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) | |
Salvatore Schiavone | |
Treasurer | |
601 Congress Street | |
Boston, Massachusetts 02210 | |
(Name and address of agent for service) | |
Registrant's telephone number, including area code: 617-663-4497 | |
Date of fiscal year end: | May 31 |
Date of reporting period: | May 31, 2011 |
ITEM 1. REPORTS TO STOCKHOLDERS.
A look at performance
Total returns for the period ended May 31, 2011
Average annual total returns (%) | Cumulative total returns (%) | SEC 30-day | |||||||
with maximum sales charge (POP) | with maximum sales charge (POP) | yield (%) | |||||||
as of | |||||||||
1-year | 5-year | 10-year | 1-year | 5-year | 10-year | 5-31-11 | |||
Class A | 6.73 | 7.09 | 6.02 | 6.73 | 40.82 | 79.39 | 4.80 | ||
Class B | 6.00 | 7.02 | 5.91 | 6.00 | 40.35 | 77.62 | 4.33 | ||
Class C | 10.00 | 7.32 | 5.77 | 10.00 | 42.38 | 75.17 | 4.32 | ||
Class I1,2 | 12.33 | 8.54 | 6.97 | 12.33 | 50.66 | 96.22 | 5.42 | ||
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 7-15-04. 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 charges are not applicable for Class I 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 those disclosed in the Financial Highlights tables in this report. For all classes the net expenses equal the gross expenses. The expense ratios are as follows:
Class A | Class B | Class C | Class I | |||||
Net/Gross (%) | 1.14 | 1.84 | 1.84 | 0.63 |
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 current to the most recent month-end performance data, 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 may pay on fund distributions or on the redemption of fund shares. The Fund’s performance results reflect any applicable fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
6 | Bond Fund | Annual report |
Class B | Class C | Class I1,2 | |||||
Start date | 5-31-01 | 5-31-01 | 5-31-01 | ||||
NAV | $17,762 | $17,517 | $19,622 | ||||
POP | $17,762 | $17,517 | $19,622 | ||||
Index | $17,638 | $17,638 | $17,638 | ||||
The Class C shares investment with maximum sales charge has been adjusted to reflect the elimination of the front-end sales charge effective 7-15-04.
Barclays Capital Government/Credit Bond Index is an unmanaged index 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 or direct expenses, which would have resulted in lower values if they did.
1 For certain types of investors as described in the Fund’s Class I shares prospectus.
2 11-9-73 is the inception date for the oldest class of shares, Class A shares. The inception date for Class I shares is 9-4-01. The returns prior to this date are those of Class A shares that have been recalculated to apply the gross fees and expenses of Class I shares.
3 NAV represents net asset value and POP represents public offering price. 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.
Annual report | Bond Fund | 7 |
Management’s discussion of
Fund performance
By John Hancock Asset Management
(formerly MFC Global Investment Management (U.S.), LLC)1
U.S. bonds posted solid gains for the 12 months ended May 31, 2011, as improving but uneven economic growth and relatively tame inflation figures provided a favorable backdrop for fixed-income securities. The best performers were high-yield corporate bonds and commercial mortgage-backed securities, both of which benefited from better economic conditions and strong investor demand for higher-yielding investments. Investment-grade corporate bonds also posted solid gains, while residential mortgage-backed securities and Treasury bonds lagged.
For the year ended May 31, 2011, John Hancock Bond Fund’s Class A shares posted a total return of 11.78% at net asset value. The Fund outpaced the 6.04% return of its benchmark, the Barclays Capital Government/Credit Bond Index, and the 7.40% average return of the Morningstar, Inc. intermediate-term bond category. The Fund’s outperformance of its benchmark index and Morningstar peer group average resulted largely from its allocations within the bond market. A heavy weighting in corporate bonds, including a meaningful position in high-yield securities, contributed favorably to results, as did security selection in the corporate sector. An overweight position in commercial mortgage-backed securities, combined with underweight positions in residential mortgage-backed securities and Treasury bonds, also proved beneficial. We reduced the Fund’s corporate bond holdings during the past year, taking profits and lowering the Fund portfolio’s overall risk profile. In their place, we added residential mortgage-backed securities, which had similar interest-rate sensitivity but provided better credit quality, higher yields and more attractive valuations. We also increased the Fund’s holdings of securities that would benefit from an eventual rise in interest rates. These securities, which comprised more than 10% of the portfolio by the end of the reporting period, included adjustable-rate and interest-only mortgage-backed securities, bank loans and floating-rate corporate debt. Since we don’t expect sharply higher interest rates in the near term, we have been selective in adding these securities to the portfolio so we do not jeopardize the Fund’s yield.
This commentary reflects the views of the portfolio managers through the end of the Fund’s period discussed in this report. The managers’ statements reflect their own opinions. As such, they are in no way guarantees of future events and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant.
Past performance is no guarantee of future results.
The major risk factors in this Fund’s performance are interest-rate and credit risk. When interest rates rise, bond prices usually fall. Generally, an increase in the Fund’s average maturity will make it more sensitive to interest-rate risk. Investments in higher-yielding, lower-rated securities involve additional risks as these securities include a higher risk of default and loss of principal. Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
1 Manulife Asset Management (US) LLC is doing business as John Hancock Asset Management.
8 | Bond Fund | Annual report |
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 the Fund’s actual ongoing operating expenses, and is based on the Fund’s actual return. It assumes an account value of $1,000.00 on December 1, 2010 with the same investment held until May 31, 2011.
Account value | Ending value | Expenses paid during | |
on 12-1-10 | on 5-31-11 | period ended 5-31-111 | |
Class A | $1,000.00 | $1,049.10 | $5.36 |
Class B | 1,000.00 | 1,045.40 | 8.92 |
Class C | 1,000.00 | 1,045.40 | 8.92 |
Class I | 1,000.00 | 1,051.20 | 3.22 |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at May 31, 2011, 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:
Annual report | Bond Fund | 9 |
Your expenses
Hypothetical example for comparison purposes
This table allows you to compare the 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 the Fund’s actual return). It assumes an account value of $1,000.00 on December 1, 2010, with the same investment held until May 31, 2011. 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 | |
on 12-1-10 | on 5-31-11 | period ended 5-31-111 | |
Class A | $1,000.00 | $1,019.70 | $5.29 |
Class B | 1,000.00 | 1,016.20 | 8.80 |
Class C | 1,000.00 | 1,016.20 | 8.80 |
Class I | 1,000.00 | 1,021.80 | 3.18 |
Remember, these examples do not include any transaction costs, 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% and 0.63% for Class A, Class B, Class C and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).
10 | Bond Fund | Annual report |
Portfolio summary
Portfolio Composition1 | ||||
Corporate Bonds | 49% | Capital Preferred Securities | 2% | |
U.S. Government & Agency Obligations | 25% | Term Loans | 1% | |
Collateralized Mortgage Obligations | 12% | Preferred Securities | 1% | |
Asset-Backed Securities | 5% | Foreign Government Obligations | 1% | |
U.S. Government Agency | Short-Term Investments & Other | 2% | ||
Collateralized Mortgage Obligations | 2% | |||
Sector Composition1,2 | ||||
U.S. Government & Agency Obligations | 25% | Consumer Staples | 2% | |
Financials | 22% | U.S. Government Agency | ||
Collateralized Mortgage Obligations | 2% | |||
Collateralized Mortgage Obligations | 12% | |||
Telecommunication Services | 2% | |||
Consumer Discretionary | 6% | |||
Health Care | 1% | |||
Industrials | 6% | |||
Information Technology | 1% | |||
Energy | 5% | |||
Foreign Government Obligations | 1% | |||
Asset-Backed Securities | 5% | |||
Short-Term Investments & Other | 2% | |||
Materials | 5% | |||
Utilities | 3% | |||
Quality Composition1,3 | ||||
U.S. Government & Agency Obligations | 27% | BB | 11% | |
AAA | 5% | B | 11% | |
AA | 5% | CCC & Below | 5% | |
A | 10% | Not Rated | 2% | |
BBB | 22% | Short-Term Investments & Other | 2% | |
1 As a percentage of net assets on 5-31-11.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
3 Ratings are from Moody’s Investor Services, Inc. If not available, we have used S&P ratings. In the absence of ratings from these agencies, we have used Fitch, Inc. ratings. “Not Rated” securities are those with no ratings available. They may have internal ratings similar to those shown. All are as of 5-31-11 and do not reflect subsequent downgrades, if any.
Annual report | Bond Fund | 11 |
Fund’s investments
As of 5-31-11
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Corporate Bonds 48.73% | $528,512,635 | ||||
(Cost $494,611,707) | |||||
Consumer Discretionary 5.48% | 59,390,296 | ||||
Auto Components 0.29% | |||||
Allison Transmission, Inc. (S) | 7.125 | 05-15-19 | $755,000 | 749,338 | |
Exide Technologies (S) | 8.625 | 02-01-18 | 1,115,000 | 1,184,688 | |
Hyva Global BV (S) | 8.625 | 03-24-16 | 1,155,000 | 1,183,875 | |
Automobiles 0.28% | |||||
Hyundai Capital Services, Inc. (S) | 6.000 | 05-05-15 | 1,615,000 | 1,775,489 | |
Hyundai Capital Services, Inc. (S) | 4.375 | 07-27-16 | 1,235,000 | 1,269,743 | |
Food Products 0.10% | |||||
Simmons Foods, Inc. (S) | 10.500 | 11-01-17 | 1,060,000 | 1,134,200 | |
Hotels, Restaurants & Leisure 1.35% | |||||
Greektown Superholdings, Inc. | 13.000 | 07-01-15 | 1,965,000 | 2,220,450 | |
Jacobs Entertainment, Inc. | 9.750 | 06-15-14 | 2,435,000 | 2,483,700 | |
Little Traverse Bay Bands of Odawa Indians (S) | 9.000 | 08-31-20 | 1,315,000 | 1,183,500 | |
MGM Resorts International | 9.000 | 03-15-20 | 490,000 | 545,125 | |
Mohegan Tribal Gaming Authority | 7.125 | 08-15-14 | 1,425,000 | 1,040,250 | |
MTR Gaming Group, Inc. | 12.625 | 07-15-14 | 750,000 | 791,250 | |
Palace Entertainment Holdings LLC/Palace | |||||
Entertainment Holdings Corp. (S) | 8.875 | 04-15-17 | 950,000 | 983,250 | |
Pokagon Gaming Authority (S) | 10.375 | 06-15-14 | 1,815,000 | 1,862,644 | |
Seminole Indian Tribe of Florida (S) | 7.750 | 10-01-17 | 605,000 | 635,250 | |
Seminole Indian Tribe of Florida (S) | 6.535 | 10-01-20 | 2,260,000 | 2,317,856 | |
Sugarhouse HSP Gaming Prop Mezz LP/ | |||||
Sugarhouse HSP Gaming Finance Corp. (S) | 8.625 | 04-15-16 | 175,000 | 180,688 | |
Waterford Gaming LLC (S) | 8.625 | 09-15-14 | 890,823 | 422,829 | |
Household Durables 0.03% | |||||
American Standard Americas (S) | 10.750 | 01-15-16 | 335,000 | 350,913 | |
Internet & Catalog Retail 0.20% | |||||
Expedia, Inc. | 5.950 | 08-15-20 | 2,125,000 | 2,125,000 | |
Media 2.31% | |||||
AMC Entertainment, Inc. | 8.750 | 06-01-19 | 620,000 | 665,725 | |
AMC Entertainment, Inc. | 8.000 | 03-01-14 | 1,995,000 | 2,014,950 | |
Cablevision Systems Corp. | 8.625 | 09-15-17 | 610,000 | 687,775 | |
CBS Corp. | 7.875 | 07-30-30 | 2,480,000 | 3,004,986 | |
CCH II LLC/CCH II Capital Corp. | 13.500 | 11-30-16 | 1,150,089 | 1,368,606 |
