chemicals
Earnings P/S
$.17, .24, .36, .50, .61, .71, .79, .97, 1.00, .93 20.8%
Dividends P/S
$.079, .084, .11, .15, .20, .25, .31, .38, .46, .525 23.4%
Price/Earnings Ratio ...... 14.5
275,000*E.I. du Pont de Nemours and Co. @ 69 7/8 ..................... 26,203,125
Nation's 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 11.0%
Dividends P/S
$1.02, 1.10, 1.23, 1.45, 1.62, 1.68, 1.74, 1.76, 1.82, 2.03 8.0%
Price/Earnings Ratio ...... 13.2
275,000 PPG Inds., Inc. @ 45 3/4 ..................................... 12,581,250
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 12.0%
Dividends P/S
$.47, .56, .64, .74, .82, .86, .94, 1.04, 1.12, 1.18 10.8%
Price/Earnings Ratio ...... 12.3
556,250 RPM, Inc. @ 16 1/2 ........................................... 9,178,125
Manufacturer of specialty chemicals
and coatings to waterproof and rustproof structures
Earnings P/S
$.34, .38, .45, .52, .43, .45, .54, .58, .79, .87 11.0%
Dividends P/S
$.18, .21, .25, .27, .30, .34, .37, .39, .42, .46 11.0%
Price/Earnings Ratio ...... 18.6
305,000*Sigma - Aldrich Corp. @ 49 1/2 ............................... 15,097,500
Manufacturer of biochemical and organic
products used for research and diagnostics
Earnings P/S
$.69, .85, 1.15, 1.30, 1.44, 1.25, 1.85, 2.08, 2.21, 2.52 15.5%
Dividends P/S
$.13, .15, .17, .19, .20, .23, .26, .30, .34, .38 12.7%
Price/Earnings Ratio ...... 20.0
250,000 Witco Corp. @ 29 1/4 ......................................... 7,312,500
Producer of special petroleum chemicals
Earnings P/S
$1.47, 1.46, 1.53, .80, 1.38, 1.43, 1.63, .95, 1.14, 2.59 6.5%
Dividends P/S
$.54, .60, .72, .83, .86, .91, .92, .96, 1.06, 1.12 8.4%
Price/Earnings Ratio ...... 11.3
-------------
105,893,400
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 14
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- -------- ------
<S> <C> <C>
COMMERCIAL SERVICES (2.20%)
1,055,800 Sysco Corp. @ 32 1/2................................................... $34,313,500
-----------
Largest distributer of food service products
Earnings P/S $.35, .45, .60, .73, .76, .86, .95, 1.10, 1.24, 1.42 16.8%
Dividends P/S $.06, .07, .08, .09, .10, .14, .22, .28, .36, .44 24.8%
Price/Earnings Ratio.....21.3
COMPUTER & OFFICE EQUIPMENT (2.02%)
690,000 Alco Standard Corp. @ 45 5/8........................................... 31,481,250
------------
Distributor of office and paper products
Earnings P/S $.64, .84, 1.15, 1.96, .91, .98, 1.11, (.025), .56, 1.82 12.3%
Dividends P/S $.315, .325, .35, .39, .425, .445, .465, .485, .51, .53 6.0%
Price/Earnings Ratio.....24.9
CONSUMER CYCLICALS & SERVICES (2.09%)
440,000*Albertson's, Inc. @ 32 7/8............................................. 14,465,000
Idaho-based operator of supermarkets
and combination food-drug stores
Earnings P/S $.38, .47, .61, .74, .83, .94, .95, 1.24, 1.58, 1.80 18.9%
Dividends P/S $.10, .12, .14, .19, .23, .27, .31, .35, .42, .50 19.6%
Price/Earnings Ratio.....18.3
400,000 McDonald's Corp. @ 451/8............................................... 18,050,000
Dominant force in the fast food industry
Earnings P/S $.63, .73, .86, .98, 1.10, 1.16, 1.28, 1.41, 1.61, 1.90 13.1%
Dividends P/S $.11, .12, .14, .15, .17, .18, .20, .21, .23, .26 10.0%
Price/Earnings Ratio.....23.2
------------
32,515,000
------------
CONSUMER DURABLES (1.09%)
700,000 Leggett & Platt, Inc. @ 24 1/4......................................... 16,975,000
------------
Produces intermediate products for the home furnishings industry
Earnings P/S $.475, .555, .545, .645, .42, .325, .757, .97, 1.30, 1.56 5.7%
Dividends P/S $.10, .14, .16, .185, .21, .215, .23, .27, .31, .38 9.4%
Price/Earnings Ratio.....13.8
CONSUMER NON-DURABLES (12.94%)
310,000*Archer-Daniels-Midland Co. @ 18........................................ 5,580,000
Major factor in soybean processing,
corn refining and flour milling
Earnings P/S $.49, .65, .79, .89, .79, .82, .83, .84, 1.05, 1.50 13.2%
Dividends P/S $.027, .029, .030, .036, .050, .053, .056,
.058, .069, .121 18.1%
Price/Earnings Ratio.....12.1
