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 811-4173
John Hancock Investors Trust
(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: December 31
Date of reporting period: June 30, 2005
ITEM 1. REPORT TO SHAREHOLDERS.
JOHN HANCOCK
Investors Trust
6.30.2005
Semiannual Report
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of 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
Fund's investments
page 6
Financial statements
page 20
For more information
page 37
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 2003.
It is an exciting time to be at John Hancock Funds, and I am grateful for
the opportunity to lead and shape its future 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 June 30, 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 in a
diversified portfolio
of debt securities.
Over the last six months
* Despite further interest rate increases by the Federal Reserve, bonds gained
ground amid tame inflation and mixed economic data.
* Treasury and government agency bonds were the best performers, while
corporate bonds lagged.
* The Fund benefited from its exposure to higher-quality bonds, but its
reduced interest rate sensitivity hindered performance as bond yields
declined.
[Bar chart with heading "John Hancock Investors Trust." Under the heading
is a note that reads "Fund performance for the six months ended June 30,
2005." The chart is scaled in increments of 4% with -8% at the bottom and
8% at the top. The first bar represents the 1.23% net asset value of the
Fund. The second bar represents the -7.37% market value of the Fund. The
third bar represents the 7.28% yield on closing market price. The first
note below the chart reads "The total returns for the Fund include the
reinvestment of all distributions. The performance data contained within
this material represents past performance, which does not guarantee future
results." The second note below the chart reads "The yield on closing
market price is calculated by dividing the current annualized distribution
per share by the closing market price."]
Top 10 issuers
13.7% Federal National Mortgage Assn.
11.3% Federal Home Loan Mortgage Corp.
4.1% US Treasury
3.1% Federal Home Loan Bank
1.0% Countrywide Home Loans
1.0% Washington Mutual
0.9% Global Signal Trust
0.9% Midland Funding Corp. II
0.8% RaboBank Capital Funding II
0.8% TransAlta Corp.
As a percentage of net assets plus value of preferred shares on June 30, 2005.
1
BY BARRY H. EVANS, CFA, AND JEFFREY N. GIVEN, CFA, PORTFOLIO MANAGERS
MANAGERS'
REPORT
JOHN HANCOCK
Investors Trust
The U.S. bond market confounded expectations during the first six months
of 2005 as yields generally declined and bonds posted positive returns
overall. Bonds rallied despite a series of interest rate increases by the
Federal Reserve. The Fed raised its federal funds rate target by a
quarter-point four times in the first half of 2005, for a total of nine
rate hikes since June 2004. The federal funds rate ended the period at
3.25%, its highest level in nearly four years.
Although short-term bond yields rose in response to the Fed's actions --
the two-year Treasury note yield climbed from 3.1% to 3.6% -- longer-term
bond yields declined during the six-month period. Low inflation and mixed
economic data, which suggested that the Fed may end its rate-raising cycle
sooner than originally anticipated, were the main reasons behind the rally
in the long end of the bond market.
"The U.S. bond market
confounded expectations
during the first six months of
2005 as yields generally
declined and bonds posted
positive returns overall."
The Lehman Brothers U.S. Aggregate Index -- a broad measure of the U.S.
bond market -- returned 2.51% in the first half of 2005. Treasury bonds,
which tend to benefit the most from declining interest rates, posted the
best results. Corporate bonds, the top performers in 2003 and 2004, lagged
the rest of the bond market. In particular, high-yield corporate bonds
produced nearly flat returns during the period.
Fund performance
For the six months ended June 30, 2005, John Hancock Investors Trust
produced a total return of 1.23% at net asset value (NAV) and --7.37% at
market value. The Fund's NAV return and its market performance differ
because the market share price is subject to the dynamics of secondary
market trading, which could cause it to trade at a discount or premium to
the Fund's NAV share price at any time. For comparison, the average
closed-end general bond
2
fund returned 2.23% at net asset value, according to Lipper, Inc., while
the Lehman Brothers Government/Credit Bond Index returned 2.75%.
[Photos of Barry Evans and Jeff Given, flush right at top of page.]
Staying defensive
In our last report six months ago, we discussed our efforts to establish a
more defensive position for the portfolio, reducing its risk profile
through higher credit quality and less interest rate sensitivity. We
maintained this defensive positioning throughout the first half of 2005,
making few changes to the overall structure of the portfolio.
The portfolio benefited from its exposure to higher-quality bonds as they
outperformed lower-rated securities. However, the portfolio's reduced
sensitivity to interest rate fluctuations hindered performance, thanks to
the unexpected decline in longer-term bond yields during the period. The
lower rate sensitivity, along with a substantial underweight in Treasury
bonds, led to the portfolio's underperformance of its Lipper peer group
and the Lehman index.
Better quality, same yield
The few changes we made to the portfolio during the period involved
upgrading credit quality by selling some of our lower-rated corporate
bonds and adding more government agency and mortgage-backed securities to
the portfolio. We focused on callable government agency securities
maturing in two to three years. These AAA-rated bonds offered yields that
were equal to or higher than BBB-rated corporate bonds with similar
maturities, so we were able to trade up in credit quality without giving
up any yield.
In the mortgage-backed market, we invested in adjustable-rate mortgages,
which reset their interest rates at regular intervals. These short-term
bonds also carry AA or AAA ratings and offered higher yields than
similar-maturity corporate bonds.
"The best individual performers in
the portfolio were longer-term,
higher-quality bonds."
Energy, telecom bonds perform well
The best individual performers in the portfolio were longer-term,
higher-quality bonds. One example was Alberta Energy, an A-rated Canadian
oil exploration and production company. Soaring oil
3
prices provided a lift to Alberta Energy bonds, and the long maturity date
(in 2030) allowed them to participate in the general rally in long-term
bonds.
[Table at top left-hand side of page entitled "Industry distribution1." The
first listing is Government U.S. agency 30%, the second is Financials 19%,
the third is Consumer discretionary 10%, the fourth is Utilities 9%, the
fifth is Telecommunication services 7%, the sixth is Industrials 6%, the
seventh is Materials 5%, the eighth is Government U.S. 4%, the ninth is
Consumer staples 3%, the tenth is Energy 3%, the eleventh is Health care
2%, the twelfth is Government foreign 1% and the thirteenth is Information
technology 1%.]
Another top performer was telecommunication services provider Sprint,
which recently entered into a merger agreement with Nextel. In addition to
their long maturity, Sprint bonds benefited from consolidation in the
wireless industry, which is expected to improve pricing power for wireless
service providers going forward.
Autos hit the skids
The weakest performers in the portfolio were bonds issued by the major
U.S. automakers, General Motors and Ford. Disappointing auto sales,
increased competition and higher gas prices caused GM to warn of lower
earnings, and its credit rating was cut to below-investment-grade status.
Ford, facing similar struggles, teetered on the edge of its own credit
downgrade (which we expect to occur in the next few months). The
downgrades caused sharp declines in the value of their bonds.
[Pie chart at middle of page with heading "Portfolio diversification1." The
chart is divided into four sections (from top to left): Bonds 65%, U.S.
government or agency bonds 32%, Short-term investments & other 2% and
Preferred stocks 1%.]
We owned a modest amount of both GM and Ford (less than 2% of the
portfolio combined), and our holdings were all shorter-term securities --
Ford Motor Credit bonds maturing in 2009 and GMAC bonds maturing in 2011.
Nonetheless, these securities declined by about 10% during the period.
However, we are confident about the creditworthiness of these shorter-term
bonds and intend to maintain our positions.
4
[Table at top of page entitled "SCORECARD." The header for the left column
is "INVESTMENT" and the header for the right column is "PERIOD'S
PERFORMANCE ...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Long-term Treasury bonds followed by an up arrow with the phrase "The
longest-term Treasury bond returned 11% as interest rates declined." The
second listing is Barclays Bank followed by an up arrow with the phrase
"AA-rated, long-term security benefited from flight to quality." 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."]
Outlook
The U.S. economy, which grew by 4.4% in 2004, is slowing to a more
moderate growth rate in 2005. In addition, the inflation rate has remained
tame despite higher oil prices, and the dollar is strengthening after
several years of weakness. Consequently, we think most of the Fed's work
is done. We expect one or two more rate hikes in the coming months,
followed by a period of stability.
"Given the moderate economic
and inflationary environment,
we don't expect bond yields to
rise significantly in the second
half of 2005."
Given the moderate economic and inflationary environment, we don't expect
bond yields to rise significantly in the second half of 2005. The spreads
between corporate bond yields and Treasury yields remain near historically
low levels, but modest issuance in the corporate bond market and strong
corporate balance sheets should help keep spreads from widening
substantially. We continue to find many attractive investment
opportunities in the corporate bond market.
Within the portfolio, we intend to maintain our current positioning going
forward. If interest rates rise sharply, we may look to increase the
portfolio's interest rate sensitivity.
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 As a percentage of the Fund's portfolio on June 30, 2005.
5
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
June 30, 2005
(unaudited)
This schedule is divided into four main categories: bonds, preferred
stocks, U.S. government and agencies securities and short-term
investments. Bonds, preferred stocks and U.S. government and agencies
securities are further broken down by industry group. Short-term
investments, which represent the Fund's cash position, are listed last.
