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)
101 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Susan S. Newton, Secretary
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-375-1702
Date of fiscal year end: May 31
Date of reporting period: November 30, 2004
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Bond Fund
11.30.2004
Semiannual Report
[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 James A. Shepherdson, Chief Executive Officer, flush left next
to first paragraph.]
CEO CORNER
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
Your expenses
page 8
Fund's investments
page 10
Financial statements
page 26
For more information
page 41
Dear Fellow Shareholders,
The stock market made little, if any, headway for much of 2004, before
finally rallying in November. After a strong start in January, the market
faded and remained dull as it wrestled with a variety of uncertainties.
Questions about the continuing strength of the economy, the effects of
rising interest rates, and expectations for corporate earnings growth kept
investors jittery. In addition, record high crude oil prices, terrorism and
the uncertainty of a closely contested U.S. presidential race all weighed
on the market. The picture brightened in early November with the election
behind us and oil prices moderating somewhat. With one month left to go,
the market seems poised to produce single-digit returns for 2004, barring
some major negative occurrence.
Year-to-date through November 30, 2004, the Standard & Poor's 500 Index was
up 7.23%, while the Dow Jones Industrial Average advanced 1.67% and the
Nasdaq Composite Index rallied from its negative stance in October to
return 4.66% through November 30. Despite the Federal Reserve's four hikes
in short-term interest rates, bonds still produced positive results, with
the Lehman Brothers Aggregate Bond Index up 3.39%.
The way this year has played out in the financial markets serves as a good
reminder of why keeping a long-term perspective is such a critical element
of successful investing. Getting caught up in the day-to-day twists and
turns of the market and trying to act on them can wreak havoc with your
portfolio and derail progress toward meeting your overall financial
objectives.
Since no one can predict the market's moves, the best way to reach your
goals is to stay invested and stick to your plan. Investing should be a
marathon, not a sprint. Do not try to time the market, and make sure you
work with your investment professional to ensure that your portfolio
remains properly diversified to meet your long-term objectives. For
example, after several years of dominance, small-cap stocks and value
stocks could now represent higher percentages of your portfolio than you
may want. If you are comfortable with your financial plan, it becomes
easier to ride out the market's daily ups and downs. It could also provide
you with a greater chance of success over time.
Sincerely,
/S/ JAMES A. SHEPHERDSON
James A. Shepherdson
Chief Executive Officer
This commentary reflects the CEO's views as of November 30, 2004. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks a
high level of current
income consistent
with prudent
investment risk by
investing at least
80% of its assets in a
diversified portfolio
of bonds and other
debt securities,
including corporate
bonds and U.S.
government and
agency securities.
Over the last six months
* Despite a series of interest rate increases by the Federal Reserve, the
bond market produced positive results.
* Lower-rated corporate bonds and mortgage-backed securities posted the
best returns.
* The Fund's defensive positioning, with reduced interest rate sensitivity
and higher credit quality, enhanced performance.
[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,
2004." The chart is scaled in increments of 3% with 0% at the bottom and 6%
at the top. The first bar represents the 4.14% total return for Class A.
The second bar represents the 3.78% total return for Class B. The third bar
represents the 3.78% total return for Class C. The fourth bar represents
the 4.38% total return for Class I. The fifth bar represents the 4.09%
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. These
returns do not reflect the deduction of the maximum sales charge, which
would reduce the performance shown above."]
Top 10 issuers
22.1% Federal National Mortgage Assn.
7.3% Federal Home Loan Mortgage Corp.
7.2% United States Treasury
3.2% Financing Corp.
1.1% Government National Mortgage Assn.
0.9% Sprint Capital Corp.
0.9% Salton Sea Funding Corp.
0.8% Royal Bank of Scotland Group Plc
0.8% Midland Funding Corp. II
0.8% Residential Asset Mortgage Products, Inc.
As a percentage of net assets on November 30, 2004.
1
BY HOWARD C. GREENE, CFA, BARRY H. EVANS, CFA AND
BENJAMIN A. MATTHEWS, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
Bond Fund
The bond market rallied modestly during the six months ended November 30,
2004. The big story during the period was a series of short-term interest
rate increases by the Federal Reserve -- its first rate hikes in more than
four years. Beginning in June, the Fed raised its federal funds rate target
four times in five months, each time by a quarter point. As a result, the
federal funds rate doubled from 1% (a 46-year low) to 2%. The Fed's
well-anticipated rate hikes came in response to improving employment
growth, which accelerated during the second quarter and recently picked up
again after a sluggish summer. Cautionary signs of inflation, including
record-high oil prices and rising wholesale costs, also factored into the
Fed's decision.
As the Fed raised rates, the yields of shorter-term Treasury securities --
those maturing in three years or less -- also rose. However, Treasury
securities with maturities of five years or more saw their yields decline
during the period, reflecting the bond market's longer-term confidence that
the Fed's gradual rate increases will keep inflation in check and the
economy growing at a moderate pace.
For the six-month period, the overall bond market posted positive results,
as the broad Lehman Brothers U.S. Aggregate Index returned 3.82%. All
segments of the bond market gained ground during the period, but corporate
bonds continued to be the best performers, led by lower-quality issues.
Mortgage-backed securities also posted solid returns, while Treasury and
government agency bonds lagged.
"The bond market rallied
modestly during the six months
ended November 30, 2004."
Fund performance
For the six months ended November 30, 2004, John Hancock Bond Fund's Class
A, Class B, Class C, Class I and Class R shares posted total returns of
4.14%, 3.78%, 3.78%, 4.38% and 4.09%, respectively, at net asset value.
These results outpaced the 3.71% return of the average A-rated corporate
debt fund, according to Lipper, Inc., 1 and the 3.72% return of the Lehman
Brothers
2
Government/Credit Bond Index. Keep in mind that your net asset value return
will differ from the Fund's performance if you were not invested in the
Fund for the entire period 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.]
Playing defense
Our primary strategy during the past six months was to position the
portfolio defensively, lowering its risk profile to protect against the
negative effects of rising interest rates. Our defensive approach included
reducing the portfolio's interest rate sensitivity, trading up in credit
quality, and increasing our exposure to securities that tend to fare better
when rates rise, such as floating-rate notes.
Less interest rate sensitivity
In anticipation of higher interest rates -- which generally lead to
declining bond prices -- we began reducing the Fund's sensitivity to
interest rates in early 2004, and we continued to do so during the past six
months. This positioning actually hurt relative performance somewhat during
the period because rates on longer-term bonds declined, but we would rather
err on the side of caution when it comes to protecting our shareholders'
investments.
"On balance, individual security
selection in the corporate sector
provided a lift to performance..."
We also reduced our holdings of intermediate-term bonds -- those maturing
in five to ten years -- and expanded our positions in shorter-term and
longer-term bonds. This approach tends to produce the best results in a
rising interest rate environment as short- and long-term yields generally
converge. Among longer-term bonds, we focused on Treasury and high-quality
corporate securities; at the short end of the maturity spectrum, we added
floating-rate notes (which reset their interest rates at regular
intervals), adjustable-rate mortgages and investment-grade corporate bonds
maturing in less than two years.
Upgrading credit quality
Another part of our defensive strategy was reducing the portfolio's overall
credit risk. Lower-quality corporate bonds significantly outperformed the
rest of the bond market over the past two years,
3
and the portfolio benefited from its holdings in this segment of the
market. However, given the elevated valuations of lower-rated bonds, we
have been selling some of our below-investment-grade corporate securities
and replacing them with higher-quality corporate bonds and mortgage-backed
securities.
[Table at top left-hand side of page entitled "Top five industry sectors."
The first listing is Government - U.S. agencies 34%, the second is
Financials 17%, the third is Utilities 9%, the fourth is Government - U.S.
7% and the fifth is Consumer discretionary 6%.]
Nonetheless, we have maintained some exposure to lower-quality bonds, with
an emphasis on securities that are candidates for a credit rating upgrade,
particularly to investment-grade status. Bonds that are upgraded to an
investment-grade credit rating typically realize a meaningful increase in
value. Bonds in the portfolio that performed well after a recent credit
upgrade include finance company Capital One and real estate investment
trust iStar Financial.
Winners and laggards among corporate bonds
On balance, individual security selection in the corporate sector provided
a lift to performance. One of the portfolio's top performers was forest
products maker Weyerhaeuser, which benefited from better market conditions
and the favorable economic environment. Duke Capital, a subsidiary of
utility Duke Energy, was another strong performer in the portfolio as the
company improved its balance sheet and operating performance.
[Pie chart at middle of page with heading "Portfolio diversification As a
percentage of net assets on 11-30-04." The chart is divided into three
sections (from top to right): Corporate bonds 55%, U.S. government & agency
bonds 41% and Short-term investments & other 4%.]
On the downside, Hospital Corporation of America (HCA) detracted from
performance. The company's operating results did not improve as forecast,
and although HCA had made overtures about reducing its debt load, the
company instead chose to undertake a $2.5 billion share repurchase.
Consequently, we reduced our holdings.
4
[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 "Strong subscriber
growth; successful new products and services." The second listing is Corn
Products International, followed by an up arrow with the phrase "Put on
positive credit watch for a possible upgrade." The third listing is Muzak,
followed by a down arrow with the phrase "Challenged by a high cost
structure and limited top-line growth."]