250,000 Campbell Soup Co. @ 60................................................. 15,000,000
Leading food manufacturer and distributor
Earnings P/S $.96, .94, .05, .02, 1.05, 1.68, 2.04, 1.08, 2.64, 2.89 13.0%
Dividends P/S $.33, .36, .42, .46, .50, .58, .76, .97, 1.12, 1.24 15.9%
Price/Earnings Ratio.....20.6
350,000*CPC International Inc. @ 68 5/8........................................ 24,018,750
Major international food processor
Earnings P/S $1.15, 2.17, 1.84, 2.11, 2.42, 2.56, 2.73, 2.90,
2.17, 3.54 13.3%
Dividends P/S $.5675, .645, .76, .875, 1.00, 1.10, 1.20, 1.28,
1.38, 1.48 11.2%
Price/Earnings Ratio.....19.5
300,000*H.J. Heinz Co. @ 33 1/8................................................ 9,937,500
Leading food manufacturer and distributor
Earnings P/S $1.24, 1.46, 1.67, 1.90, 1.34, 1.65, 1.43, 1.49,
1.46, 1.69 3.5%
Dividends P/S $.32, .39, .45, .52, .60, .68, .76, .84, .92, 1.01 13.6%
Price/Earnings Ratio.....19.9
CONSUMER NON-DURABLES (continued)
275,000*Kimberly-Clark Corp. @ 82 3/4.......................................... $22,756,250
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 10.7%
Dividends P/S $.60, .70, .78, 1.26, 1.32, 1.48, 1.59, 1.67, 1.71, 1.76 12.7%
Price/Earnings Ratio.....21.5
935,000 PepsiCo, Inc. @ 55 7/8................................................. 52,243,125
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 17.2%
Dividends P/S $.21, .22, .27, .32, .38, .46, .51, .61, .70, .78 15.7%
Price/Earnings Ratio.....22.9
600,000 Procter & Gamble Co. (The) @ 83........................................ 49,800,000
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 10.2%
Dividends P/S $.67, .68, .70, .83, .93, 1.00, 1.08, 1.17, 1.32, 1.50 9.4%
Price/Earnings Ratio.....21.7
700,000 Sara Lee Corp. @ 31 7/8................................................ 22,312,500
Manufacturer of brand name packaged food and consumer products
Earnings P/S $.59, .71, .88, .94, .98, 1.41, 1.28, 1.43, .46, 1.66 12.2%
Dividends P/S $.20, .25, .30, .36, .42, .47, .50, .58, .64, .68 14.6%
Price/Earnings Ratio.....18.2 ------------
201,648,125
------------
DIVERSIFIED OPERATIONS (2.05%)
300,000*Corning Inc. @ 32...................................................... 9,600,000
Operations are in laboratory services,
fiber optics, specialty materials and consumer products
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 8.3%
Price/Earnings Ratio.....19.3
481,500*Federal Signal Corp. @ 25 7/8.......................................... 12,458,813
Manufactures fire trucks and street sweepers,
as well as public safety,
signaling and communications equipment
Earnings P/S $.26, .32, .41, .50, .66, .65, .73, .74, .97, 1.18 18.3%
Dividends P/S $.14, .15, .16, .19, .22, .27, .32, .36, .42, .50 15.2%
Price/Earnings Ratio.....20.3
150,000*Minnesota Mining &
Manufacturing Co. @ 66 1/4............................................. 9,937,500
Diversified manufacturer of industrial,
commercial, health care and consumer products
Earnings P/S $1.70, 2.01, 2.55, 2.80, 2.94, 2.71, 2.76, 2.91,
3.00, 3.35 7.8%
Dividends P/S $.90, .93, 1.06, 1.30, 1.46, 1.56, 1.60, 1.66,
1.76, 1.88 8.5%
Price/Earnings Ratio.....19.6 ------------
31,996,313
------------
ELECTRICAL EQUIPMENT (10.24%)
750,000*AMP Inc. @ 38 3/8...................................................... 28,781,250
World's largest manufacturer of electrical/electronic connectors
Earnings P/S $.75, 1.16, 1.48, 1.32, 1.35, 1.24, 1.34, 1.41,
1.62, 1.94 11.1%
Dividends P/S $.37, .43, .50, .60, .68, .72, .76, .80, .84, .92 10.7%
Price/Earnings Ratio.....20.3
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 15
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- -------- ------
<S> <C> <C>
ELECTRICAL EQUIPMENT (continued)
476,100 Emerson Electric Co. @ 81 3/4.......................................... $ 38,921,175
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 9.3%
Dividends P/S $.93, .98, 1.03, 1.16, 1.28, 1.34, 1.40, 1.47,
1.60, 1.84 7.9%
Price/Earnings Ratio.....18.9
