January 28, 2004
EDGAR
United States Securities and
Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form N-CSR
John Hancock Sovereign Bond Fund (the "Registrant") on behalf of:
John Hancock Bond Fund
File Nos. 2-48925; 811-2402
Ladies and Gentlemen:
Enclosed herewith for filing pursuant to the Investment Company Act of 1940 and
the Securities Exchange Act of 1934 is the Registrant's Form N-CSR filing for
the period ending November 30, 2003.
If you have any questions or comments regarding this filing, please contact the
undersigned at (617) 375-1722.
Sincerely,
/s/Brian E. Langenfeld
Brian E. Langenfeld
Attorney and Assistant Secretary
ITEM 1. REPORT TO STOCKHOLDERS.
John Hancock
Bond
Fund
SEMI
ANNUAL
REPORT
11.30.03
Sign up for electronic delivery at
www.jhancock.com/funds/edelivery
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen Ford Goldfarb, Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Fund's investments
page 8
Financial statements
page 22
For your information
page 37
Dear Fellow Shareholders,
The stock market has made a strong recovery in 2003. Historically low
interest rates, improving corporate earnings and government stimulus in
the form of tax cuts gave investors hope that the economy would begin to
strengthen, which it did. The market's move up began in April and the
breadth of the rally was enormous. As a result, the major indexes were
able to wipe out their first-quarter losses and post solid gains
year-to-date through November 30. With technology leading the way, the
tech-heavy Nasdaq Composite Index rose 47.46% through November, while the
Dow Jones Industrial Average was up 19.80% and the Standard & Poor's 500
Index returned 22.26%. With falling interest rates, bonds also did well,
although they began to reverse course in July. High yield bonds led the
pack, returning 26.11% through November, as measured by the Lehman
Brothers High Yield Index.
In other news, we are pleased to inform you that on September 28, 2003,
the Boards of Directors of Canada-based Manulife Financial Corporation and
Boston-based John Hancock Financial Services, Inc., the parent company of
John Hancock Funds, unanimously voted to merge the two companies.
Please be assured that the completion of the merger -- anticipated to
occur in the first half of 2004 -- will have no effect on your investment
in our John Hancock mutual funds. Your fund's adviser and board of
trustees will remain the same, as will your relationship with your
financial adviser.
The merger is subject to customary closing conditions, including
receipt of required regulatory approvals and approval by John Hancock
stockholders. If you only own shares in a John Hancock mutual fund you
are not affected and will not receive a proxy.
Additional information on this transaction is available on our Web
site: www.jhfunds.com. If you have questions about the merger, you may
also call 800-732-5543. Separately, for information about your
investments in John Hancock funds, please contact your financial
adviser or our Customer Service representatives at 800-225-5291.
Sincerely,
/S/ MAUREEN FORD GOLDFARB,
Maureen Ford Goldfarb,
Chairman and Chief Executive Officer
This commentary reflects the chairman's views as of November 30, 2003.
They are subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks
a high level of
current income
consistent with
prudent invest-
ment risk by
normally invest-
ing at least 80% of
its assets in a
diversified port-
folio of bonds and
other debt securi-
ties, including
corporate bonds
and U.S. govern-
ment and agency
securities.
Over the last six months
* Bonds declined in value as an economic rebound pushed
interest rates higher.
* High-yield corporate bonds and mortgage-backed securities
performed best, while Treasury bonds lagged.
* The Fund benefited from its emphasis on mortgage-backed
securities and lower-rated corporate bonds.
[Bar chart with heading "John Hancock Bond Fund." Under the heading is a
note that reads "Fund performance for the six months ended November 30,
2003." The chart is scaled in increments of 1% with -1% at the bottom
and 4% at the top. The first bar represents the -0.14% total return for
Class A. The second bar represents the -0.49% total return for Class B.
The third bar represents the -0.49% total return for Class C. The fourth
bar represents the 0.07% total return for Class I. The fifth bar
represents the 3.96%* total return for Class R. A note below the chart
reads "Total returns for the Fund are at net asset value with all
distributions reinvested. *From inception August 5, 2003 through
November 30, 2003."]
Top 10 issuers
22.3% Federal National Mortgage Association
7.4% United States Treasury
3.7% Government National Mortgage Association
2.9% Financing Corp.
2.3% Federal Home Loan Mortgage Corp.
1.1% Midland Funding Corp. II
1.0% Ameriquest Mortgage Securities, Inc.
0.9% Salton Sea Funding Corp.
0.9% Ford Motor Credit Co.
0.8% Liberty Media Corp.
As a percentage of net assets on November 30, 2003.
1
BY HOWARD C. GREENE, CFA, BARRY H. EVANS, CFA AND BENJAMIN A.
MATTHEWS, PORTFOLIO MANAGERS
MANAGERS'
REPORT
John Hancock
Bond Fund
Bonds posted modestly negative returns overall during the six months ended
November 30, 2003, as interest rates rose. After bottoming in mid-June at
their lowest levels in 45 years, rates rose sharply in July and continued
to climb in the ensuing months, retracing their declines from the first
half of 2003. The catalyst for the rise in rates was an improving economic
environment. After sluggish results in the year's first two quarters, the
U.S. economy grew at an 8% annual rate in the third quarter of 2003 -- its
strongest quarter in 20 years -- as the stimulative effects of a federal
tax cut, a huge wave of mortgage refinancing, and 13 interest-rate cuts by
the Federal Reserve over the past three years finally began to kick in.
"Bonds posted modestly
negative returns overall
...as interest rates rose."
In this environment, lower-quality corporate bonds, which tend to benefit
the most from an economic recovery, posted the strongest returns; in
particular, the "high-yield" corporate bond indexes gained nearly 10%.
Mortgage-backed securities also performed well, producing slight gains as
higher rates reduced refinancing activity. Higher-quality corporate bonds
declined, while Treasury and government bonds suffered the biggest losses.
FUND PERFORMANCE
For the six months ended November 30, 2003, the John Hancock Bond Fund's
Class A, Class B, Class C and Class I shares posted total returns of
- -0.14%, -0.49%, -0.49% and 0.07%, at net asset value. The average A-rated
corporate debt fund returned -1.01%, according to Lipper, Inc.,1 while the
return of the Lehman Brothers Government/Credit Bond Index was -1.90%.
Class R shares, which were launched on August 5, 2003, returned 3.96% at
net asset value from inception through November 30, 2003.
2
Keep in mind that your net asset value return will be different from the
Fund's performance if you were not invested in the Fund for the entire
period and did not reinvest all distributions. See pages six and seven for
historical performance information.
[Photos of Howard Greene, Barry Evans and Ben Matthews flush right next
to first paragraph.]
The Fund outperformed the index and peer group average for several
reasons. The vast majority of the portfolio's corporate bond holdings were
in lower-rated securities, which significantly outperformed higher-quality
issues. A sizable position in mortgage-backed securities also boosted
results. In addition, the Fund was positioned to be less
interest-rate-sensitive than its peers and the index, which helped the
portfolio hold its value better as rates rose.
LOWER-QUALITY CORPORATES OUTPERFORM
Corporate bonds continued to make up a little over half of the portfolio
during the six-month period. Going into the period, we had built a
substantial position in lower-quality corporate bonds, partly because they
offered the best values in the corporate market and partly because these
bonds tend to outperform during an economic recovery. As expected, these
segments of the market performed exceptionally well over the past six
months as economic conditions improved and companies strengthened their
balance sheets.
We continued to expand our position in lower-rated bonds, increasing
the portfolio's below-investment-grade holdings to 23% -- nearly twice
the percentage from a year ago. We also continued to invest more than
20% of the portfolio in corporate bonds rated BBB, the lowest
investment-grade rating.
"Corporate bonds
continued to make
up a little over half
of the portfolio..."
The Fund's best-performing corporate bonds included two that continued
to recover from recent weakness. The Fund held bonds issued by
Northwest Airlines that were backed by various aircraft, and these
bonds increased in value as the outlook for the airline industry
improved. Another Fund holding that performed well was Corporacion
Durango, a Mexican paper company. Durango has
3
been working with bondholders like us to restructure its debt in an effort
to avoid bankruptcy, and improved prospects for a favorable outcome
boosted the value of its bonds.
[Table at top left-hand side of page entitled "Top five sectors." The
first listing is Government--U.S. Agencies 31%, the second is Utilities
11%, the third Government--U.S. 7%, the fourth Telecommunications 6%,
and the fifth Media 6%.]
BETTER ENVIRONMENT FOR MORTGAGES
In our last report six months ago, we said that mortgage-backed
securities should outperform as refinancing activity subsided--and
that's exactly what happened. Higher interest rates discouraged
homeowners from refinancing their mortgages. In addition, rates were
relatively stable over the last few months of the period, and
mortgage-backed securities tend to perform well during periods of
interest-rate stability.
As a result, demand for mortgage-backed securities increased, boosting
their value relative to other bonds. Only high-yield corporate bonds
posted better returns than the mortgage-backed market over the past
six months.
