UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2402
John Hancock Sovereign Bond Fund
(Exact name of registrant as specified in charter)
601 Congress Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip code)
Alfred P. Ouellette
Senior Attorney and Assistant Secretary
601 Congress Street
Boston, Massachusetts 02110
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-663-4324
Date of fiscal year end: May 31
Date of reporting period: May 31, 2005
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Bond Fund
5.31.2005
Annual 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 Keith F. Hartstein, President and Chief Executive Officer of
John Hancock Funds, LLC, 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
Trustees & officers
page 43
For more information
page 49
To Our Shareholders,
I am pleased to be writing to you as the new President and Chief Executive
Officer of John Hancock Funds, LLC, following the departure of James A.
Shepherdson to pursue other opportunities. In addition, on July 25, 2005,
your fund's Board of Trustees appointed me to the roles of President and
Chief Executive Officer of your fund.
As a means of introduction, I have been involved in the mutual fund industry
since 1985. I have been with John Hancock Funds for the last 15 years, most
recently as executive vice president of retail sales and marketing and a
member of the company's executive and investment committees. In my former
capacity, I was responsible for all aspects of the distribution and
marketing of John Hancock Funds' open-end and closed-end mutual funds.
Outside of John Hancock, I have served as Chairman of the Investment Company
Institute (ICI) Sales Force Marketing Committee since September of 2003.
It is an exciting time to be at John Hancock Funds, and I am grateful for
the opportunity to lead and shape its further growth. With the acquisition
of John Hancock by Manulife Financial Corporation in April 2004, we are
receiving broad support toward the goal of providing our shareholders with
excellent investment opportunities and a more complete lineup of choices for
the discerning investor.
As you may have read, John Hancock recently entered into an agreement with
GMO, a Boston-based institutional money manager, to acquire eight of their
mutual funds. In addition, we are in the process of adding five "Lifestyle
Portfolio" funds-of-funds that blend multiple fund offerings from internal
and external money managers to create a broadly diversified asset allocation
portfolio. Look for more information about these exciting additions to the
John Hancock family of funds in your fourth quarter shareholder newsletter.
Although there has been a change in executive-level management, rest assured
that the one thing that never wavers is John Hancock Funds' commitment to
placing the needs of shareholders above all else. We are all dedicated to
the task of working with you and your financial advisors to help you reach
your long-term financial goals.
Sincerely,
/S/ Keith F. Hartstein
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO's views as of May 31, 2005. They are
subject to change at any time.
YOUR FUND
AT A GLANCE
The Fund seeks a
high level of current
income consistent
with prudent
investment risk by
investing at least
80% of its assets in a
diversified portfolio
of bonds and other
debt securities,
including corporate
bonds and U.S.
government and
agency securities.
Over the last twelve months
* Bonds posted positive results despite eight short-term interest rate
increases by the Federal Reserve.
* Corporate bonds and mortgage-backed securities were the top performers,
although Treasury and government bonds outperformed during the last few
months of the period.
* The Fund benefited from its defensive positioning -- less interest rate
sensitivity, higher credit quality and a "barbell" maturity structure.
[Bar chart with heading "John Hancock Bond Fund." Under the heading is a
note that reads "Fund performance for the year ended May 31, 2005." The
chart is scaled in increments of 4% with 0% at the bottom and 8% at the
top. The first bar represents the 7.11% total return for Class A shares.
The second bar represents the 6.37% total return for Class B shares. The
third bar represents the 6.37% total return for Class C shares. The fourth
bar represents the 7.55% total return for Class I shares and the fifth bar
represents the 7.02%* total return for Class R shares. 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
18% Federal National Mortgage Assn.
12% United States Treasury
7% Federal Home Loan Mortgage Corp.
3% Financing Corp.
2% Federal Home Loan Bank
1% Merrill Lynch Mortgage Investors, Inc.
1% Government National Mortgage Assn.
1% Ford Motor Credit Co.
1% Washington Mutual, Inc.
1% Bear Stearns Adjustable Rate Mortgage Trust
As a percentage of net assets on May 31, 2005.
1
BY HOWARD C. GREENE, CFA, BARRY H. EVANS, CFA AND
BENJAMIN A. MATTHEWS, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
Bond Fund
Despite a series of interest rate increases by the Federal Reserve, the U.S.
bond market posted solid gains during the 12 months ended May 31, 2005. In
order to rein in a strong domestic economy -- which grew by 4.4% in 2004 --
and keep inflation under control in the face of soaring oil prices, the Fed
raised the federal funds rate target eight times between June 2004 and May
2005. The federal funds rate increased from 1% to 3%, its highest level
since October 2001.
Short-term bond yields, which are most sensitive to the Fed's interest rate
moves, rose during the past year; the two-year Treasury yield climbed from
2.5% to 3.6%. More surprising, however, was the sharp decline in longer-term
bond yields -- the 10-year Treasury yield fell from 4.7% to 4.0%. The rally
in long-term bonds reflected a combination of increased foreign demand and a
general vote of confidence in the Fed's gradual and well-choreographed
sequence of rate hikes.
Thanks to the positive performance of longer-term securities, the overall
bond market gained ground for the one-year period. The Lehman Brothers U.S.
Aggregate Index -- a broad measure of the U.S. bond market -- returned
6.82%. Although every major fixed-income segment rallied during the period,
corporate bonds posted the best results, led by lower-quality bonds.
Mortgage-backed securities were also among the better performers. U.S.
Treasury and government agency bonds lagged overall, but they outperformed
during the last few months of the period.
"Despite a series of interest rate
increases by the Federal Reserve,
the U.S. bond market posted
solid gains during the 12 months
ended May 31, 2005."
Fund performance
For the year ended May 31, 2005, John Hancock Bond Fund's Class A, Class B,
Class C, Class I and Class R shares posted total returns of 7.11%, 6.37%,
6.37%, 7.55% and 7.02%, respectively, at net asset value. This performance
outpaced the 6.46% return of
2
the average A-rated corporate debt fund, according to Lipper Inc. 1, and the
7.00% return of the Lehman Brothers 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.]
Portfolio theme -- defense
The primary reason the Fund outperformed both its peer group average and the
Lehman index during the past year was our defensive positioning. We began
lowering the portfolio's risk profile in early 2004 and continued to do so
throughout the one-year period. We employed several defensive tactics: (1)
reducing the portfolio's interest rate sensitivity, (2) adjusting the
maturity structure of the portfolio, (3) improving the portfolio's overall
credit quality, and (4) reallocating portfolio assets into securities that
tend to hold up better in a rising interest rate environment.
Protecting against rising rates
A key pillar of our defensive strategy was reducing the interest rate
sensitivity of the portfolio. With interest rates hovering near their lowest
levels in decades and the Fed poised to raise short-term interest rates, we
expected higher bond yields and moved to protect the portfolio from the
negative impact of rising interest rates. As it turned out, this positioning
hampered Fund performance somewhat because long-term rates unexpectedly
declined during the period.
"On balance, individual security
selection within the portfolio's cor
porate bond holdings contributed
favorably to performance."
Shifting the maturity structure
We also positioned the portfolio to benefit from a convergence of short-term
and long-term bond yields, which typically happens when the Fed is raising
rates. The strategy that produces the best returns in this environment is an
emphasis on short-term and long-term bonds and minimal exposure to
intermediate-term bonds. This is known as a "barbell" structure because it
is light in the middle and heavy at the ends of the maturity spectrum.
3
This barbell strategy enhanced portfolio performance during the period as
the gap between short- and long-term yields narrowed dramatically. We
focused on high-quality long-term bonds, such as U.S. Treasury and
higher-rated corporate securities, while our short-term bond holdings
consisted primarily of lower-quality corporate bonds, floating-rate notes
and adjustable-rate mortgages.
[Table at top left-hand side of page entitled "Quality distribution 2." The
first listing is AAA-56%, the second is AA-3%, the third is A-6%, the
fourth is BBB-19%, the fifth is BB-11% and the sixth is B-3%.]
Adding defensive bond holdings
We cut back significantly on the portfolio's corporate bond holdings during
the period. Corporate bonds have outperformed the rest of the bond market
since mid-2002, and we thought it prudent to take profits and trim our
exposure to the corporate sector. As part of our effort to upgrade the
portfolio's credit quality, many of the corporate bonds we sold were
lower-rated bonds.
We replaced these corporate holdings with bonds that tend to fare better
when interest rates rise. These included floating-rate notes and
adjustable-rate mortgages, which reset their interest rates at regular
intervals. We also added government agency securities maturing in two to
three years; many of these AAA-rated bonds offered more attractive yields
than corporate bonds with similar maturities.
[Pie chart at middle of page with heading "Portfolio diversification 2."
The chart is divided into five sections (from top to left): Corporate bonds
53%, U.S. agency bonds 31%, U.S. government 12%, Short-term investments &
other 3% and Preferred stocks 1%.]
Security selection pays off
On balance, individual security selection within the portfolio's corporate
bond holdings contributed favorably to performance. One of the best
performers was XM Satellite Radio, which developed successful new products
and services that helped boost subscriber growth. We also saw good results
from some of our high-quality, longer-term corporate holdings, especially
those
4
issued by financial companies such as Royal Bank of Scotland, New York
Life and Massachusetts Mutual Life Insurance Co.
[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 First
Energy followed by an up arrow with the phrase "Secured bonds backed by
lease payments from nuclear power plants benefited from operational
improvements." The second listing is General Electric followed by an up
arrow with the phrase "One of the few AAA-rated corporations saw improving
profitability in many of its divisions." The third listing is Qwest
followed by a down arrow with the phrase "Repeated attempts to outbid
Verizon in order to acquire MCI disappointed investors."]
"...we wouldn't be surprised if bond
yields remain in a relatively narrow
range in the coming months."
Although the portfolio benefited from its limited exposure to the auto
sector, we held a modest position in GMAC, the financing arm of General
Motors, which was one of the weaker performers in the portfolio.
Disappointing auto sales resulting from increased competition and higher gas
prices caused GM to warn of lower earnings, and its credit rating was cut to
below-investment-grade status.
[Table at bottom right-hand side of page entitled "Top 10 sectors 2." The
first listing is Government U.S. agency - 31%, the second is Financials -
24%, the third is Government U.S. - 12%, the fourth is Utilities - 10%, the
fifth is Telecommunication services - 5%, the sixth is Consumer
discretionary - 5%, the seventh is Consumer staples - 3%, the eighth is
Industrials- 3%, the ninth is Energy - 1% and the tenth is Materials - 1%.]