1,000,000 General Electric Co. @ 72.............................................. 72,000,000
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 11.9%
Dividends P/S $.58, .65, .70, .82, .94, 1.02, 1.12, 1.26, 1.44, 1.64 12.2%
Price/Earnings Ratio.....18.6
300,000*W.W. Grainger, Inc. @ 66 1/4........................................... 19,875,000
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 8.9%
Dividends P/S $.36, .39, .43, .50, .57, .61, .65, .71, .78, .89 10.6%
Price/Earnings Ratio.....23.6 -------------
159,577,425
-------------
ENERGY (2.50%)
350,000 Exxon Corp. @ 80 1/8................................................... 28,043,750
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 4.2%
Dividends P/S $1.80, 1.90, 2.15, 2.30, 2.47, 2.68, 2.83, 2.88,
2.91, 3.00 5.8%
Price/Earnings Ratio.....15.0
325,600*Questar Corp. @ 33 1/2................................................. 10,907,600
Diversified holding company for Utah, Wyoming
and Colorado natural gas transmission, distribution and storage
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 3.3%
Price/Earnings Ratio.....26.9 -------------
38,951,350
-------------
HEALTHCARE (10.34%)
893,000 Abbott Laboratories @ 41 3/4........................................... 37,282,750
Major pharmaceutical and healthcare firm
Earnings P/S $.58, .70, .84, .97, 1.11, 1.27, 1.47, 1.69, 1.87, 2.12 15.5%
Dividends P/S $.20, .24, .29, .34, .40, .48, .58, .66, .74, .82 17.0%
Price/Earnings Ratio.....20.4
250,000*American Home Products Corp. @ 97...................................... 24,250,000
Leading manufacturer of
ethical pharmaceuticals
Earnings P/S $2.73, (2.64), 3.22, 3.54, 6.06, 4.10, 3.69, 4.66,
4.90, 6.49 10.1%
Dividends P/S $1.55, 1.67, 1.80, 1.95, 2.15, 2.38, 2.66, 2.86,
2.94, 3.02 7.7%
Price/Earnings Ratio.....14.7
513,000 Johnson & Johnson @ 85 5/8............................................. 43,925,625
Major producer of prescription and
non-prescription drugs, toiletries, 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 26.0%
Dividends P/S $.34, .40, .48, .56, .66, .77, .89, 1.01, 1.13, 1.28 15.9%
Price/Earnings Ratio.....23.3
414,000 Merck & Co., Inc. @ 65 3/4............................................. $ 27,220,500
World's largest ethical drug manufacturer
Earnings P/S $.54, .74, 1.02, 1.26, 1.52, 1.75, 2.05, 1.84, 2.33, 2.61 19.1%
Dividends P/S $.21, .27, .43, .55, .64, .77, .92, 1.03, 1.14, 1.24 21.8%
Price/Earnings Ratio.....23.6
450,000*Pfizer Inc. @ 63....................................................... 28,350,000
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 10.4%
Dividends P/S $.41, .45, .50, .55, .60, .66, .74, .84, .94, 1.04 10.9%
Price/Earnings Ratio.....26.0 -------------
161,028,875
-------------
INFORMATION PROCESSING (3.67%)
350,000*Automatic Data Processing, Inc. @ 74 1/4............................... 25,987,500
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 14.6%
Dividends P/S $.093, .105, .125, .145, .17, .195, .225, .255, .29, .35 15.9%
Price/Earnings Ratio.....26.8
600,000 General Motors Corp. Class E @ 52...................................... 31,200,000
Leading provider of information
processing services
Earnings P/S $.53, .66, .79, .91, 1.04, 1.10, 1.29, 1.46, 1.64, 1.89 15.2%
Dividends P/S $.10, .13, .17, .24, .28, .32, .36, .40, .48, .52 20.1%
Price/Earnings Ratio.....27.0 -------------
57,187,500
-------------
INSURANCE (3.85%)
400,000 AFLAC Corp. @ 43 3/8................................................... 17,350,000
Global specialty insurer
Earnings P/S $.78, .93, 1.08, .80, 1.15, 1.38, 1.72, 2.16, 2.72, 3.40 17.8%
Dividends P/S $.16, .18, .20, .23, .26, .30, .34, .39, .45, .51 13.8%
Price/Earnings Ratio.....13.3
150,750*American International Group @ 92 1/2.................................. 13,944,375
Broadly based property-casualty insurance organization
Earnings P/S $3.35, 3.92, 4.42, 4.61, 4.86, 3.20, 3.28, 3.92,
4.43, 5.10 4.8%
Dividends P/S $.081, .093, .125, .157, .183, .209, .236, .258,
.287, .323 16.6%
Price/Earnings Ratio.....18.4