Mortgage-backed securities outperform
We increased our position in mortgage-backed securities during the period
as part of the general upgrade in the portfolio's credit quality.
Mortgage-backed bonds performed well, benefiting from reduced interest rate
volatility and slowing refinancing activity. We applied our defensive
strategy to the portfolio's mortgage-backed holdings by investing in
adjustable-rate and 15-year mortgages, both of which are less interest-rate
sensitive than traditional 30-year mortgages.
Outlook
We expect the economy to continue growing at a moderate but steady rate,
which should lead the Fed to continue raising short-term interest rates
through the first half of 2005. Bond yields will likely follow suit, though
we expect short-term rates to rise more than longer-term yields.
"We expect the economy to continue
growing at a moderate but steady
rate, which should lead the Fed
to continue raising short-term
interest rates..."
As a result, we believe the best way to serve our shareholders is to
maintain our current defensive strategy. We intend to continue reducing the
portfolio's interest rate sensitivity and upgrading its credit quality.
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, 2004
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 -0.09% -1.10% 2.89% 5.12% 4.43%
Five years 6.09 6.02 6.33 -- --
Ten years 7.02 6.93 -- -- --
Since inception -- -- 4.76 6.36 6.42
Cumulative total returns with maximum sales charge (POP)
Six months -0.57 -1.22 2.78 4.38 4.09
One year -0.09 -1.10 2.89 5.12 4.43
Five years 34.42 33.95 35.91 -- --
Ten years 97.13 95.42 -- -- --
Since inception -- -- 33.23 22.08 8.56
SEC 30-day yield as of November 30, 2004
3.68 3.15 3.15 4.31 3.81
Performance figures assume all distributions are reinvested. Returns with
maximum sales charge reflect a sales charge on Class A shares of 4.50%, and
the applicable contingent deferred sales charge (CDSC) on Class B and Class
C shares. The returns for Class C shares have been adjusted to reflect the
elimination of the front-end sales charge effective July 15, 2004. The
Class B shares' CDSC declines annually between years 1-6 according to the
following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed
after the sixth year. Class C shares held for less than one year are
subject to a 1% CDSC. Sales charge is not applicable for Class I and Class
R shares.
The returns reflect past results and should not be considered indicative of
future performance. The return and principal value of an investment will
fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. Due to market volatility, the Fund's current
performance may be higher or lower than the performance shown. For
performance data current to the most recent month-end, please call
1-800-225-5291 or visit the Fund's Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect
the deduction of taxes that a shareholder would pay on fund distributions
or the redemption of fund shares.
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable.
1 For certain types of investors as described in the Fund's Class I and
Class 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.
Cum Value Cum Value Lehman Brothers
of $10K of $10K Government/Credit
Plot Date (No Load) (W/Load) Bond Index
11-30-94 $10,000 $9,500 $10,000
12-31-94 10,097 9,644 10,066
5-31-95 11,233 10,729 11,164
11-30-95 11,866 11,334 11,829
5-31-96 11,764 11,237 11,622
11-30-96 12,644 12,077 12,491
5-31-97 12,832 12,257 12,540
11-30-97 13,651 13,039 13,416
5-31-98 14,185 13,549 13,980
11-30-98 14,729 14,069 14,804
5-31-99 14,628 13,973 14,548
11-30-99 14,670 14,012 14,611
5-31-00 14,762 14,101 14,826
11-30-00 15,779 15,072 15,929
5-31-01 16,590 15,847 16,733
11-30-01 17,386 16,608 17,764
5-31-02 17,603 16,814 18,046
11-30-02 18,144 17,331 19,064
5-31-03 19,761 18,876 20,675
11-30-03 19,733 18,849 20,283
5-31-04 19,822 18,934 20,360
11-30-04 20,637 19,713 21,117
[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 $21,117 as of November 30, 2004. 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 $20,637
as of November 30, 2004. The third line represents the same hypothetical
$10,000 investment made in the John Hancock Bond Fund, with maximum sales
charge (POP) and is equal to $19,713 as of November 30, 2004.]
Class B 1 Class C 1 Class I 2 Class R 2
Period beginning 11-30-94 10-1-98 9-4-01 8-5-03
Bond Fund $19,542 $13,323 $12,208 $10,856
Index 21,117 14,160 12,205 10,707
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, 2004.
The Class C shares investment with maximum sales charge has been adjusted
to reflect the elimination of the front-end sales charge effective July 15,
2004. Performance of the classes will vary based on the difference in sales
charges paid by shareholders investing in the different classes and the fee
structure of those classes.
Lehman Brothers Government/Credit Bond Index is an unmanaged index that
measures the performance of U.S. government bonds, U.S. corporate bonds and
Yankee bonds.
It is not possible to invest directly in an index. Index figures do not
reflect sales charges 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
YOUR
EXPENSES
These examples are intended to help you understand your ongoing operating
expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
* Transaction costs which include sales charges (loads) on purchases or
redemptions (varies by share class), minimum account fee charge, etc.
* Ongoing operating expenses including management fees, distribution and
service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund's actual
ongoing operating expenses, and is based on your fund's actual return. It
assumes an account value of $1,000.00 on May 31, 2004, with the same
investment held until November 30, 2004.
Account value Expenses paid
$1,000.00 Ending value during period
on 5-31-04 on 11-30-04 ended 11-30-04 1
- -------------------------------------------------------------
Class A $1,041.40 $5.58
Class B 1,037.80 9.15
Class C 1,037.80 9.15
Class I 1,043.80 3.25
Class R 1,040.90 6.01
Together with the value of your account, you may use this information to
estimate the operating expenses that you paid over the period. Simply
divide your account value at November 30, 2004 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:
Example
-- -- -- --
| My account value / | | "expenses paid" | My
| / $1,000.00 = 8.6 | X $| | = actual
| $8,600.00 / | | from table | expenses
-- -- -- --
8
Hypthetical example for comparison purposes
This table allows you to compare your fund's ongoing operating expenses
with those of any other fund. It provides an example of the Fund's
hypothetical account values and hypothetical expenses based on each class's
actual expense ratio and an assumed 5% annual return before expenses (which
is not your fund's actual return). It assumes an account value of $1,000.00
on May 31, 2004, with the same investment held until November 30, 2004.
Look in any other fund shareholder report to find its hypothetical example
and you will be able to compare these expenses.
Account value Expenses paid
$1,000.00 Ending value during period
on 5-31-04 on 11-30-04 ended 11-30-04 1
- -------------------------------------------------------------
Class A $1,019.60 $5.52
Class B 1,016.09 9.05
Class C 1,016.09 9.05
Class I 1,021.89 3.22
Class R 1,019.18 5.94
Remember, these examples do not include any transaction costs, such as
sales charges; therefore, these examples will not help you to determine the
relative total costs of owning different funds. If transaction costs were
included, your expenses would have been higher. See the prospectus for
details regarding transaction costs.
1 Expenses are equal to the Fund's annualized expense ratio of 1.09%, 1.79%,
1.79%, 0.63% and 1.17% for Class A, Class B, Class C, Class I and Class R,
respectively, multiplied by the average account value over the period,
multiplied by [number of days in most recent fiscal half-year/365 or 366]
(to reflect the one-half year period).
9
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
November 30, 2004
(unaudited)
This schedule is divided into four main categories: bonds, preferred
stocks, U.S. government and agencies securities and short-term investments.
Bonds, preferred stocks and U.S. government and agencies securities are
further broken down by industry group. Short-term investments, which
represent the Fund's cash position, are listed last.