Outlook
The economy has decelerated from an annual growth rate of 4%--4.5% in 2004
to a more sustainable 2.5%--3.5% annualized growth rate in 2005. A Fed
official recently stated that the Fed is in the "eighth inning" of its rate
hike cycle, suggesting that it may hold interest rates steady during the
second half of this year. As a result, we wouldn't be surprised if bond
yields remain in a relatively narrow range in the coming months.
Nonetheless, we intend to maintain our current defensive positioning. Rates
are still low by historic standards, and we expect any meaningful move in
rates to be upward.
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.
2 As a percentage of net assets on May 31, 2005.
5
A LOOK AT
PERFORMANCE
For the period ended
May 31, 2005
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 2.27% 1.37% 5.37% 7.55% 7.02%
Five years 6.55 6.49 6.79 -- --
Ten years 6.08 5.99 -- -- --
Since inception -- -- 4.79 6.33 6.22
Cumulative total returns with maximum sales charge (POP)
One year 2.27 1.37 5.37 7.55 7.02
Five years 37.31 36.94 38.89 -- --
Ten years 80.43 78.85 -- -- --
Since inception -- -- 36.56 25.79 11.61
SEC 30-day yield as of May 31, 2005
3.66 3.14 3.14 4.28 4.06
Performance figures assume all distributions are reinvested. Returns with
maximum sales charge reflect a sales charge on Class A shares of 4.5%, and
the applicable contingent deferred sales charge (CDSC) on Class B and Class
C shares. The returns for Class C shares have been adjusted to reflect the
elimination of the front-end sales charge effective July 15, 2004. The Class
B shares' CDSC declines annually between years 1-6 according to the
following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed
after the sixth year. Class C shares held for less than one year are subject
to a 1% CDSC. Sales charge is not applicable for Class I and Class 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.
[Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the Index and is equal to $19,514 as
of May 31, 2005. The second line represents the value of the hypothetical
$10,000 investment made in the John Hancock Bond Fund, before sales charge,
and is equal to $18,899 as of May 31, 2005. The third line represents the
same hypothetical $10,000 investment made in the John Hancock Bond Fund,
after sales charge, and is equal to $18,043 as of May 31, 2005.]
Class B 1 Class C 1 Class I 2 Class R 2
Period beginning 5-31-95 10-1-98 9-4-01 8-5-03
Bond Fund $17,885 $13,656 $12,579 $11,161
Index 19,514 14,608 12,591 11,046
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 May 31, 2005. 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 November 30, 2004, with the same
investment held until May 31, 2005.
Account value Expenses paid
$1,000.00 Ending value during period
on 11-30-04 on 5-31-05 ended 5-31-05 1
Class A $1,028.50 $5.07
Class B 1,025.00 8.61
Class C 1,025.00 8.61
Class I 1,030.40 3.35
Class R 1,028.10 5.58
Together with the value of your account, you may use this information to
estimate the operating expenses that you paid over the period. Simply divide
your account value at May 31, 2005 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
Hypothetical example for comparison purposes
This table allows you to compare your fund's ongoing operating expenses with
those of any other fund. It provides an example of the Fund's hypothetical
account values and hypothetical expenses based on each class's actual
expense ratio and an assumed 5% annual return before expenses (which is not
your fund's actual return). It assumes an account value of $1,000.00 on
November 30, 2004, with the same investment held until May 31, 2005. 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 11-30-04 on 5-31-05 ended 5-31-05 1
Class A $1,019.90 $5.05
Class B 1,016.40 8.57
Class C 1,016.40 8.57
Class I 1,021.63 3.34
Class R 1,019.43 5.55
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 1.01%, 1.71%,
1.71%, 0.66% and 1.10% 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
May 31, 2005
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 52.84% $620,573,367
(Cost $612,732,738)
Agricultural Products 0.67% 7,894,352
Chaoda Modern Agriculture Holdings Ltd.,
Gtd Sr Note (Cayman Islands) (S) 7.750% 02-08-10 BB $535 494,875
Corn Products International, Inc.,
Sr Note 8.450 08-15-09 BBB- 6,565 7,399,477
Airlines 0.59% 6,962,001
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1999-1A 6.545 02-02-19 A- 1,635 1,619,216
Pass Thru Ctf Ser 2000-2 Class A-1 7.707 04-02-21 BBB 1,943 1,915,624
Pass Thru Ctf Ser 2001-1 Class C 7.033 06-15-11 BB- 2,265 1,864,547
Jet Equipment Trust,
Equip Trust Ctf Ser 1995-B2 (B)(H)(S) 10.910 08-15-14 D 5,800 29,000
Northwest Airlines Corp.,
Pass Thru Ctf Ser 1996-1D 8.970 01-02-15 CCC+ 2,463 1,533,614
Broadcasting & Cable TV 1.39% 16,283,122
British Sky Broadcasting Group Plc,
Gtd Note (United Kingdom) 7.300 10-15-06 BBB- 2,350 2,449,877
Continental Cablevision, Inc.,
Deb 9.500 08-01-13 BBB 3,280 3,464,188
Innova S. de R.L.,
Note (Mexico) 9.375 09-19-13 B+ 1,635 1,814,850
Shaw Communications, Inc.,
Sr Note (Canada) 8.250 04-11-10 BB+ 1,560 1,716,000
TCI Communications, Inc.,
Deb 9.800 02-01-12 BBB 2,550 3,254,124
XM Satellite Radio, Inc.,
Sr Sec Disc Note (Zero to 12-31-05
then 14.000%) (O) Zero 12-31-09 CCC+ 1,895 1,938,005
Sr Sec Note 12.000 06-15-10 CCC+ 1,473 1,646,078
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Casinos & Gaming 0.84% $9,883,034
Harrah's Operating Co., Inc.,
Sr Note 7.125% 06-01-07 BBB- $2,940 3,082,781
Jacob's Entertainment,
Sec Note (B)(S) 11.875 02-01-09 B 3,235 3,558,500
Mohegan Tribal Gaming Auth.,
Sr Sub Note 7.125 08-15-14 B+ 1,050 1,072,313
MTR Gaming Group, Inc.,
Sr Note Ser B 9.750 04-01-10 B+ 1,120 1,215,200
Waterford Gaming LLC,
Sr Note (S) 8.625 09-15-12 B+ 896 954,240
Commodity Chemicals 0.30% 3,520,549
RPM International, Inc.,
Sr Note 6.250 12-15-13 BBB 3,305 3,520,549
Computer Hardware 0.15% 1,804,785
Activant Solutions, Inc.,
Sr Floating Rate Note (P)(S) 9.090 04-01-10 B+ 500 507,500
Pioneer-Standard Electronics, Inc.,
Sr Note 9.500 08-01-06 BB- 1,235 1,297,285
Consumer Finance 2.31% 27,112,353
Capital One Financial Corp.,
Note (L) 7.250 05-01-06 BBB- 1,940 1,995,759
CIT Group, Inc.,
Sr Note 5.000 02-13-14 A 3,360 3,380,651
Ford Motor Credit Co.,
Note (L) 6.500 01-25-07 BB+ 3,095 3,100,023
Note 5.700 01-15-10 BB+ 1,980 1,801,299
Floating Rate Note (P) 4.218 11-16-06 BB+ 5,795 5,709,408
General Motors Acceptance Corp.,
Note 7.250 03-02-11 BBB- 1,395 1,243,534
Household Finance Corp.,
Note 6.375 10-15-11 A 1,785 1,966,178
HSBC Finance Corp.,
Sr Note (L) 6.750 05-15-11 A 4,140 4,612,560
SLM Corp.,
Med Term Floating Rate Note Ser A (P) 3.241 01-25-08 A 3,305 3,302,941
Department Stores 0.21% 2,491,875
Penney J.C. Co., Inc.,
Deb (L) 7.650 08-15-16 BB+ 2,250 2,491,875
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Diversified Banks 2.87% $33,668,493
Bank of New York,
Cap Security (S) 7.780% 12-01-26 A- $4,420 4,765,684
Chuo Mitsui Trust & Banking Co., Ltd.,
Perpetual Sub Note (5.506% to
04-15-15 then variable) (Japan) (S) 5.506 12-01-49 Baa2 1,750 1,673,040
Citigroup, Inc.,
Sub Note 5.000 09-15-14 A+ 2,965 3,022,969
HSBC Bank USA, Inc.,
Sub Note 5.875 11-01-34 A+ 1,750 1,879,126
NB Capital Trust IV,
Gtd Cap Security 8.250 04-15-27 A 3,030 3,332,127
Rabobank Capital Fund II,
Perpetual Bond (5.260%
to 12-31-13 then variable) (S) 5.260 12-29-49 AA 4,230 4,325,124
Royal Bank of Scotland Group Plc,
Perpetual Bond (7.648% to 09-30-31
then variable) (United Kingdom) 7.648 08-29-49 A 5,105 6,454,063
St. George Funding Co.,
Perpetual Bond (8.485% to 06-30-17
then variable) (Australia) (S) 8.485 12-31-49 Baa1 4,555 5,124,225
Wachovia Corp.,
Sub Note 5.250 08-01-14 A- 2,970 3,092,135
Diversified Chemicals 0.21% 2,401,200
Lyondell Chemical Co.,
Gtd Sr Sub Note (L) 10.875 05-01-09 B 2,320 2,401,200
Diversified Commercial Services 0.60% 7,081,288
Cendant Corp.,
Note 6.875 08-15-06 BBB 3,020 3,114,595
Noble Group Ltd.,
Sr Note (Bermuda) (S) 6.625 03-17-15 BB+ 2,295 2,104,168
Sotheby's Holdings, Inc.,
Note 6.875 02-01-09 BB- 1,835 1,862,525
Diversified Financial Services (Other) 0.62% 7,236,426
General Electric Capital Corp.,
Med Term Note Ser A 2.970 07-26-06 AAA 2,605 2,579,661
Glencore Funding LLC,
Gtd Note (S) 6.000 04-15-14 BBB- 4,860 4,656,765
Diversified Metals & Mining 0.19% 2,210,000
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note 10.125 02-01-10 B+ 2,000 2,210,000
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Electric Utilities 7.64% $89,775,543
AES Eastern Energy L.P.,
Pass Thru Ctf Ser 1999-A (L) 9.000% 01-02-17 BB+ $3,813 4,370,845
Beaver Valley Funding Corp.,
Sec Lease Obligation Bond 9.000 06-01-17 BB+ 6,799 8,197,418
BVPS II Funding Corp.,
Collateralized Lease Bond 8.890 06-01-17 BB+ 6,607 8,008,873
DTE Energy Co.,
Sr Note 6.450 06-01-06 BBB- 2,855 2,918,375
Duke Energy Corp.,
Note 7.000 10-15-06 BBB- 1,225 1,264,771
East Coast Power LLC,
Sr Sec Note Ser B 7.066 03-31-12 BBB- 3,062 3,250,962
Empresa Electrica Guacolda S.A.,
Sr Sec Note (Chile) (S) 8.625 04-30-13 BBB- 1,967 2,187,016
Entergy Gulf States,
1st Mtg Note 5.700 06-01-15 BBB+ 1,430 1,440,824
HQI Transelect Chile S.A.,
Sr Note (Chile) 7.875 04-15-11 A- 3,235 3,701,513
Indiantown Cogeneration, L.P.,
1st Mtg Note Ser A-9 9.260 12-15-10 BB+ 1,679 1,858,396
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- 3,655 3,771,880
Midland Funding Corp. II,
Lease Oblig Bond Ser A (L) 11.750 07-23-05 BB- 4,892 4,937,040
Lease Oblig Bond Ser B 13.250 07-23-06 BB- 3,790 4,041,235
Monterrey Power S.A. de C.V.,
Sr Sec Bond (Mexico) (S) 9.625 11-15-09 BBB 2,445 2,805,964
Pinnacle West Energy Corp.,
Floating Rate Note (P)(S) 3.630 04-01-07 BBB- 2,230 2,229,480
PNPP II Funding Corp.,
Deb 9.120 05-30-16 BB+ 4,091 4,919,918
PSE&G Energy Holdings LLC,
Sr Note 7.750 04-16-07 BB- 2,360 2,430,800
System Energy Resources, Inc.,
Sec Bond (S) 5.129 01-15-14 BBB 3,429 3,409,502
Texas-New Mexico Power Co.,
Sr Note 6.125 06-01-08 BBB 3,135 3,202,117
TNP Enterprises, Inc.,
Sr Sub Note Ser B 10.250 04-01-10 Ba3 1,620 1,705,050
See notes to
financial statements.
