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 811-21777
John Hancock Funds III
(Exact name of registrant as specified in charter)
601 Congress Street, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip code)
Gordon M. Shone
Treasurer
601 Congress Street
Boston, Massachusetts 02210
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-663-3000
Date of fiscal year end: | February | 28 |
| | |
Date of reporting period: | February | 28, 2007 |
ITEM 1. REPORT TO SHAREHOLDERS.
TABLE OF CONTENTS |
|
Your fund at a glance |
page 1 |
|
Managers’ report |
page 2 |
|
A look at performance |
page 6 |
|
Your expenses |
page 8 |
|
Fund’s investments |
page 10 |
|
Financial statements |
page 17 |
|
Notes to financial |
statements |
page 26 |
|
Trustees and officers |
page 36 |
|
For more information |
page 40 |
|
CEO corner
To Our Shareholders,
The U.S. financial markets turned in strong results over the last 12 months, as earlier concerns of rising inflation, a housing slowdown and high energy prices gave way to news of slower, but still resilient, economic growth, stronger than expected corporate earnings and dampened inflation fears and energy costs. This environment also led the Federal Reserve Board to hold short-term interest rates steady. Even with a sharp decline in the last days of the period, the broad stock market returned 11.97% for the year ended February 28, 2007, as measured by the S&P 500 Index. With interest rates remaining relatively steady, fixed-income securities also produced positive results.
But after a remarkably long period of calm, the financial markets were rocked at the end of the period by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. In the United States, for example, the Dow Jones Industrial Average had its steepest one-day percentage decline in nearly four years on February 27, 2007. The event served to jog investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
It was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the market’s moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes well for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more-than-four-year-old bull market. The recent downturn bolsters this uncertainty, although we believe it was a healthy correction for which we were overdue.
The recent volatility could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon — not a sprint — approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of February 28, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks long-term capital growth by typically investing in U.S. companies that issue stocks included in the Russell 1000 Index, and in companies with size and growth characteristics similar to those of companies with stocks in the Index.
Since inception
► The Fund generated double-digit gains against a backdrop of rising share prices and investors’ preference for cheap stocks.
► The market's rally was fueled in part by the Fed’s decision to keep short-term interest rates steady and by falling energy prices.
► Market volatility was evident at the beginning of the period, diminished to near-record-low levels during the rally and returned as the period came to a close.
Top 10 holdings | | | | |
| | | | |
Exxon Mobil Corp. | 5.8% | | Merck & Company, Inc. | 3.8% |
| |
|
Pfizer, Inc. | 5.4% | | Home Depot, Inc. | 2.6% |
| |
|
Citigroup, Inc. | 4.6% | | Wal-Mart Stores, Inc. | 2.4% |
| |
|
Verizon Communications, Inc. | 4.5% | | Bank of America Corp. | 2.3% |
| |
|
AT&T, Inc. | 4.2% | | Morgan Stanley | 2.1% |
| |
|
As a percentage of net assets on February 28, 2007.
1
Managers’ report
John Hancock
Intrinsic Value Fund
U.S. stocks enjoyed solid performance during the review period, which began in June 2006 in the midst of a market correction triggered by the Federal Reserve Board’s hawkish comments about inflation and fears of a longer-than-anticipated cycle of interest rate hikes. Rising energy prices were another factor adding to the negative investor sentiment early in the period.
As the summer progressed, however, the prospects for both interest rates and energy prices improved. Inflationary pressures eased a bit and more data emerged indicating a slowing U.S. economy, prompting the Fed to leave interest rates unchanged in August after 17 consecutive 0.25% increases. At subsequent meetings in September, November, December and January, the Fed reaffirmed its stand-pat position. At the same time, energy prices registered substantial declines. In response, the market embarked on a rally that began in July and continued almost through the end of February.
The rally was characterized by extremely low share price volatility and investors’ preference for stocks with low price-to-book value (P/B) or price-to-earnings (P/E) ratios, as evidenced by the dramatic outperformance of the Fund’s benchmark, the Russell 1000 Value Index, over the Russell 1000 Growth Index. Corporate profits continued to grow at a healthy pace and, while short-term interest rates were higher than they had been prior to the Fed’s tightening moves, access to capital
SCORECARD
INVESTMENT | | PERIOD’S PERFORMANCE ... AND WHAT’S BEHIND THE NUMBERS |
| | |
Merck | ▲ | Undervalued; controversy over Vioxx fading |
| | |
AT&T | ▲ | Improving profitability; synergies from Bell South acquisition |
| | |
Exxon Mobil | ▼ | Underweighting hurts as stock advances amid record profits |
2
From the Grantham, Mayo, Van Otterloo & Co. LLC (GMO)
Portfolio Management Team
remained relatively unhindered. However, on the second-to-last trading day of the period, volatility returned with a vengeance, as the Dow Jones Industrial Average and the Russell 1000 Value Index each fell by more than 3%. It was the Dow’s worst one-day percentage loss since 2003, leaving many investors wondering if the long run of benign market conditions had come to an end.
Looking at performance
From their inception on June 12, 2006, through February 28, 2007, John Hancock Intrinsic Value Fund’s Class A, Class B, Class C, Class I, Class R1 and Class 1 shares returned 15.19%, 14.61%, 14.61%, 15.50%, 14.88% and 15.53%, respectively, at net asset value. By comparison, the Russell 1000 Value Index returned 16.32%, while the average large value fund monitored by Morningstar, Inc. gained 15.95% .a Keep in mind that your returns will differ from those listed above if you were not invested in the Fund for the entire period or did not reinvest all distributions.
“U.S. stocks enjoyed solid
performance during the review
period…”
The market environment proved challenging to both of our primary stock selection tools — valuation and momentum. Valuation, which determines the positioning for the majority of this Fund’s assets, accounted for most of the performance shortfall. During the period, investors wanted cheap stocks on a P/B or P/E basis, whereas our valuation discipline seeks out stocks selling at a significant discount from their intrinsic value. The difference is that our methodology encompasses various yardsticks of quality, such as stability of earnings, leverage and long-term profitability. Over the longer term, the market has rewarded an emphasis on quality stocks acquired at a discount, but over shorter periods of time investors
Intrinsic Value Fund
3
sometimes spurn quality in favor of low prices, concept stocks or other fads.
Our momentum criteria are designed to identify stocks that have performed well recently and appear poised to continue outperforming. That said, although the broader earnings environment was favorable and the market rose for most of the period, our momentum strategy rotated out of low P/B and low P/E stocks after they plummeted during the market’s early summer correction. Consequently, the strategy underperformed when the market shifted back toward these stocks as the market recovered.
Oil and gas, construction and retail limit gains
The oil and gas sector had the biggest negative impact on the Fund’s results versus the benchmark and included the Fund’s biggest individual detractor, Exxon Mobil Corp. Although this company enjoyed record profitability, the Fund’s underweighted position detracted from performance. The drag on performance from the retail group was caused largely by two stocks, Wal-Mart Stores, Inc. and Home Depot, Inc. Concerns about decelerating growth hampered Wal-Mart, while Home Depot was hurt by speculation that its profits could be curtailed by a weak homebuilding market. In our view, both companies remained capable of generating solid earnings growth in a wide variety of economic environments, and both stocks were trading at discounts to their true economic values. Drug holding Pfizer, Inc. further limited the Fund’s gains. After a strong run during the late summer and early fall, Pfizer shares suffered a setback in Decemb er when the company announced that it was abandoning the development of a cholesterol drug that had been seen as a potential core product for the future. Computer maker Dell, Inc. was a detractor as well.
SECTOR DISTRIBUTIONb | |
| |
Financial | 24% |
Consumer, non-cyclical | 23% |
Consumer, cyclical | 15% |
Communications | 13% |
Energy | 8% |
Industrial | 5% |
Technology | 3% |
Government | 2% |
Mortgage securities | 2% |
Basic materials | 1% |
Utilities, health care and financial add value
On the positive side, the utility, health care and financial sectors made contributions to performance. In particular, our valuation and momentum screens signaled opportunity in pharmaceutical stocks, which had been beaten down due to controversies surrounding the safety of various patent medications. Merck & Company, Inc. had been one of the downtrodden and as investors began to realize its inherent
Intrinsic Value Fund
4
value, the stock responded with a strong gain. Also adding value were telecommunication services providers AT&T, Inc. and Verizon Communications, Inc., two stocks we owned for both their compelling valuations and strong momentum. In the financial sector, not owning Wells Fargo & Co. proved rewarding, as the stock slumped near the end of the period on concerns about the company’s subprime lending exposure. Lastly, we were well served by not holding General Electric, whose shares failed to keep pace with the benchmark during the period.
“…the utility, health care
and financial sectors made
contributions to performance.”
Outlook
The plunge in share prices near the end of the period raises the possibility that the era of low volatility might be coming to an end. Likewise, the mean-reverting nature of corporate profitability and access to capital indicate that challenges in those areas could lie in the market’s future. Against this backdrop, we believe the Fund’s emphasis on buying quality stocks below their intrinsic value — together with its focus on momentum opportunities — positions it well to face the remainder of 2007 and beyond.
This commentary reflects the views of the portfolio management team through the end of the Fund’s period discussed in this report. The team’s statements reflect its 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.
a Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
b As a percentage of net assets on February 28, 2007.
Intrinsic Value Fund
5
A look at performance
For the period ended February 28, 2007
| | Cumulative total returns |
| | with maximum sales charge (POP) |
|
| Inception | Since |
Class | date | inception |
|
A | 6-12-06 | 9.44% |
|
B | 6-12-06 | 9.61 |
|
C | 6-12-06 | 13.61 |
|
Ia | 6-12-06 | 15.50 |
|
R1a | 6-12-06 | 14.88 |
|
1a | 6-12-06 | 15.53 |
|
Performance figures assume all distributions are reinvested. POP (Public Offering Price) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I, Class R1 and Class 1 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 increase and results would have been less favorable.
Performance is calculated with an opening price (prior day’s close) on the inception date.
a For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
Intrinsic Value Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Intrinsic Value Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in the Russell 1000 Value Index.
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 6-12-06 | $11,461 | $10,961 | $11,632 |
|
C | 6-12-06 | 11,461 | 11,361 | 11,632 |
|
Ib | 6-12-06 | 11,550 | 11,550 | 11,632 |
|
R1b | 6-12-06 | 11,488 | 11,488 | 11,632 |
|
1b | 6-12-06 | 11,553 | 11,553 | 11,632 |
|
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, Class R1 and Class 1 shares, respectively, as of February 28, 2007. 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.
Russell 1000 Value Index is an unmanaged index containing those securities in the Russell 1000 Index with a less-than-average growth orientation.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
a NAV represents net asset value and POP represents public offering price.
b For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
Intrinsic Value Fund
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 September 1, 2006, with the same investment held until February 28, 2007.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,077.04 | $6.95 |
|
Class B | 1,000.00 | 1,072.65 | 10.54 |
|
Class C | 1,000.00 | 1,073.15 | 10.54 |
|
Class I | 1,000.00 | 1,078.97 | 4.90 |
|
Class R1 | 1,000.00 | 1,074.69 | 8.74 |
|
Class 1 | 1,000.00 | 1,078.71 | 4.64 |
|
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 February 28, 2007 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:
Intrinsic Value Fund
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’ actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on September 1, 2006, with the same investment held until February 28, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,018.10 | $6.76 |
|
Class B | 1,000.00 | 1,014.63 | 10.24 |
|
Class C | 1,000.00 | 1,014.63 | 10.24 |
|
Class I | 1,000.00 | 1,020.08 | 4.76 |
|
Class R1 | 1,000.00 | 1,016.36 | 8.50 |
|
Class 1 | 1,000.00 | 1,020.33 | 4.51 |
|
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.
a Expenses are equal to the Fund’s annualized expense ratio of 1.35%, 2.05%, 2.05%, 0.95%, 1.70% and 0.90% for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively, multiplied by the average account value over the period, multiplied by the number of days in the inception period/365 or 366 (to reflect the one-half year period).
Intrinsic Value Fund
9
F I N A N C I A L S T A T E M E N T S
Fund’s investments
Securities owned by the Fund on 2-28-07
This schedule is divided into two main categories: common stocks and repurchase agreements. Common stocks are further broken down by industry group.
Issuer | Shares | Value |
| | |
Common stocks 95.84% | | $19,466,127 |
|
(Cost $17,743,676) | | |
| | |
Aerospace 0.68% | | 137,627 |
|
General Dynamics Corp. | 300 | 22,937 |
|
Northrop Grumman Corp. | 1,000 | 71,850 |
|
Raytheon Company | 800 | 42,840 |
| | |
Agriculture 0.36% | | 72,198 |
|
Archer-Daniels-Midland Company | 2,100 | 72,198 |
| | |
Aluminum 0.38% | | 76,843 |
|
Alcoa, Inc. | 2,300 | 76,843 |
| | |
Apparel & Textiles 1.18% | | 238,849 |
|
Jones Apparel Group, Inc. | 1,400 | 46,088 |
|
Liz Claiborne, Inc. | 1,200 | 54,000 |
|
Mohawk Industries, Inc. * | 400 | 35,008 |
|
VF Corp. | 1,300 | 103,753 |
| | |
Auto Parts 0.63% | | 127,952 |
|
AutoZone, Inc. * | 200 | 25,058 |
|
Johnson Controls, Inc. | 600 | 56,280 |
|
O’Reilly Automotive, Inc. * | 1,000 | 34,430 |
|
TRW Automotive Holdings Corp. * | 400 | 12,184 |
| | |
Auto Services 0.29% | | 59,292 |
|
AutoNation, Inc. * | 2,700 | 59,292 |
| | |
Automobiles 1.84% | | 373,535 |
|
Ford Motor Company | 22,600 | 178,992 |
|
General Motors Corp. | 3,700 | 118,104 |
|
PACCAR, Inc. | 1,100 | 76,439 |
| | |
Banking 6.67% | | 1,354,946 |
|
Bank of America Corp. | 9,200 | 468,004 |
|
Bank of New York Company, Inc. | 1,500 | 60,930 |
|
BB&T Corp. | 1,600 | 67,968 |
|
Comerica, Inc. | 2,000 | 120,780 |
|
Fifth Third Bancorp | 1,100 | 44,308 |
|
First Horizon National Corp. | 800 | 34,520 |
|
Huntington Bancshares, Inc. | 1,000 | 23,150 |
See notes to financial statements
Intrinsic Value Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Banking (continued) | | |
|
KeyCorp | 2,500 | $94,350 |
|
National City Corp. | 9,200 | 348,220 |
|
US Bancorp | 2,600 | 92,716 |
| | |
Broadcasting 0.91% | | 184,112 |
|
CBS Corp., Class B | 2,800 | 84,980 |
|
News Corp. | 4,400 | 99,132 |
| | |
Building Materials & Construction 0.52% | | 104,776 |
|
American Standard Companies, Inc. | 400 | 21,196 |
|
Masco Corp. | 2,800 | 83,580 |
| | |
Business Services 1.19% | | 242,736 |
|
Affiliated Computer Services, Inc., Class A * | 700 | 36,379 |
|
Computer Sciences Corp. * | 700 | 37,051 |
|
Convergys Corp. * | 1,300 | 33,436 |
|
First Data Corp. | 1,200 | 30,636 |
|
Manpower, Inc. | 600 | 44,580 |
|
Moody’s Corp. | 200 | 12,944 |
|
Pitney Bowes, Inc. | 1,000 | 47,710 |
| | |
Cable and Television 1.30% | | 263,489 |
|
Comcast Corp., Class A * | 7,950 | 204,474 |
|
Time Warner, Inc. | 2,900 | 59,015 |
| | |
Chemicals 0.75% | | 151,702 |
|
Air Products & Chemicals, Inc. | 400 | 29,928 |
|
E.I. Du Pont De Nemours & Company | 600 | 30,450 |
|
Eastman Chemical Company | 200 | 11,824 |
|
PPG Industries, Inc. | 1,200 | 79,500 |
| | |
Colleges & Universities 0.07% | | 14,790 |
|
Career Education Corp. * | 500 | 14,790 |
| | |
Computers & Business Equipment 1.77% | | 358,678 |
|
CDW Corp. | 200 | 12,416 |
|
Cisco Systems, Inc. * | 2,200 | 57,068 |
|
Dell, Inc. * | 4,900 | 111,965 |
|
Ingram Micro, Inc., Class A * | 1,600 | 31,088 |
|
International Business Machines Corp. | 900 | 83,709 |
|
Lexmark International, Inc. * | 600 | 36,336 |
|
Tech Data Corp. * | 700 | 26,096 |
| | |
Construction Materials 0.06% | | 12,384 |
|
Louisiana-Pacific Corp. | 600 | 12,384 |
| | |
Cosmetics & Toiletries 0.17% | | 34,055 |
|
Kimberly-Clark Corp. | 500 | 34,055 |
| | |
Crude Petroleum & Natural Gas 0.68% | | 138,773 |
|
Apache Corp. | 400 | 27,412 |
|
Devon Energy Corp. | 500 | 32,855 |
|
Occidental Petroleum Corp. | 1,700 | 78,506 |
See notes to financial statements
Intrinsic Value Fund
11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Electrical Utilities 0.10% | | $19,740 |
|
Entergy Corp. | 200 | 19,740 |
| | |
Financial Services 14.09% | | 2,861,943 |
|
AmeriCredit Corp. * | 600 | 14,652 |
|
Bear Stearns Companies, Inc. | 200 | 30,448 |
|
Citigroup, Inc. | 18,400 | 927,360 |
|
Countrywide Financial Corp. | 1,300 | 49,764 |
|
Federal Home Loan Mortgage Corp. | 5,400 | 346,572 |
|
Federal National Mortgage Association | 6,400 | 363,072 |
|
Fiserv, Inc. * | 400 | 21,184 |
|
Goldman Sachs Group, Inc. | 500 | 100,800 |
|
IndyMac Bancorp, Inc. | 300 | 10,299 |
|
JPMorgan Chase & Company | 4,100 | 202,540 |
|
Knight Capital Group, Inc. * | 600 | 9,486 |
|
Mellon Financial Corp. | 500 | 21,715 |
|
Merrill Lynch & Company, Inc. | 1,100 | 92,048 |
|
Morgan Stanley | 5,800 | 434,536 |
|
PNC Financial Services Group, Inc. | 1,300 | 95,303 |
|
Washington Mutual, Inc. | 3,300 | 142,164 |
| | |
Food & Beverages 2.49% | | 506,518 |
|
Campbell Soup Company | 300 | 12,249 |
|
Coca-Cola Enterprises, Inc. | 600 | 12,054 |
|
ConAgra Foods, Inc. | 1,500 | 37,845 |
|
General Mills, Inc. | 300 | 16,908 |
|
H.J. Heinz Company | 1,000 | 45,870 |
|
Kraft Foods, Inc., Class A | 4,800 | 153,216 |
|
Pepsi Bottling Group, Inc. | 700 | 21,700 |
|
PepsiAmericas, Inc. | 500 | 10,655 |
|
Sara Lee Corp. | 3,800 | 62,548 |
|
The Coca-Cola Company | 1,100 | 51,348 |
|
Tyson Foods, Inc., Class A | 4,500 | 82,125 |
| | |
Healthcare Products 0.74% | | 150,379 |
|
Biomet, Inc. | 400 | 16,932 |
|
Johnson & Johnson | 1,100 | 69,355 |
|
Patterson Companies, Inc. * | 300 | 10,014 |
|
Stryker Corp. | 600 | 37,212 |
|
Zimmer Holdings, Inc. * | 200 | 16,866 |
| | |
Healthcare Services 2.91% | | 591,108 |
|
Cardinal Health, Inc. | 2,200 | 154,198 |
|
Caremark Rx, Inc. | 200 | 12,318 |
|
Express Scripts, Inc. * | 600 | 45,246 |
|
Lincare Holdings, Inc. * | 600 | 23,430 |
|
McKesson Corp. | 3,400 | 189,584 |
|
Quest Diagnostics, Inc. | 600 | 30,612 |
|
UnitedHealth Group, Inc. | 2,600 | 135,720 |
See notes to financial statements
Intrinsic Value Fund
12
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Homebuilders 0.67% | | $136,308 |
|
Centex Corp. | 700 | 32,452 |
|
KB Home | 400 | 19,840 |
|
Lennar Corp., Class A | 600 | 29,544 |
|
M.D.C. Holdings, Inc. | 400 | 20,424 |
|
Pulte Homes, Inc. | 500 | 14,780 |
|
Ryland Group, Inc. | 400 | 19,268 |
| | |
Hotels & Restaurants 0.58% | | 117,551 |
|
Brinker International, Inc. | 1,300 | 44,213 |
|
McDonald’s Corp. | 900 | 39,348 |
|
Starbucks Corp. * | 1,100 | 33,990 |
| | |
Household Appliances 0.26% | | 52,926 |
|
Whirlpool Corp. | 600 | 52,926 |
| | |
Household Products 0.08% | | 17,184 |
|
Energizer Holdings, Inc. * | 200 | 17,184 |
| | |
Industrial Machinery 0.69% | | 139,477 |
|
AGCO Corp. * | 700 | 25,375 |
|
Cummins, Inc. | 200 | 26,936 |
|
Deere & Company | 500 | 54,210 |
|
Parker-Hannifin Corp. | 400 | 32,956 |
| | |
Insurance 6.95% | | 1,410,729 |
|
Aetna, Inc. | 1,200 | 53,124 |
|
AFLAC, Inc. | 2,900 | 136,880 |
|
Allstate Corp. | 3,400 | 204,204 |
|
Ambac Financial Group, Inc. | 800 | 70,112 |
|
American International Group, Inc. | 3,700 | 248,270 |
|
CIGNA Corp. | 200 | 28,500 |
|
Commerce Group, Inc. | 400 | 11,468 |
|
Conseco, Inc. * | 600 | 11,970 |
|
First American Corp. | 700 | 33,005 |
|
Hartford Financial Services Group, Inc. | 200 | 18,912 |
|
Lincoln National Corp. | 500 | 34,075 |
|
MBIA, Inc. | 1,300 | 86,411 |
|
MGIC Investment Corp. | 600 | 36,210 |
|
Nationwide Financial Services, Inc., Class A | 400 | 21,440 |
|
Old Republic International Corp. | 1,600 | 35,712 |
|
PMI Group, Inc. | 1,000 | 46,870 |
|
Progressive Corp. | 2,100 | 48,153 |
|
Protective Life Corp. | 400 | 17,764 |
|
Radian Group, Inc. | 800 | 45,960 |
|
SAFECO Corp. | 200 | 13,344 |
|
The Travelers Companies, Inc. * | 800 | 40,608 |
|
Torchmark Corp. | 700 | 44,744 |
See notes to financial statements
Intrinsic Value Fund
13
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Insurance (continued) | | |
|
Transatlantic Holdings, Inc. | 200 | $13,220 |
|
UnumProvident Corp. | 3,300 | 70,653 |
|
W.R. Berkley Corp. | 1,200 | 39,120 |
| | |
International Oil 7.35% | | 1,492,331 |
|
Anadarko Petroleum Corp. | 2,000 | 80,460 |
|
Chevron Corp. | 2,500 | 171,525 |
|
ConocoPhillips | 1,100 | 71,962 |
|
Exxon Mobil Corp. | 16,300 | 1,168,384 |
| | |
Leisure Time 0.78% | | 157,596 |
|
Walt Disney Company | 4,600 | 157,596 |
| | |
Liquor 0.34% | | 68,712 |
|
Anheuser-Busch Companies, Inc. | 1,400 | 68,712 |
| | |
Manufacturing 1.04% | | 211,172 |
|
Danaher Corp. | 400 | 28,656 |
|
Eaton Corp. | 600 | 48,606 |
|
Harley-Davidson, Inc. | 600 | 39,540 |
|
Illinois Tool Works, Inc. | 800 | 41,360 |
|
Snap-on, Inc. | 500 | 25,050 |
|
SPX Corp. | 400 | 27,960 |
| | |