We increased the portfolio's holdings of mortgage-backed securities to
more than 25% of the portfolio back in late 2002, and in hindsight we
were about six months too early. However, this strategy finally paid
off during the most recent six-month period.
[Pie chart at middle of page with heading "Portfolio diversification As
a percentage of net assets on 11-30-03." The chart is divided into four
sections (from top to left): Corporate bonds 55%, U.S. & foreign
government and agency bonds 39%, Preferred stocks 3% and Short-term
investments & other 3%.]
ADDING VALUE AT THE MARGINS
We made an effort to keep the portfolio less sensitive to interest-rate
changes than both its peers and the benchmark index. With interest rates
at their lowest levels in a generation, we expected the next meaningful
move in rates to be higher, and we wanted to limit the negative impact of
rising rates on the portfolio. With that in mind, we sold some of the
portfolio's longer-term
4
Treasury bonds, which typically experience the greatest price declines
when yields rise.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is XM
Satellite Radio followed by an up arrow with the phrase "Sharp increase
in subscriber growth." The second listing is Sears Roebuck followed by
an up arrow with the phrase "Sold credit-card operations and bought back
debt." The third listing is Long-term Treasury bonds followed by a down
arrow with the phrase "Hit hard as interest rates rose."]
We also increased the Fund's holdings of preferred stocks, though they
are still a small part (about 3%) of the portfolio. Preferred shares
offer a way to capture higher yields -- many provide dividend yields
that are two to three percentage points higher than corporate bond
yields -- without increasing the portfolio's overall volatility. We
invested in the preferred stocks of utilities, financial services
companies and real estate investment trusts.
OUTLOOK
We remain cautious in our outlook for interest rates. With the economy
on the upswing, rates are likely to move higher going forward, putting
downward pressure on bond prices. We expect to maintain our relatively
conservative position with regard to interest-rate risk.
"...we are optimistic
about the outlook for
corporate bonds."
However, we are optimistic about the outlook for corporate bonds.
Better economic conditions are favorable for the financial strength of
corporate debt issuers. We think corporate bonds can continue to
outperform, albeit on a more selective basis and at a slower pace. We
will continue to focus on the bonds of companies that are improving
their balance sheets.
This commentary reflects the views of the portfolio managers through
the end of the Fund's period discussed in this report. The managers'
statements reflect their own opinions. As such, they are in no way
guarantees of future events, and are not intended to be used as
investment advice or a recommendation regarding any specific security.
They are also subject to change at any time as market and other
conditions warrant.
1 Figures from Lipper, Inc. include reinvested dividends and do not
take into account sales charges. Actual load-adjusted performance is
lower.
5
A LOOK AT
PERFORMANCE
For the period ended
November 30, 2003
Class A Class B Class C Class I 1 Class R 1
Inception date 11-9-73 11-23-93 10-1-98 9-4-01 8-5-03
Average annual returns with maximum sales charge (POP)
One year 3.83% 3.00% 5.93% 9.20% --
Five years 5.05% 4.97% 5.08% -- --
Ten years 6.21% 6.09% -- -- --
Since inception -- -- 4.73% 6.91% --
Cumulative total returns with maximum sales charge (POP)
Six months -4.64% -5.36% -2.46% 0.07% --
One year 3.83% 3.00% 5.93% 9.20% --
Five years 27.96% 27.44% 28.10% -- --
Ten years 82.68% 80.58% -- -- --
Since inception -- -- 26.95% 16.14% 3.96%
SEC 30-day yield as of November 30, 2003
4.05% 3.54% 3.50% 4.69% --
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of
4.5% and Class C shares of 1%, and the applicable contingent deferred
sales charge (CDSC) on Class B and Class C shares. The Class B shares'
CDSC declines annually between years 1-6 according to the following
schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after
the sixth year. Class C shares held for less than one year are subject
to a 1% CDSC. Sales charge is not applicable for Class I or Class R
shares. The return and principal value of an investment in the Fund
will fluctuate, so that shares, when redeemed, may be worth more or
less than the original cost.
The returns reflect past results and should not be considered
indicative of future performance. The performance table above and the
chart on the next page do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund
shares.
1 For certain types of investors as described in the Fund's Class I
and Class R share prospectuses.
6
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown
the same investment in the Lehman Brothers Government/Credit Bond
Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents Lehman Brothers Government/Credit
Bond Index and is equal to $19,528 as of November 30, 2003. The second
line represents the value of the hypothetical $10,000 investment made in
the John Hancock Bond Fund, without sales charge (NAV) and is equal to
$19,130 as of November 30, 2003. The fourth bar represents the same
hypothetical $10,000 investment made in the John Hancock Bond Fund, with
maximum sales charge (POP) and is equal to $18,269 as of November 30,
2003.
Class B 1 Class C 1 Class I 2 Class R 2
Period beginning 11-30-93 10-1-98 9-4-01 8-5-03
Without sales charge $18,058 $12,825 $11,614 $10,396
With maximum sales charge $18,058 $12,695 $11,614 $10,396
Index $19,528 $13,600 $11,722 $10,284
Assuming all distributions were reinvested for the period indicated,
the table above shows the value of a $10,000 investment in the Fund's
Class B, Class C, Class I and Class R shares, respectively, as of
November 30, 2003. Performance of the classes will vary based on the
difference in sales charges paid by shareholders investing in the
different classes and the fee structure of those classes.
Lehman Brothers Government/Credit Bond Index is an unmanaged index
that measures the performance of U.S. government bonds, U.S. corporate
bonds and Yankee bonds.
It is not possible to invest directly in an index. Index figures do
not reflect sales charges and would be lower if they did.
1 No contingent deferred sales charge applicable.
2 For certain types of investors as described in the Fund's Class I
and Class R share prospectuses.
7
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
November 30, 2003
(unaudited)
This schedule is divided into three main categories: bonds, preferred
stocks and short-term investments. Bonds and preferred stocks are
further broken down by industry group. Short-term investments, which
represent the Fund's cash position, are listed last.
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
BONDS 94.40% $1,266,720,565
(Cost $1,240,079,395)
Aerospace 0.03% 396,082
Jet Equipment Trust,
Equipment Trust Ctf Ser 95B2 08-15-14 (B) (R) 10.910% D $5,800 396,082
Automobiles/Trucks 1.11% 14,841,787
Auburn Hills Trust,
Deb 05-01-20 12.375 BBB 3,330 4,774,148
Avis Group Holdings, Inc.,
Sr Sub Note 05-01-09 11.000 BBB- 2,065 2,274,081
ERAC USA Finance Co.,
Note 12-15-09 (R) 7.950 BBB+ 2,720 3,197,996
General Motors Corp.,
Deb 07-15-33 8.375 BBB 3,395 3,698,360
Hertz Corp.,
Sr Note 07-01-04 7.000 BBB- 880 897,202
Banks -- Foreign 2.40% 32,194,156
Barclays Bank Plc,
Perpetual Bond (6.86% to 6-15-32 then
variable) (United Kingdom) 09-15-49 (R) 6.860 A+ 3,940 4,248,329
Corporacion Andina de Fomento,
Note (Supra National) 05-21-13 5.200 A 2,440 2,422,574
HSBC Capital Funding LP,
Gtd Bond, Step Coupon (4.61% to 06-30-13
then variable) 12-31-49 (R) + 4.610 A- 3,155 2,966,688
Rabobank Capital Fund II,
Perpetual Bond (5.26% to 12-31-13 then
variable) 12-31-49 (R) 5.260 AA 3,710 3,699,612
Royal Bank of Scotland Group Plc,
Perpetual Bond (7.648% to 09-30-31 then
variable) (United Kingdom) 08-31-49 7.648 A 4,955 5,879,786
St. George Funding Co.,
Perpetual Bond (8.485% to 06-30-17 then
variable) 12-31-49 (R) 8.485 BBB+ 4,555 5,359,213
See notes to
financial statements.
8
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Banks -- Foreign (continued)
UFJ Finance Aruba AEC,
Note 07-15-13 6.750% BBB- $4,280 $4,483,005
Westpac Capital Trust III,
Perpetual Sub Bond (5.819% to 09-30-13
then variable) (Australia) 12-31-49 (R) 5.819 A- 3,055 3,134,949
Banks -- United States 2.12% 28,416,682
Bank of New York,
Cap Security 12-01-26 (R) 7.780 A- 5,050 5,529,558
Capital One Bank,
Sr Note 07-30-04 6.500 BBB- 3,385 3,484,367
Sr Note 06-15-05 8.250 BBB- 3,000 3,246,006
Sub Note 06-13-13 6.500 BB+ 2,900 3,022,339
Citigroup, Inc.,
Bond 10-31-33 6.000 A+ 3,285 3,266,696
Colonial Bank,
Sub Note 06-01-11 9.375 BBB- 1,480 1,697,943
Popular North America, Inc.,
Sub Note 10-01-08 + 3.875 BBB+ 4,370 4,326,068
Washington Mutual, Inc.,
Note 11-03-05 2.400 BBB+ 3,855 3,843,705
Building 0.22% 3,021,193
Lennar Corp.,
Gtd Sr Note Ser B 05-01-10 9.950 BBB- 2,615 3,021,193
Business Services -- Misc. 0.09% 1,188,913
Muzak LLC/Muzak Finance Corp.,
Sr Note 02-15-09 10.000 B- 1,135 1,188,913
Chemicals 0.39% 5,200,262
Lyondell Chemical Co.,
Sr Note 12-15-08 9.500 BB- 2,435 2,471,525
Nova Chemicals Corp.,
Sr Note (Canada) 05-15-06+ 7.000 BB+ 2,605 2,728,737
Computers 0.54% 7,187,820
NCR Corp.,
Note 06-15-09 7.125 BBB- 3,175 3,496,932
Unisys Corp.,
Sr Note 03-15-10 + 6.875 BB+ 1,375 1,460,938
Xerox Corp.,
Sr Note 06-15-13 7.625 B+ 2,165 2,229,950
See notes to
financial statements.