13
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Electric Utilities (continued)
TransAlta Corp.,
Note (Canada) 5.750% 12-15-13 BBB- $3,295 $3,451,839
TXU Australia Holdings, L.P.,
Sr Note (Australia) 6.750 12-01-06 A- 1,650 1,708,027
TXU Corp.,
Note (S) 6.500 11-15-24 BBB- 3,105 3,006,137
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 8.090 01-02-17 BBB- 5,053 5,613,768
Westar Energy, Inc.,
1st Mtg Bond 5.950 01-01-35 BBB- 1,915 1,983,793
Electrical Components & Equipment 0.38% 4,484,998
AMETEK, Inc.,
Sr Note 7.200 07-15-08 BBB 4,175 4,484,998
Food Retail 0.69% 8,127,780
Ahold Finance USA, Inc.,
Gtd Pass Thru Ctf Ser 2001A-1 (L) 7.820 01-02-20 BB 2,343 2,460,666
Gtd Sr Note 6.875 05-01-29 BB- 1,240 1,153,200
Delhaize America, Inc.,
Gtd Note 9.000 04-15-31 BB+ 1,575 1,895,314
Food Lion, Inc.,
Note 8.730 08-30-06 BB+ 2,500 2,618,600
Forest Products 0.14% 1,622,381
Weyerhaeuser Co.,
Deb 7.125 07-15-23 BBB 1,460 1,622,381
Gas Utilities 0.54% 6,273,405
Dynegy-Roseton Danskamme,
Gtd Pass Thru Ctf Ser B 7.670 11-08-16 B 2,600 2,450,500
Energy Transfer Partners,
Sr Note (G)(S) 5.950 02-01-15 BBB- 1,800 1,802,412
NorAm Energy Corp.,
Deb 6.500 02-01-08 BBB 1,925 2,020,493
Health Care Facilities 0.32% 3,803,291
HCA, Inc.,
Note 9.000 12-15-14 BB+ 1,572 1,835,032
Manor Care, Inc.,
Gtd Note 6.250 05-01-13 BBB 1,855 1,968,259
Health Care Services 0.40% 4,740,027
Caremark Rx, Inc.,
Sr Note 7.375 10-01-06 BBB- 2,210 2,286,603
Wellpoint Health Network,
Note 6.375 01-15-12 BBB+ 2,233 2,453,424
See notes to
financial statements.
14
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Hotels, Resorts & Cruise Lines 0.75% $8,773,036
Hyatt Equities LLC,
Note (S) 6.875% 06-15-07 BBB $3,130 3,238,949
Meditrust,
Med Term Note 7.300 01-16-06 BB- 1,945 1,968,924
Note 7.000 08-15-07 BB- 1,500 1,537,500
Starwood Hotels & Resorts Worldwide, Inc.,
Sr Note 7.375 05-01-07 BB+ 1,945 2,027,663
Hypermarkets & Super Centers 0.11% 1,277,325
Controladora Comercial Mexicana S.A. de C.V.,
Sr Note (Mexico) (S) 6.625 06-01-15 BBB- 1,260 1,277,325
Industrial Conglomerates 0.73% 8,502,616
General Electric Co.,
Note 5.000 02-01-13 AAA 6,590 6,775,225
Tyco International Group S.A.,
Note (Luxembourg) 5.800 08-01-06 BBB 1,695 1,727,391
Industrial Machinery 0.47% 5,488,894
Kennametal, Inc.,
Sr Note 7.200 06-15-12 BBB 2,775 3,097,344
Trinity Industries, Inc.,
Pass Thru Ctf (S) 7.755 02-15-09 Ba1 2,253 2,391,550
Integrated Oil & Gas 0.24% 2,861,125
Pemex Project Funding Master Trust,
Gtd Note 9.125 10-13-10 BBB 2,435 2,861,125
Investment Banking & Brokerage 0.32% 3,796,450
Mizuho Financial Group Cayman Ltd.,
Gtd Note (Cayman Islands) 8.375 12-29-49 A2 3,500 3,796,450
IT Consulting & Other Services 0.29% 3,448,758
NCR Corp.,
Note 7.125 06-15-09 BBB- 3,175 3,448,758
Meat, Poultry & Fish 0.40% 4,645,996
American Seafood Group LLC,
Gtd Sr Sub Note 10.125 04-15-10 B- 955 1,024,237
ASG Consolidated LLC,
Sr Disc Note (Zero to 11-1-08,
then 11.500%) (L)(O) Zero 11-01-11 B- 3,200 2,224,000
Tyson Foods, Inc.,
Note 7.250 10-01-06 BBB 1,345 1,397,759
Metal & Glass Containers 0.14% 1,683,000
BWAY Corp.,
Gtd Sr Sub Note 10.000 10-15-10 B- 1,650 1,683,000
See notes to
financial statements.
15
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Metals & Mining 0.14% $1,682,459
Vedanta Resources Plc,
Sr Note (United Kingdom) (S) 6.625% 02-22-10 BB+ $1,735 1,682,459
Multi-Line Insurance 0.87% 10,211,578
Massachusetts Mutual Life Insurance Co.,
Surplus Note (S) 7.625 11-15-23 AA 3,985 5,100,174
New York Life Insurance Co.,
Note (S) 5.875 05-15-33 AA- 3,685 4,021,253
Platinum Underwriters Finance, Inc.,
Gtd Sr Note (S) 7.500 06-01-17 BBB 1,080 1,090,151
Multi-Media 0.96% 11,315,905
News America Holdings, Inc.,
Gtd Sr Deb 8.250 08-10-18 BBB- 3,000 3,705,432
Time Warner, Inc.,
Deb 9.125 01-15-13 BBB+ 6,011 7,610,473
Multi-Utilities & Unregulated Power 0.67% 7,894,907
East Coast Power LLC,
Sr Sec Note 6.737 03-31-08 BBB- 241 245,579
Salton Sea Funding Corp.,
Gtd Sr Sec Note Ser E 8.300 05-30-11 BB+ 683 742,723
Sr Sec Note Ser C (L) 7.840 05-30-10 BB+ 6,536 6,906,605
Office Services & Supplies 0.24% 2,800,182
Office Depot, Inc.,
Note 6.250 08-15-13 BBB- 2,680 2,800,182
Oil & Gas Refining & Marketing & Transportation 1.32% 15,508,546
Enterprise Products Operating L.P.,
Note (S) 5.000 03-01-15 BB+ 8,225 7,989,699
Pennzoil-Quaker State,
Gtd Sr Note 10.000 11-01-08 Aa3 7,000 7,518,847
Oil & Gas Drilling 0.13% 1,548,033
Delek & Avner-Yam Tethys Ltd.,
Sr Sec Note (Israel) (S) 5.326 08-01-13 BBB- 1,554 1,548,033
Oil & Gas Exploration & Production 0.45% 5,232,311
Kerr-McGee Corp.,
Gtd Sec Note 6.875 09-15-11 BB+ 2,735 2,901,529
Occidental Petroleum Corp.,
Sr Deb 10.125 09-15-09 BBB+ 1,925 2,330,782
Packaged Foods & Meats 0.10% 1,146,152
General Foods Corp.,
Deb 7.000 06-15-11 A- 1,145 1,146,152
See notes to
financial statements.