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Bonds 54.88% $666,177,685
(Cost $648,867,090)
Agricultural Products 0.71% 8,585,888
Corn Products International, Inc.,
Sr Note 8.450% 08-15-09 BBB- $7,515 8,585,888
Airlines 0.85% 10,308,249
American Airlines, Inc.,
Pass Thru Ctf Ser 2001-2 (L) 7.858 10-01-11 A- 4,200 4,327,274
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1999-1A 6.545 02-02-19 A- 3,933 3,820,703
Jet Equipment Trust,
Equipment Trust Ctf Ser 95B2 (B)(H)(S) 10.910 08-15-14 D 5,800 29,000
Northwest Airlines Corp.,
Pass Thru Ctf Ser 1996-1C 10.150 01-02-05 CCC+ 340 332,931
Pass Thru Ctf Ser 1996-1D 8.970 01-02-15 CCC+ 2,724 1,798,341
Automobile Manufacturers 0.53% 6,474,889
DaimlerChrysler North America Holding Corp.,
Floating Rate Med Term Note Ser D (P) 2.960 05-24-06 BBB 4,755 4,780,026
General Motors Corp.,
Sr Deb 8.375 07-15-33 BBB- 1,665 1,694,863
Broadcasting & Cable TV 2.97% 36,046,073
British Sky Broadcasting Group Plc,
Gtd Note (United Kingdom) 7.300 10-15-06 BBB- 2,350 2,504,729
Continental Cablevision, Inc.,
Deb 9.500 08-01-13 BBB 3,280 3,568,935
Cox Enterprises,
Note (S) 7.875 09-15-10 BBB 2,515 2,804,995
Grupo Televisa S.A.,
Note (Mexico) 8.000 09-13-11 BBB- 2,465 2,834,750
Innova S. de R.L.,
Note (Mexico) 9.375 09-19-13 B+ 1,635 1,851,637
Sr Note (Mexico) 12.875 04-01-07 B+ 314 317,598
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Broadcasting & Cable TV (continued)
Liberty Media Corp.,
Floating Rate Sr Note (P) 3.380% 09-17-06 BBB- $7,635 $7,733,568
Rogers Cablesystems Ltd.,
Sr Note Ser B (Canada) 10.000 03-15-05 BB+ 4,880 4,953,200
Shaw Communications, Inc.,
Sr Note (Canada) 8.250 04-11-10 BB+ 2,260 2,576,400
TCI Communications, Inc.,
Deb 9.800 02-01-12 BBB 2,550 3,238,074
XM Satellite Radio, Inc.,
Sr Sec Disc Note (Zero to 12-31-05
then 14.00%) (O) Zero 12-31-09 CCC+ 1,895 1,916,682
Sr Sec Note 12.000 06-15-10 CCC+ 1,473 1,745,505
Casinos & Gaming 0.74% 8,962,580
Harrah's Operating Co., Inc.,
Sr Note 7.125 06-01-07 BBB- 2,940 3,154,617
Mohegan Tribal Gaming Auth.,
Sr Sub Note (S) 7.125 08-15-14 B+ 1,050 1,110,375
MTR Gaming Group, Inc.,
Sr Note Ser B 9.750 04-01-10 B+ 1,120 1,220,800
Waterford Gaming LLC,
Sr Note (S) 8.625 09-15-12 B+ 940 1,005,800
Wynn Las Vegas LLC,
1st Mtg Note (N)(S) 6.625 12-01-14 B+ 2,515 2,470,988
Commodity Chemicals 0.28% 3,406,001
RPM International, Inc.,
Sr Note 6.250 12-15-13 BBB 3,305 3,406,001
Construction & Farm Machinery & Heavy Trucks 0.19% 2,255,000
Case Corp.,
Note 7.250 08-01-05 BB- 2,200 2,255,000
Consumer Finance 1.85% 22,400,401
Capital One Bank,
Sr Note 8.250 06-15-05 BBB 3,000 3,081,708
Capital One Financial Corp.,
Note (L) 7.250 05-01-06 BBB- 1,940 2,041,029
Ford Motor Credit Co.,
Floating Rate Note (P) 3.240 11-16-06 BBB- 4,515 4,513,722
Note 7.375 10-28-09 BBB- 995 1,068,214
Note 6.875 02-01-06 BBB- 3,035 3,136,187
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Consumer Finance (continued)
General Motors Acceptance Corp.,
Note 7.250% 03-02-11 BBB- $1,395 $1,454,349
Note 6.750 12-01-14 BBB- 1,225 1,208,349
Household Finance Corp.,
Note 6.750 05-15-11 A 4,140 4,627,667
Note 6.375 10-15-11 A 1,155 1,269,176
Department Stores 0.54% 6,559,406
Penney J.C. Co., Inc.,
Deb (L) 7.650 08-15-16 BB+ 5,735 6,559,406
Diversified Banks 1.54% 18,718,686
Bank of New York,
Cap Security (S) 7.780 12-01-26 A- 5,050 5,451,828
Citigroup, Inc.,
Sub Bond 6.000 10-31-33 A+ 4,800 4,859,213
HSBC Bank USA, Inc.,
Sub Note 5.875 11-01-34 A+ 1,750 1,722,579
JP Morgan Chase & Co.,
Sub Bond 5.125 09-15-14 A 2,495 2,484,945
Rabobank Capital Fund II,
Perpetual Bond (5.260% to 12-31-13
then variable) (S) 5.260 12-29-49 AA 1,180 1,192,191
Wachovia Corp.,
Sub Note 5.250 08-01-14 A- 2,970 3,007,930
Diversified Commercial Services 0.52% 6,284,615
Cendant Corp.,
Note 6.875 08-15-06 BBB 4,200 4,431,265
Sotheby's Holdings, Inc.,
Note 6.875 02-01-09 BB- 1,835 1,853,350
Diversified Financial Services (Other) 2.45% 29,680,124
General Electric Capital Corp.,
Med Term Note Ser A 6.750 03-15-32 AAA 2,620 2,994,186
Med Term Note Ser A 2.970 07-26-06 AAA 4,405 4,389,226
Glencore Funding LLC,
Gtd Note (S) 6.000 04-15-14 BBB 4,860 4,614,006
Royal Bank of Scotland Group Plc,
Perpetual Bond (7.648% to 09-30-31
then variable) (United Kingdom) 7.648 08-29-49 A 8,055 9,675,819
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
St. George Funding Co.,
Perpetual Bond (8.485% to 06-30-17
then variable) (Australia) (S) 8.485% 12-31-49 Baa1 $4,555 $5,131,654
Westpac Capital Trust III,
Perpetual Sub Bond (5.819% to 09-30-13
then variable) (S) 5.819 12-29-49 A2 2,775 2,875,233
Diversified Metals & Mining 0.19% 2,245,000
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 10.125 02-01-10 B 2,000 2,245,000
Electric Utilities 7.38% 89,604,014
AES Eastern Energy L.P.,
Pass Thru Ctf Ser 1999-A (L) 9.000 01-02-17 BB+ 3,549 4,113,011
Beaver Valley Funding Corp.,
Sec Lease Obligation Bond 9.000 06-01-17 BB+ 6,799 7,995,352
BVPS II Funding Corp.,
Collateralized Lease Bond 8.890 06-01-17 BB- 6,607 7,491,281
DTE Energy Co.,
Sr Note 6.450 06-01-06 BBB 2,855 2,980,537
Duke Energy Corp.,
Note 7.000 10-15-06 BBB- 1,225 1,294,029
East Coast Power LLC,
Sr Sec Note Ser B 7.066 03-31-12 BBB- 3,062 3,270,715
El Paso Electric Co.,
1st Mtg Ser E 9.400 05-01-11 BBB 5,695 6,330,892
Empresa Electrica Guacolda S.A.,
Sr Sec Note (Chile) (S) 8.625 04-30-13 BBB- 2,014 2,229,413
HQI Transelect Chile S.A.,
Sr Note (Chile) 7.875 04-15-11 A- 3,235 3,672,964
Illinois Power Co.,
Mtg Bond 7.500 07-15-25 Baa3 1,885 1,943,623
IPALCO Enterprises, Inc.,
Sr Sec Note 8.625 11-14-11 BB- 3,000 3,360,000
Kansas Gas & Electric Co.,
Deb 8.290 03-29-16 BB- 3,385 3,493,967
Midland Funding Corp. II,
Lease Oblig Bond Ser A (L) 11.750 07-23-05 BB- 4,892 5,111,081
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) (S) 9.625 11-15-09 BBB- 2,445 2,897,663
Pepco Holdings, Inc.,
Note 3.750 02-15-06 BBB 3,360 3,372,919
See notes to
financial statements.
13
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Electric Utilities (continued)
PNPP II Funding Corp.,
Deb 9.120% 05-30-16 BB+ $4,094 $4,777,739
Progress Energy, Inc.,
Sr Note 6.750 03-01-06 BBB- 2,770 2,881,357
PSE&G Energy Holdings LLC,
Sr Note 7.750 04-16-07 BB- 2,360 2,525,200
System Energy Resources, Inc.,
Sec Bond (S) 5.129 01-15-14 BBB 3,815 3,802,754
Texas-New Mexico Power Co.,
Sr Note 6.125 06-01-08 BB+ 3,135 3,233,298
TransAlta Corp.,
Note (Canada) 5.750 12-15-13 BBB- 3,295 3,360,702
TXU Australia Holdings, L.P.,
Sr Note (Australia) (S) 6.750 12-01-06 A- 1,650 1,746,975
TXU Energy Co. LLC,
Floating Rate Note (L)(P) 2.838 01-17-06 BBB 2,155 2,159,903
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 8.090 01-02-17 BBB- 5,071 5,558,639
Electrical Components & Equipment 0.37% 4,526,376
AMETEK, Inc.,
Sr Note 7.200 07-15-08 BBB 4,175 4,526,376
Environmental Services 0.36% 4,377,502
Allied Waste North America, Inc.,
Gtd Sr Sub Note Ser B (L) 10.000 08-01-09 B+ 4,179 4,377,502
Food Retail 0.52% $6,273,636
Delhaize America, Inc.,
Note 8.125 04-15-11 BB+ 1,400 1,610,333
Food Lion, Inc.,
Note 8.730 08-30-06 BB+ 2,500 2,676,670
Kroger Co. (The),
Sr Note 8.150 07-15-06 BBB 1,855 1,986,633
Foreign Government 0.20% 2,462,847
Colombia, Republic of,
Bond (Colombia) 9.750 04-09-11 BB+ 2,141 2,462,847
Forest Products 0.42% 5,144,763
Weyerhaeuser Co.,
Deb 7.125 07-15-23 BBB 4,665 5,144,763
Gas Utilities 0.17% 2,063,902
NorAm Energy Corp.,
Deb 6.500 02-01-08 BBB 1,925 2,063,902
See notes to
financial statements.