Medical-Hospitals 0.09% | | 18,441 |
|
Tenet Healthcare Corp. * | 2,700 | 18,441 |
| | |
Metal & Metal Products 0.16% | | 31,962 |
|
Reliance Steel & Aluminum Company | 700 | 31,962 |
| | |
Office Furnishings & Supplies 0.10% | | 20,760 |
|
OfficeMax, Inc. | 400 | 20,760 |
| | |
Paper 0.19% | | 39,611 |
|
International Paper Company | 1,100 | 39,611 |
| | |
Pharmaceuticals 11.30% | | 2,295,350 |
|
Abbott Laboratories | 1,300 | 71,006 |
|
AmerisourceBergen Corp. | 2,800 | 147,476 |
|
Barr Pharmaceuticals, Inc. * | 200 | 10,600 |
|
Bristol-Myers Squibb Company | 2,900 | 76,531 |
|
Forest Laboratories, Inc. * | 1,500 | 77,640 |
|
King Pharmaceuticals, Inc. * | 2,500 | 46,625 |
|
Merck & Company, Inc. | 17,600 | 777,216 |
|
Pfizer, Inc. | 43,600 | 1,088,256 |
| | |
Photography 0.22% | | 45,372 |
|
Eastman Kodak Company | 1,900 | 45,372 |
| | |
Publishing 0.98% | | 199,345 |
|
Gannett Company, Inc. | 2,700 | 165,402 |
|
McGraw-Hill Companies, Inc. | 200 | 12,922 |
|
Tribune Company | 700 | 21,021 |
See notes to financial statements
Intrinsic Value Fund
14
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Railroads & Equipment 0.58% | | $117,815 |
|
Burlington Northern Santa Fe Corp. | 500 | 39,595 |
|
CSX Corp. | 400 | 15,068 |
|
Norfolk Southern Corp. | 500 | 23,700 |
|
Union Pacific Corp. | 400 | 39,452 |
| | |
Retail Grocery 2.21% | | 449,806 |
|
Safeway, Inc. | 5,500 | 190,135 |
|
SUPERVALU, Inc. | 1,400 | 51,744 |
|
The Kroger Company | 8,100 | 207,927 |
| | |
Retail Trade 8.69% | | 1,764,994 |
|
Bed Bath & Beyond, Inc. * | 800 | 31,912 |
|
Best Buy Company, Inc. | 300 | 13,941 |
|
Big Lots, Inc. * | 500 | 12,515 |
|
BJ’s Wholesale Club, Inc. * | 900 | 29,052 |
|
Circuit City Stores, Inc. | 500 | 9,515 |
|
Costco Wholesale Corp. | 800 | 44,712 |
|
Dillard’s, Inc., Class A | 400 | 13,360 |
|
Dollar General Corp. | 1,500 | 25,320 |
|
Dollar Tree Stores, Inc. * | 1,700 | 57,987 |
|
Family Dollar Stores, Inc. | 1,700 | 49,249 |
|
Foot Locker, Inc. | 500 | 11,360 |
|
Gap, Inc. | 1,400 | 26,866 |
|
Home Depot, Inc. | 13,300 | 526,680 |
|
Kohl’s Corp. * | 200 | 13,798 |
|
Lowe’s Companies, Inc. | 7,400 | 240,944 |
|
NBTY, Inc. * | 600 | 29,208 |
|
Rent-A-Center, Inc. * | 500 | 14,160 |
|
Staples, Inc. | 700 | 18,214 |
|
Target Corp. | 700 | 43,071 |
|
The TJX Companies, Inc. | 1,100 | 30,250 |
|
Walgreen Company | 1,000 | 44,710 |
|
Wal-Mart Stores, Inc. | 9,900 | 478,170 |
| | |
Sanitary Services 0.22% | | 45,588 |
|
Allied Waste Industries, Inc. * | 900 | 11,538 |
|
Waste Management, Inc. | 1,000 | 34,050 |
| | |
Semiconductors 0.45% | | 92,280 |
|
Intel Corp. | 4,000 | 79,400 |
|
Novellus Systems, Inc. * | 400 | 12,880 |
| | |
Software 0.34% | | 68,144 |
|
Intuit, Inc. * | 400 | 11,804 |
|
Microsoft Corp. | 2,000 | 56,340 |
| | |
Telecommunications Equipment & Services 0.13% | | 25,520 |
|
Polycom, Inc. * | 800 | 25,520 |
See notes to financial statements
Intrinsic Value Fund
15
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Telephone 8.99% | | $1,825,426 |
|
AT&T, Inc. | 23,327 | 858,434 |
|
CenturyTel, Inc. | 1,200 | 53,700 |
|
Verizon Communications, Inc. | 24,400 | 913,292 |
| | |
Tires & Rubber 0.07% | | 14,772 |
|
Goodyear Tire & Rubber Company * | 600 | 14,772 |
| | |
Tobacco 0.93% | | 188,860 |
|
Altria Group, Inc. | 1,400 | 117,992 |
|
Reynolds American, Inc. | 400 | 24,420 |
|
UST, Inc. | 800 | 46,448 |
| | |
Toys, Amusements & Sporting Goods 0.38% | | 76,569 |
|
Hasbro, Inc. | 500 | 14,145 |
|
Mattel, Inc. | 2,400 | 62,424 |
| | |
Transportation 0.13% | | 27,404 |
|
C.H. Robinson Worldwide, Inc. | 300 | 15,288 |
|
Overseas Shipholding Group, Inc. | 200 | 12,116 |
| | |
Travel Services 0.17% | | 35,563 |
|
Sabre Holdings Corp. | 1,100 | 35,563 |
| | |
Trucking & Freight 0.99% | | 202,134 |
|
Fedex Corp. | 1,500 | 171,270 |
|
Ryder Systems, Inc. | 600 | 30,864 |
|
| Principal | |
Issuer, description, maturity date | amount | Value |
|
Repurchase agreements 4.01% | | $814,000 |
|
(Cost $814,000) | | |
|
Repurchase Agreement with State Street Corp. dated 2/28/2007 at | | |
4.60% to be repurchased at $814,104 on 3/1/2007, collateralized | | |
by $850,000 Federal Home Loan Bank, 4.625% due 09/11/2020 | | |
(Valued at $834,063, including interest) (c) | $814,000 | 814,000 |
|
Total investments (Cost $18,557,676) 99.85% | | $20,280,127 |
|
|
Other assets in excess of liabilities 0.15% | | 31,103 |
|
|
Total net assets 100.00% | | $20,311,230 |
* Non-income producing.
(c) Investment is an affiliate of the Trust’s subadvisor or custodian bank.
See notes to financial statements
Intrinsic Value Fund
16
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 2-28-07
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 $17,743,676) | $19,466,127 |
Repurchase agreement, at value (Cost $814,000) | 814,000 |
Cash | 770 |
Cash segregated for futures contracts | 40,000 |
Receivable for fund shares sold | 33,409 |
Dividends and interest receivable | 36,107 |
Receivable for futures variation margin | 3,400 |
Other assets | 1,515 |
Total assets | 20,395,328 |
|
Liabilities | |
|
Payable for fund shares repurchased | 1,902 |
Payable to affiliates | |
Fund administration fees | 3,137 |
Transfer agent fees | 4,180 |
Investment management fees | 9,181 |
Service fees | 196 |
Accrued expenses | 65,502 |
Total liabilities | 84,098 |
|
Net assets | |
|
Capital paid-in | 18,211,979 |
Undistributed net investment income | 43,586 |
Accumulated undistributed net realized gain on investments and futures contracts | 336,571 |
Net unrealized appreciation on investments and futures contracts | 1,719,094 |
Net assets | $20,311,230 |
|
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 ($19,197,111 ÷ 846,602 shares) | $22.68 |
Class B ($467,931 ÷ 20,668 shares)a | $22.64 |
Class C ($286,915 ÷ 12,673 shares)a | $22.64 |
Class I ($128,129 ÷ 5,645 shares) | $22.70 |
Class R1 ($115,618 ÷ 5,109 shares) | $22.63 |
Class 1 ($115,526 ÷ 5,090 shares) | $22.70 |
|
Maximum offering price per share | |
|
Class Ab ($22.68 ÷ 95%) | $23.87 |
a Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
b On single retail sales of less than $50,000. On sales of $50,000 and on group sales the offering price is reduced.
See notes to financial statements
Intrinsic Value Fund
17
F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 2-28-07a
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 | |
|
Dividends | $289,416 |
Interest | 30,745 |
Total investment income | 320,161 |
|
Expenses | |
|
Investment management fees (Note 3) | 100,631 |
Distribution and service fees (Note 3) | 41,511 |
Transfer agent fees (Note 3) | 9,006 |
Fund administration fees (Note 3) | 4,800 |
Blue sky fees (Note 3) | 70,630 |
Audit and legal fees | 49,276 |
Custodian fees | 21,189 |
Printing and postage fees (Note 3) | 10,124 |
Registration and filing fees | 2,996 |
Trustees’ fees (Note 3) | 90 |
Miscellaneous | 280 |
| |
Total expenses | 310,533 |
Less expense reductions (Note 3) | (133,882) |
| |
Net expenses | 176,651 |
| |
Net investment income | 143,510 |
|
Realized and unrealized gain | |
|
Net realized gain on | |
Investments | 469,129 |
Futures contracts | 56,932 |
| |
Change in net unrealized appreciation (depreciation) of | |
Investments | 1,722,451 |
Futures contracts | (3,357) |
| |
Net realized and unrealized gain | 2,245,155 |
| |
Increase in net assets from operations | $2,388,665 |
a Period from 6-12-06 (commencement of operations) to 2-28-07.
See notes to financial statements
Intrinsic Value Fund
18
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
These Statements of Changes in Net Assets show how the value of the Fund’s net assets has changed since inception. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Period |
| ended |
| 2-28-07a |
|
Increase (decrease) in net assets | |
From operations | |
Net investment income | $143,510 |
Net realized gain | 526,061 |
Change in net unrealized appreciation (depreciation) | 1,719,094 |
| |
Increase in net assets resulting from operations | 2,388,665 |
| |
Distributions to shareholders | |
From net investment income | |
Class A | (108,035) |
Class B | (1,017) |
Class C | (762) |
Class I | (985) |
Class R1 | (620) |
Class 1 | (914) |
From net realized gain | |
Class A | (179,361) |
Class B | (3,802) |
Class C | (2,850) |
Class I | (1,241) |
Class R1 | (1,118) |
Class 1 | (1,118) |
Total distributions | (301,823) |
| |
From Fund share transactions | 18,224,388 |
|
Net assets | |
|
Beginning of period | — |
| |
End of periodb | $20,311,230 |
a Period from 6-12-06 (commencement of operations) to 2-28-07.
b Includes undistributed net investment income of $43,586.
See notes to financial statements
Intrinsic Value Fund
19
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed since inception.
CLASS A SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.18 |
Net realized and unrealized | |
gain on investments | 2.85 |
Total from investment operations | 3.03 |
Less distributions | |
From net investment income | (0.13) |
From net realized gain | (0.22) |
| (0.35) |
Net asset value, end of period | $22.68 |
Total return (%) | 15.19k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | $19 |
Ratio of net expenses to average | |
net assets (%) | 1.34r |
Ratio of gross expenses to average | |
net assets (%) | 1.94p,r |
Ratio of net investment income | |
to average net assets (%) | 1.13r |
Portfolio turnover (%) | 32m |
See notes to financial statements
Intrinsic Value Fund
20
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.07 |
Net realized and unrealized | |
gain on investments | 2.85 |
Total from investment operations | 2.92 |
Less distributions | |
From net investment income | (0.06) |
From net realized gain | (0.22) |
| (0.28) |
Net asset value, end of period | $22.64 |
Total return (%) | 14.61k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 2.04r |
Ratio of gross expenses to average | |
net assets (%) | 9.00p,r |
Ratio of net investment income | |
to average net assets (%) | 0.42r |
Portfolio turnover (%) | 32m |
See notes to financial statements
Intrinsic Value Fund
21
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.06 |
Net realized and unrealized | |
gain on investments | 2.86 |
Total from investment operations | 2.92 |
Less distributions | |
From net investment income | (0.06) |
From net realized gain | (0.22) |
| (0.28) |
Net asset value, end of period | $22.64 |
Total return (%) | 14.61k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 2.04r |
Ratio of gross expenses to average | |
net assets (%) | 10.08p,r |
Ratio of net investment income | |
to average net assets (%) | 0.37r |
Portfolio turnover (%) | 32m |
See notes to financial statements
Intrinsic Value Fund
22
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.24 |
Net realized and unrealized | |
gain on investments | 2.86 |
Total from investment operations | 3.10 |
Less distributions | |
From net investment income | (0.18) |
From net realized gain | (0.22) |
| (0.40) |
Net asset value, end of period | $22.70 |
Total return (%) | 15.50k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 0.95r |
Ratio of gross expenses to average | |
net assets (%) | 17.60p,r |
Ratio of net investment income | |
to average net assets (%) | 1.53r |
Portfolio turnover (%) | 32m |
See notes to financial statements
Intrinsic Value Fund
23
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS R1 SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.12 |
Net realized and unrealized | |
gain on investments | 2.85 |
Total from investment operations | 2.97 |
Less distributions | |
From net investment income | (0.12) |
From net realized gain | (0.22) |
| (0.34) |
Net asset value, end of period | $22.63 |
Total return (%) | 14.88k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 1.69r |
Ratio of gross expenses to average | |
net assets (%) | 20.85p,r |
Ratio of net investment income | |
to average net assets (%) | 0.78r |
Portfolio turnover (%) | 32m |
See notes to financial statements
Intrinsic Value Fund
24
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS 1 SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.25 |
Net realized and unrealized | |
gain on investments | 2.85 |
Total from investment operations | 3.10 |
Less distributions | |
From net investment income | (0.18) |
From net realized gain | (0.22) |
| (0.40) |
Net asset value, end of period | $22.70 |
Total return (%) | 15.53k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 0.90r |
Ratio of gross expenses to average | |
net assets (%) | 1.44p,r |
Ratio of net investment income | |
to average net assets (%) | 1.58r |
Portfolio turnover (%) | 32m |
a Class A, Class B, Class C, Class I, Class R1 and Class 1 shares began operations on 6-12-06.
h Based on the average of the shares outstanding.
i Less than $500,000.
k Assumes dividend reinvestment.
l Total returns would have been lower had certain expenses not been reduced during the period shown.
m Not annualized.
p Does not take into consideration expense reductions during the periods shown.
r Annualized.
See notes to financial statements
Intrinsic Value Fund
25
Notes to financial statements
1. Organization
John Hancock Intrinsic Value Fund (the “Fund”) is a newly organized non-diversified series of John Hancock Funds III (the “Trust”). The Trust was established as a Massachusetts business trust on June 9, 2005. The Trust is registered under the Investment Company Act of 1940 as amended, (the “1940 Act”), as an open-end investment management company. The investment objective of the Fund is to seek long-term capital growth.
John Hancock Life Insurance Company of New York (“John Hancock New York”) is a wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.) (“John Hancock USA”). John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of The Manufacturers Life Insurance Company (“Manulife”), which in turn is a wholly owned subsidiary of Manulife Financial Corporation (“MFC”), a publicly traded company. MFC and its subsidiaries are known collectively as “Manulife Financial.”
John Hancock Investment Management Services, LLC (the “Adviser”), a Delaware limited liability company controlled by John Hancock USA, serves as investment adviser for the Trust and John Hancock Funds, LLC (the “Distributor”), a Delaware limited liability company, an affiliate of the Adviser, serves as principal underwriter.
The Board of Trustees has authorized the issuance of multiple classes of shares of the Fund, including classes designated as Class A, Class B, Class C, Class I, Class R1, Class 1, Class 3 and Class NAV 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 Board of 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 bear distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Effective November 6, 2006, the Board of Trustees elected to change the name of Class R to Class R1.
Class 1 shares are sold only to certain exempt separate accounts of John Hancock USA and John Hancock New York. Class NAV shares are sold to affiliated funds of funds, which are funds of funds within the John Hancock funds complex
2. Significant accounting policies
In the preparation of the financial statements, the Fund follows the policies described below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Security valuation
The net asset value of the shares of the Fund is determined daily as of the close of the New York Stock Exchange, normally at 4:00 p.m., Eastern Time. Short-term debt instruments with remaining maturities of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on a principal securities exchange (domestic or foreign) on which
Intrinsic Value Fund
26
they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Fund securities for which there are no such quotations, principally debt securities, are valued based on the valuation provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques.
Other assets and securities for which no such quotations are readily available are valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the New York Stock Exchange. The values of such securities used in computing the net asset value of a Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the New York Stock Exchange. Upon such an occurrence, these securities will then be valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
In deciding whether to make a fair value adjustment to the price of a security, the Board of Trustees or their designee may review a variety of factors, including, developments in foreign markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations, for example, when a particular foreign market is closed, but the Fund is calculating the net asset value. In view of these factors, it is likely that a fund investing significant amounts of assets in securities in foreign markets will be fair valued more frequently than a fund investing significant amounts of assets in frequently traded, U.S. exchange listed securities of large capitalization U.S. issuers.
For purposes of determining when fair value adjustments may be appropriate with respect to the Fund investing in securities in foreign markets that close prior to the New York Stock Exchange, the Fund will, on an ongoing basis, monitor for “significant market events.” A significant market event may be a certain percentage change in the value of an index or of certain Exchange Traded Funds (“ETFs”) that track foreign markets in which the Fund has significant investments. If a significant market event occurs due to a change in the value of the index or of ETFs, the pricing for the Fund will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Trust’s Pricing Committee, where applicable.
Fair value pricing of securities is intended to help ensure that the net asset value of the Fund’s shares reflects the value of the Fund’s securities as of the close of the New York Stock Exchange (as opposed to a value which is no longer accurate as of such close), thus limiting the opportunity for aggressive traders to purchase shares of the Fund at deflated prices, reflecting stale security valuations, and to promptly sell such shares at a gain. However, a security’s valuation may differ depending on the method used for determining value and no assurance can be given that fair value pricing of securities will successfully eliminate all potential opportunities for such trading gains.
Repurchase agreements
The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement through its custodian, it receives delivery of securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is generally at least 102% of the repurchase amount. The Fund will take constructive receipt of all securities underlying the repurchase agreements it has entered into until such agreements expire. If the seller defaults, the Fund would suffer a loss to the extent that proceeds from the sale of underlying securities were less than the repurchase amount. The Fund may enter into repurchase agreements maturing within seven
Intrinsic Value Fund
27
days with domestic dealers, banks or other financial institutions deemed to be credit-worthy by the Adviser. Collateral for certain tri-party repurchase agreements is held at the custodian bank in a segregated account for the benefit of the Fund and the counterparty.
Security transactions and
related investment income
Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Foreign dividends are recorded on the ex-date or as soon after the ex-date that the Fund becomes aware of such dividends, net of all taxes. Discounts/premiums are accreted/amortized for financial reporting purposes. Non-cash dividends are recorded at the fair market value of the securities received. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful, based upon consistently applied procedures.
From time to time, the Fund may invest in Real Estate Investment Trusts (“REITs”) and as a result, will estimate the components of distributions from these securities. Distributions from REITs received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain.
The Fund uses the First In, First Out method for fixed income securities and Highest Cost, First Out for all other securities for determining realized gain or loss on investments for both financial and federal income tax reporting purposes.
Multi-class operations
All income, expenses (except for class-specific expenses) and realized and unrealized gains (losses) are allocated to each class of shares based upon the relative net assets of each class.
Dividends to shareholders from net investment income are determined at a class level and distributions from capital gains are determined at a Fund level.
Expense allocation
Expenses are allocated based on the relative share of net assets of the Fund at the time the expense was incurred. Class-specific expenses, such as distribution (Rule 12b-1) fees, are accrued daily and charged directly to the respective share classes.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poor’s 500 Index (the “S&P 500 Index”), in order to hedge against a decline in the value of securities owned by the Fund.
Upon entering into futures contracts, the Fund is required to deposit with a broker an amount, termed the initial margin, which typically represents a certain percentage of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates, making the long or short positions in the contract more or less valuable. If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
Intrinsic Value Fund
28
The following is a summary of open futures contracts on February 28, 2007:
| NUMBER OF | | | UNREALIZED |
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | DEPRECIATION |
|
S&P 500 Index | 1 | Long | Mar 2007 | ($3,357) |
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. Therefore, no federal income tax provision is required.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronou ncement no later than August 31, 2007.
In September 2006, FASB Standard No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Distribution of income and gains
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. During the period ended February 28, 2007, the tax character of distributions paid was as follows: ordinary income $270,360 and long-term capital gains $31,463. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions 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 Fund’s financial statements as a return of capit al.
As of February 28, 2007, the components of distributable earnings on a tax basis included $377,374 of undistributed ordinary income and $682 of undistributed long-term gain.
Capital accounts
The Fund reports the undistributed net investment income and accumulated undistributed net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carryforward is available). Accordingly, the Fund may periodically make reclassifications among certain capital accounts without affecting its net asset value.