9
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Containers 0.79% $10,603,723
BWAY Corp.,
Sr Sub Note 10-15-10 (R) 10.000% B- $1,460 1,558,550
Owens-Brockway Glass Container, Inc.,
Gtd Sr Sec Note 11-15-12 8.750 BB 2,365 2,583,763
Sr Note 05-15-13 8.250 B+ 1,015 1,063,213
Sealed Air Corp.,
Sr Note 04-15-08 (R) 5.375 BBB 5,185 5,398,197
Diversified Operations 0.88% 11,768,779
Hutchison Whampoa International Ltd.,
Bond (Cayman Islands) 11-24-33 (R) 7.450 A- 3,335 3,303,324
Note (Cayman Islands) 01-24-14 (R) 6.250 A- 4,935 4,912,580
Tyco International Group S.A.,
Note (Luxembourg) 02-15-11 6.750 BBB- 3,305 3,552,875
Electronics 0.51% 6,817,260
General Electric Co.,
Note 02-01-13 5.000 AAA 5,575 5,595,365
Jabil Circuit, Inc.,
Sr Note 07-15-10 5.875 BB+ 1,185 1,221,895
Finance 2.85% 38,205,922
Ford Motor Credit Co.,
Note 02-01-06 6.875 BBB- 3,260 3,431,160
Note 10-28-09 7.375 BBB- 7,550 7,987,130
General Electric Capital Corp.,
Note Ser A 03-15-32 6.750 AAA 2,620 2,901,000
General Motors Acceptance Corp.,
Note 01-19-10 7.750 BBB 4,855 5,314,438
Household Finance Corp.,
Note 05-15-11 6.750 A 7,760 8,662,573
Morgan Stanley,
Note 05-15-10 4.250 A+ 3,515 3,469,045
Newcourt Credit Group,
Gtd Note Ser B (Canada) 02-16-05 6.875 A 3,480 3,676,947
PDVSA Finance Ltd.,
Note (Venezuela) 11-16-12 8.500 B+ 1,890 1,734,075
Yanacocha Receivables Master Trust,
Pass Thru Ctf Ser 1997-A 06-15-04 (R) 8.400 BBB- 1,022 1,029,554
Finance -- Consumer Loans 0.68% 9,128,085
Bank One Issuance Trust,
Pass Thru Ctf Ser 2003-C1 Class C1 09-15-10 4.540 BBB 3,095 3,142,177
Capital One Financial Corp.,
Note 05-01-06 7.250 BB+ 1,940 2,079,981
Citibank Credit Card Issuance Trust,
Pass Thur Ctf Ser 2003-C3 Class C3 04-07-10 4.450 BBB 3,870 3,905,927
See notes to
financial statements.
10
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Food 0.91% $12,273,878
Corn Products International, Inc.,
Sr Note 08-15-09 8.450% BBB- $8,665 9,661,475
Del Monte Corp.,
Sr Sub Note 12-15-12 (R) 8.625 B 1,345 1,466,050
General Foods Corp.,
Deb 06-15-11 7.000 A- 1,145 1,146,353
Government -- Foreign 0.20% 2,635,085
Colombia, Republic of,
Gtd Bond (Colombia) 04-09-11 9.750 BB+ 2,369 2,635,085
Government -- U.S. 7.38% 98,991,620
United States Treasury,
Bond 02-15-31 + 5.375 AAA 48,830 50,592,470
Inflation Indexed Note 01-15-11 + 3.500 AAA 22,812 25,481,411
Note 08-15-08 + 3.250 AAA 20,865 20,834,850
Note 11-15-13 4.250 AAA 2,095 2,082,889
Government -- U.S. Agencies 31.22% 418,940,043
Federal Home Loan Mortgage Corp.,
20 Yr Pass Thru Ctf 01-01-16 11.250 AAA 173 191,552
30 Yr Pass Thru Ctf 08-01-33 5.000 AAA 13,017 12,756,395
CMO REMIC 2496-PE 05-01-33 5.500 AAA 4,555 4,505,684
CMO REMIC 2563-PA 05-01-33 4.250 AAA 9,240 9,194,908
CMO REMIC 2640-WA 03-15-33 3.500 AAA 3,577 3,524,552
Federal National Mortgage Assn.,
Benchmark Note 03-15-13 4.375 AAA 2,675 2,615,880
15 Yr Pass Thru Ctf 05-01-18 to 10-01-18 4.500 AAA 38,136 37,902,517
15 Yr Pass Thru Ctf 05-01-18 5.000 AAA 33,576 34,035,734
15 Yr Pass Thru Ctf 02-01-08 7.500 AAA 252 268,180
15 Yr Pass Thru Ctf 09-01-10 to 05-17-17 7.000 AAA 2,661 2,833,928
30 Yr Pass Thru Ctf 08-01-33 to 12-01-33 5.000 AAA 22,391 21,997,986
30 Yr Pass Thru Ctf 05-01-33 to 07-01-33 5.500 AAA 59,613 60,022,224
30 Yr Pass Thru Ctf 12-01-28 to 11-01-33 6.000 AAA 73,155 75,169,733
30 Yr Pass Thru Ctf 02-01-33 6.500 AAA 10,331 10,773,019
CMO REMIC 2003-16-PD 10-25-16 5.000 AAA 10,690 10,816,944
CMO REMIC 2003-17-QT 08-25-27 5.000 AAA 13,365 13,490,275
CMO REMIC 2002-73-PE 10-01-33 5.500 AAA 10,363 10,341,649
CMO REMIC 2003-33-AC 03-25-33 4.250 AAA 3,816 3,847,979
CMO REMIC 2003-49-JE 04-25-33 3.000 AAA 9,772 9,269,602
CMO REMIC 2003-63-PE 07-25-33 3.500 AAA 6,283 6,015,078
Pass Thru Ctf Ser 1997-M8 Class A-1 01-25-22 + 6.940 AAA 356 359,032
Financing Corp.,
Bond 02-08-18 9.400 AAA 21,035 29,873,613
Bond 08-03-18 10.350 AAA 6,045 9,218,486
See notes to
financial statements.
11
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Government -- U.S. Agencies (continued)
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 01-15-16 10.500% AAA $49 $55,261
30 Yr Pass Thru Ctf 11-15-19 to 05-15-21 9.500 AAA 358 398,163
30 Yr Pass Thru Ctf 06-15-20 to 03-15-25 10.000 AAA 127 143,442
30 Yr Pass Thru Ctf 03-15-33 6.000 AAA 9,200 9,524,683
30 Yr Pass Thru Ctf 08-15-33 5.000 AAA 11,587 11,402,285
30 Yr Pass Thru Ctf 10-15-33 5.500 AAA 24,998 25,287,342
CMO REMIC 2003-42-XA 05-16-33 3.750 AAA 3,119 3,103,917
Insurance 1.59% 21,295,622
Mantis Reef Ltd.,
Note (Australia) 11-14-08 (R) 4.692 A- 2,990 2,969,103
Massachusetts Mutual Life Insurance Co.,
Surplus Note 11-15-23 (R) 7.625 AA 3,985 4,717,582
New York Life Insurance Co.,
Note 05-15-33 (R) 5.875 AA- 6,130 6,038,522
QBE Insurance Group Ltd.,
Bond (5.647% to 07-01-13 then variable)
07-01-23 (R) 5.647 BBB 4,230 4,012,396
UnumProvident Corp.,
Sr Note 03-01-11 7.625 BBB- 1,570 1,728,859
URC Holdings Corp.,
Sr Note 06-30-06 (R) 7.875 AA- 1,630 1,829,160
Leisure 1.31% 17,603,914
Argosy Gaming Co.,
Sr Sub Note 09-01-11 + 9.000 B+ 1,880 2,072,700
Hyatt Equities LLC,
Note 06-15-07 (R) 6.875 BBB 5,105 5,402,458
Meditrust,
Med Term Note 08-15-07 7.000 BB- 1,360 1,405,900
Note 01-16-06 7.300 BB- 1,945 1,998,487
MTR Gaming Group, Inc.,
Gtd Sr Note Ser B 04-01-10 9.750 B+ 1,475 1,556,125
Starwood Hotels & Resorts Worldwide, Inc.,
Sr Note 05-01-07 7.375 BB+ 2,215 2,372,819
Trump Holdings & Funding, Inc.,
First Priority Mtg Note 03-15-10 11.625 B- 1,910 1,714,225
Waterford Gaming LLC,
Sr Note 09-15-12 (R) 8.625 B+ 1,020 1,081,200
Linen Supply & Related 0.13% 1,822,800
Coinmach Corp.,
Sr Note 02-01-10 9.000 B 1,680 1,822,800
See notes to
financial statements.