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Bonds 100.63% $170,588,494
(Cost $165,860,479)
Aerospace & Defense 0.68% 1,158,892
Raytheon Co.,
Note 8.300% 03-01-10 BBB- $1,000 1,158,892
Agricultural Products 0.53% 895,033
Corn Products International, Inc.,
Sr Note 8.450 08-15-09 BBB- 795 895,033
Airlines 1.18% 2,004,586
Continental Airlines, Inc.,
Pass Thru Ctf Ser 1999-1A 6.545 02-02-19 A- 659 659,718
Pass Thru Ctf Ser 2000-2 Class A-1 7.707 04-02-21 BBB 425 425,135
Pass Thru Ctf Ser 2000-2 Class B (L) 8.307 10-02-19 BB- 424 352,673
Pass Thru Ctf Ser 2001-1 Class C 7.033 06-15-11 B+ 485 406,894
Jet Equipment Trust,
Equip Trust Ctf Ser 1995-B2 (B)(H)(S) 10.910 08-15-14 D 550 2,750
Northwest Airlines Corp.,
Pass Thru Ctf Ser 1996-1D 8.970 01-02-15 CCC+ 257 157,416
Apparel Retail 0.33% 559,216
Gap, Inc. (The),
Note (P) 9.550 12-15-08 BBB- 485 559,216
Asset Management & Custody Banks 1.25% 2,114,073
Rabobank Capital Fund II,
Perpetual Bond (5.260% to 12-31-13
then variable) (S) 5.260 12-29-49 AA 2,055 2,114,073
Auto Parts & Equipment 0.95% 1,605,090
American Axle & Manufacturing, Inc.,
Sr Note (L) 5.250 02-11-14 BBB 500 440,000
TRW Automotive, Inc.,
Sr Note (L) 9.375 02-15-13 BB- 1,052 1,165,090
See notes to
financial statements.
6
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Broadcasting & Cable TV 5.64% $9,564,799
AT&T Broadband Corp.,
Gtd Note 8.375% 03-15-13 BBB 980 1,194,964
British Sky Broadcasting Group Plc,
Gtd Sr Note (United Kingdom) 8.200 07-15-09 BBB- 905 1,024,448
Charter Communications Holdings LLC/Charter
Communications Holdings Capital Corp.,
Sr Note 10.250 09-15-10 CCC- 2,000 2,022,500
Innova S. de R.L.,
Note (Mexico) 9.375 09-19-13 B+ 1,500 1,691,250
Shaw Communications, Inc.,
Sr Note (Canada) 8.250 04-11-10 BB+ 1,000 1,110,000
TCI Communications, Inc.,
Sr Deb 9.800 02-01-12 BBB 840 1,069,906
XM Satellite Radio, Inc.,
Sr Sec Note 12.000 06-15-10 CCC+ 622 699,750
Sr Sec Note, Step Coupon
(Zero to 12-31-05, then 14.000%) (O) Zero 12-31-09 CCC+ 728 751,981
Building Products 1.29% 2,183,991
Pulte Homes Inc.,
Sr Note (L) 6.250 02-15-13 BBB- 1,000 1,068,712
Toll Brothers, Inc.,
Gtd Sr Note (L) 6.875 11-15-12 BBB- 1,000 1,115,279
Casinos & Gaming 4.50% 7,629,105
Chukchansi Economic Development Auth.,
Sr Note (G)(S) 14.500 06-15-09 CCC+ 1,000 1,222,500
Harrah's Operating Co., Inc.,
Gtd Sr Note 8.000 02-01-11 BBB- 735 842,783
Gtd Sr Note 5.500 07-01-10 BBB- 720 743,072
Jacob's Entertainment, Inc.,
Sec Note (S) 11.875 02-01-09 B 700 770,000
Mohegan Tribal Gaming Auth.,
Sr Sub Note 7.125 08-15-14 B+ 250 261,875
MTR Gaming Group, Inc.,
Gtd Sr Note Ser B 9.750 04-01-10 B+ 800 868,000
Premier Entertainment Biloxi,
1st Mtg Note 10.750 02-01-12 B- 25 24,250
Seneca Gaming Corp.,
Sr Note (S) 7.250 05-01-12 BB- 1,000 1,033,750
Trump Entertainment Resorts, Inc.,
Gtd Sec Note 8.500 06-01-15 B- 500 488,125
Waterford Gaming LLC,
Sr Note (S) 8.625 09-15-12 B+ 1,300 1,374,750
See notes to
financial statements.
7
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Commodity Chemicals 1.56% $2,645,270
Lyondell Chemical Co.,
Gtd Sec Note 9.500% 12-15-08 B+ $1,010 1,074,387
Gtd Sr Sub Note 10.875 05-01-09 B 500 518,750
RPM International, Inc.,
Sr Note 6.250 12-15-13 BBB 1,000 1,052,133
Construction Materials 0.22% 370,000
Votorantim Overseas IV,
Gtd Note (Cayman Islands) (S) 7.750 06-24-20 BBB- 370 370,000
Consumer Finance 3.47% 5,880,928
CIT Group, Inc.,
Sr Note 5.000 02-13-14 A 720 727,243
Ford Motor Credit Co.,
Note 7.375 10-28-09 BBB- 1,925 1,881,085
General Motors Acceptance Corp.,
Note 7.250 03-02-11 BBB- 1,175 1,101,765
Household Finance Corp.,
Note 6.375 10-15-11 A 615 672,403
HSBC Finance Corp.,
Sr Note 6.750 05-15-11 A 1,350 1,498,432
Department Stores 0.35% 594,562
Penney J.C. Co., Inc.,
Deb 7.650 08-15-16 BB+ 525 594,562
Diversified Banks 3.28% 5,558,676
Bank of New York,
Cap Security (S) 7.780 12-01-26 A- 620 667,308
Barclays Bank Plc,
Perpetual Bond (6.86% to 6-15-32
then variable) (United Kingdom) (S) 6.860 09-29-49 A+ 1,580 1,857,789
Chuo Mitsui Trust & Banking Co.,
Perpetual Sub Note (5.506% to
04-15-15 then variable) (Japan) (S) 5.506 12-01-49 Baa2 375 368,410
Mizuho Financial Group Cayman Ltd.,
Gtd Note (Cayman Islands) 8.375 12-29-49 A2 750 820,125
Royal Bank of Scotland Group Plc,
Perpetual Bond (7.648% to 09-30-31
then variable) (United Kingdom) 7.648 08-29-49 A 630 801,157
Wachovia Corp.,
Sub Note 5.250 08-01-14 A- 1,000 1,043,887
See notes to
financial statements.
8
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Diversified Chemicals 1.86% $3,139,741
NOVA Chemicals Corp.,
Med Term Note (Canada) 7.400% 04-01-09 BB+ $1,955 1,979,437
Potash Corp. of Saskatchewan, Inc.,
Note (Canada) 7.750 05-31-11 BBB+ 1,000 1,160,304
Diversified Commercial Services 1.47% 2,498,746
Hutchison Whampoa International Ltd.,
Gtd Note (United Kingdom) (S) 6.500 02-13-13 A- 750 814,261
Noble Group Ltd.,
Sr Note (Bermuda) (S) 6.625 03-17-15 BB+ 1,000 923,235
Sotheby's Holdings, Inc.,
Note 6.875 02-01-09 BB- 750 761,250
Diversified Financial Services 1.97% 3,343,874
Beaver Valley Funding Corp.,
Sec Lease Obligation Bond 9.000 06-01-17 BB+ 915 1,085,721
Glencore Funding LLC,
Gtd Note (S) 6.000 04-15-14 BBB 1,365 1,308,894
St. George Funding Co.,
Perpetual Bond (8.485% to 06-30-17
then variable) (Australia) (S) 8.485 12-31-49 Baa1 840 949,259
Diversified Metals & Mining 0.29% 487,500
Freeport-McMoRan Copper & Gold, Inc.,
Sr Note (L) 6.875 02-01-14 B+ 500 487,500
Electric Utilities 9.60% 16,273,081
AES Eastern Energy, L.P.,
Pass Thru Ctf Ser 1999-A 9.000 01-02-17 BB+ 1,246 1,444,827
BVPS II Funding Corp.,
Collateralized Lease Bond 8.890 06-01-17 BB+ 700 849,947
CE Generation LLC,
Sr Sec Note 7.416 12-15-18 BB- 791 838,540
Empresa Electrica Guacolda S.A.,
Sr Sec Note (Chile) (S) 8.625 04-30-13 BBB- 830 918,316
FPL Energy National Wind,
Sec Note (S) 5.608 03-10-24 BBB- 385 392,854
HQI Transelect Chile S.A.,
Sr Note (Chile) 7.875 04-15-11 A- 1,175 1,355,612
Indiantown Cogeneration, L.P.,
1st Mtg Note Ser A-9 9.260 12-15-10 BB+ 462 491,303
IPALCO Enterprises, Inc.,
Sr Sec Note 8.625 11-14-11 BB- 315 354,375
Kansas Gas & Electric Co.,
Bond (S) 5.647 03-29-21 BB- 300 304,482
See notes to
financial statements.
