UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811- 2402
John Hancock Sovereign Bond Fund
(Exact name of registrant as specified in charter)
601 Congress Street, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip code)
Alfred P. Ouellette
Senior Counsel and Assistant Secretary
601 Congress Street
Boston, Massachusetts 02210
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-663-4324
Date of fiscal year end: | May 31 |
Date of reporting period: | May 31, 2007 |
ITEM 1. REPORT TO SHAREHOLDERS.
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx1x1.jpg)
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx2x1.jpg)
TABLE OF CONTENTS |
Your fund at a glance |
page 1 |
Managers’ report |
page 2 |
A look at performance |
page 6 |
Your expenses |
page 8 |
Fund’s investments |
page 10 |
Financial statements |
page 26 |
Notes to financial |
statements |
page 35 |
Trustees and officers |
page 49 |
For more information |
page 56 |
CEO corner
To Our Shareholders,
The U.S. financial markets turned in strong results over the last 12 months. Positive economic news, better-than-expected corporate earnings growth, buoyant global economies, and increased merger and acquisitions activity served to overcome concerns about inflation, high energy costs, a housing slowdown and the troubled subprime mortgage market. Even with a sharp, albeit brief, decline during the period, the broad stock market, as measured by the Standard & Poor’s 500 Index, returned 22.79% for the year ended May 31, 2007.
This environment also led the Federal Reserve Board to hold short-term interest rates steady, and fixed-income securities also produced positive results. The broad Lehman Brothers Aggregate Bond Index returned 6.66% for the year, while high-yield corporate bonds remained the best performers, reflecting the favorable credit environment and strong demand for yield.
After the market’s moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes well for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more-than-four-year-old bull market. Investors are also dealing with heightened uncertainty about the direction of interest rates. Inflation data at the end of the period caused anxiety that the Fed would not cut interest rates any time soon, as had previously been expected.
It may also be time to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance and may now represent a larger percentage of your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon, not a sprint, approach to investing, stand a better chance of weathering the market’s short-term twists and turns and reaching their long-term goals.
Sincerely,
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx2x2.jpg)
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of May 31, 2007. They are subject to change
at any time.
Your fund at a glance
The Fund seeks a high level of current income consistent with prudent investment
risk by investing at least 80% of its assets in a diversified portfolio of bonds and other
debt securities, including corporate bonds and U.S. government and agency securities.
Over the last twelve months
► The bond market posted positive results amid a slowing economy and a stable interest rate policy from the Federal Reserve.
► High-yield corporate bonds produced the best returns, while Treasury bonds lagged.
► The Fund outperformed its benchmark index and peer group average thanks to its exposure to high-yield corporate bonds and commercial mortgage-backed securities.
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx3x1.jpg)
Top 10 issuers | ||||
Federal National Mortgage Assn. | 23.7% | Goldman Sachs Group, Inc. | 2.0% | |
Federal Home Loan Mortgage Corp. | 10.5% | Bear Stearns Cos. Inc. (The) | 1.7% | |
U.S. Treasury | 4.5% | GMAC | 1.6% | |
JPMorgan Chase | 3.2% | Morgan Stanley | 1.6% | |
Bank of America | 3.0% | Merrill Lynch & Co., Inc. | 1.3% | |
As a percentage of net assets on May 31, 2007.
1
Managers’ report
John Hancock
Bond Fund
The U.S. bond market posted positive results for the year ended May 31, 2007. The economic environment was favorable for bonds — the U.S. economy slowed significantly during the period as economic growth fell from a 5.6% annual rate in the first quarter of 2006 to a 0.6% annual rate in the first quarter of 2007. The main factor behind the economic weakness was a severe slump in the housing market, which subsequently spread to other segments of the economy.
Despite the economic slowdown, the Federal Reserve held short-term interest rates steady over the last 11 months, following 17 rate hikes in a two-year period ending in June 2006. Inflation stayed above the Fed’s comfort level as energy prices remained stubbornly high, in part because of improving economic conditions overseas. Consequently, market participants pushed back their expectations of a Fed rate cut to the end of 2007.
Although bond yields fluctuated moderately in response to the slowing economy, energy price volatility and financial woes in the subprime lending industry, yields were relatively stable overall. For the one-year period, Treasury bond yields fell slightly, producing modest price gains, but remained roughly equal across the maturity spectrum. For example, the two-year Treasury note yield fell from 5.03% to 4.91%, while the 10-year Treasury yield declined from 5.12% to 4.89% .
SCORECARD
INVESTMENT | PERIOD’S PERFORMANCE. . . AND WHAT’S BEHIND THE NUMBERS | |
Freeport-McMoRan | ▲ | Convertible bonds rallied along with copper and gold prices |
Emerging-market | ▲ | A small position in foreign high yield bonds, particularly in Brazil and |
debt | Mexico, boosted performance | |
NOVA Chemicals | ▼ | Struggled with increased competition and higher raw materials costs |
2
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx5x1.jpg)
Portfolio Managers, MFC Global Investment Management (U.S.), LLC
Howard C. Greene, CFA, Barry H. Evans, CFA and Jeffrey N. Given, CFA
By a wide margin, high-yield corporate bonds were the best performers, posting double-digit gains for the one-year period. Strong demand for yield and resilient credit quality helped boost the high yield segment of the market. Investment-grade corporate bonds and mortgage-backed securities also fared well, benefiting from their relatively high yields, while Treasury and government agency bonds lagged.
“The U.S. bond market posted
positive results for the year
ended May 31, 2007. The
economic environment was
favorable for bonds…”
Fund performance
For the year ended May 31, 2007, John Hancock Bond Fund’s Class A, Class B, Class C, Class I and Class R1 shares posted total returns of 7.08%, 6.33%, 6.33%, 7.53% and 6.38%, respectively, at net asset value. The Fund outperformed the 6.47% return of the Lehman Government/Credit Bond Index and the 6.21% average return of the Morningstar, Inc. intermediate-term bond category.1 Keep in mind that your net asset value return will differ from the Fund’s performance if you were not invested in the Fund for the entire period or did not reinvest all distributions. See pages six and seven for historical performance information.
QUALITY | |
DISTRIBUTION2 | |
AAA | 58% |
AA | 4% |
A | 7% |
BBB | 12% |
BB | 8% |
B | 8% |
CCC | 1% |
High-yield, CMBS exposure added value
The portfolio’s outperformance of its benchmark index and Morningstar peer group average was driven in large part by our position in high-yield corporate bonds, which outperformed substantially over the past year. Although our overall exposure to corporate bonds was largely unchanged during the period, we reduced our holdings of investment-grade corporate securities and added more lower-quality corporate bonds to the portfolio.
Bond Fund
3
We cut back on our investment-grade holdings because of concerns about “event risk” — leveraged buy-outs, special dividends and other actions that favor stockholders over bondholders. In contrast, event risk has little impact on the lower-quality segment of the market — private equity firms are hesitant to pursue debt-financed acquisitions of companies that already have a significant amount of debt. In addition, we believed solid economic fundamentals and healthy earnings growth would provide a favorable backdrop for high yield bonds.
An increased position in commercial mortgage-backed securities (CMBS) also provided a lift to portfolio performance. We viewed CMBS as an alternative to investment-grade corporate bonds — CMBS offered similar yields and better credit quality than many A- and BBB-rated corporate bonds of comparable maturity, but without the event risk associated with the corporate market.
We significantly reduced our position in Treasury bonds to make room for the increase in CMBS. Treasury securities now make up less than 5% of the portfolio.
Individual winners and losers
Within the corporate sector, our individual security selection added value during the period. The portfolio’s best performer was Provident Financing Trust I, a unit of disability insurer UnumProvident. During the period, UnumProvident slowly and steadily turned around its operations after several years of poor performance. We owned some of the company’s subordinated debt, which enjoyed the biggest rebound as UnumProvident’s fortunes improved.
SECTOR DISTRIBUTION2 | |
Government — U.S. | |
agency | 35% |
Mortgage bonds | 24% |
Financials | 15% |
Consumer discretionary | 5% |
Government — U.S. | 4% |
Utilities | 4% |
Materials | 3% |
Telecommunication | |
services | 2% |
Industrials | 2% |
Energy | 2% |
Consumer staples | 1% |
Health care | 1% |
Diagnostic services provider Alliance Imaging, Inc. was another top performer, benefiting from its strategy of partnering with hospitals to provide MRI services. Metallurg Holdings, Inc., which makes chemical compounds that strengthen steel, rose amid robust global demand for steel. We also enjoyed strong results from our positions in bonds backed by Native American casinos.
Our weakest performer during the period was KN Capital Trust, which is part of energy distributor Kinder Morgan.
Bond Fund
4
A management-led leveraged buyout of Kinder Morgan weighed on these bonds.
“The portfolio’s outperformance
of its benchmark index and
Morningstar peer group average
was driven in large part by our
position in high-yield corporate
bonds, which outperformed
substantially…”
Shifting the maturity structure
Over the past year, we made some changes to the maturity structure of the portfolio. We sold some of our longer-term bonds, primarily those maturing in 15 years or more, and we also reduced our holdings of bonds maturing in less than five years. We shifted these assets into the intermediate-term segment of the bond market, with maturities ranging from 7 to 10 years (many of the CMBS we added to the portfolio were in this maturity range).
This positioning typically outperforms when the gap between short- and long-term bond yields widens. However, the yield curve remained flat — that is, yields remained compressed across all maturities — so our strategy had little impact on portfolio performance.
Outlook
We anticipate a relatively stable environment as we move into the second half of 2007. The economy has shown signs of resilience in recent months, and this “growth scare” is likely to keep the Fed on hold, possibly through the end of the year. As a result, we expect bond yields to remain in a fairly narrow range in the coming months, and the yield curve should stay flat. Longer term, however, we should see a steeper yield curve as the relationship between short- and long-term yields returns to its historical norm.
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx7x1.jpg)
This commentary reflects the views of the portfolio managers through the end of the Fund’s period discussed in this report. The managers’ statements reflect their own opinions. As such, they are in no way guarantees of future events and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant.
1 Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
2 As a percentage of net assets on May 31, 2007.
Bond Fund
5
A look at performance
For the periods ended May 31, 2007
Average annual returns | Cumulative total returns | SEC 30- | ||||||||||
with maximum sales charge (POP) | with maximum sales charge (POP) | day yield | ||||||||||
Inception | Since | Since | as of | |||||||||
Class | date | 1-year | 5-year | 10-year | inception | 1-year | 5-year | 10-year | inception | 5-31-07 | ||
A | 11-9-73 | 2.28% | 4.19% | 5.35% | — | 2.28% | 22.81% | 68.38% | — | 4.78% | ||
B | 11-23-93 | 1.33 | 4.08 | 5.25 | — | 1.33 | 22.16 | 66.86 | — | 4.31 | ||
C | 10-1-98 | 5.33 | 4.42 | — | 4.26% | 5.33 | 24.16 | — | 43.55% | 4.30 | ||
I1 | 9-4-01 | 7.53 | 5.61 | — | 5.40 | 7.53 | 31.35 | — | 35.25 | 5.45 | ||
R11 | 8-5-03 | 6.38 | — | — | 4.29 | 6.38 | — | — | 17.43 | 4.40 | ||
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charge on Class A shares of 4.5% and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The returns for Class C shares have been adjusted to reflect the elimination of the front-end sales charge effective July 15, 2004. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I and Class R1 shares.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month-end, please call 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
The Fund’s performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable.
1 For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
Bond Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Bond Fund
Class A shares for the period indicated. For comparison, we’ve shown the same
investment in the Lehman Brothers Government/Credit Bond Index.
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx9x1.jpg)
Without | With maximum | |||
Class | Period beginning | sales charge | sales charge | Index |
B2 | 5-31-97 | $16,686 | $16,686 | $18,294 |
C2 | 10-1-98 | 14,355 | 14,355 | 15,382 |
I3 | 9-4-01 | 13,525 | 13,525 | 13,258 |
R13 | 8-5-03 | 11,743 | 11,743 | 11,632 |
Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund’s Class B, Class C, Class I and Class R1 shares, respectively, as of May 31, 2007. The Class C shares investment with maximum sales charge has been adjusted to reflect the elimination of the front-end sales charge effective July 15, 2004. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.
Lehman Brothers Government/Credit Bond Index is an unmanaged index that measures the performance of U.S. government bonds, U.S. corporate bonds and Yankee bonds.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
1 NAV represents net asset value and POP represents public offering price.
2 No contingent deferred sales charge applicable.
3 For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
Bond Fund
7
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
■ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses including management fees, distribution and service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund’s actual ongoing operating expenses, and is based on your fund’s actual return. It assumes an account value of $1,000.00 on December 1, 2006, with the same investment held until May 31, 2007.
Account value | Ending value | Expenses paid during period | |
on 12-1-06 | on 5-31-07 | ended 5-31-071 | |
Class A | $1,000.00 | $1,011.30 | $5.21 |
Class B | 1,000.00 | 1,007.80 | 8.71 |
Class C | 1,000.00 | 1,007.80 | 8.71 |
Class I | 1,000.00 | 1,013.50 | 3.05 |
Class R1 | 1,000.00 | 1,007.70 | 9.00 |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at May 31, 2007, by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx10x1.jpg)
Bond Fund
8
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on December 1, 2006, with the same investment held until May 31, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
Account value | Ending value | Expenses paid during period | |
on 12-1-06 | on 5-31-07 | ended 5-31-071 | |
Class A | $1,000.00 | $1,019.75 | $5.24 |
Class B | 1,000.00 | 1,016.26 | 8.75 |
Class C | 1,000.00 | 1,016.26 | 8.74 |
Class I | 1,000.00 | 1,021.90 | 3.07 |
Class R1 | 1,000.00 | 1,015.97 | 9.03 |
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.04%, 1.74%, 1.74%, 0.61% and 1.80% for Class A, Class B, Class C, Class I and Class R1 respectively, multiplied by the average account value over the period, multiplied by number of days in most recent fiscal half-year/365 or 366 (to reflect the one-half year period).
Bond Fund
9
Fund’s investments
F I N A N C I A L S T A T E M E N T S
Securities owned by the Fund on 5-31-07
This schedule is divided into five main categories: bonds, preferred stocks, tranche loans,
U.S. government and agencies securities and short-term investments. Bonds, preferred
stocks, tranche loans and U.S. government and agencies securities are further broken
down by industry group. Short-term investments, which represent the Fund’s cash
position, are listed last.