125,000 Chubb Corp. @ 96 3/4................................................... 12,093,750
Broadly based property-casualty insurance organization
Earnings P/S $3.53, 3.97, 4.27, 4.91, 6.07, 6.55, 6.40, 4.32,
5.99, 7.44 8.6%
Dividends P/S $.80, .89, 1.08, 1.16, 1.32, 1.48, 1.60, 1.72,
1.84, 1.96 10.5%
Price/Earnings Ratio.....13.8
375,000*Reliastar Financial Corp. @ 44 3/8..................................... 16,640,625
Financial services company engaged
in life/health insurance and consumer finance
Earnings P/S $2.29, 1.86, 1.58, 2.07, 1.99, 1.71, 1.92, 2.52,
3.05, 4.15 6.8%
Dividends P/S $.43, .47, .57, .59, .65, .69, .73, .79, .88, .98 9.6%
Price/Earnings Ratio.....10.2 -------------
60,028,750
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 16
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
COMPOUND
NUMBER GROWTH MARKET
OF SHARES COMMON STOCKS RATE VALUE
- --------- -------- ------
<S> <C> <C>
MEDIA AND INFORMATION SERVICES (1.73%)
350,000 Gannett Co., Inc @ 61 3/8................................................ $ 21,481,250
Publishes 81 daily/50 nondaily newspapers,
operates 10 TV, 8 FM and 7 AM stations
Earnings P/S $1.71, 1.98, 2.26, 2.47, 2.36, 2.08,
2.26, 2.64, 3.06, 3.38 7.9%
Dividends P/S $.86, .94, 1.02, 1.11, 1.21, 1.24,
1.26, 1.30, 1.34, 1.38 5.4%
Price/Earnings Ratio.....17.6
100,000*Reuters Holdings PLC ADR @ 55 1/8........................................ 5,512,500
Electronic publisher of worldwide news,
maket information and trading systems
Earnings P/S** $4.8, 6.5, 7.6, 10.9, 12.4, 13.7, 14.0, 18.0,
21.7, 25.5 20.4%
Dividends P/S** $1.38, 1.83, 2.25, 3.25, 3.75, 4.25, 5.30, 6.50,
8.00, 9.10 23.3%
Price/Earnings Ratio.....23.1
**Pence Per Ordinary Share -------------
26,993,750
-------------
PACKAGING (2.21%)
600,000*Bemis Co., Inc. @ 25 5/8................................................. 15,375,000
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 14.2%
Dividends P/S $.15, .18, .22, .30, .36, .42, .46, .50, .54, .64 17.5%
Price/Earnings Ratio.....17.4
725,000 Sonoco Products Corp. @ 26 1/4........................................... 19,031,250
Leading manufacturer of containers, paper products and packaging
Earnings P/S $.63, .77, 1.10, 1.18, .52, 1.07, 1.13, .99, 1.24, 1.65 11.3%
Dividends P/S $.18, .21, .30, .39, .43, .44, .48, .50, .53, .59 14.1%
Price/Earnings Ratio.....16.0 -------------
34,406,250
-------------
RETAIL (4.06%)
300,000*Lowe's Companies, Inc. @ 33 1/2.......................................... 10,050,000
Retailer of building materials and supplies, lumber,
hardware and appliances
Earnings P/S $.36, .39, .46, .51, .51, .37, .20, .81, 1.34, 1.46 16.8%
Dividends P/S $.0975, .105, .1125, .12, .13, .135, .14, .16, .17, .18 5 7.4%
Price/Earnings Ratio.....21.0
350,000 May Dept. Stores Co. (The) @ 44 1/4...................................... 14,787,500
Operates 318 department stores and 3,295 shoe stores
Earnings P/S $1.22, 1.45, 1.82, 1.76, 1.80, 2.01, 2.15, 2.60,
2.91, 3.11 11.0%
Dividends P/S $.51, .56, .62, .69, .77, .81, .83, .90, 1.01, 1.12 9.1%
Price/Earnings Ratio.....14.0
711,400*Pep Boys - Manny, Moe & Jack (The) @ 255/8 .............................. 18,229,625
Retailer of automotive parts and accessories
Earnings P/S $.52, .62, .76, .63, .70, .64, .87, 1.01, 1.27, 1.33 11.0%
Dividends P/S $.07, .08, .09, .11, .12, .13, .14, .15, .17, .19 11.7%
Price/Earnings Ratio.....18.6
900,000 Wal-Mart Stores, Inc. @ 22 3/8........................................... 20,137,500
Operates chain of discount department stores
Earnings P/S $.20, .28, .37, .48, .55, .64, .80, .97, 1.11, 1.24 22.5%
Dividends P/S $.021, .03, .04, .06, .07, .09, .11, .13, .17, .20 30.7%
Price/Earnings Ratio.....17.9 -------------
63,204,625
-------------
TELECOMMUNICATIONS (3.67%)
400,000 ALLTEL Corp. @ 29 1/2.................................................... $ 11,800,000
One of the country's largest telephone systems
Earnings P/S $.53, 1.00, .94, 1.13, 1.12, 1.18, 1.18, 1.35, 1.56, 1.61 13.1%
Dividends P/S $.44, .45, .51, .57, .64, .70, .74, .80, .88, .96 9.1%