3. Investment advisory and other agreements
Advisory fees
The Trust has entered into an Investment Advisory Agreement with the Adviser. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvisers to handle the investment of the assets of the Fund, subject to the supervision of the Trust’s Board of Trustees. Under the Advisory Agreement, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.78% of the first $500,000,000 of the Fund’s aggregate daily net assets; (b) 0.76% of the next $500,000,000 of the Fund’s aggregate daily net
Intrinsic Value Fund
29
assets; (c) 0.75% of the next $1,500,000,000 of the Fund’s aggregate daily net assets; and (d) 0.74% of the Fund’s aggregate daily net assets in excess of $2,500,000,000. Aggregate net assets include the net assets of the Fund and Intrinsic Value Trust, a series of John Hancock Trust. John Hancock Trust is an open-end investment company advised by the Adviser and distributed by John Hancock Distributors, LLC. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
Expense reimbursements
The Adviser has agreed contractually to reimburse for certain fund level expenses that exceed 0.08% of the average annual net assets, or to make a payment to a specific class of shares of the Fund in an amount equal to the amount by which the expenses attributable to such class of shares (excluding taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business and fees under any agreement or plans of the Fund dealing with services for shareholders and others with beneficial interests in shares of the Fund) exceed the percentage of average annual net assets (on an annualized basis) attributable as follows: 1.35% for Class A, 2.05% for Class B, 2.05% for Class C, 0.95% for Class I, 1.45% for Class R1 and 0.90% for Class 1. Accordingly, the expense reductions related to this expense limitation amounted to $72,538, $15,706, $15,412, $14,603, $15,192 and $431 for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively, for the period ended February 28, 2007. This expense reimbursement shall continue in effect until June 30, 2007 and thereafter until terminated by the Adviser on notice to the Trust.
Administration fees
The Fund has an agreement with the Adviser that requires the Fund to reimburse the Adviser for all expenses associated with providing the administrative, financial, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, annual, semiannual and periodic reports to shareholders and the preparation of all regulatory reports. These expenses are allocated based on the relative shares of net assets of each fund at the time the expense was incurred.
Distribution plan
The Trust has a Distribution Agreement with the Distributor. The Fund has adopted Distribution Plans with respect to Class A, Class B, Class C, Class R1 and Class 1, pursuant to Rule 12b-1 under the 1940 Act, to reimburse the Distributor for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00%, 1.00%, 0.50% and 0.05% of average daily net asset value of Class A, Class B, Class C, Class R1 and Class 1, respectively. 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 R1 shares, the Fund pays up to 0.25% of Class R1 average daily net asset value for certain other serv ices.
Sales charges
Class A shares are assessed up-front sales charges of up to 5.00% of net asset value of such shares. During the period ended February 28, 2007, the Fund was informed that the Distributor received net up-front sales charges of $73,651 with regard to sales of Class A shares. Of this amount, $9,376 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $63,595 was paid as sales commissions to unrelated broker-dealers and $680 was paid as sales commissions to sales personnel of Signator Investors, Inc. (“Signator Investors”), a related broker-dealer, an indirect subsidiary of MFC.
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
Intrinsic Value Fund
30
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 the Distributor and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended February 28, 2007, CDSCs received by JH Funds amounted to $5 for Class B shares.
Transfer agent fees
The Fund has a Transfer Agency Agreement with John Hancock Signature Services, Inc. (“Signature Services”), an indirect subsidiary of MFC. For Class A, Class B, Class C, Class I and Class R1 shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’ average daily net assets, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Expenses not directly attributable to a particular class of shares are aggregated and allocated to each class on the basis of its relative net asset value.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.20% annually of Class A, Class B, Class C, Class I and Class R1 share average daily net assets. This agreement is effective until December 31, 2007. Signature Services reserves the right to terminate this limitation in the future. Accordingly, there were no transfer agent fee reductions for Class A, Class B, Class C, Class I and Class R1 shares, respectively, during the period ended February 28, 2007.
Expenses under the agreements described above for the period ended February 28, 2007, were as follows:
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent | Blue sky | postage |
|
|
Class A | $36,720 | $8,089 | $14,320 | $8,743 |
Class B | 2,249 | 450 | 14,078 | 431 |
Class C | 1,911 | 382 | 14,078 | 134 |
Class I | — | 44 | 14,077 | 92 |
Class R1a | 591 | 41 | 14,077 | 723 |
Class 1 | 40 | — | — | 1 |
Total | $41,511 | $9,006 | $70,630 | $10,124 |
a Effective 11-6-06, the Board of Trustees elected to change the name of Class R to Class R1.
Trustees’ fees
The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. Total Trustees’ expenses are allocated to the Fund based on its average daily net asset value.
4. Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
5. Line of credit
The Fund has entered into an agreement which enables it to participate in a $100 million unsecured committed line of credit with State Street Corporation. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to the Fund based on its borrowings at a rate per annum equal to the Federal Funds rate
Intrinsic Value Fund
31
plus 0.50% . In addition, a commitment fee of 0.07% per annum, payable at the end of each calendar quarter, based on the average daily-unused portion of the line of credit, is charged to the Fund on a prorated basis based on average net assets. For the period ended February 28, 2007, there were no borrowings under the line of credit.
6. Capital shares
Share activities for the Fund for the period ended February 28, 2007, were as follows:
| | Period ended 2-28-07a |
| Shares | Amount |
|
Class A shares | | |
|
Sold | 838,725 | $17,032,947 |
Distributions reinvested | 12,374 | 281,144 |
Repurchased | (4,497) | (101,945) |
Net increase | 846,602 | $17,212,146 |
|
Class B shares | | |
|
Sold | 25,686 | $554,475 |
Distributions reinvested | 201 | 4,563 |
Repurchased | (5,219) | (119,072) |
Net increase | 20,668 | $439,966 |
|
Class C shares | | |
|
Sold | 23,486 | $503,103 |
Distributions reinvested | 135 | 3,064 |
Repurchased | (10,948) | (251,638) |
Net increase | 12,673 | $254,529 |
|
Class I shares | | |
|
Sold | 5,547 | $111,000 |
Distributions reinvested | 98 | 2,226 |
Net increase | 5,645 | $113,226 |
|
Class R1 shares | | |
|
Sold | 5,033 | $100,750 |
Distributions reinvested | 76 | 1,738 |
Net increase | 5,109 | $102,488 |
|
Class 1 shares | | |
|
Sold | 5,000 | $100,000 |
Distributions reinvested | 90 | 2,033 |
Net increase | 5,090 | $102,033 |
|
Net increase | 895,787 | $18,224,388 |
|
aPeriod from 6-12-06 (commencement of operations) to 2-28-07.
Intrinsic Value Fund
32
7. 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 February 28, 2007, aggregated $22,828,172 and $5,553,625, respectively.
The cost of investments owned on February 28, 2007, including short-term investments, for federal income tax purposes, was $18,558,932. Gross unrealized appreciation and depreciation of investments aggregated $1,859,355 and $138,160, respectively, resulting in net unrealized appreciation of $1,721,195.
8. Federal income tax information
Federal income tax regulations may differ from generally accepted accounting principles and income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
9. Reclassification of accounts
During the period ended February 28, 2007, the Fund reclassified amounts to reflect an increase in accumulated net investment income of $12,409 and a decrease in capital paid-in of $12,409. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2007. 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 non-deductible 12b-1 fees. The calculation of net investment income per share in the Fund’s Financial Highlights excludes these adjustments.
Intrinsic Value Fund
33
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Funds III and Shareholders of John Hancock Intrinsic Value 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 Intrinsic Value Fund (the “Fund”) at February 28, 2007, and the results of its operations, the changes in its net assets and the financial highlights for the period June 12, 2006 (commencement of operations) through February 28, 2007, 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 audit. We conducted our audit of these financial statements in acco rdance 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 audit, which included confirmation of investments at February 28, 2007 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2007
34
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 February 28, 2007.
The Fund has designated distributions to shareholders of $31,463 as a long-term capital gain dividend.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended February 28, 2007, 44.01% of the dividends qualifies 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 2003.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
35
Trustees and 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, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
Ronald R. Dion , Born: 1946 | 2006 | 66 |
|
Independent Chairman (since 2005); 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. | | |
|
|
James F. Carlin , Born: 1940 | 2006 | 66 |
|
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | | |
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | | |
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | | |
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | | |
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | | |
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | | |
|
|
Richard P. Chapman, Jr.,2 Born: 1935 | 2006 | 66 |
|
President and Chief Executive Officer, Brookline Bancorp, Inc. (lending) (since | | |
1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); | | |
Chairman and Director, Northeast Retirement Services, Inc. (retirement | | |
administration) (since 1998); Vice Chairman, Northeastern University Board | | |
of Trustees (since 2004). | | |
|
|
William H. Cunningham , Born: 1944 | 2006 | 66 |
|
Former Chancellor, University of Texas System and former President of the | | |
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, | | |
IBT Technologies (until 2001); Director of the following: Hire.com (until 2004), | | |
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. | | |
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until | | |
2004), Pinnacle Foods Corporation (until 2003), rateGenius (until 2003), Lincoln | |
National Corporation (insurance) (since 2006), Jefferson-Pilot Corporation | | |
(diversified life insurance company) (until 2006), New Century Equity Holdings | | |
(formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com | | |
(until 2001), Agile Ventures (until 2001), AskRed.com (until 2001), Southwest | | |
Airlines (since 2000), Introgen (since 2000) and Viasystems Group, Inc. (electronic | |
manufacturer) (until 2003); Advisory Director, Interactive Bridge, Inc. (college | | |
fundraising) (until 2001); Advisory Director, Q Investments (until 2003); | | |
36
Independent Trustees (continued) | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
William H. Cunningham , Born: 1944 (continued) | 2006 | 66 |
|
Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce Bank – | | |
Austin), LIN Television (since 2002), WilTel Communications (until 2003) and | | |
Hayes Lemmerz International, Inc. (diversified automotive parts supply company) | |
(since 2003). | | |
|
|
Charles L. Ladner,2 Born: 1938 | 2006 | 66 |
|
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, AmeriGas, Inc. | | |
(retired 1998); Director, AmeriGas Partners, L.P. (gas distribution) (until 1997); | | |
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | |
(until 2005). | | |
|
|
John A. Moore,2 Born: 1939 | 2006 | 66 |
|
President and Chief Executive Officer, Institute for Evaluating Health Risks, | | |
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | | |
(health research) (until 2003); Former Assistant Administrator and Deputy | | |
Administrator, Environmental Protection Agency; Principal, Hollyhouse | | |
(consulting) (since 2000); Director, CIIT Center for Health Science Research | | |
(nonprofit research) (2002–2006). | | |
|
|
Patti McGill Peterson,2 Born: 1943 | 2006 | 66 |
|
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 | 2006 | 66 |
|
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). | | |
37
Non-Independent Trustee3 | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
James R. Boyle, Born: 1959 | 2006 | 272 |
|
President, John Hancock Insurance Group; Executive Vice President, John | | |
Hancock Life Insurance Company (since June 2004); Chairman and Director, | | |
John Hancock Advisers, LLC (the “Adviser”), John Hancock Funds, LLC and | | |
The Berkeley Financial Group, LLC (“The Berkeley Group”) (holding company) | | |
(since 2005); Senior Vice President, The Manufacturers Life Insurance Company | |
(U.S.A.) (until 2004). | | |
|
Principal officers who are not Trustees | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Keith F. Hartstein, Born: 1956 | | 2006 |
|
President and Chief Executive Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, John | | |
Hancock Funds, LLC (since 2005); Director, MFC Global Investment Management | |
(U.S.), LLC (“MFC Global (U.S.)”) (since 2005); Director, John Hancock Signature | |
Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock | |
Investment Management Services, LLC (since 2006); President and Chief Executive | |
Officer, John Hancock Funds II, John Hancock Funds III and John Hancock Trust; | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | | |
Chairman, Investment Company Institute Sales Force Marketing Committee | | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | | |
|
|
Thomas M. Kinzler, Born: 1955 | | 2006 |
|
Secretary and Chief Legal Officer | | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2006); | |
Vice President and Associate General Counsel, Massachusetts Mutual Life | | |
Insurance Company (1999–2006); Secretary and Chief Legal Counsel, MML | | |
Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, | | |
MassMutual Institutional Funds (2000–2004); Secretary and Chief Legal Counsel, | |
MassMutual Select Funds and MassMutual Premier Funds (2004–2006). | | |
|
|
Francis V. Knox, Jr., Born: 1947 | | 2006 |
|
Chief Compliance Officer | | |
Vice President and Chief Compliance Officer, John Hancock Investment | | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | | |
Vice President and Chief Compliance Officer, John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and | | |
Ethics & Compliance Officer, Fidelity Investments (until 2001). | | |
38
Principal officers who are not Trustees (continued) | |
|
Name, Year of Birth | |
Position(s) held with Fund | Officer |
Principal occupation(s) and | of Fund |
directorships during past 5 years | since |
|
Gordon M. Shone, Born: 1956 | 2006 |
|
Treasurer | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | |
(1998–2000). | |
|
|
John G. Vrysen, Born: 1955 | 2006 |
|
Chief Financial Officer | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | |
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley | |
Group and John Hancock Funds, LLC (since 2005); Executive Vice President and | |
Chief Financial Officer, John Hancock Investment Management Services, LLC | |
(since 2005); Vice President and Chief Financial Officer, MFC Global (U.S.) | |
(since 2005); Director, John Hancock Signature Services, Inc. (since 2005); | |
Chief Financial Officer, John Hancock Funds II, John Hancock Funds III and John | |
Hancock Trust (since 2005); Vice President and General Manager, Fixed Annuities, | |
U.S. Wealth Management (until 2005); Vice President, Operations, Manulife | |
Wood Logan (2000–2004). | |
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.
1Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2Member of Audit Committee.
3Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
39
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 | Custodian | Legal counsel |
John Hancock Investment | State Street Bank & Trust Co. | Kirkpatrick & Lockhart |
Management Services, LLC | 2 Avenue de Lafayette | Preston Gates Ellis LLP |
601 Congress Street | Boston, MA 02111 | 1 Lincoln Street |
Boston, MA 02210-2805 | | Boston, MA 02110-2950 |
| Transfer agent | |
Subadviser | John Hancock Signature | Independent registered |
Grantham, Mayo, | Services, Inc. | public accounting firm |
Van Otterloo & Co. LLC | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
40 Rowes Wharf | Suite 1000 | 125 High Street |
Boston, MA 02110 | Boston, MA 02217-1000 | Boston, MA 02110 |
| | |
Principal distributor | | |
John Hancock Funds, LLC | | |
601 Congress Street | | |
Boston, MA 02210-2805 | | |
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 | 380 Stuart Street |
| | Boston, MA 02116 |
|
|
Phone | Customer service representatives | 1-800-225-5291 |
| EASI-Line | 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.
40
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Fund |
Focused Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Mid Cap Growth Fund | TAX-FREE INCOME |
Multi Cap Growth Fund | California Tax-Free Income Fund |
Small Cap Equity Fund | High Yield Municipal Bond Fund |
Small Cap Fund | Massachusetts Tax-Free Income Fund |
Small Cap Intrinsic Value Fund | New York Tax-Free Income Fund |
Sovereign Investors Fund | Tax-Free Bond Fund |
U.S. Core Fund | |
U.S. Global Leaders Growth Fund | MONEY MARKET |
Value Opportunities Fund | Money Market Fund |
| U.S. Government Cash Reserve |
ASSET ALLOCATION | |
Allocation Core Portfolio | CLOSED-END |
Allocation Growth + Value Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2010 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2015 Portfolio | Income Securities Trust |
Lifecycle 2020 Portfolio | Investors Trust |
Lifecycle 2025 Portfolio | Patriot Global Dividend Fund |
Lifecycle 2030 Portfolio | Patriot Preferred Dividend Fund |
Lifecycle 2035 Portfolio | Patriot Premium Dividend Fund I |
Lifecycle 2040 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2045 Portfolio | Patriot Select Dividend Trust |
Lifecycle Retirement Portfolio | Preferred Income Fund |
Lifestyle Aggressive Portfolio | Preferred Income II Fund |
Lifestyle Balanced Portfolio | Preferred Income III Fund |
Lifestyle Conservative Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
|
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund | |
For more complete information on any John Hancock Fund and an Open-End fund prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291 for Open-End fund information and 1-800-852-0218 for Closed-End fund information. Please read the Open-End fund prospectus carefully before investing or sending money.
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
| 5100A | 2/07 |
This report is for the information of the shareholders of John Hancock Intrinsic Value Fund. | | 4/07 |
TABLE OF CONTENTS |
|
Your fund at a glance |
page 1 |
|
Managers’ report |
page 2 |
|
A look at performance |
page 6 |
|
Your expenses |
page 8 |
|
Fund’s investments |
page 10 |
|
Financial statements |
page 22 |
|
Notes to financial |
statements |
page 31 |
|
Trustees and officers |
page 41 |
|
For more information |
page 48 |
|
CEO corner
To Our Shareholders,
The U.S. financial markets turned in strong results over the last 12 months, as earlier concerns of rising inflation, a housing slowdown and high energy prices gave way to news of slower, but still resilient, economic growth, stronger than expected corporate earnings and dampened inflation fears and energy costs. This environment also led the Federal Reserve Board to hold short-term interest rates steady. Even with a sharp decline in the last days of the period, the broad stock market returned 11.97% for the year ended February 28, 2007, as measured by the S&P 500 Index. With interest rates remaining relatively steady, fixed-income securities also produced positive results.
But after a remarkably long period of calm, the financial markets were rocked at the end of the period by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. In the United States, for example, the Dow Jones Industrial Average had its steepest one-day percentage decline in nearly four years on February 27, 2007. The event served to jog investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
It was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the market’s moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes well for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more-than-four-year-old bull market. The recent downturn bolsters this uncertainty, although we believe it was a healthy correction for which we were overdue.
The recent volatility could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon — not a sprint — approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of February 28, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks long-term capital growth by typically investing in U.S. companies that issue stocks included in the Russell 2500 Index, and in companies with total market capitalizations similar to those of stocks in the Index (“small- and mid-cap companies.”)
Since inception
►The Fund posted double-digit gains, but trailed the Russell 2500 Value Index against a backdrop of rising share prices and investors’ preference for cheap stocks.
► The market rally was fueled in part by the Fed’s decision to keep short-term interest rates steady and by falling energy prices.
► Market volatility was evident at the beginning of the period, diminished to near-record-low levels during the rally, and returned as the period came to a close.
Top 10 holdings | | | | |
| | | | |
Liz Claiborne, Inc. | 1.6% | | Tyson Foods, Inc. – Class A | 1.2% |
| | |
Dollar Tree Stores, Inc. | 1.5% | | NBTY, Inc. | 1.2% |
| | |
SUPERVALU, Inc. | 1.3% | | PMI Group, Inc. | 1.1% |
| | |
Old Republic International Corp. | 1.2% | | King Pharmaceuticals, Inc. | 1.0% |
| | |
CenturyTel, Inc. | 1.2% | | First American Corp. | 1.0% |
| | |
As a percentage of net assets on February 28, 2007.
1
Managers’ report
John Hancock
Value Opportunities Fund
U.S. stocks enjoyed solid performance during the review period, which began in June 2006 in the midst of a market correction triggered by the Federal Reserve Board’s hawkish comments about inflation and fears of a longer-than-anticipated cycle of interest rate hikes. Rising energy prices were another factor adding to the negative investor sentiment early in the period.
As the summer progressed, however, the prospects for both interest rates and energy prices improved. Inflationary pressures eased a bit and more data emerged indicating a slowing U.S. economy, prompting the Fed to leave interest rates unchanged in August after 17 consecutive 0.25% increases. At subsequent meetings in September, November, December and January, the Fed reaffirmed its stand-pat position. At the same time, energy prices registered substantial declines. In response, the market embarked on a rally that began in July and continued almost through the end of February.
The rally was characterized by extremely low share price volatility and investors’ preference for stocks with low price-to-book value (P/B) or price-to-earnings (P/E) ratios, as evidenced by the dramatic outperformance of the Fund’s benchmark, Russell 2500 Value Index, over the Russell 2500 Growth Index. Corporate profits continued to grow at a healthy pace and, while short-term interest rates were higher than they
SCORECARD
INVESTMENT | | PERIOD’S PERFORMANCE... AND WHAT’S BEHIND THE NUMBERS |
| | |
NBTY | ▲ | Strong fiscal first-quarter earnings growth |
| | |
Goodyear Tire & | ▲ | Settled strike |
Rubber | | |
| | |
Group 1 | ▲ | Disappointing fourth-quarter results |
Automotive | | |
2
From the Grantham, Mayo, Van Otterloo & Co. LLC (GMO) Portfolio
Management Team
had been prior to the Fed’s tightening moves, access to capital remained relatively unhindered. However, on the second-to-last trading day of the period, volatility returned with a vengeance, as the Dow Jones Industrial Average and the Russell 2500 Value Index each fell by more than 3%. It was the Dow’s worst one-day percentage loss since 2003, leaving many investors wondering if the long run of benign market conditions had come to an end.
“U.S. stocks enjoyed solid
performance during the
review period...”
Looking at performance
From their inception on June 12, 2006, through February 28, 2007, John Hancock Value Opportunities Fund’s Class A, Class B, Class C, Class I, Class R1 and Class 1 shares returned 13.06%, 12.54%, 12.54%, 13.42%, 12.80% and 13.44%, respectively, at net asset value. By comparison, the Russell 2500 Value Index returned 16.33%, while the average mid-cap value fund monitored by Morningstar, Inc. gained 18.00% in the same period.a Keep in mind that your returns will differ from those listed above if you were not invested in the Fund for the entire period or did not reinvest all distributions.
The market environment proved challenging to both of our primary stock selection tools — valuation and momentum. Valuation, which determines the majority of this Fund’s assets, accounted for most of the performance shortfall. During the period, investors wanted cheap stocks on a P/B or P/E basis, whereas our valuation discipline seeks out stocks selling at a significant discount from their intrinsic value. The difference is that our methodology encompasses various yardsticks of quality, such as stability of earnings, leverage and long-term profitability. Over the longer term, the market has rewarded an emphasis on quality stocks acquired at a discount,
Value Opportunities Fund
3
but over shorter periods of time, investors sometimes spurn quality in favor of low prices, concept stocks or other fads.
Our momentum criteria are designed to identify stocks that have performed well recently and appear poised to continue outperforming. That said, although the broader earnings environment was favorable and the market rose for most of the period, our momentum strategy rotated out of low P/B and low P/E stocks after they plummeted during the market’s early summer correction. Consequently, the strategy underperformed when the market shifted back toward these stocks as the market recovered.