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Bonds 56.98% | $546,100,974 | |||||
(Cost $542,638,236) | ||||||
Aerospace & Defense 0.10% | 930,800 | |||||
TransDigm, Inc., | ||||||
Sr Sub Note (S) | 7.750% | 07-15-14 | B– | $895 | 930,800 | |
Agricultural Products 0.18% | 1,745,800 | |||||
Chaoda Modern Agriculture | ||||||
(Holdings) Ltd., | ||||||
Gtd Sr Note (Cayman Islands) (S) | 7.750 | 02-08-10 | BB | 1,720 | 1,745,800 | |
Airlines 0.65% | 6,235,131 | |||||
Continental Airlines, Inc., | ||||||
Pass Thru Ctf Ser 1999-1A | 6.545 | 02-02-19 | A– | 951 | 979,273 | |
Pass Thru Ctf Ser 2000-2 | ||||||
Class B (L) | 8.307 | 04-02-18 | BB– | 1,260 | 1,313,427 | |
Pass Thru Ctf Ser 2001-1 Class C | 7.033 | 06-15-11 | B+ | 845 | 836,681 | |
Delta Air Lines, Inc., | ||||||
Sr Pass Thru Ctf Ser 2002-1 | 6.417 | 07-02-12 | AAA | 3,030 | 3,105,750 | |
Apparel, Accessories & Luxury Goods 0.09% | 850,750 | |||||
Hanesbrands, Inc., | ||||||
Sr Note (S) | 8.735 | 12-15-14 | B– | 820 | 850,750 | |
Asset Management & Custody Banks 0.41% | 3,883,801 | |||||
Rabobank Capital Fund II, | ||||||
Perpetual Bond (5.260% to | ||||||
12-31-13 then variable) (S) | 5.260 | 12-29-49 | AA | 4,005 | 3,883,801 | |
Broadcasting & Cable TV 0.98% | 9,394,318 | |||||
Comcast Cable Holdings LLC, | ||||||
Deb | 9.800 | 02-01-12 | BBB+ | 1,720 | 2,002,489 | |
Nexstar Finance, Inc., | ||||||
Gtd Sr Sub Note | 7.000 | 01-15-14 | CCC+ | 1,290 | 1,312,575 | |
Rogers Cable, Inc., | ||||||
Sr Sec Note (Canada) | 6.750 | 03-15-15 | BB+ | 1,705 | 1,779,904 | |
Shaw Communications, Inc., | ||||||
Sr Note (Canada) | 8.250 | 04-11-10 | BB+ | 1,790 | 1,897,400 | |
XM Satellite Radio, Inc., | ||||||
Gtd Sr Note (L) | 9.750 | 05-01-14 | CCC | 2,390 | 2,401,950 |
See notes to financial statements
Bond Fund
10
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Casinos & Gaming 1.99% | $19,025,821 | |||||
Chukchansi Economic Development | ||||||
Authority, | ||||||
Sr Note (S) | 8.000% | 11-15-13 | BB– | $570 | 589,950 | |
Fontainbleau Las Vegas | ||||||
Holdings LLC, | ||||||
Note (M)(S) | 10.250 | 06-15-15 | CCC+ | 1,070 | 1,102,100 | |
Jacobs Entertainment, Inc., | ||||||
Gtd Sr Note | 9.750 | 06-15-14 | B– | 1,970 | 2,053,725 | |
Little Traverse Bay Bands of | ||||||
Odawa Indians, | ||||||
Sr Note (S) | 10.250 | 02-15-14 | B | 1,895 | 1,970,800 | |
Mashantucket West Pequot, | ||||||
Bond (S) | 5.912 | 09-01-21 | BBB– | 1,250 | 1,177,413 | |
Mohegan Tribal Gaming Authority, | ||||||
Sr Sub Note (L) | 7.125 | 08-15-14 | B | 1,050 | 1,063,125 | |
MTR Gaming Group, Inc., | ||||||
Gtd Sr Note Ser B | 9.750 | 04-01-10 | B+ | 1,595 | 1,668,769 | |
Gtd Sr Sub Note Ser B | 9.000 | 06-01-12 | B– | 1,090 | 1,152,675 | |
Pokagon Gaming Authority, | ||||||
Sr Note (S) | 10.375 | 06-15-14 | B | 815 | 916,875 | |
Seminole Tribe of Florida, | ||||||
Bond (S) | 6.535 | 10-01-20 | BBB– | 2,260 | 2,178,572 | |
Seneca Gaming Corp., | ||||||
Sr Note | 7.250 | 05-01-12 | BB | 2,210 | 2,254,200 | |
Turning Stone Casino Resort | ||||||
Enterprise, | ||||||
Sr Note (S) | 9.125 | 09-15-14 | B | 2,085 | 2,126,700 | |
Waterford Gaming LLC, | ||||||
Sr Note (S) | 8.625 | 09-15-12 | BB– | 729 | 770,917 | |
Commodity Chemicals 0.34% | 3,227,813 | |||||
Lyondell Chemical Co., | ||||||
Gtd Sr Sub Note | 10.875 | 05-01-09 | B | 2,320 | 2,320,000 | |
Sterling Chemicals, Inc., | ||||||
Gtd Sr Sec Note (S) | 10.250 | 04-01-15 | B– | 875 | 907,813 | |
Consumer Finance 0.58% | 5,545,963 | |||||
GMAC LLC, | ||||||
Note | 6.750 | 12-01-14 | BB+ | 1,875 | 1,868,989 | |
Sr Note | 6.000 | 12-15-11 | BB+ | 1,750 | 1,705,904 | |
HSBC Finance Capital Trust IX, | ||||||
Note (5.911% to 11-30-15 | ||||||
then variable) | 5.911 | 11-30-35 | A | 2,000 | 1,971,070 | |
Department Stores 0.22% | 2,103,058 | |||||
JC Penney Corp., Inc., | ||||||
Deb | 8.125 | 04-01-27 | BBB– | 2,045 | 2,103,058 |
See notes to financial statements
Bond Fund
11
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Diversified Banks 2.84% | $27,232,461 | |||||
Banco Macro SA, | ||||||
Note (Argentina) (S) | 8.500% | 02-01-17 | B2 | $1,875 | 1,884,375 | |
Banco Mercantil del Norte SA, | ||||||
Sub Note (Mexico) (S) | 6.862 | 10-13-21 | Baa2 | 2,540 | 2,578,186 | |
Bancolombia SA, | ||||||
Sub Bond (Colombia) (L) | 6.875 | 05-25-17 | Baa3 | 1,260 | 1,258,110 | |
Bank of New York, | ||||||
Cap Security (S) | 7.780 | 12-01-26 | A– | 4,100 | 4,263,533 | |
Chuo Mitsui Trust & Banking | ||||||
Co., Ltd., | ||||||
Perpetual Sub Note (5.506% to | ||||||
4-15-15 then variable) | ||||||
(Japan) (S) | 5.506 | 12-15-49 | Baa1 | 2,530 | 2,424,808 | |
HBOS Plc, | ||||||
Perpetual Bond (6.413% to 10-1-35 | ||||||
then variable) (United Kingdom) (S) | 6.413 | 09-29-49 | A | 2,910 | 2,788,604 | |
Lloyds TSB Group Plc, | ||||||
Bond (6.267% to 11-30-16 then | ||||||
variable) (United Kingdom) (S) | 6.267 | 11-14-16 | A | 2,600 | 2,532,397 | |
Royal Bank of Scotland Group Plc, | ||||||
Perpetual Bond (7.648% to 9-30-31 | ||||||
then variable) (United Kingdom) | 7.648 | 08-29-49 | A | 3,320 | 3,806,659 | |
Silicon Valley Bank, | ||||||
Sub Note | 6.050 | 06-01-17 | BBB | 2,335 | 2,298,812 | |
Societe Generale, | ||||||
Sub Note (France) (S) | 5.922 | 04-05-49 | A+ | 1,725 | 1,693,577 | |
Standard Chartered Plc, | ||||||
Bond (Great Britain) (S) | 7.014 | 07-30-49 | BBB+ | 1,700 | 1,703,400 | |
Diversified Chemicals 0.12% | 1,168,750 | |||||
Mosiac Co., (The), | ||||||
Sr Note (S) | 7.625 | 12-01-16 | BB– | 1,100 | 1,168,750 | |
Diversified Commercial & Professional Services 0.08% | 756,900 | |||||
ARAMARK Corp., | ||||||
Sr Note (S) | 8.500 | 02-01-15 | B– | 720 | 756,900 | |
Diversified Financial Services 2.63% | 25,196,345 | |||||
Buffalo Thunder Development | ||||||
Authority, | ||||||
Sr Sec Note (S) | 9.375 | 12-15-14 | B | 1,885 | 1,939,194 | |
Comerica Capital Trust II, | ||||||
Gtd Bond | 6.576 | 02-20-37 | BBB+ | 1,305 | 1,251,348 | |
Cosan Finance Ltd., | ||||||
Gtd Bond (Bermuda) (S) | 7.000 | 02-01-17 | BB | 1,120 | 1,101,800 | |
Ford Motor Credit Co., | ||||||
Sr Note | 9.875 | 08-10-11 | B | 1,135 | 1,215,819 | |
Sr Note | 9.750 | 09-15-10 | B | 3,237 | 3,431,165 | |
Huntington Capital III, | ||||||
Gtd Sub Bond | 6.650 | 05-15-37 | BBB– | 2,165 | 2,115,445 | |
JPMorgan Chase Capital XX, | ||||||
Jr Sub Note Ser T | 6.550 | 09-29-36 | A– | 2,580 | 2,551,499 |
See notes to financial statements
Bond Fund
12
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Diversified Financial Services (continued) | ||||||
Nelnet, Inc., | ||||||
Note (7.400% to 9-1-11 | ||||||
then variable) | 7.400% | 09-29-36 | BBB– | $2,595 | $2,651,226 | |
QBE Capital Funding II LP, | ||||||
Gtd Sub Bond (Jersey Islands) (S) | 6.797 | 06-01-49 | BBB | 2,485 | 2,459,752 | |
SMFG Preferred Capital, | ||||||
Bond (S) | 6.078 | 01-25-17 | BBB | 2,215 | 2,179,671 | |
Sovereign Capital Trust VI, | ||||||
Gtd Note | 7.908 | 06-13-36 | BB+ | 1,840 | 2,024,609 | |
St. George Funding Co., | ||||||
Perpetual Bond (8.485% to 6-30-17 | ||||||
then variable) (Australia) (S) | 8.485 | 12-31-49 | A3 | 2,180 | 2,274,817 | |
Diversified Metals & Mining 0.15% | 1,467,201 | |||||
Freeport-McMoRan Copper & | ||||||
Gold, Inc., | ||||||
Sr Note | 8.375 | 04-01-17 | BB | 485 | 529,863 | |
Vedanta Resources Plc, | ||||||
Sr Note (United Kingdom) (S) | 6.625 | 02-22-10 | BB | 935 | 937,338 | |
Electric Utilities 2.93% | 28,045,983 | |||||
Abu Dhabi National Energy Co., | ||||||
Bond (United Arab Emirates) (S) | 6.500 | 10-27-36 | A+ | 3,385 | 3,351,857 | |
AES Eastern Energy LP, | ||||||
Pass Thru Ctf 1999-A | 9.000 | 01-02-17 | BB+ | 3,565 | 3,974,589 | |
Beaver Valley Funding Corp., | ||||||
Sec Lease Obligation Bond | 9.000 | 06-01-17 | BBB– | 1,919 | 2,143,274 | |
BVPS II Funding Corp., | ||||||
Collateralized Lease Bond | 8.890 | 06-01-17 | BBB– | 4,047 | 4,601,532 | |
HQI Transelect Chile SA, | ||||||
Sr Note (Chile) | 7.875 | 04-15-11 | BBB– | 2,655 | 2,813,811 | |
Indiantown Cogeneration LP, | ||||||
1st Mtg Note Ser A-9 | 9.260 | 12-15-10 | BB+ | 1,242 | 1,302,677 | |
IPALCO Enterprises, Inc., | ||||||
Sr Sec Note | 8.625 | 11-14-11 | BB– | 1,835 | 1,995,563 | |
Monterrey Power SA de CV, | ||||||
Sr Sec Bond (Mexico) (S) | 9.625 | 11-15-09 | BBB | 2,445 | 2,671,474 | |
PNPP II Funding Corp., | ||||||
Deb | 9.120 | 05-30-16 | BBB– | 198 | 220,948 | |
Waterford 3 Funding Corp., | ||||||
Sec Lease Obligation Bond | 8.090 | 01-02-17 | BBB– | 4,884 | 4,970,258 | |
Electrical Components & Equipment 0.19% | 1,789,790 | |||||
AMETEK, Inc., | ||||||
Sr Note | 7.200 | 07-15-08 | BBB | 1,770 | 1,789,790 | |
Electronic Equipment Manufacturers 0.19% | 1,802,250 | |||||
Freescale Semiconductor, Inc., | ||||||
Sr Sub Note (L)(S) | 10.125 | 12-15-16 | B | 1,800 | 1,802,250 | |
Foreign Government 0.30% | 2,890,742 | |||||
Brazil, Federative Republic of, | ||||||
Bond (Brazil) (D) | 12.500 | 01-05-16 | BB+ | 4,500 | 2,890,742 |
See notes to financial statements
Bond Fund
13
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Gas Utilities 0.40% | $3,875,547 | |||||
KN Capital Trust I, | ||||||
Cap Security | 8.560% | 04-15-27 | B– | $1,670 | 1,699,365 | |
Southern Union Co., | ||||||
Jr Sub Note (7.200% to 11-1-11 | ||||||
then variable) | 7.200 | 11-01-66 | BB | 2,165 | 2,176,182 | |
Health Care Distributors 0.09% | 847,407 | |||||
Hospira, Inc., | ||||||
Sr Note | 6.050 | 03-30-17 | BBB | 850 | 847,407 | |
Health Care Services 0.16% | 1,493,400 | |||||
Alliance Imaging, Inc., | ||||||
Sr Sub Note (L) | 7.250 | 12-15-12 | B– | 1,520 | 1,493,400 | |
Industrial Machinery 0.15% | 1,457,356 | |||||
Trinity Industries, Inc., | ||||||
Pass Thru Ctf (S) | 7.755 | 02-15-09 | Baa2 | 1,439 | 1,457,356 | |
Integrated Oil & Gas 0.23% | 2,213,875 | |||||
Pemex Project Funding | ||||||
Master Trust, | ||||||
Gtd Note | 9.125 | 10-13-10 | BBB | 1,990 | 2,213,875 | |
Integrated Telecommunication Services 0.72% | 6,898,356 | |||||
Axtel SAB de CV, | ||||||
Sr Note (Mexico) (S) | 7.625 | 02-01-17 | BB– | 1,940 | 1,959,400 | |
Nextel Communications, Inc., | ||||||
Gtd Sr Note Ser E | 6.875 | 10-31-13 | BBB | 2,505 | 2,533,397 | |
Sprint Capital Corp., | ||||||
Gtd Sr Note | 6.875 | 11-15-28 | BBB+ | 2,465 | 2,405,559 | |
Investment Banking & Brokerage 1.52% | 14,612,257 | |||||
Goldman Sachs Group, Inc., (The), | ||||||
Sub Note (L) | 6.450 | 05-01-36 | A+ | 2,745 | 2,780,921 | |
Sub Note | 5.625 | 01-15-17 | A+ | 2,345 | 2,295,237 | |
Merrill Lynch & Co., Inc., | ||||||
Bond | 6.110 | 01-29-37 | A+ | 2,120 | 2,053,129 | |
Sub Note | 6.050 | 05-16-16 | A+ | 1,900 | 1,922,146 | |
Mizuho Finance, | ||||||
Gtd Sub Bond (Cayman Islands) | 8.375 | 12-29-49 | A2 | 2,750 | 2,880,075 | |
Morgan Stanley, | ||||||
Sr Note (S) | 10.090 | 05-03-17 | A+ | 4,940 | 2,680,749 | |
Leisure Facilities 0.18% | 1,772,488 | |||||
TDS Investor Corp., | ||||||
Sr Note (S) | 9.875 | 09-01-14 | B– | 1,645 | 1,772,488 | |