12
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Machinery 0.48% $6,485,426
Case Corp.,
Note 08-01-05 7.250% BB- $1,950 2,018,250
Kennametal, Inc.,
Sr Note 06-15-12 7.200 BBB 2,555 2,701,126
NationsRent, Inc.,
Sr Sec Note 10-15-10 (R) 9.500 BB- 1,690 1,766,050
Manufacturing -- Wire and Cable 0.26% 3,455,725
AMETEK, Inc.,
Sr Note 07-15-08 7.200 BBB 3,185 3,455,725
Media 5.61% 75,334,826
British Sky Broadcasting Group Plc,
Gtd Sr Note (United Kingdom) 07-15-09 8.200 BB+ 6,305 7,398,066
Charter Communication Holdings LLC/Charter
Communication Holdings Capital Corp.,
Sr Note 10-01-09 10.750 CCC- 2,500 2,137,500
Continental Cablevision, Inc.,
Sr Deb 08-01-13 9.500 BBB 3,280 3,768,002
CSC Holdings, Inc.,
Sr Sub Deb 05-15-16 + 10.500 B+ 2,350 2,596,750
EchoStar DBS Corp.,
Sr Note 02-01-09 9.375 BB- 2,830 2,985,650
Garden State Newspapers, Inc.,
Sr Sub Note 07-01-11 8.625 B+ 2,495 2,632,225
Grupo Televisa S.A.,
Note (Mexico) 09-13-11 8.000 BBB- 3,580 3,982,750
Innova S. de R.L.,
Note (Mexico) 09-19-13 (R) 9.375 B+ 1,635 1,671,787
Sr Note (Mexico) 04-01-07 12.875 B+ 314 322,315
Lenfest Communications, Inc.,
Sr Note 11-01-05 8.375 BBB 1,680 1,849,468
Liberty Media Corp.,
Floating Rate Sr Note 09-17-06 2.640 BBB- 3,250 3,284,141
Note 09-25-06 3.500 BBB- 4,605 4,582,274
Note 05-15-13 5.700 BBB- 3,050 3,049,448
News America Holdings, Inc.,
Gtd Sr Deb 08-10-18 8.250 BBB- 4,400 5,408,238
Rogers Cable, Inc.,
Sr Sec Second Priority Note (Canada) 06-15-13 6.250 BBB- 800 803,000
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 03-15-05 10.000 BBB- 4,880 5,294,800
Shaw Communications Inc.,
Sr Note (Canada) 04-11-10 8.250 BB+ 2,110 2,363,200
TCI Communications, Inc.,
Sr Deb 02-01-12 9.800 BBB 2,550 3,309,143
See notes to
financial statements.
13
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Media (continued)
Tele-Communications, Inc.,
Sr Deb 04-15-22 10.125% BBB $2,675 $3,734,683
Time Warner, Inc.,
Deb 01-15-13 9.125 BBB+ 7,751 9,735,961
XM Satellite Radio, Inc.,
Sr Sec Disc Note (Zero to 12-31-05 then
14.00%) 12-31-09 (A) Zero CCC+ 2,000 1,755,000
Sr Sec Note 06-15-10 12.000 CCC+ 2,395 2,670,425
Medical 1.54% 20,685,194
HCA, Inc.,
Note 12-15-14 9.000 BBB- 3,182 3,770,966
Sr Note 09-01-10 + 8.750 BBB- 7,785 9,034,173
Manor Care, Inc.,
Sr Note 03-01-08 8.000 BBB 960 1,076,400
Medco Health Solutions, Inc.,
Sr Note 08-15-13 7.250 BBB 3,245 3,504,895
Schering-Plough Corp.,
Bond (Coupon rate step up/down on rating)
12-01-33 6.500 A+ 3,250 3,298,760
Metal 0.73% 9,795,623
Brascan Corp.,
Note (Canada) 03-01-10 5.750 A- 2,815 2,941,990
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 02-01-10 10.125 B- 2,000 2,275,000
Noranda, Inc.,
Deb (Canada) 06-15-04 8.125 BBB- 2,400 2,477,189
Note (Canada) 02-15-11 8.375 BBB- 1,795 2,101,444
Mortgage Banking 4.87% 65,348,307
Ameriquest Mortgage Securities, Inc.,
Pass Thru Ctf Ser 2003-10 Class AF-3 12-25-33 3.230 AAA 9,655 9,517,899
Pass Thru Ctf Ser 2003-IA1 Class A-4 11-25-33 4.965 AAA 4,155 4,152,403
Conseco Finance Securitizations Corp.,
Pass Thru Ctf Ser 2002-A Class A-3 04-15-32 5.330 AAA 4,041 4,073,809
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 08-15-25 8.100 AAA 1,513 1,513,238
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass-Thru Ctf Ser 1998-C1
Class C 06-15-31 6.861 A2 3,585 3,929,819
GMAC Commercial Mortgage Securities, Inc.,
Pass Thru Ctf Ser 1998-C1 Class A-1 05-15-30 6.853 Aaa 6,181 6,437,235
Greenwich Capital Commercial Funding Corp.,
Commercial Mtg Pass Thru Ctf Ser 2003-C1
Class A-4 07-05-35 4.111 AAA 2,865 2,701,766
See notes to
financial statements.
14
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Mortgage Banking (continued)
LB-UBS Commercial Mortgage Trust,
Commercial Mtg Pass-Thru Ctf Ser 2003-C3
Class A4 05-15-32 4.166% AAA $6,060 $5,742,987
MBNA Master Credit Card Trust,
Sub Bond Ser 1998-E Class C 09-15-10 6.600 BBB 3,735 4,047,370
Sub Bond Ser 1999-B Class C 08-15-11 6.650 BBB 1,585 1,711,372
Morgan Stanley Dean Witter Capital I Trust,
Pass Thru Ctf Ser 2001-IQA Class A-1
12-18-32 4.570 Aaa 5,533 5,721,677
Residential Asset Mortgage Products, Inc.,
Pass Thru Ctf Ser 2003-RS10 Class AI-5
01-25-31 4.910 AAA 4,595 4,553,090
Pass Thru Ctf Ser 2003-RS8 Class AI-2
11-25-23 2.904 AAA 4,580 4,568,550
Specialty Underwriting & Residential Finance,
Pass Thru Ctf Ser 2003-BC4 Class A3B
11-25-34 (R) 4.788 AAA 6,685 6,677,092
Oil & Gas 1.22% 16,358,763
Louis Dreyfus Natural Gas Corp.,
Note 12-01-07 6.875 BBB+ 2,695 2,972,981
Occidental Petroleum Corp.,
Sr Deb 09-15-09 10.125 BBB+ 1,925 2,470,782
Pemex Project Funding Master Trust,
Gtd Note (Mexico) 10-13-10 9.125 BBB- 9,250 10,915,000
Paper & Paper Products 1.64% 22,086,762
Boise Cascade Corp.,
Sr Note 11-01-10 6.500 BB+ 2,085 2,112,455
Corporacion Durango S.A. de C.V.,
Sr Note (Mexico) 07-15-09 (R) 13.750 D# 5,750 3,363,750
Donohue Forest Products,
Gtd Note (Canada) 05-15-07 7.625 BB+ 3,050 3,130,569
Fort James Corp.,
Sr Note 09-15-04 6.625 BB+ 3,370 3,454,250
MDP Acquisitions Plc,
Sr Note (Ireland) 10-01-12 9.625 B 2,855 3,169,050
Stone Container Corp.,
Sr Note 02-01-11 9.750 B 2,280 2,508,000
Sr Note 07-01-12 + 8.375 B 4,050 4,348,688
Real Estate Operations 0.61% 8,186,989
Socgen Real Estate Co. LLC,
Perpetual Bond Ser A (7.64% to 09-30-07
then variable) 12-31-49 (R) 7.640 A 3,915 4,403,839
Toll Corp.,
Gtd Sr Sub Note 02-01-09 8.125 BB+ 3,603 3,783,150
See notes to
financial statements.