12 | Bond Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Media (continued) | |||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 8.125 | 04-30-20 | $590,000 | $637,938 | |
Cinemark USA, Inc. | 8.625 | 06-15-19 | 725,000 | 792,063 | |
Cinemark USA, Inc. (S) | 7.375 | 06-15-21 | 410,000 | 416,663 | |
Clear Channel Worldwide Holdings, Inc. | 9.250 | 12-15-17 | 1,675,000 | 1,825,750 | |
CSC Holdings, Inc. | 7.875 | 02-15-18 | 1,675,000 | 1,834,125 | |
DIRECTV Holdings LLC/DIRECTV Financing | |||||
Company, Inc. | 6.350 | 03-15-40 | 1,105,000 | 1,187,013 | |
Grupo Televisa SA | 6.625 | 01-15-40 | 1,295,000 | 1,409,635 | |
Kabel BW Erste Beteiligungs GmbH/Kabel | |||||
Baden-Wurttemberg GmbH (S) | 7.500 | 03-15-19 | 1,250,000 | 1,301,563 | |
News America, Inc. (S) | 6.150 | 02-15-41 | 1,100,000 | 1,128,377 | |
Regal Cinemas Corp. | 8.625 | 07-15-19 | 465,000 | 497,550 | |
Regal Entertainment Group | 9.125 | 08-15-18 | 455,000 | 483,438 | |
Time Warner Cable, Inc. | 6.750 | 07-01-18 | 1,950,000 | 2,266,939 | |
United Business Media, Ltd. (S) | 5.750 | 11-03-20 | 1,145,000 | 1,146,585 | |
XM Satellite Radio, Inc. (S) | 13.000 | 08-01-13 | 2,000,000 | 2,380,000 | |
Multiline Retail 0.07% | |||||
Sears Holdings Corp. (S) | 6.625 | 10-15-18 | 785,000 | 722,200 | |
Specialty Retail 0.45% | |||||
Automotores Gildemeister SA (S) | 8.250 | 05-24-21 | 790,000 | 812,713 | |
Empire Today LLC/Empire Today | |||||
Finance Corp. (S) | 11.375 | 02-01-17 | 660,000 | 702,900 | |
Hillman Group, Inc. | 10.875 | 06-01-18 | 820,000 | 902,000 | |
Hillman Group, Inc. (S) | 10.875 | 06-01-18 | 385,000 | 423,500 | |
Limited Brands, Inc. | 6.625 | 04-01-21 | 1,320,000 | 1,376,100 | |
Toys R Us Property Company LLC | 8.500 | 12-01-17 | 570,000 | 610,613 | |
Textiles, Apparel & Luxury Goods 0.40% | |||||
Burlington Coat Factory Warehouse Corp. (S) | 10.000 | 02-15-19 | 2,345,000 | 2,350,863 | |
Levi Strauss & Company | 7.625 | 05-15-20 | 1,975,000 | 1,999,688 | |
Consumer Staples 2.07% | 22,439,974 | ||||
Commercial Services & Supplies 0.16% | |||||
ARAMARK Corp. | 8.500 | 02-01-15 | 1,690,000 | 1,757,600 | |
Food & Staples Retailing 0.33% | |||||
CVS Caremark Corp. (6.302% to 6-1-12, then | |||||
3 month LIBOR + 2.065%) | 6.302 | 06-01-37 | 3,635,000 | 3,598,650 | |
Food Products 0.85% | |||||
B&G Foods, Inc. | 7.625 | 01-15-18 | 950,000 | 1,021,250 | |
Bunge Ltd. Finance Corp. | 8.500 | 06-15-19 | 1,405,000 | 1,725,731 | |
Bunge Ltd. Finance Corp. | 4.100 | 03-15-16 | 815,000 | 847,750 | |
Corp. Pesquera Inca SAC (S) | 9.000 | 02-10-17 | 1,355,000 | 1,426,138 | |
Del Monte Foods Company (S) | 7.625 | 02-15-19 | 945,000 | 964,491 | |
JBS Finance II, Ltd. (S) | 8.250 | 01-29-18 | 1,450,000 | 1,523,805 | |
Reddy Ice Corp. | 11.250 | 03-15-15 | 1,655,000 | 1,708,788 | |
Household Products 0.18% | |||||
Yankee Candle Company, Inc. | 8.500 | 02-15-15 | 1,875,000 | 1,952,344 |
See notes to financial statements | Annual report | Bond Fund | 13 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Personal Products 0.21% | |||||
Hypermarcas SA (S) | 6.500 | 04-20-21 | $530,000 | $528,675 | |
Revlon Consumer Products Corp. | 9.750 | 11-15-15 | 1,585,000 | 1,723,688 | |
Tobacco 0.34% | |||||
Alliance One International, Inc. | 10.000 | 07-15-16 | 2,335,000 | 2,352,513 | |
Lorillard Tobacco Company | 6.875 | 05-01-20 | 1,175,000 | 1,308,551 | |
Energy 4.55% | 49,360,070 | ||||
Energy Equipment & Services 0.21% | |||||
Precision Drilling Corp. (S) | 6.625 | 11-15-20 | 1,205,000 | 1,241,150 | |
Trinidad Drilling, Ltd. (S) | 7.875 | 01-15-19 | 1,045,000 | 1,102,475 | |
Gas Utilities 0.21% | |||||
DCP Midstream LLC (S) | 9.750 | 03-15-19 | 1,705,000 | 2,260,371 | |
Oil, Gas & Consumable Fuels 4.13% | |||||
Alpha Natural Resources, Inc. | 6.250 | 06-01-21 | 1,130,000 | 1,149,775 | |
Alpha Natural Resources, Inc. | 6.000 | 06-01-19 | 520,000 | 523,250 | |
Bumi Investment Pte, Ltd. (S) | 10.750 | 10-06-17 | 780,000 | 891,150 | |
Chesapeake Energy Corp. | 6.125 | 02-15-21 | 1,085,000 | 1,103,988 | |
Drummond Company, Inc. | 7.375 | 02-15-16 | 1,805,000 | 1,845,613 | |
El Paso Pipeline Partners Operating | |||||
Company LLC | 6.500 | 04-01-20 | 1,045,000 | 1,199,738 | |
Energy Transfer Partners LP | 9.700 | 03-15-19 | 1,380,000 | 1,837,066 | |
Enterprise Products Operating LLC (7.034% | |||||
to 1-15-18, then higher of 7.034% or | |||||
3 month LIBOR + 2.680%) | 7.034 | 01-15-68 | 1,860,000 | 1,962,300 | |
Enterprise Products Operating LLC (7.000% | |||||
to 6-1-17, then 3 month LIBOR + 2.778%) | 7.000 | 06-01-67 | 2,585,000 | 2,597,925 | |
EV Energy Partners LP/EV Energy | |||||
Finance Corp. (S) | 8.000 | 04-15-19 | 1,600,000 | 1,664,000 | |
Gibson Energy ULC/GEP Midstream | |||||
Finance Corp. | 10.000 | 01-15-18 | 1,040,000 | 1,274,000 | |
Kerr-McGee Corp. | 6.950 | 07-01-24 | 3,210,000 | 3,708,231 | |
Kinder Morgan Energy Partners LP | 7.750 | 03-15-32 | 840,000 | 1,022,309 | |
Kinder Morgan Finance Company | 5.700 | 01-05-16 | 2,515,000 | 2,669,044 | |
Linn Energy LLC/Linn Energy Finance Corp. | 8.625 | 04-15-20 | 790,000 | 865,050 | |
Marathon Petroleum Corp. (S) | 6.500 | 03-01-41 | 1,115,000 | 1,196,562 | |
MarkWest Energy Partners LP/MarkWest | |||||
Energy Finance Corp. | 6.500 | 08-15-21 | 1,975,000 | 1,997,219 | |
McMoRan Exploration Company | 11.875 | 11-15-14 | 1,230,000 | 1,334,550 | |
Motiva Enterprises LLC (S) | 6.850 | 01-15-40 | 1,060,000 | 1,263,280 | |
Niska Gas Storage US LLC/Niska Gas Storage | |||||
Canada ULC | 8.875 | 03-15-18 | 1,600,000 | 1,720,000 | |
NuStar Logistics LP | 7.650 | 04-15-18 | 2,025,000 | 2,422,854 | |
NuStar Logistics LP | 4.800 | 09-01-20 | 865,000 | 886,366 | |
OGX Petroleo e Gas Participacoes SA (S) | 8.500 | 06-01-18 | 1,650,000 | 1,653,734 | |
Spectra Energy Capital LLC | 6.200 | 04-15-18 | 1,440,000 | 1,642,304 | |
Thermon Industries, Inc. | 9.500 | 05-01-17 | 351,000 | 374,693 | |
TransCanada Pipelines, Ltd. (6.350% | |||||
to 5-15-17, then 3 month LIBOR + 2.210%) | 6.350 | 05-15-67 | 1,945,000 | 1,986,938 | |
Williams Partners LP/Williams Partners | |||||
Finance Corp. | 7.250 | 02-01-17 | 3,295,000 | 3,964,135 |
14 | Bond Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Financials 20.01% | $217,034,990 | ||||
Capital Markets 2.49% | |||||
Credit Suisse AG (3 month LIBOR + 0.690% to | |||||
5-15-17, then 3 month LIBOR + 1.690%) (Q) | 0.951 | 05-15-17 | $2,900,000 | 2,359,121 | |
Credit Suisse New York | 5.300 | 08-13-19 | 1,680,000 | 1,836,840 | |
Credit Suisse New York | 4.375 | 08-05-20 | 2,265,000 | 2,297,768 | |
Jefferies Group, Inc. | 8.500 | 07-15-19 | 665,000 | 806,287 | |
Jefferies Group, Inc. | 6.875 | 04-15-21 | 1,240,000 | 1,363,555 | |
Macquarie Bank, Ltd. (S) | 6.625 | 04-07-21 | 1,055,000 | 1,078,049 | |
Macquarie Group, Ltd. (S) | 6.000 | 01-14-20 | 1,345,000 | 1,385,719 | |
Morgan Stanley (BRL)(D)(S) | 10.090 | 05-03-17 | 8,215,000 | 5,115,663 | |
Morgan Stanley | 7.300 | 05-13-19 | 2,270,000 | 2,614,073 | |
Morgan Stanley | 5.750 | 01-25-21 | 570,000 | 596,139 | |
The Goldman Sachs Group, Inc. | 6.750 | 10-01-37 | 4,150,000 | 4,169,866 | |
The Goldman Sachs Group, Inc. | 6.150 | 04-01-18 | 3,130,000 | 3,431,838 | |
Commercial Banks 3.27% | |||||
Abbey National Treasury Services PLC | 4.000 | 04-27-16 | 1,660,000 | 1,668,908 | |
Banco de Credito del Peru (S) | 4.750 | 03-16-16 | 700,000 | 690,375 | |
Barclays Bank PLC (S) | 6.050 | 12-04-17 | 1,185,000 | 1,277,483 | |
Barclays Bank PLC | 5.140 | 10-14-20 | 1,160,000 | 1,135,315 | |
BBVA Bancomer SA (S) | 6.500 | 03-10-21 | 1,925,000 | 1,941,081 | |
BNP Paribas | 5.000 | 01-15-21 | 1,680,000 | 1,713,634 | |
BPCE SA (12.500% to 9-30-19, then 3 month | |||||
LIBOR + 12.980%) (Q)(S) | 12.500 | 09-30-19 | 1,239,000 | 1,461,735 | |
Chuo Mitsui Trust & Banking Company, Ltd. | |||||
(5.506% to 4-15-15, then 3 month LIBOR + | |||||
2.490%) (Q)(S) | 5.506 | 04-15-15 | 2,530,000 | 2,580,600 | |
Commonwealth Bank of Australia (S) | 5.000 | 03-19-20 | 2,065,000 | 2,177,220 | |
First Tennessee Bank NA | 5.050 | 01-15-15 | 1,620,000 | 1,701,365 | |
ICICI Bank, Ltd. (S) | 5.750 | 11-16-20 | 1,910,000 | 1,909,658 | |
Lloyds TSB Bank PLC | 6.375 | 01-21-21 | 1,765,000 | 1,868,057 | |
Lloyds TSB Group PLC (6.413% to 10-1-35, | |||||
then 3 month LIBOR + 1.496%) (I)(Q)(S) | 6.413 | 10-01-35 | 2,410,000 | 1,873,775 | |
National City Bank (P) | 0.623 | 06-07-17 | 2,300,000 | 2,164,721 | |
Regions Financial Corp. | 7.750 | 11-10-14 | 1,825,000 | 2,000,748 | |
Regions Financial Corp. (P) | 0.479 | 06-26-12 | 1,060,000 | 1,030,945 | |
Santander Holdings USA, Inc. | 4.625 | 04-19-16 | 480,000 | 494,056 | |
Santander Issuances SA (6.500% to 11-15-14, | |||||
then 3 month LIBOR + 3.920%) (S) | 6.500 | 08-11-19 | 1,400,000 | 1,481,263 | |
The Royal Bank of Scotland PLC | 4.875 | 03-16-15 | 1,275,000 | 1,339,923 | |
Wachovia Bank NA | 6.600 | 01-15-38 | 1,415,000 | 1,632,740 | |
Wachovia Bank NA | 5.850 | 02-01-37 | 1,665,000 | 1,746,009 | |
Wells Fargo & Company | 3.676 | 06-15-16 | 1,505,000 | 1,563,945 | |
Consumer Finance 1.10% | |||||
American Express Company | 7.000 | 03-19-18 | 1,705,000 | 2,047,618 | |
Capital One Financial Corp. | 6.150 | 09-01-16 | 2,655,000 | 2,968,436 | |
Discover Bank | 7.000 | 04-15-20 | 1,090,000 | 1,242,517 | |
Discover Financial Services | 10.250 | 07-15-19 | 2,495,000 | 3,327,025 | |
Nelnet, Inc. (7.400% to 9-29-11, then | |||||
3 month LIBOR + 3.375%) | 7.400 | 09-29-36 | 2,595,000 | 2,314,312 |
See notes to financial statements | Annual report | Bond Fund | 15 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Diversified Financial Services 5.78% | |||||
Alfa Bank OJSC Via Alfa Bond Issuance PLC (S) | 7.750 | 04-28-21 | $585,000 | $598,344 | |
Astoria Depositor Corp., Series B (S) | 8.144 | 05-01-21 | 3,590,000 | 3,500,250 | |
Bank of America Corp. | 6.500 | 08-01-16 | 1,245,000 | 1,408,455 | |
Bank of America NA | 6.000 | 10-15-36 | 1,555,000 | 1,585,506 | |
Bank of America NA | 5.300 | 03-15-17 | 595,000 | 629,133 | |
Beaver Valley Funding | 9.000 | 06-01-17 | 2,737,000 | 2,973,751 | |
Bosphorus Financial Services, Ltd. (P)(S) | 2.061 | 02-15-12 | 498,750 | 494,185 | |
Citigroup, Inc. | 6.125 | 11-21-17 | 3,045,000 | 3,429,833 | |
Citigroup, Inc. | 5.850 | 12-11-34 | 1,590,000 | 1,633,040 | |
Crown Castle Towers LLC (S) | 6.113 | 01-15-20 | 1,710,000 | 1,880,668 | |
Crown Castle Towers LLC (S) | 4.883 | 08-15-20 | 3,075,000 | 3,116,497 | |
General Electric Capital Corp. | 6.000 | 08-07-19 | 1,505,000 | 1,685,614 | |
General Electric Capital Corp. | 5.625 | 05-01-18 | 2,190,000 | 2,421,514 | |
General Electric Capital Corp. | 5.300 | 02-11-21 | 880,000 | 924,281 | |
General Electric Capital Corp. | 4.375 | 09-16-20 | 1,510,000 | 1,504,564 | |
General Electric Capital Corp. (P) | 0.741 | 08-15-36 | 2,245,000 | 1,808,552 | |
GTP Towers Issuer LLC (S) | 8.112 | 02-15-15 | 3,550,000 | 3,736,401 | |
Harley-Davidson Funding Corp. (S) | 6.800 | 06-15-18 | 1,110,000 | 1,263,732 | |
Harley-Davidson Funding Corp. (S) | 5.750 | 12-15-14 | 1,085,000 | 1,183,475 | |
JPMorgan Chase & Company | 6.000 | 01-15-18 | 3,260,000 | 3,679,699 | |
JPMorgan Chase & Company | 3.700 | 01-20-15 | 1,170,000 | 1,225,918 | |
JPMorgan Chase & Company, Series 1 | |||||
(7.900% to 4-30-18, then 3 month LIBOR + | |||||
3.470%) (Q) | 7.900 | 04-30-18 | 2,240,000 | 2,467,069 | |
Merrill Lynch & Company, Inc. | 7.750 | 05-14-38 | 1,795,000 | 2,106,908 | |
Merrill Lynch & Company, Inc. | 6.875 | 04-25-18 | 3,010,000 | 3,430,268 | |
Nationstar Mortgage/Nationstar | |||||
Capital Corp. (S) | 10.875 | 04-01-15 | 1,805,000 | 1,895,250 | |
Pinafore LLC/Pinafore, Inc. (S) | 9.000 | 10-01-18 | 565,000 | 620,088 | |
Rabobank Nederland NV (11.000% to 6-30-19, | |||||
then 3 month LIBOR + 10.868%) (Q)(S) | 11.000 | 06-30-19 | 3,204,000 | 4,170,967 | |
Textron Financial Corp. (6.000% to 2-15-17, | |||||
