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