16
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Paper Packaging 0.12% $1,385,325
Stone Container Corp.,
Sr Note 9.750% 02-01-11 B $1,310 1,385,325
Paper Products 0.19% 2,260,975
Donohue Forest Products,
Gtd Sr Note (Canada) 7.625 05-15-07 BB- 1,000 1,000,000
MDP Acquisitions Plc,
Sr Note (Ireland) 9.625 10-01-12 B- 1,290 1,260,975
Pharmaceuticals 0.32% 3,787,128
Medco Health Solutions, Inc.,
Sr Note 7.250 08-15-13 BBB 3,380 3,787,128
Property & Casualty Insurance 0.78% 9,138,859
Markel Corp.,
Sr Note 7.350 08-15-34 BBB- 2,380 2,627,080
Ohio Casualty Corp.,
Note 7.300 06-15-14 BB 1,700 1,851,059
St. Paul Travelers,
Note 5.010 08-16-07 BBB+ 2,935 2,975,368
URC Holdings Corp.,
Sr Note (S) 7.875 06-30-06 AA- 1,630 1,685,352
Real Estate Investment Trusts 1.50% 17,631,999
American Health Properties, Inc.,
Note 7.500 01-15-07 BBB+ 2,380 2,477,044
Duke Realty Corp.,
Floating Rate Note (P) 3.310 12-22-06 BBB+ 3,545 3,546,609
Healthcare Realty Trust, Inc.,
Sr Note 8.125 05-01-11 BBB- 2,515 2,879,927
iStar Financial, Inc.,
Sr Note 7.000 03-15-08 BBB- 2,110 2,242,913
ProLogis Trust,
Note 7.050 07-15-06 BBB+ 1,745 1,795,212
Spieker Properties, Inc.,
Note 7.125 12-01-06 BBB+ 4,490 4,690,294
Real Estate Management & Development 0.20% 2,296,738
Socgen Real Estate Co. LLC,
Perpetual Bond Ser A (7.640% to
09-30-07 then variable) (S) 7.640 12-29-49 A 2,140 2,296,738
Regional Banks 0.77% 9,113,393
Colonial Bank,
Sub Note 9.375 06-01-11 BBB- 1,710 2,036,771
Key Bank N.A.,
Sub Note 5.800 07-01-14 A- 2,215 2,369,463
See notes to
financial statements.
17
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Regional Banks (continued)
U.S. Bancorp.,
Gtd Cap Security 8.090% 11-15-26 A- $1,330 $1,468,050
Wachovia Capital Trust II,
Gtd Floating Rate Cap Security (P) 3.641 01-15-27 BBB+ 3,365 3,239,109
Soft Drinks 0.14% 1,678,256
Panamerican Beverages, Inc.,
Sr Note (Panama) 7.250 07-01-09 BBB 1,545 1,678,256
Specialized Finance 1.26% 14,764,505
Bosphorous Financial Services,
Sec Floating Rate Note (P)(S) 5.068 02-15-12 Baa3 2,285 2,284,029
Citibank Credit Card Issuance Trust,
Pass Thru Ctf Ser 2003-C3 Class C3 4.450 04-07-10 BBB 1,685 1,690,827
ESI Tractebel Acquisition Corp.,
Gtd Sec Bond Ser B 7.990 12-30-11 BB 3,751 3,990,741
Global Signal Trust,
Sub Bond Ser 2004-1A Class D (S) 5.098 01-15-34 BBB 3,270 3,237,366
Sub Bond Ser 2004-2A Class D (S) 5.093 12-15-14 Baa2 1,820 1,789,288
Humpuss Funding Corp.,
Note (S) 7.720 12-15-09 B2 1,827 1,772,254
Specialty Chemicals 0.05% 625,275
NOVA Chemicals Ltd.,
Note (Canada) 7.875 09-15-25 BB+ 630 625,275
Telecommunication Services 3.61% 42,367,680
AT&T Corp.,
Med Term Note 8.350 05-15-25 BB+ 2,870 2,970,450
Sr Note 9.750 11-15-31 BB+ 1,385 1,758,950
Sr Note 9.050 11-15-11 BB+ 1,004 1,153,345
Cox Communications, Inc.,
Floating Rate Note (P) 3.550 12-14-07 BBB- 1,460 1,467,834
Intelsat Bermuda Ltd.,
Floating Rate Sr Note (Bermuda) (L)(P)(S) 7.805 01-15-12 B+ 1,000 1,015,000
Qwest Capital Funding, Inc.,
Gtd Note 7.750 08-15-06 B 2,525 2,556,563
Qwest Corp.,
Note (S) 9.125 03-15-12 BB- 2,015 2,186,275
SBC Communications, Inc.,
Bond 6.450 06-15-34 A 775 858,545
Note 6.150 09-15-34 A 830 886,882
Sprint Capital Corp.,
Note 7.125 01-30-06 BBB- 5,325 5,432,080
Note 6.875 11-15-28 BBB- 1,725 1,956,895
See notes to
financial statements.
18
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Telecommunication Services (continued)
Telecom de Puerto Rico,
Sr Sub Note (Puerto Rico) 6.650% 05-15-06 BBB+ $4,750 $4,855,080
Telecom Italia Capital,
Gtd Note (Luxembourg) (L)(S) 6.000 09-30-34 BBB+ 3,220 3,265,692
Telefonos de Mexico S.A. de C.V.,
Sr Note (Mexico) 8.250 01-26-06 BBB 5,840 6,010,919
Verizon Florida, Inc.,
Sr Deb Ser F 6.125 01-15-13 A+ 3,075 3,270,481
Verizon Pennsylvania, Inc.,
Note Ser A 5.650 11-15-11 A+ 2,605 2,722,689
Telecommunications Equipment 0.54% 6,339,965
Corning, Inc.,
Deb 7.000 03-15-07 BB+ 1,920 1,920,000
Med Term Note 8.300 04-04-25 Ba2 4,230 4,419,965
Thrifts & Mortgage Finance 11.81% 138,687,088
Bank of America Mortgage Securities, Inc.,
Mtg Pass Thru Ctf Ser 2005-C
Class 2A1 (P) 4.733 04-25-35 AAA 5,358 5,368,932
Bear Stearns Adjustable Rate
Mortgage Trust,
Mtg Pass Thru Ctf Ser 2003-9
Class 3A2 (P) 5.026 02-25-34 AAA 2,886 2,901,203
Mtg Pass Thru Ctf Ser 2004-10
Class 12A3 (P) 4.732 01-25-35 AAA 7,037 7,068,689
Bear Stearns ALT-A Trust,
Mtg Pass Thru Ctf Ser 2005-3 Class B2 5.424 04-25-35 AA+ 2,034 2,069,768
Centex Home Equity Loan Trust,
Asset Backed Ctf Ser 2004-A Class AF-4 4.510 08-25-32 AAA 4,550 4,560,880
Chaseflex Trust,
Asset Backed Ctf Ser 2005-2 Class 4A1 5.000 05-25-20 AAA 5,865 5,951,215
Citigroup Mortgage Loan Trust, Inc.,
Mtg Pass Thru Ctf Ser 2004-UST1
Class A4 (P) 4.387 08-25-34 AAA 3,301 3,272,051
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 8.100 08-15-25 AAA 894 942,051
Countrywide Alternative Loan Trust,
Asset Backed Pass Thru Ctf
Ser 2004-24CB Class 1A1 6.000 11-25-34 AAA 5,523 5,639,120
Asset Backed Pass Thru Ctf Ser 2005-J1
Class 3A1 (M) 6.500 08-25-32 AAA 3,371 3,428,539
See notes to
financial statements.
19
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Thrifts & Mortgage Finance (continued)
Countrywide Home Loans Servicing L.P.,
Asset Backed Pass Thru Ctf Ser 2005-6
Class 2A1 5.500% 04-25-35 Aaa $3,550 $3,595,775
Credit-Based Asset Servicing and
Securitization LLC,
Mtg Ln Asset Backed Ctf Ser 2004-CB4
Class A3 4.632 05-25-35 AAA 2,670 2,683,814
Doral Financial Corp.,
Floating Rate Note (Puerto Rico) (P) 3.975 07-20-07 BBB- 6,100 5,652,107
First Horizon Alternative
Mortgage Securities,
Mtg Pass Thru Ctf Ser 2004-AA5
Class B1 (P) 5.265 12-25-34 AA 1,443 1,456,414
Greenwich Capital Commercial
Funding Corp.,
Commercial Mtg Pass Thru Ctf
Ser 2003-C1 Class A-4 4.111 07-05-35 AAA 2,335 2,269,561
Commercial Mtg Pass Thru Ctf
Ser 2003-C2 Class A-2 4.022 01-05-36 AAA 3,495 3,460,887
GSR Mortgage Loan Trust,
Mtg Pass Thru Ctf Ser 2004-9
Class B1 (G)(P) 4.379 08-25-34 AA 3,232 3,201,448
Impac Secured Assets Corp.,
Mtg Pass Thru Ctf Ser 2004-1 Class A3 3.710 03-25-34 AAA 3,675 3,654,123
Indymac Index Mortgage Loan Trust,
Asset Backed Ctf Ser 2004-AR13
Class B1 5.296 01-25-35 AA 2,183 2,205,027
Asset Backed Ctf Ser 2005-AR5
Class B1 5.461 05-25-35 AA 2,362 2,422,637
JP Morgan Mortgage Trust,
Mtg Pass Thru Ctf Ser 2004-A2
Class 2A2 4.070 05-25-34 AAA 5,046 4,967,487
Mtg Pass Thru Ctf Ser 2005-A2
Class 1A1 4.778 04-25-35 AAA 5,695 5,714,184
LB-UBS Commercial Mortgage Trust,
Commercial Mtg Pass Thru Ctf
Ser 2003-C3 Class A4 4.166 05-15-32 AAA 3,995 3,889,288
Merrill Lynch Mortgage Investors, Inc.,
Asset Backed Ctf Ser 2005-A2 Class A2 4.509 02-25-35 AAA 7,418 7,424,486
MLCC Mortgage Investors, Inc.,
Asset Backed Ctf Ser 2004-1
Class 2A1 (P) 4.774 12-25-34 Aaa 3,862 3,877,415
Provident Funding Mortgage Loan Trust,
Mtg Pass Thru Ctf Ser 2005-1 Class B1 4.378 05-25-35 AAA 1,464 1,448,548
See notes to
financial statements.