Price/Earnings Ratio.....18.6
150,000 Bell Atlantic Corp. @ 66 7/8............................................. 10,031,250
Provides telephone services in Mid-Atlantic states
Earnings P/S $2.93, 3.12, 3.33, 2.72, 2.18, 3.37, 3.26, 3.26, 4.07 3.7%
Dividends P/S $1.80, 1.92, 2.04, 2.20, 2.36, 2.52, 2.60, 2.68,
2.76, 2.80 5.0%
Price/Earnings Ratio.....17.0
792,700 Frontier Corp. @ 30...................................................... 23,781,000
Provides telephone service to the city of
Rochester N.Y. and outlying areas
Earnings P/S $.89, .93, 1.06, .99, .86, 1.14, 1.01, 1.15, 1.44, 1.02 1.5%
Dividends P/S $.64, .66, .68, .71, .73, .75, .77, .79, .81, .83 2.9%
Price/Earnings Ratio.....29.5
200,000*SBC Communications, Inc. @ 57 1/2........................................ 11,500,000
Provides telephone service throughout
the United States and internationally
Earnings P/S $1.71, 1.74, 1.76, 1.82, 1.84, 1.85, 2.11, 2.34,
2.67, 2.96 6.3%
Dividends P/S $1.05, 1.14, 1.22, 1.29, 1.36, 1.41, 1.45, 1.50,
1.56, 1.63 5.0%
Price/Earnings Ratio.....18.8 -------------
57,112,250
-------------
TOBACCO (2.26%)
389,000 Philip Morris Cos., Inc. @ 90 1/2........................................ 35,204,500
-------------
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 16.8%
Dividends P/S $.62, .79, 1.01, 1.25, 1.55, 1.91, 2.35, 2.60,
3.03, 3.65 21.8%
Price/Earnings Ratio.....14.1
UTILITIES (2.93%)
286,500*Central and South West Corp. @ 27 5/8.................................... 7,986,188
Dallas-based utility holding company
Earnings P/S $1.88, 1.96, 1.72, 1.63, 1.90, 1.92, 1.90, 2.07,
1.51, 2.11 1.3%
Dividends P/S $1.07, 1.14, 1.22, 1.30, 1.38, 1.46, 1.54, 1.62,
1.70, 1.72 5.4%
Price/Earnings Ratio.....13.0
200,000 Florida Progress Corp. @ 35 5/8.......................................... 7,075,000
Holding Co. for Florida Power electric
utility services
Earnings P/S $2.47, 2.49, 2.35, 2.39, 2.14, 2.27, 1.96, 2.21,
2.20, 2.51 0.2%
Dividends P/S $1.54, 1.61, 1.67, 1.72, 1.78, 1.84, 1.90, 1.95,
1.99, 2.02 3.1%
Price/Earnings Ratio.....14.0
400,000 National Fuel Gas Co. @ 33 5/8........................................... 13,450,000
Integrated natural gas system serves the Buffalo, New York area and
contiguous districts reaching into western Pennsylvania and eastern
Ohio
Earnings P/S $1.75, 1.49, 1.65, 1.93, 1.83, 1.68, 1.94, 2.21, 2.23, 2.03 1.7%
Dividends P/S $1.12, 1.19, 1.25, 1.32, 1.40, 1.45,
1.49, 1.53, 1.57, 1.61 4.1%
Price/Earnings Ratio.....16.4
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 17
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
PAR VALUE
(000'S MARKET
OMITTED) COMMON STOCKS VALUE
- --------- ------
<S> <C> <C>
UTILITIES (continued)
260,000 Union Electric Co. @ 41 3/4........................................... $ 10,855,000
Largest electric utility in Missouri
Earnings P/S $2.89, 2.91, 2.56, 2.91, 2.74, 3.03, 2.61, 3.09, 2.87,
2.86 NMF
Dividends P/S $1.86, 1.92, 1.94, 2.02, 2.10, 2.18, 2.26, 2.34,
2.40, 2.46 3.2%
Price/Earnings Ratio.....14.8
206,300*Wisconsin Energy Corp. @ 30 5/8....................................... 6,317,937
Electric and gas utility holding company
Earnings P/S $1.58, 1.70, 1.82, 1.92, 1.83, 1.86, 1.68, 1.75,
1.61, 2.15 3.5%
Dividends P/S $.88, .94, 1.01, 1.09, 1.16, 1.22, 1.29, 1.34,
1.40, 1.46 5.8%
Price/Earnings Ratio.....14.2 -------------
45,684,125
-------------
TOTAL COMMON STOCKS
(Cost $1,011,625,537) 1,310,049,488
-------------
PREFERRED STOCKS (2.20%)
58,000 Allstate Corp. $2.30 Pfd Stock @ 41................................... 2,378,000
350,000 American Express Co. DECS, 61/4% Conv @ 55 1/2........................ 19,425,000
300,000 Browing-Ferris ACES, Conv Pfd 7.25% @ 31 3/8.......................... 9,412,500
125,000*Enron Corp. ACES, Conv Pfd 6.25% @ 24................................. 3,000,000
-------------
TOTAL PREFERRED STOCKS
(Cost $28,301,267)........................................ 34,215,500
-------------
CORPORATE BONDS (4.43%)
$ 8,500*American Brands, Note 9.125%, 03-01-16 @ 104.90440................... 8,916,874