9
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Electric Utilities (continued)
Midland Funding Corp. II,
Deb Ser B 13.250% 07-23-06 BB- $2,220 $2,350,261
MSW Energy Holdings II LLC/MSW
Energy Finance Co., II, Inc.,
Sr Sec Note Ser B 7.375 09-01-10 BB- 750 768,750
PNPP II Funding Corp.,
Deb 9.120 05-30-16 BB+ 470 564,164
PPL Capital Funding,
Gtd Sr Note Ser A 4.330 03-01-09 BBB- 500 496,130
System Energy Resources, Inc.,
Sec Bond (S) 5.129 01-15-14 BBB 449 447,632
TNP Enterprises, Inc.,
Sr Sub Note Ser B (G) 10.250 04-01-10 B 350 368,550
TransAlta Corp.,
Note (Canada) 5.750 12-15-13 BBB- 2,000 2,103,044
TXU Corp.,
Note (S) 6.500 11-15-24 BBB- 980 959,951
Sec Bond 7.460 01-01-15 BBB 615 669,639
Waterford 3 Funding Corp.,
Sec Lease Obligation Bond 8.090 01-02-17 BBB- 534 594,704
Electrical Components & Equipment 0.95% 1,607,958
AMETEK, Inc.,
Sr Note 7.200 07-15-08 BBB 1,500 1,607,958
Food Retail 1.94% 3,281,608
Ahold Lease USA, Inc.,
Gtd Pass Thru Ctf Ser 2001A-1 (L) 7.820 01-02-20 BB 1,305 1,408,890
Delhaize America, Inc.,
Gtd Note 9.000 04-15-31 BB+ 1,500 1,872,718
Foreign Government 1.87% 3,161,710
Colombia, Republic of,
Note (Colombia) 10.000 01-23-12 BB 1,000 1,165,000
Mexican States, United,
Global Med Term Note Ser A (Mexico) 6.375 01-16-13 BBB- 1,860 1,996,710
Gas Utilities 0.59% 1,002,489
Energy Transfer Partners,
Gtd Sr Note (G)(S) 5.950 02-01-15 BBB- 500 504,323
NorAm Energy Corp.,
Deb 6.500 02-01-08 BBB 475 498,166
See notes to
financial statements.
10
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Health Care Facilities 0.93% $1,583,571
HCA, Inc.,
Note 8.750% 09-01-10 BB+ $1,012 1,150,148
Manor Care, Inc.,
Gtd Note 6.250 05-01-13 BBB 405 433,423
Health Care Services 0.88% 1,490,812
Wellpoint, Inc.,
Jr Note 5.000 12-15-14 BBB+ 1,460 1,490,812
Hotels, Resorts & Cruise Lines 1.84% 3,117,600
Hyatt Equities LLC,
Note (S) 6.875 06-15-07 BBB 1,050 1,083,475
Meditrust,
Note 7.000 08-15-07 BB- 1,700 1,746,750
Starwood Hotels & Resorts Worldwide, Inc.,
Gtd Sr Note 7.375 05-01-07 BB+ 275 287,375
Hypermarkets & Super Centers 0.17% 283,360
Controladora Comercial Mexicana S.A. de C.V,
Sr Note (Mexico) (S) 6.625 06-01-15 BBB- 280 283,360
Industrial Conglomerates 0.69% 1,176,184
Vedanta Resources Plc,
Sr Note (United Kingdom) (S) 6.625 02-22-10 BB+ 590 582,184
Waste Services, Inc.,
Sr Sub Note (L) (S) 9.500 04-15-14 CCC 600 594,000
Industrial Machinery 1.69% 2,865,864
Kennametal, Inc.,
Sr Note 7.200 06-15-12 BBB 1,385 1,549,409
Manitowoc Co., Inc., (The)
Sr Note 7.125 11-01-13 B+ 500 522,500
Trinity Industries Leasing Co.,
Pass Thru Ctf (S) 7.755 02-15-09 Ba1 750 793,955
Insurance Brokers 1.10% 1,861,376
Marsh & McLennan Cos., Inc.,
Sr Note 5.375 03-15-07 BBB 1,470 1,489,189
Willis Group North America,
Gtd Note 5.625 07-15-15 BBB- 185 186,190
Gtd Note 5.125 07-15-10 BBB- 185 185,997
Integrated Oil & Gas 1.56% 2,652,367
Pemex Project Funding Master Trust,
Gtd Note 9.125 10-13-10 BBB- 1,065 1,247,115
Petro-Canada,
Deb (Canada) 9.250 10-15-21 BBB 1,000 1,405,252
See notes to
financial statements.
11
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Integrated Telecommunication Services 6.00% $10,172,603
AT&T Corp.,
Med Term Note 8.350% 05-15-25 BB+ $500 516,250
Sr Note (P) 9.750 11-15-31 BB+ 490 637,612
Bellsouth Corp.,
Deb 6.300 12-15-15 A 1,074 1,148,367
France Telecom S.A.,
Note (France) 8.500 03-01-11 A- 915 1,061,834
Qwest Capital Funding, Inc.,
Gtd Note (L) 7.000 08-03-09 B 1,700 1,661,750
Sprint Capital Corp.,
Gtd Sr Bond 7.625 01-30-11 BBB- 1,000 1,142,079
Note 6.875 11-15-28 BBB- 820 941,263
SBC Communications, Inc.,
Note 5.100 09-15-14 A 830 848,643
Telecom Italia Capital,
Gtd Note (Luxembourg) (S) 4.950 09-30-14 BBB+ 1,500 1,485,218
Telefonos de Mexico, S.A. de C.V.,
Note (Mexico) (S) 5.500 01-27-15 BBB 735 729,587
IT Consulting & Other Services 0.82% 1,388,202
NCR Corp.,
Note 7.125 06-15-09 BBB- 375 405,702
Unisys Corp.,
Sr Note (L) 6.875 03-15-10 BB+ 1,000 982,500
Leisure Facilities 0.43% 719,250
Cinemark USA, Inc.,
Sr Sub Note 9.000 02-01-13 B- 700 719,250
Leisure Products 0.19% 315,750
K2, Inc.,
Sr Note 7.375 07-01-14 BB 300 315,750
Metal & Glass Containers 1.63% 2,765,887
BWAY Corp.,
Gtd Sr Sub Note 10.000 10-15-10 B- 1,085 1,120,262
Owens-Brockway Glass Container, Inc.,
Gtd Sr Note 8.250 05-15-13 B 500 543,125
Gtd Sr Sec Note 8.750 11-15-12 BB- 1,000 1,102,500
Multi-Line Insurance 1.02% 1,735,064
Assurant, Inc.,
Sr Note 6.750 02-15-34 BBB+ 490 559,858
Massachusetts Mutual Life Insurance Co.,
Surplus Note (S) 7.625 11-15-23 AA 470 603,070
Metlife, Inc.,
Note 5.700 06-15-35 A 555 572,136
See notes to
financial statements.
12
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Multi-Media 1.18% $1,991,892
News America Holdings, Inc.,
Gtd Sr Deb 8.250% 08-10-18 BBB- $510 627,147
Time Warner, Inc.,
Deb 9.125 01-15-13 BBB+ 1,080 1,364,745
Multi-Utilities & Unregulated Power 1.79% 3,031,189
CalEnergy Co., Inc.,
Sr Bond 8.480 09-15-28 BBB- 525 705,665
Dynegy-Roseton Danskamme,
Gtd Pass Thru Ctf Ser B 7.670 11-08-16 B 500 480,000
Salton Sea Funding Corp.,
Sr Sec Note Ser C 7.840 05-30-10 BB+ 1,745 1,845,524
Office Services & Supplies 1.25% 2,127,059
Office Depot, Inc.,
Sr Note 6.250 08-15-13 BBB- 1,080 1,132,340
Steelcase, Inc.,
Sr Note 6.375 11-15-06 BBB- 980 994,719
Oil & Gas Refining & Marketing & Trucking 1.18% 2,006,551
Enterprise Products Operations, L.P.,
Gtd Sr Note Ser B 5.600 10-15-14 BB+ 1,000 1,029,051
Reliant Energy Inc.,
Sr Sec Note 6.750 12-15-14 B+ 1,000 977,500
Oil & Gas Drilling 1.79% 3,034,314
Alberta Energy Co., Ltd.,
Note (Canada) 8.125 09-15-30 A- 685 928,620
Delek & Avner-Yam Tethys,
Sr Sec Note (Israel) (S) 5.326 08-01-13 BBB- 333 331,944
Gazprom,
Loan Part Note (Russia) (S) 9.625 03-01-13 BB- 1,000 1,226,250
Grant Prideco Escrow Corp.,
Sr Note Ser B 9.000 12-15-09 BB- 500 547,500
Oil & Gas Exploration & Production 1.10% 1,866,039
Occidental Petroleum Corp.,
Sr Deb 10.125 09-15-09 BBB+ 1,102 1,331,039
Plains Exploration & Production Co.,
Sr Note 7.125 06-15-14 BB- 500 535,000
Paper Packaging 0.77% 1,300,813
Stone Container Corp.,
Sr Note 9.750 02-01-11 B 275 290,813
Sr Note 8.375 07-01-12 B 1,000 1,010,000
See notes to
financial statements.