Construction and financial sectors limit gains
The two sectors detracting most from performance during the period were construction and financial. Stock selection hampered our results in both sectors, along with an overweighting in the latter group. Among individual holdings, Group 1 Automotive, Inc. was the top detractor. The share price of the auto retailer sank near the end of the period after it reported a decline in net income for the fourth quarter tied to a one-time charge and a decline in sales of Ford vehicles. In the financial sector, detractor Fremont General Corp. delayed releasing its fourth-quarter results amid intensifying concerns about the subprime lending space due to a growing number of delinquencies and defaults. These factors also drove down the stock of Radian Group, Inc., which provides credit protection services for lenders. Other detractors included telecommunications networking equipment maker Tellabs, Inc., which we sold during the period, and Furniture Brands International, Inc., a seller of home furnishings.
SECTOR DISTRIBUTIONb | |
| |
Consumer, cyclical | 30% |
Financial | 27% |
Consumer, non-cyclical | 19% |
Industrial | 10% |
Communications | 3% |
Basic materials | 3% |
Technology | 2% |
Utilities | 2% |
Automotive, food and beverage add value
On the positive side, the Fund received a modest performance boost from the automotive sector, as well as from the food and beverage sector. The latter included the Fund’s top contributor, nutritional supplement maker NBTY, Inc., which was attractive on the basis of both valuation and momentum. The stock’s advance was fueled in part by strong fiscal first-quarter earnings attributed to rising revenues, manufacturing efficiency improvements and reduced costs. Also boosting performance was tire maker Goodyear Tire & Rubber Company, whose
Value Opportunities Fund
4
shares moved higher in December when the company settled a 12-week strike and announced a deal with its labor union that would result in significant cost savings through 2009.
“The two sectors detracting
most from performance during
the period were construction
and financial.”
While the retail sector had a slightly negative impact on performance overall, we were rewarded for significantly overweighting the group, which included two of the Fund’s best contributors: Ingles Markets, Inc. and Dollar Tree Stores, Inc. Lastly, restaurant chain Jack in the Box, Inc. trended higher for much of the period, aided in part by record earnings for its first quarter ending in January 2007.
Outlook
The plunge in share prices near the end of the period raises the possibility that the era of low volatility might be coming to an end. Likewise, the mean-reverting nature of corporate profitability and access to capital indicate that challenges in those areas could lie in the market’s future. Against this backdrop, we believe the Fund’s emphasis on buying quality stocks below their intrinsic value— together with its focus on momentum opportunities — positions it well to face the remainder of 2007 and beyond.
This commentary reflects the views of the portfolio management team through the end of the Fund’s period discussed in this report. The team’s statements reflect its 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.
a Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
b As a percentage of net assets on February 28, 2007.
Value Opportunities Fund
5
A look at performance
For the period ended February 28, 2007
| | Cumulative total returns |
| | with maximum sales charge (POP) |
|
| Inception | Since |
Class | date | inception |
|
A | 6-12-06 | 7.42% |
|
B | 6-12-06 | 7.54 |
|
C | 6-12-06 | 11.54 |
|
Ia | 6-12-06 | 13.42 |
|
R1a | 6-12-06 | 12.80 |
|
1a | 6-12-06 | 13.44 |
|
Performance figures assume all distributions are reinvested. POP (Public Offering Price) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I, Class R1 and Class 1 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 increase and results would have been less favorable.
Performance is calculated with an opening price (prior day’s close) on the inception date.
a For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
Value Opportunities Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Value Opportunities Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in the Russell 2500 Value Index.
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 6-12-06 | $11,254 | $10,754 | $11,633 |
|
C | 6-12-06 | 11,254 | 11,154 | 11,633 |
|
Ib | 6-12-06 | 11,342 | 11,342 | 11,633 |
|
R1b | 6-12-06 | 11,280 | 11,280 | 11,633 |
|
1b | 6-12-06 | 11,344 | 11,344 | 11,633 |
|
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, Class R1 and Class 1 shares, respectively, as of February 28, 2007. 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.
Russell 2500 Value Index is an unmanaged index containing those securities in the Russell 2500 Index with a less-than-average growth orientation.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
a NAV represents net asset value and POP represents public offering price.
b For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
Value Opportunities Fund
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 September 1, 2006, with the same investment held until February 28, 2007.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,113.30 | $7.28 |
|
Class B | 1,000.00 | 1,109.83 | 10.93 |
|
Class C | 1,000.00 | 1,109.83 | 10.93 |
|
Class I | 1,000.00 | 1,115.27 | 5.19 |
|
Class R1 | 1,000.00 | 1,111.91 | 9.11 |
|
Class 1 | 1,000.00 | 1,116.03 | 4.93 |
|
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 February 28, 2007 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:
Value Opportunities Fund
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’ actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on September 1, 2006, with the same investment held until February 28, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,017.90 | $6.95 |
|
Class B | 1,000.00 | 1,014.43 | 10.44 |
|
Class C | 1,000.00 | 1,014.43 | 10.44 |
|
Class I | 1,000.00 | 1,019.89 | 4.96 |
|
Class R1 | 1,000.00 | 1,016.17 | 8.70 |
|
Class 1 | 1,000.00 | 1,020.13 | 4.71 |
|
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.
a Expenses are equal to the Fund's annualized expense ratio of 1.39%, 2.09%, 2.09%, 0.99%, 1.74% and 0.94% for Class A, Class B and Class C, Class I, Class R1 and Class 1, respectively, multiplied by the average account value over the period, multiplied by number of days in the period/365 or 366 (to reflect the one-half year period).
Value Opportunities Fund
9
Fund’s investments
F I N A N C I A L S T A T E M E N T S
Securities owned by the Fund on 2-28-07
This schedule is divided into two main categories: common stocks and repurchase
agreements. Common stocks are further broken down by industry group. Repurchase
agreements, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
|
Common stocks 96.08% | | $21,321,457 |
(Cost $19,503,604) | | |
| | |
Aerospace 0.53% | | 118,618 |
|
Alliant Techsystems, Inc. * | 900 | 77,896 |
|
Armor Holdings, Inc. * | 200 | 12,738 |
|
Curtiss Wright Corp. | 800 | 27,984 |
| | |
Air Freight 0.18% | | 39,765 |
|
ExpressJet Holdings, Inc. * | 5,500 | 39,765 |
| | |
Aluminum 0.09% | | 19,086 |
|
Superior Essex, Inc. * | 600 | 19,086 |
| | |
Apparel & Textiles 4.48% | | 994,582 |
|
Brown Shoe, Inc. | 900 | 46,170 |
|
Columbia Sportswear Company | 2,400 | 152,568 |
|
Jones Apparel Group, Inc. | 6,300 | 207,396 |
|
Kellwood Company | 2,100 | 66,213 |
|
K-Swiss, Inc., Class A | 1,200 | 33,828 |
|
Liz Claiborne, Inc. | 8,000 | 360,000 |
|
Phillips-Van Heusen Corp. | 200 | 10,968 |
|
Stride Rite Corp. | 1,000 | 16,150 |
|
Timberland Company, Class A * | 2,200 | 59,664 |
|
Wolverine World Wide, Inc. | 1,500 | 41,625 |
| | |
Auto Parts 1.83% | | 407,094 |
|
American Axle & Manufacturing Holdings, Inc. | 2,100 | 51,513 |
|
ArvinMeritor, Inc. | 4,500 | 82,170 |
|
BorgWarner, Inc. | 1,000 | 73,640 |
|
O’Reilly Automotive, Inc. * | 1,800 | 61,974 |
|
Superior Industries International, Inc. | 3,300 | 70,785 |
|
TRW Automotive Holdings Corp. * | 2,200 | 67,012 |
| | |
Auto Services 0.89% | | 196,561 |
|
AutoNation, Inc. * | 6,000 | 131,760 |
|
Copart, Inc. * | 1,100 | 32,395 |
|
Lithia Motors, Inc., Class A | 1,100 | 32,406 |
See notes to financial statements
Value Opportunities Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Automobiles 1.47% | | $325,338 |
|
Asbury Automotive Group, Inc. | 700 | 18,697 |
|
Group 1 Automotive, Inc. | 2,900 | 134,183 |
|
Tenneco, Inc. * | 500 | 12,150 |
|
United Auto Group, Inc. | 7,300 | 160,308 |
| | |
Banking 8.66% | | 1,922,205 |
|
AMCORE Financial, Inc. | 300 | 9,813 |
|
Anchor BanCorp Wisconsin, Inc. | 1,200 | 33,924 |
|
Associated Banc-Corp. | 2,500 | 86,450 |
|
Astoria Financial Corp. | 4,400 | 124,388 |
|
BancFirst Corp. | 200 | 9,402 |
|
BancorpSouth, Inc. | 2,700 | 67,230 |
|
BankUnited Financial Corp., Class A | 600 | 14,652 |
|
Banner Corp. | 200 | 8,342 |
|
Cathay General Bancorp, Inc. | 300 | 10,179 |
|
Chemical Financial Corp. | 600 | 17,400 |
|
Chittenden Corp. | 300 | 9,177 |
|
Citizens Banking Corp. | 1,200 | 27,240 |
|
City National Corp. | 900 | 64,962 |
|
Commerce Bancshares, Inc. | 1,585 | 78,378 |
|
Cullen Frost Bankers, Inc. | 200 | 10,816 |
|
Dime Community Bancorp, Inc. | 800 | 10,056 |
|
Downey Financial Corp. | 1,500 | 98,310 |
|
First Citizens Bancshares, Inc. | 100 | 20,952 |
|
First Horizon National Corp. | 4,800 | 207,120 |
|
First Indiana Corp. | 600 | 13,206 |
|
FirstFed Financial Corp. * | 900 | 51,480 |
|
FirstMerit Corp. | 2,300 | 49,335 |
|
Flagstar Bancorp, Inc. | 2,800 | 38,752 |
|
Greater Bay Bancorp | 2,500 | 67,000 |
|
Hancock Holding Company | 800 | 35,656 |
|
International Bancshares Corp. | 400 | 11,672 |
|
ITLA Capital Corp. | 500 | 25,810 |
|
MAF Bancorp, Inc. | 1,000 | 44,250 |
|
Mercantile Bankshares Corp. | 700 | 32,956 |
|
New York Community Bancorp, Inc. | 4,400 | 73,656 |
|
Old National Bancorp | 400 | 7,296 |
|
Pacific Capital Bancorp | 1,100 | 34,650 |
|
Park National Corp. | 100 | 9,327 |
|
Sky Financial Group, Inc. | 400 | 11,244 |
|
Sterling Bancshares, Inc. | 1,500 | 17,340 |
|
TCF Financial Corp. | 5,200 | 137,488 |
|
Trustmark Corp. | 2,800 | 80,080 |
|
United Bankshares, Inc. | 400 | 14,228 |
|
Valley National Bancorp | 1,300 | 32,734 |
See notes to financial statements
Value Opportunities Fund
11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Banking (continued) | | |
|
Washington Federal, Inc. | 1,900 | $45,182 |
|
Webster Financial Corp. | 1,000 | 49,390 |
|
Westamerica Bancorp | 800 | 39,280 |
|
Whitney Holding Corp. | 1,000 | 31,720 |
|
Wilmington Trust Corp. | 1,400 | 59,682 |
| | |
Biotechnology 0.23% | | 50,320 |
|
Applera Corp. | 900 | 27,792 |
|
Techne Corp. * | 400 | 22,528 |
| | |
Broadcasting 0.13% | | 28,686 |
|
Westwood One, Inc. | 4,200 | 28,686 |
| | |
Building Materials & Construction 0.73% | | 161,938 |
|
Dycom Industries, Inc. * | 1,500 | 37,500 |
|
EMCOR Group, Inc. * | 1,700 | 102,102 |
|
NCI Building Systems, Inc. * | 400 | 22,336 |
| | |
Business Services 3.37% | | 747,399 |
|
Black Box Corp. | 400 | 15,152 |
|
CDI Corp. | 500 | 13,330 |
|
Convergys Corp. * | 4,400 | 113,168 |
|
Deluxe Corp. | 4,000 | 123,480 |
|
FactSet Research Systems, Inc. | 900 | 54,774 |
|
Insight Enterprises, Inc. * | 2,000 | 38,640 |
|
Kelly Services, Inc., Class A | 1,300 | 40,001 |
|
Lightbridge, Inc. * | 1,100 | 17,754 |
|
Manpower, Inc. | 2,700 | 200,610 |
|
MAXIMUS, Inc. | 100 | 3,014 |
|
MPS Group, Inc. * | 1,900 | 27,208 |
|
Paxar Corp. * | 400 | 9,212 |
|
Perot Systems Corp., Class A * | 600 | 10,092 |
|
Scansource, Inc. * | 600 | 16,596 |
|
Sonicwall, Inc. * | 3,000 | 26,160 |
|
Total Systems Services, Inc. | 300 | 9,366 |
|
Watson Wyatt Worldwide, Inc., Class A | 600 | 28,842 |
| | |
Cellular Communications 0.40% | | 89,104 |
|
Telephone & Data Systems, Inc. | 1,600 | 89,104 |
| | |
Chemicals 2.09% | | 464,500 |
|
A. Schulman, Inc. | 500 | 10,545 |
|
Airgas, Inc. | 100 | 4,127 |
|
Albemarle Corp. | 1,500 | 122,775 |
|
Ashland, Inc. | 500 | 32,790 |
|
Eastman Chemical Company | 600 | 35,472 |
|
FMC Corp. | 200 | 14,714 |
|
H.B. Fuller Company | 1,400 | 34,958 |
|
Hercules, Inc. * | 2,400 | 48,384 |
See notes to financial statements
Value Opportunities Fund
12
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Chemicals (continued) | | |
|
PolyOne Corp. * | 2,200 | $14,762 |
|
Sensient Technologies Corp. | 3,300 | 80,817 |
|
Sigma-Aldrich Corp. | 400 | 16,400 |
|
Stepan Company | 700 | 18,935 |
|
Valspar Corp. | 1,100 | 29,821 |
| | |
Colleges & Universities 1.05% | | 232,446 |
|
Career Education Corp. * | 3,400 | 100,572 |
|
Corinthian Colleges, Inc. * | 2,000 | 27,900 |
|
ITT Educational Services, Inc. * | 1,300 | 103,974 |
| | |
Commercial Services 0.07% | | 14,634 |
|
Vertrue, Inc. * | 300 | 14,634 |
| | |
Computers & Business Equipment 2.58% | | 573,470 |
|
Avocent Corp. * | 600 | 19,098 |
|
Benchmark Electronics, Inc. * | 900 | 19,332 |
|
CACI International, Inc., Class A * | 200 | 9,300 |
|
CDW Corp. | 1,900 | 117,952 |
|
Diebold, Inc. | 1,100 | 52,107 |
|
EMS Technologies, Inc. * | 400 | 8,012 |
|
Ingram Micro, Inc., Class A * | 8,300 | 161,269 |
|
Tech Data Corp. * | 5,000 | 186,400 |
| | |
Construction Materials 0.81% | | 178,721 |
|
Ameron International Corp. | 600 | 44,328 |
|
Comfort Systems USA, Inc. | 600 | 8,166 |
|
Louisiana-Pacific Corp. | 2,500 | 51,600 |
|
Simpson Manufacturing Company, Inc. | 900 | 29,898 |
|
Standex International Corp. | 300 | 8,448 |
|
Universal Forest Products, Inc. | 700 | 36,281 |
| | |
Containers & Glass 1.02% | | 226,827 |
|
Bemis Company, Inc. | 2,300 | 76,199 |
|
Greif, Inc., Class A | 400 | 46,972 |
|
Sonoco Products Company | 2,800 | 103,656 |
| | |
Correctional Facilities 0.09% | | 20,944 |
|
Corrections Corp. of America * | 400 | 20,944 |
| | |
Cosmetics & Toiletries 0.81% | | 179,307 |
|
Alberto-Culver Company | 2,700 | 59,805 |
|
Chattem, Inc. * | 200 | 10,674 |
|
Estee Lauder Companies, Inc., Class A | 1,100 | 52,668 |
|
International Flavors & Fragrances, Inc. | 1,200 | 56,160 |
| | |
Domestic Oil 0.20% | | 43,356 |
|
Houston Exploration Company * | 300 | 15,726 |
|
Stone Energy Corp. * | 900 | 27,630 |
| | |
Drugs & Health Care 0.17% | | 37,392 |
|
Molina Healthcare, Inc. * | 1,200 | 37,392 |
See notes to financial statements
Value Opportunities Fund
13
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Electrical Equipment 0.71% | | $157,009 |
|
A.O. Smith Corp. | 400 | 15,468 |
|
Anixter International, Inc. * | 400 | 24,800 |
|
Baldor Electric Company | 400 | 14,560 |
|
Hubbell, Inc., Class B | 600 | 28,980 |
|
Littelfuse, Inc. * | 900 | 33,147 |
|
Tektronix, Inc. | 1,400 | 40,054 |
| | |
Electrical Utilities 1.42% | | 316,156 |
|
Alliant Corp. | 1,000 | 41,820 |
|
CenterPoint Energy, Inc. | 3,800 | 67,792 |
|
IDACORP, Inc. | 800 | 27,872 |
|
NSTAR | 1,000 | 34,210 |
|
OGE Energy Corp. | 1,400 | 54,054 |
|
Otter Tail Corp. | 300 | 9,816 |
|
Pepco Holdings, Inc. | 1,200 | 31,944 |
|
Pinnacle West Capital Corp. | 300 | 14,226 |
|
Reliant Energy, Inc. * | 1,400 | 23,674 |
|
Westar Energy, Inc. | 400 | 10,748 |
| | |
Electronics 0.96% | | 211,940 |
|
Arrow Electronics, Inc. * | 500 | 19,160 |
|
Avnet, Inc. * | 1,900 | 69,483 |
|
AVX Corp. | 1,000 | 15,280 |
|
Belden CDT, Inc. | 300 | 13,911 |
|
Mentor Graphics Corp. * | 1,700 | 28,713 |
|
Technitrol, Inc. | 1,300 | 28,587 |
|
Teleflex, Inc. | 100 | 6,692 |
|
Thomas & Betts Corp. * | 200 | 10,164 |
|
Vishay Intertechnology, Inc. * | 1,400 | 19,950 |
| | |
Energy 0.08% | | 17,297 |
|
Energy East Corp. | 700 | 17,297 |
| | |
Financial Services 2.98% | | 661,717 |
|
A.G. Edwards, Inc. | 700 | 44,947 |
|
American Capital Strategies, Ltd. | 1,000 | 44,480 |
|
AmeriCredit Corp. * | 3,200 | 78,144 |
|
Delphi Financial Group, Inc. | 900 | 35,361 |
|
Federal Agricultural Mortgage Corp., Class C | 600 | 15,360 |
|
Fremont General Corp. | 3,100 | 27,280 |
|
IndyMac Bancorp, Inc. | 2,200 | 75,526 |
|
Investors Financial Services Corp. | 800 | 46,832 |
|
Irwin Financial Corp. | 600 | 12,396 |
|
Janus Capital Group, Inc. | 1,100 | 23,375 |
|
Jefferies Group, Inc. | 1,900 | 51,395 |
|
Knight Capital Group, Inc. * | 3,100 | 49,011 |
|
MoneyGram International, Inc. | 1,700 | 51,102 |
|
Ocwen Financial Corp. * | 600 | 6,978 |
See notes to financial statements
Value Opportunities Fund
14
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Financial Services (continued) | | |
|
Raymond James Financial, Inc. | 1,700 | $51,170 |
|
SEI Investments Company | 800 | 48,360 |
| | |
Food & Beverages 3.57% | | 792,585 |
|
Corn Products International, Inc. | 1,900 | 60,743 |
|
Del Monte Foods Company | 3,300 | 37,950 |
|
Hormel Foods Corp. | 2,400 | 87,600 |
|
McCormick & Company, Inc. | 1,500 | 57,435 |
|
Performance Food Group Company * | 3,100 | 91,357 |
|
Pilgrim’s Pride Corp. | 300 | 9,192 |
|
Ralcorp Holdings, Inc. * | 700 | 40,614 |
|
Sanderson Farms, Inc. | 900 | 29,115 |
|
Smithfield Foods, Inc. * | 2,900 | 84,709 |
|
The J.M. Smucker Company | 700 | 34,720 |
|
Tyson Foods, Inc., Class A | 14,200 | 259,150 |
| | |