then 3 month LIBOR + 1.735%) (S) | 6.000 | 02-15-67 | 2,810,000 | 2,416,600 | |
The Bear Stearns Companies LLC | 7.250 | 02-01-18 | 1,950,000 | 2,339,454 | |
USB Realty Corp. (6.091% to 1-15-12, then | |||||
3 month LIBOR + 1.147%) (Q)(S) | 6.091 | 01-15-12 | 2,900,000 | 2,515,750 | |
Insurance 3.63% | |||||
Aflac, Inc. | 8.500 | 05-15-19 | 1,655,000 | 2,052,657 | |
Aflac, Inc. | 6.900 | 12-17-39 | 1,005,000 | 1,102,603 | |
AON Corp. | 8.205 | 01-01-27 | 1,380,000 | 1,617,945 | |
AXA SA (6.379% to 12-14-36, then 3 month | |||||
LIBOR + 2.256%) (Q)(S) | 6.379 | 12-14-36 | 1,170,000 | 1,073,475 | |
Chubb Corp. (6.375% until 4-15-17, then | |||||
3 month LIBOR + 2.250%) | 6.375 | 03-29-67 | 1,270,000 | 1,346,200 | |
CNA Financial Corp. | 7.250 | 11-15-23 | 2,140,000 | 2,444,849 | |
CNA Financial Corp. | 6.500 | 08-15-16 | 1,085,000 | 1,222,440 | |
CNO Financial Group, Inc. (S) | 9.000 | 01-15-18 | 1,500,000 | 1,620,000 |
16 | Bond Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Insurance (continued) | |||||
Glen Meadow Pass-Through Trust (6.505% to | |||||
2-15-17, then 3 month LIBOR +2.125%) (S) | 6.505 | 02-12-67 | $2,555,000 | $2,347,406 | |
Hartford Financial Services Group, Inc. | 6.625 | 03-30-40 | 905,000 | 966,436 | |
Liberty Mutual Group, Inc. (S) | 7.800 | 03-15-37 | 2,635,000 | 2,740,400 | |
Lincoln National Corp. | 8.750 | 07-01-19 | 1,295,000 | 1,676,203 | |
Lincoln National Corp. | 7.000 | 06-15-40 | 635,000 | 745,394 | |
Lincoln National Corp. (6.050% to 4-20-17, | |||||
then 3 month LIBOR + 2.040%) | 6.050 | 04-20-67 | 1,955,000 | 1,915,900 | |
Massachusetts Mutual Life | |||||
Insurance Company (S) | 8.875 | 06-01-39 | 895,000 | 1,290,157 | |
MetLife, Inc. | 10.750 | 08-01-39 | 610,000 | 864,736 | |
New York Life Insurance Company (S) | 6.750 | 11-15-39 | 1,410,000 | 1,670,433 | |
Teachers Insurance & Annuity Association | |||||
of America (S) | 6.850 | 12-16-39 | 2,445,000 | 2,889,631 | |
Unum Group | 7.125 | 09-30-16 | 1,585,000 | 1,845,257 | |
UnumProvident Finance Company PLC (S) | 6.850 | 11-15-15 | 2,395,000 | 2,711,523 | |
W.R. Berkley Corp. | 5.600 | 05-15-15 | 1,345,000 | 1,459,586 | |
Willis Group Holdings PLC | 5.750 | 03-15-21 | 1,395,000 | 1,447,494 | |
Willis North America, Inc. | 7.000 | 09-29-19 | 2,060,000 | 2,333,022 | |
Real Estate Investment Trusts 3.66% | |||||
BioMed Realty LP | 6.125 | 04-15-20 | 520,000 | 562,415 | |
Brandywine Operating Partnership LP | 7.500 | 05-15-15 | 1,505,000 | 1,731,427 | |
CommonWealth REIT | 6.650 | 01-15-18 | 1,800,000 | 2,031,437 | |
Developers Diversified Realty Corp. | 7.500 | 04-01-17 | 1,840,000 | 2,137,442 | |
Dexus Property Group (S) | 7.125 | 10-15-14 | 1,945,000 | 2,198,539 | |
Duke Realty LP | 8.250 | 08-15-19 | 1,120,000 | 1,379,519 | |
Duke Realty LP | 6.750 | 03-15-20 | 2,095,000 | 2,400,493 | |
Goodman Funding Pty, Ltd. (S) | 6.375 | 04-15-21 | 2,620,000 | 2,731,353 | |
HCP, Inc. | 5.375 | 02-01-21 | 2,800,000 | 2,939,208 | |
Health Care REIT, Inc. | 6.200 | 06-01-16 | 1,835,000 | 2,053,824 | |
Health Care REIT, Inc. | 4.950 | 01-15-21 | 1,610,000 | 1,591,482 | |
Healthcare Realty Trust, Inc. | 6.500 | 01-17-17 | 2,170,000 | 2,469,410 | |
Mack-Cali Realty LP | 7.750 | 08-15-19 | 1,410,000 | 1,737,543 | |
MPT Operating Partnership LP/MPT | |||||
Finance Corp. (S) | 6.875 | 05-01-21 | 935,000 | 939,675 | |
Post Apartment Homes LP | 4.750 | 10-15-17 | 735,000 | 748,565 | |
Reckson Operating Partnership LP | 7.750 | 03-15-20 | 735,000 | 851,556 | |
Simon Property Group LP | 10.350 | 04-01-19 | 1,495,000 | 2,110,179 | |
Ventas Realty LP/Ventas Capital Corp. | 4.750 | 06-01-21 | 1,645,000 | 1,639,558 | |
Vornado Realty LP | 4.250 | 04-01-15 | 2,815,000 | 2,950,934 | |
WEA Finance LLC/WT Finance Australia | |||||
Pty, Ltd. (S) | 6.750 | 09-02-19 | 1,180,000 | 1,374,220 | |
Weyerhaeuser Co. | 7.375 | 03-15-32 | 2,830,000 | 3,159,041 | |
Real Estate Management & Development 0.08% | |||||
Realogy Corp. (S) | 7.875 | 02-15-19 | 855,000 | 859,275 | |
Health Care 1.17% | 12,710,961 | ||||
Health Care Equipment & Supplies 0.22% | |||||
Alere, Inc. | 8.625 | 10-01-18 | 750,000 | 789,375 | |
Alere, Inc. | 7.875 | 02-01-16 | 1,570,000 | 1,638,688 |
See notes to financial statements | Annual report | Bond Fund | 17 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Health Care Providers & Services 0.56% | |||||
BioScrip, Inc. | 10.250 | 10-01-15 | $1,160,000 | $1,204,950 | |
Community Health Systems, Inc. | 8.875 | 07-15-15 | 1,800,000 | 1,858,500 | |
Gentiva Health Services, Inc. | 11.500 | 09-01-18 | 280,000 | 315,350 | |
Medco Health Solutions, Inc. | 7.125 | 03-15-18 | 2,225,000 | 2,673,847 | |
Life Sciences Tools & Services 0.08% | |||||
Bio-Rad Laboratories, Inc. | 4.875 | 12-15-20 | 885,000 | 898,275 | |
Pharmaceuticals 0.31% | |||||
Catalent Pharma Solutions, Inc., PIK | 9.500 | 04-15-15 | 1,657,387 | 1,680,176 | |
Valeant Pharmaceuticals International, Inc. (S) | 6.875 | 12-01-18 | 1,290,000 | 1,270,650 | |
Valeant Pharmaceuticals International, Inc. (S) | 6.750 | 10-01-17 | 385,000 | 381,150 | |
Industrials 5.44% | 58,935,567 | ||||
Aerospace & Defense 0.88% | |||||
BE Aerospace, Inc. | 8.500 | 07-01-18 | 1,200,000 | 1,329,000 | |
Bombardier, Inc. (S) | 7.750 | 03-15-20 | 1,015,000 | 1,146,950 | |
Colt Defense LLC/Colt Finance Corp. | 8.750 | 11-15-17 | 950,000 | 831,250 | |
Embraer Overseas, Ltd. | 6.375 | 01-15-20 | 1,485,000 | 1,607,513 | |
Huntington Ingalls Industries, Inc. (S) | 7.125 | 03-15-21 | 1,170,000 | 1,221,188 | |
Kratos Defense & Security Solutions, Inc. | 10.000 | 06-01-17 | 940,000 | 1,034,000 | |
TransDigm, Inc. (S) | 7.750 | 12-15-18 | 2,220,000 | 2,358,750 | |
Airlines 2.04% | |||||
America West Airlines 2000-1 | |||||
Pass Through Trust | 8.057 | 07-02-20 | 827,278 | 860,369 | |
Continental Airlines 1998-1 Class A | |||||
Pass Through Trust | 6.648 | 09-15-17 | 787,107 | 832,365 | |
Continental Airlines 1999-1 Class A | |||||
Pass Through Trust | 6.545 | 02-02-19 | 554,311 | 584,133 | |
Continental Airlines 2000-2 Class B | |||||
Pass Through Trust | 8.307 | 04-02-18 | 502,012 | 503,920 | |
Continental Airlines 2007-1 Class A | |||||
Pass Through Trust | 5.983 | 04-19-22 | 2,026,616 | 2,084,983 | |
Delta Air Lines 2002-1 Class G-1 | |||||
Pass Through Trust | 6.718 | 01-02-23 | 2,594,961 | 2,633,885 | |
Delta Air Lines 2007-1 Class A | |||||
Pass Through Trust | 6.821 | 08-10-22 | 2,550,916 | 2,652,952 | |
Delta Air Lines 2010-1 Class A | |||||
Pass Through Trust | 7.027 | 11-01-19 | 1,550,419 | 1,581,427 | |
Delta Air Lines 2010-1 Class A | |||||
Pass Through Trust | 6.200 | 07-02-18 | 899,346 | 926,326 | |
Delta Air Lines 2011-1 Class A | |||||
Pass Through Trust | 5.300 | 04-15-19 | 940,000 | 942,350 | |
Delta Air Lines, Inc. (S) | 9.500 | 09-15-14 | 1,289,000 | 1,388,898 | |
Northwest Airlines 2002-1 Class G-2 | |||||
Pass Through Trust | 6.264 | 11-20-21 | 2,231,159 | 2,267,527 | |
U.S. Airways 2010-1 Class A | |||||
Pass Through Trust | 6.250 | 04-22-23 | 1,645,000 | 1,595,650 | |
United Air Lines 2009-1 Pass Through Trust | 10.400 | 11-01-16 | 722,751 | 822,996 | |
United Air Lines 2009-2A Pass Through Trust | 9.750 | 01-15-17 | 1,771,875 | 2,028,797 | |
United Air Lines, Inc. (S) | 9.875 | 08-01-13 | 360,000 | 384,300 |
18 | Bond Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Building Products 0.47% | |||||
Masco Corp. | 7.125 | 03-15-20 | $1,255,000 | $1,311,101 | |
Voto-Votorantim Overseas Trading | |||||
Operations NV (S) | 6.625 | 09-25-19 | 1,800,000 | 1,894,500 | |
Voto-Votorantim, Ltd. (S) | 6.750 | 04-05-21 | 1,840,000 | 1,952,608 | |
Commercial Services & Supplies 0.35% | |||||
International Lease Finance Corp. (S) | 7.125 | 09-01-18 | 1,260,000 | 1,379,700 | |
Garda World Security Corp. (S) | 9.750 | 03-15-17 | 410,000 | 438,700 | |
Steelcase, Inc. | 6.375 | 02-15-21 | 1,905,000 | 1,992,752 | |
Construction & Engineering 0.13% | |||||
Tutor Perini Corp. (S) | 7.625 | 11-01-18 | 1,375,000 | 1,366,406 | |
Electrical Equipment 0.08% | |||||
Coleman Cable, Inc. | 9.000 | 02-15-18 | 810,000 | 858,600 | |
Industrial Conglomerates 0.34% | |||||
Odebrecht Finance, Ltd. (Q)(S) | 7.500 | 09-14-15 | 355,000 | 359,970 | |
Odebrecht Finance, Ltd. (S) | 7.000 | 04-21-20 | 1,120,000 | 1,232,000 | |
Textron, Inc. | 5.600 | 12-01-17 | 1,945,000 | 2,099,758 | |
Machinery 0.12% | |||||
Pentair, Inc. | 5.000 | 05-15-21 | 1,240,000 | 1,252,538 | |
Marine 0.21% | |||||
Navios Maritime Holdings, Inc./Navios Maritime | |||||
Finance II U.S., Inc. (S) | 8.125 | 02-15-19 | 945,000 | 945,000 | |
Navios South American Logistics, Inc./Navios | |||||
Logistics Finance (S) | 9.250 | 04-15-19 | 1,295,000 | 1,320,900 | |
Road & Rail 0.54% | |||||
Kansas City Southern de Mexico SA de CV | 8.000 | 02-01-18 | 1,315,000 | 1,456,363 | |
The Hertz Corp. (S) | 6.750 | 04-15-19 | 2,505,000 | 2,530,050 | |
Western Express, Inc. (S) | 12.500 | 04-15-15 | 1,930,000 | 1,876,925 | |
Trading Companies & Distributors 0.09% | |||||
Aircastle, Ltd. | 9.750 | 08-01-18 | 905,000 | 1,020,388 | |
Transportation Infrastructure 0.19% | |||||
Asciano Finance, Ltd. (S) | 4.625 | 09-23-20 | 2,075,000 | 2,027,779 | |
Information Technology 0.54% | 5,876,350 | ||||
IT Services 0.30% | |||||
Brightstar Corp. (S) | 9.500 | 12-01-16 | 2,275,000 | 2,434,250 | |
Equinix, Inc. | 8.125 | 03-01-18 | 765,000 | 826,200 | |
Software 0.24% | |||||
Vangent, Inc. | 9.625 | 02-15-15 | 2,590,000 | 2,615,900 | |
Materials 4.78% | 51,875,603 | ||||
Chemicals 0.94% | |||||
American Pacific Corp. | 9.000 | 02-01-15 | 1,000,000 | 980,000 | |
Braskem Finance, Ltd. (S) | 7.000 | 05-07-20 | 3,780,000 | 4,156,110 | |
Fufeng Group, Ltd. (S) | 7.625 | 04-13-16 | 1,375,000 | 1,295,938 | |
Incitec Pivot Finance LLC (S) | 6.000 | 12-10-19 | 1,370,000 | 1,478,670 | |
Nalco Company (S) | 6.625 | 01-15-19 | 735,000 | 763,481 | |
Sterling Chemicals, Inc. | 10.250 | 04-01-15 | 1,490,000 | 1,538,425 |
See notes to financial statements | Annual report | Bond Fund | 19 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Construction Materials 0.12% | |||||
Building Materials Corp. of America (S) | 6.750 | 05-01-21 | $945,000 | $952,088 | |
Severstal Columbus LLC | 10.250 | 02-15-18 | 370,000 | 410,700 | |
Containers & Packaging 0.60% | |||||
Graphic Packaging International, Inc. | 9.500 | 06-15-17 | 835,000 | 931,025 | |
Graphic Packaging International, Inc. | 7.875 | 10-01-18 | 410,000 | 446,900 | |
Polymer Group, Inc. (S) | 7.750 | 02-01-19 | 380,000 | 391,400 | |
Pretium Packaging LLC/Pretium Finance, Inc. (S) | 11.500 | 04-01-16 | 650,000 | 667,063 | |
Temple-Inland, Inc. | 6.625 | 01-15-18 | 3,085,000 | 3,445,041 | |
U.S. Corrugated, Inc. | 10.000 | 06-12-13 | 605,000 | 595,925 | |
Metals & Mining 2.35% | |||||
Alcoa, Inc. | 5.400 | 04-15-21 | 1,075,000 | 1,101,384 | |
Allegheny Technologies, Inc. | 9.375 | 06-01-19 | 1,205,000 | 1,573,070 | |
Allegheny Technologies, Inc. | 5.950 | 01-15-21 | 570,000 | 624,580 | |
ArcelorMittal | 9.850 | 06-01-19 | 1,470,000 | 1,893,282 | |
ArcelorMittal | 6.750 | 03-01-41 | 1,110,000 | 1,119,112 | |
Cliffs Natural Resources, Inc. | 6.250 | 10-01-40 | 1,230,000 | 1,256,622 | |
Commercial Metals Company | 7.350 | 08-15-18 | 1,395,000 | 1,543,132 | |
Gerdau Trade, Inc. (S) | 5.750 | 01-30-21 | 1,345,000 | 1,348,363 | |
JMC Steel Group (S) | 8.250 | 03-15-18 | 725,000 | 748,563 | |
Metinvest BV (S) | 8.750 | 02-14-18 | 1,755,000 | 1,860,142 | |
Rain CII Carbon LLC/CII Carbon Corp. (S) | 8.000 | 12-01-18 | 2,225,000 | 2,386,313 | |
Taseko Mines, Ltd. | 7.750 | 04-15-19 | 495,000 | 502,425 | |
Teck Resources, Ltd. | 10.750 | 05-15-19 | 4,315,000 | 5,496,016 | |
Thompson Creek Metals Company, Inc. (S) | 7.375 | 06-01-18 | 630,000 | 637,088 | |
Vale Overseas, Ltd. | 6.875 | 11-10-39 | 1,365,000 | 1,509,908 | |