Life & Health Insurance 0.29% | 2,774,726 | |||||
Lincoln National Corp., | ||||||
Jr Sub Bond | 6.050 | 04-20-67 | A– | 940 | 913,298 | |
Provident Financing Trust I, | ||||||
Gtd Cap Security (L) | 7.405 | 03-15-38 | B+ | 1,855 | 1,861,428 |
See notes to financial statements
Bond Fund
14
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Marine 0.74% | $7,064,513 | |||||
CMA CGM SA, | ||||||
Sr Note (France) (S) | 7.250% | 02-01-13 | BB+ | $2,790 | 2,852,775 | |
Minerva Overseas Ltd., | ||||||
Gtd Note (Cayman Islands) (S) | 9.500 | 02-01-17 | B | 2,485 | 2,609,250 | |
Navios Maritime Holdings, Inc., | ||||||
Sr Note (Marshall Islands) (S) | 9.500 | 12-15-14 | B | 1,510 | 1,602,488 | |
Metal & Glass Containers 0.36% | 3,421,337 | |||||
BWAY Corp., | ||||||
Gtd Sr Sub Note | 10.000 | 10-15-10 | B– | 1,990 | 2,079,550 | |
Greif, Inc., | ||||||
Sr Note (S) | 6.750 | 02-01-17 | BB– | 725 | 732,250 | |
US Corrugated, Inc., | ||||||
Sr Sec Note | 10.000 | 06-01-13 | CCC+ | 605 | 609,537 | |
Movies & Entertainment 0.09% | 849,850 | |||||
Cinemark, Inc., | ||||||
Sr Disc Note | 9.750 | 03-15-14 | CCC+ | 920 | 849,850 | |
Multi-Line Insurance 1.93% | 18,538,689 | |||||
Allstate Corp. (The), | ||||||
Jr Sub Deb | 6.125 | 05-15-37 | A– | 1,275 | 1,251,086 | |
Axa SA, | ||||||
Perpetual Sub Note (6.379% to | ||||||
12-14-36 then variable) | ||||||
(France) (S) | 6.379 | 12-14-49 | BBB | 2,010 | 1,894,224 | |
Genworth Financial, Inc., | ||||||
Jr Sub Note (6.150% to 11-15-16 | ||||||
then variable) | 6.150 | 11-15-66 | BBB+ | 1,640 | 1,586,205 | |
Horace Mann Educators Corp., | ||||||
Sr Note | 6.850 | 04-15-16 | BBB | 1,550 | 1,581,761 | |
Liberty Mutual Group, | ||||||
Bond (S) | 7.500 | 08-15-36 | BBB | 3,235 | 3,392,978 | |
Gtd Jr Sub Bond (S) | 7.800 | 03-15-37 | BB+ | 2,635 | 2,561,924 | |
Sul America Participacoes SA, | ||||||
Bond (Brazil) (S) | 8.625 | 02-15-12 | B | 1,600 | 1,655,200 | |
Zurich Capital Trust I, | ||||||
Gtd Cap Security (S) | 8.376 | 06-01-37 | A– | 4,420 | 4,615,311 | |
Multi-Media 0.52% | 4,967,730 | |||||
News America Holdings, Inc., | ||||||
Gtd Sr Deb | 8.250 | 08-10-18 | BBB | 2,250 | 2,631,749 | |
Time Warner Entertainment | ||||||
Co., LP, | ||||||
Sr Deb | 8.375 | 03-15-23 | BBB+ | 1,990 | 2,335,981 | |
Multi-Utilities 0.73% | 7,005,938 | |||||
Dynegy-Roseton Danskamme, | ||||||
Gtd Pass Thru Ctf Ser B | 7.670 | 11-08-16 | B | 2,090 | 2,207,563 | |
Salton Sea Funding Corp., | ||||||
Gtd Sr Sec Note Ser E | 8.300 | 05-30-11 | BBB– | 970 | 1,019,160 | |
Sr Sec Note Ser C | 7.840 | 05-30-10 | BBB– | 1,766 | 1,805,262 | |
Sr Sec Bond Ser F | 7.475 | 11-30-18 | BBB– | 1,853 | 1,973,953 |
See notes to financial statements
Bond Fund
15
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Office Services & Supplies 0.23% | $2,245,627 | |||||
Xerox Corp., | ||||||
Sr Note (L) | 6.750% | 02-01-17 | BB+ | $2,170 | 2,245,627 | |
Oil & Gas Drilling 0.28% | 2,677,142 | |||||
Allis-Chalmers Energy Inc., | ||||||
Sr Note | 8.500 | 03-01-17 | B | 1,270 | 1,292,225 | |
Delek & Avner-Yam Tethys Ltd., | ||||||
Sr Sec Note (Israel) (S) | 5.326 | 08-01-13 | BBB– | 1,410 | 1,384,917 | |
Oil & Gas Refining & Marketing 0.52% | 4,981,882 | |||||
Enterprise Products Operating LP, | ||||||
Gtd Sr Note Ser B | 6.375 | 02-01-13 | BBB– | 1,300 | 1,334,017 | |
Premcor Refining Group, | ||||||
Inc., (The), | ||||||
Gtd Sr Note | 6.750 | 05-01-14 | BBB | 2,325 | 2,393,918 | |
Sr Note | 9.500 | 02-01-13 | BBB | 1,175 | 1,253,947 | |
Oil & Gas Storage & Transportation 0.82% | 7,908,273 | |||||
Energy Transfer Partners LP, | ||||||
Gtd Sr Note | 5.950 | 02-01-15 | Baa3 | 1,890 | 1,887,900 | |
Sr Note | 6.625 | 10-15-36 | Baa3 | 1,440 | 1,442,628 | |
Markwest Energy Partners LP, | ||||||
Sr Note Ser B | 8.500 | 07-15-16 | B | 1,890 | 1,989,225 | |
TEPPCO Partners LP, | ||||||
Gtd Jr Sub Note | 7.000 | 06-01-67 | BB | 2,640 | 2,588,520 | |
Packaged Foods & Meats 0.43% | 4,145,790 | |||||
ASG Consolidated LLC/ASG | ||||||
Finance, Inc., | ||||||
Sr Disc Note (Zero to 11-1-08, | ||||||
then 11.500%) (L)(O) | Zero | 11-01-11 | B– | 3,200 | 3,000,000 | |
General Foods Corp., | ||||||
Deb | 7.000 | 06-15-11 | A– | 1,145 | 1,145,790 | |
Paper Packaging 0.02% | 178,295 | |||||
MDP Acquisitions Plc, | ||||||
Sr Note (Ireland) | 9.625 | 10-01-12 | B– | 169 | 178,295 | |
Paper Products 0.50% | 4,812,056 | |||||
Plum Creek Timber Co., Inc., | ||||||
Gtd Note | 5.875 | 11-15-15 | BBB– | 1,740 | 1,690,956 | |
Stone Container Corp., | ||||||
Sr Note (S) | 8.000 | 03-15-17 | CCC+ | 920 | 926,900 | |
Verso Paper Holdings LLC, | ||||||
Sr Sec Note (S) | 9.125 | 08-01-14 | B+ | 2,070 | 2,194,200 | |
Property & Casualty Insurance 0.45% | 4,338,994 | |||||
Chubb Corp. (The), | ||||||
Jr Sub Note | 6.375 | 03-29-67 | BBB+ | 1,870 | 1,859,436 | |
Ohio Casualty Corp., | ||||||
Sr Note | 7.300 | 06-15-14 | BBB– | 2,330 | 2,479,558 |
See notes to financial statements
Bond Fund
16
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Real Estate Management & Development 0.76% | $7,246,329 | |||||
Health Care REIT, Inc., | ||||||
Sr Note | 6.200% | 06-01-16 | BBB– | $1,895 | 1,894,949 | |
Healthcare Realty Trust, Inc., | ||||||
Sr Note | 8.125 | 05-01-11 | BBB– | 1,715 | 1,848,074 | |
Nationwide Health | ||||||
Properties, Inc., | ||||||
Note | 6.500 | 07-15-11 | BBB– | 1,745 | 1,778,056 | |
Shimao Property Holding Ltd., | ||||||
Gtd Sr Note (Cayman Islands) (S) | 8.000 | 12-01-16 | BB+ | 1,675 | 1,725,250 | |
Regional Banks 1.12% | 10,689,806 | |||||
BankAmerica Institutional Bank, | ||||||
Gtd Cap Security Ser B (S) | 7.700 | 12-31-26 | A | 985 | 1,022,895 | |
Mainstreet Capital Trust I, | ||||||
Gtd Jr Sub Cap Security Ser B (G) | 8.900 | 12-01-27 | A3 | 2,380 | 2,512,392 | |
NB Capital Trust IV, | ||||||
Gtd Cap Security | 8.250 | 04-15-27 | A | 2,280 | 2,371,241 | |
State Street Institutional | ||||||
Capital Trust, | ||||||
Gtd Cap Security Ser A (S) | 7.940 | 12-30-26 | A | 1,180 | 1,230,097 | |
Sun Trust Banks, Inc., | ||||||
Bond (6.100% to 12-15-36 | ||||||
then variable) (L) | 6.100 | 12-01-66 | A– | 3,835 | 3,553,181 | |
Soft Drinks 0.14% | 1,377,737 | |||||
Panamerican Beverages, Inc., | ||||||
Sr Note (Panama) | 7.250 | 07-01-09 | BBB+ | 1,340 | 1,377,737 | |
Specialized Finance 1.93% | 18,517,472 | |||||
Astoria Depositor Corp., | ||||||
Pass Thru Ctf Ser B (G)(S) | 8.144 | 05-01-21 | BB | 3,740 | 4,039,200 | |
Bosphorous Financial Services, | ||||||
Sec Floating Rate Note (P)(S) | 7.160 | 02-15-12 | Baa2 | 2,660 | 2,686,861 | |
Drummond Co., Inc., | ||||||
Sr Note (L)(S) | 7.375 | 02-15-16 | BB– | 1,700 | 1,678,750 | |
ESI Tractebel Acquisition Corp., | ||||||
Gtd Sec Bond Ser B | 7.990 | 12-30-11 | BB | 3,561 | 3,617,730 | |
HRP Myrtle Beach Operations LLC, | ||||||
Sr Sec Note (10.120% to 4-1-09 | ||||||
then variable) (S) | 10.070 | 04-01-12 | B+ | 1,075 | 1,080,375 | |
UCAR Finance, Inc., | ||||||
Gtd Sr Note (L) | 10.250 | 02-15-12 | B– | 2,405 | 2,537,275 | |
USB Realty Corp., | ||||||
Perpetual Bond (6.091% to 1-15-12 | ||||||
then variable) (S) | 6.091 | 01-15-49 | A+ | 2,900 | 2,877,281 | |
Specialized REIT’s 0.07% | 673,563 | |||||
Idearc, Inc., | ||||||
Sr Note (S) | 8.000 | 11-15-16 | B+ | 650 | 673,563 |
See notes to financial statements
Bond Fund
17
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Specialty Chemicals 0.35% | $3,309,956 | |||||
American Pacific Corp., | ||||||
Sr Note (S) | 9.000% | 02-01-15 | B | $1,645 | 1,727,250 | |
NOVA Chemicals Ltd., | ||||||
Note (Canada) | 7.875 | 09-15-25 | B+ | 1,695 | 1,582,706 | |
Steel 0.53% | 5,058,263 | |||||
Metallurg Holdings, Inc., | ||||||
Sr Sec Note (G)(S) | 10.500 | 10-01-10 | B– | 2,460 | 2,576,850 | |
WCI Steel Acquisition, Inc., | ||||||
Sr Sec Note (G) | 8.000 | 05-01-16 | B+ | 2,415 | 2,481,413 | |
Thrifts & Mortgage Finance 24.14% | 231,386,410 | |||||
American Home Mortgage Assets, | ||||||
Mtg Pass Thru Ctf Ser 2006-6 | ||||||
Class XP IO (P) | 2.122 | 12-25-46 | AAA | 57,816 | 3,053,408 | |
American Tower Trust, | ||||||
Mtg Pass Thru Ctf Ser 2007-1A | ||||||
Class D (S) | 5.957 | 04-15-37 | BBB | 3,175 | 3,129,661 | |
Banc of America Commercial | ||||||
Mortgage, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2005-6 | ||||||
Class A4 (P) | 5.181 | 09-10-47 | AAA | 3,240 | 3,163,390 | |
Mtg Pass Thru Ctf Ser 2006-2 | ||||||
Class A3 (P) | 5.712 | 05-10-45 | AAA | 5,400 | 5,454,983 | |
Mtg Pass Thru Ctf Ser 2006-3 | ||||||
Class A4 | 5.889 | 07-10-44 | AAA | 5,260 | 5,343,042 | |
Mtg Pass Thru Ctf Ser 2006-5 | ||||||
Class A4 | 5.414 | 09-10-47 | AAA | 4,080 | 4,012,310 | |
Banc of America Funding Corp., | ||||||
Mtg Pass Thru Ctf Ser 2006-B | ||||||
Class 6A1 (P) | 5.881 | 03-20-36 | AAA | 3,991 | 3,994,315 | |
Mtg Pass Thru Ctf Ser 2006-D | ||||||
Class 6B1 (P) | 5.957 | 05-20-36 | AA+ | 2,117 | 2,112,996 | |
Bank of America Commercial | ||||||
Mortgage, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2006-4 | ||||||
Class A3A | 5.600 | 07-10-46 | AAA | 4,245 | 4,246,445 | |
Bear Stearns Alt-A Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-3 | ||||||
Class B2 (P) | 5.301 | 04-25-35 | AA+ | 1,260 | 1,247,682 | |
Mtg Pass Thru Ctf Ser 2006-1 | ||||||
Class 23A1 (P) | 5.620 | 02-25-36 | AAA | 4,143 | 4,117,929 | |
Bear Stearns Commercial Mortgage | ||||||
Securities, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2002-T0P8 | ||||||
Class A2 | 4.830 | 08-15-38 | AAA | 4,260 | 4,123,501 | |
Mtg Pass Thru Ctf Ser 2003-T10 | ||||||
Class A2 | 4.740 | 03-13-40 | AAA | 4,690 | 4,502,434 | |
Mtg Pass Thru Ctf Ser 2006-PW14 | ||||||
Class D | 5.412 | 12-01-38 | A | 2,480 | 2,366,169 | |
Chaseflex Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-2 | ||||||
Class 4A1 | 5.000 | 05-25-20 | AAA | 3,426 | 3,315,428 |
See notes to financial statements
Bond Fund
18
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Thrifts & Mortgage Finance (continued) | ||||||
Citigroup Commercial | ||||||
Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-C4 | ||||||
Class A3 (P) | 5.724% | 03-15-49 | Aaa | $3,350 | $3,382,015 | |
Citigroup Mortgage Loan | ||||||
Trust, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2005-5 | ||||||
Class 2A3 | 5.000 | 08-25-35 | AAA | 2,125 | 2,061,518 | |
Mtg Pass Thru Ctf Ser 2005-10 | ||||||
Class 1A5A (P) | 5.856 | 12-25-35 | AAA | 3,210 | 3,208,021 | |
Citigroup/Deutsche Bank | ||||||
Commercial Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-CD1 | ||||||
Class C (P) | 5.225 | 07-15-44 | AA | 1,030 | 993,891 | |
Commercial Mortgage, | ||||||
Mtg Pass Thru Ctf Ser 2006-C7 | ||||||
Class A3 (P) | 5.707 | 06-10-46 | AAA | 3,200 | 3,231,656 | |
ContiMortgage Home Equity | ||||||
Loan Trust, | ||||||
Pass Thru Ctf Ser 1995-2 | ||||||
Class A-5 | 8.100 | 08-15-25 | AAA | 427 | 426,312 | |
Countrywide Alternative | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-0A3 | ||||||