20
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Thrifts & Mortgage Finance (continued)
Renaissance Home Equity Loan Trust,
Asset Backed Ctf Ser 2004-4 Class AF2 3.856% 02-25-35 AAA $5,855 $5,818,138
Residential Asset Mortgage Products, Inc.,
Mtg Pass Thru Ctf Ser 2003-RS10
Class AI-5 4.910 01-25-31 AAA 4,595 4,612,861
Mtg Pass Thru Ctf Ser 2004-RS7
Class AI-2 4.000 09-25-25 AAA 4,395 4,384,877
Specialty Underwriting & Residential Finance Trust,
Mtg Loan Asset Backed Ctf Ser 2003
BC4 Class A3B 4.788 11-25-34 AAA 5,209 5,231,894
Washington Mutual, Inc.,
Mtg Pass Thru Ctf Ser 2004-AR14
Class A1 4.283 01-25-35 AAA 6,623 6,623,559
Floating Rate Note (P) 3.441 01-15-10 A- 3,355 3,359,593
Wells Fargo Mortgage Backed Securities Trust,
Mtg Pass Thru Ctf Ser 2004-Z
Class 2A1 (P) 4.605 12-25-34 AAA 3,797 3,802,034
Mtg Pass Thru Ctf Ser 2005-AR2
Class 3A1 4.968 03-25-35 Aaa 5,663 5,728,483
Tobacco 0.54% 6,291,590
Commonwealth Brands, Inc.,
Sr Sec Sub Note (G)(S) 10.625 09-01-08 B 1,355 1,419,362
Phillip Morris Co., Inc.,
Note 6.950 06-01-06 BBB 4,745 4,872,228
Trucking 0.45% 5,229,858
ERAC USA Finance Co.,
Note (S) 7.950 12-15-09 BBB+ 1,985 2,248,159
Hertz Corp.,
Note 4.700 10-02-06 BBB- 2,995 2,981,699
Utilities Other 0.26% 3,068,699
Magellan Midstream Partners, L.P.,
Note 6.450 06-01-14 BBB 2,800 3,068,699
Wireless Telecommunication Services 0.91% 10,711,858
AT&T Wireless Services , Inc.,
Sr Note (L) 8.125 05-01-12 A 1,700 2,033,887
Crown Castle Towers LLC,
Sub Bond Ser 2005-1A Class A (N) 4.643 06-15-35 Aaa 2,670 2,679,178
Sub Bond Ser 2005-1A Class D (N) 5.612 06-15-35 Baa2 1,400 1,404,812
Nextel Communications, Inc.,
Sr Note (L) 5.950 03-15-14 BB 3,000 3,067,500
Rogers Wireless, Inc.,
Sr Sub Note (Canada) (L) 8.000 12-15-12 B+ 1,435 1,526,481
See notes to
financial statements.
21
FINANCIAL STATEMENTS
Credit
Issuer, description rating (A) Shares Value
Preferred stocks 0.53% $6,230,519
(Cost $6,194,825)
Agricultural Products 0.22% 2,628,719
Ocean Spray Cranberries, Inc., 6.25%, Ser A (S) BB+ 30,500 2,628,719
Electric Utilities 0.31% 3,601,800
TNP Enterprises, Inc., 14.50%, Ser D B+ 3,105 3,601,800
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
U.S. government and agencies securities 43.15% $506,825,216
(Cost $491,747,147)
Government U.S. 11.65% 136,896,726
United States Treasury,
Bond (L) 6.250% 08-15-23 AAA $14,440 17,790,528
Bond (L) 5.375 02-15-31 AAA 46,420 53,760,163
Bond (L) 5.250 11-15-28 AAA 11,995 13,461,113
Inflation Indexed Bond (L) 3.375 04-15-32 AAA 5,029 6,847,783
Inflation Indexed Note (L) 2.000 07-15-14 AAA 6,843 7,081,862
Note (L) 4.125 05-15-15 AAA 935 944,058
Note (L) 4.000 02-15-15 AAA 22,155 22,103,069
Note (L) 3.875 02-15-13 AAA 14,900 14,908,150
Government U.S. Agency 31.50% 369,928,490
Federal Home Loan Bank,
Bond 4.600 04-11-08 AAA 5,380 5,420,199
Bond 4.500 04-11-08 AAA 3,065 3,078,314
Bond 4.250 03-24-08 AAA 3,345 3,334,002
Bond 4.250 05-16-08 AAA 3,065 3,075,044
Bond 3.730 01-04-08 AAA 4,250 4,221,448
Note 4.300 05-05-08 AAA 6,020 6,048,553
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf 4.500 04-01-18 AAA 3,573 3,564,239
15 Yr Pass Thru Ctf 4.500 05-01-19 AAA 5,408 5,388,419
15 Yr Pass Thru Ctf 4.500 08-01-19 AAA 3,886 3,872,338
20 Yr Pass Thru Ctf 11.250 01-01-16 AAA 93 101,065
30 Yr Pass Thru Ctf 6.000 08-01-34 AAA 18,303 18,808,393
30 Yr Pass Thru Ctf 6.000 09-01-34 AAA 894 919,120
30 Yr Pass Thru Ctf (M) 6.000 02-01-35 AAA 2,060 2,117,353
30 Yr Pass Thru Ctf 5.000 08-01-33 AAA 11,368 11,370,553
CMO REMIC 2640-WA 3.500 03-15-33 AAA 1,948 1,904,563
CMO REMIC 2754-PC 5.000 12-15-28 AAA 9,815 9,967,991
CMO REMIC 2836-QD 5.000 09-15-27 AAA 6,360 6,476,405
CMO REMIC 2901-UB 5.000 03-15-33 AAA 7,425 7,425,108
CMO REMIC 2929-PE 5.000 05-15-33 AAA 4,040 4,033,057
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 Home Loan Mortgage Corp., (continued)
Med Term Note 4.300% 09-24-08 AAA $5,980 $6,013,655
Med Term Note 4.250 03-28-08 AAA 5,790 5,797,533
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 9.000 06-01-10 AAA 1,158 1,283,298
15 Yr Pass Thru Ctf 7.500 02-01-08 AAA 110 113,933
15 Yr Pass Thru Ctf 7.000 09-01-10 AAA 224 236,373
15 Yr Pass Thru Ctf 7.000 04-01-17 AAA 905 951,595
15 Yr Pass Thru Ctf 7.000 06-01-17 AAA 215 226,918
15 Yr Pass Thru Ctf 6.000 11-01-34 AAA 1,639 1,685,443
15 Yr Pass Thru Ctf 5.000 01-01-18 AAA 10,769 10,901,923
15 Yr Pass Thru Ctf 5.000 05-01-18 AAA 20,152 20,400,563
15 Yr Pass Thru Ctf 5.000 06-01-18 AAA 165 167,377
15 Yr Pass Thru Ctf 5.000 08-01-19 AAA 11,748 11,892,730
15 Yr Pass Thru Ctf 5.000 09-01-19 AAA 250 253,285
15 Yr Pass Thru Ctf 5.000 10-01-19 AAA 23,425 23,712,454
15 Yr Pass Thru Ctf 5.000 11-01-19 AAA 456 461,610
15 Yr Pass Thru Ctf 4.500 05-01-18 AAA 10,352 10,328,186
15 Yr Pass Thru Ctf (M) 4.500 06-01-18 AAA 5,595 5,568,771
15 Yr Pass Thru Ctf 4.500 10-01-18 AAA 21,237 21,186,561
30 Yr Pass Thru Ctf 6.500 09-01-34 AAA 2,891 3,005,575
30 Yr Pass Thru Ctf 6.500 01-01-35 AAA 7,716 8,020,742
30 Yr Pass Thru Ctf 6.500 02-01-35 AAA 1,837 1,909,607
30 Yr Pass Thru Ctf 6.000 08-01-34 AAA 5,411 5,560,728
30 Yr Pass Thru Ctf 5.500 04-01-33 AAA 1,794 1,827,420
30 Yr Pass Thru Ctf (M) 5.500 06-01-33 AAA 11,890 12,049,778
30 Yr Pass Thru Ctf (M) 5.000 06-15-35 AAA 6,800 6,793,622
30 Yr Pass Thru Ctf 5.000 07-01-33 AAA 5,915 5,921,228
Bond (L) 3.875 02-01-08 AAA 5,860 5,836,513
CMO REMIC 2003-17-QT 5.000 08-25-27 AAA 13,365 13,484,875
CMO REMIC 2003-33-AC 4.250 03-25-33 AAA 1,627 1,614,851
CMO REMIC 2003-49-JE 3.000 04-25-33 AAA 4,429 4,208,084
CMO REMIC 2003-58-AD 3.250 07-25-33 AAA 4,455 4,309,319
CMO REMIC 2003-63-PE 3.500 07-25-33 AAA 3,419 3,307,416
Note (L) 5.000 04-19-10 AAA 4,765 4,819,488
Note 4.450 10-12-07 AAA 2,925 2,934,682
Note (L) 4.300 05-05-08 AAA 11,980 12,028,040
Note 4.000 03-10-08 AAA 5,870 5,872,313
Financing Corp.,
Bond 10.350 08-03-18 AAA 3,545 5,535,223
Bond 9.400 02-08-18 AAA 19,085 27,795,146
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 10.500 01-15-16 AAA 25 29,431
30 Yr Pass Thru Ctf 10.000 06-15-20 AAA 51 57,894
30 Yr Pass Thru Ctf 10.000 11-15-20 AAA 17 19,995
30 Yr Pass Thru Ctf 10.000 03-15-25 AAA 11 13,674
See notes to
financial statements.
23
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Government U.S. Agency (continued)
Government National Mortgage Assn., (continued)
30 Yr Pass Thru Ctf 9.500% 11-15-19 AAA $8 $9,143
30 Yr Pass Thru Ctf 9.500 03-15-20 AAA 38 42,917
30 Yr Pass Thru Ctf 9.500 06-15-20 AAA 12 14,086
30 Yr Pass Thru Ctf 9.500 12-15-20 AAA 61 68,375
30 Yr Pass Thru Ctf 9.500 01-15-21 AAA 60 67,233
30 Yr Pass Thru Ctf 9.500 05-15-21 AAA 23 25,793
30 Yr Pass Thru Ctf 6.000 12-20-33 AAA 5,784 5,969,644
30 Yr Pass Thru Ctf 5.500 10-15-33 AAA 1,942 1,985,859
30 Yr Pass Thru Ctf 5.000 11-15-33 AAA 1,263 1,274,738
CMO REMIC 2003-42-XA 3.750 05-16-33 AAA 1,233 1,206,686
Interest Par value
Issuer, description, maturity date rate (000) Value
Short-term investments 1.45% $17,029,000
(Cost $17,029,000)
Joint Repurchase Agreement 1.45% 17,029,000
Investment in a joint repurchase agreement transaction
with Barclays Capital, Inc. -- Dated 5-31-05 due
6-1-05 (secured by U.S. Treasury Inflation Indexed
Bond 3.625% due 4-15-28 and U.S. Treasury
Inflation Indexed Note 2.000% due 1-15-14) 2.970% $17,029 17,029,000
Total investments 97.97% $1,150,658,102
Other assets and liabilities, net 2.03% $23,787,422
Total net assets 100.00% $1,174,445,524
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 May 31, 2005.