Winsway Coking Coal Holding, Ltd. (S) | 8.500 | 04-08-16 | 1,890,000 | 1,847,475 | |
Paper & Forest Products 0.77% | |||||
Georgia-Pacific LLC (S) | 5.400 | 11-01-20 | 3,320,000 | 3,451,426 | |
International Paper Company | 9.375 | 05-15-19 | 1,650,000 | 2,167,935 | |
Mercer International, Inc. | 9.500 | 12-01-17 | 425,000 | 465,906 | |
Verso Paper Holdings LLC/Verso Paper, Inc. (S) | 8.750 | 02-01-19 | 410,000 | 410,000 | |
Westvaco Corp. | 7.950 | 02-15-31 | 1,725,000 | 1,880,095 | |
Telecommunication Services 1.65% | 17,916,738 | ||||
Diversified Telecommunication Services 0.82% | |||||
Affinion Group Holdings, Inc. (S) | 11.625 | 11-15-15 | 1,055,000 | 1,068,188 | |
Axtel SAB de CV (S) | 9.000 | 09-22-19 | 705,000 | 699,713 | |
Frontier Communications Corp. | 8.500 | 04-15-20 | 2,390,000 | 2,620,038 | |
Telecom Italia Capital SA | 7.721 | 06-04-38 | 1,030,000 | 1,101,850 | |
Telecom Italia Capital SA | 7.200 | 07-18-36 | 1,490,000 | 1,515,084 | |
West Corp. | 11.000 | 10-15-16 | 1,780,000 | 1,911,275 | |
Wireless Telecommunication Services 0.83% | |||||
America Movil SAB de CV | 5.000 | 03-30-20 | 1,780,000 | 1,883,733 | |
Bakrie Telecom Pte, Ltd. (S) | 11.500 | 05-07-15 | 1,620,000 | 1,692,900 | |
NII Capital Corp. | 10.000 | 08-15-16 | 940,000 | 1,078,650 | |
NII Capital Corp. | 8.875 | 12-15-19 | 1,655,000 | 1,832,913 | |
SBA Telecommunications, Inc. | 8.000 | 08-15-16 | 595,000 | 646,319 | |
SBA Tower Trust (S) | 5.101 | 04-15-17 | 1,790,000 | 1,866,075 |
20 | Bond Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Utilities 3.04% | $32,972,086 | ||||
Electric Utilities 1.29% | |||||
BVPS II Funding Corp. | 8.890 | 06-01-17 | $1,806,000 | 2,053,285 | |
Commonwealth Edison Company | 5.800 | 03-15-18 | 1,955,000 | 2,217,740 | |
Israel Electric Corp., Ltd. (S) | 7.250 | 01-15-19 | 2,395,000 | 2,608,931 | |
ITC Holdings Corp. (S) | 5.500 | 01-15-20 | 1,670,000 | 1,806,447 | |
NV Energy, Inc. | 6.250 | 11-15-20 | 1,055,000 | 1,100,663 | |
PNPP II Funding Corp. | 9.120 | 05-30-16 | 748,000 | 840,011 | |
PPL Capital Funding, Inc. (6.700% to 3-30-17, | |||||
then 3 month LIBOR + 2.665%) | 6.700 | 03-30-67 | 1,785,000 | 1,771,613 | |
W3A Funding Corp. | 8.090 | 01-02-17 | 1,548,591 | 1,559,338 | |
Independent Power Producers & Energy Traders 0.74% | |||||
Allegheny Energy Supply Company LLC (S) | 5.750 | 10-15-19 | 1,826,000 | 1,918,324 | |
Exelon Generation Company LLC | 6.250 | 10-01-39 | 1,155,000 | 1,199,625 | |
Ipalco Enterprises, Inc. (S) | 5.000 | 05-01-18 | 1,870,000 | 1,884,025 | |
NRG Energy, Inc. | 8.250 | 09-01-20 | 1,450,000 | 1,486,250 | |
NRG Energy, Inc. | 7.625 | 01-15-18 | 1,570,000 | 1,585,700 | |
Multi-Utilities 0.64% | |||||
CMS Energy Corp. | 6.250 | 02-01-20 | 2,885,000 | 3,145,925 | |
Integrys Energy Group, Inc. (6.110% to | |||||
12-1-16, then 3 month LIBOR + 2.120%) | 6.110 | 12-01-66 | 2,605,000 | 2,578,950 | |
Wisconsin Energy Corp. (6.250% to 5-15-17, | |||||
then 3 month LIBOR + 2.113%) | 6.250 | 05-15-67 | 1,210,000 | 1,225,125 | |
Water Utilities 0.37% | |||||
Cia de Saneamento Basico do Estado de | |||||
Sao Paulo (S) | 6.250 | 12-16-20 | 1,215,000 | 1,242,338 | |
Midwest Generation LLC, Series B | 8.560 | 01-02-16 | 1,876,901 | 1,961,362 | |
Salton Sea Funding Corp., Series F | 7.475 | 11-30-18 | 730,323 | 786,434 | |
U.S. Government & Agency Obligations 25.40% | $275,533,263 | ||||
(Cost $271,596,457) | |||||
U.S. Government 4.37% | 47,411,765 | ||||
U.S. Treasury | |||||
Bond | 4.750 | 02-15-41 | $22,520,000 | 24,589,025 | |
Note (L) | 3.125 | 05-15-21 | 7,595,000 | 7,642,469 | |
Note | 2.250 | 03-31-16 | 195,000 | 200,850 | |
Note | 2.125 | 02-29-16 | 5,120,000 | 5,250,401 | |
Note | 2.000 | 04-30-16 | 6,225,000 | 6,327,588 | |
Strip | Zero | 11-15-30 | 7,940,000 | 3,401,432 | |
U.S. Government Agency 21.03% | 228,121,498 | ||||
Federal Home Loan Mortgage Corp. | |||||
30 Yr Pass Thru Ctf | 6.500 | 06-01-37 | 239,834 | 270,019 | |
30 Yr Pass Thru Ctf | 6.500 | 10-01-37 | 446,817 | 503,053 | |
30 Yr Pass Thru Ctf | 6.500 | 11-01-37 | 898,347 | 1,011,833 | |
30 Yr Pass Thru Ctf | 6.500 | 12-01-37 | 692,016 | 779,113 | |
30 Yr Pass Thru Ctf | 6.500 | 02-01-38 | 211,951 | 238,726 | |
30 Yr Pass Thru Ctf | 6.500 | 03-01-38 | 830,569 | 935,104 | |
30 Yr Pass Thru Ctf | 6.500 | 04-01-38 | 587,215 | 661,122 | |
30 Yr Pass Thru Ctf | 6.500 | 04-01-39 | 10,650,048 | 11,990,457 | |
30 Yr Pass Thru Ctf | 6.500 | 09-01-39 | 691,802 | 778,872 | |
30 Yr Pass Thru Ctf | 5.000 | 07-01-35 | 1,610,245 | 1,719,771 | |
30 Yr Pass Thru Ctf | 4.000 | 09-01-40 | 12,748,774 | 12,842,959 |
See notes to financial statements | Annual report | Bond Fund | 21 |
Maturity | ||||||
Rate (%) | date | Par value | Value | |||
U.S. Government Agency (continued) | ||||||
Federal National Mortgage Association | ||||||
15 Yr Pass Thru Ctf | 4.500 | 07-01-25 | $4,914,766 | $5,212,153 | ||
15 Yr Pass Thru Ctf | 4.000 | 06-01-24 | 23,165,600 | 24,271,832 | ||
15 Yr Pass Thru Ctf | 4.000 | 07-01-24 | 11,494,771 | 12,043,683 | ||
30 Yr Pass Thru Ctf | 6.500 | 09-01-37 | 921,621 | 1,039,308 | ||
30 Yr Pass Thru Ctf | 6.500 | 01-01-39 | 16,171,816 | 18,236,881 | ||
30 Yr Pass Thru Ctf | 6.500 | 03-01-39 | 762,189 | 860,350 | ||
30 Yr Pass Thru Ctf | 6.500 | 06-01-39 | 5,631,631 | 6,357,803 | ||
30 Yr Pass Thru Ctf | 6.000 | 07-01-38 | 11,664,920 | 12,884,880 | ||
30 Yr Pass Thru Ctf | 5.500 | 09-01-34 | 8,329,774 | 9,066,253 | ||
30 Yr Pass Thru Ctf | 5.500 | 05-01-35 | 12,428,710 | 13,531,481 | ||
30 Yr Pass Thru Ctf | 5.500 | 12-01-36 | 5,309,411 | 5,763,911 | ||
30 Yr Pass Thru Ctf | 5.000 | TBA | 20,156,000 | 21,455,324 | ||
30 Yr Pass Thru Ctf | 5.000 | 11-01-33 | 2,520,382 | 2,697,327 | ||
30 Yr Pass Thru Ctf | 5.000 | 09-01-40 | 30,357,505 | 32,322,756 | ||
30 Yr Pass Thru Ctf | 4.000 | 03-01-39 | 18,020,389 | 18,223,209 | ||
30 Yr Pass Thru Ctf | 4.000 | 10-01-40 | 8,370,098 | 8,449,918 | ||
30 Yr Pass Thru Ctf | 4.000 | 11-01-40 | 3,940,746 | 3,973,400 | ||
Foreign Government Obligations 0.42% | $4,557,005 | |||||
(Cost $4,445,153) | ||||||
Hungary 0.15% | 1,602,720 | |||||
Republic of Hungary | 7.625 | 03-29-41 | $1,484,000 | 1,602,720 | ||
United Kingdom 0.27% | 2,954,285 | |||||
Government of United Kingdom (GBP)(D) | 4.750 | 03-07-20 | 1,607,000 | 2,954,285 | ||
Convertible Bonds 0.34% | $3,718,119 | |||||
(Cost $2,253,625) | ||||||
Consumer Discretionary 0.21% | 2,242,519 | |||||
Media 0.21% | ||||||
XM Satellite Radio, Inc. (S) | 7.000 | 12-01-14 | $1,455,000 | 2,242,519 | ||
Industrials 0.13% | 1,475,600 | |||||
Airlines 0.13% | ||||||
US Airways Group, Inc. | 7.250 | 05-15-14 | 680,000 | 1,475,600 | ||
Municipal Bonds 0.10% | $1,072,588 | |||||
(Cost $913,588) | ||||||
California 0.10% | 1,072,588 | |||||
State of California | 7.600 | 11-01-40 | $905,000 | 1,072,588 | ||
Term Loans (M) 0.82% | $8,906,425 | |||||
(Cost $9,004,762) | ||||||
Consumer Discretionary 0.66% | 7,171,983 | |||||
Automobiles 0.18% | ||||||
Chrysler Group LLC (T) | — | 06-02-17 | $2,000,000 | 1,988,426 | ||
Hotels, Restaurants & Leisure 0.36% | ||||||
CCM Merger, Inc. | 7.000 | 03-01-17 | 800,000 | 810,800 | ||
East Valley Tourist Development Authority | 12.000 | 08-06-12 | 831,711 | 688,241 | ||
Kalispel Tribal Economic Authority | 7.500 | 02-22-17 | 2,400,000 | 2,364,000 |
22 | Bond Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Media 0.12% | |||||
Vertis, Inc. | 11.750 | 12-31-15 | $1,408,550 | $1,320,516 | |
Financials 0.16% | 1,734,442 | ||||
Real Estate Investment Trusts 0.08% | |||||
iStar Financial, Inc. | 7.000 | 06-30-14 | 880,000 | 886,442 | |
Real Estate Management & Development 0.08% | |||||
Realogy Corp. | 13.500 | 10-15-17 | 800,000 | 848,000 | |
Capital Preferred Securities 1.65% | $17,934,061 | ||||
(Cost $17,198,985) | |||||
Financials 1.65% | 17,934,061 | ||||
Capital Markets 0.50% | |||||
State Street Capital Trust III (P)(Q) | 5.300 | 07-25-11 | $2,075,000 | 2,076,411 | |
State Street Capital Trust IV (P) | 1.310 | 06-15-37 | 4,005,000 | 3,383,520 | |
Commercial Banks 0.92% | |||||
Allfirst Preferred Capital Trust (P) | 1.778 | 07-15-29 | 1,305,000 | 1,149,071 | |
Fifth Third Capital Trust IV (6.500% to 4-15-17 | |||||
then 3 month LIBOR + 1.368%) | 6.500 | 04-15-37 | 3,425,000 | 3,399,313 | |
PNC Preferred Funding Trust III (8.700% | |||||
to 3-15-13 then 3 month LIBOR + | |||||
5.226%) (Q)(S) | 8.700 | 03-15-13 | 3,330,000 | 3,554,342 | |
Sovereign Capital Trust VI | 7.908 | 06-13-36 | 1,840,000 | 1,923,104 | |
Insurance 0.23% | |||||
MetLife Capital Trust X (9.250% to 4-8-38 | |||||
then 3 month LIBOR + 5.540%) (S) | 9.250 | 04-08-38 | 710,000 | 901,700 | |
ZFS Finance USA Trust II (6.450% to 6-15-16 | |||||
then 3 month LIBOR + 2.000%) (S) | 6.450 | 12-15-65 | 1,480,000 | 1,546,600 | |
Collateralized Mortgage Obligations 13.77% | $149,324,809 | ||||
(Cost $144,601,139) | |||||
Commercial & Residential 11.97% | 129,854,246 | ||||
American Home Mortgage Assets | |||||
Series 2006-6, Class A1A (P) | 0.384 | 12-25-46 | $2,261,904 | 1,178,192 | |
Series 2006-6, Class XP IO | 2.354 | 12-25-46 | 25,414,772 | 1,679,614 | |
American Tower Trust | |||||
Series 2007-1A, Class C (S) | 5.615 | 04-15-37 | 2,875,000 | 3,073,011 | |
Series 2007-1A, Class D (S) | 5.957 | 04-15-37 | 3,175,000 | 3,387,807 | |
Banc of America Commercial Mortgage, Inc. | |||||
Series 2006-2, Class AM (P) | 5.769 | 05-10-45 | 2,380,000 | 2,517,024 | |
Series 2006-4, Class AM | 5.675 | 07-10-46 | 2,375,000 | 2,456,980 | |
Series 2006-3, Class A4 (P) | 5.889 | 07-10-44 | 2,620,000 | 2,890,255 | |
Bear Stearns Alt-A Trust | |||||
Series 2005-3, Class B2 (P) | 2.571 | 04-25-35 | 1,136,192 | 63,406 | |
Bear Stearns Commercial Mortgage | |||||
Securities, Inc. Series 2006-PW14, Class D (S) | 5.412 | 12-11-38 | 2,480,000 | 1,471,595 | |
Citigroup Commercial Mortgage Trust | |||||
Series 2006-C4, Class A3 (P) | 5.729 | 03-15-49 | 3,350,000 | 3,731,205 | |
Citigroup/Deutsche Bank Commercial | |||||
Mortgage Trust Series 2005-CD1, Class C (P) | 5.220 | 07-15-44 | 1,030,000 | 953,729 | |
Commercial Mortgage Pass Through | |||||
Certificates Series 2007-C9, Class A4 (P) | 5.815 | 12-10-49 | 5,595,000 | 6,238,575 |
See notes to financial statements | Annual report | Bond Fund | 23 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Commercial & Residential (continued) | |||||
First Horizon Alternative Mortgage Securities | |||||
Series 2004-AA5, Class B1 (P) | 2.353 | 12-25-34 | $1,167,315 | $152,352 | |
GMAC Mortgage Loan Trust | |||||
Series 2004-AR2, Class 3A (P) | 3.401 | 08-19-34 | 3,650,173 | 3,387,346 | |
Greenwich Capital Commercial Funding Corp. | |||||
Series 2006-GG7, Class AM (P) | 5.881 | 07-10-38 | 2,375,000 | 2,500,328 | |
Series 2007-GG9, Class C (P) | 5.550 | 03-10-39 | 1,810,000 | 1,292,018 | |
Series 2007-GG9, Class A4 | 5.444 | 03-10-39 | 4,670,000 | 5,057,807 | |
GSR Mortgage Loan Trust | |||||
Series 2005-AR6, Class 3A1 (P) | 2.717 | 09-25-35 | 3,074,005 | 2,738,951 | |
Series 2004-9, Class B1 (P) | 3.479 | 08-25-34 | 1,639,123 | 628,802 | |
Series 2006-AR1, Class 3A1 (P) | 5.075 | 01-25-36 | 3,692,018 | 3,314,746 | |
Harborview Mortgage Loan Trust | |||||
Series 2005-11, Class X IO | 2.264 | 08-19-45 | 12,738,595 | 598,091 | |
Series 2005-8, Class 1X IO | 2.378 | 09-19-35 | 20,018,433 | 1,026,193 | |
Series 2007-3, Class ES IO | 0.350 | 05-19-47 | 83,409,298 | 550,501 | |
Series 2007-4, Class ES IO | 0.350 | 07-19-47 | 102,398,592 | 563,192 | |
Series 2007-6, Class ES IO (S) | 0.342 | 08-19-37 | 69,315,557 | 445,006 | |
IndyMac Index Mortgage Loan Trust | |||||
Series 2004-AR13, Class B1 | 5.296 | 01-25-35 | 1,110,455 | 116,533 | |
Series 2005-AR18, Class 1X IO | 2.212 | 10-25-36 | 32,628,245 | 1,631,412 | |
Series 2005-AR18, Class 2X IO | 1.896 | 10-25-36 | 53,455,727 | 2,672,786 | |
