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: | November 30, 2007 |
ITEM 1. REPORT TO SHAREHOLDERS.
A look at performance
For the periods ended November 30, 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 | 6 months | 1-year | 5-year | 10-year | inception | 11-30-07 | |
A | 11-9-73 | –0.42% | 4.20% | 5.02% | — | –1.55% | –0.42% | 22.81% | 63.23% | — | 5.16% | |
B | 11-23-93 | –1.37 | 4.10 | 4.93 | — | –2.23 | –1.37 | 22.23 | 61.76 | — | 4.70 | |
C | 10-1-98 | 2.58 | 4.43 | — | 4.33% | 1.77 | 2.58 | 24.23 | — | 47.52% | 4.70 | |
I1 | 9-4-01 | 4.74 | 5.62 | — | 5.52 | 3.35 | 4.74 | 31.43 | — | 39.78 | 5.84 | |
R11 | 8-5-03 | 3.51 | — | — | 4.44 | 2.72 | 3.51 | — | — | 20.63 | 4.34 | |
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 to 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 expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available Prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The gross expenses are as follows: Class A — 1.05%, Class B — 1.75%, Class C — 1.75%, Class I — 0.62%, Class R1 — 1.72% .
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.
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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.
With maximum | ||||
Class | Period beginning | Without sales charge | sales charge | Index |
B2 | 11-30-97 | $16,176 | $16,176 | $18,087 |
C2 | 10-1-98 | 14,752 | 14,752 | 16,270 |
I3 | 9-4-01 | 13,978 | 13,978 | 14,024 |
R1 3 | 8-5-03 | 12,063 | 12,063 | 12,303 |
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 November 30, 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.
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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 June 1, 2007, with the same investment held until November 30, 2007.
Account value | Ending value | Expenses paid during period | |
on 6-1-07 | on 11-30-07 | ended 11-30-071 | |
Class A | $1,000.00 | $1,031.30 | $5.34 |
Class B | 1,000.00 | 1,027.70 | 8.88 |
Class C | 1,000.00 | 1,027.70 | 8.87 |
Class I | 1,000.00 | 1,033.50 | 3.15 |
Class R1 | 1,000.00 | 1,025.80 | 10.74 |
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 November 30, 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:
Bond Fund | Semiannual report
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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 June 1, 2007, with the same investment held until November 30, 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 6-1-07 | on 11-30-07 | ended 11-30-071 | |
Class A | $1,000.00 | $1,019.75 | $5.31 |
Class B | 1,000.00 | 1,016.24 | 8.83 |
Class C | 1,000.00 | 1,016.25 | 8.82 |
Class I | 1,000.00 | 1,021.91 | 3.13 |
Class R1 | 1,000.00 | 1,014.39 | 10.68 |
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 1.05%, 1.75%, 1.75%, 0.62% and 2.12% 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).
Semiannual report | Bond Fund
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Portfolio summary
Top 10 holdings1 | ||||
Federal National Mortgage Assn. | 2.8% | Federal Home Loan Mortgage Corp. | 1.6% | |
Federal National Mortgage Assn. | 2.0% | Federal National Mortgage Assn. | 1.5% | |
Federal National Mortgage Assn. | 2.0% | Federal National Mortgage Assn. | 1.4% | |
Federal National Mortgage Assn. | 2.0% | Federal National Mortgage Assn. | 1.2% | |
Federal National Mortgage Assn. | 1.8% | United States Treasury | 1.1% | |
Sector distribution1 | ||||
Government — U.S. agency | 36% | Telecommunication services | 3% | |
Mortgage bonds | 22% | Government — U.S. | 3% | |
Financials | 13% | Materials | 3% | |
Consumer discretionary | 6% | Health care | 2% | |
Utilities | 4% | Energy | 2% | |
Industrials | 3% | Consumer staples | 1% | |
Quality distribution1 | ||||
AAA | 57% | |||
AA | 5% | |||
A | 5% | |||
BBB | 14% | |||
BB | 8% | |||
B | 7% | |||
CCC | 2% | |||
1 As a percentage of net assets on November 30, 2007.
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F I N A N C I A L S T A T E M E N T S
Fund’s investments
Securities owned by the Fund on 11-30-07 (unaudited)
This schedule is divided into six main categories: bonds, preferred stocks, tranche loans, U.S. government and agencies securities, warrants and short-term investments. Bonds, preferred stocks, tranche loans, U.S. government and agencies securities and warrants 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 57.40% | $546,281,189 | |||||
(Cost $548,964,713) | ||||||
Advertising 0.12% | 1,121,575 | |||||
R.H. Donnelley Corp. | ||||||
Sr Note (S) | 8.875% | 10-15-17 | B | $1,190 | 1,121,575 | |
Agricultural Products 0.21% | 1,989,000 | |||||
Chaoda Modern Agriculture | ||||||
Holdings Ltd., | ||||||
Gtd Sr Note (Cayman Islands) | ||||||
(F)(L)(S) | 7.750 | 02-08-10 | BB | 2,040 | 1,989,000 | |
Airlines 1.12% | 10,647,652 | |||||
Continental Airlines, Inc., | ||||||
Pass Thru Ctf Ser 1999-1A (L) | 6.545 | 02-02-19 | A– | 942 | 945,845 | |
Pass Thru Ctf Ser 2000-2 Class B | 8.307 | 04-02-18 | BB– | 1,251 | 1,243,235 | |
Pass Thru Ctf Ser 2001-1 Class C | 7.033 | 06-15-11 | B+ | 767 | 744,727 | |
Delta Airlines, Inc., | ||||||
Collateralized Bond (S) | 6.821 | 08-10-22 | A– | 2,985 | 3,126,310 | |
Sr Pass Thru Ctf Ser 2002-1 | 6.417 | 07-02-12 | AAA | 2,880 | 2,944,800 | |
Northwest Airlines, Inc., | ||||||
Gtd Collateralized Note | ||||||
Ser 2007-1 (L) | 7.027 | 11-01-19 | A– | 1,660 | 1,642,735 | |
Aluminum 0.19% | 1,807,475 | |||||
CII Carbon LLC, | ||||||
Gtd Sr Sub Note (S) | 11.125 | 11-15-15 | CCC+ | 1,835 | 1,807,475 | |
Apparel Retail 0.09% | 807,700 | |||||
Hanesbrands, Inc., | ||||||
Gtd Sr Note Ser B (P) | 8.784 | 12-15-14 | B– | 820 | 807,700 | |
Asset Management & Custody Banks 0.40% | 3,842,955 | |||||
Rabobank Capital Fund II, | ||||||
Perpetual Bond (5.260% to | ||||||
12-31-13 then variable) (S) | 5.260 | 12-29-49 | AA | 4,005 | 3,842,955 | |
Automobile Manufacturers 0.17% | 1,635,600 | |||||
General Motors Corp., | ||||||
Sr Note (L) | 7.125 | 07-15-13 | B– | 1,880 | 1,635,600 |
See notes to financial statements
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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 | |
Broadcasting & Cable TV 1.11% | $10,553,322 | |||||
CCH II LLC/CCH II Capital Corp., | ||||||
Sr Note | 10.250% | 09-15-10 | CCC | $1,560 | 1,540,500 | |
Comcast Cable Holdings LLC, | ||||||
Gtd Sr Sub Deb | 9.800 | 02-01-12 | BBB+ | 1,720 | 1,997,622 | |
Note | 8.375 | 03-15-13 | BBB+ | 1,445 | 1,624,587 | |
Rogers Cable, Inc., | ||||||
Sr Sec Note (Canada) (F) | 6.750 | 03-15-15 | BB+ | 1,640 | 1,739,425 | |
Shaw Communications, Inc., | ||||||
Sr Note (Canada) (F) | 8.250 | 04-11-10 | BB+ | 1,675 | 1,746,188 | |
XM Satellite Radio, Inc., | ||||||
Gtd Sr Note (L) | 9.750 | 05-01-14 | CCC | 1,905 | 1,905,000 | |
Casinos & Gaming 2.56% | 24,377,119 | |||||
Fontainebleau Las Vegas | ||||||
Holdings LLC, | ||||||
Note (S) | 10.250 | 06-15-15 | CCC+ | 1,825 | 1,615,125 | |
Greektown Holdings LLC, | ||||||
Sr Note (S) | 10.750 | 12-01-13 | CCC+ | 1,170 | 1,140,750 | |
Harrahs Operating Co., Inc., | ||||||
Gtd Sr Bond | 5.625 | 06-01-15 | BB | 1,560 | 1,162,200 | |
Indianapolis Downs LLC, | ||||||
Sr Sec Note (S) | 11.000 | 11-01-12 | B | 445 | 433,875 | |
Isle of Capri Casinos, Inc., | ||||||
Gtd Sr Sub Deb | 7.000 | 03-01-14 | B | 695 | 594,225 | |
Jacobs Entertainment, Inc., | ||||||
Gtd Sr Note | 9.750 | 06-15-14 | B– | 1,970 | 1,930,600 | |
Little Traverse Bay Bands of | ||||||
Odawa Indians, | ||||||
Sr Note (S) | 10.250 | 02-15-14 | B | 1,895 | 1,913,950 | |
Majestic Star Casino LLC, | ||||||
Gtd Sr Sec Note | 9.500 | 10-15-10 | B+ | 590 | 567,875 | |
Mashantucket West Pequot, | ||||||
Bond (S) | 5.912 | 09-01-21 | BBB– | 1,250 | 1,242,762 | |
Mohegan Tribal Gaming Authority, | ||||||
Sr Sub Note (L) | 7.125 | 08-15-14 | B | 1,050 | 1,010,625 | |
MTR Gaming Group, Inc., | ||||||
Gtd Sr Note Ser B | 9.750 | 04-01-10 | B | 1,525 | 1,525,000 | |
Gtd Sr Sub Note Ser B | 9.000 | 06-01-12 | B– | 1,090 | 1,035,500 | |
Pokagon Gaming Authority, | ||||||
Sr Note (S) | 10.375 | 06-15-14 | B | 815 | 872,050 | |
Seminole Tribe of Florida, | ||||||
Bond (S) | 6.535 | 10-01-20 | BBB | 2,260 | 2,293,245 | |
Seneca Gaming Corp., | ||||||
Sr Note Ser B | 7.250 | 05-01-12 | BB | 2,275 | 2,286,375 | |
Trump Entertainment | ||||||
Resorts, Inc., | ||||||
Gtd Sr Sec Note (L) | 8.500 | 06-01-15 | B | 1,625 | 1,287,812 |
See notes to financial statements
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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 (continued) | ||||||