15
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Real Estate Investment Trusts 0.64% $8,579,902
American Health Properties, Inc.,
Note 01-15-07 7.500% BBB+ $2,380 2,629,914
Healthcare Realty Trust, Inc.,
Sr Note 05-01-11 8.125 BBB- 1,450 1,608,961
HMH Properties, Inc.,
Gtd Sr Sec Note Ser A 08-01-08 7.875 Ba3 2,423 2,486,652
iStar Financial, Inc.,
Sr Note 03-15-08 7.000 BB+ 1,725 1,854,375
Retail 1.00% 13,417,385
Delhaize America, Inc.,
Gtd Note 04-15-06 7.375 BB+ 3,095 3,334,862
Food Lion, Inc.,
Note 08-30-06 8.730 BB+ 2,500 2,693,750
Gap, Inc. (The),
Note 12-15-08 10.550 BB+ 1,500 1,850,625
Office Depot, Inc.,
Note 08-15-13 6.250 BBB- 2,900 3,001,973
Penney (J.C.) Corp., Inc.,
Note 03-01-10 8.000 BB+ 2,215 2,536,175
Revenue Bonds 0.89% 11,934,949
Golden State Tobacco Securitization Corp.,
Rev Ser 2003-A-1 06-01-39 6.750 BBB 7,000 6,745,130
Illinois, State of,
Gen Oblig Taxable Pension 06-01-33 5.100 AA 5,710 5,189,819
Telecommunications 6.08% 81,545,208
AT&T Wireless Services, Inc.,
Sr Note 03-01-11 7.875 BBB 5,135 5,788,988
Corning, Inc.,
Med Term Note 04-04-25 8.300 Ba2 2,410 2,494,350
Note 03-01-09 6.300 BB+ 1,165 1,182,475
Deutsche Telekom International Finance B.V.,
Gtd Note (Netherlands) 06-15-10 8.000 BBB+ 6,415 7,684,368
GCI, Inc.,
Sr Note 08-01-07 9.750 B+ 965 989,125
GTE California, Inc.,
Deb Ser C 04-15-24 8.070 A+ 5,085 5,372,135
Mobile Telesystems Finance S.A.,
Gtd Bond (Luxembourg) 12-21-04 10.950 B+ 2,320 2,453,400
Gtd Note (Luxembourg) 10-14-10 (R) + 8.375 B+ 1,000 996,250
Gtd Sr Note (Luxembourg) 01-30-08 (R) 9.750 B+ 720 769,500
Nextel Communications, Inc.,
Sr Note 11-15-09 9.375 B+ 3,670 4,009,475
Sr Note 08-01-15 + 7.375 B+ 1,360 1,431,400
See notes to
financial statements.
16
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Telecommunications (continued)
PanAmSat Corp.,
Gtd Sr Note 02-01-12 8.500% B+ $1,595 $1,734,563
PTC International Finance II S.A.,
Gtd Note (Luxembourg) 12-01-09 11.250 BB- 1,110 1,215,450
Qwest Capital Funding, Inc.,
Note 08-15-06 + 7.750 CCC+ 3,590 3,679,750
Qwest Corp.,
Note 03-15-12 (R) + 8.875 B- 3,940 4,471,900
Sprint Capital Corp.,
Gtd Note 05-01-19 6.900 BBB- 4,600 4,540,890
Gtd Sr Note 11-15-08 6.125 BBB- 4,290 4,529,562
Telecom Italia Capital SpA,
Gtd Note (Italy) 11-15-33 (R) + 6.375 BBB+ 3,310 3,287,098
Telefonos de Mexico S.A. de C.V.,
Note (Mexico) 11-19-08 (R) 4.500 BBB- 3,465 3,486,656
Sr Note (Mexico) 01-26-06 + 8.250 BBB- 5,365 5,941,738
Telus Corp.,
Note (Canada) 06-01-11 8.000 BBB 8,290 9,520,410
Verizon Pennsylvania, Inc.,
Deb Ser A 11-15-11 5.650 A+ 5,725 5,965,725
Tobacco 0.37% 5,025,310
Altria Group, Inc.,
Note 11-04-13 + 7.000 BBB 3,435 3,561,910
Commonwealth Brands, Inc.,
Sr Sec Sub Note 09-01-08 (R) 10.625 B- 1,355 1,463,400
Transportation 0.80% 10,742,757
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1997-2C 06-30-04 7.206 B- 565 528,507
Pass Thru Ctf Ser 1999-1A 02-02-19 6.545 A- 2,817 2,778,600
Humpuss Funding Corp.,
Gtd Note 12-15-09 (R) 7.720 B3 2,251 1,800,984
Northwest Airlines, Inc.,
Pass Thru Ctf Ser 1996-1C 01-02-05 10.150 B- 713 402,123
Pass Thru Ctf Ser 1996-1D 01-02-15 8.970 B- 2,961 2,309,343
TFM S.A. de C.V.,
Gtd Sr Disc Note (Mexico) 06-15-09 11.750 B+ 2,880 2,923,200
Utilities 10.25% 137,533,462
AES Eastern Energy L.P.,
Pass Thru Ctf Ser 1999-A 01-02-17 9.000 BB+ 3,695 4,008,957
Alliant Enterprises Resources,
Sr Note 11-09-09 7.375 BBB 2,150 2,450,613
See notes to
financial statements.
17
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Utilities (continued)
Beaver Valley Funding Corp,
Deb 06-01-07 8.625% BBB- $1,015 $1,101,127
Sec Lease Oblig Bond 06-01-17 9.000 BBB- 5,364 6,099,673
BVPS II Funding Corp.,
Collateralized Lease Bond 06-01-17 8.890 BBB- 6,607 7,530,923
CalEnergy Co., Inc.,
Sr Bond 09-15-28 8.480 BBB- 3,520 4,333,036
DPL, Inc.,
Sr Note 09-01-11 6.875 BBB- 6,120 6,390,865
East Coast Power LLC,
Sr Sec Note 03-31-08 6.737 BBB- 320 327,707
Sr Sec Note Ser B 03-31-12 7.066 BBB- 3,062 3,135,171
El Paso Electric Co.,
1st Mtg Ser E 05-01-11 9.400 BBB- 5,695 6,642,215
GG1B Funding Corp.,
Deb 01-15-11 7.430 BBB- 2,672 2,783,744
Illinois Power Co.,
Mtg Bond 07-15-25 7.500 B 1,885 1,894,425
IPALCO Enterprises, Inc.,
Sr Sec Note 11-14-11 7.625 BB- 3,000 3,277,500
Kansas Gas & Electric Co.,
1st Mtg Bond 08-01-05 6.500 BB+ 1,450 1,537,000
Deb 03-29-16 8.290 BB- 3,385 3,507,672
Midland Funding Corp. II,
Deb Ser A 07-23-05 + 11.750 BB- 10,869 11,738,521
Deb Ser B 07-23-06 13.250 BB- 2,935 3,433,950
Nevada Power Co.,
Sr Note Ser B 04-15-04 6.200 BB 775 783,719
Niagara Mohawk Power Corp.,
Sec Fac Deb Bond 01-01-18 8.770 A 6,517 6,784,692
NiSource Finance Corp.,
Note 11-15-10 7.875 BBB 2,150 2,533,042
NorAm Energy Corp.,
Deb 02-01-08 6.500 BBB 6,065 6,472,780
Pinnacle Partners,
Sr Note 08-15-04 (R) 8.830 BB+ 5,560 5,754,600
PNPP II Funding Corp.,
Deb 05-30-16 9.120 BBB- 4,135 4,711,791
PSEG Energy Holdings, Inc.,
Note 04-16-07 7.750 BB- 1,400 1,443,750
PSEG Power LLC,
Sr Note 12-01-15 5.500 BBB 2,275 2,264,731
See notes to
financial statements.
18
FINANCIAL STATEMENTS
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
Utilities (continued)
Salton Sea Funding Corp.,
Sr Note Ser B 05-30-05 7.370% BB $7,814 $6,804,172
Sr Sec Note Ser C 05-30-10 7.840 BB 4,888 5,097,805
Southern California Edison Co.,
1st Ref Mtg 02-15-07 8.000 BBB 5,310 6,020,212
1st Ref Mtg Ser 93C 03-01-26 7.250 BBB 4,340 4,426,800
Texas-New Mexico Power Co.,
Note 06-01-08 (R) 6.125 BBB- 3,135 3,109,092
TXU Energy Co.,
Sr Note 03-15-13 + 7.000 BBB 3,285 3,618,542
Waterford 3 Funding Corp.,
Sec Lease Oblig Bond 01-02-17 8.090 BBB- 5,560 6,314,334
Westar Energy, Inc.,
1st Mtg 04-15-23 7.650 BBB- 1,150 1,200,301
Utilities -- Foreign 1.48% 19,824,151
CSFB (Electrica Guacolda) S.A.,
Sr Note (Chile) 04-30-13 (R) 8.625 BBB- 2,252 2,356,645
Empresa Nacional de Electricidad S.A.,
Note (Chile) 07-15-08 7.750 BBB- 2,000 2,146,608
HQI Transelect Chile S.A.,
Sr Note (Chile) 04-15-11 7.875 A- 6,780 7,757,154
Korea Gas Corp.,
Sr Note (South Korea) 11-26-10 (R) 4.750 A- 2,630 2,594,671
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) 11-15-09 (R) 9.625 BBB- 1,439 1,701,853
TransAlta Corp.,
Notes (Canada) 12-15-13 5.750 BBB- 3,295 3,267,220
Waste Disposal Service & Equip. 0.58% 7,846,200
Allied Waste North America, Inc.,
Gtd Sr Sub Note Ser B 08-01-09 10.000 B+ 7,265 7,846,200
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
PREFERRED STOCKS 2.95% $39,550,704
(Cost $39,066,648)
Automobiles/Trucks 0.21%
Delphi Trust I, 8.25% BB 109,300 2,776,220
Banks 0.19%
Wachovia Preferred Funding Corp., 7.25%, Ser A BBB+ 94,000 2,607,560
Finance 0.21%
JP Morgan Chase Capital XII, 6.25% A- 113,000 2,846,470
See notes to
financial statements.