Series 2005-AR5, Class B1 (P) | 2.637 | 05-25-35 | 1,427,564 | 25,611 | |
JPMorgan Chase Commercial Mortgage Securities Corp. | |||||
Series 2006-LDP7, Class AM (P) | 5.870 | 04-15-45 | 3,345,000 | 3,514,192 | |
Series 2007-CB18, Class A4 | 5.440 | 06-12-47 | 4,610,000 | 5,014,487 | |
Series 2005-LDP3, Class A4B (P) | 4.996 | 08-15-42 | 3,635,000 | 3,861,841 | |
JPMorgan Mortgage Trust | |||||
Series 2006-A7, Class 2A5 (P) | 5.554 | 01-25-37 | 1,512,282 | 98,138 | |
LB-UBS Commercial Mortgage Trust | |||||
Series 2007-C1, Class AM | 5.455 | 02-15-40 | 3,515,000 | 3,584,216 | |
Series 2006-C6, Class AM | 5.413 | 09-15-39 | 4,715,000 | 4,940,214 | |
Series 2006-C4, Class A4 (P) | 5.877 | 06-15-38 | 4,165,000 | 4,654,529 | |
Series 2007-C2, Class A3 | 5.430 | 02-15-40 | 4,910,000 | 5,320,147 | |
Merrill Lynch/Countrywide Commercial | |||||
Mortgage Trust | |||||
Series 2006-2, Class A4 (P) | 5.902 | 06-12-46 | 4,535,000 | 5,057,413 | |
MLCC Mortgage Investors, Inc. | |||||
Series 2006-3, Class 2A1 (P) | 5.342 | 10-25-36 | 3,268,348 | 3,060,569 | |
Series 2007-3, Class M1 (P) | 5.410 | 09-25-37 | 1,134,202 | 724,432 | |
Series 2007-3, Class M2 (P) | 5.410 | 09-25-37 | 423,970 | 250,442 | |
Series 2007-3, Class M3 (P) | 5.410 | 09-25-37 | 300,767 | 131,686 | |
Morgan Stanley Capital I | |||||
Series 2007-IQ13, Class A4 | 5.364 | 03-15-44 | 4,875,000 | 5,215,534 | |
Series 2008-HQ8, Class AM (P) | 5.462 | 03-12-44 | 4,600,000 | 4,885,987 | |
Provident Funding Mortgage Loan Trust | |||||
Series 2005-1, Class B1 (P) | 2.669 | 05-25-35 | 1,506,961 | 310,365 | |
Residential Accredit Loans, Inc. | |||||
Series 2005-QO4, Class X IO | 2.563 | 12-25-45 | 32,424,588 | 1,687,975 | |
Structured Asset Securities Corp. | |||||
Series 2003-6A, Class B1 (P) | 2.752 | 03-25-33 | 1,948,466 | 1,331,634 | |
Thornburg Mortgage Securities Trust | |||||
Series 2004-1, Class II2A (P) | 1.779 | 03-25-44 | 3,438,485 | 3,126,903 |
24 | Bond Fund | Annual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Commercial & Residential (continued) | |||||
WaMu Mortgage Pass Through Certificates | |||||
Series 2005-AR1, Class X IO | 1.630 | 01-25-45 | $44,649,059 | $1,973,837 | |
Series 2005-AR12, Class 1A2 (P) | 2.724 | 10-25-35 | 1,105,336 | 1,080,637 | |
Series 2005-AR13, Class X IO | 1.619 | 10-25-45 | 118,537,176 | 5,757,090 | |
Series 2005-AR19, Class B1 (P) | 0.894 | 12-25-45 | 2,260,286 | 394,736 | |
Series 2005-AR8, Class X IO | 1.765 | 07-25-45 | 31,616,287 | 1,598,785 | |
Series 2006-AR4, Class 1A1B (P) | 1.235 | 05-25-46 | 2,176,180 | 1,255,146 | |
Series 2005-AR13, Class B1 (P) | 0.794 | 10-25-45 | 3,873,430 | 790,865 | |
Series 2005-AR6, Class B1 (P) | 0.794 | 04-25-45 | 4,330,598 | 664,331 | |
Wells Fargo Mortgage Backed Securities Trust | |||||
Series 2005-AR5, Class 1A1 (P) | 5.102 | 04-25-35 | 2,606,125 | 2,432,533 | |
Series 2006-AR15, Class A3 (P) | 5.367 | 10-25-36 | 2,687,864 | 792,514 | |
U.S. Government Agency 1.80% | 19,470,563 | ||||
Federal Home Loan Mortgage Corp. | |||||
Series 3581, Class IO | 6.000 | 10-15-39 | 2,802,370 | 563,977 | |
Series 3623, Class LI IO | 4.500 | 01-15-25 | 2,737,322 | 291,946 | |
Series 3630, Class BI IO | 4.000 | 05-15-27 | 1,846,230 | 217,278 | |
Series 3794, Class PI IO | 4.500 | 02-15-38 | 3,915,099 | 637,764 | |
Federal National Mortgage Association | |||||
Series 2009-109, Class IW IO | 4.500 | 04-25-38 | 4,223,582 | 702,815 | |
Series 2009-47, Class EI IO | 5.000 | 08-25-19 | 3,767,975 | 391,365 | |
Series 2009-50, Class GI IO | 5.000 | 05-25-39 | 7,109,345 | 1,414,314 | |
Series 2009-78, Class IB IO | 5.000 | 06-25-39 | 9,967,330 | 1,739,689 | |
Series 2010-14, Class AI IO | 4.000 | 08-25-27 | 5,447,689 | 577,000 | |
Series 2010-36, Class BI IO | 4.000 | 03-25-28 | 5,583,650 | 618,241 | |
Series 398, Class C3 IO | 4.500 | 05-25-39 | 5,842,585 | 1,403,089 | |
Series 401, Class C2 IO | 4.500 | 06-25-39 | 3,839,025 | 860,059 | |
Series 402, Class 3 IO | 4.000 | 11-25-39 | 4,421,619 | 940,188 | |
Series 402, Class 4 IO | 4.000 | 10-25-39 | 7,760,921 | 1,606,607 | |
Series 402, Class 7 IO | 4.500 | 11-25-39 | 7,077,716 | 1,688,737 | |
Series 407, Class 15 IO | 5.000 | 01-25-40 | 6,548,543 | 1,473,422 | |
Series 407, Class 16 IO | 5.000 | 01-25-40 | 1,713,150 | 390,769 | |
Series 407, Class 17 IO | 5.000 | 01-25-40 | 1,377,862 | 304,370 | |
Series 407, Class 21 IO | 5.000 | 01-25-39 | 6,114,091 | 1,253,389 | |
Series 407, Class 7 IO | 5.000 | 03-25-41 | 4,293,460 | 1,051,898 | |
Series 407, Class 8 IO | 5.000 | 03-25-41 | 1,979,174 | 478,762 | |
Government National Mortgage Association | |||||
Series 2010-78, Class AI IO | 4.500 | 04-20-39 | 6,816,025 | 864,884 | |
Asset Backed Securities 4.89% | $53,071,612 | ||||
(Cost $52,870,230) | |||||
Aegis Asset Backed Securities Trust | |||||
Series 2004-3, Class A1 (P) | 0.554 | 09-25-34 | $1,597,882 | 1,414,335 | |
Asset Backed Funding Certificates | |||||
Series 2005-HE1, Class M1 (P) | 0.614 | 03-25-35 | 1,652,918 | 1,410,872 | |
Bayview Financial Acquisition Trust | |||||
Series 2006-A, Class 2A3 (P) | 0.541 | 02-28-41 | 1,734,049 | 1,492,438 | |
Bravo Mortgage Asset Trust | |||||
Series 2006-1A, Class A2 (P)(S) | 0.434 | 07-25-36 | 2,580,449 | 2,209,016 | |
Carrington Mortgage Loan Trust | |||||
Series 2005-OPT2, Class M2 (P) | 0.644 | 05-25-35 | 1,725,000 | 1,573,500 | |
Series 2006-NC4, Class A5 (P) | 0.254 | 10-25-36 | 674,512 | 546,165 | |
Citigroup Mortgage Loan Trust | |||||
Series 2006-WFH3, Class A3 (P) | 0.344 | 10-25-36 | 3,223,398 | 3,023,696 |
See notes to financial statements | Annual report | Bond Fund | 25 |
Maturity | |||||
Rate (%) | date | Par value | Value | ||
Asset Backed Securities (continued) | |||||
ContiMortgage Home Equity Loan Trust | |||||
Series 1995-2, Class A–5 | 8.100 | 08-15-25 | $172,131 | $170,310 | |
Countrywide Asset-Backed Certificates | |||||
Series 2006-3, Class 2A2 (P) | 0.374 | 06-25-36 | 2,946,105 | 2,524,385 | |
Credit-Based Asset Servicing and | |||||
Securitization LLC | |||||
Series 2005-CB2, Class M1 (P) | 0.634 | 04-25-36 | 3,073,905 | 2,792,071 | |
Dominos Pizza Master Issuer LLC | |||||
Series 2007-1, Class M1 (S) | 7.629 | 04-25-37 | 3,715,000 | 3,789,300 | |
Series 2007-1, Class A2 (S) | 5.261 | 04-25-37 | 3,180,000 | 3,227,700 | |
Fremont Home Loan Trust | |||||
Series 2005-1, Class M3 (P) | 0.704 | 06-25-35 | 1,300,000 | 1,186,354 | |
FUEL Trust Series 2011-1 (S) | 4.207 | 04-15-16 | 605,000 | 621,354 | |
Leaf Capital Funding SPE A LLC | |||||
Series 2010-A, Class B (P)(S) | 5.198 | 12-15-20 | 655,000 | 655,000 | |
Series 2010-A, Class C (P)(S) | 7.198 | 12-15-20 | 977,292 | 977,292 | |
Series 2010-A, Class D (P)(S) | 10.198 | 12-15-20 | 782,292 | 782,292 | |
Series 2010-A, Class E1 (P)(S) | 14.698 | 12-15-20 | 861,959 | 861,959 | |
Leaf II Receivables Funding LLC | |||||
Series 2011-1, Class A (S) | 1.700 | 12-20-18 | 1,964,864 | 1,918,666 | |
Merrill Lynch Mortgage Investors, Inc. | |||||
Series 2005-HE2, Class A2C (P) | 0.564 | 09-25-36 | 2,615,000 | 2,326,053 | |
Series 2005-WMC1, Class M1 (P) | 0.694 | 09-25-35 | 1,475,398 | 1,351,747 | |
New Century Home Equity Loan Trust | |||||
Series 2005-1, Class M1 (P) | 0.644 | 03-25-35 | 1,495,000 | 1,131,086 | |
Novastar Home Equity Loan Series 2004-4, | |||||
Class M3 (P) | 1.274 | 03-25-35 | 2,720,000 | 2,481,119 | |
Park Place Securities, Inc. | |||||
Series 2004-WHQ2, Class M2 (P) | 0.824 | 02-25-35 | 3,650,000 | 3,082,465 | |
Series 2005-WCH1, Class M2 (P) | 0.714 | 01-25-36 | 3,450,000 | 3,233,868 | |
Renaissance Home Equity Loan Trust | |||||
Series 2005-2, Class AF3 | 4.499 | 08-25-35 | 356,231 | 355,256 | |
Series 2005-2, Class AF4 | 4.934 | 08-25-35 | 2,365,000 | 1,979,488 | |
Residential Asset Securities Corp. | |||||
Series 2005-KS4, Class M1 (P) | 0.604 | 05-25-35 | 3,642,533 | 3,364,550 | |
Sonic Capital LLC | |||||
Series 2011-1A, Class A2 (S) | 5.438 | 05-20-41 | 2,570,000 | 2,589,275 | |
Shares | Value | ||||
Preferred Securities 0.96% | $10,395,283 | ||||
(Cost $10,285,141) | |||||
Consumer Discretionary 0.12% | 1,296,000 | ||||
Hotels, Restaurants & Leisure 0.12% | |||||
Greektown Superholdings, Inc., Series A (I) | 17,280 | 1,296,000 | |||
Consumer Staples 0.18% | 1,950,821 | ||||
Food & Staples Retailing 0.18% | |||||
Ocean Spray Cranberries, Inc., Series A, | |||||
6.250% (S) | 23,250 | 1,950,821 |
26 | Bond Fund | Annual report | See notes to financial statements |
Shares | Value | ||||
Energy 0.12% | $1,265,467 | ||||
Oil, Gas & Consumable Fuels 0.12% | |||||
Apache Corp., Series D, 6.000% (L) | 19,021 | 1,265,467 | |||
Financials 0.52% | 5,691,370 | ||||
Consumer Finance 0.11% | |||||
Ally Financial, Inc., 7.300% | 48,470 | 1,175,398 | |||
Diversified Financial Services 0.41% | |||||
Bank of America Corp., Series MER, 8.625% | 89,220 | 2,356,300 | |||
Citigroup Capital XIII (7.875% to 10-30-15, | |||||
then 3 month LIBOR + 6.370%) | 16,000 | 446,080 | |||
GMAC Capital Trust I (8.125% to 2-15-16, | |||||
then 3 month LIBOR + 5.785%) | 65,230 | 1,713,592 | |||
Utilities 0.02% | 191,625 | ||||
Electric Utilities 0.02% | |||||
PPL Corp., 8.750% | 3,500 | 191,625 | |||
Shares | Value | ||||
Common Stocks 0.01% | $62,393 | ||||
(Cost $97,862) | |||||
Consumer Discretionary 0.01% | 62,393 | ||||
Greektown Superholdings, Inc. (I) | 885 | 62,393 | |||
Yield (%) | Shares | Value | |||
Securities Lending Collateral 0.67% | $7,295,153 | ||||
(Cost $7,295,252) | |||||
John Hancock Collateral Investment Trust (W) | 0.2531 (Y) | 728,925 | 7,295,153 | ||
Maturity | |||||
Yield* (%) | date | Par value | Value | ||
Short-Term Investments 4.17% | $45,200,000 | ||||
(Cost $45,200,000) | |||||
U.S. Government & Agency | |||||
Obligations 4.17% | 45,200,000 | ||||
Federal Home Loan Bank Discount Notes | 0.010 | 06-01-11 | $45,200,000 | 45,200,000 | |
Total investments (Cost $1,060,373,901)† 101.93% | $1,105,583,346 | ||||
Other assets and liabilities, net (1.93%) | ($20,894,099) | ||||
Total net assets 100.00% | $1,084,689,247 | ||||
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. All par values are denominated in U.S. Dollars unless otherwise indicated.
Currency abbreviations
BRL — Brazilian Real
GBP — Pound Sterling
IO Interest Only Security — Interest Tranche of Stripped Mortgage Pool
LIBOR London Interbank Offered Rate
PIK Payment-in-kind
See notes to financial statements | Annual report | Bond Fund | 27 |
Notes to Schedule of Investments (continued)
(D) Par value of foreign bonds is expressed in local currency as shown parenthetically in security description.
(I) Non-income producing security.
(L) All or a portion of this security is on loan as of 5-31-11.
(M) Term loans are variable rate obligations. The coupon rate shown represents the rate at period end unless the investment is unsettled.
(P) Variable rate obligation. The coupon rate shown represents the rate at period end.
(Q) Perpetual bonds have no stated maturity date. Date shown is next call date.
(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 $218,443,363 or 20.14% of the Fund’s net assets as of 5-31-11.
(T) All or a portion of this position represents an unsettled loan commitment. The coupon rate will be determined at time of settlement.
(W) Investment is an affiliate of the Fund, the adviser and/or subadviser. Also, it represents the investment of securities lending collateral received.
(Y) The rate shown is the annualized seven-day yield as of 5-31-11.
* Yield represets the annualized yield at the date of purchase.
† At 5-31-11, the aggregate cost of investment securities for federal income tax purposes was $1,061,581,043. Net unrealized appreciation aggregated $44,002,303, of which $69,203,285 related to appreciated investment securities and $25,200,982 related to depreciated investment securities.