Turning Stone Casino Resort | ||||||
Enterprise, | ||||||
Sr Note (S) | 9.125% | 09-15-14 | B+ | $2,085 | $2,105,850 | |
Waterford Gaming LLC, | ||||||
Sr Note (S) | 8.625 | 09-15-14 | BB– | 1,361 | 1,359,300 | |
Commodity Chemicals 0.09% | 888,125 | |||||
Sterling Chemicals, Inc., | ||||||
Gtd Sr Sec Note (S) | 10.250 | 04-01-15 | B– | 875 | 888,125 | |
Construction & Farm Machinery & Heavy Trucks 0.10% | 914,050 | |||||
Odebrecht Finance Ltd., | ||||||
Gtd Sr Note (Cayman | ||||||
Islands) (F)(S) | 7.500 | 10-18-17 | BB | 905 | 914,050 | |
Consumer Finance 0.16% | 1,487,002 | |||||
GMAC LLC, | ||||||
Sr Note | 6.000 | 12-15-11 | BB+ | 1,750 | 1,487,002 | |
Data Processing & Outsourced Services 0.18% | 1,715,550 | |||||
Fiserv, Inc., | ||||||
Gtd Sr Note | 6.800 | 11-20-17 | BBB | 1,690 | 1,715,550 | |
Diversified Banks 3.05% | 29,048,334 | |||||
Banco Mercantil del Norte SA, | ||||||
Sub Note (Mexico) (F)(S) | 6.862 | 10-13-21 | Baa2 | 2,500 | 2,485,655 | |
Bank of America Corp., | ||||||
Sr Note | 5.750 | 12-01-17 | AA | 1,860 | 1,859,963 | |
Chuo Mitsui Trust & Banking | ||||||
Co. Ltd., | ||||||
Perpetual Sub Note (5.506% to | ||||||
4-15-15 then variable) | ||||||
(Japan) (F)(S) | 5.506 | 12-15-49 | Baa1 | 2,530 | 2,319,823 | |
HBOS Plc, | ||||||
Perpetual Bond (6.413% to 10-1-35 | ||||||
then variable) (United | ||||||
Kingdom) (F)(S) | 6.413 | 09-29-49 | A | 2,410 | 2,030,465 | |
ICICI Bank Ltd., | ||||||
Note (India) (F)(S) | 6.625 | 10-03-12 | BBB– | 2,370 | 2,439,930 | |
Jefferies Group, Inc., | ||||||
Sr Note | 6.450 | 06-08-27 | BBB+ | 1,115 | 1,030,257 | |
Lloyds TSB Group Plc, | ||||||
Bond (6.267% to 11-30-16 then | ||||||
variable) (United | ||||||
Kingdom) (F)(S) | 6.267 | 11-14-16 | A | 2,500 | 2,246,405 | |
Royal Bank of Scotland Group Plc, | ||||||
Jr Sub Bond Ser MTN (United | ||||||
Kingdom) (F)(P) | 7.640 | 03-31-49 | A | 1,400 | 1,421,410 | |
Perpetual Bond (7.648% to 9-30-31 | ||||||
then variable) (United Kingdom) (F) | 7.648 | 08-29-49 | A | 3,210 | 3,120,560 | |
Silicon Valley Bank, | ||||||
Sub Note | 6.050 | 06-01-17 | BBB | 2,335 | 2,404,588 | |
Societe Generale, | ||||||
Sub Note (France) (F)(S) | 5.922 | 04-05-49 | A+ | 1,725 | 1,580,555 |
See notes to financial statements
Semiannual report | Bond Fund
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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 (continued) | ||||||
Standard Chartered Plc, | ||||||
Bond (Great Britain) (F)(P)(S) | 7.014% | 07-30-49 | BBB+ | $1,700 | $1,581,660 | |
Sub Note (Great Britain) (F)(S) | 6.400 | 09-26-17 | A | 865 | 885,898 | |
Wachovia Bank NA, | ||||||
Sub Note Ser BKNT (N) | 6.600 | 01-15-38 | AA– | 1,500 | 1,496,880 | |
Sub Note Ser BKNT | 6.000 | 11-15-17 | AA– | 2,130 | 2,144,285 | |
Diversified Chemicals 0.12% | 1,177,000 | |||||
Mosiac Co. (The), | ||||||
Sr Note (S) | 7.625 | 12-01-16 | BB– | 1,100 | 1,177,000 | |
Diversified Commercial & Professional Services 0.18% | 1,751,925 | |||||
GRUPO KUO SAB DE CV, | ||||||
Gtd Sr Note (Mexico) (F)(S) | 9.750 | 10-17-17 | BB– | 1,775 | 1,751,925 | |
Diversified Financial Services 2.50% | 23,810,316 | |||||
CIT Group, Inc., | ||||||
Sr Note | 5.650 | 02-13-17 | A | 660 | 573,395 | |
Sr Note | 5.000 | 02-13-14 | A | 1,020 | 911,752 | |
Citigroup, Inc., | ||||||
Sr Note | 6.125 | 11-21-17 | AA | 1,605 | 1,651,624 | |
Cosan Finance Ltd., | ||||||
Gtd Bond (Bermuda) (F)(L)(S) | 7.000 | 02-01-17 | BB | 1,120 | 1,058,400 | |
Erac USA Finance Co., | ||||||
Gtd Sr Note (S) | 6.375 | 10-15-17 | BBB | 1,730 | 1,711,944 | |
Ford Motor Credit Co., | ||||||
Sr Note | 9.875 | 08-10-11 | B | 1,135 | 1,098,350 | |
Sr Note | 9.750 | 09-15-10 | B | 3,237 | 3,144,265 | |
General Electric Capital Corp., | ||||||
Sub Bond (P) | 6.375 | 11-15-67 | AA+ | 2,740 | 2,791,755 | |
Huntington Capital III, | ||||||
Gtd Sub Bond | 6.650 | 05-15-37 | BBB– | 2,165 | 1,855,741 | |
Nelnet, Inc., | ||||||
Note (7.400% to 9-1-11 then variable) | 7.400 | 09-29-36 | BBB– | 2,595 | 2,614,730 | |
QBE Capital Funding II LP, | ||||||
Gtd Sub Bond (Jersey | ||||||
Islands) (F)(S) | 6.797 | 06-01-49 | BBB | 2,485 | 2,406,019 | |
SMFG Preferred Capital, | ||||||
Bond (S) | 6.078 | 01-25-17 | BBB | 2,215 | 2,032,373 | |
Sovereign Capital Trust VI, | ||||||
Gtd Note | 7.908 | 06-13-36 | BB+ | 1,840 | 1,959,968 | |
Diversified Metals & Mining 0.33% | 3,139,357 | |||||
Blaze Recycling & Metals | ||||||
LLC/Blaze Finance Corp., | ||||||
Sr Sec Note (S) | 10.875 | 07-15-12 | B | 595 | 544,425 | |
Freeport-McMoRan Copper & | ||||||
Gold, Inc., | ||||||
Sr Note | 8.375 | 04-01-17 | BB | 485 | 523,800 | |
New Gold, Inc., | ||||||
Sr Note (Canada) (D)(G) | 10.000 | 06-28-17 | CCC+ | 1,350 | 1,140,807 | |
Vedanta Resources Plc, | ||||||
Sr Note (United Kingdom) (F)(S) | 6.625 | 02-22-10 | BB | 935 | 930,325 |
See notes to financial statements
Bond Fund | Semiannual report
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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 | |
Drug Retail 0.60% | $5,713,549 | |||||
CVS Caremark Corp., | ||||||
Jr Sub Bond (P) | 6.302% | 06-01-37 | BBB– | $3,635 | 3,561,137 | |
Sr Note | 5.750 | 06-01-17 | BBB+ | 2,140 | 2,152,412 | |
Electric Utilities 2.80% | 26,673,169 | |||||
Abu Dhabi National Energy Co., | ||||||
Bond (United Arab | ||||||
Emirates) (F)(S) | 6.500 | 10-27-36 | A+ | 3,035 | 2,891,563 | |
AES Eastern Energy LP, | ||||||
Pass Thru Ctf 1999-A | 9.000 | 01-02-17 | BB+ | 3,467 | 3,753,313 | |
Beaver Valley Funding Corp., | ||||||
Sec Lease Obligation Bond | 9.000 | 06-01-17 | BBB– | 3,467 | 3,920,657 | |
BVPS II Funding Corp., | ||||||
Collateralized Lease Bond | 8.890 | 06-01-17 | BBB– | 2,297 | 2,617,565 | |
HQI Transelect Chile SA, | ||||||
Sr Note (Chile) (F) | 7.875 | 04-15-11 | BBB– | 2,655 | 2,881,822 | |
Indiantown Cogeneration LP, | ||||||
1st Mtg Note Ser A-9 | 9.260 | 12-15-10 | BB+ | 1,109 | 1,171,885 | |
IPALCO Enterprises, Inc., | ||||||
Sr Sec Note | 8.625 | 11-14-11 | BB– | 1,835 | 1,926,750 | |
Monterrey Power SA de CV, | ||||||
Sr Sec Bond (Mexico) (F)(S) | 9.625 | 11-15-09 | BBB | 2,445 | 2,643,965 | |
PNPP II Funding Corp., | ||||||
Deb | 9.120 | 05-30-16 | BBB– | 193 | 228,361 | |
Waterford 3 Funding Corp., | ||||||
Sec Lease Obligation Bond | 8.090 | 01-02-17 | BBB– | 4,459 | 4,637,288 | |
Electronic Equipment Manufacturers 0.11% | 1,004,109 | |||||
Tyco Electronics Group SA, | ||||||
Gtd Sr Bond (Luxembourg) (F)(S) | 6.550 | 10-01-17 | BBB | 970 | 1,004,109 | |
Food Distributors 0.32% | 3,083,238 | |||||
Kellogg Co., | ||||||
Sr Note | 5.125 | 12-03-12 | BBB+ | 3,060 | 3,083,238 | |
Gas Utilities 0.39% | 3,737,134 | |||||
KN Capital Trust I | ||||||
Cap Security | 8.560 | 04-15-27 | B– | 1,670 | 1,569,800 | |
Southern Union Co., | ||||||
Jr Sub Note (7.200% to 11-1-11 | ||||||
then variable) | 7.200 | 11-01-66 | BB | 2,165 | 2,167,334 | |
Health Care Distributors 0.16% | 1,513,283 | |||||
Covidien International | ||||||
Finance SA, | ||||||
Gtd Sr Note (Luxembourg) (F)(S) | 6.000 | 10-15-17 | A– | 1,455 | 1,513,283 | |
Health Care Facilities 0.27% | 2,585,600 | |||||
Community Health Systems, Inc., | ||||||
Gtd Sr Sub Note (L) | 8.875 | 07-15-15 | B– | 2,560 | 2,585,600 |
See notes to financial statements
Semiannual report | 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 | |
Health Care Services 0.44% | $4,204,118 | |||||
Alliance Imaging, Inc., | ||||||
Sr Sub Note (L) | 7.250% | 12-15-12 | B– | $935 | 869,550 | |
Sr Sub Note (S) | 7.250 | 12-15-12 | B– | 695 | 646,350 | |
UnitedHealth Group, Inc., | ||||||
Bond (S) | 6.625 | 11-15-37 | A– | 1,445 | 1,427,348 | |
Bond (S) | 5.500 | 11-15-12 | A– | 1,240 | 1,260,870 | |
Health Care Supplies 0.07% | 658,125 | |||||
Bausch & Lomb, Inc. | ||||||
Sr Note (L)(S) | 9.875 | 11-01-15 | B– | 650 | 658,125 | |
Hotels, Resorts & Cruise Lines 0.19% | 1,797,558 | |||||
Starwood Hotels & Resorts | ||||||
Worldwide, Inc., | ||||||
Sr Note | 6.250 | 02-15-13 | BBB– | 1,815 | 1,797,558 | |
Industrial Conglomerates 0.32% | 3,013,929 | |||||
Buckeye Parterns LP, | ||||||
Bond | 5.125 | 07-01-17 | BBB | 1,260 | 1,220,592 | |
General Electric Co., | ||||||
Sr Note (N) | 5.250 | 12-06-17 | AAA | 1,810 | 1,793,337 | |
Insurance Brokers 0.12% | 1,177,719 | |||||
Progressive Corp. (The), | ||||||
Jr Sub Deb (P) | 6.700 | 06-15-37 | A– | 1,225 | 1,177,719 | |
Integrated Telecommunication Services 1.26% | 11,962,688 | |||||
AT&T, Inc., | ||||||
Note (L) | 6.500 | 09-01-37 | A | 960 | 1,011,200 | |