14
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Health Care Facilities 0.29% $3,565,786
HCA, Inc.,
Note 9.000% 12-15-14 BB+ $2,832 $3,318,059
Note 6.375 01-15-15 BB+ 250 247,727
Highways & Railtracks 0.15% 1,825,800
TFM S.A. de C.V.,
Gtd Sr Disc Deb (Mexico) 11.750 06-15-09 B 1,790 1,825,800
Homebuilding 0.47% 5,659,695
KB Home,
Sr Note 5.750 02-01-14 BB+ 2,890 2,839,425
Lennar Corp.,
Sr Note Ser B 9.950 05-01-10 BBB- 2,615 2,820,270
Hotels, Resorts & Cruise Lines 0.74% 8,961,337
Hyatt Equities LLC,
Note (S) 6.875 06-15-07 BBB 3,130 3,296,563
Meditrust,
Med Term Note 7.300 01-16-06 BB- 1,945 1,998,487
Note 7.000 08-15-07 BB- 1,500 1,590,000
Starwood Hotels & Resorts Worldwide, Inc.,
Sr Note 7.375 05-01-07 BB+ 1,945 2,076,287
Industrial Conglomerates 0.84% 10,234,168
General Electric Co.,
Note 5.000 02-01-13 AAA 4,710 4,781,455
Tyco International Group S.A.,
Note (Luxembourg) 6.750 02-15-11 BBB 3,305 3,693,017
Note (Luxembourg) 5.800 08-01-06 BBB 1,695 1,759,696
Industrial Machinery 0.51% 6,185,768
Kennametal, Inc.,
Sr Note 7.200 06-15-12 BBB 2,775 3,034,618
Trinity Industries, Inc.,
Pass Thru Ctf (S) 7.755 02-15-09 Ba1 2,945 3,151,150
Integrated Oil & Gas 0.54% 6,545,000
Pemex Project Funding Master Trust,
Gtd Note (Mexico) 9.125 10-13-10 BBB- 5,500 6,545,000
Investment Banking & Brokerage 1.30% 15,829,805
Credit Suisse First Boston USA, Inc.,
Note 5.500 08-15-13 A+ 2,695 2,794,788
Goldman Sachs Group, Inc.,
Note 5.250 04-01-13 A+ 3,805 3,855,070
Merrill Lynch & Co.,
Med Term Note Ser C 5.000 01-15-15 A+ 2,950 2,901,620
See notes to
financial statements.
15
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Investment Banking & Brokerage (continued)
Mizuho Financial Group Cayman Ltd.,
Gtd Note (Cayman Islands) 8.375% 12-29-49 A2 $3,500 $3,881,850
Morgan Stanley,
Sub Note 4.750 04-01-14 A 2,485 2,396,477
IT Consulting & Other Services 0.29% 3,479,232
NCR Corp.,
Note 7.125 06-15-09 BBB- 3,175 3,479,232
Meat, Poultry & Fish 0.12% 1,430,494
Tyson Foods, Inc.,
Note 7.250 10-01-06 BBB 1,345 1,430,494
Metal & Glass Containers 0.26% 3,191,875
BWAY Corp.,
Gtd Sr Sub Note 10.000 10-15-10 B- 1,390 1,480,350
Owens-Brockway Glass Container, Inc.,
Gtd Sr Sec Note 8.750 11-15-12 BB- 1,535 1,711,525
Multi-Line Insurance 0.88% 10,730,762
Cincinnati Financial Corp.,
Note (S) 6.125 11-01-34 A 2,270 2,220,119
Massachusetts Mutual Life Insurance Co.,
Surplus Note (S) 7.625 11-15-23 AA 3,985 4,819,559
New York Life Insurance Co.,
Note (S) 5.875 05-15-33 AA- 3,685 3,691,084
Multi-Media 1.00% 12,101,796
News America Holdings, Inc.,
Gtd Sr Deb 8.250 08-10-18 BBB- 3,000 3,681,186
Time Warner, Inc.,
Deb 9.125 01-15-13 BBB+ 6,661 8,420,610
Multi-Utilities & Unregulated Power 1.21% 14,670,479
Duke Capital LLC,
Sr Note 8.000 10-01-19 BBB- 3,160 3,777,970
East Coast Power LLC,
Sr Sec Note 6.737 03-31-08 BBB- 271 284,338
Salton Sea Funding Corp.,
Sr Sec Note Ser B 7.370 05-30-05 BB+ 3,418 3,464,024
Sr Sec Note Ser C (L) 7.840 05-30-10 BB+ 6,597 7,144,147
Office Services & Supplies 0.21% 2,580,580
Office Depot, Inc.,
Note 6.250 08-15-13 BBB- 2,445 2,580,580
See notes to
financial statements.
16
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Oil & Gas Refining & Marketing & Transportation 0.38% $4,672,340
Enterprise Products Operating L.P.,
Sr Note (S) 6.650% 10-15-34 BB+ $1,525 1,526,735
Sr Note Ser B 6.875 03-01-33 BB+ 3,055 3,145,605
Oil & Gas Exploration & Production 0.61% 7,364,566
Canadian Oil Sands Ltd.,
Note (Canada) (S) 4.800 08-10-09 BBB+ 2,435 2,444,774
Occidental Petroleum Corp.,
Sr Deb 10.125 09-15-09 BBB+ 1,925 2,375,977
TEPPCO Partners, L.P.,
Gtd Sr Note 7.625 02-15-12 BBB 2,215 2,543,815
Packaged Foods & Meats 0.09% 1,147,013
General Foods Corp.,
Deb 7.000 06-15-11 A- 1,145 1,147,013
Paper Packaging 0.56% 6,774,325
Stone Container Corp.,
Sr Note 9.750 02-01-11 B 2,365 2,613,325
Sr Note 8.375 07-01-12 B 3,800 4,161,000
Paper Products 0.38% 4,642,600
Donohue Forest Products,
Gtd Sr Note (Canada) 7.625 05-15-07 BB 3,050 3,172,000
MDP Acquisitions Plc,
Sr Note (Ireland) 9.625 10-01-12 B 1,290 1,470,600
Pharmaceuticals 0.52% 6,325,184
Medco Health Solutions, Inc.,
Sr Note 7.250 08-15-13 BBB 3,380 3,744,827
Wyeth,
Note 5.500 03-15-13 A 2,515 2,580,357
Property & Casualty Insurance 0.29% 3,517,779
Ohio Casualty Corp.,
Note 7.300 06-15-14 BB 1,700 1,775,832
URC Holdings Corp.,
Sr Note (S) 7.875 06-30-06 AA- 1,630 1,741,947
Real Estate Investment Trusts 1.34% 16,307,289
American Health Properties, Inc.,
Note 7.500 01-15-07 BBB+ 2,380 2,532,113
Healthcare Realty Trust, Inc.,
Sr Note 8.125 05-01-11 BBB- 2,515 2,913,459
iStar Financial, Inc.,
Sr Note 7.000 03-15-08 BBB- 2,110 2,270,212
ProLogis Trust,
Note 7.050 07-15-06 BBB+ 1,745 1,839,858
See notes to
financial statements.
17
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Real Estate Investment Trusts (continued)
Spieker Properties, Inc.,
Note 7.125% 12-01-06 BBB+ $4,880 $5,241,266
TriNet Corporate Realty Trust, Inc.,
Sr Note 7.700 07-15-17 BB+ 1,325 1,510,381
Real Estate Management & Development 0.19% 2,360,172
Socgen Real Estate Co. LLC,
Perpetual Bond Ser A (7.64% to 09-30-07
then variable) (S) 7.640 12-29-49 A 2,140 2,360,172
Regional Banks 0.32% 3,923,131
Colonial Bank,
Sub Note 9.375 06-01-11 BBB- 1,710 2,016,668
NB Capital Trust IV,
Gtd Cap Security 8.250 04-15-27 A- 1,000 1,090,714
NBD Bank N.A.,
Sub Deb 8.250 11-01-24 A 650 815,749
Soft Drinks 0.14% 1,714,950
Panamerican Beverages, Inc.,
Sr Note (Panama) 7.250 07-01-09 BBB 1,545 1,714,950
Specialized Finance 9.64% 116,970,656
Americredit Automobile Receivables Trust,
Pass Thru Ctf Ser 2004-CA Class A-3 3.000 03-06-09 AAA 2,455 2,442,169
Ameriquest Mortgage Securities, Inc.,
Pass Thru Ctf Ser 2003-IA1 Class A-4 4.965 11-25-33 AAA 4,155 4,197,703
Bank of America Mortgage Securities, Inc.,
Mtg Pass Thru Ctf Ser 2004-D Class 2A1 3.649 05-25-34 AAA 6,459 6,321,398
Centex Home Equity Loan Trust,
Home Equity Loan Asset-Backed Ctf
Ser 2004-A Class -A Class AF-4 4.510 08-25-32 AAA 4,550 4,587,118
Citibank Credit Card Issuance Trust,
Pass Thru Ctf Ser 2003-C3 Class C3 4.450 04-07-10 BBB 3,870 3,910,829
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 8.100 08-15-25 AAA 1,050 1,118,087
Countrywide Alternative Loan Trust,
Asset Backed Pass Thru Ctf
Ser 2004-24CB Class 1A1 6.000 11-25-34 AAA 6,230 6,471,701
Credit-Based Asset Servicing and
Securitization LLC,
Mtg Asset Backed Ctf
Ser 2004-CB4 Class A3 4.632 05-25-35 AAA 2,670 2,707,018
See notes to
financial statements.