Class X IO (P) | 2.305 | 05-25-36 | AAA | 19,264 | 818,734 | |
Mtg Pass Thru Ctf Ser 2006-11CB | ||||||
Class 3A1 | 6.500 | 05-25-36 | Aaa | 4,579 | 4,612,777 | |
Crown Castle Towers LLC, | ||||||
Mtg Pass Thru Ctf Ser 2006-1A | ||||||
Class E (S) | 6.065 | 11-15-36 | Baa3 | 2,900 | 2,859,312 | |
Mtg Pass Thru Ctf Ser 2006-1A | ||||||
Class F (S) | 6.650 | 11-15-36 | Ba1 | 5,065 | 5,017,339 | |
CS First Boston Mortgage | ||||||
Securities Corp., | ||||||
Mtg Pass Thru Ctf Ser 2003-CPN1 | ||||||
Class A2 | 4.597 | 03-15-35 | AAA | 6,665 | 6,366,469 | |
DB Master Finance LLC, | ||||||
Mtg Pass Thru Ctf Ser 2006-1 | ||||||
Class A2 (S) | 5.779 | 06-20-31 | AAA | 3,840 | 3,859,377 | |
Mtg Pass Thru Ctf | ||||||
Ser 2006-1-M1 (S) | 8.285 | 06-20-31 | BB | 1,065 | 1,078,438 | |
Domino’s Pizza Master Issuer LLC, | ||||||
Mtg Pass Thru Ctf Ser 2007-1 | ||||||
Class M1 (S) | 7.629 | 04-25-37 | BB | 3,215 | 3,169,663 | |
First Horizon Alternative | ||||||
Mortgage Securities, | ||||||
Mtg Pass Thru Ctf Ser 2004-AA5 | ||||||
Class B1 (P) | 5.224 | 12-25-34 | AA | 1,381 | 1,369,226 | |
Mtg Pass Thru Ctf Ser 2006-AA2 | ||||||
Class B1 (G)(P) | 6.197 | 05-25-36 | AA | 1,328 | 1,333,216 |
See notes to financial statements
Bond Fund
19
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Thrifts & Mortgage Finance (continued) | ||||||
Global Signal Trust, | ||||||
Sub Bond Ser 2004-2A Class D (S) | 5.093% | 12-15-14 | Baa2 | $1,425 | $1,393,211 | |
Sub Bond Ser 2006-1 Class E (S) | 6.495 | 02-15-36 | Baa3 | 1,850 | 1,856,056 | |
Global Tower Partners Acquisition | ||||||
Partners LLC, | ||||||
Mtg Pass Thru Ctf Ser 2007-1A | ||||||
Class F (S) | 7.050 | 05-15-37 | Ba2 | 780 | 773,690 | |
GMAC Commercial Mortgage | ||||||
Securities, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2002-C1 | ||||||
Class A1 | 5.785 | 11-15-39 | AAA | 3,065 | 3,072,746 | |
Mtg Pass Thru Ctf Ser 2003-C2 | ||||||
Class B (P) | 5.300 | 05-10-40 | AAA | 6,210 | 6,196,436 | |
GMAC Mortgage Corporation | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-AR1 | ||||||
Class 2A1 (P) | 5.648 | 04-19-36 | AAA | 2,758 | 2,747,528 | |
Greenwich Capital Commercial | ||||||
Funding Corp., | ||||||
Mtg Pass Thru Ctf Ser 2006-GG7 | ||||||
Class A4 (P) | 5.915 | 07-10-38 | AAA | 5,030 | 5,147,292 | |
Mtg Pass Thru Ctf Ser 2007-GG9 | ||||||
Class C | 5.554 | 03-10-39 | AA | 1,810 | 1,763,650 | |
Mtg Pass Thru Ctf Ser 2007-GG9 | ||||||
Class F | 5.633 | 03-10-39 | A | 995 | 961,256 | |
GS Mortgage Securities Corp. II, | ||||||
Mtg Pass Thru Ctf Ser 2006-GG8 | ||||||
Class A2 | 5.479 | 11-10-39 | Aaa | 6,025 | 6,013,506 | |
GSR Mortgage Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2004-9 | ||||||
Class B1 (G)(P) | 4.667 | 08-25-34 | AA | 2,525 | 2,488,279 | |
Mtg Pass Thru Ctf Ser 2006-AR1 | ||||||
Class 3A1 (P) | 5.394 | 01-25-36 | AAA | 5,893 | 5,824,343 | |
Indymac Index Mortgage | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2004-AR13 | ||||||
Class B1 | 5.296 | 01-25-35 | AA | 1,498 | 1,493,269 | |
Mtg Pass Thru Ctf Ser 2005-AR5 | ||||||
Class B1 (P) | 5.381 | 05-25-35 | AA | 1,954 | 1,944,591 | |
Mtg Pass Thru Ctf Ser 2005-AR18 | ||||||
Class 1X IO | 1.919 | 10-25-36 | AAA | 72,877 | 2,095,216 | |
Mtg Pass Thru Ctf Ser 2006-AR19 | ||||||
Class 1B1 (P) | 6.420 | 08-25-36 | AA | 1,783 | 1,805,772 | |
JPMorgan Chase Commercial | ||||||
Mortgage Security Corp., | ||||||
Mtg Pass Thru Ctf Ser 2005-LDP3 | ||||||
Class A4B | 4.996 | 08-15-42 | AAA | 2,865 | 2,739,969 | |
Mtg Pass Thru Ctf Ser 2005-LDP4 | ||||||
Class B | 5.129 | 10-15-42 | Aa2 | 1,646 | 1,570,952 | |
Mtg Pass Thru Ctf Ser 2006-LDP7 | ||||||
Class A4 (P) | 5.875 | 04-15-45 | AAA | 3,345 | 3,412,080 |
See notes to financial statements
Bond Fund
20
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Thrifts & Mortgage Finance | (continued) | |||||
JPMorgan Commercial Mortgage | ||||||
Finance Corp., | ||||||
Mtg Pass Thru Ctf Ser 1997-C5 | ||||||
Class D | 7.351% | 09-15-29 | AA+ | $4,435 | $4,521,809 | |
JPMorgan Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-S2 | ||||||
Class 2A16 | 6.500 | 09-25-35 | AAA | 2,761 | 2,812,221 | |
Mtg Pass Thru Ctf Ser 2005-S3 | ||||||
Class 2A2 | 5.500 | 01-25-21 | AAA | 3,997 | 3,940,348 | |
Mtg Pass Thru Ctf Ser 2006-A7 | ||||||
Class 2A5 (P) | 5.849 | 01-25-37 | Aa1 | 5,465 | 5,473,651 | |
LB-UBS Commercial Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-C4 | ||||||
Class A4 (P) | 5.899 | 06-15-38 | AAA | 3,950 | 4,036,464 | |
Master Adjustable Rate | ||||||
Mortgages Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-2 | ||||||
Class 4A1 (P) | 4.991 | 02-25-36 | AAA | 4,621 | 4,549,832 | |
Merrill Lynch/Countrywide | ||||||
Commercial Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-2 | ||||||
Class A4 (P) | 5.910 | 06-12-46 | AAA | 4,535 | 4,632,298 | |
Mtg Pass Thru Ctf Ser 2006-3 | ||||||
Class A4 | 5.414 | 07-12-46 | Aaa | 3,880 | 3,807,316 | |
Morgan Stanley Capital I, | ||||||
Mtg Pass Thru Ctf Ser 2005-HQ7 | ||||||
Class A4 (P) | 5.203 | 11-14-42 | AAA | 3,065 | 2,991,461 | |
Mtg Pass Thru Ctf Ser 2005-IQ10 | ||||||
Class A4A (L) | 5.230 | 09-15-42 | AAA | 4,520 | 4,400,955 | |
Mtg Pass Thru Ctf Ser 2006-IQ12 | ||||||
Class E | 5.538 | 12-15-43 | A+ | 2,430 | 2,347,345 | |
Mtg Pass Thru Ctf Ser 2006-T23 | ||||||
Class A4 (P) | 5.810 | 08-12-41 | AAA | 3,085 | 3,140,919 | |
Nomura Asset Acceptance Corp., | ||||||
Mtg Pass Thru Ctf Ser 2006-AF1 | ||||||
Class CB1 | 6.540 | 06-25-36 | AA | 1,609 | 1,632,780 | |
Provident Funding Mortgage | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-1 | ||||||
Class B1 (P) | 4.353 | 05-25-35 | AA | 1,609 | 1,580,307 | |
Renaissance Home Equity | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-2 | ||||||
Class AF3 | 4.499 | 08-25-35 | AAA | 2,080 | 2,057,503 | |
Mtg Pass Thru Ctf Ser 2005-2 | ||||||
Class AF4 | 4.934 | 08-25-35 | AAA | 2,365 | 2,311,155 | |
Residential Accredit Loans, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2005-QA12 | ||||||
Class NB5 (P) | 5.992 | 12-25-35 | AAA | 2,726 | 2,725,501 |
See notes to financial statements
Bond Fund
21
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Thrifts & Mortgage Finance (continued) | ||||||
Residential Asset | ||||||
Securitization Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-A7CB | ||||||
Class 2A1 | 6.500% | 07-25-36 | AAA | $4,596 | $4,633,889 | |
SBA CMBS Trust, | ||||||
Sub Bond Ser 2005-1A Class D (S) | 6.219 | 11-15-35 | Baa2 | 850 | 852,303 | |
Sub Bond Ser 2005-1A Class E (S) | 6.706 | 11-15-35 | Baa3 | 795 | 795,115 | |
Sub Bond Ser 2006-1A Class H (S) | 7.389 | 11-15-36 | Ba3 | 1,373 | 1,363,346 | |
Sub Bond Ser 2006-1A Class J(S) | 7.825 | 11-15-36 | B1 | 850 | 844,076 | |
WAMU Mortgage Pass-Through | ||||||
Certificates, | ||||||
Mtg Pass Thru Ctf Ser 2007-0A5 | ||||||
Class 1XPP IO | 0.626 | 06-25-47 | Aaa | 180,585 | 2,708,775 | |
Washington Mutual Alternative | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-6 | ||||||
Class 1CB | 6.500 | 08-25-35 | AAA | 1,874 | 1,887,658 | |
Washington Mutual, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2007-1 | ||||||
Class B1 | 6.205 | 02-25-37 | AA | 2,167 | 2,142,799 | |
Wells Fargo Mortgage Backed | ||||||
Securities Trust, | ||||||
Mtg Pass Thru Ctf Ser 2004-7 | ||||||
Class 2A2 (P) | 5.000 | 07-25-19 | AAA | 2,338 | 2,269,502 | |
Mtg Pass Thru Ctf Ser 2006-AR15 | ||||||
Class A3 (P) | 5.666 | 10-25-36 | AAA | 5,674 | 5,655,583 | |
Tobacco 0.26% | 2,480,479 | |||||
Alliance One International, Inc., | ||||||
Gtd Sr Note (S) | 8.500 | 05-15-12 | B | 890 | 916,700 | |
Reynolds American, Inc., | ||||||
Sr Sec Note | 7.250 | 06-01-13 | BB | 1,490 | 1,563,779 | |
Wireless Telecommunication Services 1.35% | 12,985,754 | |||||
America Movil SA de CV, | ||||||
Sr Note (Mexico) (L) | 5.750 | 01-15-15 | BBB+ | 1,660 | 1,657,658 | |
AT&T Wireless Services , Inc., | ||||||
Sr Note | 8.125 | 05-01-12 | A | 1,430 | 1,584,906 | |
Citizens Communications Co., | ||||||
Sr Note | 6.250 | 01-15-13 | BB+ | 1,805 | 1,786,950 | |
Crown Castle Towers LLC, | ||||||
Sub Bond Ser 2005-1A Class D | 5.612 | 06-15-35 | Baa2 | 3,455 | 3,419,553 | |
Digicel Group Ltd., | ||||||
Sr Note (Bermuda) (S) | 8.875 | 01-15-15 | Caa2 | 1,905 | 1,888,331 | |
Nextel Partners, Inc., | ||||||
Gtd Sr Sub Note | 8.125 | 07-01-11 | BBB | 2,540 | 2,648,356 |
See notes to financial statements
Bond Fund
22
F I N A N C I A L S T A T E M E N T S
Credit | |||
Issuer, description | rating (A) | Shares | Value |
Preferred stocks 0.68% | $6,471,701 | ||
(Cost $5,901,530) | |||
Agricultural Products 0.16% | 1,508,063 | ||
Ocean Spray Cranberries, Inc., | |||
6.25%, Ser A (S) | BB+ | 18,000 | 1,508,063 |
Diversified Metals & Mining 0.31% | 2,935,398 | ||
Freeport-McMoRan Copper & Gold, | |||
Inc., 6.75% | B+ | 23,900 | 2,935,398 |
Integrated Telecommunication Services 0.21% | 2,028,240 | ||
Telephone & Data Systems, | |||
Inc., 7.60% | BB+ | 81,000 | 2,028,240 |
Credit | Par value | ||
Issuer, description, maturity date | rating (A) | (000) | Value |
Tranche loans 0.20% | $1,939,350 | ||
(Cost $1,936,357) | |||
Diversified Metals & Mining 0.14% | 1,337,868 | ||
Thompson Creek Metals Co., | |||
Tranche A (First Lien Note), 11-1-12 (B) | B– | $1,338 | 1,337,868 |
Education Services 0.06% | 601,482 | ||
Riverdeep Interactive | |||
Learning Ltd., | |||
Tranche B, 11-28-13 | B | 598 | 601,482 |
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
U.S. government and agencies securities 39.36% | $377,239,512 | |||||
(Cost $381,928,820) | ||||||
Government U.S. 4.52% | 43,313,661 | |||||
United States Treasury, | ||||||
Bond (L) | 8.750% | 08-15-20 | AAA | $8,085 | 10,931,171 | |
Bond (L) | 4.750 | 02-15-37 | AAA | 7,540 | 7,233,099 | |
Bond (L) | 4.500 | 02-15-36 | AAA | 1,075 | 989,588 | |
Inflation Indexed Note (L) | 1.875 | 07-15-13 | AAA | 9,015 | 8,704,853 | |
Note (L) | 4.750 | 05-15-14 | AAA | 10,335 | 10,259,100 | |
Note (L) | 4.500 | 05-15-17 | AAA | 5,360 | 5,195,850 | |
Government U.S. Agency 34.84% | 333,925,851 | |||||
Federal Home Loan Mortgage Corp., | ||||||
20 Yr Pass Thru Ctf | 11.250 | 01-01-16 | AAA | 44 | 45,520 | |
30 Yr Adj Rate Pass Thru Ctf (P) | 5.625 | 04-01-37 | AAA | 6,135 | 6,152,178 | |
30 Yr Adj Rate Pass Thru Ctf (P) | 5.278 | 12-01-35 | AAA | 8,413 | 8,302,790 | |
30 Yr Adj Rate Pass Thru Ctf (P) | 5.158 | 11-01-35 | AAA | 8,928 | 8,774,274 | |
30 Yr Pass Thru Ctf | 5.000 | 07-01-35 | AAA | 9,409 | 8,968,827 | |
30 Yr Pass Thru Ctf | 5.000 | 09-01-35 | AAA | 1,133 | 1,079,815 | |
CMO REMIC 2489-PE | 6.000 | 08-15-32 | AAA | 2,785 | 2,795,648 | |
CMO REMIC 2640-WA | 3.500 | 03-15-33 | AAA | 1,155 | 1,106,575 | |
CMO REMIC 3174-CB | 5.500 | 02-15-31 | AAA | 4,695 | 4,683,709 | |
CMO REMIC 3184-PD | 5.500 | 07-15-34 | AAA | 10,145 | 9,897,429 | |
CMO REMIC 3228-PJ | 5.500 | 03-15-29 | AAA | 6,555 | 6,513,798 |