13
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Paper Products 1.48% $2,515,625
Abitibi-Consolidated Co.,
Gtd Sr Note (Canada) 6.950% 12-15-06 BB- $1,250 1,265,625
MDP Acquisitions Plc,
Sr Note (Ireland) 9.625 10-01-12 B- 1,250 1,250,000
Pharmaceuticals 1.96% 3,323,507
Medco Health Solutions, Inc.,
Sr Note 7.250 08-15-13 BBB 1,550 1,744,830
Wyeth,
Note 5.500 03-15-13 A 1,500 1,578,677
Property & Casualty Insurance 0.95% 1,613,600
Markel Corp.,
Sr Note 7.350 08-15-34 BBB- 515 577,770
Ohio Casualty Corp.,
Note 7.300 06-15-14 BB 750 824,848
URC Holdings Corp.,
Sr Note (S) 7.875 06-30-06 AA- 205 210,982
Publishing 0.26% 445,740
Dex Media West,
Sr Sub Note 9.875 08-15-13 B 391 445,740
Real Estate Investment Trusts 1.34% 2,274,854
Healthcare Realty Trust, Inc.,
Sr Note 8.125 05-01-11 BBB- 165 188,918
iStar Financial, Inc.,
Sr Note 7.000 03-15-08 BBB- 785 832,903
ProLogis Trust,
Sr Note 7.050 07-15-06 BBB+ 490 502,051
Simon Property Group L.P.,
Note (S) 5.100 06-15-15 BBB+ 500 499,732
Ventas Realty, L.P./Capital Corp.,
Sr Note 6.625 10-15-14 BB 250 251,250
Real Estate Management & Development 0.81% 1,380,754
Post Apartment Homes,
Sr Note 5.125 10-12-11 BBB 830 851,061
Socgen Real Estate Co., LLC,
Perpetual Bond Ser A (7.64% to
09-30-07) (S) 7.640 12-29-49 A 495 529,693
Regional Banks 2.60% 4,408,447
Colonial Capital II,
Gtd Cap Security Ser A 8.920 01-15-27 BB 1,029 1,128,916
Crestar Capital Trust I,
Gtd Cap Security 8.160 12-15-26 A- 880 956,608
See notes to
financial statements.
14
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Regional Banks (continued)
First Chicago NDB Institutional Capital,
Gtd Cap Bond Ser A (S) 7.950% 12-01-26 A1 $500 $540,251
Greater Bay Bancorp,
Sr Note (S) 5.125 04-15-10 BBB- 540 546,970
NB Capital Trust IV,
Gtd Cap Security 8.250 04-15-27 A 1,130 1,235,702
Specialized Finance 1.66% 2,812,659
ASG Consolidated LLC,
Sr Disc Note (Zero to 11-1-08,
then 11.500%) (O) Zero 11-01-11 B- 680 487,900
Astoria Depositor Corp.,
Pass Thru Ctf Ser B (G)(S) 8.144 05-01-21 BB 750 740,625
Bosphorous Financial Services,
Sr Sec Floating Rate Note (P)(S) 5.068 02-15-12 Baa3 500 499,863
ESI Tractebel Acquistion Corp.,
Gtd Sec Bond Ser B 7.990 12-30-11 BB 849 902,579
Humpuss Funding Corp.,
Gtd Note (S) 7.720 12-15-09 B2 187 181,692
Telecommunication Services 1.20% 2,036,703
Intelsat Ltd.,
Sr Note (Bermuda) (L)(S) 7.805 01-15-12 B+ 450 457,875
Telus Corp.,
Note (Canada) 8.000 06-01-11 BBB 1,350 1,578,828
Telecommunications Equipment 1.15% 1,941,913
Corning, Inc.,
Med Term Note 8.300 04-04-25 BB+ 1,150 1,200,988
Note 6.050 06-15-15 BBB- 740 740,925
Thrifts & Mortgage Finance 9.33% 15,815,854
Bear Stearns Alt-A Trust,
Collateralized Mtg Obligation
Ser 2005-3 Class B2 5.424 04-25-35 AA+ 440 448,009
Bear Stearns Commericial Mortgage
Securities, Inc.,
Commercial Sub Bond Ser 2004-ESA
Class C (S) 4.937 05-14-16 AA 1,000 1,019,070
Chaseflex Trust,
Pass Thru Ctf Ser 2005-2 Class 4A1 5.000 05-25-20 AAA 1,268 1,278,197
ContiMortgage Home Equity Loan Trust,
Pass Thru Ctf Ser 1995-2 Class A-5 8.100 08-15-25 AAA 176 185,320
See notes to
financial statements.
15
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Thrifts & Mortgage Finance (continued)
Countrywide Alternative Loan Trust,
Mtg Asset Backed Pass Thru Ctf
Ser 2004-24CB Class 1A1 6.000% 11-25-34 AAA $1,118 $1,139,209
Mtg Asset Backed Pass Thru Ctf Ser
2005-J1 Class 3A1 6.500 08-25-32 AAA 667 680,908
Countrywide Home Loans Servicing, L.P.,
Mtg Asset Backed Pass Thru Ctf Ser
2005-6 Class 2A1 5.500 04-25-35 Aaa 752 760,736
Credit-Based Asset Servicing and
Securitization LLC,
Mtg Asset Backed Pass Thru Ctf
Ser 2004-CB4 Class A3 4.632 05-25-35 AAA 1,000 1,003,088
Crown Castle Towers LLC,
Commercial Mtg Pass Thru Ctf
Ser 2005-1A Class D (S) 5.612 06-15-35 Baa2 590 592,766
DLJ Mortgage Acceptance Corp.,
Commercial Mtg Pass Thru
Ctf Ser 1996-CFI Class B (S) 8.356 03-13-28 AAA 1,465 1,496,205
First Horizon Alternative
Mortgage Securities,
Mtg Pass Thru Ctf Ser 2004-AA5 Class B1 5.262 12-25-34 AA 315 317,435
Global Signal Trust,
Sub Bond Ser 2004-1A Class D (S) 5.098 01-15-34 BBB 2,000 1,975,048
Sub Bond Ser 2004-2A Class D (S) 5.093 12-15-14 Baa2 385 381,896
GSR Mortgage Loan Trust,
Mtg Pass Thru Ctf Ser 2004-9
Class B1 (G) 4.429 08-25-34 AA 706 704,358
Indymac Index Mortgage Loan Trust,
Asset Backed Ctf Ser 2004-AR13 Class B1 5.296 01-25-35 AA 469 474,117
Asset Backed Ctf Ser 2005-AR5 Class B1 5.463 05-25-35 AA 509 523,246
Provident Funding Mortgage Loan Trust,
Mtg Pass Thru Ctf Ser 2005-1 Class B1 4.384 05-25-35 AAA 320 316,261
Washington Mutual, Inc.,
Mtg Ln Pass Thru Ctf (N) 6.500 08-29-35 AA 1,050 1,082,320
Mtg Ln Pass Thru Ctf Ser 2005-AR4
Class B1 4.684 04-25-35 AA 1,457 1,437,665
Tobacco 0.62% 1,052,500
Commonwealth Brands, Inc.,
Sr Sec Sub Note (G)(S) 10.625 09-01-08 B 1,000 1,052,500
Utilities Other 0.38% 644,451
Magellan Midstream Partners, L.P.,
Note 6.450 06-01-14 BBB 590 644,451
See notes to
financial statements.
16
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Wireless Telecommunication Services 3.11% $5,275,212
America Movil S.A. de C.V.,
Sr Note (Mexico) 5.750% 01-15-15 BBB $1,225 1,243,820
AT&T Wireless Services , Inc.,
Sr Note 8.125 05-01-12 A 1,475 1,767,267
Mobile Telesystems Finance S.A.,
Gtd Sr Note (Luxembourg) (S) 9.750 01-30-08 BB- 350 375,375
Nextel Communications, Inc.,
Sr Note 7.375 08-01-15 BB 1,250 1,350,000
Rogers Wireless, Inc.,
Sr Sub Note (Canada) (L) 8.000 12-15-12 B+ 500 538,750
Credit
Issuer, description rating (A) Shares Value
Preferred stocks 2.44% $4,141,812
(Cost $4,047,999)
Agricultural Products 0.65% 1,103,125
Ocean Spray Cranberries, Inc., 6.25%, Ser A (S) BB+ 12,500 1,103,125
Consumer Finance 0.31% 521,903
HSBC Finance Corp., 6.36%, Depositary
Shares Ser B BBB+ 20,850 521,903
Diversified Banks 0.60% 1,018,584
Abbey National Plc, 7.375% (United Kingdom) A- 38,700 1,018,584
Diversified Financial Services 0.59% 994,000
ABN AMRO Capital Funding Trust VII, 6.08% A 40,000 994,000
Electric Utilities 0.29% 504,200
DTE Energy Co., 8.75%, Conv BBB- 20,000 504,200
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
U.S. government and agencies securities 49.31% $83,584,813
(Cost $82,703,287)
Government U.S. 6.19% 10,483,490
United States Treasury,
Bond (L) 9.125% 05-15-18 AAA $555 830,267
Bond (L) 5.375 02-15-31 AAA 4,075 4,808,500
Note (L) 6.250 02-15-07 AAA 2,150 2,239,696
Note (L) 5.250 11-15-28 AAA 515 588,206
Note (L) 4.000 04-15-10 AAA 1,995 2,016,821
See notes to
financial statements.