Axtel SAB de CV, | ||||||
Sr Note (Mexico) (F)(S) | 7.625 | 02-01-17 | BB– | 1,890 | 1,866,375 | |
Cincinnati Bell, Inc., | ||||||
Gtd Sr Sub Note (L) | 8.375 | 01-15-14 | B– | 1,215 | 1,175,512 | |
Nextel Communications, Inc., | ||||||
Sr Gtd Note Ser E | 6.875 | 10-31-13 | BBB | 2,365 | 2,316,477 | |
Qwest Corp., | ||||||
Sr Note | 7.875 | 09-01-11 | BBB– | 1,620 | 1,672,650 | |
Sprint Capital Corp., | ||||||
Gtd Sr Note | 6.875 | 11-15-28 | BBB+ | 2,355 | 2,210,474 | |
West Corp., | ||||||
Gtd Sr Sub Note | 11.000 | 10-15-16 | B– | 1,710 | 1,710,000 | |
Investment Banking & Brokerage 0.93% | 8,862,874 | |||||
BNP Paribas, | ||||||
Jr Sub Note (7.195% to 6-25-37 | ||||||
then variable) (France) (F)(S) | 7.195 | 06-29-49 | AA– | 1,065 | 1,001,622 | |
Goldman Sachs Group, Inc. (The), | ||||||
Jr Sub Note | 6.750 | 10-01-37 | A+ | 1,025 | 1,006,809 | |
JPMorgan Chase Bank NA, | ||||||
Sub Note Ser BKNT | 6.000 | 10-01-17 | AA– | 2,020 | 2,040,895 | |
Merna Reinsurance Ltd., | ||||||
Sec Sub Note (Bermuda) (F)(P) | 6.981 | 07-07-10 | A2 | 2,020 | 2,007,476 | |
Mizuho Finance, | ||||||
Gtd Sub Bond (Cayman Islands) (F) | 8.375 | 12-29-49 | A2 | 2,750 | 2,806,072 |
See notes to financial statements
Bond Fund | Semiannual report
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 | |
Life & Health Insurance 0.48% | $4,589,011 | |||||
Lincoln National Corp., | ||||||
Jr Sub Bond | 6.050% | 04-20-67 | A– | $915 | 866,819 | |
Provident Financing Trust I, | ||||||
Gtd Cap Security (L) | 7.405 | 03-15-38 | B+ | 1,855 | 1,988,445 | |
Symetra Financial Corp., | ||||||
Jr Sub Bond (P)(S) | 8.300 | 10-15-37 | BB | 1,660 | 1,733,747 | |
Marine 0.67% | 6,376,750 | |||||
CMA CGM SA, | ||||||
Sr Note (France) (F)(S) | 7.250 | 02-01-13 | BB+ | 2,690 | 2,582,400 | |
Minerva Overseas Ltd., | ||||||
Gtd Note (Cayman Islands) (F)(S) | 9.500 | 02-01-17 | B | 2,350 | 2,314,750 | |
Navios Maritime Holdings, Inc., | ||||||
Sr Note (Marshall Islands) (F) | 9.500 | 12-15-14 | B | 1,440 | 1,479,600 | |
Metal & Glass Containers 0.25% | 2,386,875 | |||||
BWAY Corp., | ||||||
Gtd Sr Sub Note | 10.000 | 10-15-10 | B– | 2,375 | 2,386,875 | |
Movies & Entertainment 0.09% | 855,600 | |||||
Cinemark, Inc., | ||||||
Sr Disc Note | 9.750 | 03-15-14 | CCC+ | 920 | 855,600 | |
Multi-Line Insurance 1.01% | 9,571,500 | |||||
Axa SA, | ||||||
Perpetual Sub Note (6.379% to | ||||||
12-14-36 then variable) (France) | ||||||
(F)(L)(S) | 6.379 | 12-14-49 | BBB | 1,170 | 990,655 | |
Genworth Financial, Inc., | ||||||
Jr Sub Note (6.150% to 11-15-16 | ||||||
then variable) | 6.150 | 11-15-66 | BBB+ | 1,640 | 1,505,705 | |
Horace Mann Educators Corp., | ||||||
Sr Note | 6.850 | 04-15-16 | BBB | 1,425 | 1,525,814 | |
Liberty Mutual Group, | ||||||
Bond (S) | 7.500 | 08-15-36 | BBB | 3,070 | 3,154,121 | |
Gtd Jr Sub Bond (S) | 7.800 | 03-15-37 | BB+ | 2,635 | 2,395,205 | |
Multi-Media 0.52% | 4,908,582 | |||||
News America Holdings, Inc., | ||||||
Gtd Sr Deb | 8.250 | 08-10-18 | BBB | 2,165 | 2,550,415 | |
Quebecor Media, Inc., | ||||||
Sr Note (Canada) (F)(S) | 7.750 | 03-15-16 | B | 355 | 331,037 | |
Time Warner Entertainment Co. LP, | ||||||
Sr Deb | 8.375 | 03-15-23 | BBB+ | 1,740 | 2,027,130 | |
Multi-Utilities 0.77% | 7,291,551 | |||||
Dynegy-Roseton Danskamme, | ||||||
Gtd Pass Thru Ctf Ser B (L) | 7.670 | 11-08-16 | B | 2,090 | 2,056,037 | |
Salton Sea Funding Corp., | ||||||
Gtd Sr Sec Note Ser E | 8.300 | 05-30-11 | BBB– | 933 | 1,038,008 | |
Sr Sec Bond Ser F | 7.475 | 11-30-18 | BBB– | 1,845 | 2,050,387 | |
TECO Energy, Inc., | ||||||
Note | 7.000 | 05-01-12 | BB+ | 2,050 | 2,147,119 |
See notes to financial statements
Semiannual report | 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 | |
Office Services & Supplies 0.24% | $2,271,011 | |||||
Xerox Corp., | ||||||
Sr Note (L) | 6.750% | 02-01-17 | BB+ | $2,170 | 2,271,011 | |
Oil & Gas Drilling 0.26% | 2,498,444 | |||||
Allis-Chalmers Energy, Inc., | ||||||
Sr Note | 8.500 | 03-01-17 | B | 1,270 | 1,219,200 | |
Delek & Avner-Yam Tethys Ltd., | ||||||
Sr Sec Note (Israel) (F)(S) | 5.326 | 08-01-13 | BBB– | 1,259 | 1,279,244 | |
Oil & Gas Exploration & Production 0.59% | 5,579,826 | |||||
EnCana Corp., | ||||||
Note (Canada) (F)(N) | 5.900 | 12-01-17 | A– | 1,795 | 1,815,501 | |
Marathon Oil Corp., | ||||||
Sr Note | 6.000 | 10-01-17 | BBB+ | 950 | 970,392 | |
McMoRan Exploration Co., | ||||||
Gtd Sr Note | 11.875 | 11-15-14 | CCC+ | 1,230 | 1,236,150 | |
Western Oil Sands, Inc., | ||||||
Sr Sec Note (Canada) (F) | 8.375 | 05-01-12 | BBB+ | 1,400 | 1,557,783 | |
Oil & Gas Refining & Marketing 0.46% | 4,377,512 | |||||
Enterprise Products Operating LP, | ||||||
Gtd Jr Sub Note (P) | 7.034 | 01-15-68 | BB | 2,130 | 1,982,227 | |
Premcor Refining Group, Inc., | ||||||
Gtd Sr Note | 6.750 | 05-01-14 | BBB | 2,310 | 2,395,285 | |
Oil & Gas Storage & Transportation 0.61% | 5,787,076 | |||||
Markwest Energy Partners LP, | ||||||
Sr Note Ser B | 8.500 | 07-15-16 | B | 1,835 | 1,839,587 | |
ONEOK Partners LP, | ||||||
Gtd Sr Note | 6.850 | 10-15-37 | BBB | 1,430 | 1,513,483 | |
TEPPCO Partners LP, | ||||||
Gtd Jr Sub Note | 7.000 | 06-01-67 | BB | 2,640 | 2,434,006 | |
Packaged Foods & Meats 0.33% | 3,169,838 | |||||
ASG Consolidated LLC/ASG | ||||||
Finance, Inc., | ||||||
Sr Disc Note (Zero to 11-1-08 | ||||||
then 11.500%) (O) | Zero | 11-01-11 | B– | 2,200 | 2,024,000 | |
General Foods Corp., | ||||||
Deb | 7.000 | 06-15-11 | A– | 1,145 | 1,145,838 | |
Paper Packaging 0.06% | 556,600 | |||||
US Corrugated, Inc., | ||||||
Sr Sec Note | 10.000 | 06-01-13 | B | 605 | 556,600 | |
Paper Products 0.47% | 4,470,222 | |||||
Plum Creek Timber Co., Inc., | ||||||
Gtd Note | 5.875 | 11-15-15 | BBB– | 1,740 | 1,718,772 | |
Stone Container Corp., | ||||||
Sr Note | 8.000 | 03-15-17 | CCC+ | 920 | 883,200 | |
Verso Paper Holdings LLC, | ||||||
Gtd Ser Sec Note Ser B | 9.125 | 08-01-14 | B+ | 1,880 | 1,868,250 |
See notes to financial statements
Bond Fund | Semiannual report
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 | |
Pharmaceuticals 0.26% | $2,512,605 | |||||
Abbott Laboratories, | ||||||
Sr Note | 5.600% | 11-30-17 | AA | $2,460 | 2,512,605 | |
Property & Casualty Insurance 0.27% | 2,580,585 | |||||
Ohio Casualty Corp., | ||||||
Sr Note | 7.300 | 06-15-14 | BBB– | 2,330 | 2,580,585 | |
Real Estate Management & Development 0.85% | 8,103,079 | |||||
Health Care REIT, Inc., | ||||||
Sr Note | 6.200 | 06-01-16 | BBB– | 1,835 | 1,824,229 | |
Healthcare Realty Trust, Inc., | ||||||
Sr Note | 8.125 | 05-01-11 | BBB– | 1,715 | 1,886,894 | |
HRPT Properties Trust, | ||||||
Sr Note | 6.650 | 01-15-18 | BBB | 1,070 | 1,077,897 | |
Nationwide Health | ||||||
Properties, Inc., | ||||||
Note | 6.500 | 07-15-11 | BBB– | 1,745 | 1,823,309 | |
Shimao Property Holding Ltd., | ||||||
Gtd Sr Note (Cayman | ||||||
Islands) (F)(S) | 8.000 | 12-01-16 | BB+ | 1,675 | 1,490,750 | |
Regional Banks 0.09% | 835,963 | |||||
Sun Trust Banks, Inc., | ||||||
Bond (6.100% to 12-15-36 then | ||||||
variable) | 6.100 | 12-01-66 | A– | 1,020 | 835,963 | |
Restaurants 0.07% | 655,500 | |||||
Dave & Buster’s, Inc., | ||||||
Gtd Sr Note | 11.250 | 03-15-14 | CCC+ | 690 | 655,500 | |
Semiconductor Equipment 0.16% | 1,487,762 | |||||
Freescale Semiconductor, Inc., | ||||||
Sr Sub Note (L) | 10.125 | 12-15-16 | B | 1,735 | 1,487,762 | |
Specialized Consumer Services 0.13% | 1,215,500 | |||||
Idearc, Inc., | ||||||
Gtd Sr Note | 8.000 | 11-15-16 | B+ | 1,300 | 1,215,500 | |
Specialized Finance 1.77% | 16,850,399 | |||||
Astoria Depositor Corp., | ||||||
Pass Thru Ctf Ser B (G)(S) | 8.144 | 05-01-21 | BB | 3,590 | 3,715,650 | |
Bosphorous Financial Services, | ||||||
Sec Floating Rate Note (P)(S) | 6.669 | 02-15-12 | Baa2 | 2,660 | 2,632,541 | |
Drummond Co., Inc., | ||||||
Sr Note (S) | 7.375 | 02-15-16 | BB– | 1,060 | 969,900 | |
ESI Tractebel Acquisition Corp., | ||||||
Gtd Sec Bond Ser B | 7.990 | 12-30-11 | BB | 3,338 | 3,416,874 | |
HRP Myrtle Beach Operations LLC, | ||||||
Sr Sec Note (P)(S) | 9.894 | 04-01-12 | B+ | 1,075 | 1,042,750 | |
UCAR Finance, Inc., | ||||||
Gtd Sr Note | 10.250 | 02-15-12 | B | 2,317 | 2,386,510 | |
USB Realty Corp., | ||||||
Perpetual Bond (6.091% to 1-15-12 | ||||||
then variable) (S) | 6.091 | 01-15-49 | A+ | 2,900 | 2,686,174 |
See notes to financial statements
Semiannual report | 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 | |
Specialty Chemicals 0.37% | $3,567,450 | |||||
American Pacific Corp., | ||||||