18
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Specialized Finance (continued)
Deutsche Mortgage & Asset Receiving Corp.,
Commercial Mtg Pass Thru Ctf
Ser 1998-C1 Class C 6.861% 06-15-31 A2 $3,585 $3,892,110
ESI Tractebel Acquisition Corp.,
Gtd Sec Bond Ser B 7.990 12-30-11 BB 890 936,956
Ford Credit Auto Owner Trust,
Pass Thru Ctf Ser 2004-A Class A3 2.930 03-15-08 AAA 5,975 5,945,125
Global Signal Trust,
Sub Bond Ser 2004-1A Class D (S) 5.098 01-15-34 BBB 3,270 3,271,115
Sub Bond Ser 2004-2A Class D (N)(S) 5.093 12-15-14 Baa2 1,820 1,820,000
Greenwich Capital Commercial Funding Corp.,
Commercial Mtg Pass Thru Ctf
Ser 2003-C1 Class A-4 4.111 07-05-35 AAA 2,865 2,741,381
Commercial Mtg Pass Thru Ctf
Ser 2003-C2 Class A-2 4.022 01-05-36 AAA 6,160 6,134,477
GSR Mortgage Loan Trust,
Commercial Mtg Pass Thru Ctf
Ser 2004-7 Class 2A-1 4.191 06-25-34 AAA 5,661 5,588,425
Household Automotive Trust,
Pass Thru Ctf Ser 2004-1 Class A3 3.300 05-18-09 AAA 6,285 6,271,559
Humpuss Funding Corp.,
Note (S) 7.720 12-15-09 B2 1,973 1,776,428
Impac Secured Assets Corp.,
Mtg Pass Thru Ctf Ser 2004-1 Class A3 3.710 03-25-34 AAA 3,675 3,629,785
LB-UBS Commercial Mortgage Trust,
Commercial Mtg Pass Thru Ctf
Ser 2003-C3 Class A4 4.166 05-15-32 AAA 5,225 5,015,529
MBNA Master Credit Card Trust,
Sub Bond Ser 1998-E Class C (S) 6.600 09-15-10 BBB 3,735 3,995,466
ONYX Acceptance Auto Trust,
Pass Thru Ctf Ser 2004-C Class A3 2.940 11-15-08 AAA 2,040 2,024,541
Renaissance Home Equity Loan Trust,
Asset Backed Pass Thru Ctf
Ser 2004 Class AF2 (M) 3.856 01-25-35 N/R 5,855 5,855,000
Residential Asset Mortgage Products, Inc.,
Pass Thru Ctf Ser 2003-RS10 Class AI-5 4.910 01-25-31 AAA 4,595 4,656,385
Mtg Pass Thru Ctf Ser 2004-RS7 Class AI-2 4.000 09-25-25 AAA 4,605 4,600,485
Residential Asset Securities Corp.,
Asset Backed Pass Thru Ctf
Ser 2004-A-KS5 Class A2 (P) 2.401 09-25-33 AAA 5,965 5,964,549
See notes to
financial statements.
19
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Specialized Finance (continued)
Specialty Underwriting & Residential Finance Trust,
Mtg Loan Asset Backed Ctf
Ser 2003 BC4 Class A3B 4.788% 11-25-34 AAA $6,685 $6,580,943
WFS Financial Owner Trust,
Pass Thru Ctf Ser 2004-3 Class A3 3.300 03-17-09 AAA 4,525 4,514,374
Telecommunication Services 5.12% 62,089,633
AT&T Corp.,
Sr Note 9.050 11-15-11 BB+ 3,776 4,304,640
Bellsouth Corp.,
Bond 5.200 09-15-14 A 2,675 2,677,424
Deutsche Telekom International Finance B.V.,
Bond (Coupon rate step up/down
on rating) (Netherlands) 8.750 06-15-30 BBB+ 4,785 6,145,026
Qwest Capital Funding, Inc.,
Gtd Note (L) 7.750 08-15-06 B 3,345 3,462,075
Qwest Corp.,
Note (S) 9.125 03-15-12 BB- 3,940 4,481,750
SBC Communications, Inc.,
Bond 6.450 06-15-34 A 2,560 2,641,897
Note 6.150 09-15-34 A 830 824,074
Note 5.100 09-15-14 A 1,875 1,858,206
Sprint Capital Corp.,
Note 7.125 01-30-06 BBB- 8,515 8,884,917
Note 6.875 11-15-28 BBB- 1,725 1,832,975
Telecom de Puerto Rico,
Sr Sub Note (Puerto Rico) 6.650 05-15-06 BBB+ 4,750 4,939,311
Telefonos de Mexico S.A. de C.V.,
Sr Note (Mexico) 8.250 01-26-06 BBB- 6,250 6,581,206
Telus Corp.,
Note (Canada) 8.000 06-01-11 BBB 4,790 5,605,450
Verizon Pennsylvania, Inc.,
Note Ser A (L) 5.650 11-15-11 A+ 7,525 7,850,682
Telecommunications Equipment 0.77% 9,328,949
Corning, Inc.,
Deb 7.000 03-15-07 BB+ 1,920 1,920,000
Med Term Note 8.300 04-04-25 Ba2 3,930 4,155,975
Note 6.300 03-01-09 BB+ 1,495 1,550,263
France Telecom S.A.,
Sr Note (France) 7.950 03-01-06 BBB+ 1,615 1,702,711
Thrifts & Mortgage Finance 0.29% 3,493,260
Doral Financial Corp.,
Floating Rate Note (Puerto Rico) (P) 2.909 07-20-07 BBB- 3,490 3,493,260
See notes to
financial statements.
20
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Tobacco 0.58% $7,081,736
Commonwealth Brands, Inc.,
Sr Sec Sub Note (G)(S) 10.625% 09-01-08 B $1,355 1,409,200
Phillip Morris Co., Inc.,
Note 6.950 06-01-06 BBB 5,445 5,672,536
Trucking 0.47% 5,743,839
CNF, Inc.,
Sr Deb Ser B 6.700 05-01-34 BBB- 1,975 2,023,729
ERAC USA Finance Co.,
Note (S) 7.950 12-15-09 BBB+ 1,985 2,300,164
Hertz Corp.,
Note 4.700 10-02-06 BBB- 1,405 1,419,946
Utilities Other 0.83% 10,024,330
Magellan Midstream Partners, L.P.,
Note 6.450 06-01-14 BBB 2,800 2,999,609
Midland Funding Corp. II,
Deb Ser B 13.250 07-23-06 BB- 3,790 4,209,534
NiSource Finance Corp.,
Gtd Note 3.200 11-01-06 BBB 2,845 2,815,187
Wireless Telecommunication Services 0.77% 9,323,404
AT&T Wireless Services, Inc.,
Sr Note 8.125 05-01-12 A 1,700 2,035,192
Mobile Telesystems Finance S.A.,
Gtd Bond (Luxembourg) 10.950 12-21-04 BB- 900 902,250
Gtd Bond (Luxembourg) (S) 10.950 12-21-04 BB- 1,470 1,473,675
Gtd Sr Note (Luxembourg) (S) 9.750 01-30-08 BB- 720 770,400
Gtd Sr Note (Luxembourg) (S) 8.375 10-14-10 BB- 1,430 1,476,475
PTC International Finance II S.A.,
Gtd Sr Sub Note (Luxembourg) 11.250 12-01-09 BB+ 1,110 1,176,600
Rogers Wireless, Inc.,
Sr Sub Note (Canada) (S) 8.000 12-15-12 B+ 1,435 1,488,812
Credit
Issuer, description rating (A) Shares Value
Preferred stocks 0.28% $3,343,725
(Cost $3,448,125)
Electric Utilities 0.28% 3,343,725
TNP Enterprises, Inc., 14.50%, Ser D B+ 2,895 3,343,725
See notes to
financial statements.