4,000 BankAmerica Corp., Sub Note 8.125%, 02-01-02 @ 109.479............... 4,379,160
1,000*BankAmerica Corp., Sub Note 8.95%, 11-15-04 @ 109.682................ 1,096,820
10,000 Coastal Corp.(The), Sr Deb 11.75%, 06-15-06 @ 106.375................ 10,637,500
5,000 Comcast Corp., Sr Sub Deb 10.25%, 10-15-01 @ 108.25.................. 5,412,500
3,000*First Union Corp., Sub Note 8.00%, 08-15-09 @ 109.942................ 3,298,260
5,000 Georgia-Pacific Corp., Deb 9.50%, 02-15-18 @ 105.040................. 5,252,000
5,000*GTE North Inc., Telephone Facility Lease Bonds, 9.60%,
01-01-02 @ 109.831................................................... 5,491,550
5,000*K-Mart Funding Corp., Deb 8.80%, 07-01-10 @ 89.753................... 4,487,650
CORPORATE BONDS
$ 2,000 NationsBank Corp., Sub Note 6.875%, 02-15-05 @ 104.464.............. $ 2,089,280
2,000*NCNB Corp., Sub Note 9.125%, 10-15-01 @ 114.188..................... 2,283,760
4,000 Owen-Illinois, Inc., Sr Sub Note 10.00%, 08-01-02 @ 105............. 4,200,000
5,000 RBSG Capital Corp., Gtd Cap Note 10.125%, 03-01-04 @ 124.279........ 6,213,950
3,000*Super Rite Foods, Sr Sub Note 10.625%, 04-01-02 @ 109.500........... 3,285,000
2,000 Wells Fargo & Co., Deb 8.20%, 11-01-96 @ 102.085.................... 2,041,160
-------------
TOTAL CORPORATE BONDS
(Cost $68,927,173)....................................... 69,085,464
-------------
NOTES (0.13%)
2,000*Federal Realty Investment Trust, Sr Note 6.625%,
12-01-05 @ 100.359.................................................. 2,007,180
-------------
TOTAL NOTES
(Cost $2,000,000)....................................... 2,007,180
-------------
UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS (2.60%)
5,000 Federal Home Loan Mort. Corp. Sr Sub 6.55%, 04-02-03 @ 100.828...... 5,041,400
5,000 Federal Home Loan Mort. Corp. Sr Sub 7.50%, 07-23-07 @ 101.713...... 5,085,650
5,000*Federal Home Loan Mort. Corp. Sr Sub 8.00%, 12-15-08 @ 107.937...... 5,396,850
5,000 Federal National Mort. Assn. Sr Sub 7.30%, 07-10-02 @ 102.422....... 5,121,100
5,000 United States Treasury, Note 7.875%, 11-15-99 @ 108.719............. 5,435,950
5,000*United States Treasury, Note 7.75%, 12-31-99 @ 108.516.............. 5,425,800
5,000 United States Treasury, Note 8.00%, 05-15-01 @ 111.937.............. 5,596,850
3,000 United States Treasury, Note 7.875%, 11-15-04 @ 115.750............. 3,472,500
-------------
TOTAL UNITED STATES GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $39,376,713)....................................... 40,576,100
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE> 18
FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
<TABLE>
<CAPTION>
PAR VALUE
(000'S SHORT-TERM INTEREST MARKET
OMITTED) INVESTMENTS (6.36%) RATE VALUE
- --------- -------- ------
<S> <C> <C>
JOINT REPURCHASE AGREEMENT (6.36%)
$ 99,076 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% $ 99,076,000
--------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Co.
Daily Interest Savings Account
Current Rate 5.00% .......................... 36,657
--------------
TOTAL SHORT-TERM INVESTMENTS ( 6.36%) 99,112,657
------ --------------
TOTAL INVESTMENTS (99.81%) $1,555,046,389
====== ==============
* Securities, other than short-term investments, newly added to the portfolio
for period ended December 31, 1995.
</TABLE>
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.
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Sovereign Investors Fund, Inc. (the "Corporation"), is an open-end
investment management company, registered under the Investment Company Act of
1940. The Corporation consists of two series portfolios: John Hancock Sovereign
Investors Fund (the "Fund") and John Hancock Sovereign Balanced Fund. The
investment objective of the Fund is to provide long term growth of capital and
of income without assuming undue market risks by diversifying its investments
among a number of industry groups without concentrating more than 25% of its
assets in any particular industry.