Gtd Sr Note | 9.000% | 02-01-15 | B | $2,000 | 2,025,000 | |
Nova Chemicals Ltd., | ||||||
Note (Canada) (F) | 7.875 | 09-15-25 | B+ | 1,695 | 1,542,450 | |
Steel 0.25% | 2,378,775 | |||||
WCI Steel Acquisition, Inc., | ||||||
Sr Sec Note (G) | 8.000 | 05-01-16 | B+ | 2,415 | 2,378,775 | |
Thrifts & Mortgage Finance 23.95% | 227,944,395 | |||||
American Home Mortgage Assets, | ||||||
Mtg Pass Thru Ctf Ser 2006-6 | ||||||
Class XP IO | 2.221 | 12-25-46 | AAA | 53,121 | 2,622,836 | |
American Tower Trust, | ||||||
Mtg Pass Thru Ctf Ser 2007-1A | ||||||
Class D (S) | 5.957 | 04-15-37 | BBB | 3,175 | 2,971,959 | |
Banc of America Commercial | ||||||
Mortgage, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2005-6 | ||||||
Class A4 (P) | 5.181 | 09-10-47 | AAA | 2,965 | 2,943,407 | |
Mtg Pass Thru Ctf Ser 2006-2 | ||||||
Class A3 (P) | 5.712 | 05-10-45 | AAA | 5,400 | 5,529,278 | |
Mtg Pass Thru Ctf Ser 2006-3 | ||||||
Class A4 | 5.889 | 07-10-44 | AAA | 5,260 | 5,424,186 | |
Banc of America Funding Corp., | ||||||
Mtg Pass Thru Ctf Ser 2006-B | ||||||
Class 6A1 (P) | 5.879 | 03-20-36 | AAA | 3,931 | 3,923,115 | |
Mtg Pass Thru Ctf Ser 2006-D | ||||||
Class 6B1 (P) | 5.945 | 05-20-36 | AA+ | 2,116 | 2,139,142 | |
Mtg Pass Thru Ctf Ser 2007-E | ||||||
Class 4A1 (P) | 5.920 | 07-20-47 | AAA | 2,384 | 2,425,404 | |
Bank of America Commercial | ||||||
Mortgage, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2006-4 | ||||||
Class A3A | 5.600 | 07-10-46 | AAA | 4,245 | 4,305,727 | |
Bear Stearns Alt-A Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-3 | ||||||
Class B2 (P) | 5.305 | 04-25-35 | AA+ | 1,248 | 1,278,964 | |
Bear Stearns Commercial Mortgage | ||||||
Securities, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2002-T0P8 | ||||||
Class A2 | 4.830 | 08-15-38 | AAA | 4,260 | 4,196,781 | |
Mtg Pass Thru Ctf Ser 2003-T10 | ||||||
Class A2 | 4.740 | 03-13-40 | AAA | 4,690 | 4,572,558 | |
Mtg Pass Thru Ctf Ser 2006-PW14 | ||||||
Class D | 5.412 | 12-01-38 | A | 2,480 | 2,093,060 | |
Chaseflex Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-2 | ||||||
Class 4A1 | 5.000 | 05-25-20 | AAA | 3,268 | 3,242,171 | |
Citigroup Commercial | ||||||
Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-C4 | ||||||
Class A3 (P) | 5.914 | 03-15-49 | Aaa | 3,350 | 3,433,451 |
See notes to financial statements
Bond Fund | Semiannual report
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) | ||||||
Citigroup Mortgage Loan | ||||||
Trust, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2005-5 | ||||||
Class 2A3 | 5.000% | 08-25-35 | AAA | $1,933 | $1,922,485 | |
Mtg Pass Thru Ctf Ser 2005-10 | ||||||
Class 1A5A (P) | 5.833 | 12-25-35 | AAA | 2,945 | 2,935,212 | |
Citigroup/Deutsche Bank | ||||||
Commercial Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-CD1 | ||||||
Class C (P) | 5.400 | 07-15-44 | AA | 1,030 | 973,256 | |
Commercial Mortgage, | ||||||
Mtg Pass Thru Ctf Ser 2006-C7 | ||||||
Class A3 (P) | 5.706 | 06-10-46 | AAA | 3,200 | 3,277,983 | |
ContiMortgage Home Equity | ||||||
Loan Trust, | ||||||
Pass Thru Ctf Ser 1995-2 | ||||||
Class A-5 | 8.100 | 08-15-25 | AAA | 363 | 361,763 | |
Countrywide Alternative | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-59 | ||||||
Class 2X IO (P) | 2.367 | 11-20-35 | AAA | 30,569 | 1,050,802 | |
Mtg Pass Thru Ctf Ser 2006-0A3 | ||||||
Class X IO (P) | 2.430 | 05-25-36 | AAA | 17,742 | 723,523 | |
Mtg Pass Thru Ctf Ser 2006-0A8 | ||||||
Class X IO (P) | 1.930 | 07-25-46 | AAA | 39,230 | 1,471,120 | |
Mtg Pass Thru Ctf Ser 2006-0A10 | ||||||
Class XPP IO (P) | 1.920 | 08-25-46 | AAA | 20,604 | 766,213 | |
Mtg Pass Thru Ctf Ser 2006-11CB | ||||||
Class 3A1 | 6.500 | 05-25-36 | Aaa | 4,177 | 4,217,638 | |
Mtg Pass Thru Ctf Ser 2007-0A8 | ||||||
Class X IO | 2.000 | 06-25-47 | AAA | 26,037 | 1,033,336 | |
Crown Castle Towers LLC, | ||||||
Mtg Pass Thru Ctf Ser 2006-1A | ||||||
Class E (S) | 6.065 | 11-15-36 | Baa3 | 2,900 | 2,761,670 | |
Mtg Pass Thru Ctf Ser 2006-1A | ||||||
Class F (S) | 6.650 | 11-15-36 | Ba1 | 5,065 | 4,883,369 | |
CS First Boston Mortgage | ||||||
Securities Corp., | ||||||
Mtg Pass Thru Ctf Ser 2003-CPN1 | ||||||
Class A2 | 4.597 | 03-15-35 | AAA | 6,665 | 6,487,324 | |
DB Master Finance LLC, | ||||||
Mtg Pass Thru Ctf Ser 2006-1 | ||||||
Class A2 (S) | 5.779 | 06-20-31 | AAA | 4,605 | 4,439,653 | |
Mtg Pass Thru Ctf Ser 2006-1 | ||||||
Class M1 (S) | 8.285 | 06-20-31 | BB | 1,065 | 1,077,130 | |
Dominos Pizza Master Issuer LLC, | ||||||
Mtg Pass Thru Ctf Ser 2007-1 | ||||||
Class M1 (S) | 7.629 | 04-25-37 | BB | 3,215 | 3,109,596 | |
DSLA Mortgage Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-AR5 | ||||||
Class X2 IO | 2.335 | 08-19-45 | AAA | 41,815 | 1,358,998 |
See notes to financial statements
Semiannual report | 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) | ||||||
First Horizon Alternative | ||||||
Mortgage Securities, | ||||||
Mtg Pass Thru Ctf Ser 2004-AA5 | ||||||
Class B1 (P) | 5.212% | 12-25-34 | AA | $1,317 | $1,289,618 | |
Mtg Pass Thru Ctf Ser 2006-AA2 | ||||||
Class B1 (G)(P) | 6.183 | 05-25-36 | AA | 1,327 | 1,392,041 | |
Global Signal Trust, | ||||||
Sub Bond Ser 2004-2A Class D (S) | 5.093 | 12-15-14 | Baa2 | 1,425 | 1,394,206 | |
Sub Bond Ser 2006-1 Class E (S) | 6.495 | 02-15-36 | Baa3 | 1,850 | 1,798,755 | |
Global Tower Partners Acquisition | ||||||
Partners LLC, | ||||||
Mtg Pass Thru Ctf Ser 2007-1A | ||||||
Class F (S) | 7.050 | 05-15-37 | Ba2 | 780 | 776,545 | |
GMAC Commercial Mortgage | ||||||
Securities, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2002-C1 | ||||||
Class A1 | 5.785 | 11-15-39 | AAA | 2,887 | 2,916,202 | |
Mtg Pass Thru Ctf Ser 2003-C2 | ||||||
Class B (P) | 5.314 | 05-10-40 | AAA | 7,495 | 7,561,655 | |
GMAC Mortgage Corporation | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-AR1 | ||||||
Class 2A1 (P) | 5.642 | 04-19-36 | AAA | 2,566 | 2,536,787 | |
Greenwich Capital Commercial | ||||||
Funding Corp., | ||||||
Mtg Pass Thru Ctf Ser 2007-GG9 | ||||||
Class C | 5.554 | 03-10-39 | AA | 1,810 | 1,639,798 | |
Mtg Pass Thru Ctf Ser 2007-GG9 | ||||||
Class F | 5.633 | 03-10-39 | A | 995 | 789,848 | |
GS Mortgage Securities Corp. | ||||||
Mtg Pass Thru Ctf Ser 2006-NIM3 | ||||||
Class N2 | 8.112 | 06-25-46 | Baa2 | 1,070 | 1,063,981 | |
GS Mortgage Securities Corp. II, | ||||||
Mtg Pass Thru Ctf Ser 2006-GG8 | ||||||
Class A2 | 5.479 | 11-10-39 | Aaa | 6,025 | 6,120,685 | |
GSR Mortgage Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2004-9 | ||||||
Class B1 (G)(P) | 5.262 | 08-25-34 | AA | 2,015 | 2,036,753 | |
Mtg Pass Thru Ctf Ser 2006-AR1 | ||||||
Class 3A1 (P) | 5.392 | 01-25-36 | AAA | 5,646 | 5,574,187 | |
Harborview Mortgage Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-8 | ||||||
Class 1X IO (P) | 1.832 | 09-19-35 | AAA | 29,689 | 853,557 | |
Mtg Pass Thru Ctf Ser 2007-3 | ||||||
Class ES IO (G) | 0.350 | 05-19-47 | AAA | 73,434 | 562,230 | |
Mtg Pass Thru Ctf Ser 2007-4 | ||||||
Class ES IO (G)(P) | 0.304 | 07-19-47 | AAA | 73,213 | 652,051 | |
Mtg Pass Thru Ctf Ser 2007-6 | ||||||
Class ES IO (G)(S) | 0.293 | 11-19-15 | AAA | 51,980 | 397,973 | |
Harborview NIM Corp., | ||||||
Mtg Pass Thru Ctf Ser 2007-A | ||||||
Class N2 (G)(S) | 7.870 | 04-25-37 | BBB– | 2,097 | 2,086,582 |
See notes to financial statements
Bond Fund | Semiannual report
22
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) | ||||||
Indymac Index Mortgage | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2004-AR13 | ||||||
Class B1 | 5.296% | 01-25-35 | AA | $1,293 | $1,265,756 | |
Mtg Pass Thru Ctf Ser 2005-AR18 | ||||||
Class 1X IO | 1.936 | 10-25-36 | AAA | 71,777 | 2,287,891 | |
Mtg Pass Thru Ctf Ser 2005-AR5 | ||||||
Class B1 (P) | 5.424 | 05-25-35 | AA | 1,881 | 1,918,131 | |
Mtg Pass Thru Ctf Ser 2006-AR19 | ||||||
Class 1B1 (P) | 6.405 | 08-25-36 | AA | 1,782 | 1,628,838 | |
Indymac Index NIM Corp., | ||||||
Mtg Pass Thru Ctf Ser 2006-AR6 | ||||||
Class N2 (S) | 8.833 | 06-25-46 | BBB– | 1,785 | 1,785,000 | |
JP Morgan Chase Commercial | ||||||
Mortgage Security Corp., | ||||||
Mtg Pass Thru Ctf Ser 2005-LDP3 | ||||||
Class A4B | 4.996 | 08-15-42 | AAA | 2,865 | 2,786,894 | |
Mtg Pass Thru Ctf Ser 2005-LDP4 | ||||||
Class B | 5.129 | 10-15-42 | Aa2 | 1,646 | 1,539,044 | |
Mtg Pass Thru Ctf Ser 2006-LDP7 | ||||||
Class A4 (P) | 6.066 | 04-15-45 | AAA | 3,345 | 3,450,531 | |
JP Morgan Commercial Mortgage | ||||||
Finance Corp., | ||||||
Mtg Pass Thru Ctf Ser 1997-C5 | ||||||