19
FINANCIAL STATEMENTS
CREDIT
ISSUER, DESCRIPTION RATING* SHARES VALUE
Media 0.96%
CSC Holdings, Inc., 11.125%, Ser M B 77,778 $8,263,913
CSC Holdings, Inc., 11.75%, Ser H *** B 43,080 4,544,940
Real Estate Investment Trusts 0.92%
Apartment Investment & Management Co.,
8.00%, Ser T B+ 140,000 3,500,000
CarrAmerica Realty Corp., 7.50%, Ser E BBB- 113,750 2,957,500
Health Care Property Investors, Inc., 7.10%, Ser F BBB 113,000 2,825,000
ProLogis Trust, 6.75% BBB 122,480 3,027,559
Utilities 0.46%
BGECapital Trust II., 6.20% BBB 100,000 2,478,130
Dominion Resources, Inc., 9.50%, Conv BBB+ 67,760 3,723,412
ISSUER, DESCRIPTION, INTEREST CREDIT PAR VALUE
MATURITY DATE RATE RATING* (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 2.79% $37,520,020
(Cost $37,539,663)
Joint Repurchase Agreement 2.03% 27,240,000
Investment in a joint repurchase agreement
transaction with Barclays Capital, Inc. --
Dated 11-28-03, due 12-1-03 (Secured by
U.S. Treasury Inflation Indexed Bonds, 3.625%
due 04-15-28 and 3.875% due 04-15-29,
U.S. Treasury Inflation Indexed Note, 3.000%
due 07-15-12) 1.030% $27,240 27,240,000
Real Estate Investment Trusts 0.32% 4,324,932
Camden Property Trust, Sr Note 04-15-04 7.000 BBB 4,250 4,324,932
Utilities 0.44% 5,955,088
AEP Resources, Inc., Sr Note 12-01-03 (R) 6.500 BBB 3,700 3,700,000
PSEG Energy Holdings, Inc., Sr Note 02-10-04 + 9.125 BB- 2,230 2,255,088
TOTAL INVESTMENTS 100.14% $1,343,791,289
OTHER ASSETS AND LIABILITIES, NET (0.14%) ($1,876,587)
TOTAL NET ASSETS 100.00% $1,341,914,702
See notes to
financial statements.
20
FINANCIAL STATEMENTS
Notes to Schedule of Investments
+ All or a portion of this security is on loan on November 30, 2003.
* Credit Ratings are unaudited and rated by Standard and Poor's where
available, or Moody's Investor Services, unless indicated otherwise.
** A portion of these securities having an aggregate value of
$28,895,168, or 2.15% of the Fund's net assets, has been purchased as
forward commitments -- that is, the Fund has agreed on trade date to
take delivery of and to make payment for this security on a delayed
basis subsequent to the date of this schedule. The purchase price and
interest rate of these securitites are fixed at trade date, although the
Fund does not earn any interest on these securities until settlement
date. The Fund has segregated assets with a current value at least
equal to the amount of the forward commitments. Accordingly, the market
value of $30,713,282 of British Sky Broadcasting Group Plc, 8.200%,
07-15-09 and Federal National Mortgage Assn. 5.000%, 05-01-18 have been
segregated to cover the forward commitments.
*** Non-income producing security.
# Security rated internally by John Hancock Advisers, LLC.
(A) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(B) Non-income-producing issuer filed for protection under Federal
Bankruptcy Code or is in default of interest payment.
(R) These securities are exempt from registration under Rule 144A of
the Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from
registration. Rule 144A securities amounted to $125,626,270 or 9.36%
of the Fund's net assets as of November 30, 2003.
Parenthetical disclosure of a foreign country in the security
description represents country of a foreign issuer, however, the
security is U.S. dollar-denominated.
The percentage shown for each investment category is the total value
of that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
21
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
November 30, 2003
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value and
the maximum
offering price
per share.
ASSETS
Investments at value (cost $1,316,685,706)
including $131,372,453 of securities loaned $1,343,791,289
Cash 176
Cash segregated for futures contracts 1,275,000
Receivable for investments sold 16,127,180
Receivable for shares sold 152,758
Receivable for futures variation margin 650,777
Dividends and interest receivable 17,604,226
Other assets 126,596
Total assets 1,379,728,002
LIABILITIES
Payable for investments purchased 35,330,466
Payable for shares repurchased 665,489
Dividends payable 708,638
Payable to affiliates
Management fee 513,947
Distribution and service fee 139,129
Other 167,242
Other payables and accrued expenses 288,389
Total liabilities 37,813,300
NET ASSETS
Capital paid-in 1,332,700,357
Accumulated net realized loss on investments and
financial futures contracts (16,786,773)
Net unrealized appreciation of investments and
financial futures contracts 28,374,633
Distributions in excess of net investment income (2,373,515)
Net assets $1,341,914,702
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($1,102,262,131 [DIV] 72,075,798 shares) $15.29
Class B ($194,771,831 [DIV] 12,735,950 shares) $15.29
Class C ($36,140,848 [DIV] 2,363,219 shares) $15.29
Class I ($8,637,452 [DIV] 564,803 shares) $15.29
Class R ($102,440 [DIV] 6,698 shares) $15.29
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($15.29 [DIV] 95.5%) $16.01
Class C ($15.29 [DIV] 99%) $15.44
1 On single retail sales of less than $100,000. On sales of $100,000
or more and on group sales the offering price is reduced.
See notes to
financial statements.
22
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
November 30, 2003
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in operat-
ing the Fund.
It also shows net
gains (losses) for
the period stated.
INVESTMENT INCOME
Interest (net of foreign withholding taxes of $1,252) $38,207,883
Dividends 886,959
Securities lending 108,898
Total investment income 39,203,740
EXPENSES
Investment management fee 3,467,897
Class A distribution and service fee 1,690,214
Class B distribution and service fee 1,056,921
Class C distribution and service fee 199,973
Class R distribution and service fee 163
Class A, B and C transfer agent fee 1,280,480
Class I transfer agent fee 2,226
Class R transfer agent fee 97
Accounting and legal services fee 180,864
Custodian fee 152,539
Registration and filing fee 52,469
Trustees' fee 46,544
Miscellaneous 44,745
Printing 35,523
Auditing fee 22,199
Legal fee 14,789
Interest 7,949
Total expenses 8,255,592
Net investment income 30,948,148
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
Investments 16,359,334
Financial futures contracts (2,559,333)
Change in unrealized appreciation (depreciation) of
Investments (50,521,645)
Financial futures contracts 1,269,050
Net realized and unrealized loss (35,452,594)
Decrease in net assets from operations ($4,504,446)
1 Semiannual period from 6-1-03 through 11-30-03.
See notes to
financial statements.
23
FINANCIAL STATEMENTS
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 dif-
ference reflects
earnings less
expenses, any
investment gains
and losses, distrib-
utions, if any, paid
to shareholders
and any increase
or decrease in
money sharehold-
ers invested in
the Fund.
YEAR PERIOD
ENDED ENDED
5-31-03 11-30-03 1
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment income $67,667,581 $30,948,148
Net realized gain 37,149,906 13,800,001
Change in net unrealized
appreciation (depreciation) 60,407,234 (49,252,595)
Increase (decrease) in net assets
resulting from operations 165,224,721 (4,504,446)
Distributions to shareholders
From net investment income
Class A (58,775,529) (27,431,706)
Class B (10,462,357) (4,399,299)
Class C (2,024,816) (832,367)
Class I (461,750) (236,201)
Class R 2 -- (1,533)
(71,724,452) (32,901,106)
From Fund share transactions (36,619,370) (100,575,241)
NET ASSETS
Beginning of period 1,423,014,596 1,479,895,495
End of period 2 $1,479,895,495 $1,341,914,702
1 Semiannual period from 6-1-03 through 11-30-03. Unaudited.
2 Class R shares began operations on 8-5-03.
3 Includes distributions in excess of net investment income of
$420,557 and $2,373,515, respectively.
See notes to
financial statements.
24
FINANCIAL
HIGHLIGHTS
FINANCIAL HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a
share has changed since the end of the previous period.