See notes to financial statements
Bond Fund
23
F I N A N C I A L S T A T E M E N T S
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
Government U.S. Agency (continued) | ||||||
Federal Home Loan Mortgage Corp., | ||||||
CMO REMIC 3245-MC | 5.500% | 10-15-30 | AAA | $4,285 | $4,263,945 | |
CMO REMIC 3280-MB | 5.500 | 06-15-30 | AAA | 6,420 | 6,368,141 | |
CMO REMIC 3290-PB | 5.500 | 08-15-29 | AAA | 2,760 | 2,737,572 | |
CMO REMIC 3294-NB | 5.500 | 12-15-29 | AAA | 5,310 | 5,264,273 | |
CMO REMIC 3306-PB | 5.500 | 09-15-29 | AAA | 2,565 | 2,545,350 | |
CMO REMIC 3320-PB | 5.500 | 11-15-31 | AAA | 3,991 | 3,947,348 | |
CMO REMIC 3320-TB | 5.500 | 06-15-30 | AAA | 5,680 | 5,628,969 | |
CMO REMIC 3322-NC | 5.500 | 08-15-30 | AAA | 3,030 | 3,006,595 | |
Note | 5.500 | 03-22-22 | AAA | 9,045 | 8,888,196 | |
Federal National Mortgage Assn., | ||||||
15 Yr Pass Thru Ctf | 9.000 | 06-01-10 | AAA | 331 | 355,955 | |
15 Yr Pass Thru Ctf | 7.500 | 02-01-08 | AAA | 13 | 13,379 | |
15 Yr Pass Thru Ctf | 7.000 | 09-01-10 | AAA | 92 | 94,033 | |
15 Yr Pass Thru Ctf | 7.000 | 04-01-17 | AAA | 510 | 526,553 | |
15 Yr Pass Thru Ctf | 7.000 | 06-01-17 | AAA | 126 | 129,595 | |
15 Yr Pass Thru Ctf | 5.500 | 11-01-20 | AAA | 1,324 | 1,314,922 | |
15 Yr Pass Thru Ctf | 5.500 | 12-01-20 | AAA | 9,860 | 9,789,181 | |
15 Yr Pass Thru Ctf | 5.000 | 08-01-19 | AAA | 8,467 | 8,254,633 | |
30 Yr Adj Rate Pass Thru Ctf (P) | 5.499 | 03-01-37 | AAA | 7,698 | 7,673,723 | |
30 Yr Pass Thru Ctf | 6.500 | 07-01-36 | AAA | 6,267 | 6,365,468 | |
30 Yr Pass Thru Ctf | 6.000 | 10-01-35 | AAA | 1 | 1,409 | |
30 Yr Pass Thru Ctf | 6.000 | 04-01-36 | AAA | 3,137 | 3,134,987 | |
30 Yr Pass Thru Ctf | 6.000 | 05-01-36 | AAA | 2,440 | 2,437,968 | |
30 Yr Pass Thru Ctf | 6.000 | 08-01-36 | AAA | 33,825 | 33,799,828 | |
30 Yr Pass Thru Ctf | 6.000 | 09-01-36 | AAA | 10,616 | 10,608,147 | |
30 Yr Pass Thru Ctf | 5.500 | 05-01-35 | AAA | 28,642 | 28,044,765 | |
30 Yr Pass Thru Ctf | 5.500 | 01-01-36 | AAA | 13,131 | 12,836,034 | |
30 Yr Pass Thru Ctf | 5.500 | 02-01-36 | AAA | 15,170 | 14,833,268 | |
30 Yr Pass Thru Ctf | 5.500 | 03-01-37 | AAA | 19,895 | 19,424,858 | |
30 Yr Pass Thru Ctf | 5.500 | 04-01-37 | AAA | 29,892 | 29,186,130 | |
30 Yr Pass Thru Ctf | 5.500 | 05-01-37 | AAA | 15,035 | 14,679,863 | |
30 Yr Pass Thru Ctf | 5.000 | 11-01-33 | AAA | 5,111 | 4,878,205 | |
30 Yr Pass Thru Ctf | 5.000 | 08-01-35 | AAA | 2,310 | 2,202,137 | |
CMO REMIC 2003-33-AC | 4.250 | 03-25-33 | AAA | 916 | 875,307 | |
CMO REMIC 2003-49-JE | 3.000 | 04-25-33 | AAA | 2,556 | 2,287,044 | |
CMO REMIC 2003-58-AD | 3.250 | 07-25-33 | AAA | 2,530 | 2,311,508 | |
CMO REMIC 2003-63-PE | 3.500 | 07-25-33 | AAA | 2,117 | 1,917,842 | |
CMO REMIC 2006-64-PC | 5.500 | 10-25-34 | AAA | 4,520 | 4,408,211 | |
CMO REMIC 2006-67-PD | 5.500 | 12-25-34 | AAA | 4,875 | 4,750,957 | |
Financing Corp., | ||||||
Bond | 10.350 | 08-03-18 | Aaa | 3,545 | 5,041,096 | |
Government National | ||||||
Mortgage Assn., | ||||||
30 Yr Pass Thru Ctf | 10.500 | 01-15-16 | AAA | 23 | 25,350 | |
30 Yr Pass Thru Ctf | 10.000 | 06-15-20 | AAA | 27 | 30,362 | |
30 Yr Pass Thru Ctf | 10.000 | 11-15-20 | AAA | 11 | 12,350 | |
30 Yr Pass Thru Ctf | 9.500 | 03-15-20 | AAA | 36 | 39,226 | |
30 Yr Pass Thru Ctf | 9.500 | 06-15-20 | AAA | 6 | 6,718 | |
30 Yr Pass Thru Ctf | 9.500 | 01-15-21 | AAA | 43 | 46,513 | |
30 Yr Pass Thru Ctf | 9.500 | 05-15-21 | AAA | 20 | 22,277 | |
30 Yr Pass Thru Ctf Ser 2003-42 | ||||||
Class XA | 3.750 | 05-16-33 | AAA | 638 | 595,097 |
See notes to financial statements
Bond Fund
24
F I N A N C I A L S T A T E M E N T S
Interest | Par value | ||
Issuer, description, maturity date | rate | (000) | Value |
Short-term investments 9.19% | $88,096,545 | ||
(Cost $88,096,545) | |||
Joint Repurchase Agreement 1.93% | 18,535,000 | ||
Investment in a joint repurchase agreement transaction with | |||
Cantor Fitzgerald LP — Dated 5-31-07, due 6-1-07 (Secured by | |||
U.S. Treasury Inflation Indexed Notes 2.000%, due 1-15-14, | |||
valued at $18,900,000, including interest, and 3.500%, | |||
due 1-15-11 valued at $6,000, including interest). | |||
Maturity value: $18,537,621 | 5.090% | $18,535 | 18,535,000 |
Shares | |||
Cash Equivalents 7.26% | 69,561,545 | ||
John Hancock Cash Investment Trust (T)(W) | 69,561,545 | 69,561,545 | |
Total investments (Cost $1,020,501,488) 106.41% | $1,019,848,082 | ||
Other assets and liabilities, net (6.41%) | ($61,461,286) | ||
Total net assets 100.00% | $958,386,796 |
IO Interest only (carries notional principal amount).
(A) Credit ratings are unaudited and are rated by Moody’s Investors Service where Standard & Poor’s ratings are not available unless indicated otherwise.
(B) This security is fair valued in good faith under procedures established by the Board of Trustees. This security amounted to $1,337,868 or 0.14% of the Fund’s net assets as of May 31, 2007.
(D) Par value of foreign bonds is expressed in local currency, as shown parenthetically in security description. (G) Security rated internally by John Hancock Advisers, LLC.
(L) All or a portion of this security is on loan as of May 31, 2007.
(M) This security having an aggregate value of $1,102,100, or 0.11% of the Fund’s net assets, has been purchased as a forward commitment — that is, the Fund has agreed on trade date to take delivery of and to make payment for this security on a delayed basis subsequent to the date of this schedule. The purchase price and interest rate of this security is fixed at trade date, although the Fund does not earn any interest on this until settlement date. The fund has segregated assets with a current value at least equal to the amount of the forward commitment. Accordingly, the market value of $1,109,174 of Federal National Mortgage Association, 6.000%, 8-1-36 has been segregated to cover the forward commitment.
(O) Cash interest will be paid on this obligation at the stated rate beginning on the stated date. (P) Represents rate in effect on May 31, 2007.
(S) 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. Rule 144A securities amounted to $146,580,437 or 15.29% of the Fund’s net assets as of May 31, 2007.
(T) Represents investment of securities lending collateral.
(W) Issuer is an affiliate of John Hancock Advisers, LLC.
Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer.
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
Bond Fund
25
Financial statements
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities 5-31-07
This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value
of what the Fund owns, is due and owes. You’ll also find the net asset value and the
maximum offering price per share.
Assets | |
Investments in unaffiliated issuers, at value (cost $950,939,943) | |
including $68,013,693 of securities loaned (Note 1) | $950,286,537 |
Investments in affiliated issuers, at value (cost $69,561,545) | 69,561,545 |
Total investments, at value ($1,020,501,488) | 1,019,848,082 |
Cash | 827,553 |
Cash segregated at broker for future contracts (Note 1) | 74,750 |
Receivable for investments sold | 3,677,517 |
Receivable for shares sold | 311,724 |
Dividends and interest receivable | 9,591,401 |
Unrealized appreciation of swap contracts (Note 1) | 48,825 |
Other assets | 140,009 |
Total assets | 1,034,519,861 |
Liabilities | |
Payable for investments purchased | 4,097,036 |
Payable for shares repurchased | 1,255,579 |
Payable upon return of securities loaned (Note 1) | 69,561,545 |
Dividends payable | 126,036 |
Unrealized depreciation of swap contracts (Note 1) | 29,418 |
Payable for futures variation margin (Note 1) | 12,579 |
Payable to affiliates | |
Management fees | 435,827 |
Distribution and service fees | 56,476 |
Other | 190,027 |
Other payables and accrued expenses | 368,542 |
Total liabilities | 76,133,065 |
Net assets | |
Capital paid-in | 993,812,770 |
Accumulated net realized loss on investments, financial futures contracts, | |
foreign currency transactions and swap contracts | (34,538,560) |
Net unrealized appreciation of investments, financial futures contracts, | |
translation of assets and liabilities in foreign currencies, and swap contracts | (661,944) |
Distributions in excess of net investment income | (225,470) |
Net assets | $958,386,796 |
See notes to financial statements
Bond Fund
26
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
Net asset value per share | |
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($870,352,037 ÷ 59,021,764 shares) | $14.75 |
Class B ($58,929,251 ÷ 3,996,507 shares)1 | $14.75 |
Class C ($23,190,529 ÷ 1,572,647 shares)1 | $14.75 |
Class I ($4,927,250 ÷ 334,167 shares) | $14.74 |
Class R1 ($987,729 ÷ 66,989 shares) | $14.74 |
Maximum offering price per share | |
Class A2 ($14.75 ÷ 95.5%) | $15.45 |
1 Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
2 On single retail sales of less than $100,000. On sales of $100,000 or more and on group sales the offering price is reduced.
See notes to financial statements
Bond Fund
27
F I N A N C I A L S T A T E M E N T S
Statement of operations For the year ended 5-31-07
This 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.
Investment income | |
Interest | $60,336,349 |
Dividends | 431,963 |
Securities lending | 117,635 |
Total investment income | 60,885,947 |
Expenses | |
Investment management fees (Note 2) | 4,947,818 |
Distribution and service fees (Note 2) | 3,632,642 |
Class A, B and C transfer agent fees (Note 2) | 1,772,267 |
Class I transfer agent fees (Note 2) | 2,070 |
Class R1 transfer agent fees (Note 2) | 5,081 |
Accounting and legal services fees (Note 2) | 130,230 |
Compliance fees | 26,449 |
Custodian fees | 187,544 |
Printing fees | 123,481 |
Blue sky fees | 71,244 |
Professional fees | 67,280 |
Trustees’ fees | 42,762 |
Interest | 10,289 |
Securities lending fees | 3,909 |
Miscellaneous | 47,501 |
Total expenses | 11,070,567 |
Less expense reductions (Note 2) | (13,664) |
Net expenses | 11,056,903 |
Net investment income | 49,829,044 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments | (9,736,263) |
Financial futures contracts | 585,384 |
Foreign currency transactions | 60 |
Swap contracts | 9,229 |
Change in net unrealized appreciation (depreciation) of | |
Investments | 26,434,328 |
Financial futures contracts | (21,514) |
Swap contracts | 19,407 |
Translation of assets and liabilities in foreign currencies | 5,985 |
Net realized and unrealized gain | 17,296,616 |
Increase in net assets from operations | $67,125,660 |
See notes to financial statements
Bond Fund
28
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
These Statements of Changes in Net Assets show how the value of the Fund’s net assets
has changed during the last two periods. The difference reflects earnings less expenses,
any investment gains and losses, distributions, if any, paid to shareholders and the net of
Fund share transactions.