21
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
U.S. government and agencies securities 40.87% $495,952,181
(Cost $493,119,147)
Government U.S. 7.22% 87,590,462
United States Treasury,
Bond (L) 6.250% 08-15-23 AAA $9,940 11,405,375
Bond (L) 5.375 02-15-31 AAA 47,375 49,862,188
Inflation Indexed Note (L) 2.000 07-15-14 AAA 6,724 6,881,427
Note (L) 4.250 11-15-14 AAA 19,610 19,441,472
Government U.S. Agency 33.65% 408,361,719
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf 4.500 05-01-19 AAA 5,818 5,783,520
15 Yr Pass Thru Ctf 4.500 08-01-19 AAA 4,155 4,130,460
15 Yr Pass Thru Ctf 4.500 11-01-19 AAA 3,205 3,185,541
20 Yr Pass Thru Ctf 11.250 01-01-16 AAA 124 136,254
30 Yr Pass Thru Ctf 6.000 08-01-34 AAA 20,249 20,907,389
30 Yr Pass Thru Ctf 6.000 09-01-34 AAA 3,849 3,974,608
30 Yr Pass Thru Ctf 5.000 08-01-33 AAA 12,006 11,892,429
CMO REMIC 2640-WA 3.500 03-15-33 AAA 2,407 2,360,021
CMO REMIC 2754-PC 5.000 12-15-28 AAA 9,815 9,903,364
CMO REMIC 2836-QD 5.000 09-15-27 AAA 6,360 6,434,038
Note 4.375 02-04-10 AAA 19,460 19,443,887
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 9.000 06-01-10 AAA 1,602 1,723,579
15 Yr Pass Thru Ctf 7.500 02-01-08 AAA 144 150,600
15 Yr Pass Thru Ctf 7.000 09-01-10 AAA 288 306,160
15 Yr Pass Thru Ctf 7.000 04-01-17 AAA 1,052 1,116,910
15 Yr Pass Thru Ctf 7.000 06-01-17 AAA 255 271,199
15 Yr Pass Thru Ctf 5.000 01-01-18 AAA 11,210 11,371,870
15 Yr Pass Thru Ctf 5.000 05-01-18 AAA 22,333 22,663,114
15 Yr Pass Thru Ctf 5.000 06-01-18 AAA 3,612 3,665,857
15 Yr Pass Thru Ctf 5.000 08-01-19 AAA 12,631 12,813,332
15 Yr Pass Thru Ctf 5.000 10-01-19 AAA 17,903 18,161,778
15 Yr Pass Thru Ctf 5.000 11-01-19 AAA 10,092 10,237,602
15 Yr Pass Thru Ctf 4.500 05-01-18 AAA 11,228 11,182,737
15 Yr Pass Thru Ctf 4.500 10-01-18 AAA 22,819 22,727,245
15 Yr Pass Thru Ctf 4.500 10-01-19 AAA 5,927 5,894,037
30 Yr Pass Thru Ctf 6.500 03-01-32 AAA 1,971 2,070,560
30 Yr Pass Thru Ctf 6.500 08-01-34 AAA 8,861 9,305,938
30 Yr Pass Thru Ctf 6.500 09-01-34 AAA 6,022 6,324,679
30 Yr Pass Thru Ctf 6.000 08-01-34 AAA 7,654 7,905,500
30 Yr Pass Thru Ctf 5.500 04-01-33 AAA 16,299 16,577,663
30 Yr Pass Thru Ctf 5.500 05-01-34 AAA 6,159 6,236,828
30 Yr Pass Thru Ctf 5.500 09-01-34 AAA 31,256 31,664,001
30 Yr Pass Thru Ctf 5.500 11-01-34 AAA 6,996 7,085,137
30 Yr Pass Thru Ctf 5.000 04-01-34 AAA 12,328 12,175,268
See notes to
financial statements.
22
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Government U.S. Agency (continued)
Federal National Mortgage Assn.,
CMO REMIC 2002-82-QL 5.000% 05-25-27 AAA $5,403 $5,469,256
CMO REMIC 2003-16-PD 5.000 10-25-16 AAA 10,690 10,813,539
CMO REMIC 2003-17-QT 5.000 08-25-27 AAA 13,365 13,396,957
CMO REMIC 2003-33-AC 4.250 03-25-33 AAA 2,038 2,033,878
CMO REMIC 2003-49-JE 3.000 04-25-33 AAA 5,471 5,255,353
CMO REMIC 2003-58-AD 3.250 07-25-33 AAA 6,113 5,964,961
CMO REMIC 2003-63-PE 3.500 07-25-33 AAA 4,087 3,958,401
Financing Corp.,
Bond 10.350 08-03-18 AAA 6,045 9,098,910
Bond 9.400 02-08-18 AAA 21,035 29,596,014
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 10.500 01-15-16 AAA 26 29,836
30 Yr Pass Thru Ctf 10.000 06-15-20 AAA 51 57,958
30 Yr Pass Thru Ctf 10.000 11-15-20 AAA 27 30,703
30 Yr Pass Thru Ctf 10.000 03-15-25 AAA 12 13,458
30 Yr Pass Thru Ctf 9.500 11-15-19 AAA 8 9,415
30 Yr Pass Thru Ctf 9.500 03-15-20 AAA 39 44,116
30 Yr Pass Thru Ctf 9.500 06-15-20 AAA 12 14,582
30 Yr Pass Thru Ctf 9.500 12-15-20 AAA 62 70,234
30 Yr Pass Thru Ctf 9.500 01-15-21 AAA 63 71,547
30 Yr Pass Thru Ctf 9.500 05-15-21 AAA 79 89,524
30 Yr Pass Thru Ctf 6.000 12-20-33 AAA 7,049 7,291,132
30 Yr Pass Thru Ctf 5.500 10-15-33 AAA 2,273 2,316,495
30 Yr Pass Thru Ctf (M) 5.000 12-15-34 AAA 1,370 1,361,437
CMO REMIC 2003-42-XA 3.750 05-16-33 AAA 1,624 1,590,908
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 2.87% $34,807,000
(Cost $34,807,000)
Joint Repurchase Agreement 2.87% 34,807,000
Investment in a joint repurchase agreement
transaction with Barclays Capital, Inc. -- Dated
11-30-04, due 12-01-04 (secured by U.S.
Treasury Inflation Indexed Bonds 3.375%
thru 3.625% due 04-15-32 thru 04-15-28 and
U.S. Treasury Inflation Indexed Note 3.000%
due 07-05-12) 1.960% $34,807 34,807,000
Total investments 98.90% $1,200,280,591
Other assets and liabilities, net 1.10% $13,388,582
Total net assets 100.00% $1,213,669,173
See notes to
financial statements.
23
FINANCIAL STATEMENTS
Notes to Schedule of Investments
(A) Credit ratings are unaudited and are rated by Moody's Investors
Service where Standard & Poor's ratings are not available unless
indicated otherwise.
(B) This security is fair valued in good faith under procedures
established by the Board of Trustees.
(G) Security rated internally by John Hancock Advisers, LLC.
(H) Non-income-producing issuer filed for protection under the Federal
Bankruptcy Code or is in default of interest payment.
(L) All or a portion of this security is on loan as of November 30,
2004.
(M) These securities having an aggregate value of $7,216,437, or 0.59%
of the Fund's net assets, have been purchased as a forward
commitments--that is, the Fund has agreed on trade date to take
delivery of and to make payment for these securities on a delayed basis
subsequent to the date of this schedule. The purchase price and
interest rate of these securities are fixed at trade date, although the
Fund does not earn any interest on these 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 $7,346,094 of Federal National
Mortgage Assn., 5.500%, 09-01-34 has been segregated to cover the
forward commitments.
(N) These securities having an aggregate value of $4,290,988 or 0.35%
of the Fund's net assets, have been purchased on a when-issued basis.
The purchase price and the interest rate of such securities are fixed
at trade date, although the Fund does not earn any interest on such
securities until settlement date. The Fund has instructed its custodian
bank to segregate assets with a current value at least equal to the
amount of its when issued commitments. Accordingly, the market value of
$4,409,681, 5.500%, 09-01-2034 has been segregated to cover the
when-issued commitments.
(O) Cash interest will be paid on this obligation at the stated rate
beginning on the stated date.
(P) Represents rate in effect on November 30, 2004.
(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 $85,469,263 or 7.04% of
the Fund's net assets as of November 30, 2004.
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.
24
FINANCIAL STATEMENTS
PORTFOLIO
CONCENTRATION
November 30, 2004
(unaudited)
This table shows the
Fund's investments
as a percentage of
net assets aggre
gated by various
industry sectors.
Industry sector distribution Value as a percentage of Fund's net assets
- -------------------------------------------------------------------------------
Consumer discretionary 6.42%
Consumer staples 2.76
Energy 1.52
Financials 17.47
Government -- foreign 0.34
Government -- U.S. 7.22
Government -- U.S. agency 33.65
Health care 0.60
Industrials 4.88
Information technology 1.45
Materials 1.67
Mortgage bonds 3.27
Short-term investments 2.87
Telecommunication services 5.72
Utilities 9.06
See notes to
financial statements.
25
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
November 30, 2004
(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 $1,180,241,362)
including $100,004,317 of securities loaned $1,200,280,591
Cash 474
Cash segregated for futures contracts 731,000
Receivable for investments sold 13,161,544
Receivable for shares sold 71,846
Receivable for futures variation margin 26,875
Interest receivable 14,291,356
Other assets 143,015
Total assets 1,228,706,701
Liabilities
Payable for investments purchased 12,690,457
Payable for shares repurchased 700,303
Dividends payable 151,321
Payable to affiliates
Management fees 535,902
Distribution and service fees 80,415
Other 707,939
Other payables and accrued expenses 171,191
Total liabilities 15,037,528
Net assets
Capital paid-in 1,210,011,791
Accumulated net realized loss on investments
and financial futures contracts (14,358,469)
Net unrealized appreciation of investments
and financial futures contracts 21,168,678
Distributions in excess of net investment income (3,152,827)
Net assets $1,213,669,173
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 ($1,033,085,872 [DIV] 67,785,402 shares) $15.24
Class B ($145,574,439 [DIV] 9,551,841 shares) $15.24
Class C ($30,154,475 [DIV] 1,978,574 shares) $15.24
Class I ($4,745,740 [DIV] 311,406 shares) $15.24
Class R ($108,647 [DIV] 7,128 shares) $15.24
Maximum offering price per share
Class A 1 ($15.24 [DIV] 95.5%) $15.96
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.