Furniture & Fixtures 1.54% | | 342,346 |
|
American Woodmark Corp. | 400 | 15,896 |
|
Ethan Allen Interiors, Inc. | 2,000 | 73,720 |
|
Furniture Brands International, Inc. | 4,900 | 78,596 |
|
Kimball International, Inc., Class B | 400 | 8,412 |
|
La-Z-Boy, Inc. | 4,600 | 63,296 |
|
Leggett & Platt, Inc. | 4,300 | 102,426 |
| | |
Gas & Pipeline Utilities 0.21% | | 45,826 |
|
ONEOK, Inc. | 1,100 | 45,826 |
| | |
Healthcare Products 1.29% | | 285,699 |
|
DENTSPLY International, Inc. | 900 | 28,386 |
|
Hillenbrand Industries, Inc. | 500 | 29,900 |
|
IDEXX Laboratories, Inc. * | 700 | 60,326 |
|
Owens & Minor, Inc. | 2,500 | 82,425 |
|
Patterson Companies, Inc. * | 1,300 | 43,394 |
|
Respironics, Inc. * | 600 | 24,582 |
|
Zoll Medical Corp. * | 600 | 16,686 |
| | |
Healthcare Services 1.81% | | 402,221 |
|
AMERIGROUP Corp. * | 1,800 | 59,544 |
|
Apria Healthcare Group, Inc. * | 2,700 | 85,995 |
|
Health Net, Inc. * | 400 | 21,388 |
|
Kindred Healthcare, Inc. * | 1,600 | 52,672 |
|
Lincare Holdings, Inc. * | 2,800 | 109,340 |
|
Magellan Health Services, Inc. * | 200 | 8,362 |
|
Pediatrix Medical Group, Inc. * | 1,200 | 64,920 |
| | |
Homebuilders 2.38% | | 528,624 |
|
Beazer Homes USA, Inc. | 900 | 35,514 |
|
Hovnanian Enterprises, Inc., Class A * | 900 | 27,990 |
|
KB Home | 1,300 | 64,480 |
See notes to financial statements
Value Opportunities Fund
15
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Homebuilders (continued) | | |
|
M.D.C. Holdings, Inc. | 2,100 | $107,226 |
|
M/I Homes, Inc. | 2,000 | 62,860 |
|
NVR, Inc. * | 100 | 67,700 |
|
Ryland Group, Inc. | 1,700 | 81,889 |
|
Standard Pacific Corp. | 1,300 | 33,189 |
|
Toll Brothers, Inc. * | 1,600 | 47,776 |
| | |
Hotels & Restaurants 3.00% | | 666,000 |
|
Applebee’s International, Inc. | 2,200 | 56,232 |
|
Bob Evans Farms, Inc. | 300 | 10,848 |
|
Brinker International, Inc. | 3,000 | 102,030 |
|
CBRL Group, Inc. | 1,800 | 83,988 |
|
CEC Entertainment, Inc. * | 900 | 38,376 |
|
Jack in the Box, Inc. * | 2,500 | 170,850 |
|
O’Charley’s, Inc. * | 1,200 | 25,164 |
|
OSI Restaurant Partners, Inc. | 1,700 | 68,000 |
|
Papa Johns International, Inc. * | 1,000 | 29,530 |
|
RARE Hospitality International, Inc. * | 1,200 | 37,032 |
|
Ruby Tuesday, Inc. | 1,500 | 43,950 |
| | |
Household Products 1.21% | | 267,807 |
|
Blyth, Inc. | 3,900 | 79,950 |
|
Church & Dwight, Inc. | 400 | 19,180 |
|
Energizer Holdings, Inc. * | 1,500 | 128,880 |
|
Tupperware Brands Corp. | 1,700 | 39,797 |
| | |
Industrial Machinery 1.01% | | 223,659 |
|
AGCO Corp. * | 2,700 | 97,875 |
|
Cummins, Inc. | 100 | 13,468 |
|
Lincoln Electric Holdings, Inc. | 600 | 37,440 |
|
NACCO Industries, Inc., Class A | 200 | 25,686 |
|
Robbins & Myers, Inc. | 200 | 7,834 |
|
Rofin Sinar Technologies, Inc. * | 200 | 12,028 |
|
Tennant Company | 400 | 12,312 |
|
Valmont Industries, Inc. | 300 | 17,016 |
| | |
Industrials 0.48% | | 106,982 |
|
Crane Company | 2,500 | 95,225 |
|
Lawson Products, Inc. | 300 | 11,757 |
| | |
Insurance 12.48% | | 2,770,124 |
|
Alfa Corp. | 700 | 12,747 |
|
American Financial Group, Inc. | 5,700 | 199,500 |
|
American National Insurance Company | 200 | 25,450 |
|
Brown & Brown, Inc. | 2,000 | 56,300 |
|
Commerce Group, Inc. | 5,000 | 143,350 |
|
Donegal Group, Inc. | 400 | 6,864 |
|
Erie Indemnity Company, Class A | 1,400 | 75,474 |
|
FBL Financial Group, Inc., Class A | 600 | 23,358 |
See notes to financial statements
Value Opportunities Fund
16
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Insurance (continued) | | |
|
First American Corp. | 4,600 | $216,890 |
|
Great American Financial Resources, Inc. | 600 | 15,024 |
|
Hanover Insurance Group, Inc. | 400 | 18,788 |
|
Harleysville Group, Inc. | 300 | 9,753 |
|
HCC Insurance Holdings, Inc. | 100 | 3,135 |
|
Hilb, Rogal and Hamilton Company | 600 | 27,180 |
|
Kansas City Life Insurance Company | 200 | 9,020 |
|
LandAmerica Financial Group, Inc. | 1,600 | 111,312 |
|
Mercury General Corp. | 2,000 | 106,600 |
|
National Western Life Insurance Company, Class A * | 200 | 45,588 |
|
Nationwide Financial Services, Inc., Class A | 3,300 | 176,880 |
|
Odyssey Re Holdings Corp. | 600 | 23,376 |
|
Ohio Casualty Corp. | 600 | 17,892 |
|
Old Republic International Corp. | 11,900 | 265,608 |
|
Philadelphia Consolidated Holding Corp. * | 1,200 | 55,092 |
|
PMI Group, Inc. | 5,100 | 239,037 |
|
Presidential Life Corp. | 500 | 10,210 |
|
Protective Life Corp. | 2,900 | 128,789 |
|
Radian Group, Inc. | 2,600 | 149,370 |
|
Reinsurance Group of America, Inc. | 3,000 | 171,240 |
|
Safety Insurance Group, Inc. | 400 | 16,988 |
|
Selective Insurance Group, Inc. | 1,000 | 24,440 |
|
Stancorp Financial Group, Inc. | 2,000 | 96,400 |
|
Stewart Information Services Corp. | 1,800 | 73,080 |
|
Transatlantic Holdings, Inc. | 1,300 | 85,930 |
|
Triad Guaranty, Inc. * | 1,400 | 63,644 |
|
United Fire & Casualty Company | 300 | 10,395 |
|
W.R. Berkley Corp. | 1,700 | 55,420 |
| | |
Internet Software 0.09% | | 20,815 |
|
TIBCO Software, Inc. * | 2,300 | 20,815 |
| | |
Investment Companies 0.07% | | 15,160 |
|
MCG Capital Corp. | 800 | 15,160 |
| | |
Leisure Time 0.61% | | 136,045 |
|
Brunswick Corp. | 2,700 | 88,155 |
|
Polaris Industries, Inc. | 1,000 | 47,890 |
| | |
Life Sciences 0.14% | | 31,790 |
|
Pharmaceutical Product Development, Inc. | 1,000 | 31,790 |
| | |
Manufacturing 0.86% | | 189,942 |
|
Acuity Brands, Inc. | 400 | 22,160 |
|
Kaydon Corp. | 300 | 13,011 |
|
Lancaster Colony Corp. | 600 | 25,410 |
|
Nordson Corp. | 400 | 19,512 |
|
Snap-on, Inc. | 300 | 15,030 |
See notes to financial statements
Value Opportunities Fund
17
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Manufacturing (continued) | | |
|
SPX Corp. | 800 | $55,920 |
Stanley Works | 700 | 38,899 |
| | |
Medical–Hospitals 0.61% | | 135,696 |
|
Lifepoint Hospitals, Inc. * | 300 | 10,980 |
|
Tenet Healthcare Corp. * | 6,400 | 43,712 |
|
Universal Health Services, Inc., Class B | 1,400 | 81,004 |
| | |
Metal & Metal Products 0.58% | | 129,395 |
|
Mueller Industries, Inc. | 1,400 | 41,720 |
|
Quanex Corp. | 300 | 11,727 |
|
Reliance Steel & Aluminum Company | 1,100 | 50,226 |
|
Timken Company | 900 | 25,722 |
| | |
Mobile Homes 0.48% | | 106,444 |
|
Thor Industries, Inc. | 2,000 | 83,680 |
|
Winnebago Industries, Inc. | 700 | 22,764 |
| | |
Newspapers 0.50% | | 111,664 |
|
Lee Enterprises, Inc. | 400 | 12,744 |
|
The New York Times Company, Class A | 4,000 | 98,920 |
| | |
Office Furnishings & Supplies 1.15% | | 256,010 |
|
Global Imaging Systems, Inc. * | 1,800 | 36,126 |
|
IKON Office Solutions, Inc. | 3,300 | 46,134 |
|
OfficeMax, Inc. | 2,500 | 129,750 |
|
United Stationers, Inc. * | 800 | 44,000 |
| | |
Paper 0.26% | | 57,696 |
|
Rock-Tenn Company, Class A | 400 | 12,988 |
|
Smurfit-Stone Container Corp. * | 1,200 | 14,808 |
|
Temple-Inland, Inc. | 500 | 29,900 |
| | |
Petroleum Services 0.20% | | 45,008 |
|
Tesoro Petroleum Corp. | 200 | 18,228 |
|
Universal Compression Holdings, Inc. * | 400 | 26,780 |
| | |
Pharmaceuticals 1.01% | | 223,800 |
|
King Pharmaceuticals, Inc. * | 12,000 | 223,800 |
| | |
Plastics 0.08% | | 18,536 |
|
Spartech Corp. | 700 | 18,536 |
| | |
Publishing 0.31% | | 68,440 |
|
Consolidated Graphics, Inc. * | 400 | 28,504 |
|
Valassis Communications, Inc. * | 2,400 | 39,936 |
| | |
Railroads & Equipment 0.13% | | 27,696 |
|
GATX Corp. | 600 | 27,696 |
| | |
Real Estate 3.20% | | 710,853 |
|
American Home Mortgage Investment Corp., REIT | 2,200 | 60,170 |
|
Annaly Mortgage Management, Inc., REIT | 7,400 | 103,748 |
|
Anthracite Capital, Inc., REIT | 700 | 8,757 |
|
Anworth Mortgage Asset Corp., REIT | 1,900 | 16,891 |
See notes to financial statements
Value Opportunities Fund
18
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Real Estate (continued) | | |
|
Apartment Investment & Management Company, Class A, REIT | 1,100 | $64,746 |
|
Entertainment Properties Trust, REIT | 400 | 26,200 |
|
Health Care Property Investors, Inc., REIT | 300 | 11,031 |
|
Impac Mortgage Holdings, Inc., REIT | 2,500 | 16,450 |
|
iStar Financial, Inc., REIT | 1,700 | 81,345 |
|
Mack-California Realty Corp., REIT | 400 | 20,672 |
|
MFA Mortgage Investments, Inc., REIT | 1,900 | 14,079 |
|
New Century Financial Corp., REIT | 1,800 | 27,540 |
|
Newcastle Investment Corp., REIT | 600 | 17,700 |
|
Redwood Trust, Inc., REIT | 1,800 | 97,200 |
|
Thornburg Mortgage, Inc., REIT | 5,700 | 144,324 |
| | |
Retail Grocery 2.41% | | 533,920 |
|
Ingles Markets, Inc. | 1,900 | 72,542 |
|
Nash-Finch Company | 1,200 | 36,072 |
|
Ruddick Corp. | 2,300 | 65,159 |
|
Smart & Final, Inc. * | 1,900 | 40,755 |
|
SUPERVALU, Inc. | 7,700 | 284,592 |
|
Weis Markets, Inc. | 800 | 34,800 |
| | |
Retail Trade 10.44% | | 2,316,227 |
|
99 Cents Only Stores * | 1,600 | 23,888 |
|
Abercrombie & Fitch Company, Class A | 300 | 23,451 |
|
American Eagle Outfitters, Inc. | 900 | 27,945 |
|
Big Lots, Inc. * | 3,400 | 85,102 |
|
BJ’s Wholesale Club, Inc. * | 3,600 | 116,208 |
|
Borders Group, Inc. | 1,000 | 21,380 |
|
Casey’s General Stores, Inc. | 700 | 17,507 |
|
Cash America International, Inc. | 500 | 20,305 |
|
Cato Corp., Class A | 600 | 13,116 |
|
Circuit City Stores, Inc. | 800 | 15,224 |
|
Claire’s Stores, Inc. | 1,000 | 32,140 |
|
Dillard’s, Inc., Class A | 1,800 | 60,120 |
|
Dollar General Corp. | 4,400 | 74,272 |
|
Dollar Tree Stores, Inc. * | 9,600 | 327,456 |
|
Family Dollar Stores, Inc. | 7,000 | 202,790 |
|
Foot Locker, Inc. | 3,400 | 77,248 |
|
Fossil, Inc. * | 3,500 | 94,220 |
|
Longs Drug Stores Corp. | 800 | 36,848 |
|
NBTY, Inc. * | 5,300 | 258,004 |
|
Pacific Sunwear of California, Inc. * | 1,900 | 34,200 |
|
Payless ShoeSource, Inc. * | 600 | 18,540 |
|
Pier 1 Imports, Inc. | 2,500 | 16,975 |
|
RadioShack Corp. | 2,900 | 72,413 |
|
Regis Corp. | 1,600 | 67,328 |
|
Rent-A-Center, Inc. * | 6,000 | 169,920 |
See notes to financial statements
Value Opportunities Fund
19
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Retail Trade (continued) | | |
|
Rite Aid Corp. * | 14,800 | $88,356 |
|
Ross Stores, Inc. | 1,100 | 36,047 |
|
Sonic Automotive, Inc. | 2,800 | 82,320 |
|
Talbots, Inc. | 1,600 | 40,384 |
|
The Buckle, Inc. | 900 | 31,032 |
|
Tween Brands, Inc. * | 1,000 | 35,850 |
|
United Rentals, Inc. * | 1,500 | 42,870 |
|
Williams-Sonoma, Inc. | 800 | 27,008 |
|
Zale Corp. * | 1,000 | 25,760 |
| | |
Sanitary Services 0.10% | | 21,794 |
|
Allied Waste Industries, Inc. * | 1,700 | 21,794 |
| | |
Semiconductors 0.28% | | 61,180 |
|
Novellus Systems, Inc. * | 1,900 | 61,180 |
| | |
Software 0.40% | | 89,240 |
|
BEA Systems, Inc. * | 200 | 2,386 |
|
Citrix Systems, Inc. * | 1,600 | 51,520 |
|
EPIQ Systems, Inc. * | 600 | 10,638 |
|
Keane, Inc. * | 1,800 | 24,696 |
| | |
Steel 0.13% | | 29,880 |
|
Worthington Industries, Inc. | 1,500 | 29,880 |
| | |
Telecommunications Equipment & Services 0.43% | | 94,583 |
|
CT Communications, Inc. | 900 | 21,213 |
|
Polycom, Inc. * | 2,300 | 73,370 |
| | |
Telephone 1.23% | | 273,650 |
|
Atlantic Tele-Network, Inc. | 500 | 14,100 |
|
CenturyTel, Inc. | 5,800 | 259,550 |
| | |
Tires & Rubber 0.44% | | 98,480 |
|
Goodyear Tire & Rubber Company * | 4,000 | 98,480 |
| | |
Tobacco 0.35% | | 78,015 |
|
Schweitzer Mauduit International, Inc. | 400 | 9,544 |
|
Universal Corp. | 1,300 | 68,471 |
| | |
Toys, Amusements & Sporting Goods 0.30% | | 67,496 |
|
Hasbro, Inc. | 1,600 | 45,264 |
|
Marvel Entertainment, Inc. * | 800 | 22,232 |
| | |
Transportation 0.61% | | 135,064 |
|
Overseas Shipholding Group, Inc. | 1,600 | 96,928 |
|
Saia, Inc. * | 1,400 | 38,136 |
| | |
Travel Services 0.47% | | 103,456 |
|
Sabre Holdings Corp. | 3,200 | 103,456 |
| | |
Trucking & Freight 1.20% | | 265,197 |
|
Arkansas Best Corp. | 1,900 | 74,993 |
|
Navistar International Corp. * | 1,200 | 48,660 |
See notes to financial statements
Value Opportunities Fund
20
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Trucking & Freight (continued) | | |
|
Ryder Systems, Inc. | 1,400 | $72,016 |
|
Swift Transportation, Inc. * | 1,600 | 49,264 |
|
Werner Enterprises, Inc. | 600 | 11,568 |
|
YRC Worldwide, Inc. * | 200 | 8,696 |
|
| Principal | |
Issuer, description, maturity date | amount | Value |
|
Repurchase agreements 3.75% | | $833,000 |
(Cost $833,000) | | |
Repurchase Agreement with State Street Corp. | | |
dated 02/28/2007 at 4.60% to be repurchased | | |
at $833,106 on 03/01/2007, collateralized by | | |
$785,000 Federal Home Loan Bank, 5.75% | | |
due 06/12/2026 (Valued at $852,706, | | |
including interest) (c) | $833,000 | 833,000 |
|
Total investments (Cost $20,336,604) 99.83% | | $22,154,457 |
|
|
Other assets in excess of liabilities 0.17% | | 37,678 |
|
|
Total net assets 100.00% | | $22,192,135 |
REIT Real Estate Investment Trust
* Non-income producing.
(c) Investment is an affiliate of the Trust’s subadvisor or custodian bank.
See notes to financial statements
Value Opportunities Fund
21
Financial statements
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities 2-28-07
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 $19,503,604) | $21,321,457 |
Repurchase agreement, at value (Cost $833,000) | 833,000 |
Cash | 662 |
Cash segregated for futures contracts | 40,000 |
Receivable for fund shares sold | 36,537 |
Dividends and interest receivable | 22,243 |
Receivable for futures variation margin | 2,354 |
Receivable due from adviser | 16,432 |
Other assets | 3,266 |
Total assets | 22,275,951 |
|
|
Liabilities | |
|
Payable for fund shares repurchased | 170 |
Payable to affiliates | |
Fund administration fees | 3,296 |
Transfer agent fees | 4,653 |
Service fees | 189 |
Accrued expenses | 75,508 |
Total liabilities | 83,816 |
|
|
Net assets | |
|
Capital paid-in | 20,091,029 |
Accumulated undistributed net realized gain on investments and futures contracts | 286,213 |
Unrealized appreciation on investments and futures contracts | 1,814,893 |
Net assets | $22,192,135 |
|
|
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 ($19,897,106 ÷ 889,691 shares) | $22.36 |
Class B ($312,920 ÷ 14,016 shares)a | $22.33 |
Class C ($1,409,152 ÷ 63,099 shares)a | $22.33 |
Class I ($266,782 ÷ 11,917 shares) | $22.39b |
Class R1 ($112,788 ÷ 5,054 shares) | $22.32 |
Class 1 ($193,387 ÷ 8,638 shares) | $22.39 |
|
|
Maximum public offering price per share | |
|
Class Ac (22.36 ÷ 95%) | $23.54 |
a Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
b Net assets and shares outstanding have been rounded for presentation purposes. The net asset value is as reported on February 28, 2007.
c On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements
Value Opportunities Fund
22
F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 2-28-07a
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 | |
|
Dividends (including special dividends of $17,500) | $218,886 |
Interest | 35,890 |
Total investment income | 254,776 |
|
Expenses | |
|
Investment management fees (Note 3) | 108,859 |
Distribution and service fees (Note 3) | 46,208 |
Transfer agent fees (Note 3) | 10,192 |
Fund administration fees (Note 3) | 5,006 |
Blue sky fees (Note 3) | 70,630 |
Audit and legal fees | 49,843 |
Custodian fees | 49,224 |
Printing and postage fees (Note 3) | 10,500 |
Registration and filing fees | 2,572 |
Trustees’ fees (Note 3) | 95 |
Miscellaneous | 283 |
| |
Total expenses | 353,412 |
Less expense reductions (Note 3) | (159,263) |
| |
Net expenses | 194,149 |
| |
Net investment income | 60,627 |
|
Realized and unrealized gain | |
|
Net realized gain on | |
Investments | 326,297 |
Futures contracts | 111,248 |
| |
Change in net unrealized appreciation (depreciation) of | |
Investments | 1,817,853 |
Futures contracts | (2,960) |
| |
Net realized and unrealized gain | 2,252,438 |
| |
Increase in net assets from operations | $2,313,065 |
a Period from 6-12-06 (commencement of operations) to 2-28-07.
See notes to financial statements
Value Opportunities Fund
23
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
This Statement of Changes in Net Assets shows how the value of the Fund’s net assets
have changed since inception. The difference reflects earnings less expenses, any
investment gains and losses, distributions, if any, paid to shareholders and the net of
Fund share transactions.
| Period |
| endeda |
| 2/28/07 |
|
Increase in net assets | |
|
From operations | |
Net investment income | $60,627 |
Net realized gain | 437,545 |
Change in net unrealized appreciation (depreciation) | 1,814,893 |
| |
Increase in net assets resulting from operations | 2,313,065 |
| |
Distributions to shareholders | |
From net investment income | |
Class A | (70,959) |
Class B | (135) |
Class C | (747) |
Class I | (1,369) |
Class R1 | (372) |
Class 1 | (880) |
From net realized gain | |
Class A | (135,189) |
Class B | (1,747) |
Class C | (9,633) |
Class I | (1,755) |
Class R1 | (807) |
Class 1 | (1,083) |
| |
Total distributions | (224,676) |
| |
From Fund share transactions | 20,103,746 |
|
Net assets | |
|
Beginning of period | — |
| |
End of period | $22,192,135 |
a Period from 6-12-06 (commencement of operations) to 2-28-07.
See notes to financial statements
Value Opportunities Fund
24
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed
since inception.