28 | Bond Fund | Annual report | See notes to financial statements |
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 5-31-11
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 $1,053,078,649) | |
including $7,162,488 of securities loaned (Note 2) | $1,098,288,193 |
Investments in affiliated issuers, at value (Cost $7,295,252) (Note 2) | 7,295,153 |
Total investments, at value (Cost $1,060,373,901) | 1,105,583,346 |
Cash | 78,410 |
Cash held at broker for futures contracts | 80,025 |
Receivable for investments sold | 3,015,171 |
Receivable for fund shares sold | 2,688,002 |
Receivable for forward foreign currency exchange contracts (Note 3) | 77,953 |
Dividends and interest receivable | 12,232,133 |
Receivable for securities lending income | 519 |
Other receivables and prepaid expenses | 121,979 |
Total assets | 1,123,877,538 |
Liabilities | |
Payable for investments purchased | 6,338,364 |
Payable for delayed delivery securities purchased | 22,934,143 |
Payable for forward foreign currency exchange contracts (Note 3) | 126,665 |
Payable for fund shares repurchased | 1,209,010 |
Payable upon return of securities loaned (Note 2) | 7,294,738 |
Payable for futures variation margin (Note 3) | 5,562 |
Distributions payable | 834,411 |
Payable to affiliates | |
Accounting and legal services fees | 12,408 |
Transfer agent fees | 144,848 |
Distribution and service fees | 59,764 |
Trustees’ fees | 69,439 |
Other liabilities and accrued expenses | 158,939 |
Total liabilities | 39,188,291 |
Net assets | |
Capital paid-in | $1,050,306,726 |
Undistributed net investment income | 1,074,470 |
Accumulated net realized loss on investments, futures contracts, foreign | |
currency transactions and swap contracts | (11,798,674) |
Net unrealized appreciation (depreciation) on investments, futures | |
contracts, swap contracts and translation of assets and liabilities in | |
foreign currencies | 45,106,725 |
Net assets | $1,084,689,247 |
See notes to financial statements | Annual 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 (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 ($911,688,627 ÷ 57,475,210 shares) | $15.86 |
Class B ($27,790,682 ÷ 1,752,160 shares)1 | $15.86 |
Class C ($71,413,476 ÷ 4,501,877 shares)1 | $15.86 |
Class I ($73,796,462 ÷ 4,652,207 shares) | $15.86 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95.5%)2 | $16.61 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
30 | Bond Fund | Annual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
Statement of operations For the year ended 5-31-11
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 | $62,787,475 |
Dividends | 586,957 |
Securities lending | 4,039 |
Total investment income | 63,378,471 |
Expenses | |
Investment management fees (Note 5) | 5,042,013 |
Distribution and service fees (Note 5) | 3,465,412 |
Accounting and legal services fees (Note 5) | 148,374 |
Transfer agent fees (Note 5) | 1,705,641 |
Trustees’ fees (Note 5) | 82,347 |
State registration fees | 84,479 |
Printing and postage | 112,805 |
Professional fees | 101,279 |
Custodian fees | 146,676 |
Registration and filing fees | 30,353 |
Other | 33,468 |
Total expenses | 10,952,847 |
Net investment income | 52,425,624 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments in unaffiliated issuers | 14,015,243 |
Investments in affiliated issuers | 514 |
Futures contracts (Note 3) | (423,702) |
Swap contracts (Note 3) | 107,109 |
Foreign currency transactions | 153,805 |
13,852,969 | |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 44,814,550 |
Investments in affiliated issuers | (99) |
Futures contracts (Note 3) | (8,455) |
Swap contracts (Note 3) | 150,513 |
Translation of assets and liabilities in foreign currencies | (46,653) |
44,909,856 | |
Net realized and unrealized gain | 58,762,825 |
Increase in net assets from operations | $111,188,449 |
See notes to financial statements | Annual report | Bond Fund | 31 |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of Changes in Net Assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
Year | Year | |
ended | ended | |
5-31-11 | 5-31-10 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $52,425,624 | $56,741,148 |
Net realized gain | 13,852,969 | 14,393,993 |
Change in net unrealized appreciation (depreciation) | 44,909,856 | 106,247,885 |
Increase in net assets resulting from operations | 111,188,449 | 177,383,026 |
Distributions to shareholders | ||
From net investment income | ||
Class A | (48,723,911) | (52,254,887) |
Class B | (1,335,131) | (1,641,832) |
Class C | (2,798,851) | (2,007,184) |
Class I | (3,056,347) | (1,597,695) |
Class R1 | — | (12,611) |
Total distributions | (55,914,240) | (57,514,209) |
From Fund share transactions (Note 6) | 114,659,284 | 35,308,269 |
Total increase | 169,933,493 | 155,177,086 |
Net assets | ||
Beginning of year | 914,755,754 | 759,578,668 |
End of year | $1,084,689,247 | $914,755,754 |
Undistributed net investment income | $1,074,470 | $1,925,648 |
32 | Bond Fund | Annual report | See notes to financial statements |
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 | 5-31-11 | 5-31-10 | 5-31-09 | 5-31-08 | 5-31-07 |
Per share operating performance | |||||
Net asset value, beginning of year | $15.00 | $12.96 | $14.31 | $14.75 | $14.51 |
Net investment income1 | 0.81 | 0.97 | 0.87 | 0.81 | 0.75 |
Net realized and unrealized gain (loss) on investments | 0.92 | 2.05 | (1.34) | (0.43) | 0.26 |
Total from investment operations | 1.73 | 3.02 | (0.47) | 0.38 | 1.01 |
Less distributions | |||||
From net investment income | (0.87) | (0.98) | (0.88) | (0.82) | (0.77) |
Net asset value, end of year | $15.86 | $15.00 | $12.96 | $14.31 | $14.75 |
Total return (%)2 | 11.78 | 23.833 | (3.02) | 2.57 | 7.08 |
Ratios and supplemental data | |||||
Net assets, end of year (in millions) | $912 | $819 | $686 | $824 | $870 |
Ratios (as a percentage of average net assets): | |||||
Expenses before reductions | 1.05 | 1.08 | 1.164 | 1.05 | 1.05 |
Expenses net of fee waivers and credits | 1.05 | 1.07 | 1.164 | 1.05 | 1.05 |
Net investment income | 5.24 | 6.71 | 6.71 | 5.54 | 5.11 |
Portfolio turnover (%) | 73 | 88 | 90 | 90 | 106 |
1 Based on the average daily shares outstanding.
2 Does not reflect the effect of sales charges, if any.
3 Total returns would have been lower had certain expenses not been reduced during the periods shown.
4 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
CLASS B SHARES Period ended | 5-31-11 | 5-31-10 | 5-31-09 | 5-31-08 | 5-31-07 |
Per share operating performance | |||||
Net asset value, beginning of year | $15.00 | $12.95 | $14.31 | $14.75 | $14.51 |
Net investment income1 | 0.70 | 0.86 | 0.77 | 0.71 | 0.65 |
Net realized and unrealized gain (loss) on investments | 0.92 | 2.07 | (1.34) | (0.43) | 0.26 |
Total from investment operations | 1.62 | 2.93 | (0.57) | 0.28 | 0.91 |
Less distributions | |||||
From net investment income | (0.76) | (0.88) | (0.79) | (0.72) | (0.67) |
Net asset value, end of year | $15.86 | $15.00 | $12.95 | $14.31 | $14.75 |
Total return (%)2 | 11.00 | 23.053 | (3.77) | 1.863 | 6.33 |
Ratios and supplemental data | |||||
Net assets, end of year (in millions) | $28 | $25 | $28 | $42 | $59 |
Ratios (as a percentage of average net assets): | |||||
Expenses before reductions | 1.75 | 1.78 | 1.864 | 1.76 | 1.75 |
Expenses net of fee waivers and credits | 1.75 | 1.77 | 1.864 | 1.75 | 1.75 |
Net investment income | 4.53 | 6.01 | 5.96 | 4.82 | 4.40 |
Portfolio turnover (%) | 73 | 88 | 90 | 90 | 106 |
1 Based on the average daily shares outstanding.
2 Does not reflect the effect of sales charges, if any.
3 Total returns would have been lower had certain expenses not been reduced during the periods shown.
4 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
See notes to financial statements | Annual report | Bond Fund | 33 |
CLASS C SHARES Period ended | 5-31-11 | 5-31-10 | 5-31-09 | 5-31-08 | 5-31-07 |
Per share operating performance | |||||
Net asset value, beginning of year | $15.00 | $12.96 | $14.31 | $14.75 | $14.51 |
Net investment income1 | 0.70 | 0.86 | 0.78 | 0.71 | 0.65 |
Net realized and unrealized gain (loss) on investments | 0.92 | 2.06 | (1.34) | (0.43) | 0.26 |
Total from investment operations | 1.62 | 2.92 | (0.56) | 0.28 | 0.91 |
Less distributions | |||||
From net investment income | (0.76) | (0.88) | (0.79) | (0.72) | (0.67) |
Net asset value, end of year | $15.86 | $15.00 | $12.96 | $14.31 | $14.75 |
Total return (%)2 | 11.00 | 22.983 | (3.70) | 1.86 | 6.33 |
Ratios and supplemental data | |||||
Net assets, end of year (in millions) | $71 | $40 | $26 | $29 | $23 |
Ratios (as a percentage of average net assets): | |||||
Expenses before reductions | 1.75 | 1.78 | 1.864 | 1.75 | 1.75 |
Expenses net of fee waivers and credits | 1.75 | 1.77 | 1.864 | 1.75 | 1.75 |
Net investment income | 4.50 | 5.98 | 6.02 | 4.86 | 4.41 |
Portfolio turnover (%) | 73 | 88 | 90 | 90 | 106 |
1 Based on the average daily shares outstanding.
2 Does not reflect the effect of sales charges, if any.
3 Total returns would have been lower had certain expenses not been reduced during the periods shown.
4 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
CLASS I SHARES Period ended | 5-31-11 | 5-31-10 | 5-31-09 | 5-31-08 | 5-31-07 |
Per share operating performance | |||||
Net asset value, beginning of year | $14.99 | $12.96 | $14.31 | $14.74 | $14.51 |
Net investment income1 | 0.88 | 1.03 | 0.93 | 0.88 | 0.81 |
Net realized and unrealized gain (loss) on investments | 0.92 | 2.05 | (1.35) | (0.43) | 0.25 |
Total from investment operations | 1.80 | 3.08 | (0.42) | 0.45 | 1.06 |
Less distributions | |||||
From net investment income | (0.93) | (1.05) | (0.93) | (0.88) | (0.83) |
Net asset value, end of year | $15.86 | $14.99 | $12.96 | $14.31 | $14.74 |
Total return (%) | 12.33 | 24.31 | (2.60) | 3.01 | 7.53 |
Ratios and supplemental data | |||||
Net assets, end of year (in millions) | $74 | $30 | $19 | $22 | $5 |
Ratios (as a percentage of average net assets): | |||||
Expenses before reductions | 0.62 | 0.63 | 0.702 | 0.62 | 0.62 |
Expenses net of fee waivers and credits | 0.62 | 0.63 | 0.702 | 0.62 | 0.62 |
Net investment income | 5.64 | 7.13 | 7.22 | 6.08 | 5.54 |
Portfolio turnover (%) | 73 | 88 | 90 | 90 | 106 |
1 Based on the average daily shares outstanding.
2 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
34 | Bond Fund | Annual report | See notes to financial statements |
Notes to financial statements
Note 1 — Organization
John Hancock Bond Fund (the Fund) is a diversified series of John Hancock Sovereign Bond Fund (the Trust), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek a high level of current income consistent with prudent investment risk.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase. Effective at the close of business on August 21, 2009, Class R1 shares converted into Class A shares.
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. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using significant unobservable inputs when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. Factors used in determining value may include market or issuer specific events, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Annual report | Bond Fund | 35 |
The following is a summary of the values by input classification of the Fund’s investments as of May 31, 2011, by major security category or type:
LEVEL 3 | |||||
LEVEL 2 | SIGNIFICANT | ||||
TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE | ||
VALUE AT 5-31-11 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS | ||
Corporate Bonds | $528,512,635 | — | $526,310,381 | $2,202,254 | |
U.S. Government & Agency | |||||
Obligations | 275,533,263 | — | 275,533,263 | — | |
Foreign Government | |||||
Obligations | 4,557,005 | — | 4,557,005 | — | |
Convertible Bonds | 3,718,119 | — | 3,718,119 | — | |
Municipal Bonds | 1,072,588 | — | 1,072,588 | — | |
Term Loans | 8,906,425 | — | 8,906,425 | — | |
Capital Preferred Securities | 17,934,061 | — | 17,934,061 | — | |
Collateralized Mortgage | |||||
Obligations | 149,324,809 | — | 139,517,500 | 9,807,309 | |
Asset Backed Securities | 53,071,612 | — | 47,205,794 | 5,865,818 | |
Preferred Securities | 10,395,283 | $7,148,462 | 3,246,821 | — | |
Common Stocks | 62,393 | — | 62,393 | — | |
Securities Lending Collateral | 7,295,153 | 7,295,153 | — | — | |
Short-Term Investments | 45,200,000 | — | 45,200,000 | — | |
Total Investments | |||||
in Securities | $1,105,583,346 | $14,443,615 | $1,073,264,350 | $17,875,381 | |
Other Financial Instruments | |||||
Futures | ($55,308) | ($55,308) | — | — | |
Forward Foreign Currency | |||||
Contracts | ($48,712) | — | ($48,712) | — |
Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. During the year ended May 31, 2011, there were no significant transfers in or out of Level 1 or Level 2 assets.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value. Transfers in or out of Level 3 represent the beginning value of any security or instrument where a change in the level has occurred from the beginning to the end of the period.
COLLATERALIZED | |||||
MORTGAGE | ASSET BACKED | ||||
CORPORATE BONDS | OBLIGATIONS | SECURITIES | TOTAL | ||
Balance as of 5-31-10 | $514,250 | $6,213,054 | — | $6,727,304 | |
Realized gain (loss) | (1,071,981) | — | — | (1,071,981) | |
Change in unrealized | |||||
appreciation (depreciation) | 1,049,656 | 700,559 | $19,275 | 1,769,490 | |
Purchases | 1,187,925 | 3,952,168 | 5,846,543 | 10,986,636 | |
Sales | (127,196) | (161,849) | — | (289,045) | |
Transfer into Level 3 | 649,600 | — | — | 649,600 | |
Transfer out of Level 3 | — | (896,623) | — | (896,623) | |
Balance as of 5-31-11 | $2,202,254 | $9,807,309 | $5,865,818 | $17,875,381 | |
Change in unrealized at | |||||
year end* | $1,049,656 | $700,559 | $19,275 | $1,769,490 |
*Change in unrealized appreciation (depreciation) attributable to Level 3 securities held at year end. This balance is included in the change in unrealized appreciation (depreciation) on the Statement of Operations.
36 | Bond Fund | Annual report |
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Debt obligations are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, taking 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. Investments in open-end mutual funds, including John Hancock Collateral Investment Trust (JHCIT), are valued at their closing net asset values each business day. Foreign securities and currencies, including forward foreign currency contracts, are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain securities and forward foreign currency contracts traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost. Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees.
New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statements.
When-issued/delayed delivery securities. The Fund may purchase or sell debt securities on a when-issued or delayed-delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction, with delivery or payment to occur at a later date beyond the normal settlement period. TBA securities resulting from these transactions are included in the Portfolio of Investments or in a schedule to the Portfolio of Investments (TBA Sale Commitments Outstanding). At the time that the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security is reflected in the Fund’s net asset value. The price of such security and the date that 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 that the Fund enters into this type of transaction, the Fund is required to have sufficient cash and/or liquid securities to cover its commitments.
Certain risks may arise upon entering into when-issued or delayed-delivery securities transactions, including the potential inability of counterparties to meet the terms of their contracts, and the issuer’s failure to issue the securities due to political, economic, or other factors. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.
Term loans (Floating rate loans). The Fund may invest in term loans, which often include debt securities that are rated below investment grade at the time of purchase. Term loans are generally subject to legal or contractual restrictions on resale. The liquidity of term loans, including the volume and frequency of secondary market trading in such loans, varies significantly over time and among individual loans. During periods of infrequent trading, valuing a term loan can be more difficult and buying and selling a term loan at an acceptable price can be more difficult and delayed, which could result in a loss.
Annual report | Bond Fund | 37 |
The Fund’s ability to receive payments of principal, interest and other amounts in connection with term loans will depend primarily on the financial condition of the borrower. The Fund’s failure to receive scheduled payments on a term loan due to a default, bankruptcy or other reason, would adversely affect the Fund’s income and would likely reduce the value of its assets. Because many term loans are not rated by independent credit rating agencies, a decision to invest in a particular loan could depend exclusively on the subadviser’s credit analysis of the borrower and/or term loan agents. The Fund may have limited rights to enforce the terms of an underlying loan.
At May 31, 2011, the Fund had $5,060,000 in unfunded loan commitments outstanding.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date, except for dividends of foreign securities where the dividend may not be known until after the ex-date. In those cases, dividend income is recorded when the Fund becomes aware of the dividends. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful.
Securities lending. The Fund may lend its securities to earn additional income. It receives and maintains cash collateral received from the borrower in an amount not less than the market value of the loaned securities. The Fund will invest its collateral in JHCIT, an affiliate of the Fund, and as a result, the Fund will receive the benefit of any gains and bear any losses generated by JHCIT. Although risk of the loss of the securities lent is mitigated by holding the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. The Fund may receive compensation for lending its securities by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Income received from JHCIT is a component of securities lending income as recorded on the Statement of Operations.