26
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
November 30, 2004
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned and
expenses incurred
in operating the
Fund. It also shows
net gains (losses)
for the period
stated.
Investment income
Interest (net of foreign withholding taxes of $8,311) $32,489,782
Dividends 592,161
Securities lending 142,324
Total investment income 33,224,267
Expenses
Investment management fees 3,089,081
Class A distribution and service fees 1,565,583
Class B distribution and service fees 780,089
Class C distribution and service fees 155,797
Class R distribution and service fees 152
Class A, B and C transfer agent fees 1,315,201
Class I transfer agent fees 1,157
Class R transfer agent fees 156
Accounting and legal services fees 154,454
Custodian fees 93,511
Miscellaneous 83,935
Printing 82,065
Registration and filing fees 37,933
Trustees' fees 29,898
Professional fees 28,459
Interest 8,162
Securities lending fees 4,367
Total expenses 7,430,000
Less expense reductions (46,796)
Net expenses 7,383,204
Net investment income 25,841,063
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments 5,575,106
Financial futures contracts (4,919,513)
Change in net unrealized appreciation (depreciation) of
Investments 21,782,119
Financial futures contracts 1,392,522
Net realized and unrealized gain 23,830,234
Increase in net assets from operations $49,671,297
1 Semiannual period from 6-1-04 through 11-30-04.
See notes to
financial statements.
27
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
difference reflects
earnings less
expenses, any
investment
gains and losses,
distributions,
if any, paid to
shareholders and
the net of Fund
share transactions.
Year Period
ended ended
5-31-04 11-30-04 1
Increase (decrease) in net assets
From operations
Net investment income $59,769,750 $25,841,063
Net realized gain 21,738,223 655,593
Change in net unrealized
appreciation (depreciation) (79,633,191) 23,174,641
Increase in net assets
resulting from operations 1,874,782 49,671,297
Distributions to shareholders
From net investment income
Class A (54,665,922) (24,369,340)
Class B (8,303,883) (3,098,507)
Class C (1,569,152) (619,082)
Class I (439,075) (118,794)
Class R (3,991) (2,398)
(64,982,023) (28,208,121)
From Fund share transactions (169,382,863) (55,199,394)
Net assets
Beginning of period 1,479,895,495 1,247,405,391
End of period 2 $1,247,405,391 $1,213,669,173
1 Semiannual period from 6-1-04 through 11-30-04. Unaudited.
2 Includes distributions in excess of net investment income of $785,769 and
$3,152,827, respectively.
See notes to
financial statements.
28
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 5-31-00 1 5-31-01 1 5-31-02 1,2 5-31-03 5-31-04 11-30-04 3
Per share operating performance
Net asset value,
beginning of period $14.76 $13.93 $14.69 $14.71 $15.69 $14.98
Net investment income 4 0.96 0.92 0.82 0.72 0.70 0.33
Net realized and unrealized
gain (loss) on investments (0.83) 0.76 0.06 1.02 (0.65) 0.29
Total from
investment operations 0.13 1.68 0.88 1.74 0.05 0.62
Less distributions
From net investment income (0.96) (0.92) (0.86) (0.76) (0.76) (0.36)
Net asset value, end of period $13.93 $14.69 $14.71 $15.69 $14.98 $15.24
Total return 5 (%) 0.97 12.38 6.10 12.26 0.31 4.14 6,7
Ratios and supplemental data
Net assets, end of period
(in millions) $1,098 $1,140 $1,144 $1,192 $1,047 $1,033
Ratio of expenses to
average net assets (%) 1.11 1.12 1.11 1.12 1.09 1.09 8
Ratio of adjusted expenses
to average net assets 9 (%) -- -- -- -- -- 1.10 8
Ratio of net investment income
to average net assets (%) 6.69 6.38 5.51 4.84 4.55 4.29 8
Portfolio turnover (%) 162 235 189 273 241 77
See notes to
financial statements.
29
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 5-31-00 1 5-31-01 1 5-31-02 1,2 5-31-03 5-31-04 11-30-04 3
Per share operating performance
Net asset value,
beginning of period $14.76 $13.93 $14.69 $14.71 $15.69 $14.98
Net investment income 4 0.86 0.83 0.72 0.62 0.59 0.28
Net realized and unrealized
gain (loss) on investments (0.83) 0.76 0.06 1.02 (0.65) 0.28
Total from
investment operations 0.03 1.59 0.78 1.64 (0.06) 0.56
Less distributions
From net investment income (0.86) (0.83) (0.76) (0.66) (0.65) (0.30)
Net asset value, end of period $13.93 $14.69 $14.71 $15.69 $14.98 $15.24
Total return 5 (%) 0.27 11.64 5.37 11.48 (0.39) 3.78 6,7
Ratios and supplemental data
Net assets, end of period
(in millions) $197 $218 $236 $233 $164 $146
Ratio of expenses
to average net assets (%) 1.81 1.78 1.81 1.82 1.79 1.79 8
Ratio of adjusted expenses
to average net assets 9 (%) -- -- -- -- -- 1.80 8
Ratio of net investment income
to average net assets (%) 6.00 5.71 4.81 4.15 3.84 3.59 8
Portfolio turnover (%) 162 235 189 273 241 77
See notes to
financial statements.
30
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 5-31-00 1 5-31-01 1 5-31-02 1,2 5-31-03 5-31-04 11-30-04 3
Per share operating performance
Net asset value,
beginning of period $14.76 $13.93 $14.69 $14.71 $15.69 $14.98
Net investment income 4 0.85 0.82 0.72 0.62 0.59 0.28
Net realized and unrealized
gain (loss) on investments (0.83) 0.76 0.06 1.02 (0.64) 0.28
Total from
investment operations 0.02 1.58 0.78 1.64 (0.05) 0.56
Less distributions
From net investment income (0.85) (0.82) (0.76) (0.66) (0.66) (0.30)
Net asset value, end of period $13.93 $14.69 $14.71 $15.69 $14.98 $15.24
Total return 5 (%) 0.28 11.60 5.36 11.48 (0.39) $3.78 6,7
Ratios and supplemental data
Net assets, end of period
(in millions) $24 $26 $44 $45 $32 $30
Ratio of expenses to
average net assets (%) 1.80 1.82 1.81 1.82 1.79 1.79 8
Ratio of adjusted expenses
to average net assets 9 (%) -- -- -- -- -- 1.80 8
Ratio of net investment income
to average net assets (%) 6.01 5.66 4.81 4.15 3.84 3.59 8
Portfolio turnover (%) 162 235 189 273 241 77
See notes to
financial statements.
31
FINANCIAL HIGHLIGHTS
CLASS I SHARES
Period ended 5-31-02 1,2,10 5-31-03 5-31-04 11-30-04 3
Per share operating performance
Net asset value,
beginning of period $14.96 $14.71 $15.69 $14.98
Net investment income 4 0.66 0.78 0.76 0.36
Net realized and unrealized
gain (loss) on investments (0.21) 1.02 (0.64) 0.29
Total from
investment operations 0.45 1.80 0.12 0.65
Less distributions
From net investment income (0.70) (0.82) (0.83) (0.39)
Net asset value, end of period $14.71 $15.69 $14.98 $15.24
Total return 5 (%) 3.04 6 12.71 0.78 4.38 6
Ratios and supplemental data
Net assets, end of period
(in millions) -- 11 $9 $5 $5
Ratio of expenses to
average net assets (%) 0.68 8 0.72 0.63 0.63 8
Ratio of net investment income
to average net assets (%) 5.94 8 5.23 4.98 4.75 8
Portfolio turnover (%) 189 273 241 77
32
FINANCIAL HIGHLIGHTS
CLASS R SHARES
Period ended 5-31-04 10 11-30-04 3
Per share operating performance
Net asset value,
beginning of period $14.93 $14.98
Net investment income 4 0.54 0.32
Net realized and unrealized
gain on investments 0.10 0.29
Total from
investment operations 0.64 0.61
Less distributions
From net investment income (0.59) (0.35)
Net asset value, end of period $14.98 $15.24
Total return 5 (%) 4.30 6 4.09 6
Ratios and supplemental data
Net assets, end of period
(in millions) -- 11 -- 11
Ratio of expenses to
average net assets (%) 1.38 8 1.17 8
Ratio of net investment income
to average net assets (%) 4.40 8 4.21 8
Portfolio turnover (%) 241 77
See notes to
financial statements.
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 6-1-04 through 11-30-04. 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 Total return would have been lower had certain expenses not been reduced
during the period shown.
8 Annualized.
9 Does not take into effect expense reductions during the period shown.
10 Class I shares and Class R shares began operations on 9-4-01 and 8-5-03,
respectively.
11 Less than $500,000.
See notes to
financial statements.
33
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, which have a remaining maturity
of 60 days or less, may be 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 John Hancock Financial Services,
Inc., 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 delivery" basis, which means that the
securities will be delivered to the Fund at a future date, usually beyond
the customary settlement date.
34
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, 2004.
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. At November 30, 2004, the Fund loaned securities having a
market value of $100,104,795 collateralized by securities in the amount of
$102,106,891. Securities lending expenses are paid by the Fund to the
Adviser.