Class D | 7.351 | 09-15-29 | AA+ | 1,727 | 1,770,076 | |
JP Morgan Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-S2 | ||||||
Class 2A16 | 6.500 | 09-25-35 | AAA | 2,577 | 2,595,590 | |
Mtg Pass Thru Ctf Ser 2005-S3 | ||||||
Class 2A2 | 5.500 | 01-25-21 | AAA | 3,653 | 3,672,111 | |
Mtg Pass Thru Ctf Ser 2006-A7 | ||||||
Class 2A5 (P) | 5.831 | 01-25-37 | Aa1 | 5,056 | 5,096,732 | |
LB-UBS Commercial Mortgage Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-C4 | ||||||
Class A4 (P) | 6.081 | 06-15-38 | AAA | 3,950 | 4,091,847 | |
Master Adjustable Rate | ||||||
Mortgages Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-2 | ||||||
Class 4A1 (P) | 4.991 | 02-25-36 | AAA | 4,384 | 4,277,416 | |
Merrill Lynch/Countrywide | ||||||
Commercial Mtg Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-2 | ||||||
Class A4 (P) | 6.105 | 06-12-46 | AAA | 4,535 | 4,698,918 | |
Mtg Pass Thru Ctf Ser 2006-3 | ||||||
Class A4 | 5.414 | 07-12-46 | Aaa | 3,880 | 3,870,850 | |
MLCC Mortgage Investors, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2007-3 | ||||||
Class M1 (G)(P) | 5.980 | 09-25-37 | AA | 1,565 | 1,572,844 | |
Mtg Pass Thru Ctf Ser 2007-3 | ||||||
Class M2 (G)(P) | 5.980 | 09-25-37 | A | 585 | 584,093 | |
Mtg Pass Thru Ctf Ser 2007-3 | ||||||
Class M3 (G)(P) | 5.980 | 09-25-37 | BBB | 375 | 360,650 |
See notes to financial statements
Semiannual report | 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 | |
Thrifts & Mortgage Finance (continued) | ||||||
Morgan Stanley Capital I, | ||||||
Mtg Pass Thru Ctf Ser 2005-HQ7 | ||||||
Class A4 (P) | 5.374% | 11-14-42 | AAA | $3,065 | $3,039,898 | |
Mtg Pass Thru Ctf Ser 2005-IQ10 | ||||||
Class A4A (L) | 5.230 | 09-15-42 | AAA | 4,520 | 4,468,384 | |
Mtg Pass Thru Ctf Ser 2006-IQ12 | ||||||
Class E | 5.538 | 12-15-43 | A+ | 2,430 | 2,120,713 | |
Provident Funding Mortgage | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-1 | ||||||
Class B1 (P) | 4.353 | 05-25-35 | AA | 1,604 | 1,529,882 | |
Renaissance Home Equity | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-2 | ||||||
Class AF3 | 4.499 | 08-25-35 | AAA | 2,080 | 2,045,487 | |
Mtg Pass Thru Ctf Ser 2005-2 | ||||||
Class AF4 | 4.934 | 08-25-35 | AAA | 2,365 | 2,160,153 | |
Residential Accredit Loans, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2005-QA12 | ||||||
Class NB5 (P) | 5.961 | 12-25-35 | AAA | 2,584 | 2,580,207 | |
Residential Asset | ||||||
Securitization Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-A7CB | ||||||
Class 2A1 | 6.500 | 07-25-36 | AAA | 4,241 | 4,253,782 | |
SBA CMBS Trust, | ||||||
Sub Bond Ser 2005-1A Class D (S) | 6.219 | 11-15-35 | Baa2 | 850 | 835,373 | |
Sub Bond Ser 2005-1A Class E (S) | 6.706 | 11-15-35 | Baa3 | 795 | 776,426 | |
Sub Bond Ser 2006-1A Class H (S) | 7.389 | 11-15-36 | Ba3 | 1,373 | 1,283,081 | |
Sub Bond Ser 2006-1A Class J (S) | 7.825 | 11-15-36 | B1 | 850 | 793,604 | |
Sharps SP I LLC Trust, | ||||||
Mtg Pass Thru Ctf Ser 2006-CW4N | ||||||
Class NB | 9.250 | 04-25-46 | Baa3 | 1,027 | 1,012,855 | |
Washington Mutual Alternative | ||||||
Loan Trust, | ||||||
Mtg Pass Thru Ctf Ser 2005-6 | ||||||
Class 1CB | 6.500 | 08-25-35 | AAA | 1,694 | 1,728,629 | |
Washington Mutual, Inc., | ||||||
Mtg Pass Thru Ctf Ser 2007-0A4 | ||||||
Class XPPP IO | 0.678 | 04-25-47 | Aaa | 73,508 | 1,462,840 | |
Mtg Pass Thru Ctf Ser 2007-0A5 | ||||||
Class 1XPP IO | 0.689 | 06-25-47 | Aaa | 172,147 | 2,219,430 | |
Mtg Pass Thru Ctf Ser 2007-0A6 | ||||||
Class 1XPP IO | 0.653 | 07-25-47 | Aaa | 98,251 | 1,428,404 | |
Mtg Pass Thru Ctf Ser 2007-1 | ||||||
Class B1 | 6.205 | 02-25-37 | AA | 2,148 | 1,945,752 | |
Wells Fargo Mortgage Backed | ||||||
Securities Trust, | ||||||
Mtg Pass Thru Ctf Ser 2004-7 | ||||||
Class 2A2 | 5.000 | 07-25-19 | AAA | 2,215 | 2,204,219 | |
Mtg Pass Thru Ctf Ser 2006-AR15 | ||||||
Class A3 (P) | 5.656 | 10-25-36 | AAA | 5,372 | 5,405,500 |
See notes to financial statements
Bond Fund | Semiannual report
24
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 | |
Tobacco 0.25% | $2,393,048 | |||||
Alliance One International, Inc., | ||||||
Gtd Sr Note | 8.500% | 05-15-12 | B | $890 | 863,300 | |
Reynolds American, Inc., | ||||||
Sr Sec Note | 7.250 | 06-01-13 | BB | 1,420 | 1,529,748 | |
Wireless Telecommunication Services 1.51% | 14,364,580 | |||||
America Movil SA de CV, | ||||||
Sr Note (Mexico) (F) | 5.750 | 01-15-15 | BBB+ | 1,595 | 1,615,480 | |
American Cellular Corp., | ||||||
Gtd Sr Note Ser B | 10.000 | 08-01-11 | CCC | 435 | 455,663 | |
AT&T Wireless Services, Inc., | ||||||
Sr Note | 8.125 | 05-01-12 | A | 1,355 | 1,522,475 | |
Citizens Communications Co., | ||||||
Sr Note | 6.250 | 01-15-13 | BB+ | 1,540 | 1,488,025 | |
Crown Castle Towers LLC, | ||||||
Sub Bond Ser 2005-1A Class D | 5.612 | 06-15-35 | Baa2 | 3,455 | 3,379,957 | |
Digicel Group Ltd., | ||||||
Sr Note (Bermuda) (F)(L)(S) | 8.875 | 01-15-15 | Caa2 | 2,115 | 1,892,925 | |
Dobson Communications Corp., | ||||||
Sr Note | 8.875 | 10-01-13 | CCC | 865 | 929,875 | |
Rural Cellular Corp., | ||||||
Sr Sub Note (P) | 10.661 | 11-01-12 | CCC | 330 | 336,600 | |
SK Telecom Co. Ltd., | ||||||
Bond (South Korea) (F)(S) | 6.625 | 07-20-27 | A | 2,615 | 2,743,580 | |
Credit | ||||||
Issuer, description | rating (A) | Shares | Value | |||
Preferred stocks 0.82% | $7,814,170 | |||||
(Cost $6,789,530) | ||||||
Agricultural Products 0.17% | 1,660,500 | |||||
Ocean Spray Cranberries, Inc., | ||||||
6.25%, Ser A (S) | BB+ | 18,000 | 1,660,500 | |||
Diversified Metals & Mining 0.37% | 3,489,400 | |||||
Freeport McMoRan Copper & Gold, | ||||||
Inc., 6.75% | B+ | 23,900 | 3,489,400 | |||
Government U.S. Agency 0.10% | 905,760 | |||||
Federal Home Loan Mortgage Corp., | ||||||
8.375%, Ser Z | AA– | 35,520 | 905,760 | |||
Integrated Telecommunication Services 0.18% | 1,758,510 | |||||
Telephone & Data Systems, | ||||||
Inc., 7.60% | BB+ | 81,000 | 1,758,510 |
See notes to financial statements
Semiannual report | Bond Fund
25
F I N A N C I A L S T A T E M E N T S
Credit | ||||||
Issuer, description, maturity date | rating (A) | Shares | Value | |||
Tranche loans 0.26% | $2,474,851 | |||||
(Cost $2,478,012) | ||||||
Diversified Metals & Mining 0.12% | 1,109,696 | |||||
Thompson Creek Metals Co., | ||||||
Tranche A (1st Lien Note), | ||||||
11-1-12 (G) | B | 1,115 | 1,109,696 | |||
Education Services 0.06% | 590,155 | |||||
Riverdeep Interactive | ||||||
Learning Ltd., | ||||||
Tranche B, 11-28-13 | B | 595 | 590,155 | |||
Hotels, Resorts & Cruise Lines 0.08% | 775,000 | |||||
East Valley Tourist Development | ||||||
Authority, | ||||||
Tranche A, 8-6-12 (G) | B– | 775 | 775,000 | |||
Interest | Maturity | Credit | Par value | |||
Issuer, description | rate | date | rating (A) | (000) | Value | |
U.S. government and agencies securities 39.21% | $373,068,024 | |||||
(Cost $366,180,549) | ||||||
Government U.S. 2.83% | 26,900,202 | |||||
United States Treasury, | ||||||
Bond (L) | 4.750% | 02-15-37 | AAA | $1,985 | 2,095,880 | |
Bond (L) | 4.500 | 02-15-36 | AAA | 255 | 258,546 | |
Bond (L) | 4.250 | 11-15-17 | AAA | 10,170 | 10,403,595 | |
Note (L) | 4.750 | 05-15-14 | AAA | 5,400 | 5,744,250 | |
Note (L) | 4.250 | 11-15-13 | AAA | 8,095 | 8,397,931 | |
Government U.S. Agency 36.38% | 346,167,822 | |||||
Federal Home Loan Bank, | ||||||
Bond | 5.500 | 08-13-14 | AAA | 5,510 | 5,903,530 | |
Federal Home Loan Mortgage Corp., | ||||||
20 Yr Pass Thru Ctf | 11.250 | 01-01-16 | AAA | 39 | 39,929 | |
30 Yr Adj Rate Pass Thru Ctf (P) | 5.616 | 04-01-37 | AAA | 5,507 | 5,546,235 | |
30 Yr Adj Rate Pass Thru Ctf (P) | 5.274 | 12-01-35 | AAA | 7,893 | 7,785,202 | |
30 Yr Adj Rate Pass Thru Ctf (P) | 5.154 | 11-01-35 | AAA | 8,629 | 8,567,172 | |
30 Yr Pass Thru Ctf | 5.000 | 07-01-35 | AAA | 8,972 | 8,813,464 | |
30 Yr Pass Thru Ctf | 5.000 | 09-01-35 | AAA | 1,077 | 1,057,756 | |
CMO REMIC Ser 2489-PE | 6.000 | 08-15-32 | AAA | 2,785 | 2,840,462 | |
CMO REMIC Ser 2640-WA | 3.500 | 03-15-33 | AAA | 1,065 | 1,034,894 | |
CMO REMIC Ser 3174-CB | 5.500 | 02-15-31 | AAA | 4,695 | 4,750,876 | |
CMO-REMIC Ser 3294-NB | 5.500 | 12-15-29 | AAA | 5,310 | 5,323,551 | |
CMO-REMIC Ser 3320-PB | 5.500 | 11-15-31 | AAA | 3,991 | 4,033,530 | |
Note | 5.500 | 03-22-22 | AAA | 9,045 | 9,340,573 | |
Note | 4.500 | 01-15-15 | AAA | 15,310 | 15,476,404 | |
Federal National Mortgage Assn., | ||||||
15 Yr Pass Thru Ctf | 9.000 | 06-01-10 | AAA | 238 | 267,237 | |
15 Yr Pass Thru Ctf | 7.500 | 02-01-08 | AAA | 1 | 1,237 | |