Stripped securities. Stripped mortgage backed securities are financial instruments structured to separate principal and interest cash flows so that one class receives the entire principal from the underlying mortgage assets (PO or principal only), while the other class receives the interest cash flows (IO or interest only). Both PO and IO investments represent an interest in the cash flows of an underlying stripped mortgage backed security. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recover its initial investment in an IO security. The market value of these securities can be extremely volatile in response to changes in interest rates. In addition, these securities present additional credit risk such that the Fund may not receive all or part of its principal or interest payments because the borrower or issuer has defaulted on its obligation.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to the Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.
38 | Bond Fund | Annual report |
In addition, effective March 30, 2011, the Fund and other affiliated funds have entered into an agreement with Citibank N.A. which enables them to participate in a $100 million unsecured committed line of credit. Prior to March 30, 2011, the Fund had a similar agreement with State Street Bank and Trust Company. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis and is reflected in other expenses on the Statement of Operations. For the year ended May 31, 2011, the Fund had no borrowings under the lines of credit.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, and transfer agent fees for all classes, are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Federal income taxes. The Fund intends to continue to qualify 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 a capital loss carryforward of $7,201,777 available to offset future net realized capital gain as of May 31, 2011. Net capital losses of $3,270,239, that are the result of security transactions occurring after October 31, 2010, are treated as occurring on June 1, 2011, the first day of the Fund’s next taxable year. The following table details the capital loss carryforward available as of May 31, 2011:
CAPITAL LOSS CARRYFOWARD EXPIRING AT MAY 31 | |||||||
2015 | 2017 | 2018 | |||||
$5,290,107 | $939,453 | $972,217 |
Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
As of May 31, 2011, the Fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares dividends daily and pays them monthly. Capital gain distributions, if any, are distributed at least annually. The tax character of distributions for the years ended May 31, 2011 and May 31, 2010 was as follows:
MAY 31, 2011 | MAY 31, 2010 | |||||||
Ordinary Income | $55,914,240 | $57,514,209 |
Annual report | Bond Fund | 39 |
Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and in the same amount, except for the effect of expenses that may be applied differently to each class. As of May 31, 2011, the components of distributable earnings on a tax basis included $1,954,248 of undistributed ordinary income.
Such distributions and distributable earnings, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Capital accounts within financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to amortization and accretion on debt securities and distributions payable.
Note 3 — Derivative instruments
The Fund may invest in derivatives in order to meet its investment objective. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, derivatives expose the Fund to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
Futures. A futures contract is a contractual agreement to buy or sell a particular commodity, currency, or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates and potential losses in excess of the amounts recognized on the Statement of Assets and Liabilities.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (variation margin) is recorded by the Fund.
During the year ended May 31, 2011, the Fund used futures contracts to manage duration of the portfolio. The following table summarizes the contracts held at May 31, 2011. During the year ended May 31, 2011, the Fund held futures contracts with absolute notional values ranging from $21.9 million to $23.1 million, as measured at each quarter end.
UNREALIZED | |||||
OPEN | NUMBER OF | APPRECIATION | |||
CONTRACTS | CONTRACTS | POSITION | EXPIRATION DATE | VALUE | (DEPRECIATION) |
U.S. Treasury 30-Year | 50 | Long | Sep 2011 | $6,242,188 | $42,827 |
Bond Futures | |||||
U.S. Treasury 5-Year | 136 | Short | Sep 2011 | (16,203,125) | (98,135) |
Note Futures | |||||
Total | ($55,308) |
40 | Bond Fund | Annual report |
Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a specific currency at a price that is set on the date of the contract. The forward contract calls for delivery of the currency on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the failure of the counterparties to timely post collateral, the risk that currency movements will not occur thereby reducing the Fund’s total return, and the potential for losses in excess of the amounts recognized on the Statement of Assets and Liabilities.
The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked-to-market daily and the change in value is recorded by a Fund as an unrealized gain or loss. Realized gains or losses, equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed, are recorded upon delivery or receipt of the currency.
During the year ended May 31, 2011, the Fund used forward foreign currency contracts to manage against anticipated currency exchange rates. The following table summarizes the contracts held at May 31, 2011. During the year ended May 31, 2011, the Fund held forward foreign currency contracts with USD absolute values ranging up to $8.7 million, as measured at each quarter end.
PRINCIPAL | PRINCIPAL AMOUNT | UNREALIZED | ||||
AMOUNT COVERED | COVERED BY | SETTLEMENT | APPRECIATION | |||
CURRENCY | BY CONTRACT | CONTRACT (USD) | COUNTERPARTY | DATE | (DEPRECIATION) | |
Buys | ||||||
GBP | 1,754,485 | $2,807,176 | Royal Bank of | 6-30-11 | $77,953 | |
Scotland PLC | ||||||
Sells | ||||||
GBP | 3,678,834 | $5,922,923 | Royal Bank of Canada | 6-30-11 | ($126,665) |
Currency Abbreviation
GBP Pound Sterling
Credit default swaps. Credit default swaps (CDS) involve the exchange of a fixed rate premium (paid by the Buyer), for protection against the loss in value of an underlying debt instrument, referenced entity or index, 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” (the Seller), receiving the premium and agreeing to remedies that are specified within the credit default agreement. The Fund may enter into CDS in which it may act as either Buyer or Seller. By acting as the Seller, the Fund may incur economic leverage since it would be obligated to pay the Buyer the notional amount of the contract in the event of a default. The amount of loss in such case would be reduced by any recovery value on the underlying credit.
Swaps are marked-to-market daily based upon values from third party vendors or broker quotations, and the change in value is recorded as unrealized appreciation/depreciation of swap contracts. The value of the swap will typically implicate collateral posting obligations by the party that is considered out-of-the-money on the swap.
Entering into swap agreements involves, to varying degrees, elements of credit, market and documentation risk that may amount to values that are in excess of the amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for the swap, that a counterparty may default on its obligation or delay payment under the swap terms. The counterparty may disagree or contest the terms of the swap. Market risks may also accompany the swap, or including interest rate risk. The Fund may also suffer losses if it is unable to terminate or assign outstanding swaps or reduce its exposure through offsetting transactions.
Annual report | Bond Fund | 41 |
The Fund used CDS as a Seller of protection during the year ended May 31, 2011 to take a long position in the exposure of the benchmark credit. During year ended May 31, 2011, the Fund acted as a Seller on credit default swap contracts with total USD notional amounts ranging up to $5 million, as measured at each quarter end. There were no open credit default swap contracts at May 31, 2011.
Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the Fund at May 31, 2011 by risk category:
FINANCIAL | ASSET | LIABILITY | ||
STATEMENT OF ASSETS AND | INSTRUMENTS | DERIVATIVES | DERIVATIVES | |
RISK | LIABILITIES LOCATION | LOCATION | FAIR VALUE | FAIR VALUE |
Foreign exchange | Receivable/payable for | Forward foreign | $77,953 | ($126,665) |
contracts | forward foreign currency | currency contracts | ||
exchange contracts | ||||
Interest rate contracts | Receivable/payable | Futures† | 42,827 | (98,135) |
for futures | ||||
Total | $120,780 | ($224,800) |
† Reflects cumulative appreciation/depreciation of futures as disclosed in Note 3. Only the year end variation margin is separately disclosed on the Statement of Assets and Liabilities.
Effect of derivative instruments on the Statement of Operations
The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the year ended May 31, 2011:
STATEMENT OF | FOREIGN | ||||
OPERATIONS | FUTURES | SWAP | CURRENCY | ||
RISK | LOCATION | CONTRACTS | CONTRACTS | TRANSACTIONS* | TOTAL |
Credit contracts | Net realized gain on | — | $107,109 | — | $107,109 |
Foreign exchange | Net realized loss on | — | — | ($102,676) | (102,676) |
contracts | |||||
Interest rate | Net realized loss on | ($423,702) | — | — | (423,702) |
contracts | |||||
Total | ($423,702) | $107,109 | ($102,676) | ($419,269) |
*Realized gain/loss associated with forward foreign currency contracts is included in the caption on the Statement of Operations.
The table below summarizes the net change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the year ended May 31, 2011:
TRANSLATION | |||||
OF ASSETS AND | |||||
LIABILITIES | |||||
STATEMENT OF OPERATIONS | FUTURES | SWAP | IN FOREIGN | ||
RISK | LOCATION | CONTRACTS | CONTRACTS | CURRENCIES* | TOTAL |
Credit contracts | Change in net | — | $150,513 | — | $150,513 |
unrealized appreciation | |||||
(depreciation) of | |||||
Foreign exchange | Change in net | — | — | ($48,712) | (48,712) |
contracts | unrealized appreciation | ||||
(depreciation) of |
42 | Bond Fund | Annual report |
TRANSLATION | |||||
OF ASSETS AND | |||||
LIABILITIES | |||||
STATEMENT OF OPERATIONS | FUTURES | SWAP | IN FOREIGN | ||
RISK | LOCATION | CONTRACTS | CONTRACTS | CURRENCIES* | TOTAL |
Interest rate | Change in net | ($8,455) | — | — | (8,455) |
contracts | unrealized appreciation | ||||
(depreciation) of | |||||
Total | ($8,455) | $150,513 | ($48,712) | $93,346 |
*Change in unrealized appreciation/depreciation associated with forward foreign currency contracts is included in the caption on the Statement of Operations.
Note 4 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Advisers, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management contract with the Adviser. Effective July 1, 2011, under the investment management contract, the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.500% of the first $500,000,000 of the Fund’s average daily net assets, (b) 0.475% of the next $500,000,000, (c) 0.450% of the next $500,000,000, (d) 0.450% of the next $500,000,000, (e) 0.400% of the next $500,000,000 and (f) 0.350% in excess of $2,500,000,000. Prior to July 1, 2011, under the investment management contract, the Fund paid a daily 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 assets, (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 assets in excess of $2,500,000,000. The Adviser has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC (formerly MFC Global Investment Management (U.S.), LLC), an indirectly owned subsidiary of MFC and an affiliate of the Adviser. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the year ended May 31, 2011 were equivalent to an annual effective rate of 0.50% of the Fund’s average daily net assets.
The adviser has contractually agreed to waive a portion of its management fee and/or reimburse or pay operating expenses of the fund in order to reduce the total annual fund operating expenses for Class A, Class B and Class C shares by 0.05% of the fund’s average daily net assets. These fee waivers and/or reimbursements expire on September 30, 2012, unless renewed by mutual agreement of the fund and the adviser based upon a determination that this is appropriate under the circumstances at the time.
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each
Annual report | Bond Fund | 43 |
share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the year ended May 31, 2011 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
CLASS | 12b–1 FEE | |||||||
A | 0.30% | |||||||
B | 1.00% | |||||||
C | 1.00% |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $1,054,364 for the year ended May 31, 2011. Of this amount, $126,882 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $774,166 was paid as sales commissions to broker-dealers and $153,316 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
Class B and Class C shares are subject to contingent deferred sales charges (CDSCs). Class B shares that are redeemed within six years of purchase are subject to CDSCs, 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 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the year ended May 31, 2011, CDSCs received by the Distributor amounted to $42,695 and $22,808 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. The transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain fees that Signature Services receives in connection with retirement and small accounts. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. Within each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Prior to July 1, 2010, the transfer agent fees were made up of three components:
• The Fund paid a monthly transfer agent fee at an annual rate of 0.015% for all classes, based on each class’s average daily net assets.
44 | Bond Fund | Annual report |
• The Fund paid a monthly fee based on an annual rate of $17.50 per shareholder account for all classes.
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Class level expenses. Class level expenses for the year ended May 31, 2011 were:
DISTRIBUTION AND | TRANSFER | ||||||
CLASS | SERVICE FEES | AGENT FEES | |||||
A | $2,617,794 | $1,531,952 | |||||
B | 273,617 | 48,039 | |||||
C | 574,001 | 100,892 | |||||
I | — | 24,758 | |||||
Total | $3,465,412 | $1,705,641 |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within Other receivables and prepaid expenses and Payable to affiliates — Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
Note 6 — Fund share transactions
Transactions in Fund shares for the year ended May 31, 2011 and for the year ended May 31, 2010 were as follows:
Year ended 5-31-11 | Year ended 5-31-10 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 9,889,295 | $153,458,680 | 5,473,098 | $79,676,983 |
Exchanged from Class R1 | — | — | 14,796 | 205,314 |
Distributions reinvested | 2,588,938 | 40,333,248 | 2,963,598 | 42,915,466 |
Repurchased | (9,620,544) | (149,583,699) | (6,750,531) | (97,368,056) |
Net increase | 2,857,689 | $44,208,229 | 1,700,961 | $25,429,707 |
Class B shares | ||||
Sold | 697,978 | $10,825,552 | 550,876 | $7,958,822 |
Distributions reinvested | 59,738 | 930,072 | 81,377 | 1,175,109 |
Repurchased | (667,963) | (10,357,462) | (1,126,474) | (16,213,145) |
Net increase (decrease) | 89,753 | $1,398,162 | (494,221) | ($7,079,214) |
Class C shares | ||||
Sold | 2,603,193 | $40,414,359 | 1,098,013 | $15,949,073 |
Distributions reinvested | 103,551 | 1,615,160 | 77,009 | 1,118,509 |
Repurchased | (889,822) | (13,842,555) | (522,380) | (7,578,893) |
Net increase | 1,816,922 | $28,186,964 | 652,642 | $9,488,689 |
Class I shares | ||||
Sold | 4,029,728 | $62,449,472 | 1,115,153 | $16,434,028 |
Distributions reinvested | 132,047 | 2,060,159 | 47,762 | 691,805 |
Repurchased | (1,531,779) | (23,643,702) | (601,483) | (8,775,707) |
Net increase | 2,629,996 | $40,865,929 | 561,432 | $8,350,126 |
Annual report | Bond Fund | 45 |
Year ended 5-31-11 | Year ended 5-31-10 | |||
Shares | Amount | Shares | Amount | |
Class R1 shares | ||||
Sold | — | — | 7,840 | $105,554 |
Exchanged for Class A | — | — | (14,793) | (205,314) |
Distributions reinvested | — | — | 120 | 1,617 |
Repurchased | — | — | (56,536) | (782,896) |
Net increase (decrease) | — | — | (63,369) | ($881,039) |
Net increase | 7,394,360 | $114,659,284 | 2,357,445 | $35,308,269 |
Note 7 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $626,926,302 and $493,292,894, respectively, for the year ended May 31, 2011. Purchases and sales of U.S. Treasury obligations aggregated $219,912,451 and $224,477,712, respectively, for the year ended May 31, 2011.
46 | Bond Fund | Annual report |
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Sovereign Bond Fund and
Shareholders of John Hancock Bond Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of John Hancock Bond Fund (the “Fund”) at May 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2011 by correspondence with the custodian and brokers, and the application of alternative auditing procedures where securities purchased confirmations had not been received, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 21, 2011
Annual report | Bond Fund | 47 |
Tax information
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the Fund, if any, paid during its taxable year ended May 31, 2011.
The Fund designates the maximum amount allowable for the corporate dividends received deduction for the fiscal year ended May 31, 2011.
The Fund designates the maximum amount allowable of its net taxable income as qualified dividend income as provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003. This amount will be reflected on Form 1099-DIV for the calendar year 2011.
Shareholders will be mailed a 2011 Form 1099-DIV in January 2012. This will reflect the total of all distributions for calendar year 2011.
48 | Bond Fund | Annual report |
Trustees and Officers
This chart provides information about the Trustees and Officers who oversee your John Hancock fund. Officers elected by the Trustees manage the day-to-day operations of the Fund and execute policies formulated by the Trustees.