(M) These securities having an aggregate value of $29,958,063, or 2.55% of
the Fund's net assets, have been purchased as a forward commitment -- 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 $30,714,123 of Federal National Mortgage Assn., 4.500%,
10-1-18 and Financing Corp., 9.400%, 02-08-18 has been segregated to cover
See notes to
financial statements.
24
FINANCIAL STATEMENTS
(N) These securities having an aggregate value of $4,083,990 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 $4,179,831 of
Financing Corp., 9.400%, 02-08-18 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 May 31, 2005.
(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 $97,801,459 or 8.33% of the Fund's net
assets as of May 31, 2005.
Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer; however, 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.
25
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
May 31, 2005
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 $1,127,703,710)
including $199,158,452 of securities loaned $1,150,658,102
Cash 67,467
Cash segregated for futures contracts 428,450
Receivable for investments sold 52,695,130
Receivable for shares sold 207,570
Dividends and interest receivable 13,484,116
Other assets 126,040
Total assets 1,217,666,875
Liabilities
Payable for investments purchased 40,289,195
Payable for shares repurchased 1,014,966
Dividends payable 612,438
Payable for futures variation margin 219,094
Payable to affiliates
Management fees 513,451
Distribution and service fees 75,656
Other 244,292
Other payables and accrued expenses 252,259
Total liabilities 43,221,351
Net assets
Capital paid-in 1,165,354,424
Accumulated net realized loss on investments
and financial futures contracts (13,296,393)
Net unrealized appreciation of investments
and financial futures contracts 22,616,155
Distributions in excess of net investment income (228,662)
Net assets $1,174,445,524
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 ($1,012,361,626 [DIV] 66,179,516 shares) $15.30
Class B ($127,778,863 [DIV] 8,353,136 shares) $15.30
Class C ($28,486,467 [DIV] 1,862,221 shares) $15.30
Class I ($5,487,886 [DIV] 358,789 shares) $15.30
Class R ($330,682 [DIV] 21,617 shares) $15.30
Maximum offering price per share
Class A 1 ($15.30 [DIV] 95.5%) $16.02
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 year ended
May 31, 2005
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 $65,012,998
Dividends 933,173
Securities lending 275,103
Total investment income 66,221,274
Expenses
Investment management fees 6,063,109
Class A distribution and service fees 3,093,075
Class B distribution and service fees 1,463,300
Class C distribution and service fees 301,808
Class R distribution and service fees 444
Class A, B and C transfer agent fees 1,976,230
Class I transfer agent fees 2,458
Class R transfer agent fees 428
Accounting and legal services fees 287,574
Printing 247,715
Custodian fees 228,235
Miscellaneous 209,789
Registration and filing fees 73,616
Professional fees 73,275
Trustees' fees 36,970
Interest 11,626
Securities lending fees 10,809
Total expenses 14,080,461
Less expense reductions (122,037)
Net expenses 13,958,424
Net investment income 52,262,850
Realized and unrealized gain (loss)
Net realized gain (loss) on
Investments 10,930,002
Financial futures contracts (5,370,005)
Change in net unrealized appreciation (depreciation) of
Investments 24,697,282
Financial futures contracts (75,164)
Net realized and unrealized gain 30,182,115
Increase in net assets from operations $82,444,965
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 Year
ended ended
5-31-04 5-31-05
Increase (decrease) in net assets
From operations
Net investment income $59,769,750 $52,262,850
Net realized gain 21,738,223 5,559,997
Change in net unrealized
appreciation (depreciation) (79,633,191) 24,622,118
Increase in net assets resulting
from operations 1,874,782 82,444,965
Distributions to shareholders
From net investment income
Class A (54,665,922) (49,122,496)
Class B (8,303,883) (5,941,309)
Class C (1,569,152) (1,227,067)
Class I (439,075) (254,528)
Class R (3,991) (8,053)
(64,982,023) (56,553,453)
From Fund share transactions (169,382,863) (98,851,379)
Net assets
Beginning of period 1,479,895,495 1,247,405,391
End of period 1 $1,247,405,391 $1,174,445,524
1 Includes distributions in excess of net investment income of $785,769 and
$228,662, 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 5-31-01 1 5-31-02 1,2 5-31-03 5-31-04 5-31-05
Per share operating performance
Net asset value,
beginning of period $13.93 $14.69 $14.71 $15.69 $14.98
Net investment income 3 0.92 0.82 0.72 0.70 0.67
Net realized and unrealized
gain (loss) on investments 0.76 0.06 1.02 (0.65) 0.38
Total from
investment operations 1.68 0.88 1.74 0.05 1.05
Less distributions
From net investment income (0.92) (0.86) (0.76) (0.76) (0.73)
Net asset value, end of period $14.69 $14.71 $15.69 $14.98 $15.30
Total return 4 (%) 12.38 6.10 12.26 0.31 7.11 5
Ratios and supplemental data
Net assets, end of period
(in millions) $1,140 $1,144 $1,192 $1,047 $1,012
Ratio of expenses
to average net assets (%) 1.12 1.11 1.12 1.09 1.05
Ratio of adjusted expenses
to average net assets 6 (%) -- -- -- -- 1.06
Ratio of net investment income
to average net assets (%) 6.38 5.51 4.84 4.55 4.41
Portfolio turnover (%) 235 189 273 241 139
See notes to
financial statements.
29
FINANCIAL HIGHLIGHTS
CLASS B SHARES
Period ended 5-31-01 1 5-31-02 1,2 5-31-03 5-31-04 5-31-05
Per share operating performance
Net asset value,
beginning of period $13.93 $14.69 $14.71 $15.69 $14.98
Net investment income 3 0.83 0.72 0.62 0.59 0.57
Net realized and unrealized
gain (loss) on investments 0.76 0.06 1.02 (0.65) 0.37
Total from
investment operations 1.59 0.78 1.64 (0.06) 0.94
Less distributions
From net investment income (0.83) (0.76) (0.66) (0.65) (0.62)
Net asset value, end of period $14.69 $14.71 $15.69 $14.98 $15.30
Total return 4 (%) 11.64 5.37 11.48 (0.39) 6.37 5
Ratios and supplemental data
Net assets, end of period
(in millions) $218 $236 $233 $164 $128
Ratio of expenses
to average net assets (%) 1.78 1.81 1.82 1.79 1.75
Ratio of adjusted expenses
to average net assets 6 (%) -- -- -- -- 1.76
Ratio of net investment income
to average net assets (%) 5.71 4.81 4.15 3.84 3.70
Portfolio turnover (%) 235 189 273 241 139
See notes to
financial statements.
30
FINANCIAL HIGHLIGHTS
CLASS C SHARES
Period ended 5-31-01 1 5-31-02 1,2 5-31-03 5-31-04 5-31-05
Per share operating performance
Net asset value,
beginning of period $13.93 $14.69 $14.71 $15.69 $14.98
Net investment income 3 0.82 0.72 0.62 0.59 0.57
Net realized and unrealized
gain (loss) on investments 0.76 0.06 1.02 (0.64) 0.37
Total from
investment operations 1.58 0.78 1.64 (0.05) 0.94
Less distributions
From net investment income (0.82) (0.76) (0.66) (0.66) (0.62)
Net asset value, end of period $14.69 $14.71 $15.69 $14.98 $15.30
Total return 4 (%) 11.60 5.36 11.48 (0.39) 6.37 5
Ratios and supplemental data
Net assets, end of period
(in millions) $26 $44 $45 $32 $28
Ratio of expenses
to average net assets (%) 1.82 1.81 1.82 1.79 1.75
Ratio of adjusted expenses
to average net assets 6 (%) -- -- -- -- 1.76
Ratio of net investment income
to average net assets (%) 5.66 4.81 4.15 3.84 3.71
Portfolio turnover (%) 235 189 273 241 139
See notes to
financial statements.
31
FINANCIAL HIGHLIGHTS
CLASS I SHARES
Period ended 5-31-02 1,2,7 5-31-03 5-31-04 5-31-05
Per share operating performance
Net asset value,
beginning of period $14.96 $14.71 $15.69 $14.98
Net investment income 3 0.66 0.78 0.76 0.73
Net realized and unrealized
gain (loss) on investments (0.21) 1.02 (0.64) 0.38
Total from
investment operations 0.45 1.80 0.12 1.11
Less distributions
From net investment income (0.70) (0.82) (0.83) (0.79)
Net asset value, end of period $14.71 $15.69 $14.98 $15.30
Total return 4 (%) 3.04 8 12.71 0.78 7.55
Ratios and supplemental data
Net assets, end of period
(in millions) -- 9 $9 $5 $5
Ratio of expenses
to average net assets (%) 0.68 10 0.72 0.63 0.65
Ratio of net investment income
to average net assets (%) 5.94 10 5.23 4.98 4.82
Portfolio turnover (%) 189 273 241 139
See notes to
financial statements.
32
FINANCIAL HIGHLIGHTS
CLASS R SHARES
Period ended 5-31-04 7 5-31-05
Per share operating performance
Net asset value,
beginning of period $14.93 $14.98
Net investment income 3 0.54 0.67
Net realized and unrealized
gain on investments 0.10 0.36
Total from
investment operations 0.64 1.03
Less distributions
From net investment income (0.59) (0.71)
Net asset value, end of period $14.98 $15.30
Total return 4 (%) 4.30 8 7.02
Ratios and supplemental data
Net assets, end of period
(in millions) -- 9 -- 9
Ratio of expenses
to average net assets (%) 1.38 10 1.12
Ratio of net investment income
to average net assets (%) 4.40 10 4.44
Portfolio turnover (%) 241 139
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 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
5 Total return would have been lower had certain expenses not been reduced
during the period shown.
6 Does not take into effect expense reductions during the period shown.
7 Class I and Class R shares began operations on 9-4-01 and 8-5-03,
respectively.
8 Not annualized.
9 Less than $500,000.
10 Annualized.
See notes to
financial statements.
33
NOTES TO
STATEMENTS
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
34
Fund at a future date, usually beyond the customary settlement date.
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 year ended May 31, 2005.