CLASS A SHARES | | |
| |
Period ended | 2-28-07 | a |
| |
Per share operating performance | | |
|
Net asset value, beginning of period | $20.00 | |
Net investment incomeh | 0.07 | s |
Net realized and unrealized | | |
gain on investments | 2.53 | |
Total from investment operations | 2.60 | |
Less distributions | | |
From net investment income | (0.08) | |
From net realized gain | (0.16) | |
| (0.24) | |
Net asset value, end of period | $22.36 | |
Total return (%) | 13.06 | k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | $20 | |
Ratio of net expenses to average | | |
net assets (%) | 1.38 | r |
Ratio of gross expenses to average | | |
net assets (%) | 2.13 | p,r |
Ratio of net investment income | | |
to average net assets (%) | 0.47 | r,s |
Portfolio turnover (%) | 30 | m |
See notes to financial statements
Value Opportunities Fund
25
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | | |
| |
Period ended | 2-28-07 | a |
|
Per share operating performance | | |
Net asset value, beginning of period | $20.00 | |
Net investment lossh | (0.01) | s |
Net realized and unrealized | | |
gain on investments | 2.51 | |
| | |
Total from investment operations | 2.50 | |
| | |
Less distributions | | |
From net investment income | (0.01) | |
From net realized gain | (0.16) | |
| (0.17) | |
Net asset value, end of period | $22.33 | |
Total return (%) | 12.54 | k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | — | i |
Ratio of net expenses to average | | |
net assets (%) | 2.08 | r |
Ratio of gross expenses to average | | |
net assets (%) | 11.31 | p,r |
Ratio of net investment loss | | |
to average net assets (%) | (0.07) | r,s |
Portfolio turnover (%) | 30 | m |
See notes to financial statements
Value Opportunities Fund
26
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | | |
| |
Period ended | 2-28-07 | a |
|
Per share operating performance | | |
Net asset value, beginning of period | $20.00 | |
Net investment lossh | (0.01) | s |
Net realized and unrealized | | |
gain on investments | 2.51 | |
Total from investment operations | 2.50 | |
Less distributions | | |
From net investment income | (0.01) | |
From net realized gain | (0.16) | |
| (0.17) | |
Net asset value, end of period | $22.33 | |
Total return (%) | 12.54 | k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | $1 | |
Ratio of net expenses to average | | |
net assets (%) | 2.08 | r |
Ratio of gross expenses to average | | |
net assets (%) | 5.09 | p,r |
Ratio of net investment loss | | |
to average net assets (%) | (0.07) | r,s |
Portfolio turnover (%) | 30 | m |
See notes to financial statements
Value Opportunities Fund
27
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | | |
| |
Period ended | 2-28-07 | a |
|
Per share operating performance | | |
Net asset value, beginning of period | $20.00 | |
Net investment incomeh | 0.15 | s |
Net realized and unrealized | | |
gain on investments | 2.53 | |
| | |
Total from investment operations | 2.68 | |
| | |
Less distributions | | |
From net investment income | (0.13) | |
From net realized gain | (0.16) | |
| (0.29) | |
Net asset value, end of period | $22.39 | |
| | |
Total return (%) | 13.42 | k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | — | i |
Ratio of net expenses to average | | |
net assets (%) | 0.99 | r |
Ratio of gross expenses to average | | |
net assets (%) | 12.63 | p,r |
Ratio of net investment income | | |
to average net assets (%) | 0.96 | r,s |
Portfolio turnover (%) | 30 | m |
See notes to financial statements
Value Opportunities Fund
28
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS R1 SHARES | | |
| |
Period ended | 2-28-07 | a |
|
Per share operating performance | | |
| | |
Net asset value, beginning of period | $20.00 | |
Net investment incomeh | 0.02 | s |
Net realized and unrealized | | |
gain on investments | 2.53 | |
| | |
Total from investment operations | 2.55 | |
| | |
Less distributions | | |
From net investment income | (0.07) | |
From net realized gain | (0.16) | |
| (0.23) | |
Net asset value, end of period | $22.32 | |
Total return (%) | 12.80 | k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | — | i |
Ratio of net expenses to average | | |
net assets (%) | 1.73 | r |
Ratio of gross expenses to average | | |
net assets (%) | 21.69 | p,r |
Ratio of net investment income | | |
to average net assets (%) | 0.12 | r,s |
Portfolio turnover (%) | 30 | m |
See notes to financial statements
Value Opportunities Fund
29
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS 1 SHARES | | |
| |
Period ended | 2-28-07 | a |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $20.00 | |
Net investment incomeh | 0.14 | s |
Net realized and unrealized | | |
gain on investments | 2.54 | |
| | |
Total from investment operations | 2.68 | |
| | |
Less distributions | | |
From net investment income | (0.13) | |
From net realized gain | (0.16) | |
| (0.29) | |
Net asset value, end of period | $22.39 | |
Total return (%) | 13.44 | k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | — | i |
Ratio of net expenses to average | | |
net assets (%) | 0.94 | r |
Ratio of gross expenses to average | | |
net assets (%) | 1.67 | p,r |
Ratio of net investment income | | |
to average net assets (%) | 0.89 | r,s |
Portfolio turnover (%) | 30 | m |
a Class A, Class B, Class C, Class I, Class R1 and Class 1 shares began operations on 6-12-06.
h Based on the average of the shares outstanding.
i Less than $500,000.
k Assumes dividend reinvestment.
l Total returns would have been lower had certain expenses not been reduced during the period shown.
m Not annualized.
p Does not take into consideration expense reductions during the period shown.
r Annualized.
s Net investment income (loss) per share and ratio of net investment income (loss) to average net assets reflects a
special dividend received by the Fund which amounted to the following amounts:
| | Percentage |
| | of average |
| Per share | net assets |
|
Class A | $0.02 | 0.09% |
|
Class B | 0.02 | 0.10 |
|
Class C | 0.02 | 0.10 |
|
Class I | 0.02 | 0.10 |
|
Class R1 | 0.02 | 0.09 |
|
Class 1 | 0.02 | 0.09 |
|
See notes to financial statements
Value Opportunities Fund
30
Notes to financial statements
1. Organization
John Hancock Value Opportunities Fund (the “Fund”) is a newly organized diversified series of John Hancock Funds III (the “Trust”). The Trust was established as a Massachusetts business trust on June 9, 2005. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end investment management company. The investment objective of the Fund is to seek long-term capital growth.
John Hancock Life Insurance Company of New York (“John Hancock New York”) is a wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.) (“John Hancock USA”). John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of The Manufacturers Life Insurance Company (“Manulife”), which in turn is a wholly owned subsidiary of Manulife Financial Corporation (“MFC”), a publicly traded company. MFC and its subsidiaries are known collectively as “Manulife Financial.”
John Hancock Investment Management Services, LLC (the “Adviser”), a Delaware limited liability company controlled by John Hancock USA, serves as investment adviser for the Trust and John Hancock Funds, LLC (the “Distributor”), a Delaware limited liablity company, an affiliate of the Adviser, serves as principal underwriter.
The Board of Trustees has authorized the issuance of multiple classes of shares of the Fund, including classes designated as Class A, Class B, Class C, Class I, Class R1, Class 1, Class 3 and Class NAV 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 Board of 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 bear distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Effective November 6, 2006, the Board of Trustees elected to change the name of Class R to Class R1.
Class 1 shares are sold only to certain exempt separate accounts of John Hancock USA and John Hancock New York. Class NAV shares are sold to the affiliated funds of funds, which are funds of funds within the John Hancock funds complex.
2. Significant accounting policies
In the preparation of the financial statements, the Fund follows the policies described below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Security valuation
The net asset value of the shares of the Fund is determined daily as of the close of the New York Stock Exchange, normally at 4:00 p.m., Eastern Time. Short-term debt instruments with remaining maturities of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on a principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter market are valued at the
Value Opportunities Fund
31
last bid price quoted by brokers making markets in the securities at the close of trading. Fund securities for which there are no such quotations, principally debt securities, are valued based on the valuation provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques.
Other assets and securities for which no such quotations are readily available are valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the New York Stock Exchange. The values of such securities used in computing the net asset value of a Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the New York Stock Exchange. Upon such an occurrence, these securities will then be valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
In deciding whether to make a fair value adjustment to the price of a security, the Board of Trustees or their designee may review a variety of factors, including, developments in foreign markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations, for example, when a particular foreign market is closed, but the Fund is calculating the net asset value. In view of these factors, it is likely that a fund investing significant amounts of assets in securities in foreign markets will be fair valued more frequently than a fund investing significant amounts of assets in frequently traded, U.S. exchange listed securities of large capitalization U.S. issuers.
For purposes of determining when fair value adjustments may be appropriate with respect to the Fund investing in securities in foreign markets that close prior to the New York Stock Exchange, the Fund will, on an ongoing basis, monitor for “significant market events.” A significant market event may be a certain percentage change in the value of an index or of certain Exchange Traded Funds (“ETFs”) that track foreign markets in which the Fund has significant investments. If a significant market event occurs due to a change in the value of the index or of ETFs, the pricing for the Fund will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Trust’s Pricing Committee, where applicable.
Fair value pricing of securities is intended to help ensure that the net asset value of the Fund’s shares reflects the value of the Fund’s securities as of the close of the New York Stock Exchange (as opposed to a value which is no longer accurate as of such close), thus limiting the opportunity for aggressive traders to purchase shares of the Fund at deflated prices, reflecting stale security valuations, and to promptly sell such shares at a gain. However, a security’s valuation may differ depending on the method used for determining value and no assurance can be given that fair value pricing of securities will successfully eliminate all potential opportunities for such trading gains.
Repurchase agreements
The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement through its custodian, it receives delivery of securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is generally at least 102% of the repurchase amount. The Fund will take constructive receipt of all securities underlying the repurchase agreements it has entered into until such agreements expire. If the seller defaults, the Fund would suffer a loss to the extent that proceeds from the sale of underlying securities were less than the repurchase amount. The Fund may enter into repurchase agreements maturing within seven days with domestic dealers, banks or other
Value Opportunities Fund
32
financial institutions deemed to be creditworthy by the Adviser. Collateral for certain tri-party repurchase agreements is held at the custodian bank in a segregated account for the benefit of the Fund and the counterparty.
Security transactions and
related investment income
Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Foreign dividends are recorded on the ex-date or as soon after the ex-date that the Fund becomes aware of such dividends, net of all taxes. Discounts/premiums are accreted/amortized for financial reporting purposes. Non-cash dividends are recorded at the fair market value of the securities received. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful, based upon consistently applied procedures.
From time to time, the Fund may invest in Real Estate Investment Trusts (“REITs”) and as a result, will estimate the components of distributions from these securities. Distributions from REITs received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain.
The Fund uses the First In, First Out method for fixed income securities and Highest Cost, First Out for all other securities for determining realized gain or loss on investments for both financial and federal income tax reporting purposes.
Multi-class operations
All income, expenses (except for class-specific expenses) and realized and unrealized gains (losses) are allocated to each class of shares based upon the relative net assets of each class.
Dividends to shareholders from net investment income are determined at a class level and distributions from capital gains are determined at a Fund level.
Expense allocation
Expenses are allocated based on the relative share of net assets of the Fund at the time the expense was incurred. Class-specific expenses, such as distribution (Rule 12b-1) fees, are accrued daily and charged directly to the respective share classes.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poor’s 500 Index (the “S&P 500 Index”), in order to hedge against a decline in the value of securities owned by the Fund.
Upon entering into futures contracts, the Fund is required to deposit with a broker an amount, termed the initial margin, which typically represents a certain percentage of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates, making the long or short positions in the contract more or less valuable. If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker, and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
Value Opportunities Fund
33
The following is a summary of open futures contracts on February 28, 2007: | |
| | | | |
| NUMBER OF | | | UNREALIZED |
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | DEPRECIATION |
|
Russell 2000 Mini Index | 6 | Long | Mar 2007 | ($2,960) |
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. Therefore, no federal income tax provision is required.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than August 31, 2007.
In September 2006, FASB Standard No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Distribution of income and gains
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. During the period ended February 28, 2007, the tax character of distributions paid was as follows: ordinary income $164,683 and long-term capital gains $59,993. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions 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 Fund’s financial statements as a return of capital. As of February 28, 2007, the components of distributable earnings o n a tax basis included $284,540 of undistributed ordinary income and $5,448 of undistributed long-term gain.
Capital accounts
The Fund reports the undistributed net investment income and accumulated undistributed net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carryforward is available). Accordingly, the Fund may periodically make reclassifications among certain capital accounts without affecting its net asset value.
3. Investment advisory and other agreements Advisory fees
The Trust has entered into an Investment Advisory Agreement with the Adviser. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvisers to handle the investment of the assets of the Fund, subject to the supervision of the Trust’s Board of Trustees. Under the Advisory Agreement, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.80% of the first $500,000,000 of the Fund’s aggregate daily
Value Opportunities Fund
34
net assets; (b) 0.78% of the next $500,000,000 of the Fund’s aggregate daily net assets; (c) 0.77% of the next $1,500,000,000 of the Fund’s aggregate daily net assets; and (d) 0.76% of the Fund’s aggregate daily net assets in excess of $2,500,000,000. Aggregate net assets include the net assets of the Fund and Value Opportunities Trust, a series of John Hancock Trust. John Hancock Trust is an open-end investment company advised by the Adviser and distributed by John Hancock Distributors, LLC. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
Expense reimbursements
The Adviser has agreed contractually to reimburse for certain fund level expenses that exceed 0.09% of the average annual net assets, or to make a payment to a specific class of shares of the Fund in an amount equal to the amount by which the expenses attributable to such class of shares (excluding taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business and fees under any agreement or plans of the Fund dealing with services for shareholders and others with beneficial interests in shares of the Fund) exceed the percentage of average annual net assets (on an annualized basis) attributable as follows: 1.39% for Class A, 2.09% for Class B, 2.09% for Class C, 0.99% for Class I, 1.49% for Class R1 and 0.94% for Class 1. Accordingly, the expense reductions related to this expense limitation amounted to $93,419, $15,583, $19,307, $15,065, $15,255 and $634 for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively, for the period ended February 28, 2007. This expense reimbursement shall continue in effect until June 30, 2007 and thereafter until terminated by the Adviser on notice to the Trust.
Administration fees
The Fund has an agreement with the Adviser that requires the Fund to reimburse the Adviser for all expenses associated with providing the administrative, financial, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, annual, semi-annual and periodic reports to shareholders and the preparation of all regulatory reports. These expenses are allocated based on the relative shares of net assets of each fund at the time the expense was incurred.
Distribution plan
The Trust has a Distribution Agreement with the Distributor. The Fund has adopted Distribution Plans with respect to Class A, Class B, Class C, Class R1 and Class 1, pursuant to Rule 12b-1 under the 1940 Act, to reimburse the Distributor for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00%, 1.00%, 0.50% and 0.05% of average daily net asset value of Class A, Class B, Class C, Class R1 and Class 1, respectively. 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 R1 shares, the Fund pays up to 0.25% of Class R1 average daily net asset value for certain other services.
Sales charges
Class A shares are assessed up-front sales charges of up to 5.00% of net asset value of such shares. During the period ended February 28, 2007, the Fund was informed that the Distributor received net up-front sales charges of $22,515 with regard to sales of Class A shares. Of this amount, $3,302 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $19,171 was paid as sales commissions to unrelated broker-dealers and $42 was paid as sales commissions to sales personnel of Signator Investors, Inc. (“Signator Investors”) a related broker-dealer, an indirect subsidiary of MFC.
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
Value Opportunities Fund
35
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 the Distributor and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended February 28, 2007, CDSCs received by the Distributor amounted to $535 for Class B shares and $59 for Class C shares.
Transfer agent fees
The Fund has a Transfer Agency Agreement with John Hancock Signature Services, Inc. (“Signature Services”), an indirect subsidiary of MFC. For Class A, Class B, Class C, Class I and Class R1 shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’ average daily net assets, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Expenses not directly attributable to a particular class of shares are aggregated and allocated to each class on the basis of its relative net asset value.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.20% annually of Class A, Class B, Class C, Class I and Class R1 share average daily net assets. This agreement is effective until December 31, 2007. Signature Services reserves the right to terminate this limitation in the future. Accordingly, there were no transfer agent fee reductions for Class A, Class B, Class C, Class I and Class R1 shares, respectively, during the period ended February 28, 2007.
Expenses under the agreements described above for the period ended February 28, 2007, were as follows:
| Distribution and | Transfer | | Printing and |
Share Class | service fees | agent | Blue sky | postage |
|
|
Class A | $37,525 | $8,475 | $14,320 | $8,928 |
Class B | 1,683 | 337 | 14,078 | 330 |
Class C | 6,387 | 1,277 | 14,078 | 416 |
Class I | — | 64 | 14,077 | 129 |
Class R1 | 570 | 39 | 14,077 | 697 |
Class 1 | 43 | — | — | — |
Total | $46,208 | $10,192 | $70,630 | $10,500 |
Trustees’ fees
The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. Total Trustees’ expenses are allocated to the Fund based on its average daily net asset value.
4. Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
5. Line of credit
The Fund has entered into an agreement which enables it to participate in a $100 million unsecured committed line of credit with State Street Corporation. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to the Fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50% .
Value Opportunities Fund
36
In addition, a commitment fee of 0.07% per annum, payable at the end of each calendar quarter, based on the average daily-unused portion of the line of credit, is charged to the Fund on a prorated basis based on average net assets.
For the period ended February 28, 2007, there were no borrowings under the line of credit.
6. Capital shares
Share activities for the Fund for the period ended February 28, 2007, were as follows:
| | Year ended 2-28-07a |
| Shares | Amount |
|
Class A shares | | |
|
Sold | 941,272 | $19,088,419 |
Distributions reinvested | 9,278 | 203,273 |
Repurchased | (60,859) | (1,306,606) |
Net increase | 889,691 | $17,985,086 |
|
Class B shares | | |
|
Sold | 21,277 | $445,406 |
Distributions reinvested | 78 | 1,721 |
Repurchased | (7,339) | (162,632) |
Net increase | 14,016 | $284,495 |
|
Class C shares | | |
|
Sold | 69,790 | $1,449,685 |
Distributions reinvested | 414 | 9,061 |
Repurchased | (7,105) | (155,548) |
Net increase | 63,099 | $1,303,198 |
|
Class I shares | | |
|
Sold | 11,800 | $245,442 |
Distributions reinvested | 117 | 2,570 |
Net increase | 11,917 | $248,012 |
|
Class R1 shares | | |
|
Sold | 5,000 | $100,000 |
Distributions reinvested | 54 | 1,179 |
Net increase | 5,054 | $101,179 |
|
Class 1 shares | | |
|
Sold | 8,549 | $179,825 |
Distributions reinvested | 90 | 1,963 |
Repurchased | (1) | (12) |
Net increase | 8,638 | $181,776 |
|
Net increase | 992,415 | $20,103,746 |
|
aPeriod from 6-12-06 (commencement of operations) to 2-28-07.
Value Opportunities Fund
37
7. 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 February 28, 2007, aggregated $24,696,394 and $5,518,343, respectively.
The cost of investments owned on February 28, 2007, including short-term investments, for federal income tax purposes, was $20,343,340. Gross unrealized appreciation and depreciation of investments aggregated $2,256,688 and $445,571, respectively, resulting in net unrealized appreciation of $1,811,117.
8. Federal income tax information
Federal income tax regulations may differ from generally accepted accounting principles and income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
9. Reclassification of accounts
During the period ended February 28, 2007, the Fund reclassified amounts to reflect a decrease in accumulated net realized gain on investments of $1,118, a decrease in accumulated net investment loss of $13,835 and a decrease in capital paid-in of $12,717. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2007. 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 non-deductible 12b-1 fees. The calculation of net investment income (loss) per share in the Fund’s Financial Highlights excludes these adjustments.
Value Opportunities Fund
38
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Funds III and Shareholders of John Hancock
Value Opportunities 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 finan-cial highlights present fairly, in all material respects, the financial position of John Hancock Value Opportunities Fund (the “Fund”) at February 28, 2007, and the results of its operations, the changes in its net assets and the financial highlights for the period June 12, 2006 (commencement of operations) through February 28, 2007, 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 audit. We conducted our audit 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 audit, which included confirmation of investments at February 28, 2007 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2007
39
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 February 28, 2007.
The Fund has designated distributions to shareholders of $59,993 as a long-term capital gain dividend.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended February 28, 2007, 40.53% of the dividends qualifies 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 2003.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
40
Trustees and 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, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
|
Ronald R. Dion , Born: 1946 | 2006 | 66 |
|
Independent Chairman (since 2005); 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. | | |
|
|
James F. Carlin , Born: 1940 | 2006 | 66 |
|
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | | |
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | | |
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | | |
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | | |
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | | |
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | | |
|
|
Richard P. Chapman, Jr.,2 Born: 1935 | 2006 | 66 |
|
President and Chief Executive Officer, Brookline Bancorp, Inc. (lending) (since | | |
1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); | | |
Chairman and Director, Northeast Retirement Services, Inc. (retirement | | |
administration) (since 1998); Vice Chairman, Northeastern University Board | | |
of Trustees (since 2004). | | |
|
|
William H. Cunningham , Born: 1944 | 2006 | 66 |
|
Former Chancellor, University of Texas System and former President of the | | |
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, | | |
IBT Technologies (until 2001); Director of the following: Hire.com (until 2004), | | |
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. | | |
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until | | |
2004), Pinnacle Foods Corporation (until 2003), rateGenius (until 2003), Lincoln | |
National Corporation (insurance) (since 2006), Jefferson-Pilot Corporation | | |
(diversified life insurance company) (until 2006), New Century Equity Holdings | | |
(formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com | | |
(until 2001), Agile Ventures (until 2001), AskRed.com (until 2001), Southwest | | |
Airlines (since 2000), Introgen (since 2000) and Viasystems Group, Inc. (electronic | |
manufacturer) (until 2003); Advisory Director, Interactive Bridge, Inc. (college | | |
fundraising) (until 2001); Advisory Director, Q Investments (until 2003); | | |
41
Independent Trustees (continued) | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
William H. Cunningham , Born: 1944 (continued) | 2006 | 66 |
|
Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce Bank – | | |
Austin), LIN Television (since 2002), WilTel Communications (until 2003) and | | |
Hayes Lemmerz International, Inc. (diversified automotive parts supply company) | |
(since 2003). | | |
|
|
Charles L. Ladner,2 Born: 1938 | 2006 | 66 |
|
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, AmeriGas, Inc. | | |
(retired 1998); Director, AmeriGas Partners, L.P. (gas distribution) (until 1997); | | |
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | |
(until 2005). | | |
|
|
John A. Moore,2 Born: 1939 | 2006 | 66 |
|
President and Chief Executive Officer, Institute for Evaluating Health Risks, | | |
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | | |
(health research) (until 2003); Former Assistant Administrator and Deputy | | |
Administrator, Environmental Protection Agency; Principal, Hollyhouse | | |
(consulting) (since 2000); Director, CIIT Center for Health Science Research | | |
(nonprofit research) (2002–2006). | | |
|
|
Patti McGill Peterson,2 Born: 1943 | 2006 | 66 |
|
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 | 2006 | 66 |
|
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). | | |
42
Non-Independent Trustee3 | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
James R. Boyle, Born: 1959 | 2006 | 272 |
|
President, John Hancock Insurance Group; Executive Vice President, John | | |
Hancock Life Insurance Company (since June 2004); Chairman and Director, | | |
John Hancock Advisers, LLC (the “Adviser”), John Hancock Funds, LLC and | | |
The Berkeley Financial Group, LLC (“The Berkeley Group”) (holding company) | | |
(since 2005); Senior Vice President, The Manufacturers Life Insurance Company | |
(U.S.A.) (until 2004). | | |
|
Principal officers who are not Trustees | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Keith F. Hartstein, Born: 1956 | | 2006 |
|
President and Chief Executive Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, John | | |
Hancock Funds, LLC (since 2005); Director, MFC Global Investment Management | |
(U.S.), LLC (“MFC Global (U.S.)”) (since 2005); Director, John Hancock Signature | |
Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock | |
Investment Management Services, LLC (since 2006); President and Chief Executive | |
Officer, John Hancock Funds II, John Hancock Funds III and John Hancock Trust; | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | | |
Chairman, Investment Company Institute Sales Force Marketing Committee | | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | | |
|
|
Thomas M. Kinzler, Born: 1955 | | 2006 |
|
Secretary and Chief Legal Officer | | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2006); | |
Vice President and Associate General Counsel, Massachusetts Mutual Life | | |
Insurance Company (1999–2006); Secretary and Chief Legal Counsel, MML | | |
Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, | | |
MassMutual Institutional Funds (2000–2004); Secretary and Chief Legal Counsel, | |
MassMutual Select Funds and MassMutual Premier Funds (2004–2006). | | |
|
|
Francis V. Knox, Jr., Born: 1947 | | 2006 |
|
Chief Compliance Officer | | |
Vice President and Chief Compliance Officer, John Hancock Investment | | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | | |
Vice President and Chief Compliance Officer, John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and | | |
Ethics & Compliance Officer, Fidelity Investments (until 2001). | | |
43
Principal officers who are not Trustees (continued) | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Gordon M. Shone, Born: 1956 | | 2006 |
|
Treasurer | | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | | |
(1998–2000). | | |
|
|
John G. Vrysen, Born: 1955 | | 2006 |
|
Chief Financial Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | | |
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley | | |
Group and John Hancock Funds, LLC (since 2005); Executive Vice President and | | |
Chief Financial Officer, John Hancock Investment Management Services, LLC | | |
(since 2005); Vice President and Chief Financial Officer, MFC Global (U.S.) | | |
(since 2005); Director, John Hancock Signature Services, Inc. (since 2005); | | |
Chief Financial Officer, John Hancock Funds II, John Hancock Funds III and John | | |
Hancock Trust (since 2005); Vice President and General Manager, Fixed Annuities, | | |
U.S. Wealth Management (until 2005); Vice President, Operations, Manulife | | |
Wood Logan (2000–2004). | | |
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.
1Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2Member of Audit Committee.
3Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
44
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 | Custodian | Legal counsel |
John Hancock Investment | State Street Bank & Trust Co. | Kirkpatrick & Lockhart |
Management Services, LLC | 2 Avenue de Lafayette | Preston Gates Ellis LLP |
601 Congress Street | Boston, MA 02111 | 1 Lincoln Street |
Boston, MA 02210-2805 | | Boston, MA 02110-2950 |
| Transfer agent | |
Subadviser | John Hancock Signature | Independent registered |
Grantham, Mayo, | Services, Inc. | public accounting firm |
Van Otterloo & Co. LLC | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
40 Rowes Wharf | Suite 1000 | 125 High Street |
Boston, MA 02110 | Boston, MA 02217-1000 | Boston, MA 02110 |
| | |
Principal distributor | | |
John Hancock Funds, LLC | | |
601 Congress Street | | |
Boston, MA 02210-2805 | | |
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 | 380 Stuart Street |
| | Boston, MA 02116 |
|
|
Phone | Customer service representatives | 1-800-225-5291 |
| EASI-Line | 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.
48
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Fund |
Focused Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Mid Cap Growth Fund | TAX-FREE |
Multi Cap Growth Fund | California Tax-Free Income Fund |
Small Cap Equity Fund | High Yield Municipal Bond Fund |
Small Cap Fund | Massachusetts Tax-Free Income Fund |
Small Cap Intrinsic Value Fund | New York Tax-Free Income Fund |
Sovereign Investors Fund | Tax-Free Bond Fund |
U.S. Core Fund | |
U.S. Global Leaders Growth Fund | MONEY MARKET |
Value Opportunities Fund | Money Market Fund |
| U.S. Government Cash Reserve |
ASSET ALLOCATION | |
Allocation Core Portfolio | CLOSED-END |
Allocation Growth + Value Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2010 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2015 Portfolio | Income Securities Trust |
Lifecycle 2020 Portfolio | Investors Trust |
Lifecycle 2025 Portfolio | Patriot Global Dividend Fund |
Lifecycle 2030 Portfolio | Patriot Preferred Dividend Fund |
Lifecycle 2035 Portfolio | Patriot Premium Dividend Fund I |
Lifecycle 2040 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2045 Portfolio | Patriot Select Dividend Trust |
Lifecycle Retirement Portfolio | Preferred Income Fund |
Lifestyle Aggressive Portfolio | Preferred Income II Fund |
Lifestyle Balanced Portfolio | Preferred Income III Fund |
Lifestyle Conservative Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
|
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund | |
For more complete information on any John Hancock Fund and an Open-End fund prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291 for Open-End fund information and 1-800-852-0218 for Closed-End fund information. Please read the Open-End fund prospectus carefully before investing or sending money.
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 Value Opportunities Fund.
6300A 2/07
4/07
TABLE OF CONTENTS |
|
Your fund at a glance |
page 1 |
|
Managers’ report |
page 2 |
|
A look at performance |
page 6 |
|
Your expenses |
page 8 |
|
Fund’s investments |
page 10 |
|
Financial statements |
page 18 |
|
Notes to financial |
statements |
page 26 |
|
Trustees and officers |
page 36 |
|
For more information |
page 40 |
|
CEO corner
To Our Shareholders,
The U.S. financial markets turned in strong results over the last 12 months, as earlier concerns of rising inflation, a housing slowdown and high energy prices gave way to news of slower, but still resilient, economic growth, stronger than expected corporate earnings and dampened inflation fears and energy costs. This environment also led the Federal Reserve Board to hold short-term interest rates steady. Even with a sharp decline in the last days of the period, the broad stock market returned 11.97% for the year ended February 28, 2007, as measured by the S&P 500 Index. With interest rates remaining relatively steady, fixed-income securities also produced positive results.
But after a remarkably long period of calm, the financial markets were rocked at the end of the period by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. In the United States, for example, the Dow Jones Industrial Average had its steepest one-day percentage decline in nearly four years on February 27, 2007. The event served to jog investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
It was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the market’s moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes well for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more-than-four-year-old bull market. The recent downturn bolsters this uncertainty, although we believe it was a healthy correction for which we were overdue.
The recent volatility could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon — not a sprint — approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of February 28, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks high total return relative to its benchmark, currently the S&P 500 Index, by making equity investments in U.S. companies with capitalizations similar to the capitalizations of companies that issue stock included in the S&P 500 Index.
Since inception
► The Fund produced double-digit results, but trailed the S&P 500 Index against a backdrop of rising share prices and investors’ preference for cheap stocks.
► The rally was fueled in part by the Fed’s decision to keep short-term interest rates steady and by falling energy prices.
► Market volatility was evident at the beginning of the period, diminished to near-record-low levels during the rally, and returned as the period came to a close.
Top 10 holdings | | | | |
| | | | |
Exxon Mobil Corp. | 6.2% | | AT&T, Inc. | 3.7% |
| | |
Pfizer, Inc. | 4.3% | | Home Depot, Inc. | 3.2% |
| | |
Citigroup, Inc. | 4.2% | | Johnson & Johnson | 2.5% |
| | |
Wal-Mart Stores, Inc. | 4.0% | | Verizon Communications, Inc. | 2.2% |
| | |
Merck & Company, Inc. | 3.7% | | Lowe’s Companies, Inc. | 1.9% |
| | |
As a percentage of net assets on February 28, 2007.
1
Managers’ report
John Hancock
U.S. Core Fund
U.S. stocks enjoyed solid performance during the review period, which began in June 2006 in the midst of a market correction triggered by the Federal Reserve Board’s hawkish comments about inflation and fears of a longer-than-anticipated cycle of interest rate hikes. Rising energy prices were another factor adding to the negative investor sentiment early in the period. As the summer progressed, however, the prospects for both interest rates and energy prices improved. Inflationary pressures eased a bit and more data emerged indicating a slowing U.S. economy, prompting the Fed to leave interest rates unchanged in August after 17 consecutive 0.25% increases. At subsequent meetings in September, November, December and January, the Fed reaffirmed its stand-pat position. At the same time, energy prices registered substantial declines. In response, the market embarked on a rally that began in July and continued almost through the end of February 2007.
The rally was characterized by extremely low share price volatility and investors’ preference for stocks with low price-to-book value (P/B) or price-to-earnings (P/E) ratios, as evidenced by the dramatic outperformance of the Russell 1000 Value Index over the Russell 1000 Growth Index. Corporate profits continued to grow at a healthy pace, and while short-term interest rates were higher than they had been prior to the Fed’s tightening moves, access to capital remained relatively unhindered. However, on the second-to-last trading day of the period,
SCORECARD
INVESTMENT | | PERIOD’S PERFORMANCE. . . AND WHAT’S BEHIND THE NUMBERS |
| | |
Merck | ▲ | Undervalued; controversy over Vioxx fading |
AT&T | ▲ | Improving profitability; synergies from Bell South acquisition |
Exxon Mobil | ▼ | Underweighting hurts as stock advances amid record profits |
2
From the Grantham, Mayo, Van Otterloo & Co. LLC (GMO) Portfolio
Management Team
volatility returned with a vengeance, as the Dow Jones Industrial Average and the Fund’s benchmark, the S&P 500 Index, each fell by more than 3%. It was the Dow’s worst one-day percentage loss since 2003, leaving many investors wondering if the long run of benign market conditions had come to an end.
“U.S. stocks enjoyed solid
performance during the
review period...”
Looking at performance
From their inception on June 12, 2006, through February 28, 2007, John Hancock U.S. Core Fund’s Class A, Class B, Class C, Class I and Class R1 shares returned 12.64%, 12.07%, 12.12%, 12.95% and 12.38%, respectively, at net asset value. By comparison, the S&P 500 Index returned 13.92%, while the average large blend fund monitored by Morning-star, Inc. gained 14.95% .a Keep in mind that your returns will differ from those listed above if you were not invested in the Fund for the entire period or did not reinvest all distributions.
The market environment proved challenging to both of our primary stock selection tools — valuation and momentum. Valuation, which determines the positioning for approximately two-thirds of this Fund’s assets, accounted for most of the performance shortfall. During the period, investors wanted cheap stocks on a P/B or P/E basis, whereas our valuation discipline seeks out stocks selling at a significant discount from their intrinsic value. The difference is that our methodology encompasses various yardsticks of quality, such as stability of earnings, leverage and long-term profitability. Over the longer term, the market has rewarded an emphasis on quality stocks acquired at a discount, but over shorter periods of time investors sometimes spurn quality in favor of low prices, concept stocks and other fads.
U.S. Core Fund
3
Our momentum criteria are designed to identify stocks that have performed well recently and appear poised to continue outperforming. That said, although the broader earnings environment was favorable and the market rose for most of the period, our momentum strategy rotated out of low P/B and low P/E stocks after they plummeted during the market’s early summer correction. Consequently, the strategy underperformed when the market shifted back toward these stocks as it recovered.
Technology, retail and energy limit gains
The sector detracting most from performance during the period was technology, where our stock selection, along with an underweighting, negatively affected the Fund’s returns. For example, having a significant underweighting in software giant Microsoft Corp. undermined our results, as investors who bought the stock in anticipation of a successful launch for Vista, the company’s major upgrade of its Windows operating system, bid the price up over 30% during the period.
Retail was another sector that undermined the Fund’s performance. In this case, both stock picking and a sizeable overweighting were detrimental. We gave the Fund its largest overweighting in this group given the attractive valuations of many stocks, including two of the Fund’s largest positions, Wal-Mart Stores, Inc. and Lowe’s Companies, Inc. Concerns about decelerating growth hampered Wal-Mart, while Lowe’s was hurt by speculation that its profits could be curtailed by a weak homebuilding market. In our view, both companies remained capable of generating solid earnings growth in a wide variety of economic environments, and both stocks were trading at discounts to their true economic values.
SECTOR DISTRIBUTIONb |
| |
Consumer, non-cyclical | 25% |
Consumer, cyclical | 19% |
Financial | 16% |
Communications | 12% |
Industrial | 9% |
Energy | 8% |
Technology | 6% |
Basic materials | 2% |
Also having a negative impact on performance was the oil and gas sector, which included the Fund’s biggest detractor, Exxon Mobil Corp. Although this company enjoyed record profitability, the Fund’s underweighted position detracted from performance. Lastly, the share price of coffee merchant Starbucks Corp. struggled due to some disappointing short-term financial results. Nevertheless, based on our valuation and momentum screens, our view of this stock’s longer-term merits remained undiminished.
U.S. Core Fund
4
Health care and utilities add value
On the positive side, the health care and utility sectors made notable contributions to performance. In particular, our valuation and momentum screens signaled opportunity in pharmaceutical stocks, which had been beaten down due to controversies surrounding the safety of various patent medications. Merck & Company, Inc. had been one of the downtrodden and as investors began to realize its inherent value, the stock responded with a strong gain. Forest Laboratories, Inc. was another contributor from the health care sector. Also adding value was telecommunication services provider AT&T, Inc. a stock we owned for both its compelling valuation and strong momentum. Lastly, we correctly managed two stocks that trailed the benchmark: General Electric Company, which we underweighted and then sold, and United Parcel Service, which we did not own.
“…the health care and utility
sectors made notable
contributions to performance.”
Outlook
The plunge in share prices near the end of the period raises the possibility that the era of low volatility might be coming to an end. Likewise, the mean-reverting nature of corporate profitability and access to capital indicate that challenges in those areas could lie in the market’s future. Against this backdrop, we believe the Fund’s emphasis on buying quality stocks below their intrinsic value — together with its focus on momentum opportunities — positions it well to face the remainder of 2007 and beyond.
This commentary reflects the views of the portfolio management team through the end of the Fund’s period discussed in this report. The team’s statements reflect its 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.
a Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
b As a percentage of net assets on February 28, 2007.
U.S. Core Fund
5
A look at performance
For the period ended February 28, 2007 | |
|
| | Cumulative total returns |
| | with maximum sales charge (POP) |
|
| Inception | Since |
Class | date | inception |
|
A | 6-12-06 | 7.02% |
|
B | 6-12-06 | 7.07 |
|
C | 6-12-06 | 11.12 |
|
Ia | 6-12-06 | 12.95 |
|
R1a | 6-12-06 | 12.38 |
|
Performance figures assume all distributions are reinvested. POP (Public Offering Price) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I and Class R1 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.
Performance is calculated with an opening price (prior day’s close) on the inception date.
a For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
U.S. Core Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in U.S. Core Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in the Standard & Poor’s 500 Index.
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 6-12-06 | $11,207 | $10,707 | $11,392 |
|
C | 6-12-06 | 11,212 | 11,112 | 11,392 |
|
Ib | 6-12-06 | 11,295 | 11,295 | 11,392 |
|
R1b | 6-12-06 | 11,238 | 11,238 | 11,392 |
|
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 R1 shares, respectively, as of February 28, 2007. 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.
Standard & Poor’s 500 Index is an unmanaged index that includes 500 widely traded common stocks.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
a NAV represents net asset value and POP represents public offering price.
b For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
U.S. Core Fund
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 September 1, 2006, with the same investment held until February 28, 2007.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,068.17 | $6.92 |
|
Class B | 1,000.00 | 1,064.27 | 10.49 |
|
Class C | 1,000.00 | 1,065.25 | 10.50 |
|
Class I | 1,000.00 | 1,070.11 | 4.82 |
|
Class R1 | 1,000.00 | 1,066.78 | 8.71 |
|
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 February 28, 2007, 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:
U.S. Core Fund
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’ actual expense ratio and an assumed 5% annualized return before expenses (which is not your Fund’s actual return). It assumes an account value of $1,000.00 on September 1, 2006, with the same investment held until February 28, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,018.10 | $6.76 |
|
Class B | 1,000.00 | 1,014.63 | 10.24 |
|
Class C | 1,000.00 | 1,014.63 | 10.24 |
|
Class I | 1,000.00 | 1,020.13 | 4.71 |
|
Class R1 | 1,000.00 | 1,016.36 | 8.50 |
|
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.
a Expenses are equal to the Fund's annualized expense ratio of 1.35%, 2.05%, 2.05%, 0.94% and 1.70% for Class A, Class B, Class C, Class I and Class R1, 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).
U.S. Core Fund
9
Fund’s investments
F I N A N C I A L S T A T E M E N T S
Securities owned by the Fund on 2-28-07
This schedule is divided into two main categories: common stocks and repurchase
agreements. Common stocks are further broken down by industry group. Repurchase
agreements, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
|
Common stocks 96.53% | | $22,310,030 |
(Cost $20,899,522) | | |
| | |
Advertising 0.13% | | $31,083 |
|
Omnicom Group, Inc. | 300 | 31,083 |
| | |
Aerospace 1.96% | | 452,674 |
|
Boeing Company | 200 | 17,454 |
|
General Dynamics Corp. | 400 | 30,584 |
|
Lockheed Martin Corp. | 1,600 | 155,648 |
|
Northrop Grumman Corp. | 1,100 | 79,035 |
|
Raytheon Company | 600 | 32,130 |
|
United Technologies Corp. | 2,100 | 137,823 |
| | |
Agriculture 0.33% | | 75,636 |
|
Archer-Daniels-Midland Company | 2,200 | 75,636 |
| | |
Aluminum 0.32% | | 73,502 |
|
Alcoa, Inc. | 2,200 | 73,502 |
| | |
Apparel & Textiles 0.81% | | 187,773 |
|
Cintas Corp. | 300 | 12,114 |
|
Coach, Inc. * | 400 | 18,880 |
|
Jones Apparel Group, Inc. | 300 | 9,876 |
|
Liz Claiborne, Inc. | 600 | 27,000 |
|
Mohawk Industries, Inc. * | 100 | 8,752 |
|
NIKE, Inc., Class B | 300 | 31,341 |
|
VF Corp. | 1,000 | 79,810 |
| | |
Auto Parts 0.51% | | 118,925 |
|
AutoZone, Inc. * | 500 | 62,645 |
|
Johnson Controls, Inc. | 600 | 56,280 |
| | |
Auto Services 0.21% | | 48,312 |
|
AutoNation, Inc. * | 2,200 | 48,312 |
| | |
Automobiles 1.03% | | 237,337 |
|
Ford Motor Company | 10,500 | 83,160 |
|
General Motors Corp. | 2,000 | 63,840 |
|
PACCAR, Inc. | 1,300 | 90,337 |
See notes to financial statements
U.S. Core Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Banking 3.27% | | $754,833 |
|
Bank of America Corp. | 7,500 | 381,525 |
|
BB&T Corp. | 1,200 | 50,976 |
|
Comerica, Inc. | 800 | 48,312 |
|
Fifth Third Bancorp | 700 | 28,196 |
|
KeyCorp | 400 | 15,096 |
|
National City Corp. | 4,400 | 166,540 |
|
US Bancorp | 1,800 | 64,188 |
| | |
Biotechnology 0.10% | | 22,116 |
|
Amgen, Inc. * | 200 | 12,852 |
|
Applera Corp. | 300 | 9,264 |
| | |
Broadcasting 0.67% | | 154,358 |
|
CBS Corp., Class B | 1,300 | 39,455 |
|
News Corp. | 5,100 | 114,903 |
| | |
Building Materials & Construction 0.36% | | 83,511 |
|
American Standard Companies, Inc. | 900 | 47,691 |
|
Masco Corp. | 1,200 | 35,820 |
| | |
Business Services 1.31% | | 303,018 |
|
Affiliated Computer Services, Inc., Class A * | 600 | 31,182 |
|
Computer Sciences Corp. * | 800 | 42,344 |
|
Electronic Data Systems Corp. | 500 | 14,010 |
|
First Data Corp. | 2,200 | 56,166 |
|
H & R Block, Inc. | 500 | 10,890 |
|
Manpower, Inc. | 700 | 52,010 |
|
Moody’s Corp. | 900 | 58,248 |
|
Pitney Bowes, Inc. | 800 | 38,168 |
| | |
Cable and Television 1.49% | | 345,505 |
|
Comcast Corp., Class A * | 8,700 | 223,764 |
|
DIRECTV Group, Inc. * | 2,600 | 58,656 |
|
Time Warner, Inc. | 3,100 | 63,085 |
| | |
Chemicals 0.62% | | 143,952 |
|
Air Products & Chemicals, Inc. | 400 | 29,928 |
|
E.I. Du Pont De Nemours & Company | 1,100 | 55,825 |
|
Eastman Chemical Company | 200 | 11,824 |
|
PPG Industries, Inc. | 700 | 46,375 |
| | |
Computers & Business Equipment 4.44% | | 1,025,912 |
|
CDW Corp. | 700 | 43,456 |
|
Cisco Systems, Inc. * | 15,400 | 399,476 |
|
Cognizant Technology Solutions Corp., Class A * | 400 | 36,080 |
|
Dell, Inc. * | 10,800 | 246,780 |
|
Hewlett-Packard Company | 1,100 | 43,318 |
|
International Business Machines Corp. | 1,600 | 148,816 |
|
Lexmark International, Inc. * | 1,400 | 84,784 |
|
Network Appliance, Inc. * | 600 | 23,202 |
See notes to financial statements
U.S. Core Fund
11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Construction Materials 0.12% | | $26,620 |
|
Sherwin-Williams Company | 400 | 26,620 |
| | |
Containers & Glass 0.06% | | 12,880 |
|
Pactiv Corp. * | 400 | 12,880 |
| | |
Cosmetics & Toiletries 0.99% | | 229,669 |
|
Avon Products, Inc. | 1,400 | 51,324 |
|
Colgate-Palmolive Company | 300 | 20,208 |