Year | Year | |
ended | ended | |
5-31-06 | 5-31-07 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $49,345,936 | $49,829,044 |
Net realized loss | (4,753,353) | (9,141,590) |
Change in net unrealized appreciation (depreciation) | (49,716,305) | 26,438,206 |
Increase (decrease) in net assets resulting from operations | (5,123,722) | 67,125,660 |
Distributions to shareholders | ||
From net investment income | ||
Class A | (46,118,272) | (46,252,186) |
Class B | (4,473,822) | (3,284,636) |
Class C | (1,070,734) | (1,055,766) |
Class I | (306,121) | (233,064) |
Class R1 | (18,727) | (37,809) |
From capital paid-in | ||
Class A | (482,923) | — |
Class B | (46,686) | — |
Class C | (12,857) | — |
Class I | (2,928) | — |
Class R1 | (409) | — |
(52,533,479) | (50,863,461) | |
From Fund share transactions | (100,388,082) | (74,275,644) |
Total increase (decrease) | (158,045,283) | (58,013,445) |
Net assets | ||
Beginning of year | 1,174,445,524 | 1,016,400,241 |
End of year1 | $1,016,400,241 | $958,386,796 |
1 Includes distributions in excess of net investment of $246,847 and $225,470, respectively.
See notes to financial statements
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29
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed
since the end of the previous period.
CLASS A SHARES | |||||
Period ended | 5-31-03 | 5-31-04 | 5-31-05 | 5-31-06 | 5-31-07 |
Per share operating performance | |||||
Net asset value, beginning of period | $14.71 | $15.69 | $14.98 | $15.30 | $14.51 |
Net investment income1 | 0.72 | 0.70 | 0.67 | 0.68 | 0.75 |
Net realized and unrealized | |||||
gain (loss) on investments | 1.02 | (0.65) | 0.38 | (0.74) | 0.26 |
Total from investment operations | 1.74 | 0.05 | 1.05 | (0.06) | 1.01 |
Less distributions | |||||
From net investment income | (0.76) | (0.76) | (0.73) | (0.72) | (0.77) |
From capital paid-in | — | — | — | (0.01) | — |
(0.76) | (0.76) | (0.73) | (0.73) | (0.77) | |
Net asset value, end of period | $15.69 | $14.98 | $15.30 | $14.51 | $14.75 |
Total return2 (%) | 12.26 | 0.31 | 7.113 | (0.45)3 | 7.08 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $1,192 | $1,047 | $1,012 | $899 | $870 |
Ratio of net expenses to average | |||||
net assets (%) | 1.12 | 1.09 | 1.05 | 1.07 | 1.05 |
Ratio of gross expenses to average | |||||
net assets (%) | 1.12 | 1.09 | 1.064 | 1.084 | 1.05 |
Ratio of net investment income | |||||
to average net assets (%) | 4.84 | 4.55 | 4.41 | 4.56 | 5.11 |
Portfolio turnover (%) | 273 | 241 | 139 | 135 | 1069 |
See notes to financial statements
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30
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | |||||
Period ended | 5-31-03 | 5-31-04 | 5-31-05 | 5-31-06 | 5-31-07 |
Per share operating performance | |||||
Net asset value, beginning of period | $14.71 | $15.69 | $14.98 | $15.30 | $14.51 |
Net investment income1 | 0.62 | 0.59 | 0.57 | 0.58 | 0.65 |
Net realized and unrealized | |||||
gain (loss) on investments | 1.02 | (0.65) | 0.37 | (0.74) | 0.26 |
Total from investment operations | 1.64 | (0.06) | 0.94 | (0.16) | 0.91 |
Less distributions | |||||
From net investment income | (0.66) | (0.65) | (0.62) | (0.62) | (0.67) |
From capital paid-in | — | — | — | (0.01) | — |
(0.66) | (0.65) | (0.62) | (0.63) | (0.67) | |
Net asset value, end of period | $15.69 | $14.98 | $15.30 | $14.51 | $14.75 |
Total return2 (%) | 11.48 | (0.39) | 6.373 | (1.14)3 | 6.33 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $233 | $164 | $128 | $87 | $59 |
Ratio of net expenses to average | |||||
net assets (%) | 1.82 | 1.79 | 1.75 | 1.77 | 1.75 |
Ratio of gross expenses to average | |||||
net assets (%) | 1.82 | 1.79 | 1.764 | 1.784 | 1.75 |
Ratio of net investment income | |||||
to average net assets (%) | 4.15 | 3.84 | 3.70 | 3.84 | 4.40 |
Portfolio turnover (%) | 273 | 241 | 139 | 135 | 1069 |
See notes to financial statements
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31
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |||||
Period ended | 5-31-03 | 5-31-04 | 5-31-05 | 5-31-06 | 5-31-07 |
Per share operating performance | |||||
Net asset value, beginning of period | $14.71 | $15.69 | $14.98 | $15.30 | $14.51 |
Net investment income1 | 0.62 | 0.59 | 0.57 | 0.58 | 0.65 |
Net realized and unrealized | |||||
gain (loss) on investments | 1.02 | (0.64) | 0.37 | (0.74) | 0.26 |
Total from investment operations | 1.64 | (0.05) | 0.94 | (0.16) | 0.91 |
Less distributions | |||||
From net investment income | (0.66) | (0.66) | (0.62) | (0.62) | (0.67) |
From capital paid-in | — | — | — | (0.01) | — |
(0.66) | (0.66) | (0.62) | (0.63) | (0.67) | |
Net asset value, end of period | $15.69 | $14.98 | $15.30 | $14.51 | $14.75 |
Total return2 (%) | 11.48 | (0.39) | 6.373 | (1.14)4 | 6.33 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $45 | $32 | $28 | $24 | $23 |
Ratio of net expenses to average | |||||
net assets (%) | 1.82 | 1.79 | 1.75 | 1.77 | 1.75 |
Ratio of gross expenses to average | |||||
net assets (%) | 1.82 | 1.79 | 1.764 | 1.784 | 1.75 |
Ratio of net investment income | |||||
to average net assets (%) | 4.15 | 3.84 | 3.71 | 3.86 | 4.41 |
Portfolio turnover (%) | 273 | 241 | 139 | 135 | 1069 |
See notes to financial statements
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32
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |||||
Period ended | 5-31-03 | 5-31-04 | 5-31-05 | 5-31-06 | 5-31-07 |
Per share operating performance | |||||
Net asset value, beginning of period | $14.71 | $15.69 | $14.98 | $15.30 | $14.51 |
Net investment income1 | 0.78 | 0.76 | 0.73 | 0.75 | 0.81 |
Net realized and unrealized | |||||
gain (loss) on investments | 1.02 | (0.64) | 0.38 | (0.74) | 0.25 |
Total from investment operations | 1.80 | 0.12 | 1.11 | 0.01 | 1.06 |
Less distributions | |||||
From net investment income | (0.82) | (0.83) | (0.79) | (0.79) | (0.83) |
From capital paid-in | — | — | — | (0.01) | — |
(0.82) | (0.83) | (0.79) | (0.80) | (0.83) | |
Net asset value, end of period | $15.69 | $14.98 | $15.30 | $14.51 | $14.74 |
Total return2 (%) | 12.71 | 0.78 | 7.55 | (0.01) | 7.53 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | $9 | $5 | $5 | $5 | $5 |
Ratio of net expenses to average | |||||
net assets (%) | 0.72 | 0.63 | 0.65 | 0.64 | 0.62 |
Ratio of net investment income | |||||
to average net assets (%) | 5.23 | 4.98 | 4.82 | 4.99 | 5.54 |
Portfolio turnover (%) | 273 | 241 | 139 | 135 | 1069 |
See notes to financial statements
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33
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS R1 SHARES | |||||
Period ended | 5-31-045 | 5-31-05 | 5-31-06 | 5-31-07 | |
Per share operating performance | |||||
Net asset value, beginning of period | $14.93 | $14.98 | $15.30 | $14.51 | |
Net investment income1 | 0.54 | 0.67 | 0.59 | 0.65 | |
Net realized and unrealized | |||||
gain (loss) on investments | 0.10 | 0.36 | (0.75) | 0.26 | |
Total from investment operations | 0.64 | 1.03 | (0.16) | 0.91 | |
Less distributions | |||||
From net investment income | (0.59) | (0.71) | (0.62) | (0.68) | |
From capital paid-in | — | — | (0.01) | — | |
(0.59) | (0.71) | (0.63) | (0.68) | ||
Net asset value, end of period | $14.98 | $15.30 | $14.51 | $14.74 | |
Total return2 (%) | 4.306 | 7.02 | (1.09) | 6.38 | |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | —7 | —7 | $1 | $1 | |
Ratio of net expenses to average | |||||
net assets (%) | 1.388 | 1.12 | 1.76 | 1.72 | |
Ratio of net investment income | |||||
to average net assets (%) | 4.408 | 4.44 | 3.95 | 4.45 | |
Portfolio turnover (%) | 2416 | 139 | 135 | 1069 |
1 Based on the average of the shares outstanding.
2 Assumes dividend reinvestment and does not reflect the effect of sales charges.
3 Total return would have been lower had certain expenses not been reduced during the period shown.
4 Does not take into effect expense reductions during the period shown.
5 Class R1 shares began operations on 8-5-03.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 The portfolio turnover rate including the effect of forward commitment trades is 123% for the year ended May 31, 2007. Prior years exclude the effect of forward commitment trades transactions.
See notes to financial statements
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34
Notes to financial statements
Note 1
Accounting policies
John Hancock Bond Fund (the Fund) is a diversified series of John Hancock Sovereign Bond Fund, an open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to generate a high level of current income, consistent with prudent investment risk.
The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B, Class C, Class I and Class R1 shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission (the SEC) and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Class B shares will convert to Class A shares eight years after purchase. Effective March 1, 2007, Class R shares were redesignated Class R1 shares.
Significant accounting policies of the Fund
are as follows:
Security valuation
The net asset value of the shares of Class A, Class B, Class C, Class I and Class R1 is determined daily as of the close of the NYSE, normally at 4:00 p.m., Eastern Time. Short-term debt investments that have a remaining maturity of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. Investments in John Hancock Cash Investment Trust, an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiar y of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on the principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Securities for which there are no such quotations, principally debt securities, are valued based on the valuation provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the NYSE. The values of such securities used in computing the net asset value of the Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the NYSE. Upon such an occurrence, these securities will be valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
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35
In deciding whether to make a fair value adjustment to the price of a security, the Board of Trustees or their designee may review a variety of factors, including developments in foreign markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations; for example, when a particular foreign market is closed but the Fund is calculating the net asset value. In view of these factors, it is likely that a Fund investing significant amounts of assets in securities in foreign markets will be fair valued more frequently than a Fund investing signifi-cant amounts of assets in frequently traded, U.S. exchange-listed securities of large-capitalization U.S. issuers.
Joint repurchase agreement
Pursuant to an exemptive order issued by the SEC, the Fund, along with other registered investment companies having a management contract with the Adviser, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large 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 accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Net realized gains and losses on sales of investments are determined on the identified cost basis. Some securities may be purchased on a “when-issued” or “forward commitment” basis, which means that the securities will be delivered to the Fund at a future date, usually beyond the customary settlement date.
Discount and premium on securities
The Fund utilizes the level yield method to accrete discount and amortize premium from par value on securities from either the date of issue or the date of purchase over the life of the security.
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 asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class I and Class R1 shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly iden-tifiable to an individual fund. Expenses that 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.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a line of credit agreement with the Bank of New York (BNY), the Swing Line Lender and Administrative Agent. This agreement enables the Fund to participate, with other funds managed by the Adviser, in an unsecured line of credit with BNY, which permits borrowings of up to $100 million, collectively. Interest is charged to each fund based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit, and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the year ended May 31, 2007.
Securities lending
The Fund may lend securities in amounts up to 33 1 / 3% of the Fund’s total assets. Such loans are callable at any time and are at all times fully secured by cash, cash equivalents or securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities and marked-to-market on a daily basis. The Fund
Bond Fund
36
may bear the risk of delay in recovery of, or even of rights in, the securities loaned should the borrower of the securities fail financially.
The Fund receives compensation for lending their securities either in the form of fees or by retaining a portion of interest on the investment of any cash received as collateral. The Fund invests the cash collateral received in connection with securities lending transactions in the John Hancock Cash Investment Trust (JHCIT), a Delaware common law trust and an affiliated fund. JHCIT is exempt from registration under Section 3(c)(7) of the 1940 Act (pursuant to exemptive order issued by the SEC) and is managed by the Adviser, for which the Adviser receives an investment advisory fee of 0.04% of the average daily net assets of the JHCIT.
All collateral received will be in an amount equal to at least 102% of the market value of the loaned securities and is intended to be maintained at that level during the period of the loan. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund the next business day. During the loan period, the Fund continues to retain rights of ownership, including dividends and interest of the loaned securities. As of May 31, 2007, the Fund loaned securities having a market value of $68,013,693 collateralized by cash invested in securities in the amount of $69,561,545.
Financial futures contracts
The Fund may buy and sell financial futures contracts. Buying futures tends to increase the Fund’s exposure to the underlying instrument. Selling futures tends to decrease the Fund’s exposure to the underlying instrument or hedge other Fund’s instruments. Initial margin deposits required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for the account of the broker (the Fund’s agent in acquiring the futures position). Each day, the futures contract is valued at the official settlement price of the board of trade or U.S. commodities exchange on which it trades. Subsequent payments to and from the broker, known as “variation margin,” are made on a daily basis as the market price of the financial futures contract fluctuates. Daily variation margin adjustments arising f rom this “mark to market” are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of entering into financial futures contracts include the possibility that there may be an illiquid market and/or that a change in the value of the contracts may not correlate with changes in the value of the underlying securities. In addition, the Fund could be prevented from opening or realizing the benefits of closing out financial futures positions because of position limits or limits on daily price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the Fund’s gains and/or losses can be affected as a result of financial futures contracts.
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37
The Fund has the following financial futures contracts open on May 31, 2007:
NUMBER OF | ||||
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | DEPRECIATION |
U.S. 10-Year Treasury Note | 15 | Short | Sep 2007 | $1,980 |
U.S. 10-Year Treasury Note | 100 | Short | Sep 2007 | 31,950 |
Total | $33,930 |
Swap contracts
The Fund may enter into swap transactions in order to hedge the value of the Fund’s portfolio against interest rate fluctuations or to enhance the Fund’s income or to manage the Fund’s exposure to credit or market risk.