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 May 31, 2005, the Fund loaned securities having a market
value of $199,158,452 collateralized by securities in the amount of
$203,188,482. 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
financial futures contracts, 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
35
market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In
addition, the Fund could be prevented from opening or realizing the
benefits of closing out financial futures positions because of position
limits or limits on daily price fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of financial futures
contracts. On May 31, 2005, the Fund had depos ited $428,450 in a seg
regated account to cover margin requirements on open financial futures
contracts.
The Fund had the following financial futures contracts open on May 31, 2005:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION DEPRECIATION
- -----------------------------------------------------------------------------
U.S. 5-Year Treasury Note 779 Short Sept 05 $338,237
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 $13,063,576 of a capital loss carryforward
available, to the extent provided by regulations, to offset future net
realized capital gains. To the extent that such carryforward is used by the
Fund, no capital gain distributions will be made. The loss carryforward
expires as follows: May 31, 2009 -- $13,027,799 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, if any, on the ex-dividend date. The Fund's net
investment income is declared daily as dividends to shareholders of record
as of the close of business on the preceding day, and distributed monthly.
During a year ended May 31, 2004, the tax character of distributions paid
was as follows: ordinary income $64,982,023. During the year ended May 31,
2005, the tax character of distributions paid was as follows: ordinary
income $56,553,453. 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.
As of May 31, 2005, the components of distributable earnings on a tax basis
included $483,210 of distributed ordinary income.
Such distributions and distributable earnings, on a tax basis, are
determined in conformity with income tax regulations, which may differ from
accounting principles generally accepted in the United States of America.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the
36
Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with accounting
principles generally accepted in the United States of America, incorporates
estimates made by management in determining the reported amount of assets,
liabilities, revenues and expenses of the Fund. Actual results could differ
from these estimates.
Note 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, and 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 shares are assessed up-front sales charges. During the year ended
May 31, 2005, JH Funds received net up-front sales charges of $540,935 with
regard to sales of Class A shares. Of this amount, $59,938 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $190,546 was paid as sales commissions to unrelated broker-dealers
and $290,451 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 year
ended May 31, 2005, JH Funds received net up-front sales charges of $880
with regard to sales of Class C shares. Of this amount, $842 was paid as
sales commissions to unrelated broker-dealers and $38 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 year
ended May 31, 2005, CDSCs received by JH Funds amounted to $303,638 for
37
Class B shares and $1,812 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc. ('Signature Services"), an indirect subsidiary of JHLICo. For
Class A, Class B and Class C shares, the Fund pays a monthly transfer agent
fee at an annual rate of 0.015% of each class's average daily net asset
value, plus a fee based on the number of shareholder accounts and
reimbursement for certain out-of-pocket expenses, aggregated and allocated
to each class on the basis of its relative net asset value. For Class I
shares, the Fund pays a monthly transfer agent fee at an annual rate of
0.05% of Class I average daily net asset value. For Class 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 $122,037 during the year ended May 31, 2005. Signature
Services reserves the right to terminate this limitation at any time.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the year
amounted to $287,574. The Fund also paid the Adviser the amount of $2,267
for certain publishing services, included in the printing fees.
The Adviser owned 6,698 Class R shares of beneficial interest of the Fund on
May 31, 2005.
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 Fund shares sold, reinvested and
repurchased during the last two periods, along with the corresponding dollar
value.
Year ended 5-31-04 Year ended 5-31-05
Shares Amount Shares Amount
Class A shares
Sold 5,824,845 $89,554,899 3,279,955 $49,959,779
Distributions reinvested 2,910,959 44,557,244 2,672,659 40,683,038
Repurchased (14,853,151) (227,944,897) (9,645,735) (146,767,346)
Net decrease (6,117,347) ($93,832,754) (3,693,121) ($56,124,529)
Class B shares
Sold 965,793 $14,845,807 907,288 $13,835,452
Distributions reinvested 387,561 5,934,167 288,388 4,387,875
Repurchased (5,237,216) (80,229,304) (3,802,719) (57,917,391)
Net decrease (3,883,862) ($59,449,330) (2,607,043) ($39,694,064)
Class C shares
Sold 348,423 $5,328,454 185,685 $2,833,152
Distributions reinvested 77,945 1,193,806 62,307 948,006
Repurchased (1,184,766) (18,155,936) (520,133) (7,914,164)
Net decrease (758,398) ($11,633,676) (272,141) ($4,133,006)
Class I shares
Sold 88,680 $1,370,545 117,767 $1,798,813
Distributions reinvested 28,118 430,842 16,220 246,932
Repurchased (413,475) (6,370,177) (76,918) (1,174,259)
Net increase (decrease) (296,677) ($4,568,790) 57,069 $871,486
Class R shares
Sold 6,806 $101,687 14,967 $231,110
Distributions reinvested -- -- 73 1,116
Repurchased -- -- (229) (3,492)
Net increase 6,806 $101,687 14,811 $228,734
Net decrease (11,049,478) ($169,382,863) (6,500,425) ($98,851,379)
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
year ended May 31, 2005, aggregated $1,304,011,226 and $1,367,879,307,
respectively.
Purchases and proceeds from sales or maturities of obligations of U.S.
government aggregated $340,345,781 and $360,193,689, respectively, during
the year ended May 31, 2005.
The cost of investments owned on May 31, 2005, including short-term
investments, for federal income tax purposes, was $1,133,388,493. Gross
unrealized appreciation and depreciation of investments aggregated
$33,133,661 and $15,864,052, respectively, resulting in net unrealized
appreciation of $17,269,609. The difference between book basis and tax basis
net unrealized appreciation of investments is attributable primarily to the
tax deferral
39
of losses on certain sales of securities and amortization of premiums.
Note E
Reclassification
of accounts
During the year ended May 31, 2005, the Fund reclassified amounts to reflect
an increase in accumulated net realized loss on investments of $3,842,328, a
decrease in distributions in excess of net investment income of $4,847,710
and a decrease in capital paid-in of $1,005,382. This represents the amounts
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of May 31, 2005. Additional adjustments may be
needed in subsequent reporting periods. These reclassifications, which have
no impact on the net asset value of the Fund, are primarily attributable to
certain differences in the computation of distributable income and capital
gains under federal tax rules versus accounting principles generally
accepted in the United States of America, book and tax differences in
accounting for deferred compensation and amortization of premium. The
calculation of net investment income per share in the Fund's Financial
Highlights excludes these adjustments.
Shareholder meeting (unaudited)
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
* Mr. James A. Shepherdson resigned effective July 15, 2005.
40
AUDITORS'
REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent
Registered Public
Accounting Firm
To the Board of Trustees and Shareholders of
John Hancock Bond Fund,
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of John Hancock
Bond Fund (the "Fund") at May 31, 2005, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in
the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits,
which included confirmation of securities at May 31, 2005 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion.
The financial highlights for each of the periods ended on or before May 31,
2002, were audited by other independent auditors, whose report dated July 5,
2002, expressed an unqualified opinion thereon.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 25, 2005
41
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund, if any, paid during its taxable
year ended May 31, 2005.
With respect to the ordinary dividends paid by the Fund for the fiscal year
ended May 31, 2005, 0.17% of the dividends qualify for the corporate
dividends-received deduction.
The Fund hereby designates the maximum amount allowable of its net taxable
income as qualified dividend income as provided in the Jobs and Growth Tax
Relief Reconciliation Act of 2003. This amount will be reflected on Form
1099-DIV for the calendar year 2005.
Shareholders will be mailed a 2005 U.S. Treasury Department Form 1099-DIV in
January 2006. This will reflect the total of all distributions that are
taxable for calendar year 2005.
42
TRUSTEES & OFFICERS
This chart provides information about the Trustees and Officers who oversee
your John Hancock fund. Officers elected by the Trustees manage the
day-to-day operations of the Fund and execute policies formulated by the
Trustees.
Independent Trustees
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
Charles L. Ladner, 2 Born: 1938 2004 51
Independent Chairman (since 2004); Chairman and Trustee, Dunwoody
Village, Inc. (retirement services) (until 2003); Senior Vice President and
Chief Financial Officer, UGI Corporation (public utility holding company)
(retired 1998); Vice President and Director for AmeriGas, Inc. (retired
1998); Director of AmeriGas Partners, L.P. (until 1997) (gas distribution);
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History
Association (since 2001).
James F. Carlin, Born: 1940 2005 51
Director and Treasurer, Alpha Analytical Inc. (analytical laboratory) (since 1985);
Part Owner and Treasurer, Lawrence Carlin Insurance Agency, Inc. (since 1995);
Part Owner and Vice President, Mone Lawrence Carlin Insurance Agency, Inc.
(since 1996); Director and Treasurer, Rizzo Associates (engineering) (until 2000);
Chairman and CEO, Carlin Consolidated, Inc. (management/investments) (since
1987); Director and Partner, Proctor Carlin & Co., Inc. (until 1999); Trustee,
Massachusetts Health and Education Tax Exempt Trust (since 1993); Director of
the following: Uno Restaurant Corp. (until 2001), Arbella Mutual (insurance)
(until 2000), HealthPlan Services, Inc. (until 1999), Flagship Healthcare, Inc. (until
1999), Carlin Insurance Agency, Inc. (until 1999); Chairman, Massachusetts
Board of Higher Education (until 1999).
Richard P. Chapman, Jr., 2 Born: 1935 1975 51
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Director, Lumber Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast Retirement Services, Inc. (retirement
administration) (since 1998).
William H. Cunningham, Born: 1944 2005 51
Former Chancellor, University of Texas System and former President of the
University of Texas, Austin, Texas; Chairman and CEO, IBT Technologies
(until 2001); Director of the following: The University of Texas Investment
Management Company (until 2000), Hire.com (until 2004), STC Broadcasting,
Inc. and Sunrise Television Corp. (electronic manufacturing) (until 2001),
Symtx, Inc. (electronic manufacturing) (since 2001), Adorno/Rogers Technology,
Inc. (until 2004), Pinnacle Foods Corporation (until 2003), rateGenius (Internet
43
Independent Trustees (continued)
Name, age Number of
Position(s) held with Fund Trustee John Hancock
Principal occupation(s) and other of Fund funds overseen
directorships during past 5 years since 1 by Trustee
William H. Cunningham, Born: 1944 (continued) 2005 51
service) (until 2003), Jefferson-Pilot Corporation (diversified life insurance
company) (since 1985), New Century Equity Holdings (formerly Billing Concepts)
(until 2001), eCertain (until 2001), ClassMap.com (until 2001), Agile Ventures
(until 2001), LBJ Foundation (until 2000), Golfsmith International, Inc.