17
FINANCIAL STATEMENTS
Interest Maturity Credit Par value
Issuer, description rate date rating (A) (000) Value
Government U.S. Agency 43.12% $73,101,323
Federal Home Loan Bank,
Bond 4.600% 04-11-08 AAA $2,470 2,484,027
Bond 4.500 04-11-08 AAA 3,000 3,008,175
Bond 4.430 04-07-08 AAA 2,450 2,459,523
Federal Home Loan Mortgage Corp.,
15 Yr Pass Thru Ctf 4.500 04-01-18 AAA 753 750,160
20 Yr Pass Thru Ctf 11.250 01-01-16 AAA 35 37,300
30 Yr Pass Thru Ctf 6.000 08-01-34 AAA 17,652 18,110,276
30 Yr Pass Thru Ctf 6.000 02-01-35 AAA 450 461,253
CMO PAC 2978-CL 5.500 01-15-31 AAA 2,590 2,646,925
CMO PAC 2978-JD 5.500 08-15-31 AAA 2,535 2,595,028
CMO REMIC 2901-UB 5.000 03-15-33 AAA 4,270 4,335,348
Federal National Mortgage Assn.,
15 Yr Pass Thru Ctf 7.500 02-01-08 AAA 13 13,704
15 Yr Pass Thru Ctf 7.000 09-01-10 AAA 40 41,676
15 Yr Pass Thru Ctf 7.000 10-01-12 AAA 20 21,255
15 Yr Pass Thru Ctf 7.000 04-01-17 AAA 61 63,813
30 Yr Pass Thru Ctf 6.000 11-01-34 AAA 3,867 3,966,191
30 Yr Pass Thru Ctf 6.000 05-01-35 AAA 4,903 5,028,451
30 Yr Pass Thru Ctf (M) 5.500 07-01-33 AAA 2,535 2,569,065
30 Yr Pass Thru Ctf 5.500 05-01-34 AAA 1,100 1,116,073
30 Yr Pass Thru Ctf (M) 4.500 08-01-33 AAA 9,020 9,000,264
CMO REMIC 2003-17-QT 5.000 08-25-27 AAA 1,595 1,603,314
Note 6.000 05-20-25 AAA 1,652 1,658,821
Note (L) 5.000 04-19-10 AAA 2,470 2,492,756
Note 4.500 04-01-08 AAA 2,375 2,375,000
Note (L) 4.450 04-11-08 AAA 2,450 2,454,667
Note (L) 4.300 05-05-08 AAA 2,605 2,613,482
Financing Corp.,
Bond 9.400 02-08-18 Aaa 785 1,154,707
Government National Mortgage Assn.,
30 Yr Pass Thru Ctf 10.000 11-15-20 AAA 10 11,748
30 Yr Pass Thru Ctf 9.500 11-15-19 AAA 8 8,619
30 Yr Pass Thru Ctf 9.500 01-15-21 AAA 5 5,062
30 Yr Pass Thru Ctf 9.500 02-15-25 AAA 13 14,640
Interest Credit Par value
Issuer, description, maturity date rate rating (A) (000) Value
Short-term investments 3.26% $5,516,000
(Cost $5,516,000)
Government U.S. Agency 3.25% 5,500,000
Federal Home Loan Bank,
Disc Note 7-1-05 Zero AAA $5,500 5,500,000
See notes to
financial statements.
18
FINANCIAL STATEMENTS
Interest Par value
Issuer, description, maturity date rate (000) Value
Joint Repurchase Agreement 0.01% $16,000
Investment in a joint repurchase
agreement transaction with
Morgan Stanley -- Dated 06-30-05
due 07-01-05 (secured by U.S.
Treasury Inflation Indexed Note
1.875% due 07-15-13) 2.900% $16 16,000
Total investments 155.64% $263,831,119
Other assets and liabilities, net (4.91%) ($8,317,232)
Fund preferred shares, at value (50.73%) ($86,000,000)
Total net assets 100.00% $169,513,887
(A) Credit ratings 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 June 30, 2005.
(M) These securities having an aggregate value of $11,569,329, or 6.83%
of the Fund's net assets, have been purchased as forward commitments--that
is, the Fund has agreed on trade date to take delivery of and to make
payment for these securities on a delayed basis subsequent to the date of
this schedule. The purchase price and interest rate of these securities are
fixed at trade date, although the Fund does not earn any interest on these
until settlement date. The Fund has segregated assets with a current value
at least equal to the amount of the forward commitments. Accordingly, the
market value of $11,939,887 of Federal Home Loan Bank, 4.500%, 04-11-08 and
Federal Home Loan Mortgage Corp., 6.000%, 08-01-34 have been segregated to
cover the forward commitments.
(N) This security having an aggregate value of $1,082,320 or 0.64% of the
Fund's net assets, has 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 $1,226,374 of Federal Home
Loan Mortgage Corp., 5.500%, 01-15-31 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 June 30, 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 $37,221,248 or 21.96% of the Fund's net
assets as of June 30, 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.
19
FINANCIAL STATEMENTS
ASSETS AND
LIABILITIES
June 30, 2005
(unaudited)
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the net
asset value for each
common share.
Assets
Investments, at value (cost $258,127,765)
including $18,391,350 of securities loaned $263,831,119
Cash 587
Cash segregated for futures contacts 281,250
Receivable for investments sold 10,977,201
Receivable for shares sold 244,884
Dividends and interest receivable 3,400,825
Other assets 15,207
Total assets 278,751,073
Liabilities
Payable for investments purchased 22,722,987
Payable for futures variation margin 76,170
Payable to affiliates
Management fees 338,925
Other 4,917
Other payable and accrued expenses 82,468
Total liabilities 23,225,467
Auction Preferred Shares (APS) Series A, including
accrued dividends, unlimited number of shares of
beneficial interest authorized with no par value,
1,720 shares issued, liquidation preference of
$25,000 per share 43,005,860
APS Series B, including accrued dividends, unlimited
number of shares of beneficial interest authorized
with no par value, 1,720 shares issued, liquidation
preference of $25,000 per share 43,005,859
Net assets
Common shares capital paid-in 168,283,392
Accumulated net realized loss on investments and
financial futures contracts (3,326,418)
Net unrealized appreciation of investments and
financial futures contracts 4,942,386
Distributions in excess of net investment income (385,473)
Net assets applicable to common shares $169,513,887
Net asset value per common share
Based on 8,187,197 common shares outstanding --
20 million shares authorized with no par value $20.70
See notes to
financial statements.
20
FINANCIAL STATEMENTS
OPERATIONS
For the period ended
June 30, 2005
(unaudited) 1
This Statement
of Operations
summarizes the
Fund's investment
income earned and
expenses incurred
in operating the
Fund. It also shows
net gains (losses)
for the period
stated.
Investment income
Interest $7,685,848
Dividends 187,261
Securities lending 49,110
Total investment income 7,922,219
Expenses
Investment management fees 654,917
APS auction fees 112,392
Transfer agent fees 40,511
Custodian fees 37,894
Printing 27,184
Accounting and legal services fees 24,654
Professional fees 23,379
Miscellaneous 19,856
Registration and filing fees 11,839
Trustees' fees 3,842
Interest 3,027
Security lending fees 2,496
Total expenses 961,991
Net investment income 6,960,228
Realized and unrealized gain (loss)
Net realized loss on
Investments 39,380
Financial futures contracts (888,085)
Change in net unrealized appreciation (depreciation) of
Investments (2,280,237)
Financial futures contracts (628,191)
Net realized and unrealized loss (3,757,133)
Distributions to APS Series A (606,755)
Distributions to APS Series B (606,537)
Increase in net assets from operations $1,989,803
1 Semiannual period from 1-1-05 through 6-30-05.
See notes to
financial statements.
21
FINANCIAL STATEMENTS
CHANGES IN
NET ASSETS
These Statements
of Changes in Net
Assets show how
the value of the
Fund's net assets
has changed
during the last
two periods. The
difference reflects
earnings less
expenses, any
investment
gains and losses,
distributions, if
any, paid to
shareholders and
the net of Fund
share transactions.
Year Period
ended ended
12-31-04 6-30-05 1
Increase in net assets
From operations
Net investment income $13,899,925 $6,960,228
Net realized loss (1,171,649) (848,705)
Change in net unrealized appreciation
(depreciation) (591,849) (2,908,428)
Distributions to APS Series A and B (1,305,131) (1,213,292)
Increase in net assets resulting
from operations 10,831,296 1,989,803
Distributions to common shareholders
From net investment income (13,527,084) (6,166,606)
From Fund share transactions 1,256,063 532,438
Net assets
Beginning of period 174,597,977 173,158,252
End of period 2 $173,158,252 $169,513,887
1 Semiannual period from 1-1-05 through 6-30-05. Unaudited.
2 lncludes accumulated (distributions in excess of) net investment
income of $34,197 and ($385,473), respectively.
See notes to
financial statements.