The Directors have authorized the issuance of multiple classes of the Fund,
designated as Class A, Class B and Class C 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. 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.
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 purchase over the life of
the security, as required by the Internal Revenue Code.
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a quarterly
management fee to the Adviser for a continuous investment program equivalent on
an annual basis, to the sum of (a) 0.60% of the average daily net asset value to
$750,000,000, (b) 0.55% of the average daily net asset value of $750,000,000 to
$1,500,000,000, (c) 0.50% of the average daily net asset value of $1,500,000,000
to $2,500,000,000 and (d) 0.45% of the average daily net asset value of the Fund
during such quarter of $2,500,000,000 and over. The Adviser has entered into a
service agreement with Sovereign Asset Management Corporation ("SAMCORP") an
affiliate of the Adviser, to provide certain investment research and portfolio
management services to the Fund, for which the Adviser pays SAMCORP 40% of its
management fee.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares, the fee payable to the
Adviser will be reduced to the extent of such excess, and the Adviser will make
additional arrangements necessary to eliminate any remaining excess expenses.
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended December
31, 1995, net sales charges received with regard to sales of Class A shares
amounted to $3,398,411. Out of this amount, $521,352 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$1,096,572 was paid as sales commissions to unrelated broker-dealers and
$1,780,487 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 $530,011.
In addition, to reimburse 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 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,
Corp. ("Investor Services"), a wholly-owned subsidiary of The Berkeley Financial
Group. Class A and Class B shares pay transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses. Class C shares pay a
monthly transfer agent fee equivalent, on an annual basis, to 0.10% of the
average daily net asset value of Class C shares of the Fund.
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. Effective with the fees paid for
20
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Sovereign Investors Fund
1995, the unaffiliated Director 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 $584,627,572 and $587,847,189, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $20,481,541 and $68,586,581, respectively. The cost of
investments owned at December 31, 1995 (excluding the corporate savings
account), for Federal income tax purposes was $1,249,585,139. Gross unrealized
appreciation and depreciation of investments aggregated $317,505,362 and
$12,080,769, respectively, resulting in net unrealized appreciation of
$305,424,593.
21
<PAGE> 22
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Sovereign Investors Fund, Inc. -
John Hancock Sovereign Investors Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Sovereign Investors Fund (the "Fund'), one of the portfolios
constituting John Hancock Sovereign Investors Fund, Inc., including the schedule
of investments, as of December 31, 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
Investors Fund for each of the two years in the period ended December 31, 1992
were audited by other auditors whose report dated February 3, 1993 expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers or other
appropriate audit procedures when replies from brokers were not received. 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 Investors 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
22
<PAGE> 23
John Hancock Funds - Sovereign Investors Fund
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.
The Fund designated a distribution to shareholders of $5,012,000 as long-term
capital gain dividends. Shareholders were mailed a 1995 U.S. Treasury Department
form 1099-DIV in January 1996 representing their proportionate share.
U.S. Government Obligations: Income from these investments may be exempt from
certain state and local taxes. The percentage of assets invested in U.S.
Treasury bonds, bills, and notes was 1.27% at year end. The percentage of income
derived from U.S. Treasury bonds, bills, and notes was 5.55%. 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 0.99% at year end. The percentage of income
derived from these types of investments was 1.07%. 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, 79.78% qualify for the dividends received deduction.
For specific information on exemption provisions in your state, consult your
local state tax office or your tax adviser.