PERIOD ENDED 5-31-99 1 5-31-00 1 5-31-01 1 5-31-02 1,2 5-31-03 11-30-03 3
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $15.25 $14.76 $13.93 $14.69 $14.71 $15.69
Net investment income 4 0.97 0.96 0.92 0.82 0.72 0.35
Net realized and unrealized
gain (loss) on investments (0.49) (0.83) 0.76 0.06 1.02 (0.38)
Total from
investment operations 0.48 0.13 1.68 0.88 1.74 (0.03)
Less distributions
From net investment income (0.97) (0.96) (0.92) (0.86) (0.76) (0.37)
Net asset value,
end of period $14.76 $13.93 $14.69 $14.71 $15.69 $15.29
Total return 5 (%) 3.11 0.97 12.38 6.10 12.26 (0.14) 6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1,279 $1,098 $1,140 $1,144 $1,192 $1,102
Ratio of expenses
to average net assets (%) 1.07 1.11 1.12 1.11 1.12 1.07 7
Ratio of net investment income
to average net assets (%) 6.35 6.69 6.38 5.51 4.84 4.59 7
Portfolio turnover (%) 228 162 235 189 273 170
See notes to
financial statements.
25
FINANCIAL HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 5-31-99 1 5-31-00 1 5-31-01 1 5-31-02 1,2 5-31-03 11-30-03 3
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $15.25 $14.76 $13.93 $14.69 $14.71 $15.69
Net investment income 4 0.86 0.86 0.83 0.72 0.62 0.30
Net realized and unrealized
gain (loss) on investments (0.49) (0.83) 0.76 0.06 1.02 (0.38)
Total from
investment operations 0.37 0.03 1.59 0.78 1.64 (0.08)
Less distributions
From net investment income (0.86) (0.86) (0.83) (0.76) (0.66) (0.32)
Net asset value,
end of period $14.76 $13.93 $14.69 $14.71 $15.69 $15.29
Total return 5 (%) 2.39 0.27 11.64 5.37 11.48 (0.49) 6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $239 $197 $218 $236 $233 $195
Ratio of expenses
to average net assets (%) 1.77 1.81 1.78 1.81 1.82 1.77 7
Ratio of net investment income
to average net assets (%) 5.65 6.00 5.71 4.81 4.15 3.88 7
Portfolio turnover (%) 228 162 235 189 273 170
See notes to
financial statements.
26
FINANCIAL HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 5-31-99 1,8 5-31-00 1 5-31-01 1 5-31-02 1,2 5-31-03 11-30-03 3
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $15.61 $14.76 $13.93 $14.69 $14.71 $15.69
Net investment income 4 0.55 0.85 0.82 0.72 0.62 0.30
Net realized and unrealized
gain (loss) on investments (0.85) (0.83) 0.76 0.06 1.02 (0.38)
Total from
investment operations (0.30) 0.02 1.58 0.78 1.64 (0.08)
Less distributions
From net investment income (0.55) (0.85) (0.82) (0.76) (0.66) (0.32)
Net asset value,
end of period $14.76 $13.93 $14.69 $14.71 $15.69 $15.29
Total return 5 (%) 1.95 6 0.28 11.60 5.36 11.48 (0.49) 6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $21 $24 $26 $44 $45 $36
Ratio of expenses
to average net assets (%) 1.77 7 1.80 1.82 1.81 1.82 1.77 7
Ratio of net investment income
to average net assets (%) 5.65 7 6.01 5.66 4.81 4.15 3.88 7
Portfolio turnover (%) 228 162 235 189 273 170
See notes to
financial statements.
27
FINANCIAL HIGHLIGHTS
CLASS I SHARES
PERIOD ENDED 5-31-02 1,2,8 5-31-03 11-30-03 3
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $14.96 $14.71 $15.69
Net investment income 4 0.66 0.78 0.39
Net realized and unrealized
gain (loss) on investments (0.21) 1.02 (0.38)
Total from
investment operations 0.45 1.80 0.01
Less distributions
From net investment income (0.70) (0.82) (0.41)
Net asset value,
end of period $14.71 $15.69 $15.29
Total return 5 (%) 3.04 6 12.71 0.07 6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) -- 9 $9 $9
Ratio of expenses
to average net assets (%) 0.68 7 0.72 0.63 7
Ratio of net investment income to
average net assets (%) 5.94 7 5.23 5.02 7
Portfolio turnover (%) 189 273 170
See notes to
financial statements.
28
FINANCIAL HIGHLIGHTS
CLASS R SHARES
PERIOD ENDED 11-30-03 3,8
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $14.93
Net investment income 4 0.34
Net realized and unrealized
gain (loss) on investments 0.25
Total from
investment operations 0.59
Less distributions
From net investment income (0.23)
Net asset value,
end of period $15.29
Total return 5 (%) 3.96 6
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) -- 9
Ratio of expenses
to average net assets (%) 1.38 7
Ratio of net investment income
to average net assets (%) 4.43 7
Portfolio turnover (%) 170
1 Audited by previous auditor.
2 As required, effective June 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment
Companies, as revised, relating to the amortization of premiums and
accretion of discounts on debt securities. The effect of this change
on per share amounts for the year ended May 31, 2002, was to decrease
net investment income per share by $0.04, increase (decrease) net
realized and unrealized gains (losses) per share by $0.04 and, had the
Fund not made these changes to amortization and accretion, the
annualized ratio of net investment income to average net assets would
have been 5.81%, 5.11%, 5.09% and 6.24% for Class A, Class B, Class C
and Class I shares, respectively. Per share ratios and supplemental
data for periods prior to June 1, 2001, have not been restated to
reflect this change in presentation.
3 Semiannual period from 6-1-03 through 11-30-03. Unaudited.
4 Based on the average of the shares outstanding.
5 Assumes dividend reinvestment and does not reflect the effect of
sales charges.
6 Not annualized.
7 Annualized.
8 Class C, Class I and Class R shares began operations on 10-1-98,
9-4-01 and 8-5-03, respectively.
9 Less than $500,000.
See notes to
financial statements.
29
NOTES TO
STATEMENTS
Unaudited
NOTE A
Accounting policies
John Hancock Bond Fund (the "Fund") is a diversified series of John
Hancock Sovereign Bond Fund, an open-end management investment company
registered under the Investment Company Act of 1940. The investment
objective of the Fund is to generate a high level of current income,
consistent with prudent investment risk.
The Trustees have authorized the issuance of multiple classes of
shares of the Fund, designated as Class A, Class B, Class C, Class I
and Class R shares. The shares of each class represent an interest in
the same portfolio of investments of the Fund and have equal rights as
to voting, redemptions, dividends and liquidation, except that certain
expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal
Revenue Service. Shareholders of a class that bears distribution and
service expenses under the terms of a distribution plan have exclusive
voting rights to that distribution plan.
Significant accounting policies
of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within
60 days are valued at amortized cost, which approximates market value.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
LLC, may participate in a joint repurchase agreement transaction.
Aggregate cash balances are invested in one or more large repurchase
agreements, whose underlying securities are obligations of the U.S.
government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale
or maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis. Some securities may be
purchased on a "when-issued" or "forward commitment" basis, which
means that the securities will be delivered to the Fund at a future
date, usually beyond the customary settlement date.
30
Discount and premium
on securities
The Fund accretes discount and amortizes premium from par value on
securities from either the date of issue or the date of purchase over
the life of the security.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of
shares based on the appropriate net asset value of the respective
classes. Distribution and service fees, if any, and transfer agent
fees for Class I and Class R shares, are calculated daily at the class
level based on the appropriate net asset value of each class and the
specific expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund
are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. The
Fund has entered into a syndicated line of credit agreement with
various banks. This agreement enables the Fund to participate with
other funds managed by the Adviser in an unsecured line of credit with
banks, which permits borrowings of up to $250 million, collectively.
Interest is charged to each fund, based on its borrowing. In addition,
a commitment fee is charged to each fund based on the average daily
unused portion of the line of credit and is allocated among the
participating funds. The Fund had no borrowing activity under the line
of credit during the period ended November 30, 2003.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
negotiated lender fees. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. As with other extensions of credit, the Fund
may bear the risk of delay of the loaned securities in recovery or even
loss of rights in the collateral, should the borrower of the securities
fail financially. On November 30, 2003, the Fund loaned securities having
a market value of $131,372,453 collateralized by securities in the amount
of $135,877,692.
Financial futures contracts
The Fund may buy and sell financial futures contracts. Buying futures
tends to increase the Fund's exposure to the underlying instrument.
Selling futures tends to decrease the Fund's exposure to the underlying
instrument or hedge other Fund's instruments. At the time the Fund enters
into a financial futures contract, it is required to deposit with its
custodian a specified amount of cash or U.S. government securities, known
as "initial margin," equal to a certain percentage of the value of the
financial futures contract being traded. Each day, the futures contract is
valued at the official settlement price of the board of trade or U.S.
commodities exchange on which it trades. Subsequent payments to and from
the broker, known as "variation margin," are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market," are recorded by
the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss.