15 Yr Pass Thru Ctf | 7.000 | 09-01-10 | AAA | 73 | 74,655 | |
15 Yr Pass Thru Ctf | 7.000 | 04-01-17 | AAA | 439 | 457,118 | |
15 Yr Pass Thru Ctf | 7.000 | 06-01-17 | AAA | 112 | 116,821 | |
15 Yr Pass Thru Ctf | 5.500 | 11-01-20 | AAA | 1,289 | 1,304,065 |
See notes to financial statements
Bond Fund | Semiannual report
26
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 National Mortgage Assn., | ||||||
15 Yr Pass Thru Ctf | 5.500% | 12-01-20 | AAA | $9,079 | $9,187,128 | |
15 Yr Pass Thru Ctf | 5.000 | 08-01-19 | AAA | 7,854 | 7,847,575 | |
30 Yr Adj Rate Pass Thru Ctf (P) | 5.492 | 03-01-37 | AAA | 7,557 | 7,598,786 | |
30 Yr Pass Thru Ctf | 6.500 | 07-01-36 | AAA | 5,648 | 5,809,520 | |
30 Yr Pass Thru Ctf | 6.500 | 07-01-37 | AAA | 10,939 | 11,250,840 | |
30 Yr Pass Thru Ctf | 6.000 | 10-01-35 | AAA | 1 | 1,338 | |
30 Yr Pass Thru Ctf | 6.000 | 04-01-36 | AAA | 2,858 | 2,904,770 | |
30 Yr Pass Thru Ctf | 6.000 | 05-01-36 | AAA | 2,279 | 2,316,452 | |
30 Yr Pass Thru Ctf | 6.000 | 08-01-36 | AAA | 31,936 | 32,463,544 | |
30 Yr Pass Thru Ctf | 6.000 | 09-01-36 | AAA | 10,182 | 10,350,571 | |
30 Yr Pass Thru Ctf | 6.000 | 11-01-36 | AAA | 399 | 405,833 | |
30 Yr Pass Thru Ctf | 6.000 | 12-01-36 | AAA | 16,809 | 17,086,577 | |
30 Yr Pass Thru Ctf | 6.000 | 07-01-37 | AAA | 13,842 | 14,069,978 | |
30 Yr Pass Thru Ctf | 6.000 | 08-01-37 | AAA | 18,207 | 18,507,485 | |
30 Yr Pass Thru Ctf | 5.500 | 05-01-35 | AAA | 26,862 | 26,975,090 | |
30 Yr Pass Thru Ctf | 5.500 | 01-01-36 | AAA | 8,867 | 8,887,364 | |
30 Yr Pass Thru Ctf | 5.500 | 03-01-37 | AAA | 19,328 | 19,360,072 | |
30 Yr Pass Thru Ctf | 5.500 | 04-01-37 | AAA | 18,011 | 18,040,755 | |
30 Yr Pass Thru Ctf | 5.500 | 05-01-37 | AAA | 5,161 | 5,169,753 | |
30 Yr Pass Thru Ctf | 5.500 | 09-01-37 | AAA | 18,940 | 18,972,098 | |
30 Yr Pass Thru Ctf | 5.000 | 11-01-33 | AAA | 4,854 | 4,768,435 | |
CMO-REMIC 2003-33-AC | 4.250 | 03-25-33 | AAA | 1,698 | 1,651,477 | |
CMO-REMIC 2003-49-JE | 3.000 | 04-25-33 | AAA | 2,337 | 2,122,935 | |
CMO REMIC 2003-58-AD | 3.250 | 07-25-33 | AAA | 2,291 | 2,116,656 | |
CMO REMIC 2003-63-PE | 3.500 | 07-25-33 | AAA | 1,972 | 1,810,274 | |
CMO-REMIC 2006-64-PC | 5.500 | 10-25-34 | AAA | 4,520 | 4,432,733 | |
CMO REMIC 2006-67-PD | 5.500 | 12-25-34 | AAA | 1,930 | 1,890,028 | |
Principal Only | Zero | 02-01-15 | AAA | 2,020 | 1,486,496 | |
Financing Corp., | ||||||
Bond | 10.350 | 08-03-18 | Aaa | 3,545 | 5,227,074 | |
Government National | ||||||
Mortgage Assn., | ||||||
30 Yr Pass Thru Ctf | 10.500 | 01-15-16 | AAA | 11 | 13,174 | |
30 Yr Pass Thru Ctf | 10.000 | 06-15-20 | AAA | 27 | 30,899 | |
30 Yr Pass Thru Ctf | 10.000 | 11-15-20 | AAA | 11 | 12,735 | |
30 Yr Pass Thru Ctf | 9.500 | 03-15-20 | AAA | 35 | 38,634 | |
30 Yr Pass Thru Ctf | 9.500 | 06-15-20 | AAA | 6 | 6,623 | |
30 Yr Pass Thru Ctf | 9.500 | 01-15-21 | AAA | 40 | 44,129 | |
30 Yr Pass Thru Ctf | 9.500 | 05-15-21 | AAA | 20 | 21,537 | |
30 Yr Pass Thru Ctf Ser 2003-42 | ||||||
Class XA | 3.750 | 05-16-33 | AAA | 588 | 553,743 |
See notes to financial statements
Semiannual report | Bond Fund
27
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value | |
Warrants 0.02% | $162,008 | ||
(Cost $265,338) | |||
Diversified Metals & Mining 0.02% | 162,008 | ||
New Gold, Inc. (Canada) (F)(I) | 135,000 | 162,008 | |
Interest | Par value | ||
Issuer, description, maturity date | rate | (000) | Value |
Short-term investments 6.01% | $57,163,031 | ||
(Cost $57,163,031) | |||
Joint Repurchase Agreement 1.45% | 13,812,000 | ||
Joint Repurchase Agreement transaction with UBS AG dated | |||
11-30-07 at 3.050% to be repurchased at $13,815,511 on | |||
12-3-07, collateralized by $10,572,788 U.S. Treasury | |||
Inflation Indexed Note, 3.875%, due 1-15-09 (valued at | |||
$14,088,240, including interest) | 3.050% | $13,812 | 13,812,000 |
Shares | |||
Cash Equivalents 4.56% | 43,351,031 | ||
John Hancock Cash Investment Trust (T)(W) | 43,351,031 | 43,351,031 | |
Total investments (Cost $981,841,173) 103.71% | $986,963,273 | ||
Other assets and liabilities, net (3.71%) | ($35,322,870) | ||
Total net assets 100.00% | $951,640,403 | ||
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
IO Interest only (carries notional principal amount)
REIT Real Estate Investment Trust
(A) Credit ratings are unaudited and are rated by Moody’s Investors Service where Standard & Poor’s ratings are not available unless indicated otherwise.
(D) Par value of foreign bonds is expressed in local currency, as shown parethetically in security description.
(F) Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer.
(G) Security rated internally by John Hancock Advisers, LLC.
(I) Non-income producing security.
(L) All or a portion of this security is on loan as of November 30, 2007.
(N) Security or a portion of the security purchased on a delayed delivery or when-issued basis.
(O) Cash interest will be paid on this obligation at the stated rate beginning on the stated date.
(P) Represents rate in effect on November 30, 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 $133,656,311 or 14.04% of the Fund’s net assets as of November 30, 2007.
(T) Represents investment of securities lending collateral.
(W) Issuer is an affiliate of John Hancock Advisers, LLC.
See notes to financial statements
Bond Fund | Semiannual report
28
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 11-30-07 (unaudited)
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 $938,490,142) including | |
$42,632,553 of securities loaned (Note 2) | $943,612,242 |
Investments in affiliated issuers, at value (cost $43,351,031) | 43,351,031 |
Total investments, at value (cost $981,841,173) | 986,963,273 |
Cash collateral at broker for future contracts (Note 2) | 235,000 |
Receivable for investments sold | 14,378,233 |
Receivable for shares sold | 4,165,282 |
Dividends and interest receivable | 9,913,460 |
Other assets | 140,009 |
Total assets | 1,015,795,257 |
Liabilities | |
Due to custodian | 1,130 |
Payable for investments purchased | 9,187,849 |
Payable for investments purchased on a when-issued basis | 5,084,240 |
Payable for shares repurchased | 1,131,083 |
Payable upon return of securities loaned (Note 2) | 43,351,031 |
Unrealized depreciation of swap contracts (Note 2) | 216,485 |
Dividends payable | 4,298,773 |
Payable for futures variation margin (Note 2) | 14,688 |
Payable to affiliates | |
Management fees | 387,752 |
Distribution and service fees | 27,641 |
Other | 290,928 |
Other payables and accrued expenses | 163,254 |
Total liabilities | 64,154,854 |
Net assets | |
Capital paid-in | 983,137,295 |
Accumulated net realized loss on investments, financial futures contracts, | |
foreign currency transactions and swap contracts | (35,865,620) |
Net unrealized appreciation of investments, financial futures contracts and | |
translation of assets and liabilities in foreign currencies and swap contracts | 4,958,897 |
Distributions in excess of net investment income | (590,169) |
Net assets | $951,640,403 |
See notes to financial statements
Semiannual report | Bond Fund
29
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities 11-30-07 (unaudited) (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 ($861,111,593 ÷ 58,145,146 shares) | $14.81 |
Class B ($50,052,148 ÷ 3,379,961 shares)1 | $14.81 |
Class C ($27,995,909 ÷ 1,890,359 shares)1 | $14.81 |
Class I ($11,200,840 ÷ 756,306 shares) | $14.81 |
Class R1 ($1,279,913 ÷ 86,282 shares) | $14.83 |
Maximum offering price per share | |
Class A2 ($14.81 ÷ 95.5%) | $15.51 |
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 | Semiannual report
30
F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 11-30-07 (unaudited)1
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 | $29,247,835 |
Dividends | 562,407 |
Securities lending | 152,343 |
Total investment income | 29,962,585 |
Expenses | |
Investment management fees (Note 3) | 2,362,754 |
Distribution and service fees (Note 3) | 1,686,359 |
Class A, B and C transfer agent fees (Note 3) | 845,644 |
Class I transfer agent fees (Note 3) | 1,717 |
Class R1 transfer agent fees (Note 3) | 3,376 |
Accounting and legal services fees (Note 3) | 57,124 |
Custodian fees | 92,232 |
Printing fees | 60,756 |
Blue sky fees | 34,953 |
Professional fees | 33,123 |
Trustees’ fees | 18,300 |
Miscellaneous | 38,281 |
Total expenses | 5,234,619 |
Net investment income | 24,727,966 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments | (1,198,550) |