Independent Trustees | ||
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
Steven R. Pruchansky, Born: 1944 | 1994 | 47 |
Chairperson (since January 2011); Chairman and Chief Executive Officer, Greenscapes of Southwest | ||
Florida, Inc. (since 2000); Director and President, Greenscapes of Southwest Florida, Inc. (until 2000); | ||
Member, Board of Advisors, First American Bank (until 2010); Managing Director, Jon James, LLC (real | ||
estate) (since 2000); Director, First Signature Bank & Trust Company (until 1991); Director, Mast Realty | ||
Trust (until 1994); President, Maxwell Building Corp. (until 1991). | ||
James F. Carlin, Born: 1940 | 1994 | 47 |
Chief Executive Officer, Director and Treasurer, Alpha Analytical Laboratories (environmental, chemical | ||
and pharmaceutical analysis) (since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance | ||
Agency, Inc. (since 1995); Chairman and Chief Executive Officer, CIMCO, LLC (management/ | ||
investments) (since 1987). | ||
William H. Cunningham, Born: 1944 | 1987 | 47 |
Professor, University of Texas, Austin, Texas (since 1971); former Chancellor, University of Texas System | ||
and former President of the University of Texas, Austin, Texas; Director of the following: LIN Television | ||
(since 2009); Lincoln National Corporation (insurance) (Chairman since 2009 and Director since 2006); | ||
Resolute Energy Corporation (since 2009); Nanomedical Systems, Inc. (biotechnology company) | ||
(Chairman since 2008); Yorktown Technologies, LP (tropical fish) (Chairman since 2007); Greater Austin | ||
Crime Commission (since 2001); Southwest Airlines (since 2000); former Director of the following: | ||
Introgen (manufacturer of biopharmaceuticals) (until 2008); Hicks Acquisition Company I, Inc. (until | ||
2007); Jefferson-Pilot Corporation (diversified life insurance company) (until 2006); and former Advisory | ||
Director, JP Morgan Chase Bank (formerly Texas Commerce Bank–Austin) (until 2009). | ||
Deborah C. Jackson,2 Born: 1952 | 2008 | 47 |
President, Cambridge College, Cambridge, Massachusetts (since 2011); Chief Executive Officer, | ||
American Red Cross of Massachusetts Bay (2002–May 2011); Board of Directors of Eastern Bank | ||
Corporation (since 2001); Board of Directors of Eastern Bank Charitable Foundation (since 2001); | ||
Board of Directors of American Student Assistance Corp. (1996–2009); Board of Directors of Boston | ||
Stock Exchange (2002–2008); Board of Directors of Harvard Pilgrim Healthcare (health benefits | ||
company) (2007–2011). | ||
Charles L. Ladner,2 Born: 1938 | 1994 | 47 |
Vice Chairperson (since March 2011); Chairman and Trustee, Dunwoody Village, Inc. (retirement | ||
services) (since 2008); Director, Philadelphia Archdiocesan Educational Fund (since 2009); Senior Vice | ||
President and Chief Financial Officer, UGI Corporation (public utility holding company) (retired 1998); | ||
Vice President and Director for AmeriGas, Inc. (retired 1998); Director of AmeriGas Partners, L.P. (gas | ||
distribution) (until 1997); Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | ||
(Cooperating Association, National Park Service) (until 2005). |
Annual report | Bond Fund | 49 |
Independent Trustees (continued) | ||
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
Stanley Martin,2 Born: 1947 | 2008 | 47 |
Senior Vice President/Audit Executive, Federal Home Loan Mortgage Corporation (2004–2006); | ||
Executive Vice President/Consultant, HSBC Bank USA (2000–2003); Chief Financial Officer/Executive | ||
Vice President, Republic New York Corporation & Republic National Bank of New York (1998–2000); | ||
Partner, KPMG LLP (1971–1998). | ||
Dr. John A. Moore, Born: 1939 | 2005 | 47 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, (nonprofit institution) | ||
(until 2001); Senior Scientist, Sciences International (health research) (until 2003); Former | ||
Assistant Administrator & Deputy Administrator, Environmental Protection Agency; Principal, | ||
Hollyhouse (consulting) (since 2000); Director, CIIT Center for Health Science Research (nonprofit | ||
research) (until 2007). | ||
Patti McGill Peterson,2 Born: 1943 | 2005 | 47 |
Principal, PMP Globalinc (consulting) (since 2007); Senior Associate, Institute for Higher Education Policy | ||
(since 2007); Executive Director, CIES (international education agency) (until 2007); Vice President, | ||
Institute of International Education (until 2007); Senior Fellow, Cornell University Institute of Public | ||
Affairs, Cornell University (1997–1998); Former President Wells College, St. Lawrence University and the | ||
Association of Colleges and Universities of the State of New York. Director of the following: Niagara | ||
Mohawk Power Corporation (until 2003); Security Mutual Life (insurance) (until 1997); ONBANK (until | ||
1993). Trustee of the following: Board of Visitors, The University of Wisconsin, Madison (since 2007); | ||
Ford Foundation, International Fellowships Program (until 2007); UNCF, International Development | ||
Partnerships (until 2005); Roth Endowment (since 2002); Council for International Educational | ||
Exchange (since 2003). | ||
Gregory A. Russo, Born: 1949 | 2008 | 47 |
Vice Chairman, Risk & Regulatory Matters, KPMG LLP (KPMG) (2002–2006); Vice Chairman, Industrial | ||
Markets, KPMG (1998–2002). | ||
Non-Independent Trustees3 | ||
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
Hugh McHaffie,4 Born: 1959 | 2010 | 47 |
Executive Vice President, John Hancock Financial Services (since 2006, including prior positions); | ||
President of John Hancock Variable Insurance Trust and John Hancock Funds II (since 2009); Trustee, | ||
John Hancock retail funds (since 2010); Chairman and Director, John Hancock Advisers, LLC, | ||
John Hancock Investment Management Services, LLC and John Hancock Funds, LLC (since 2010); Senior | ||
Vice President, Individual Business Product Management, MetLife, Inc. (1999–2006). |
50 | Bond Fund | Annual report |
Non-Independent Trustees3 (continued) | ||
Name, Year of Birth | Trustee | Number of John |
Position(s) held with Fund | of the | Hancock funds |
Principal occupation(s) and other | Trust | overseen by |
directorships during past 5 years | since1 | Trustee |
John G. Vrysen, Born: 1955 | 2009 | 47 |
Senior Vice President, John Hancock Financial Services (since 2006); Director, Executive Vice President | ||
and Chief Operating Officer, John Hancock Advisers, LLC, John Hancock Investment Management | ||
Services, LLC and John Hancock Funds, LLC (since 2005); Chief Operating Officer, John Hancock | ||
Funds II and John Hancock Variable Insurance Trust (since 2007); Chief Operating Officer, John Hancock | ||
retail funds (until 2009); Trustee, John Hancock retail funds (since 2009). | ||
Principal officers who are not Trustees | ||
Name, Year of Birth | Officer | |
Position(s) held with Fund | of the | |
Principal occupation(s) and other | Trust | |
directorships during past 5 years | since | |
Keith F. Hartstein, Born: 1956 | 2005 | |
President and Chief Executive Officer | ||
Senior Vice President, John Hancock Financial Services (since 2004); Director, President and Chief | ||
Executive Officer, John Hancock Advisers, LLC and John Hancock Funds, LLC (since 2005); Director, | ||
John Hancock Asset Management a division of Manulife Asset Management (US) LLC (since 2005); | ||
Director, John Hancock Investment Management Services, LLC (since 2006); President and Chief | ||
Executive Officer, John Hancock retail funds (since 2005); Member, Investment Company Institute Sales | ||
Force Marketing Committee (since 2003). | ||
Andrew G. Arnott, Born: 1971 | 2009 | |
Senior Vice President and Chief Operating Officer | ||
Senior Vice President, John Hancock Financial Services (since 2009); Executive Vice President, | ||
John Hancock Advisers, LLC (since 2005); Executive Vice President, John Hancock Investment | ||
Management Services, LLC (since 2006); Executive Vice President, John Hancock Funds, LLC (since | ||
2004); Chief Operating Officer, John Hancock retail funds (since 2009); Senior Vice President, | ||
John Hancock retail funds (since 2010); Vice President, John Hancock Funds II and John Hancock | ||
Variable Insurance Trust (since 2006); Senior Vice President, Product Management and Development, | ||
John Hancock Funds, LLC (until 2009). | ||
Thomas M. Kinzler, Born: 1955 | 2006 | |
Secretary and Chief Legal Officer | ||
Vice President, John Hancock Financial Services (since 2006); Secretary and Chief Legal Counsel, | ||
John Hancock Advisers, LLC, John Hancock Investment Management Services, LLC and John Hancock | ||
Funds, LLC (since 2007); Secretary and Chief Legal Officer, John Hancock retail funds, John Hancock | ||
Funds II and John Hancock Variable Insurance Trust (since 2006); Vice President and Associate General | ||
Counsel, Massachusetts Mutual Life Insurance Company (1999–2006); Secretary and Chief Legal | ||
Counsel, MML Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, MassMutual | ||
Select Funds and MassMutual Premier Funds (2004–2006). |
Annual report | Bond Fund | 51 |
Principal officers who are not Trustees (continued) | |
Name, Year of Birth | Officer |
Position(s) held with Fund | of the |
Principal occupation(s) and other | Trust |
directorships during past 5 years | since |
Francis V. Knox, Jr., Born: 1947 | 2005 |
Chief Compliance Officer | |
Vice President, John Hancock Financial Services (since 2005); Chief Compliance Officer, John Hancock | |
retail funds, John Hancock Funds II, John Hancock Variable Insurance Trust, John Hancock Advisers, | |
LLC and John Hancock Investment Management Services, LLC (since 2005); Vice President and Chief | |
Compliance Officer, John Hancock Asset Management a division of Manulife Asset Management (US) | |
LLC (2005–2008). | |
Charles A. Rizzo, Born: 1957 | 2007 |
Chief Financial Officer | |
Vice President, John Hancock Financial Services (since 2008); Senior Vice President, John Hancock | |
Advisers, LLC and John Hancock Investment Management Services, LLC (since 2008); Chief Financial | |
Officer, John Hancock retail funds, John Hancock Funds II and John Hancock Variable Insurance Trust | |
(since 2007); Assistant Treasurer, Goldman Sachs Mutual Fund Complex (2005–2007); Vice President, | |
Goldman Sachs (2005–2007). | |
Salvatore Schiavone,4 Born: 1965 | 2010 |
Treasurer | |
Assistant Vice President, John Hancock Financial Services (since 2007); Vice President, John Hancock | |
Advisers, LLC and John Hancock Investment Management Services, LLC (since 2007); Treasurer, | |
John Hancock retail funds (since 2010); Treasurer, John Hancock closed-end funds (since 2009); | |
Assistant Treasurer, John Hancock Funds II and John Hancock Variable Insurance Trust (since 2010); | |
Assistant Treasurer, John Hancock retail funds, John Hancock Funds II and John Hancock Variable | |
Insurance Trust (2007–2009); Assistant Treasurer, Fidelity Group of Funds (2005–2007); Vice President, | |
Fidelity Management Research Company (2005–2007). |
The business address for all Trustees and Officers is 601 Congress Street, Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional information about members of the Board of Trustees of the Fund and is available without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee holds office until his or her successor is elected and qualified, or until the Trustee’s death, retirement, resignation or removal.
2 Member of Audit Committee.
3 Because Messrs. McHaffie and Vrysen are senior executives or directors with the Adviser and/or its affiliates, each of them is considered an “interested person,” as defined in the Investment Company Act of 1940, of the Fund.
4 Messrs. McHaffie and Schiavone were appointed by the Board of Trustees effective 8-31-10.
52 | Bond Fund | Annual report |
More information
Trustees | Investment adviser |
Steven R. Pruchansky, Chairperson | John Hancock Advisers, LLC |
James F. Carlin | |
William H. Cunningham | Subadviser |
Deborah C. Jackson* | John Hancock Asset Management |
Charles L. Ladner,* Vice Chairperson | (formerly MFC Global Investment |
Stanley Martin* | Management (U.S.), LLC) |
Hugh McHaffie† | |
Dr. John A. Moore | Principal distributor |
Patti McGill Peterson* | John Hancock Funds, LLC |
Gregory A. Russo | |
John G. Vrysen† | Custodian |
State Street Bank and Trust Company | |
Officers | |
Keith F. Hartstein | Transfer agent |
President and Chief Executive Officer | John Hancock Signature Services, Inc. |
Andrew G. Arnott | Legal counsel |
Senior Vice President and Chief Operating Officer | K&L Gates LLP |
Thomas M. Kinzler | Independent registered |
Secretary and Chief Legal Officer | public accounting firm |
PricewaterhouseCoopers LLP | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†Non-Independent Trustee |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
You can also contact us: | ||
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 55913 | Mutual Fund Image Operations | |
Boston, MA 02205-5913 | 30 Dan Road | |
Canton, MA 02021 |
Annual report | Bond Fund | 53 |
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
This report is for the information of the shareholders of John Hancock Bond Fund. | 2100A 5/11 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 7/11 |
ITEM 2. CODE OF ETHICS.
As of the end of the period, May 31, 2011, 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.
Stanley Martin is the audit committee financial expert and is “independent”, pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant(s) in connection with statutory and regulatory filings or engagements amounted to $36,477 for the fiscal year ended May 31, 2011 and $37,583 for the fiscal year ended May 31, 2010. These fees were billed to the registrant and were approved by the registrant’s audit committee.
(b) Audit-Related Services
Audit-related services fees amounted to $347 for the fiscal year ended May 31, 2011 and $1,184 for the fiscal year ended May 31, 2010 billed to the registrant or to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant ("control affiliates"). The nature of the services provided was service provider internal controls review.
(c) Tax Fees
The aggregate fees billed for professional services rendered by the principal accountant(s) for the tax compliance, tax advice and tax planning (“tax fees”) amounted to $2,721 for the fiscal year ended May 31, 2011 and $2,642 for the fiscal year ended May 31, 2010. The nature of the services comprising the tax fees was the review of the registrant’s tax returns and tax distribution requirements. These fees were billed to the registrant and were approved by the registrant’s audit committee.
(d) All Other Fees
All other fees amounted to $182 for the fiscal year ended May 31, 2011 and $75 for the fiscal year ended May 31, 2010 billed to the registrant or to the control affiliates.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The trust’s Audit Committee must pre-approve all audit and non-audit services provided by the independent registered public accounting firm (the “Auditor”) relating to the operations or financial reporting of the funds. Prior to the commencement of any audit or non-audit services to a fund, the Audit Committee reviews the services to determine whether they are appropriate and permissible under applicable law.
The trust’s Audit Committee has adopted policies and procedures to, among other purposes, provide a framework for the Committee’s consideration of audit-related and non-audit services by the Auditor. The policies and procedures require that any audit-related and non-audit service provided by the Auditor and any non-audit service provided by the Auditor to a fund service provider that relates directly to the operations and financial reporting of a fund are subject to
approval by the Audit Committee before such service is provided. Audit-related services provided by the Auditor that are expected to exceed $25,000 per instance/per fund are subject to specific pre-approval by the Audit Committee. Tax services provided by the Auditor that are expected to exceed $30,000 per instance/per fund are subject to specific pre-approval by the Audit Committee.
All audit services, as well as the audit-related and non-audit services that are expected to exceed the amounts stated above, must be approved in advance of provision of the service by formal resolution of the Audit Committee. At the regularly scheduled Audit Committee meetings, the Committee reviews a report summarizing the services, including fees, provided by the Auditor.
(e)(2) Services approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
Audit-Related Fees, Tax Fees and All Other Fees:
There were no amounts that were approved by the Audit Committee pursuant to the de minimis exception under Rule 2-01 of Regulation S-X.
(f) According to the registrant’s principal accountant, for the fiscal year ended May 31, 2011, the percentage of hours spent on the audit of the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons who were not full-time, permanent employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant(s) for services rendered to the registrant and rendered to the registrant's control affiliates for each of the last two fiscal years of the registrant were $1,911,865 for the fiscal year ended May 31, 2011 and $5,213,849 for the fiscal year ended May 31, 2010.
(h) The audit committee of the registrant has considered the non-audit services provided by the registrant’s principal accountant(s) to the control affiliates and has determined that the services that were not pre-approved are compatible with maintaining the principal accountant(s)' independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee comprised of independent trustees. The members of the audit committee are as follows:
Stanley Martin - Chairman
Deborah C. Jackson
Charles L. Ladner
Patti McGill Peterson
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) Not applicable.
(b) 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.
Not applicable.
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: | July 21, 2011 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Keith F. Hartstein |
------------------------------- | |
Keith F. Hartstein | |
President and Chief Executive Officer | |
Date: | July 21, 2011 |
By: | /s/ Charles A. Rizzo |
------------------------------- | |
Charles A. Rizzo | |
Chief Financial Officer | |
Date: | July 21, 2011 |