22
FINANCIAL HIGHLIGHTS
FINANCIAL
HIGHLIGHTS
COMMON 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 12-31-00 1 12-31-01 1,2 12-31-02 1 12-31-03 12-31-04 6-30-05 3
Per share operating performance
Net asset value,
beginning of period $20.11 $20.79 $20.98 $21.21 $21.55 $21.22
Net investment income 4 1.42 1.32 1.20 1.37 1.71 0.85
Net realized and unrealized
gain (loss) on investments 0.68 0.21 0.25 1.14 (0.21) (0.47)
Distributions to APS Series A and B 5 -- -- -- (0.02) (0.16) (0.14)
Total from
investment operations 2.10 1.53 1.45 2.49 1.34 0.24
Less distributions
to common shareholders
From net investment income (1.42) (1.34) (1.22) (1.42) (1.67) (0.76)
From net realized gains -- -- -- (0.60) -- --
(1.42) (1.34) (1.22) (2.02) (1.67) (0.76)
Capital charges
Offering costs and underwriting
discounts related to APS -- -- -- (0.13) -- --
Net asset value, end of period $20.79 $20.98 $21.21 $21.55 $21.22 $20.70
Per share market value,
end of period $19.25 $19.04 $19.12 $19.98 $22.46 $20.05
Total return at market value 6 (%) 25.75 5.96 6.89 15.29 21.60 (7.37) 7
Ratios and supplemental data
Net assets applicable to common
shares, end of period (in millions) $165 $167 $170 $175 $173 $169
Ratio of expenses
to average net assets (%) 0.83 0.82 0.84 0.88 8 1.16 8 1.13 8,9
Ratio of net investment income
to average net assets (%) 6.97 6.20 5.74 6.25 10 8.03 108.20 9,10
Portfolio turnover (%) 247 300 314 245 128 64
Senior securities
Total APS Series A outstanding
(in millions) -- -- -- $43 $43 $43
Total APS Series B outstanding
(in millions) -- -- -- $43 $43 $43
Involuntary liquidation preference
APS Series A per unit (in thousands) -- -- -- $25 $25 $25
Involuntary liquidation preference APS
Series B per unit (in thousands) -- -- -- $25 $25 $25
Average market value per unit
(in thousands) -- -- -- $25 $25 $25
Asset coverage per unit 11 -- -- -- $74,836 $74,713 $73,916
See notes to
financial statements.
23
Notes to Financial Highlights
1 Audited by previous auditor.
2 As required, effective January 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 December 31, 2001, was to decrease net
investment income per share by $ 0.02, increase net realized and
unrealized gain per share by $0.02 and, had the Fund not made these
changes to amortization and accretion, the ratio of net investment
income to average net assets would have been 6.31%. Per share ratios and
supplemental data for periods prior to January 1, 2001, have not been
restated to reflect this change in presentation.
3 Semiannual period from 1-1-05 through 6-30-05. Unaudited.
4 Based on the average of the shares outstanding.
5 APS Series A and B were issued on 11-4-03.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Ratios calculated on the basis of expenses relative to the average net
assets of common shares. Without the exclusion of preferred shares, the
annualized ratios of expenses would have been 0.82%, 0.77% and 0.75% for
the periods ended 12-31-03, 12-31-04 and 6-30-05, respectively.
9 Not annualized.
10 Ratios calculated on the basis of net investment income relative to the
average net assets of common shares. Without the exclusion of preferred
shares, the annualized ratios of net investment income would have been
5.81%, 5.36% and 5.46% for the periods ended 12-31-03, 12-31-04 and
6-30-05, respectively.
11 Calculated by subtracting the Fund's total liabilities from the Fund's
total assets and dividing that amount by the number of APS outstanding,
as of the applicable 1940 Act Evaluation Date, which may differ from
the financial reporting date.
See notes to
financial statements.
24
NOTES TO
STATEMENTS
Unaudited
Note A
Accounting policies
John Hancock Investors Trust (the "Fund") is a closed-end diversified
investment management company registered under the Investment Company Act
of 1940.
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. The Fund determines the net asset value of the
common shares each business day.
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 real ized gains and losses on sales of investments are
determined on the identified cost basis. Some securities may be purchased
on a "when issued" or "forward delivery" basis, which means that the
securities will be delivered to the Fund at a future date, usually beyond
the customary settlement date.
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.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will
be 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.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
negotiated lender fees.
25
The loans are collateralized at all times with cash or securities with a
market value at least equal to the market value of the securities on loan.
As with other extensions of credit, the Fund may bear the risk of delay of
the loaned securities in recovery or even loss of rights in the
collateral, should the borrower of the securities fail financially. On
June 30, 2005, the Fund loaned securities having a market value of
$18,391,350 collateralized by securities in the amount of $18,492,107.
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 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 fluctuations 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 June 30, 2005, the Fund had deposited $281,250 in a
segregated account to cover margin requirements on open financial futures
contracts.
The Fund had the following financial futures contracts open on June 30, 2005:
NUMBER OF
OPEN CONTRACTS CONTRACTS POSITION EXPIRATION DEPRECIATION
- -------------------------------------------------------------------------
U.S. 10-year Treasury Note 345 Short Sep 05 ($737,789)
U.S. 10-Year Treasury Note 30 Short Sep 05 (23,179)
($760,968)
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 $1,668,465 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 entire
amount of the loss carryforward expires December 31, 2012.
Dividends, interest and distributions
Dividend income on investment securities is
26
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. During the year
ended December 31, 2004 the tax character of distributions was as follows:
ordinary income $14,832,215.
Such distributions, on a tax basis, are determined in conformity with
income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. Distributions in
excess of tax basis earnings and profits, if any, are reported in the
Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported
amount of assets, liabilities, revenues and expenses of the Fund. Actual
results could differ from these estimates.
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 quarterly management fee
to the Adviser, equivalent on an annual basis, to the sum of (a) 0.650% of
the first $150,000,000 of the Fund's average weekly net asset value and
the value attributable to the Auction Preferred Shares (collectively,
"managed assets"), (b) 0.375% of the next $50,000,000, (c) 0.350% of the
next $100,000,000 and (d) 0.300% of the Fund's average daily managed
assets in excess of $300,000,000.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
period amounted to $24,654. The Fund also paid the Adviser the amount of
$3,887 for certain compliance costs, included in the miscellaneous
expenses.
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.
The Fund is listed for trading on the New York Stock Exchange ("NYSE") and
has filed with the NYSE its chief executive officer certification
regarding compliance with the NYSE's listing standards. The Fund also
files with the Securities and Exchange Commission the certification of its
chief executive officer and chief accounting officer required by Section
302 of the Sarbanes-Oxley Act.
27
Note C
Fund share transactions
This listing illustrates the number of Fund common shares, distributions
reinvested, offering costs and underwriting discount charged to capital
paid-in, reclassification of capital accounts and the number of common
shares outstanding at the beginning and end of the last two periods, along
with the corresponding dollar value.
Year ended 12-31-04 Period ended 6-30-05 1
Shares Amount Shares Amount
Beginning of period 8,102,295 $167,056,970 8,160,880 $167,750,954
Distributions reinvested 58,585 1,226,299 26,317 532,438
Offering costs and
underwriting discount
related to Auction
Preferred Shares -- 29,764 -- --
Reclassification of
capital accounts -- (562,079) -- --
End of period 8,160,880 $167,750,954 8,187,197 $168,283,392
1 Semiannual period from 1-1-05 through 6-30-05. Unaudited.
Auction preferred shares
The Fund issued a total of 3,440 Auction Preferred Shares: 1,720 shares of
Series A Auction Preferred Shares and 1,720 shares of Series B Auction
Preferred Shares (collectively, the "Preferred Shares" or "APS") on
November 4, 2003, in a public offering. The total offering costs of
$178,036 and the total underwriting discount of $860,000 has been charged
to capital paid-in of common shares during the years ended December 31,
2003 and December 31, 2004.
Dividends on the APS, which accrue daily, are cumulative at a rate that
was established at the offering of the APS and has been reset every 7 days
thereafter by an auction. Dividend rates on APS Series A ranged from 2.19%
to 3.25% and Series B from 2.24% to 3.45% during the period ended June 30,
2005. Accrued dividends on APS are included in the value of APS on the
Fund's Statement of Assets and Liabilities.
The APS are redeemable at the option of the Fund, at a redemption price
equal to $25,000 per share, plus accumulated and unpaid dividends on any
dividend payment date. The APS are also subject to mandatory redemption at
a redemption price equal to $25,000 per share, plus accumulated and unpaid
dividends, if the Fund is in default on its asset coverage requirements
with respect to the APS as defined in the Fund's by-laws. If the dividends
on the APS shall remain unpaid in an amount equal to two full years'
dividends, the holders of the APS, as a class, have the right to elect a
majority of the Board of Trustees. In general, the holders of the APS and
the common shareholders have equal voting rights of one vote per share,
except that the holders of the APS, as a class, vote to elect two members
of the Board of Trustees, and separate class votes are required on certain
matters that affect the respective interests of the APS and common
shareholders.
Note D
Investment
transactions
Purchases and proceeds from sales or maturities of securities, other than
short-term securities and obligations of the U.S. government, during the
period ended June 30, 2005, aggregated $123,811,226 and $108,234,835,
respectively. Purchases and proceeds from sales or maturities of
obligations of U.S. government aggregated $43,180,177 and $52,583,762,
respectively, during the period ended June 30, 2005.
28
The cost of investments owned on June 30, 2005, including short-term
investments, for federal income tax purposes was $259,300,708. Gross
unrealized appreciation and depreciation of investments aggregated
$7,189,462 and $2,659,051, respectively, resulting in net unrealized
appreciation of $4,530,411. The difference between book basis and tax
basis net unrealized appreciation of investments is attributable primarily
to the tax deferral of losses on certain sales of securities and
amortization of premiums on debt securities.