Financial futures contracts | (152,586) |
Foreign currency transactions | (25,750) |
Swap contracts | 49,826 |
(1,327,060) | |
Change in net unrealized appreciation (depreciation) of | |
Investments | 5,775,506 |
Financial futures contracts | 116,036 |
Swap contracts | (235,892) |
Translation of assets and liabilities in foreign currencies | (34,809) |
5,620,841 | |
Net realized and unrealized gain | 4,293,781 |
Increase in net assets from operations | $29,021,747 |
1 Semiannual period from 6-1-07 to 11-30-07.
See notes to financial statements
Semiannual report | Bond Fund
31
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 | Period | |
ended | ended | |
5-31-07 | 11-30-071 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $49,829,044 | $24,727,966 |
Net realized loss | (9,141,590) | (1,327,060) |
Change in net unrealized appreciation (depreciation) | 26,438,206 | 5,620,841 |
Increase in net assets resulting from operations | 67,125,660 | 29,021,747 |
Distributions to shareholders | ||
From net investment income | ||
Class A | (46,252,186) | (23,018,259) |
Class B | (3,284,636) | (1,251,434) |
Class C | (1,055,766) | (601,157) |
Class I | (233,064) | (198,997) |
Class R1 | (37,809) | (22,818) |
(50,863,461) | (25,092,665) | |
From Fund share transactions (Note 4) | (74,275,644) | (10,675,475) |
Total decrease | (58,013,445) | (6,746,393) |
Net assets | ||
Beginning of period | 1,016,400,241 | 958,386,796 |
End of period2 | $958,386,796 | $951,640,403 |
1 Semiannual period from 6-1-07 to 11-30-07. Unaudited.
2 Includes distributions in excess of net investment of $225,470 and $590,169, respectively.
See notes to financial statements
Bond Fund | Semiannual report
32
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 | 11-30-071 |
Per share operating performance | ||||||
Net asset value, beginning of period | $14.71 | $15.69 | $14.98 | $15.30 | $14.51 | $14.75 |
Net investment income2 | 0.72 | 0.70 | 0.67 | 0.68 | 0.75 | 0.38 |
Net realized and unrealized | ||||||
gain (loss) on investments | 1.02 | (0.65) | 0.38 | (0.74) | 0.26 | 0.08 |
Total from investment operations | 1.74 | 0.05 | 1.05 | (0.06) | 1.01 | 0.46 |
Less distributions | ||||||
From net investment income | (0.76) | (0.76) | (0.73) | (0.72) | (0.77) | (0.40) |
From capital paid-in | — | — | — | (0.01) | — | — |
(0.76) | (0.76) | (0.73) | (0.73) | (0.77) | (0.40) | |
Net asset value, end of period | $15.69 | $14.98 | $15.30 | $14.51 | $14.75 | $14.81 |
Total return3 (%) | 12.26 | 0.31 | 7.114 | (0.45)4 | 7.08 | 3.135 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $1,192 | $1,047 | $1,012 | $899 | $870 | $861 |
Ratio of net expenses to average | ||||||
net assets (%) | 1.12 | 1.09 | 1.05 | 1.07 | 1.05 | 1.056 |
Ratio of gross expenses to average | ||||||
net assets (%) | 1.12 | 1.09 | 1.067 | 1.087 | 1.05 | 1.056 |
Ratio of net investment income | ||||||
to average net assets (%) | 4.84 | 4.55 | 4.41 | 4.56 | 5.11 | 5.326 |
Portfolio turnover (%) | 273 | 241 | 139 | 135 | 1068 | 455,8 |
1 Semiannual period from 6-1-07 to 11-30-07. Unaudited.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Total return would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
7 Does not take into effect expense reductions during the periods shown.
8 The portfolio turnover rate including the effect of forward commitment trades is 123% and 54% for the periods ended 5-31-07 and 11-30-07, respectively. Prior years exclude the effect of forward commitment trades transactions.
See notes to financial statements
Semiannual report | Bond Fund
33
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 | 11-30-071 |
Per share operating performance | ||||||
Net asset value, beginning of period | $14.71 | $15.69 | $14.98 | $15.30 | $14.51 | $14.75 |
Net investment income2 | 0.62 | 0.59 | 0.57 | 0.58 | 0.65 | 0.33 |
Net realized and unrealized | ||||||
gain (loss) on investments | 1.02 | (0.65) | 0.37 | (0.74) | 0.26 | 0.07 |
Total from investment operations | 1.64 | (0.06) | 0.94 | (0.16) | 0.91 | 0.40 |
Less distributions | ||||||
From net investment income | (0.66) | (0.65) | (0.62) | (0.62) | (0.67) | (0.34) |
From capital paid-in | — | — | — | (0.01) | — | — |
(0.66) | (0.65) | (0.62) | (0.63) | (0.67) | (0.34) | |
Net asset value, end of period | $15.69 | $14.98 | $15.30 | $14.51 | 14.75 | $14.81 |
Total return3 (%) | 11.48 | (0.39) | 6.374 | (1.14)4 | 6.33 | 2.775 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $233 | $164 | $128 | $87 | $59 | $50 |
Ratio of net expenses to average | ||||||
net assets (%) | 1.82 | 1.79 | 1.75 | 1.77 | 1.75 | 1.756 |
Ratio of gross expenses to average | ||||||
net assets (%) | 1.82 | 1.79 | 1.767 | 1.787 | 1.75 | 1.756 |
Ratio of net investment income | ||||||
to average net assets (%) | 4.15 | 3.84 | 3.70 | 3.84 | 4.40 | 4.626 |
Portfolio turnover (%) | 273 | 241 | 139 | 135 | 1068 | 455,8 |
1 Semiannual period from 6-1-07 to 11-30-07. Unaudited.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Total return would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
7 Does not take into effect expense reductions during the periods shown.
8 The portfolio turnover rate including the effect of forward commitment trades is 123% and 54% for the periods ended 5-31-07 and 11-30-07, respectively. Prior years exclude the effect of forward commitment trades transactions.
See notes to financial statements
Bond Fund | Semiannual report
34
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 | 11-30-071 |
Per share operating performance | ||||||
Net asset value, beginning of period | $14.71 | $15.69 | $14.98 | $15.30 | $14.51 | $14.75 |
Net investment income2 | 0.62 | 0.59 | 0.57 | 0.58 | 0.65 | 0.33 |
Net realized and unrealized | ||||||
gain (loss) on investments | 1.02 | (0.64) | 0.37 | (0.74) | 0.26 | 0.07 |
Total from investment operations | 1.64 | (0.05) | 0.94 | (0.16) | 0.91 | 0.40 |
Less distributions | ||||||
From net investment income | (0.66) | (0.66) | (0.62) | (0.62) | (0.67) | (0.34) |
From capital paid-in | — | — | — | (0.01) | — | — |
(0.66) | (0.66) | (0.62) | (0.63) | (0.67) | (0.34) | |
Net asset value, end of period | $15.69 | $14.98 | $15.30 | $14.51 | $14.75 | $14.81 |
Total return3 (%) | 11.48 | (0.39) | 6.374 | (1.14)4 | 6.33 | 2.776 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $45 | $32 | $28 | $24 | $23 | $28 |
Ratio of net expenses to average | ||||||
net assets (%) | 1.82 | 1.79 | 1.75 | 1.77 | 1.75 | 1.757 |
Ratio of gross expenses to average | ||||||
net assets (%) | 1.82 | 1.79 | 1.765 | 1.785 | 1.75 | 1.757 |
Ratio of net investment income | ||||||
to average net assets (%) | 4.15 | 3.84 | 3.71 | 3.86 | 4.41 | 4.627 |
Portfolio turnover (%) | 273 | 241 | 139 | 135 | 1068 | 455,8 |
1 Semiannual period from 6-1-07 to 11-30-07. Unaudited.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Total return would have been lower had certain expenses not been reduced during the periods shown.
5 Does not take into effect expense reductions during the periods shown.
6 Not annualized.
7 Annualized.
8 The portfolio turnover rate including the effect of forward commitment trades is 123% and 54% for the periods ended 5-31-07 and 11-30-07, respectively. Prior years exclude the effect of forward commitment trades transactions.
See notes to financial statements
Semiannual report | Bond Fund
35
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 | 11-30-071 |
Per share operating performance | ||||||
Net asset value, beginning of period | $14.71 | $15.69 | $14.98 | $15.30 | $14.51 | $14.74 |
Net investment income2 | 0.78 | 0.76 | 0.73 | 0.75 | 0.81 | 0.41 |
Net realized and unrealized | ||||||
gain (loss) on investments | 1.02 | (0.64) | 0.38 | (0.74) | 0.25 | 0.09 |
Total from investment operations | 1.80 | 0.12 | 1.11 | 0.01 | 1.06 | 0.50 |
Less distributions | ||||||
From net investment income | (0.82) | (0.83) | (0.79) | (0.79) | (0.83) | (0.43) |
From capital paid-in | — | — | — | (0.01) | — | — |
(0.82) | (0.83) | (0.79) | (0.80) | (0.83) | (0.43) | |
Net asset value, end of period | $15.69 | $14.98 | $15.30 | $14.51 | $14.74 | $14.81 |
Total return3 (%) | 12.71 | 0.78 | 7.55 | (0.01) | 7.53 | 3.354,6 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $9 | $5 | $5 | $5 | $5 | $11 |
Ratio of net expenses to average | ||||||
net assets (%) | 0.72 | 0.63 | 0.65 | 0.64 | 0.62 | 0.625 |
Ratio of net investment income | ||||||
to average net assets (%) | 5.23 | 4.98 | 4.82 | 4.99 | 5.54 | 5.755 |
Portfolio turnover (%) | 273 | 241 | 139 | 135 | 1066 | 454,6 |
1 Semiannual period from 6-1-07 to 11-30-07. Unaudited.
2 Based on the average of the shares outstanding.
3 Assumes dividend reinvestment and does not reflect the effect of sales charges.
4 Not annualized.
5 Annualized.
6 The portfolio turnover rate including the effect of forward commitment trades is 123% and 54% for the periods ended 5-31-07 and 11-30-07, respectively. Prior years exclude the effect of forward commitment trades transactions.
See notes to financial statements
Bond Fund | Semiannual report
36
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 | 5-31-041 | 5-31-05 | 5-31-06 | 5-31-07 | 11-30-072 |
Per share operating performance | |||||
Net asset value, beginning of period | $14.93 | $14.98 | $15.30 | $14.51 | $14.74 |
Net investment income3 | 0.54 | 0.67 | 0.59 | 0.65 | 0.34 |
Net realized and unrealized | |||||
gain (loss) on investments | 0.10 | 0.36 | (0.75) | 0.26 | 0.07 |
Total from investment operations | 0.64 | 1.03 | (0.16) | 0.91 | 0.41 |
Less distributions | |||||
From net investment income | (0.59) | (0.71) | (0.62) | (0.68) | (0.32) |
From capital paid-in | — | — | (0.01) | — | — |
(0.59) | (0.71) | (0.63) | (0.68) | (0.32) | |
Net asset value, end of period | $14.98 | $15.30 | $14.51 | $14.74 | $14.83 |
Total return4 (%) | 4.305 | 7.02 | (1.09) | 6.38 | 2.725 |
Ratios and supplemental data | |||||
Net assets, end of period | |||||
(in millions) | —6 | —6 | $1 | $1 | $1 |
Ratio of net expenses to average | |||||
net assets (%) | 1.387 | 1.12 | 1.76 | 1.72 | 1.717 |
Ratio of net investment income | |||||
to average net assets (%) | 4.407 | 4.44 | 3.95 | 4.45 | 4.687 |
Portfolio turnover (%) | 2415 | 139 | 135 | 1068 | 455,8 |
1 Class R1 shares began operations on 8-5-03.
2 Semiannual period from 6-1-07 to 11-30-07. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and does not reflect the effect of sales charges.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 The portfolio turnover rate including the effect of forward commitment trades is 123% and 54% for the periods ended 5-31-07 and 11-30-07, respectively. Prior years exclude the effect of forward commitment trades transactions.
See notes to financial statements
Semiannual report | Bond Fund
37
Notes to financial statements (unaudited)
Note 1
Organization
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 (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.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B, Class C, Class I and Class R1 shares of the Fund is determined daily as of the close of the New York Stock Exchange (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 (JHCIT), an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. Debt securities are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing t echniques, 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. Debt securities whose prices cannot be provided by an independent pricing service are valued at prices provided by broker-dealers.