HISTORICAL DATA (Unaudited)
The table below shows the record of the Fund during the past periods.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<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>
1985 2,105,220 $.53 $11.31 $.44
1986 2,807,182 .55 12.36 .87
1987 3,701,248 .58 10.96 .90
1988 4,099,131 .60 11.19 .38
1989 5,274,426 .61 12.60 .58
1990 6,991,411 .59 11.94 .60
1991 13,560,178 .53 14.31 .67
1992 59,053,529 .45 14.78 .09
1993 83,332,510 .42 15.10 .09
1994 76,585,860 .46 14.24 .11
1995 71,652,920 .40 17.87 .08
</TABLE>
<TABLE>
<CAPTION>
CLASS B PER SHARE
YEAR -------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- ----- -------------
<S> <C> <C> <C> <C>
1994 8,996,738 $.36 $14.24 $ .11
1995 14,432,679 .28 17.86 .08
</TABLE>
<TABLE>
<CAPTION>
CLASS C PER SHARE
YEAR ------------------------------------
ENDED SHARES DIVIDENDS NET ASSET CAPITAL GAINS
DEC. 31 OUTSTANDING FROM INCOME VALUE DISTRIBUTION
- ------- ----------- ----------- ----- -------------
<S> <C> <C> <C> <C>
1993 674,320 $.34 $15.11 $ .09
1994 1,062,699 .51 14.24 .11
1995 1,116,297 .46 17.87 .08
</TABLE>
23
<PAGE> 24
John Hancock Funds - Sovereign Investors Fund
DIVIDEND INCREASES (Unaudited)
Listed below are the most recent dividend increases for the common stocks held
in the Sovereign Investors Fund as of December 31, 1995
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
PERCENT OF
COMPANY DIVIDEND INCREASE
- ------- -----------------
<S> <C>
Abbott Laboratories . . . . . . . . . . . 10.5%
AFLAC . . . . . . . . . . . . . . . . . . 13.0
Air Products . . . . . . . . . . . . . . 6.1
Albertson's . . . . . . . . . . . . . . . 18.2
Alco Standard . . . . . . . . . . . . . . 7.7
ALLTEL Corp. . . . . . . . . . . . . . . 8.3
American Home Products . . . . . . . . . 2.7
American International Group . . . . . . 10.8
AMP, Inc. . . . . . . . . . . . . . . . . 9.5
Archer Daniels Midland . . . . . . . . . 110.1
Automatic Data Processing, Inc. . . . . . 14.3
BankOne . . . . . . . . . . . . . . . . . 9.7
Bell Atlantic Corp. . . . . . . . . . . . 1.4
Bemis, Inc. . . . . . . . . . . . . . . . 18.5
Campbell's . . . . . . . . . . . . . . . 11.3
Central and SouthWest . . . . . . . . . . 1.2
Chubb . . . . . . . . . . . . . . . . . . 6.5
Corning, Inc. . . . . . . . . . . . . . . 5.9
CPC International . . . . . . . . . . . . 5.6
Crompton & Knowles . . . . . . . . . . . 12.5
E.I. DuPont De Nemours & Co., Inc. . . . 10.6
Emerson Electric . . . . . . . . . . . . 14.0
Exxon . . . . . . . . . . . . . . . . . . 4.2
Federal Signal Corp. . . . . . . . . . . 19.0
First Tennessee National Corp. . . . . . 12.8
Florida Progress Corp. . . . . . . . . . 2.0
Frontier Corp. . . . . . . . . . . . . . 2.4
Gannett . . . . . . . . . . . . . . . . . 2.9
General Electric . . . . . . . . . . . . 12.2
General Motors, Cl E . . . . . . . . . . 8.3
Heinz . . . . . . . . . . . . . . . . . . 10.4
Interpublic Group . . . . . . . . . . . . 10.7
Johnson & Johnson . . . . . . . . . . . . 13.8
KeyCorp . . . . . . . . . . . . . . . . . 12.5
Kimberly Clark . . . . . . . . . . . . . 3.0
Leggett & Platt . . . . . . . . . . . . . 11.1
Lowe's Department Stores . . . . . . . . 11.1
May Department Stores . . . . . . . . . . 9.6
McDonald's . . . . . . . . . . . . . . . 12.5
Merck . . . . . . . . . . . . . . . . . . 13.3
Minnesota Mining & Manufacturing . . . . 6.8
National Fuel & Gas . . . . . . . . . . . 2.5
Nationsbank . . . . . . . . . . . . . . . 16.0
Pep Boys (The) . . . . . . . . . . . . . 11.8
PepsiCo . . . . . . . . . . . . . . . . . 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
Reuters Holdings . . . . . . . . . . . . 13.8
Rockwell International . . . . . . . . . 7.4
RPM, Inc. . . . . . . . . . . . . . . . . 7.1
Sara Lee . . . . . . . . . . . . . . . . 11.8
SBC Communications . . . . . . . . . . . 4.4
Sigma Aldrich . . . . . . . . . . . . . . 22.2
Sonoco Products . . . . . . . . . . . . . 12.5
Sysco . . . . . . . . . . . . . . . . . . 18.2
Union Electric . . . . . . . . . . . . . 2.5
W.W. Grainger . . . . . . . . . . . . . . 15.0
Wal-Mart . . . . . . . . . . . . . . . . 17.6
Wisconsin Energy Corp. . . . . . . . . . 4.3
Witco Corp. . . . . . . . . . . . . . . . 12.0
-----
The average dividend increase for
this group was 11.58%
=====
</TABLE>
24
<PAGE> 25
NOTES
John Hancock Funds - Sovereign Investors Fund
25
<PAGE> 26
NOTES
John Hancock Funds - Sovereign Investors Fund
26
<PAGE> 27
NOTES
John Hancock Funds - Sovereign Investors Fund
27
<PAGE> 28
Bulk Rate
U.S. Postage
PAID
Brockton, MA
Permit No. 582
[LOGO]
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 HUNTINGTON AVENUE BOSTON, MA 02199-7603
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."
A recycled logo in lower left hand corner with the caption "Printed on Recycled
Paper."
This report is for the information of shareholders of the John Hancock
Sovereign Investors Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
JHD 2900A 12/95
2/96