29
Investment
objective
and policy
The Fund is a closed-end diversified management investment company, common
shares of which were initially offered to the public on January 29, 1971
and are publicly traded on the New York Stock Exchange. The Fund's primary
investment objective is to generate income for distribution to its
shareholders, with capital appreciation as a secondary objective. The
preponderance of the Fund's assets are invested in a diversified portfolio
of debt securities, some of which may carry equity features. Up to 50% of
the value of the Fund's assets may be invested in restricted securities
acquired through direct placement. The Fund may also invest in repurchase
agreements. The Fund may issue a single class of senior securities not to
exceed 3313% of the market or fair value of its net assets and may borrow
from banks as a temporary measure for emergency purposes in amounts not to
exceed 5% of its total assets taken at cost. The Fund may lend portfolio
securities not to exceed 3313% of total assets.
By-laws
In November 2002, the Board of Trustees adopted several amendments to the
Fund's by-laws, including provisions relating to the calling of a special
meeting and requiring advance notice of shareholder proposals or nominees
for Trustee. The advance notice provisions in the by-laws require
shareholders to notify the Fund in writing of any proposal that they
intend to present at an annual meeting of shareholders, including any
nominations for Trustee, between 90 and 120 days prior to the first
anniversary of the mailing date of the notice from the prior year's annual
meeting of shareholders. The notification must be in the form prescribed
by the by-laws. The advance notice provisions provide the Fund and its
Trustees with the opportunity to thoughtfully consider and address the
matters proposed before the Fund prepares and mails its proxy statement to
shareholders. Other amendments set forth the procedures, which must be
followed in order for a shareholder to call a special meeting of
shareholders. Please contact the Secretary of the Fund for additional
information about the advance notice requirements or the other amendments
to the by-laws.
On August 21, 2003, shareholders approved the amendment of the Fund's
by-laws, effective August 26, 2003, to provide for the issuance of
preferred shares. Effective March 9, 2004, the Trustees approved
additional changes to conform with the Fund's maximum dividend rate on the
preferred shares with the rate used by other John Hancock funds.
On September 14, 2004, the Trustees approved an amendment to the Fund's
by-laws increasing the maximum applicable dividend rate ceiling on the
preferred shares to conform with the modern calculation methodology used
by the industry and other John Hancock funds.
Financial futures
contracts and options
The Fund may buy and sell financial futures contracts and options on
futures contracts to hedge against the effects of fluctuations in interest
rates and other market conditions. The Fund's ability to hedge
successfully will depend on the Adviser's ability to predict accurately
the future direction of interest rate changes and other market factors.
There is no assurance that a liquid market for futures and options will
always exist. In addition, the Fund could be prevented from opening, or
realizing the benefits of closing out, a futures or options position
because of position limits or limits on daily price fluctuations imposed
by an exchange.
The Fund will not engage in transactions in futures contracts and options
on futures for speculation, but only for hedging or other permissible risk
management purposes. All of the Fund's futures contracts and options on
futures will be traded on a U.S. commodity exchange or board of trade. The
Fund will not engage in a transaction in
30
futures or options on futures if, immediately thereafter, the sum of
initial margin deposits on existing positions and premiums paid for
options on futures would exceed 5% of the Fund's total assets.
Dividends and
distributions
The Fund pays quarterly dividends from net investment income and intends
to distribute any available net realized capital gains annually. All
distributions are paid in cash unless the shareholder elects to
participate in the Dividend Reinvestment Plan.
During the period ended June 30, 2005, the Fund paid to shareholders
dividends from net investment income totaling $0.7550 per share. The dates
of payments and the amounts per share are as follows:
INCOME
PAYMENT DATE DIVIDEND
- ---------------------------
March 31, 2005 $0.3900
June 30, 2005 0.3650
Dividend
reinvestment plan
The Fund offers its common shareholders a Dividend Reinvestment Plan (the
"Plan"), which offers the opportunity to earn compounded yields. Any
holder of common shares of record of the Fund may elect to participate in
the Plan and receive the Fund's common shares in lieu of all or a portion
of the cash dividends. The Plan is available to all common shareholders
without charge. Mellon Investor Services (the "Plan Agent") will act as
agent for participating shareholders.
Shareholders may join the Plan by notifying the Plan Agent by telephone,
in writing or by visiting the Plan Agent's Web site at
www.melloninvestor.com showing an election to reinvest all or a portion of
dividend payments. If received in proper form by the Plan Agent prior to
the record date for a dividend, the election will be effective with
respect to all dividends paid after such record date. Shareholders whose
shares are held in the name of a broker or nominee should contact the
broker or nominee to determine whether and how they may participate in the
Plan.
The Board of Trustees of the Fund will declare dividends from net
investment income payable in cash or, in the case of shareholders
participating in the Plan, partially or entirely in the Fund's common
shares. The number of shares to be issued for the benefit of each
shareholder will be determined by dividing the amount of the cash
dividend, otherwise payable to such shareholder on shares included under
the Plan, by the per share net asset value of the common shares on the
date for payment of the dividend, unless the net asset value per share on
the payment date is less than 95% of the market price per share on that
date, in which event the number of shares to be issued to a shareholder
will be determined by dividing the amount of the cash dividend payable to
such shareholder, by 95% of the market price per share of the common
shares on the payment date. The market price of the common shares on a
particular date shall be the mean between the highest and lowest sales
price on the New York Stock Exchange on that date. Net asset value will be
determined in accordance with the established procedures of the Fund.
However, if as of such payment date the market price of the common shares
is lower than such net asset value per share, the number of shares to be
issued will be determined on the basis of such market price. Fractional
shares, carried out to four decimal places, will be credited to the
shareholder's account. Such fractional shares will be entitled to future
dividends.
The shares issued to participating shareholders, including fractional
shares, will be held by the Plan Agent in the name of the participant. A
confirmation will be sent to each shareholder promptly, normally within
seven days, after the payment date of the dividend. The confirmation will
show the total number of shares held by such shareholder
31
before and after the dividend, the amount of the most recent cash dividend
that the shareholder has elected to reinvest and the number of shares
acquired with such dividend.
Participation in the Plan may be terminated at any time by contacting the
Plan Agent by telephone, in writing or by visiting the Plan Agent's Web
site, and such termination will be effective immediately. However, notice
of termination must be received prior to the record date of any
distribution to be effective for that distribution. Upon termination,
certificates will be issued representing the number of full shares of
common shares held by the Plan Agent. A shareholder will receive a cash
payment for any fractional share held.
The reinvestment of dividends will not relieve participants of any
federal, state or local income tax, which may be due with respect to such
dividend. Dividends reinvested in common shares will be treated on your
federal income tax return as though you had received a dividend in cash in
an amount equal to the fair market value of the shares received, as
determined by the prices for common shares of the Fund on the New York
Stock Exchange as of the dividend payment date. Dis tri b utions from the
Fund's long-term capital gains will be processed as noted above for those
electing to reinvest in common shares and will be taxable to you as
long-term capital gains. The confirmation referred to above will contain
all the information you will require for determining the cost basis of
shares acquired and should be retained for that purpose. At year end, each
account will be supplied with detailed information necessary to determine
total tax liability for the calendar year.
All correspondence or additional information concerning the Plan should be
directed to the Plan Agent, Mellon Bank, N.A., c/o Mellon Investor
Services, P.O. Box 3338, South Hackensack, New Jersey 07606-1938
(Telephone: 1-800-852-0218).
Shareholder
communication
and assistance
If you have any questions concerning the Fund, we will be pleased to
assist you. If you hold shares in your own name and not with a brokerage
firm, please address all notices, correspondence, questions or other
communications regarding the Fund to the transfer agent at:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Telephone: 1-800-852-0218
If your shares are held with a brokerage firm, you should contact that
firm, bank or other nominee for assistance.
32
Shareholder meeting
On March 2, 2005, the Annual Meeting of the Fund was held to elect ten
Trustees and to ratify the actions of the Trustees in selecting
independent auditors for the Fund.
Proxies covering 6,957,395 shares of beneficial interest were voted at the
meeting. The common 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 6,902,883 51,076
Richard P. Chapman, Jr. 6,897,740 56,219
William Cosgrove 6,897,683 56,276
William H. Cunningham 6,884,078 69,881
Ronald R. Dion 6,895,985 57,974
Charles L. Ladner 6,901,340 52,619
Steven R. Pruchansky 6,892,336 61,623
James A. Shepherdson* 6,897,287 56,672
* Mr. James A. Shepherdson resigned effective July 15, 2005.
The preferred shareholders elected Dr. John A. Moore and Patti McGill
Peterson to serve as the Fund's Trustees until their successors are duly
elected and qualified, with the votes for each Trustee tabulated as
follows: 3,421 FOR, 0 AGAINST, 15 ABSTAINING.
The common and preferred shareholders ratified the Trustees' selection of
PricewaterhouseCoopers LLP as the Fund's independent auditor for the
fiscal year ending December 31, 2005, with votes tabulated as follows:
6,855,107 FOR, 35,820 AGAINST and 66,468 ABSTAINING.
33
Board Consideration
of and Continuation
of Investment
Advisory Agreement
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act")
requires the Board of Trustees (the "Board") of John Hancock Investors
Trust (the "Fund"), including a majority of the Trustees who have no
direct or indirect interest in the investment advisory agreement and are
not "interested persons" of the Fund, as defined in the 1940 Act (the
"Independent Trustees"), annually to review and consider the continuation
of the investment advisory agreement (the "Advisory Agreement") with John
Hancock Advisers, LLC (the "Adviser") for the Fund.