Risks of entering into financial futures contracts include the
possibility that there may be an illiquid market and/or that a change
in the value of the
31
contracts may not correlate with changes in the value of the
underlying securities. In addition, the Fund could be prevented from
opening or realizing the benefits of closing out financial futures
positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of
the Fund's gains and/or losses can be affected as a result of
financial futures contracts.
On November 30, 2003, the Fund had deposited $1,275,000 in a
segregated account to cover margin requirements on open financial
futures contracts.
The Fund had the following open financial futures contracts on
November 30, 2003:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION APPRECIATION
- -----------------------------------------------------------------------------
U.S. 10-year note 850 Short MAR 04 $1,269,050
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $30,484,831 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward is
used by the Fund, no capital gain distributions will be made. The loss
carryforward expires as follows: May 31, 2008 -- $10,076,619, May 31, 2009
- -- $20,372,435 and May 31, 2010 -- $35,777.
Dividends, interest
and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. The Fund may place a debt
obligation on non-accrual status and reduce related interest income by
ceasing current accruals and writing off interest receivables when the
collection of interest has become doubtful. Foreign income may be subject
to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date. The Fund's net
investment income is declared daily as dividends to shareholders of
record as of the close of business on the preceding day, and
distributed monthly. Distributions paid by the Fund with respect to
each class of shares are calculated in the same manner, at the same
time and are in the same amount, except for the effect of expenses
that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with
income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Distributions in
excess of tax basis earnings and profits, if any, are reported in the
Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
32
NOTE B
Management fee and
transactions with affiliates
and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a monthly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.50% of the first $1,500,000,000 of the Fund's average daily net
asset value, (b) 0.45% of the next $500,000,000, (c) 0.40% of the next
$500,000,000 and (d) 0.35% of the Fund's average daily net asset value
in excess of $2,500,000,000.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has
adopted Distribution Plans with respect to Class A, Class B, Class C
and Class R pursuant to Rule 12b-1 under the Investment Company Act of
1940 to reimburse JH Funds for the services it provides as distributor
of shares of the Fund. Accordingly, the Fund makes monthly payments to
JH Funds at an annual rate not to exceed 0.30% of Class A average
daily net asset value, 1.00% of Class B and Class C average daily net
asset value, and 0.50% of Class R average daily net asset value. A
maximum of 0.25% of such payments may be service fees as defined by
the Conduct Rules of the National Association of Securities Dealers.
Under the Conduct Rules, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In addition, under a
Service Plan for Class R shares, the Fund pays up to 0.25% of Class R
average daily net asset value for certain other services.
Class A and Class C shares are assessed up-front sales charges. During
the period ended November 30, 2003, JH Funds received net up-front
sales charges of $318,177 with regard to sales of Class A shares. Of
this amount, $34,805 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $93,634 was paid as
sales commissions to unrelated broker-dealers and $189,738 was paid as
sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's
indirect parent, John Hancock Life Insurance Company ("JHLICo"), is
the indirect sole shareholder of Signator Investors. During the period
ended November 30, 2003, JH Funds received net up-front sales charges
of $16,965 with regard to sales of Class C shares. Of this amount,
$15,725 was paid as sales commissions to unrelated broker-dealers and
$1,240 was paid as sales commissions to sales personnel of Signator
Investors.
Class B shares that are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates, beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares
being redeemed. Class C shares that are redeemed within one year of
purchase are subject to a CDSC at a rate of 1.00% of the lesser of the
current market value at the time of redemption or the original
purchase cost of the shares being redeemed. Proceeds from the CDSCs
are paid to JH Funds and are used in whole or in part to defray its
expenses for providing distribution-related services to the Fund in
connection with the sale of Class B and Class C shares. During the
period ended November 30, 2003, CDSCs received by JH Funds amounted to
$239,896 for Class B shares and $6,099 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc., an indirect subsidiary of JHLICo. For Class A, Class B
and Class C shares, the Fund pays a monthly transfer agent fee at an
annual rate of 0.015% of each class's average daily net asset value,
plus a fee based
33
on the number of shareholder accounts and reimbursement for certain
out-of-pocket expenses, aggregated and allocated to each class on the
basis of its relative net asset value. For Class I shares, the Fund
pays a monthly transfer agent fee at an annual rate of 0.05% of Class
I average daily net asset value. For Class R shares, the Fund pays a
monthly transfer agent fee at an annual rate 0.015% of the Class R
average net asset value, plus a fee based on the number of shareholder
accounts and reimbursement for certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
period was at an annual rate of approximately 0.03% of the average net
asset value of the Fund.
Ms. Maureen Ford Goldfarb and Mr. John M. DeCiccio are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of the
Fund. The compensation of unaffiliated Trustees is borne by the Fund. The
unaffiliated Trustees may elect to defer for tax purposes their receipt of
this compensation under the John Hancock Group of Funds Deferred Compen-
sation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are
recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to
market on a periodic basis to reflect any income earned by the investments
as well as any unrealized gains or losses. The Deferred Compensation Plan
investments had no impact on the operations of the Fund.
34
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested
and repurchased during the last two periods, along with the
corresponding dollar value. The Fund has an unlimited number of shares
authorized with no par value.
YEAR ENDED 5-31-03 PERIOD ENDED 11-30-03 1
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 8,023,117 $119,537,680 3,784,763 $58,136,927
Distributions reinvested 3,230,030 48,137,822 1,460,601 22,298,739
Repurchased (13,031,036) (194,047,897) (9,159,550) (140,370,599)
Net decrease (1,777,889) ($26,372,395) (3,914,186) ($59,934,933)
CLASS B SHARES
Sold 3,435,375 $50,874,917 513,180 $7,863,675
Distributions reinvested 501,577 7,467,519 207,664 3,171,988
Repurchased (5,112,010) (76,105,101) (2,828,935) (43,179,787)
Net decrease (1,175,058) ($17,762,665) (2,108,091) ($32,144,124)
CLASS C SHARES
Sold 950,362 $14,094,274 136,478 $2,086,106
Distributions reinvested 106,568 1,585,178 42,120 643,645
Repurchased (1,137,091) (16,982,912) (708,139) (10,810,065)
Net decrease (80,161) ($1,303,460) (529,541) ($8,080,314)
CLASS I SHARES
Sold 152,828 $2,306,536 26,367 $406,223
Issued in reorganization 566,449 8,309,863 -- --
Distributions reinvested 30,706 458,285 15,299 233,541
Repurchased (152,254) (2,255,534) (75,260) (1,155,621)
Net increase (decrease) 597,729 $8,819,150 (33,594) ($515,857)
CLASS R SHARES 2
Sold -- -- 6,698 99,987
Net increase -- -- 6,698 99,987
NET DECREASE (2,435,379) ($36,619,370) (6,578,714) ($100,575,241)
1 Semiannual period from 6-1-03 through 11-30-03. Unaudited.
2 Class R shares began operations on 8-5-03.
35
NOTE D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other
than short-term securities and obligations of the U.S. government,
during the period ended November 30, 2003, aggregated $2,058,451,023
and $2,149,358,941, respectively.
Purchases and proceeds from maturities of obligations of U.S.
government aggregated $248,438,225 and $294,729,374, respectively,
during the period ended November 30, 2003.
The cost of investments owned on November 30, 2003, including short-term
investments, for federal income tax purposes was $1,319,763,417. Gross
unrealized appreciation and depreciation of investments aggregated
$42,719,387 and $18,691,515, respectively, resulting in net unrealized
appreciation of $24,027,872. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable primarily
to amortization of premiums and accretion of discounts on debt securities
and the tax deferral of losses on certain sales of securities.
36
FOR YOUR
INFORMATION
TRUSTEES
Dennis S. Aronowitz
Richard P. Chapman, Jr.
William J. Cosgrove
John M. DeCiccio
Richard A. Farrell
William F. Glavin*
Maureen Ford Goldfarb
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt
*Members of the Audit Committee
OFFICERS
Maureen Ford Goldfarb
Chairman, President
and Chief Executive Officer
Richard A. Brown
Senior Vice President
and Chief Financial Officer
Susan S. Newton
Senior Vice President
and Secretary
William H. King
Vice President and Treasurer
Thomas H. Connors
Vice President
and Compliance Officer
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By express mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
The Fund's voting policies and procedures are available without
charge, upon request:
By phone 1-800-225-5291
On the Fund's Web site www.jhfunds.com/proxy
On the SEC's Web site www.sec.gov
37
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhancock.com/funds/edelivery
This report is for the information of
the shareholders of the John Hancock
Bond Fund.
210SA 11/03
1/04
ITEM 2. CODE OF ETHICS.
As of the end of the period, November 30, 2003, 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.
William F. Glavin 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.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. 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 10. 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)(1) 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) 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.
By:
- ------------------------------
Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Date: January 28, 2004
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:
- -------------------------------
Maureen Ford Goldfarb
Chairman, President and Chief Executive Officer
Date: January 28, 2004
By:
- -----------------------
Richard A. Brown
Senior Vice President and Chief Financial Officer
Date: January 28, 2004