Credit default swaps involve the exchange of a fixed rate premium for protection against the loss in value of an underlying debt instrument in the event of a defined credit event (such as a payment default or bankruptcy). Under the terms of the swap, one party acts as a “guarantor” receiving a periodic payment that is a fixed percentage applied to a notional principal amount. In return, the party agrees to purchase the notional amount of the underlying instrument, at par, if a credit event occurs during the term of the swap. The Fund may enter into credit default swaps in which either it or its counterparty act as a guarantor. By acting as the guarantor of a swap, the Fund assumes the market and credit risk of the underlying instrument including liquidity and loss of value.
The Fund records changes in the value of the swaps as unrealized gains or losses on swap contracts. Net periodic payments accrued but not yet received (paid) are included in change in the unrealized appreciation/depreciation on the Statement of Operations.
Swap contracts are subject to risks related to the counterparty’s ability to perform under the contract, and may decline in value if the coun-terparty’s creditworthiness deteriorates. The risks may arise from unanticipated movement in interest rates. The Fund may also suffer losses if it is unable to terminate outstanding swap contracts or reduce its exposure through offsetting transactions.
The Fund has the following financial credit default swap contracts open on May 31, 2007:
(PAY)/ | TERM- | UNREALIZED | |||||
NOTIONAL | BUY/SELL | RECEIVED | INATION | COUNTER | APPRECIATION | ||
ISSUER | AMOUNT | PROTECTION | FIXED RATE | DATE | PARTY | (DEPRECIATION) | |
Ford Motor Company | $5,000,000 | SELL | 2.15% | Jun 08 | Morgan Stanley | $41,253 | |
Goodyear Tire & | |||||||
Rubber Company | 5,000,000 | SELL | 1.51 | Jun 12 | Bank of America | 7,572 | |
Cummins, Inc. | 5,000,000 | BUY | (0.55) | Jun 12 | Barclays Capital | (14,317) | |
CBS Corporation | 5,000,000 | BUY | (0.78) | Jun 14 | Bank of America | (15,101) | |
Total | $19,407 |
Federal income taxes
The Fund qualifies as a “regulated investment company” by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $32,665,014 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforward expires as follows: May 31, 2009 — $13,027,799, May 31, 2010 — $35,777, May 31, 2014 — $505,866 and May 31, 2015 — $19,095,572. Net capital losses of $1,851,005 that are attributable to security transactions incurred after October 31, 2006, are treated as arising on
Bond Fund
38
June 1, 2007, the first day of the Fund’s next taxable year.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the Interpretation), was issued and is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the effective date. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return and requires certain expanded disclosures. Management has evaluated the application of the Interpretation to the Fund and does not believe there is a material impact resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than November 30, 2 007.
In September 2006, FASB Standard No. 157, Fair Value Measurements (FAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. The Fund may place a security on non-accrual status and reduce related investment income by ceasing current accruals and/or writing off interest, or dividends receivables, when the collection of interest has become doubtful. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. The Fund’s net investment income is declared daily as dividends to shareholders of record as of the close of business on the preceding day, and distributed monthly. During the year ended May 31, 2006, the tax character of distributions paid was as follows: ordinary income $51,987,676 and capital paid-in $545,803. During the year ended May 31, 2007, the tax character of distributions paid was as follows: ordinary income $50,863,461. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates.
Note 2
Management fee and transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.50% of the first $1,500,000,000 of the Fund’s average daily net asset value, (b) 0.45% of the next $500,000,000, (c) 0.40% of the next $500,000,000 and (d) 0.35% of the Fund’s average daily net asset value in excess of $2,500,000,000.
Effective December 31, 2005, the investment management teams of the Adviser were reorganized into Sovereign Asset Management LLC (Sovereign), a wholly owned indirect
Bond Fund
39
subsidiary of John Hancock Life Insurance Company (JHLICO), a subsidiary of MFC. The Adviser remains the principal advisor on the Fund and Sovereign acts as sub-adviser under the supervision of the Adviser. The restructuring did not have an impact on the Fund, which continues to be managed using the same investment philosophy and process. The Fund is not responsible for payment of the subadvisory fees.
Effective October 1, 2006, Sovereign changed its name to MFC Global Investment Management (U.S.), LLC.
The Fund has a Distribution Agreement with John Hancock Funds, LLC (JH Funds), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B, Class C and Class R1, pursuant to Rule 12b-1 under the 1940 Act to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30%, 1.00%, 1.00% and 0.50% of average daily net asset value of Class A, Class B, Class C and Class R1, respectively. A maximum of 0.25% of such payments may be service fees, as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund’s 12b-1 payments could occur under certain circumstances.
In addition, under a Service Plan for Class R1 shares, the Fund pays up to 0.25% of Class R1 average daily net asset value for certain other services.
Expenses under the agreements described above for the year ended May 31, 2007, were as follows:
Distribution and | |
Share class | service fees |
Class A | $2,664,618 |
Class B | 729,673 |
Class C | 234,195 |
Class R1 | 4,156 |
Total | $3,632,642 |
Class A shares are assessed up-front sales charges. During the year ended May 31, 2007, JH Funds received net up-front sales charges of $341,721 with regard to sales of Class A shares. Of this amount, $37,146 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $189,976 was paid as sales commissions to unrelated broker-dealers and $114,599 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a related broker-dealer. The Adviser’s indirect parent, JHLICO, is the indirect sole shareholder of Signator Investors.
Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge (CDSC) at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% 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 CDSCs are paid to JH Funds and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the year ended May 31, 2007, CDSCs received by JH Funds amounted to $163,729 for Class B shares and $2,331 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an indirect subsidiary of JHLICO. For Class A, Class B and Class C shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.015% of each class’s average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses, aggregated and allocated to each class on the basis of its relative net asset value. For Class I shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of Class I average daily net asset value. For Class R1 shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of Class R1 average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Signature Services agreed to voluntarily reduce
Bond Fund
40
the Fund’s asset-based portion of the transfer agent fee for Class A, Class B and Class C shares if the total transfer agent fee exceeded the median transfer agency fee for comparable mutual funds by greater than 0.05% . Accordingly, the transfer agent expense for Class A, Class B and Class C shares was reduced by $13,664 during the year ended May 31, 2007. Signature Services terminated this agreement June 30, 2006.
The Fund has an agreement with the Adviser and affiliates to perform necessary tax, accounting and legal services for the Fund. The compensation for the period amounted to $130,230. The Fund also reimbursed JHLICO for certain compliance costs, included in the Fund’s Statement of Operations.
Mr. James R. Boyle is Chairman of the Adviser, as well as affiliated Trustee of the Fund, and is compensated by the Adviser and/or its affiliates. The compensation of unaffiliated Trustees is borne by the Fund. 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. Investments 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 investments, as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund.
Note 3
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund believes the risk of loss to be remote.
Bond Fund
41
Note 4
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the years ended May 31, 2006, and May 31, 2007, along with the corresponding dollar value.
Year ended 5-31-06 | Year ended 5-31-07 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 3,238,500 | $48,427,917 | 4,062,350 | $60,122,035 |
Distributions reinvested | 2,606,528 | 38,922,163 | 2,596,553 | 38,365,597 |
Repurchased | (10,053,324) | (150,082,572) | (9,608,359) | (141,836,187) |
Net decrease | (4,208,296) | ($62,732,492) | (2,949,456) | ($43,348,555) |
Class B shares | ||||
Sold | 445,025 | $6,675,996 | 348,007 | $5,146,301 |
Distributions reinvested | 223,855 | 3,345,898 | 163,637 | 2,416,065 |
Repurchased | (3,032,284) | (45,239,747) | (2,504,869) | (36,990,515) |
Net decrease | (2,363,404) | ($35,217,853) | (1,993,225) | ($29,428,149) |
Class C shares | ||||
Sold | 216,577 | $3,229,583 | 314,809 | $4,661,024 |
Distributions reinvested | 55,130 | 823,338 | 53,710 | 793,546 |
Repurchased | (483,725) | (7,223,363) | (446,075) | (6,592,607) |
Net decrease | (212,018) | ($3,170,442) | (77,556) | ($1,138,037) |
Class I shares | ||||
Sold | 150,674 | $2,256,458 | 197,043 | $2,927,372 |
Distributions reinvested | 18,683 | 278,345 | 12,301 | 181,351 |
Repurchased | (151,523) | (2,256,531) | (251,800) | (3,686,849) |
Net increase (decrease) | 17,834 | $278,272 | (42,456) | ($578,126) |
Class R1 shares | ||||
Sold | 50,922 | $757,098 | 48,475 | $717,168 |
Distributions reinvested | 791 | 11,695 | 2,196 | 32,465 |
Repurchased | (21,056) | (314,360) | (35,956) | (532,410) |
Net increase | 30,657 | $454,433 | 14,715 | $217,223 |
Net decrease | (6,735,227) | ($100,388,082) | (5,047,978) | ($74,275,644) |
Note 5
Investment transactions
Purchases and proceeds from sales or maturities of securities, other than short- term securities and obligations of the U.S. government, during the year ended May 31, 2007, aggregated $887,514,440 and $892,140,431, respectively.
Purchases and proceeds from sales or maturities of obligations of the U.S. government aggregated $308,960,779 and $404,106,514, respectively, during the year ended May 31, 2007.
The cost of investments owned on May 31, 2007, including short-term investments, for federal income tax purposes, was $1,022,051,111. Gross unrealized appreciation and depreciation of investments aggregated $9,753,300 and $11,956,329, respectively, resulting in net unrealized depreciation of $2,203,029. The difference between book basis and tax basis net unrealized depreciation of investments is attributable primarily to the tax deferral of losses on certain sales of securities and amortization of premiums and accretion of discounts on debt securities.
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42
Note 6
Reclassification of accounts
During the year ended May 31, 2007, the Fund reclassified amounts to reflect an increase in accumulated net realized loss on investments of $1,954,740, a decrease in accumulated net investment loss of $1,055,794 and an increase in capital paid-in of $898,946. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of May 31, 2007. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Fund, are primarily attributable to certain differences in the computation of distributable income and capital gains under federal tax rules versus accounting principles generally accepted in the United States of America, book and tax differences in accounting for amortization of premium and interest rate swap. The calculation of net investment income per share in the Fund’s Financial Highligh ts excludes these adjustments.
Note 7
Subsequent event
On June 25, 2007, John Hancock Advisers, LLC (the Adviser) and John Hancock Funds, LLC (the Distributor) and two of their affili-ates (collectively, the John Hancock Affiliates) reached a settlement with the Securities and Exchange Commission (SEC) that resolved an investigation of certain practices relating to the John Hancock Affiliates’ variable annuity and mutual fund operations involving directed brokerage and revenue sharing. Under the terms of the settlement, each John Hancock Affiliate was censured and agreed to pay a $500,000 civil penalty to the United States Treasury. In addition, the Adviser and the Distributor agreed to pay disgorgement of $2,087,477 and prejudgment interest of $359,460 to entities, including certain John Hancock Funds, that participated in the Adviser’s directed brokerage program during the period from 2000 to October 2003. C ollectively, all John Hancock Affiliates agreed to pay a total disgorgement of $16,926,420 and prejudgment interest of $2,361,460 to the entities advised or distributed by John Hancock Affiliates. The Adviser discontinued the use of directed brokerage in recognition of the sale of fund shares in October 2003. There was no impact on this Fund as it did not participate in the program.
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43
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of John Hancock Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock Bond Fund (the “Fund”) at May 31, 2007 and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 27, 2007
Tax information
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended May 31, 2007.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended May 31, 2007, 0.85% of the dividends qualifies for the corporate dividends-received deduction.
The Fund hereby designates the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amount will be reflected on Form 1099-DIV for the calendar year 2007.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
45
Board Consideration of and
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock Bond Fund
The Investment Company Act of 1940 (the 1940 Act), requires the Board of Trustees (the Board) of John Hancock Sovereign Bond Fund (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with MFC Global Investment Management (U.S.), LLC (the Subadviser) for the John Hancock Bond Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the “Advisory Agreements.”
At meetings held on May 1–2 and June 5–6, 2006,1 the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/ Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and the Independent Trustees, reviewed a broad range of information requested for this purpose by the Independent Trustees, including: (i) the investment performance of the Fund relative to a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) each selected by Morningstar, Inc. (Morningstar), an independent provider of investment company data, for a range of periods ended December 31, 2005; (ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group; (iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser; (iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund; (v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale; (vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department; (vii) the background and experience of senior management and investment professionals; and (viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. It was based on performance and other information as of December 31, 2005; facts may have changed between that date and the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board further considered the compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser were sufficient to support renewal of the Advisory Agreements.
Fund performance
The Board considered the performance results for the Fund over various time periods
46
ended December 31, 2005. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. Morningstar determined the Category and the Peer Group for the Fund. The Board reviewed, with a representative of Morningstar, the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance during the periods under review was generally competitive with the performance of the Peer Group and Category medians, and its benchmark index, the Lehman Brothers Aggregate Bond Index. The Board noted that the Fund’s performance during the one-, five- and ten-year periods was lower than the performance of its benchmark index, but was higher than the performance of the Peer Group and Category medians. The Board viewed favorably that the performance of the Fund for the three-year period was higher than the median of its Category and Peer Group, and its benchmark index.
Investment advisory fee and subadvisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was equal to the median of the Peer Group and was not appreciably higher than the Category median.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comp aring the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross and Net Expense Ratios were higher than the median of its Peer Group and Category.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s overall performance and expenses supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment sub-advisory services. The Board concluded that the Subadvisory Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates, including the Subadviser. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
47
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates as a result of the Adviser’s relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser with the Fund and benefits potentially derived from an increase in the business of the Adviser as a result of its relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year.
In this regard, the Board reviews reports of the Adviser and Subadviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
1 The Board previously considered information about the Subadvisory Agreement at the September and December 2005 Board meetings in connection with the Adviser’s reorganization.
48
Trustees and Officers
This chart provides information about the Trustees and Officers who oversee
your John Hancock fund. Officers elected by the Trustees manage the day-to-day
operations of the Fund and execute policies formulated by the Trustees.