At meetings held on May 19-20 and June 6-7, 2005, the Board, including the
Independent Trustees considered the factors and reached the conclusions
described below relating to the selection of the Adviser and the
continuation of the Advisory Agreement. During such meetings, the Board's
Contracts/Operations Committee and the Independent Trustees also met in
executive sessions with their independent legal counsel. In evaluating the
Advisory Agreement, the Board, including the Contracts/Operations
Committee and the Independent Trustees, reviewed a broad range of
information requested for this purpose by the Independent Trustees,
including but not limited to the following: (i) the investment performance
of the Fund and a broader universe of relevant funds (the "Universe")
selected by Lipper Inc. ("Lipper"), an independent provider of investment
company data, for a range of periods, (ii) advisory and other fees
incurred by, and the expense ratios of, the Fund and a peer group of
comparable funds selected by Lipper (the "Peer Group"), (iii) the advisory
fees of comparable portfolios of other clients of the Adviser, (iv)
theAdviser's financial results and condition, including its and certain of
its affiliates' profitability from services performed for the Fund, (v)
breakpoints in the Fund's and the Peer Group's fees and a study undertaken
at the direction of the Independent Trustees as to the allocation of the
benefits of economies of scale between the Fund and the Adviser, (vi) the
Adviser's record of compliance with applicable laws and regulations, with
the Fund's investment policies and restrictions, and with the Fund's Code
of Ethics and the structure and responsibilities of the Adviser's
compliance department, (vii) the background and experience of senior
management and investment professionals, and (viii) the nature, cost and
character of advisory and non-investment management services provided by
the Adviser and its affiliates.
Nature, Extent and Quality
of Services
The Board considered the ability of the Adviser, based on its resources,
reputation and other attributes, to attract and retain qualified
investment professionals, including research, advisory, and supervisory
personnel. The Board further considered the compliance programs and
compliance records of the Adviser. In addition, the Board took into
account the administrative services provided to the Fund by the Adviser
and its affiliates.
Based on the above factors, together with those referenced below, the
Board concluded that, within the context of its full deliberations, the
nature, extent and quality of the investment advisory services provided to
the Fund by the Adviser justified renewal of the Advisory Agreement.
Fund Performance
The Board considered the performance results for the Fund over various
time periods.
The Board also considered these results in comparison to the performance
of the Universe, as well as the Fund's benchmark indices.
34
Lipper determined the Universe for the Fund. The Board reviewed with a
representative of Lipper the methodology used by Lipper to select the
funds in the Universe and the Peer Group.
The Board noted that the performance of the Fund was below the median
performance of its Universe for the time periods under review. The Board
also noted that the Fund's performance was below the performance of the
Lipper Closed-End General Bond Funds Index during recent years, but was
slightly higher than such Fund's index performance over longer-term
periods. The Board noted that the Fund's performance was consistently
higher than the performance of the Lehman Government/Corporate Bond Index.
The Adviser discussed with the Board factors contributing to the Fund's
performance results. The Adviser noted that, in its view, the Fund's
Universe was over-inclusive, and excluding large non-U.S. currency funds
from the Universe would demonstrate that the Fund's performance was
consistent with other similarly leveraged closed-end funds. The Board
indicated its intent to continue to monitor the Fund's performance trends.
Investment Advisory Fee
Rates and Expenses
The Board reviewed and considered the contractual investment advisory fee
rate payable by the Fund to the Adviser for investment advisory services
(the "Advisory Agreement Rate"). The Board received and considered
information comparing the Advisory Agreement Rate with the advisory fees
for the Peer Group. The Board noted that the Advisory Agreement Rate was
lower than the median rate of the Peer Group, and reasonable in relation
to the services provided.
The Board received and considered information regarding the Fund's total
operating expense ratio and its various components, including contractual
advisory fees, actual advisory fees, non-management fees, transfer agent
fees and custodian fees, including and excluding investment-related
expenses. The Board also considered comparisons of these expenses to the
Peer Group and the Universe. The Board noted that the total operating
expense ratio of the Fund was lower than the Peer Group's and Universe's
median total operating expense ratio.
The Adviser also discussed the Lipper data and rankings, and other
relevant information, for the Fund. Based on the above-referenced
considerations and other factors, the Board concluded that the Fund's
overall expense results and performance supported the re-approval of the
Advisory Agreement.
Profitability
The Board received and considered a detailed profitability
analysis of the Adviser based on the Advisory Agreement, as well as on
other relationships between the Fund and the Adviser and its affiliates.
The Board concluded that, in light of the costs of providing investment
management and other services to the Fund, the profits and other ancillary
benefits reported by the Adviser were not unreasonable.
Economies of Scale
The Board received and considered general information regarding economies
of scale with respect to the management of the Fund, including the Fund's
ability to appropriately benefit from economies of scale under the Fund's
fee structure. The Board recognized the inherent limitations of any
analysis of economies of scale, stemming largely from the Board's
understanding that most of the Adviser's costs are not specific to
individual Funds, but rather are incurred across a variety of products and
services.
The Board observed that the Advisory Agreement offers breakpoints.
However, the Board considered the limited relevance of economies of
35
scale in the context of a closed-end fund that, unlike an open-end fund,
does not continuously offer its shares, and concluded that the fees were
fair and equitable based on relevant factors, including the Fund's total
expenses ranking relative to its Peer Group.
Information About
Services to Other Clients
The Board also received information about the nature, extent and quality
of services and fee rates offered by the Adviser to its other clients,
including other registered investment companies, institutional investors
and separate accounts. The Board concluded that the Advisory Agreement
Rate was not unreasonable, taking into account fee rates offered to others
by the Adviser and giving effect to differences in services covered by
such fee rates.
Other Benefits to
the Adviser
The Board received information regarding potential "fall-out" or ancillary
benefits received by the Adviser and its affiliates as a result of the
Adviser's relationship with the Fund. Such benefits could include, among
others, benefits directly attributable to the relationship of the Adviser
with the Fund and benefits potentially derived from an increase in the
business of the Adviser as a result of its relationship with the Fund
(such as the ability to market to shareholders other financial products
offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser's and the
Fund's policies and procedures for complying with the requirements of the
federal securities laws, including those relating to best execution of
portfolio transactions and brokerage allocation.
Other Factors and
Broader Review
As discussed above, the Board reviewed detailed materials received from
the Adviser as part of the annual re-approval process under Section 15(c)
of the 1940 Act. The Board also regularly reviews and assesses the quality
of the services that the Fund receives throughout the year. In this
regard, the Board reviews reports of the Adviser at least quarterly, which
include, among other things, a detailed portfolio review, detailed fund
performance reports and compliance reports. In addition, the Board meets
with portfolio managers and senior investment officers at various times
throughout the year.
After considering the above-described factors and based on its
deliberations and its evaluation of the information described above, the
Board concluded that approval of the continuation of the Advisory
Agreement for the Fund was in the best interest of the Fund and its
shareholders. Accordingly, the Board unanimously approved the continuation
of the Advisory Agreement.
36
For more information
The Fund's proxy voting policies, procedures and records are available
without charge, upon request:
By phone On the Fund's Web site On the SEC's Web site
1-800-225-5291 www.jhfunds.com/proxy www.sec.gov
Trustees
Charles L. Ladner, Chairman*
James F. Carlin
Richard P. Chapman, Jr.*
William H. Cunningham
Ronald R. Dion
Dr. John A. Moore*
Patti McGill Peterson*
Steven R. Pruchansky
*Members of the Audit Committee
Officers
Keith F. Hartstein
President and Chief Executive Officer
William H. King
Vice President and Treasurer
Francis V. Knox, Jr.
Vice President and Chief Compliance Officer
Investment adviser
John Hancock Advisers, LLC
601 Congress Street
Boston, MA 02210-2805
Custodian
The Bank of New York
One Wall Street
New York, NY 10286
Transfer agent
and registrar
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Transfer agent for APS
Deutsche Bank Trust
Company Americas
280 Park Avenue
New York, NY 10017
Legal counsel
Wilmer Cutler Pickering
Hale and Dorr LLP
60 State Street
Boston, MA 02109-1803
Stock symbol
Listed New York Stock
Exchange:
JHI
For shareholder assistance
refer to page 32
How to contact us
Internet www.jhfunds.com
Mail Regular mail:
Mellon Investor Services
85 Challenger Road
Overpeck Centre
Ridgefield Park, NJ 07660
Phone Customer service representatives 1-800-852-0218
Portfolio commentary 1-800-344-7054
24-hour automated information 1-800-843-0090
TDD line 1-800-231-5469
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.
37
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-852-0218
1-800-843-0090 EASI-Line
1-800-231-5469 (TDD)
www.jhfunds.com
PRESORTED
STANDARD
U. S. POSTAGE
PAID
MIS
P50SA 6/05
8/05
ITEM 2. CODE OF ETHICS.
As of the end of the period, June 30, 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.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
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) 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)(2) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Investors Trust
By: /s/ Keith F. Hartstein
------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: August 29, 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: August 29, 2005
By: /s/ William H. King
------------------------------
William H. King
Vice President and Treasurer
Date: August 29, 2005