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.
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.
Bond Fund | Semiannual report
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Foreign currency translations
The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
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 security transactions are reported on trade date. Interest income is recorded on the accrual basis. Realized gains and losses from investment transactions are recorded on an identified cost basis.
When-issued/delayed delivery securities
The Fund may purchase securities with delivery or payment to occur at a later date beyond the normal settlement period. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded and the value of the security is reflected in the net asset value. The price of such security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time the Fund enters into this type of transaction it is required to segregate cash or other liquid assets at least equal to the amount of the commitment.
Certain risks may arise upon entering into when-issued or delayed delivery securities from the potential inability of counterparties to meet the terms of their contracts or if the issuer does not issue the securities due to political, economic, or other factors. Additionally, losses may arise due to changes in the value of the underlying securities.
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 A, Class B, Class C, 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.
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.
Expenses
The majority of expenses are directly identifiable 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 size 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 Mellon (BNYM), the Swing Line Lender and Administrative Agent. This
Semiannual report | Bond Fund
39
agreement enables the Fund to participate, with other funds managed by the Adviser, in an unsecured line of credit with BNYM, 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 period ended November 30, 2007.
Securities lending
The Fund has entered into an agreement with Morgan Stanley & Co. Incorporated and MS Securities Services Inc. (collectively, Morgan Stanley) which permits the Fund to lend securities to Morgan Stanley on a principal basis. Morgan Stanley is the primary borrower of securities of the Fund. The risk of having one primary borrower of Fund securities (as opposed to several borrowers) is that should Morgan Stanley fail financially, all securities lent will be affected by the failure and by any delays in recovery of the securities (or in the rare event, loss of rights in the collateral).
The Fund may lend portfolio securities from time to time in order to earn additional income. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their value. On the settlement date of the loan, the Fund receives collateral against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities 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 on the next business day. Any cash collateral received is invested in the JHCIT. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. The Fund receives compensation for lending their securities either in the form of fees, guarantees, and/or by retaining a portion of interest on the investment of any cash received as collateral.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poor’s 500 Index, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
The Fund had the following financial futures contracts open on November 30, 2007:
NUMBER OF | APPRECIATION | ||||
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | (DEPRECIATION) | |
U.S. 10-Year Treasury Note | 110 | Long | Mar 2008 | $86,887 | |
U.S. 10-Year Treasury Note | 125 | Long | Mar 2008 | (4,781) | |
Total | $82,106 |
Bond Fund | Semiannual report
40
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 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 guarantors. 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 swap 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 counterparty’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 had the following credit default swap contracts open on November 30, 2007:
(PAY)/ | TERM- | |||||||||
NOTIONAL | BUY/SELL | RECEIVED | INATION | COUNTER | UNREALIZED | |||||
ISSUER | AMOUNT | PROTECTION | FIXED RATE | DATE | PARTY | DEPRECIATION | ||||
Ford Motor Company | $5,000,000 | SELL | 2.15% | Jun 08 | Morgan Stanley | ($22,019) | ||||
Goodyear Tire & | ||||||||||
Rubber Company | 5,000,000 | SELL | 1.51 | Jun 12 | Bank of America | (194,446) | ||||
Total | ($216,485) |
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.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), 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. On December 22, 2006, the SEC delayed the implementation of FIN 48 for regulated investment companies for an additional six months. FIN 48 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 concluded that the adoption of FIN 48 will not result in a material impact on the Fund’s net assets, results of operations and financial statement disclosures.
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41
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 statement disclosures.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign dividends, when the Fund becomes aware of the dividends from cash collections. Interest income on investment securities is recorded on the accrual basis. Discounts/premiums are accreted/amortized for financial reporting purposes. 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 receivable, when the collection of income 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, 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, 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.
Note 3
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. The effective rate for the period ended November 30, 2007 is 0.50% of the Fund’s average daily net asset value. The Fund has a subadvisory agreement with MFC Global Investment Management (U.S.), LLC, a subsidiary of John Hancock Financial Services, Inc. The Fund is not responsible for payment of subadvisory fees.
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 Financial Industry Regulatory Authority (formerly 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 agreement described above for the period ended November 30, 2007 were as follows:
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Distribution | |||
Transfer agent | and service | ||
Share class | fees | fees | |
Class A | $774,172 | $1,286,642 | |
Class B | 48,285 | 268,249 | |
Class C | 23,187 | 128,819 | |
Class I | 1,717 | — | |
Class R1 | 3,376 | 2,649 | |
Total | $850,737 | $1,686,359 |
Class A shares are assessed up-front sales charges. During the period ended November 30, 2007, JH Funds received net up-front sales charges of $241,166 with regard to sales of Class A shares. Of this amount, $24,493 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $147,237 was paid as sales commissions to unrelated broker-dealers and $69,436 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a related broker-dealer. The Adviser’s indirect parent, John Hancock Life Insurance Company (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 period ended November 30, 2007, CDSCs received by JH Funds amounted to $32,401 for Class B shares and $1,227 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an indirect subsidiary of JHLICO. The Fund pays a monthly fee which is based on an annual rate of $16 for each Class A shareholder account, $18.50 for each Class B shareholder account, $17.50 for each Class C shareholder account, $15 for each Class I shareholder account and $16 for each Class R1 shareholder account. 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 a total annual rate of 0.05% of Class I average daily net asset value. Effective June 1, 2007, for the Clas s I shares the Fund pays a monthly transfer agent fee at a total annual rate of 0.04% of the Class I average daily net asset value. For Class R1 shares, the Funds pays a monthly transfer agent fee at an annual rate of 0.05% of Class R1 shares average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses.
The Fund has an agreement with the Adviser and affiliates to perform necessary tax, accounting, compliance, legal and other administrative services for the Fund. The compensation for the period amounted to $57,124 with an effective rate of 0.01% of the Fund’s average daily net asset value.
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.
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Note 4
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended May 31, 2007, and the period ended November 30, 2007, along with the corresponding dollar value.
Year ended 5-31-07 | Period ended 11-30-07 1 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 4,062,350 | $60,122,035 | 2,455,251 | $35,978,699 |
Distributions reinvested | 2,596,553 | 38,365,597 | 1,303,334 | 19,132,092 |
Repurchased | (9,608,359) | (141,836,187) | (4,635,203) | (67,912,788) |
Net decrease | (2,949,456) | ($43,348,555) | (876,618) | ($12,801,997) |
Class B shares | ||||
Sold | 348,007 | $5,146,301 | 178,798 | $2,623,187 |
Distributions reinvested | 163,637 | 2,416,065 | 62,796 | 921,312 |
Repurchased | (2,504,869) | (36,990,515) | (858,140) | (12,560,180) |
Net decrease | (1,993,225) | ($29,428,149) | (616,546) | ($9,015,681) |
Class C shares | ||||
Sold | 314,809 | $4,661,024 | 466,793 | $6,827,618 |
Distributions reinvested | 53,710 | 793,546 | 26,780 | 392,968 |
Repurchased | (446,075) | (6,592,607) | (175,861) | (2,576,324) |
Net increase (decrease) | (77,556) | ($1,138,037) | 317,712 | $4,644,262 |
Class I shares | ||||
Sold | 197,043 | $2,927,372 | 461,395 | $6,790,538 |
Distributions reinvested | 12,301 | 181,351 | 11,419 | 168,019 |
Repurchased | (251,800) | (3,686,849) | (50,675) | (744,910) |
Net increase (decrease) | (42,456) | ($578,126) | 422,139 | $6,213,647 |
Class R1 shares | ||||
Sold | 48,475 | $717,168 | 34,664 | $509,679 |
Distributions reinvested | 2,196 | 32,465 | 1,278 | 18,738 |
Repurchased | (35,956) | (532,410) | (16,649) | (244,123) |
Net increase | 14,715 | $217,223 | 19,293 | $284,294 |
Net decrease | (5,047,978) | ($74,275,644) | (734,020) | ($10,675,475) |
1Semiannual period from 6-1-07 to 11-30-07. Unaudited.
Note 5
Purchases and sales of securities
Purchases and proceeds from sales or maturities of securities, other than short-term securities and obligations of the U.S. government, during the period ended November 30, 2007 aggregated $264,405,433 and $253,191,321, respectively.
Purchases and proceeds from sales or maturities of obligations of the U.S. government aggregated $157,665,283 and $172,908,306, respectively, period ended November 30, 2007.
The cost of investments owned on November 30, 2007, including short-term investments, for federal income tax purposes was $983,189,053. Gross unrealized appreciation and depreciation of investments aggregated $17,392,813 and $13,618,593, respectively, resulting in net unrealized appreciation of $3,774,220. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the tax deferral of losses on certain sales of securities.
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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 meet in person 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 7 and June 4–5, 2007, 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, 2006, (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 Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. 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. They principally considered performance and other information from Morningstar as of December 31, 2006. The Board also considered updated performance information provided to it by the Adviser or Subadviser at the May and June 2007 meetings. Performance and other information may be quite different as of 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 considered the investment philosophy, research and investment decision-making processes of the Adviser and Subadviser. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and
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Subadviser. In addition, the Board took into account the administrative and other non-advisory 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 supported renewal of the Advisory Agreements.
Fund performance
The Board considered the performance results for the Fund over various time periods ended December 31, 2006. 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 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 Government/Credit Bond Index. The Board favorably viewed that the Fund’s performance during the 1-, 3- and 5-year periods was higher than the performance of the Peer Group and Category medians, and its benchmark index. The Board also noted that the Fund’s performance was higher than the performance of the Peer Group and Category medians for the 10-year period. The Board noted that, during this time period, the Fund’s performance was lower than the benchmark index, as was the performance of the Peer Group and Category medians.
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 Category and was not appreciably higher than the Peer Group 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 comparing 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 highe r 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 Subadvisory 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 also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose
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profitability information is publicly available. 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.
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 at least quarterly, which include, among other things, a detailed portfolio review, detailed 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.
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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 |
Trustees | Charles A. Rizzo | Custodian |
James F. Carlin, Interim Chairman | Chief Financial Officer | The Bank of New York |
James R. Boyle† | Gordon M. Shone | One Wall Street |
William H. Cunningham | Treasurer | New York, NY 10286 |
Charles L. Ladner* | John G. Vrysen | |
Dr. John A. Moore* | Chief Operating Officer | Transfer agent |
Patti McGill Peterson* | John Hancock Signature | |
Steven R. Pruchansky | Investment adviser | Services, Inc. |
*Members of the Audit Committee | John Hancock Advisers, LLC | P.O. Box 9510 |
†Non-Independent Trustee | 601 Congress Street | Portsmouth, NH 03802-9510 |
Boston, MA 02210-2805 | ||
Officers | Legal counsel | |
Keith F. Hartstein | Subadviser | Kirkpatrick & Lockhart |
President and | MFC Global Investment | Preston Gates Ellis LLP |
Chief Executive Officer | Management (U.S.), LLC | One Lincoln Street |
Thomas M. Kinzler | 101 Huntington Avenue | Boston, MA 02111-2950 |
Secretary and Chief Legal Officer | Boston, MA 02199 | |
Francis V. Knox, Jr. | ||
Chief Compliance Officer | Principal distributor | |
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 Signature | John Hancock Signature | |
Services, Inc. | Services, Inc. | |
P.O. Box 9510 | Mutual Fund Image Operations | |
Portsmouth, NH 03802-9510 | 164 Corporate Drive | |
Portsmouth, NH 03801 | ||
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.
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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. | 210SA 11/07 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 1/08 |
ITEM 2. CODE OF ETHICS.
As of the end of the period, November 30, 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.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
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.
There were no material changes to previously disclosed John Hancock Funds - Administration Committee Charter and 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) Submission of Matters to a Vote of Security Holders is attached. See attached “John Hancock Funds – Governance Committee Charter”.
(c)(2) 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: January 17, 2008
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: January 17, 2008
By: /s/ Charles A. Rizzo
-------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: January 18, 2008