Independent Trustees | ||
Name, Year of Birth | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
Ronald R. Dion, Born: 1946 | 2005 | 60 |
Independent Chairman (since 2005); Chairman and Chief Executive | ||
Officer, R.M. Bradley & Co., Inc.; Director, The New England Council and | ||
Massachusetts Roundtable; Trustee, North Shore Medical Center; Director, | ||
Boston Stock Exchange; Director, BJ’s Wholesale Club, Inc. and a corporator | ||
of the Eastern Bank; Trustee, Emmanuel College; Director, Boston Municipal | ||
Research Bureau; Member of the Advisory Board, Carroll Graduate School | ||
of Management at Boston College. | ||
James F. Carlin, Born: 1940 | 2005 | 60 |
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | ||
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | ||
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | ||
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | ||
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | ||
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | ||
William H. Cunningham, Born: 1944 | 2005 | 60 |
Former Chancellor, University of Texas System and former President of the | ||
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, IBT | ||
Technologies (until 2001); Director of the following: Hire.com (until 2004), | ||
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, | ||
Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology, | ||
Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius | ||
(until 2003), Lincoln National Corporation (insurance) (since 2006), Jefferson- | ||
Pilot Corporation (diversified life insurance company) (until 2006), New | ||
Century Equity Holdings (formerly Billing Concepts) (until 2001), eCertain | ||
(until 2001), ClassMap.com (until 2001), Agile Ventures (until 2001), AskRed. | ||
com (until 2001), Southwest Airlines (since 2000), Introgen (since 2000) | ||
and Viasystems Group, Inc. (electronic manufacturer) (until 2003); Advisory | ||
Director, Interactive Bridge, Inc. (college fundraising) (until 2001); Advisory | ||
Director, Q Investments (until 2003); Advisory Director, JPMorgan Chase Bank | ||
(formerly Texas Commerce Bank–Austin), LIN Television (since 2002), WilTel | ||
Communications (until 2003) and Hayes Lemmerz International, Inc. (diversi- | ||
fied automotive parts supply company) (since 2003). |
49
Independent Trustees (continued) | ||
Name, Year of Birth | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
Charles L. Ladner, 2 Born: 1938 | 2004 | 60 |
Chairman and Trustee, Dunwoody Village, Inc. (retirement services) | ||
(until 2003); Senior Vice President and Chief Financial Officer, UGI Corporation | ||
(public utility holding company) (retired 1998); Vice President and Director, | ||
AmeriGas, Inc. (retired 1998); Director, AmeriGas Partners, L.P. (gas distribu- | ||
tion) (until 1997); Director, EnergyNorth, Inc. (until 1995); Director, Parks and | ||
History Association (until 2005). | ||
John A. Moore,2 Born: 1939 | 1996 | 60 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, | ||
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | ||
(health research) (until 2003); Former Assistant Administrator and Deputy | ||
Administrator, Environmental Protection Agency; Principal, Hollyhouse | ||
(consulting) (since 2000); Director, CIIT Center for Health Science Research | ||
(nonprofit research) (2002–2006). | ||
Patti McGill Peterson,2 Born: 1943 | 1996 | 60 |
Executive Director, Council for International Exchange of Scholars and Vice | ||
President, Institute of International Education (since 1998); Senior Fellow, | ||
Cornell Institute of Public Affairs, Cornell University (until 1998); Former | ||
President, Wells College and St. Lawrence University; Director, Niagara | ||
Mohawk Power Corporation (until 2003); Director, Ford Foundation, | ||
International Fellowships Program (since 2002); Director, Lois Roth Endowment | ||
(since 2002); Director, Council for International Educational Exchange | ||
(since 2003). | ||
Steven R. Pruchansky, Born: 1944 | 2005 | 60 |
Chairman and Chief Executive Officer, Greenscapes of Southwest Florida, | ||
Inc. (since 2000); Director and President, Greenscapes of Southwest Florida, | ||
Inc. (until 2000); Managing Director, JonJames, LLC (real estate) (since 2001); | ||
Director, First Signature Bank & Trust Company (until 1991); Director, Mast | ||
Realty Trust (until 1994); President, Maxwell Building Corp. (until 1991). | ||
Non-Independent Trustee3 | ||
Name, Year of Birth | Number of | |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
James R. Boyle, Born: 1959 | 2005 | 264 |
President, John Hancock Insurance Group; Executive Vice President, John | ||
Hancock Life Insurance Company (since June 2004); Chairman and Director, | ||
John Hancock Advisers, LLC (the Adviser), John Hancock Funds, LLC and | ||
The Berkeley Financial Group, LLC (The Berkeley Group) (holding company) | ||
(since 2005); Senior Vice President, The Manufacturers Life Insurance | ||
Company (U.S.A.) (until 2004). |
50
Principal officers who are not Trustees | |
Name, Year of Birth | |
Position(s) held with Fund | Officer |
Principal occupation(s) and other | of fund |
directorships during past 5 years | since |
Keith F. Hartstein, Born: 1956 | 2005 |
President and Chief Executive Officer | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, | |
John Hancock Funds, LLC (since 2005); Director, MFC Global Investment | |
Management (U.S.), LLC (MFC Global (U.S.)) (since 2005); Director, John | |
Hancock Signature Services, Inc. (since 2005); President and Chief Executive | |
Officer, John Hancock Investment Management Services, LLC (since 2006); | |
President and Chief Executive Officer, John Hancock Funds, John Hancock | |
Funds II, John Hancock Funds III and John Hancock Trust (since 2005); | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | |
Chairman, Investment Company Institute Sales Force Marketing Committee | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | |
Thomas M. Kinzler, Born: 1955 | 2006 |
Secretary and Chief Legal Officer | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | |
Hancock Funds II and John Hancock Funds III; Vice President and Associate | |
General Counsel, Massachusetts Mutual Life Insurance Company (1999– | |
2006); Secretary and Chief Legal Counsel, MML Series Investment Fund | |
(2000–2006); Secretary and Chief Legal Counsel, MassMutual Institutional | |
Funds (2000–2004); Secretary and Chief Legal Counsel, MassMutual Select | |
Funds and MassMutual Premier Funds (2004–2006). | |
Francis V. Knox, Jr., Born: 1947 | 2005 |
Chief Compliance Officer | |
Vice President and Chief Compliance Officer, John Hancock Investment | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | |
Vice President and Chief Compliance Officer, John Hancock Funds, John | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2005); | |
Vice President and Assistant Treasurer, Fidelity Group of Funds (until 2004); | |
Vice President and Ethics & Compliance Officer, Fidelity Investments | |
(until 2001). | |
Charles A. Rizzo, Born: 1957 | 2007 |
Chief Financial Officer | |
Chief Financial Officer, John Hancock Funds, John Hancock Funds II, John | |
Hancock Funds III and John Hancock Trust (June 2007–Present); Assistant | |
Treasurer, Goldman Sachs Mutual Fund Complex (registered investment | |
companies) (2005–June 2007); Vice President, Goldman Sachs (2005– | |
June 2007); Managing Director and Treasurer of Scudder Funds, Deutsche | |
Asset Management (2003–2005); Director, Tax and Financial Reporting, | |
Deutsche Asset Management (2002–2003); Vice President and Treasurer, | |
Deutsche Global Fund Services (1999–2002). |
51
Principal officers who are not Trustees (continued) | |
Name, Year of Birth | |
Position(s) held with Fund | Officer |
Principal occupation(s) and other | of fund |
directorships during past 5 years | since |
Gordon M. Shone, Born: 1956 | 2006 |
Treasurer | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | |
(1998–2000). | |
John G. Vrysen, Born: 1955 | 2005 |
Chief Operating Officer | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | |
Executive Vice President and Chief Operating Officer, the Adviser, The Berkeley | |
Group and John Hancock Funds, LLC (June 2007–Present); Chief Operating | |
Officer, John Hancock Funds, John Hancock Funds II, John Hancock Funds III | |
and John Hancock Trust (June 2007–Present); Director, Executive Vice | |
President and Chief Financial Officer, the Adviser, The Berkeley Group and | |
John Hancock Funds, LLC (until June 2007); Executive Vice President and Chief | |
Financial Officer, John Hancock Investment Management Services, LLC (since | |
2005), Vice President and Chief Financial Officer, MFC Global (U.S.) (since | |
2005); Director, John Hancock Signature Services, Inc. (since 2005); Chief | |
Financial Officer, John Hancock Funds, John Hancock Funds II, John Hancock | |
Funds III and John Hancock Trust (2005–June 2007); Vice President and | |
General Manager, Fixed Annuities, U.S. Wealth Management (until 2005); Vice | |
President, Operations, Manulife Wood Logan (2000–2004). |
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or her successor is elected. 2 Member of Audit and Compliance Committee.
3 Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
52
For more information
The Fund’s proxy voting policies, procedures and records are available without charge,
upon request:
By phone | On the Fund’s Web site | On the SEC’s Web site |
1-800-225-5291 | www.jhfunds.com/proxy | www.sec.gov |
Investment adviser | Custodian | Legal counsel |
John Hancock Advisers, LLC | The Bank of New York | Kirkpatrick & Lockhart |
601 Congress Street | One Wall Street | Preston Gates Ellis LLP |
Boston, MA 02210-2805 | New York, NY 10286 | One Lincoln Street |
Subadviser | Transfer agent | Boston, MA 02111-2950 |
MFC Global Investment | John Hancock Signature | Independent registered public |
Management (U.S.), LLC | Services, Inc. | accounting firm |
101 Huntington Avenue | One John Hancock Way, | PricewaterhouseCoopers LLP |
Boston, MA 02199 | Suite 1000 | 125 High Street |
Principal distributor | Boston, MA 02217-1000 | Boston, MA 02110 |
John Hancock Funds, LLC | ||
601 Congress Street | ||
Boston, MA 02210-2805 |
How to contact us | ||
Internet | www.jhfunds.com | |
Regular mail: | Express mail: | |
John Hancock | John Hancock | |
Signature Services, Inc. | Signature Services, Inc. | |
One John Hancock Way, Suite 1000 | Mutual Fund Image Operations | |
Boston, MA 02217-1000 | 380 Stuart Street | |
Boston, MA 02116 | ||
Phone | Customer service representatives | 1-800-225-5291 |
EASI-Line | 1-800-338-8080 | |
TDD line | 1-800-554-6713 | |
A listing of month-end portfolio holdings is available on our Web site, www.jhfunds.com. A more detailed portfolio holdings summary is available on a quarterly basis 60 days after the fiscal quarter on our Web site or upon request by calling 1-800-225-5291, or on the SEC’s Web site, www.sec.gov.
56
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Growth Fund |
Global Opportunities Fund | |
Global Shareholder Yield Fund | INCOME |
Growth Fund | Bond Fund |
Growth Opportunities Fund | Government Income Fund |
Growth Trends Fund | High Yield Fund |
Intrinsic Value Fund | Investment Grade Bond Fund |
Large Cap Equity Fund | Strategic Income Fund |
Large Cap Select Fund | |
Mid Cap Equity Fund | TAX - FREE INCOME |
Multi Cap Growth Fund | California Tax-Free Income Fund |
Small Cap Equity Fund | High Yield Municipal Bond Fund |
Small Cap Fund | Massachusetts Tax-Free Income Fund |
Small Cap Intrinsic Value Fund | New York Tax-Free Income Fund |
Sovereign Investors Fund | Tax-Free Bond Fund |
U.S. Core Fund | |
U.S. Global Leaders Growth Fund | MONEY MARKET |
Value Opportunities Fund | Money Market Fund |
U.S. Government Cash Reserve | |
ASSET ALLOCATION | |
Allocation Core Portfolio | CLOSED - END |
Allocation Growth + Value Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2010 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2015 Portfolio | Income Securities Trust |
Lifecycle 2020 Portfolio | Investors Trust |
Lifecycle 2025 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2030 Portfolio | Patriot Select Dividend Trust |
Lifecycle 2035 Portfolio | Preferred Income Fund |
Lifecycle 2040 Portfolio | Preferred Income II Fund |
Lifecycle 2045 Portfolio | Preferred Income III Fund |
Lifecycle Retirement Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Aggressive Portfolio | |
Lifestyle Balanced Portfolio | |
Lifestyle Conservative Portfolio | |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund |
The Fund’s investment objectives, risks, charges and expenses are included in the prospectus and should be considered carefully before investing. For a prospectus, call your financial professional, call John Hancock Funds at 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com. Please read the prospectus carefully before investing or sending money.
![](https://capedge.com/proxy/N-CSR/0000928816-07-001055/sovereignbondx60x1.jpg)
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds. com
Now available: electronic delivery
www.jhfunds. com/edelivery
This report is for the information of the shareholders of John Hancock Bond Fund.
2100A 5/07
7/07
ITEM 2. CODE OF ETHICS.
As of the end of the period, May 31, 2007, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer, Chief Financial Officer and Treasurer (respectively, the principal executive officer, the principal financial officer and the principal accounting officer, the “Senior Financial Officers”). A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Charles L. Ladner is the audit committee financial expert and is “independent”, pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant(s) in connection with statutory and regulatory filings or engagements amounted to $33,050 for the fiscal year ended May 31, 2006 and $33,050 for the fiscal year ended May 31, 2007. These fees were billed to the registrant and were approved by the registrant’s audit committee.
(b) Audit-Related Services
There were no audit-related fees during the fiscal year ended May 31, 2006 and fiscal year ended May 31, 2007 billed to the registrant or to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant ("control affiliates").
(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the tax compliance, tax advice and tax planning (“tax fees”) amounted to $4,450 for the fiscal year ended May 31, 2006 and $4,450 for the fiscal year ended May 31, 2007. The nature of the services comprising the tax fees was the review of the registrant’s income tax returns and tax distribution requirements. These fees were billed to the registrant and were approved by the registrant’s audit committee. There were no tax fees billed to the control affiliates.
(d) All Other Fees
There were no other fees during the fiscal year ended May 31, 2006 and fiscal year ended May 31, 2007 billed to the registrant or to the control affiliates.
(e)(1) See attachment "Approval of Audit, Audit-related, Tax and Other Services", with the audit committee pre-approval policies and procedures.
(e)(2) There were no fees that were approved by the audit committee pursuant to the de minimis exception for the fiscal years ended May 31, 2006 and May 31, 2007 on behalf of the registrant or on behalf of the control affiliates that relate directly to the operations and financial reporting of the registrant.
(f) According to the registrant’s principal accountant, for the fiscal year ended May 31, 2007, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who were not full-time, permanent employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant(s) for services rendered to the registrant and rendered to the registrant's control affiliates for each of the last two fiscal years of the registrant were $10,000 for the fiscal year ended May 31, 2006, and $3,264,859 for the fiscal year ended May 31, 2007.
(h) The audit committee of the registrant has considered the non-audit services provided by the registrant’s principal accountant(s) to the control affiliates and has determined that the services that were not pre-approved are compatible with maintaining the principal accountant(s)' independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee comprised of independent trustees. The members of the audit committee are as follows:
Dr. John A. Moore - Chairman
Charles L. Ladner
Patti McGill Peterson
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached “John Hancock Funds – Governance Committee Charter”.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's principal executive officer and principal financial officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-
year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics for Senior Financial Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached.
(b) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The certifications furnished pursuant to this paragraph are not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference.
(c)(1) Approval of Audit, Audit-related, Tax and Other Services is attached.
(c)(2) Submission of Matters to a Vote of Security Holders is attached. See attached “John Hancock Funds – Governance Committee Charter”.
(c)(3) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Sovereign Bond Fund
By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: July 23, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: July 23, 2007
By: /s/ Charles A. Rizzo
-------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: July 23, 2007