(until 2000), Metamor Worldwide (until 2000), AskRed.com (until 2001),
Southwest Airlines (since 2000) and Introgen (since 2000); Advisory Director,
Q Investments (until 2003); Advisory Director, Chase Bank (formerly Texas
Commerce Bank -- Austin) (since 1988), LIN Television (since 2002), WilTel
Communications (until 2003) and Hayes Lemmerz International, Inc.
(diversified automotive parts supply company) (since 2003).
Ronald R. Dion, Born: 1946 2005 51
Chairman and Chief Executive Officer, R.M. Bradley & Co., Inc.; Director,
The New England Council and Massachusetts Roundtable; Trustee, North
Shore Medical Center; Director, Boston Stock Exchange; Director, BJ's
Wholesale Club, Inc. and a corporator of the Eastern Bank; Trustee,
Emmanuel College; Director, Boston Municipal Research Bureau; Member
of the Advisory Board, Carroll Graduate School of Management
at Boston College.
John A. Moore, 2 Born: 1939 1996 51
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Chief Scientist, Sciences
International (health research) (until 2003); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
Patti McGill Peterson, 2 Born: 1943 1996 51
Executive Director, Council for International Exchange of Scholars and
Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1998); Former President of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (until 2003); Director, Ford
Foundation, International Fellowships Program (since 2002); Director,
Lois Roth Endowment (since 2002); Director, Council for International
Educational Exchange (since 2003).
Steven R. Pruchansky, Born: 1944 2005 51
Chairman and Chief Executive Officer, Greenscapes of Southwest
Florida, Inc. (since 2000); Director and President, Greenscapes of
Southwest Florida, Inc. (until 2000); Managing Director, JonJames, LLC
(real estate) (since 2001); Director, First Signature Bank & Trust Company
(until 1991); Director, Mast Realty Trust (until 1994); President, Maxwell
Building Corp. (until 1991).
44
Principal officers who are not Trustees
Name, age
Position(s) held with Fund Officer
Principal occupation(s) and of Fund
directorships during past 5 years since
Keith F. Hartstein, Born: 1956 2005
President and Chief Executive Officer
Senior Vice President, Manulife Financial Corporation (since 2004); Director,
President and Chief Executive Officer, John Hancock Advisers, LLC (the
"Adviser") and The Berkeley Financial Group, LLC ("The Berkeley Group")
(holding company); Director, President and Chief Executive Officer, John
Hancock Funds, LLC. ("John Hancock Funds"); Director, President and Chief
Executive Officer, Sovereign Asset Management Corporation ("SAMCorp.");
Director, John Hancock Signature Services, Inc.; Director, Chairman and
President, NM Capital Management, Inc. (NM Capital); Chairman, Investment
Company Institute Sales Force Marketing Committee (since 2003); Executive
Vice President, John Hancock Funds, LLC (until 2005).
William H. King, Born: 1952 1988
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each
of the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
The business address for all Trustees and Officers is 601 Congress Street,
Boston, Massachusetts 02210-2805.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or her
successor is elected.
2 Member of Audit Committee.
45
OUR FAMILY
OF FUNDS
- ----------------------------------------------------------
Equity Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Greater China Opportunities Fund
Growth Trends Fund
International Fund
Large Cap Equity Fund
Large Cap Select Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Fund
Small Cap Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
- ----------------------------------------------------------
Sector Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
Technology Leaders Fund
- ----------------------------------------------------------
Income Bond Fund
Government Income Fund
High Income Fund
High Yield Fund
Investment Grade Bond Fund
Strategic Income Fund
- ----------------------------------------------------------
Tax-Free Income California Tax-Free Income Fund
High Yield Municipal Bond Fund
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Tax-Free Bond Fund
- ----------------------------------------------------------
Money Market Money Market Fund
U.S. Government Cash Reserve
A fund's investment objectives, risks, charges and expenses are included in
the prospectus and should be considered carefully before investing. For a
prospectus, call your financial professional, call John Hancock Funds at
1-800-225-5291 or visit our Web site at www.jhfunds.com. Please read the
prospectus carefully before investing or sending money.
46
ELECTRONIC
DELIVERY
Now available from
John Hancock Funds
Instead of sending annual and semiannual reports and prospectuses through
the U.S. mail, we'll notify you by e-mail when these documents are available
for online viewing.
How does electronic delivery benefit you?
* No more waiting for the mail to arrive; you'll receive an e-mail
notification as soon as the document is ready for online viewing.
* Reduces the amount of paper mail you receive from John Hancock Funds.
* Reduces costs associated with printing and mailing.
Sign up for electronic delivery today at
www.jhfunds.com/edelivery
47
OUR WEB SITE
A wealth of information--
www.jhfunds.com
View the latest information for your account.
- ------------------------------------------------
Transfer money from one account to another.
- ------------------------------------------------
Get current quotes for major market indexes.
- ------------------------------------------------
Use our online calculators to help you with your
financial goals.
- ------------------------------------------------
Get up-to-date commentary from John Hancock
Funds investment experts.
- ------------------------------------------------
Access forms, applications and tax information.
- ------------------------------------------------
48
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Investment adviser
John Hancock Advisers, LLC
601 Congress Street
Boston, MA 02210-2805
Principal distributor
John Hancock Funds, LLC
601 Congress Street
Boston, MA 02210-2805
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
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
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.
49
[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.
2100A 5/05
7/05
ITEM 2. CODE OF ETHICS.
As of the end of the period, May 31, 2005, 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.
The code of ethics was amended effective February 1, 2005 to address new
Rule 204A-1 under the Investment Advisers Act of 1940 and to make other
related changes.
The most significant amendments were:
(a) Broadening of the General Principles of the code to cover compliance
with all federal securities laws.
(b) Eliminating the interim requirements (since the first quarter of 2004)
for access persons to preclear their personal trades of John Hancock mutual
funds. This was replaced by post-trade reporting and a 30 day hold
requirement for all employees.
(c) A new requirement for "heightened preclearance" with investment
supervisors by any access person trading in a personal position worth
$100,000 or more.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Charles L. Ladner is the audit committee financial expert and is
"independent", pursuant to general instructions on Form N-CSR Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for professional services rendered by the
principal accountant(s) for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant(s) in
connection with statutory and regulatory filings or engagements amounted to
$37,300 for the fiscal year ended May 31, 2004 and $39,200 for the fiscal
year ended May 31, 2005. These fees were billed to the registrant and were
approved by the registrant's audit committee.
(b) Audit-Related Services
There were no audit-related fees during the fiscal year ended May 31, 2004
and fiscal year ended May 31, 2005 billed to the registrant or to the
registrant's investment adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant ("control affiliates").
(c) Tax Fees
The aggregate fees billed for professional services rendered by the
principal accountant(s) for the tax compliance, tax advice and tax planning
("tax fees") amounted to $4,700 for the fiscal year ended May 31, 2004 and
$4,900 for the fiscal year ended May 31, 2005. The nature of the services
comprising the tax fees was the review of the registrant's income tax
returns and tax distribution requirements. These fees were billed to the
registrant and were approved by the registrant's audit committee. There
were no tax fees billed to the control affiliates.
(d) All Other Fees
There were no other fees during the fiscal year ended May 31, 2004 and
fiscal year ended May 31, 2005 billed to the registrant or to the control
affiliates.
(e)(1) See attachment "Approval of Audit, Audit-related, Tax and Other
Services", with the audit committee pre-approval policies and procedures.
(e)(2) There were no fees that were approved by the audit committee
pursuant to the de minimis exception for the fiscal years ended May 31,
2004 and May 31, 2005 on behalf of the registrant or on behalf of the
control affiliates that relate directly to the operations and financial
reporting of the registrant.
(f) According to the registrant's principal accountant, for the fiscal year
ended May 31, 2005, the percentage of hours spent on the audit of the
registrant's financial statements for the most recent fiscal year that were
attributed to work performed by persons who were not full-time, permanent
employees of principal accountant was less than 50%.
(g) The aggregate non-audit fees billed by the registrant's accountant(s)
for services rendered to the registrant and rendered to the registrant's
control affiliates for each of the last two fiscal years of the registrant
were $10,700 for the fiscal year ended May 31, 2004, and $117,362 for the
fiscal year ended May 31, 2005.
(h) The audit committee of the registrant has considered the non-audit
services provided by the registrant's principal accountant(s) to the
control affiliates and has determined that the services that were not
pre-approved are compatible with maintaining the principal accountant(s)'
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee
comprised of independent trustees. The members of the audit committee are
as follows:
Dr. John A. Moore - Chairman
Richard P. Chapman, Jr.
Charles L. Ladner
Patti McGill Peterson
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has adopted procedures by which shareholders may recommend
nominees to the registrant's Board of Trustees. A copy of the procedures
is filed as an exhibit to this Form N-CSR. See attached "John Hancock Funds
- - Administration Committee Charter" and "John Hancock Funds - Governance
Committee Charter".
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's principal executive officer and principal financial
officer have concluded that those disclosure controls and procedures
provide reasonable assurance that the material information required to be
disclosed by the registrant on this report is recorded, processed,
summarized and reported within the time periods specified in the Securities
and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's most recent
fiscal half-year (the registrant's second fiscal half-year in the case of
an annual report) that have materially affected, or are reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics for Senior Financial Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by Section 302 of the
Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company
Act of 1940, are attached.
(b) Separate certifications for the registrant's principal executive
officer and principal financial officer, as required by 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
and Rule 30a-2(b) under the Investment Company Act of 1940, are attached.
The certifications furnished pursuant to this paragraph are not deemed to
be "filed" for purposes of Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of that section. Such
certifications are not deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, except to the extent that the Registrant specifically incorporates
them by reference.
(c)(1) Approval of Audit, Audit-related, Tax and Other Services is
attached.
(c)(2) Submission of Matters to a Vote of Security Holders is attached. See
attached "John Hancock Funds - Administration Committee Charter" and "John
Hancock Funds - Governance Committee Charter".
(c)(3) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Sovereign Bond Fund
By: /S/ Keith F. Hartstein
------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: July 25, 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: /S/ Keith F. Hartstein
------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: July 25, 2005
By: /S/ William H. King
------------------------------
William H. King
Vice President and Treasurer
Date: July 25, 2005