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
contracts may not correlate with changes in the value of the underlying
securities. In addition, the Fund could be
35
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, 2004, the Fund had deposited $731,000 in a
segregated account to cover margin requirements on open financial futures
contracts.
The Fund had the following financial futures contracts open on November 30,
2004:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION APPRECIATION
- -----------------------------------------------------------------------------------
U.S. 10-Year Treasury Note 860 Short Mar 2005 $1,129,449
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 $14,138,815 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward is
used by the Fund, no capital gain distributions will be made. The loss
carryforward expires as follows: May 31, 2009 -- $14,103,038 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. During a
year ended May 31, 2004, the tax character of distributions paid was as
follows: ordinary income $64,982,023. 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.
36
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 a Class R shares, the Fund pays up to
0.25% of Class R average daily net asset value for certain other services.
Class A shares are assessed up-front sales charges. During the period ended
November 30, 2004, JH Funds received net up-front sales charges of $276,531
with regard to sales of Class A shares. Of this amount, $30,952 was
retained and used for printing prospectuses, advertising, sales literature
and other purposes, $99,230 was paid as sales commissions to unrelated
broker-dealers and $146,349 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.
Prior to July 15, 2004, Class C shares were assessed up-front sales
charges. During the period ended November 30, 2004, JH Funds received net
up-front sales charges of $10,072 with regard to sales of Class C shares.
Of this amount, $9,901 was paid as sales commissions to unrelated
broker-dealers and $171 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, 2004, CDSCs received by JH
Funds amounted to $167,695 for Class B shares and $1,033 for Class C
shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ("Signature Services"), an indirect subsidiary of JHLICo.
For Class A, Class B and Class C shares,
37
the Fund pays a monthly transfer agent fee at an annual rate of 0.015% of
each class's average daily net asset value, plus a fee based on the number
of shareholder accounts and reimbursement for certain out-of-pocket
expenses, aggregated and allocated to each class on the basis of its
relative net asset value. For Class I shares, the Fund pays a monthly
transfer agent fee at an annual rate of 0.05% of Class I average daily net
asset value. For Class R shares, the Fund pays a monthly transfer agent fee
at an annual rate of 0.015% of Class R average daily net asset value, plus
a fee based on the number of shareholder accounts and reimbursement for
certain out-of-pocket expenses. Signature Services agreed to voluntarily
reduce the Fund's asset-based portion of the transfer agent fee if the
total transfer agent fee exceeds the Lipper, Inc. median transfer agency
fee for comparable mutual funds by 0.05%. Accordingly, the transfer agent
expense for Class A, Class B and Class C shares was reduced by $46,796
during the period ended November 30, 2004. Signature Services reserves the
right to terminate this limitation in the future.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the period
amounted to $154,454. The Fund also paid the Adviser the amount of $2,881
for certain publishing services, included in the printing fees.
The Adviser owned 6,698 Class R shares of beneficial interest of the Fund
on November 30, 2004.
Mr. James A. Shepherdson is a director and/or officer of the Adviser and/or
its affiliates, as well as Trustee 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 Compensation Plan. The Fund makes
investments into other John Hancock funds, as applicable, to cover its
liability for the deferred compensation. Investments to cover the Fund's
deferred compensation liability are recorded on the Fund's books as an
other asset. The deferred compensation liability and the related other
asset are always equal and are marked to market on a periodic basis to
reflect any income earned by the investments, as well as any unrealized
gains or losses. The Deferred Compensation Plan investments had no impact
on the operations of the Fund.
38
Note C
Fund share transactions
This listing illustrates the number of the Fund's shares sold, reinvested
and repurchased during the last two periods, along with the corresponding
dollar value.
Year ended 5-31-04 Period ended 11-30-04 1
Shares Amount Shares Amount
Class A shares
Sold 5,824,845 $89,554,899 1,735,027 $26,371,375
Distributions reinvested 2,910,959 44,557,244 1,351,170 20,516,416
Repurchased (14,853,151) (227,944,897) (5,173,432) (78,485,710)
Net decrease (6,117,347) ($93,832,754) (2,087,235) ($31,597,919)
Class B shares
Sold 965,793 $14,845,807 597,389 $9,097,229
Distributions reinvested 387,561 5,934,167 151,497 2,298,712
Repurchased (5,237,216) (80,229,304) (2,157,224) (32,791,473)
Net decrease (3,883,862) ($59,449,330) (1,408,338) ($21,395,532)
Class C shares
Sold 348,423 $5,328,454 91,356 $1,390,218
Distributions reinvested 77,945 1,193,806 31,740 481,546
Repurchased (1,184,766) (18,155,936) (278,884) (4,231,100)
Net decrease (758,398) ($11,633,676) (155,788) ($2,359,336)
Class I shares
Sold 88,680 $1,370,545 26,112 $398,120
Distributions reinvested 28,118 430,842 7,980 121,184
Repurchased (413,475) (6,370,177) (24,406) (370,834)
Net increase (decrease) (296,677) ($4,568,790) 9,686 $148,470
Class R shares 2
Sold 6,806 $101,687 322 $4,923
Net increase 6,806 $101,687 322 $4,923
Net decrease (11,049,478) ($169,382,863) (3,641,353) ($55,199,394)
1 Semiannual period from 6-1-04 through 11-30-04. Unaudited.
2 Class R shares began operations on 8-5-03.
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, 2004, aggregated $798,853,002 and $786,727,571,
respectively.
Purchases and proceeds from sales or maturities of obligations of U.S.
government aggregated $119,713,276 and $179,544,114, respectively, during
the period ended November 30, 2004.
The cost of investments owned on November 30, 2004, including short-term
investments, for federal income tax purposes, was $1,185,146,329. Gross
unrealized appreciation and depreciation of investments aggregated
$30,748,676 and $15,614,414, respectively, resulting in net unrealized
appreciation of $15,134,262. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable primarily
to the tax deferral of losses on certain sales of securities and
amortization of premiums and accretion of discounts on debt securities.
39
Note E
Shareholder meeting
On December 1, 2004, a Special Meeting of Shareholders of the Fund was
held to elect nine Trustees, effective January 1, 2005.
Proxies covering 53,065,023 shares of beneficial interest were voted at
the meeting.
The shareholders elected the following Trustees to serve until their
respective successors are duly elected and qualified, with the votes
tabulated as follows:
WITHHELD
FOR AUTHORITY
- ----------------------------------------------------------
James F. Carlin 52,367,543 697,480
Richard P. Chapman, Jr. 52,363,292 701,731
William H. Cunningham 52,341,107 723,916
Ronald R. Dion 52,367,543 697,480
Charles L. Ladner 52,364,862 700,161
Dr. John A. Moore 52,383,363 681,660
Patti McGill Peterson 52,332,355 732,668
Steven R. Pruchansky 52,347,075 717,948
James A. Shepherdson 52,377,884 687,139
40
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Trustees
Charles L. Ladner, Chairman*
James F. Carlin
Richard P. Chapman, Jr.*
William J. Cosgrove
William H. Cunningham
Ronald R. Dion
Dr. John A. Moore*
Patti McGill Peterson*
Steven R. Pruchansky
James A. Shepherdson
Lt. Gen. Norman H. Smith,
USMC (Ret.)
*Members of the Audit Committee
Officers
James A. Shepherdson
President and
Chief Executive Officer
Susan S. Newton
Senior Vice President and
Secretary
William H. King
Vice President and Treasurer
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Principal distributor
John Hancock Funds, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
John Hancock Signature
Services, Inc.
1 John Hancock Way,
Suite 1000
Boston, MA 02217-1000
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
The Fund's investment objective, risks, charges and expenses are included
in the prospectus and should be considered carefully before investing. For
a prospectus, call your financial professional, call John Hancock Funds at
1-800-225-5291, or visit the Fund's Web site at www.jhfunds.com. Please
read the prospectus carefully before investing or sending money.
How to contact us
Internet www.jhfunds.com
Mail Regular mail: Express mail:
John Hancock John Hancock
Signature Services, Inc. Signature Services, Inc.
1 John Hancock Way, Suite 1000 Mutual Fund Image Operations
Boston, MA 02217-1000 529 Main Street
Charlestown, MA 02129
Phone Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
A listing of month-end portfolio holdings is available on our Web site,
www.jhfunds.com. A more detailed portfolio holdings summary is available on
a quarterly basis 60 days after the fiscal quarter on our Web site or upon
request by calling 1-800-225-5291, or on the Securities and Exchange
Commission's Web site, www.sec.gov.
41
[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.jhfunds.com/edelivery
This report is for the information of
the shareholders of John Hancock
Bond Fund.
210SA 11/04
1/05
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to previously disclosed John Hancock Funds -
Administration Committee Charter.
ITEM 10. 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
accounting 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 11. EXHIBITS.
(a)(1) Separate certifications for the registrant's principal executive
officer and principal accounting 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 accounting 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.
John Hancock Sovereign Bond Fund
By:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: January 26, 2005
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:
------------------------------
James A. Shepherdson
President and Chief Executive Officer
Date: January 26, 2005
By:
-----------------------
William H. King
Vice President and Treasurer
Date: January 26, 2005