|
Estee Lauder Companies, Inc., Class A | 600 | 28,728 |
|
Kimberly-Clark Corp. | 1,900 | 129,409 |
| | |
Crude Petroleum & Natural Gas 0.66% | | 152,127 |
|
Apache Corp. | 200 | 13,706 |
|
Devon Energy Corp. | 500 | 32,855 |
|
Marathon Oil Corp. | 400 | 36,296 |
|
Occidental Petroleum Corp. | 1,500 | 69,270 |
| | |
Drugs & Health Care 0.15% | | 34,244 |
|
Wyeth | 700 | 34,244 |
| | |
Electrical Equipment 0.50% | | 116,343 |
|
Emerson Electric Company | 2,700 | 116,343 |
| | |
Electrical Utilities 0.29% | | 67,986 |
|
Entergy Corp. | 300 | 29,610 |
|
The AES Corp. * | 1,800 | 38,376 |
| | |
Electronics 0.06% | | 12,908 |
|
Amphenol Corp., Class A | 200 | 12,908 |
| | |
Financial Services 9.18% | | 2,121,510 |
|
Bear Stearns Companies, Inc. | 300 | 45,672 |
|
Citigroup, Inc. | 19,100 | 962,640 |
|
Countrywide Financial Corp. | 600 | 22,968 |
|
Federal Home Loan Mortgage Corp. | 1,400 | 89,852 |
|
Federal National Mortgage Association | 3,600 | 204,228 |
|
Fiserv, Inc. * | 600 | 31,776 |
|
Goldman Sachs Group, Inc. | 800 | 161,280 |
|
JPMorgan Chase & Company | 4,500 | 222,300 |
|
Mellon Financial Corp. | 200 | 8,686 |
|
Merrill Lynch & Company, Inc. | 600 | 50,208 |
|
Morgan Stanley | 2,100 | 157,332 |
|
PNC Financial Services Group, Inc. | 400 | 29,324 |
|
SEI Investments Company | 200 | 12,090 |
|
T. Rowe Price Group, Inc. | 300 | 13,968 |
|
The First Marblehead Corp. | 200 | 9,028 |
|
Washington Mutual, Inc. | 1,600 | 68,928 |
|
Wells Fargo & Company | 900 | 31,230 |
| | |
Food & Beverages 2.21% | | 510,473 |
|
Campbell Soup Company | 600 | 24,498 |
|
ConAgra Foods, Inc. | 1,800 | 45,414 |
See notes to financial statements
U.S. Core Fund
12
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Food & Beverages (continued) | | |
|
General Mills, Inc. | 400 | $22,544 |
|
H.J. Heinz Company | 1,100 | 50,457 |
|
Kraft Foods, Inc., Class A | 3,100 | 98,952 |
|
Pepsi Bottling Group, Inc. | 700 | 21,700 |
|
Sara Lee Corp. | 1,500 | 24,690 |
|
Sysco Corp. | 1,700 | 56,032 |
|
The Coca-Cola Company | 2,700 | 126,036 |
|
Tyson Foods, Inc., Class A | 2,200 | 40,150 |
| | |
Healthcare Products 3.66% | | 845,691 |
|
Baxter International, Inc. | 300 | 15,003 |
|
Becton, Dickinson & Company | 800 | 60,792 |
|
Biomet, Inc. | 600 | 25,398 |
|
C.R. Bard, Inc. | 200 | 15,960 |
|
Johnson & Johnson | 9,100 | 573,755 |
|
Stryker Corp. | 1,000 | 62,020 |
|
Zimmer Holdings, Inc. * | 1,100 | 92,763 |
| | |
Healthcare Services 3.13% | | 723,496 |
|
Cardinal Health, Inc. | 2,200 | 154,198 |
|
Caremark Rx, Inc. | 200 | 12,318 |
|
Express Scripts, Inc. * | 1,000 | 75,410 |
|
Laboratory Corp. of America Holdings * | 200 | 15,950 |
|
Lincare Holdings, Inc. * | 400 | 15,620 |
|
McKesson Corp. | 2,300 | 128,248 |
|
Quest Diagnostics, Inc. | 1,600 | 81,632 |
|
UnitedHealth Group, Inc. | 4,600 | 240,120 |
| | |
Holdings Companies/Conglomerates 0.16% | | 36,916 |
|
Textron, Inc. | 400 | 36,916 |
| | |
Homebuilders 0.10% | | 24,080 |
|
Centex Corp. | 200 | 9,272 |
|
KB Home | 100 | 4,960 |
|
Lennar Corp., Class A | 200 | 9,848 |
| | |
Hotels & Restaurants 1.34% | | 310,882 |
|
Marriott International, Inc., Class A | 1,000 | 47,910 |
|
McDonald’s Corp. | 1,200 | 52,464 |
|
Starbucks Corp. * | 5,500 | 169,950 |
|
Yum! Brands, Inc. | 700 | 40,558 |
| | |
Household Appliances 0.08% | | 17,642 |
|
Whirlpool Corp. | 200 | 17,642 |
| | |
Household Products 0.13% | | 29,856 |
|
Energizer Holdings, Inc. * | 200 | 17,184 |
|
The Clorox Company | 200 | 12,672 |
| | |
Industrial Machinery 0.93% | | 215,235 |
|
Caterpillar, Inc. | 700 | 45,094 |
See notes to financial statements
U.S. Core Fund
13
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Industrial Machinery (continued) | | |
|
Cummins, Inc. | 200 | $26,936 |
|
Deere & Company | 600 | 65,052 |
|
Dover Corp. | 300 | 14,337 |
|
Parker-Hannifin Corp. | 400 | 32,956 |
|
W.W. Grainger, Inc. | 400 | 30,860 |
| | |
Industrials 0.09% | | 21,162 |
|
Fastenal Company | 600 | 21,162 |
| | |
Insurance 4.56% | | 1,053,758 |
|
AFLAC, Inc. | 2,600 | 122,720 |
|
Allstate Corp. | 3,800 | 228,228 |
|
Ambac Financial Group, Inc. | 600 | 52,584 |
|
American International Group, Inc. | 2,000 | 134,200 |
|
Aon Corp. | 300 | 11,295 |
|
Brown & Brown, Inc. | 400 | 11,260 |
|
Chubb Corp. | 400 | 20,420 |
|
CIGNA Corp. | 100 | 14,250 |
|
First American Corp. | 300 | 14,145 |
|
Hartford Financial Services Group, Inc. | 200 | 18,912 |
|
Lincoln National Corp. | 400 | 27,260 |
|
MBIA, Inc. | 700 | 46,529 |
|
MGIC Investment Corp. | 500 | 30,175 |
|
Old Republic International Corp. | 1,100 | 24,552 |
|
PMI Group, Inc. | 800 | 37,496 |
|
Progressive Corp. | 2,600 | 59,618 |
|
Radian Group, Inc. | 500 | 28,725 |
|
SAFECO Corp. | 200 | 13,344 |
|
The Travelers Companies, Inc. * | 800 | 40,608 |
|
Torchmark Corp. | 500 | 31,960 |
|
Transatlantic Holdings, Inc. | 200 | 13,220 |
|
UnumProvident Corp. | 1,700 | 36,397 |
|
W.R. Berkley Corp. | 1,100 | 35,860 |
| | |
International Oil 7.32% | | 1,692,027 |
|
Anadarko Petroleum Corp. | 1,200 | 48,276 |
|
Chevron Corp. | 2,500 | 171,525 |
|
ConocoPhillips | 700 | 45,794 |
|
Exxon Mobil Corp. | 19,900 | 1,426,432 |
| | |
Leisure Time 1.06% | | 244,851 |
|
International Game Technology, Inc. | 1,700 | 70,125 |
|
Walt Disney Company | 5,100 | 174,726 |
| | |
Life Sciences 0.05% | | 10,852 |
|
Waters Corp. * | 200 | 10,852 |
| | |
Liquor 1.10% | | 255,234 |
|
Anheuser-Busch Companies, Inc. | 4,800 | 235,584 |
|
Brown Forman Corp., Class B | 300 | 19,650 |
See notes to financial statements
U.S. Core Fund
14
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Manufacturing 2.49% | | $575,089 |
|
3M Company | 500 | 37,040 |
|
Danaher Corp. | 2,400 | 171,936 |
|
Eaton Corp. | 700 | 56,707 |
|
Harley-Davidson, Inc. | 2,200 | 144,980 |
|
Illinois Tool Works, Inc. | 2,700 | 139,590 |
|
Rockwell Automation, Inc. | 400 | 24,836 |
| | |
Medical-Hospitals 0.07% | | 16,074 |
|
Manor Care, Inc. | 300 | 16,074 |
| | |
Office Furnishings & Supplies 0.14% | | 33,308 |
|
Avery Dennison Corp. | 200 | 13,292 |
|
Office Depot, Inc. * | 600 | 20,016 |
| | |
Paper 0.16% | | 36,010 |
|
International Paper Company | 1,000 | 36,010 |
| | |
Pharmaceuticals 10.77% | | 2,488,241 |
|
Abbott Laboratories | 3,100 | 169,322 |
|
AmerisourceBergen Corp. | 2,100 | 110,607 |
|
Barr Pharmaceuticals, Inc. * | 300 | 15,900 |
|
Bristol-Myers Squibb Company | 2,900 | 76,531 |
|
Forest Laboratories, Inc. * | 4,400 | 227,744 |
|
King Pharmaceuticals, Inc. * | 1,700 | 31,705 |
|
Merck & Company, Inc. | 19,500 | 861,120 |
|
Pfizer, Inc. | 39,500 | 985,920 |
|
Schering-Plough Corp. | 400 | 9,392 |
| | |
Photography 0.04% | | 9,552 |
|
Eastman Kodak Company | 400 | 9,552 |
| | |
Publishing 0.67% | | 154,250 |
|
Gannett Company, Inc. | 1,900 | 116,394 |
|
McGraw-Hill Companies, Inc. | 400 | 25,844 |
|
Tribune Company | 400 | 12,012 |
| | |
Railroads & Equipment 0.56% | | 129,116 |
|
Burlington Northern Santa Fe Corp. | 500 | 39,595 |
|
CSX Corp. | 700 | 26,369 |
|
Norfolk Southern Corp. | 500 | 23,700 |
|
Union Pacific Corp. | 400 | 39,452 |
| | |
Retail Grocery 1.01% | | 234,487 |
|
Safeway, Inc. | 2,800 | 96,796 |
|
SUPERVALU, Inc. | 600 | 22,176 |
|
The Kroger Company | 4,500 | 115,515 |
| | |
Retail Trade 13.42% | | 3,102,642 |
|
Abercrombie & Fitch Company, Class A | 200 | 15,634 |
|
American Eagle Outfitters, Inc. | 1,150 | 35,708 |
See notes to financial statements
U.S. Core Fund
15
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Retail Trade (continued) | | |
|
Bed Bath & Beyond, Inc. * | 1,900 | $75,791 |
|
Best Buy Company, Inc. | 1,000 | 46,470 |
|
CarMax, Inc. * | 200 | 10,540 |
|
Circuit City Stores, Inc. | 400 | 7,612 |
|
Costco Wholesale Corp. | 1,800 | 100,602 |
|
Dollar General Corp. | 1,500 | 25,320 |
|
Family Dollar Stores, Inc. | 1,200 | 34,764 |
|
Foot Locker, Inc. | 1,000 | 22,720 |
|
Gap, Inc. | 600 | 11,514 |
|
Home Depot, Inc. | 18,700 | 740,520 |
|
J.C. Penney Company, Inc. | 200 | 16,222 |
|
Kohl’s Corp. * | 3,100 | 213,869 |
|
Limited Brands, Inc. | 1,800 | 49,824 |
|
Lowe’s Companies, Inc. | 13,200 | 429,792 |
|
Nordstrom, Inc. | 200 | 10,618 |
|
PETsMART, Inc. | 400 | 12,124 |
|
Ross Stores, Inc. | 400 | 13,108 |
|
Staples, Inc. | 4,200 | 109,284 |
|
Target Corp. | 900 | 55,377 |
|
The TJX Companies, Inc. | 2,100 | 57,750 |
|
Walgreen Company | 1,900 | 84,949 |
|
Wal-Mart Stores, Inc. | 19,100 | 922,530 |
| | |
Sanitary Services 0.43% | | 99,360 |
|
Ecolab, Inc. | 900 | 38,070 |
|
Waste Management, Inc. | 1,800 | 61,290 |
| | |
Semiconductors 0.30% | | 69,475 |
|
Intel Corp. | 3,500 | 69,475 |
| | |
Software 1.71% | | 394,169 |
|
BEA Systems, Inc. * | 1,800 | 21,474 |
|
BMC Software, Inc. * | 400 | 12,344 |
|
Citrix Systems, Inc. * | 900 | 28,980 |
|
Intuit, Inc. * | 1,000 | 29,510 |
|
Microsoft Corp. | 4,300 | 121,131 |
|
Oracle Corp. * | 11,000 | 180,730 |
| | |
Telecommunications Equipment & Services 0.21% | | 48,336 |
|
QUALCOMM, Inc. | 1,200 | 48,336 |
| | |
Telephone 5.94% | | 1,373,829 |
|
AT&T, Inc. | 23,075 | 849,160 |
|
CenturyTel, Inc. | 600 | 26,850 |
|
Verizon Communications, Inc. | 13,300 | 497,819 |
| | |
Tobacco 0.90% | | 207,438 |
|
Altria Group, Inc. | 1,200 | 101,136 |
|
Reynolds American, Inc. | 600 | 36,630 |
|
UST, Inc. | 1,200 | 69,672 |
See notes to financial statements
U.S. Core Fund
16
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Toys, Amusements & Sporting Goods 0.20% | | $46,818 |
|
Mattel, Inc. | 1,800 | 46,818 |
| | |
Transportation 0.47% | | 109,265 |
|
C.H. Robinson Worldwide, Inc. | 1,000 | 50,960 |
|
Expeditors International of Washington, Inc. | 1,300 | 58,305 |
| | |
Trucking & Freight 1.55% | | 357,682 |
|
Fedex Corp. | 2,900 | 331,122 |
|
J.B. Hunt Transport Services, Inc. | 1,000 | 26,560 |
|
| Principal | |
Issuer, description, maturity date | amount | |
|
Repurchase agreements 3.25% | | $751,000 |
(Cost $751,000) | | |
|
Repurchase Agreement with State Street Corp. dated | | |
2/28/2007 at 4.60% to be repurchased at $751,096 | | |
on 3/1/2007, collateralized by $710,000 Federal | | |
Home Loan Bank, 5.75% due 6/12/2026 (Valued at | | |
$771,238, including interest) (c) | $751,000 | 751,000 |
|
Total investments (Cost $21,650,522) 99.78% | | $23,061,030 |
|
|
Other assets in excess of liabilities 0.22% | | 50,883 |
|
|
Total net assets 100.00% | | $23,111,913 |
* Non-income producing.
(c) Investment is an affiliate of the Trust’s subadvisor or custodian bank.
See notes to financial statements
U.S. Core Fund
17
Financial statements
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities 2-28-07
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 $20,899,522) | $22,310,030 |
Repurchase agreement, at value (Cost $751,000) | 751,000 |
Cash | 509 |
Cash segregated for futures contracts | 50,000 |
Receivable for fund shares sold | 32,350 |
Dividends and interest receivable | 39,773 |
Receivable for futures variation margin | 2,040 |
Receivable due from adviser | 1,896 |
Other assets | 1,327 |
Total assets | 23,188,925 |
|
Liabilities | |
|
Payable to affiliates | |
Fund administration fees | 3,326 |
Transfer agent fees | 4,609 |
Service fees | 193 |
Accrued expenses | 68,884 |
Total liabilities | 77,012 |
|
Net assets | |
|
Capital paid-in | 21,338,451 |
Accumulated undistributed net realized gain on investments and futures contracts | 336,833 |
Net unrealized appreciation on investments and futures contracts | 1,404,958 |
Undistributed net investment income | 31,671 |
Net assets | $23,111,913 |
|
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 ($19,402,105 ÷ 872,333 shares) | $22.24 |
Class B ($285,270 ÷ 12,848 shares)a | $22.20 |
Class C ($3,186,888 ÷ 143,513 shares)a | $22.21 |
Class I ($125,285 ÷ 5,627 shares) | $22.26 |
Class R1 ($112,365 ÷ 5,062 shares) | $22.20 |
|
Maximum offering price per share | |
|
Class Ab ($22.24 ÷ 95%) | $23.41 |
a Redemption price is equal to net asset value less any applicable contingent deferred sales charges.
b On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements
U.S. Core Fund
18
F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 2-28-07a
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 | |
Dividends | $255,499 |
Interest | 37,676 |
Total investment income | 293,175 |
|
Expenses | |
Investment management fees (Note 3) | 104,924 |
Distribution and service fees (Note 3) | 50,149 |
Transfer agent fees (Note 3) | 9,833 |
Fund administration fees (Note 3) | 4,998 |
Blue sky fees (Note 3) | 70,630 |
Audit and legal fees | 49,002 |
Custodian fees | 29,751 |
Printing and postage fees (Note 3) | 10,584 |
Registration and filing fees | 2,563 |
Trustees’ fees (Note 3) | 96 |
Miscellaneous | 283 |
| |
Total expenses | 332,813 |
Less expense reductions (Note 3) | (137,866) |
| |
Net expenses | 194,947 |
| |
Net investment income | 98,228 |
|
Realized and unrealized gain (loss) | |
|
Net realized gain on | |
Investments | 470,753 |
Futures contracts | 60,741 |
| |
Change in net unrealized appreciation (depreciation) of | |
Investments | 1,410,508 |
Futures contracts | (5,550) |
| |
Net realized and unrealized gain | 1,936,452 |
| |
Increase in net assets from operations | $2,034,680 |
a Period from 6-12-06 (commencement of operations) to 2-28-07.
See notes to financial statements
U.S. Core Fund
19
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
This Statement of Changes in Net Assets shows how the value of the Fund’s net assets
has changed since inception. The difference reflects earnings less expenses, any
investment gains and losses, distributions, if any, paid to shareholders and the net of
Fund share transactions.
| Period |
| ended |
| 2-28-07a |
|
Increase (decrease) in net assets | |
|
From operations | |
Net investment income | $98,228 |
Net realized gain | 531,494 |
Change in net unrealized appreciation (depreciation) | 1,404,958 |
Increase in net assets resulting from operations | 2,034,680 |
Distributions to shareholders | |
From net investment income | |
Class A | (75,450) |
Class B | (174) |
Class C | (2,087) |
Class I | (737) |
Class R1 | (400) |
From net realized gain | |
Class A | (165,121) |
Class B | (2,107) |
Class C | (25,345) |
Class I | (1,098) |
Class R1 | (990) |
| |
Total distributions | (273,509) |
| |
From Fund share transactions | 21,350,742 |
|
Net assets | |
|
Beginning of period | — |
| |
End of periodb | $23,111,913 |
a Period from 6-12-06 (commencement of operations) to 2-28-07.
b Includes undistributed net investment income of $31,671.
See notes to financial statements
U.S. Core Fund
20
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed
since the end of the previous period.
CLASS A SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.12 |
Net realized and unrealized | |
gain on investments | 2.41 |
Total from investments operations | 2.53 |
Less distributions | |
From net investment income | (0.09) |
From net realized gain | (0.20) |
| (0.29) |
Net asset value, end of period | $22.24 |
Total return (%) | 12.64k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period (in millions) | $19 |
Ratio of net expenses to average | |
net assets (%) | 1.34r |
Ratio of gross expenses to average | |
net assets (%) | 1.93p,r |
Ratio of net investment income | |
to average net assets (%) | 0.76r |
Portfolio turnover (%) | 36m |
See notes to financial statements
U.S. Core Fund
21
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | | |
| |
Period ended | 2-28-07 | a |
| |
Per share operating performance | | |
|
Net asset value, beginning of period | $20.00 | |
Net investment incomeh | 0.02 | |
Net realized and unrealized | | |
gain on investments | 2.40 | |
Total from investments operations | 2.42 | |
Less distributions | | |
From net investment income | (0.02) | |
From net realized gain | (0.20) | |
| (0.22) | |
Net asset value, end of period | $22.20 | |
Total return (%) | 12.07 | k,l,m |
| |
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | — | n |
Ratio of net expenses to average | | |
net assets (%) | 2.04 | r |
Ratio of gross expenses to average | | |
net assets (%) | 13.58 | p,r |
Ratio of net investment income | | |
to average net assets (%) | 0.12 | r |
Portfolio turnover (%) | 36 | m |
See notes to financial statements
U.S. Core Fund
22
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | | |
| |
Period ended | 2-28-07 | a |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $20.00 | |
Net investment incomeh | 0.03 | |
Net realized and unrealized | | |
gain on investments | 2.40 | |
Total from investments operations | 2.43 | |
Less distributions | | |
From net investment income | (0.02) | |
From net realized gain | (0.20) | |
| (0.22) | |
Net asset value, end of period | 22.21 | |
Total return (%) | 12.12 | k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | $3 | |
Ratio of net expenses to average | | |
net assets (%) | 2.04 | r |
Ratio of gross expenses to average | | |
net assets (%) | 3.82 | p,r |
Ratio of net investment income | | |
to average net assets (%) | 0.16 | r |
Portfolio turnover (%) | 36 | m |
See notes to financial statements
U.S. Core Fund
23
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | | |
| |
Period ended | 2-28-07 | a |
| |
Per share operating performance | | |
|
Net asset value, beginning of period | $20.00 | |
Net investment incomeh | 0.18 | |
Net realized and unrealized | | |
gain on investments | 2.41 | |
| | |
Total from investments operations | 2.59 | |
| | |
Less distributions | | |
From net investment income | (0.13) | |
From net realized gain | (0.20) | |
| (0.33) | |
Net asset value, end of period | $22.26 | |
Total return (%) | 12.95 | k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | — | n |
Ratio of net expenses to average | | |
net assets (%) | 0.95 | r |
Ratio of gross expenses to average | | |
net assets (%) | 17.83 | p,r |
Ratio of net investment income | | |
to average net assets (%) | 1.16 | r |
Portfolio turnover (%) | 36 | m |
See notes to financial statements
U.S. Core Fund
24
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS R1 SHARES | | |
| |
Period ended | 2-28-07 | a |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $20.00 | |
Net investment incomeh | 0.06 | |
Net realized and unrealized | | |
gain on investments | 2.42 | |
Total from investments operations | 2.48 | |
Less distributions | | |
From net investment income | (0.08) | |
From net realized gain | (0.20) | |
| (0.28) | |
Net asset value, end of period | $22.20 | |
Total return (%) | 12.38 | k,l,m |
| |
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | — | n |
Ratio of net expenses to average | | |
net assets (%) | 1.69 | r |
Ratio of gross expenses to average | | |
net assets (%) | 21.12 | p,r |
Ratio of net investment income | | |
to average net assets (%) | 0.41 | r |
Portfolio turnover rate (%) | 36 | m |
a Class A, Class B, Class C, Class I and Class R1 shares began operations on 6-12-06.
h Based on the average of the shares outstanding.
k Assumes dividend reinvestment.
l Total returns would have been lower had certain expenses not been reduced during the period shown.
m Not annualized.
n Less than $500,000.
p Does not take into consideration expense reductions during periods shown.
r Annualized.
See notes to financial statements
U.S. Core Fund
25
Notes to financial statements
1. Organization
John Hancock U.S. Core Fund (the “Fund”) is a newly organized diversified series of John Hancock Funds III (the “Trust”). The Trust was established as a Massachusetts business trust on June 9, 2005. The Trust is registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as an open-end investment management company. The investment objective of the Fund is to seek high total return relative to its benchmark.
John Hancock Life Insurance Company of New York (“John Hancock New York”) is a wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.) (“John Hancock USA”). John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of The Manufacturers Life Insurance Company (“Manulife”), which in turn is a wholly owned subsidiary of Manulife Financial Corporation (“MFC”), a publicly traded company. MFC and its subsidiaries are known collectively as “Manulife Financial.”
John Hancock Investment Management Services, LLC (the “Adviser”), a Delaware limited liability company, controlled by John Hancock USA, serves as investment adviser for the Trust and John Hancock Funds, LLC (the “Distributor”), a Delaware limited liability company, an affiliate of the Adviser, serves as principal underwriter.
The Board of Trustees has authorized the issuance of multiple classes of shares of the Fund, including classes designated as Class A, Class B, Class C, Class I, Class R1, Class 1, Class 3 and Class NAV 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 Board of 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. Effective November 6, 2006, the Board of Trustees elected to change the name of Class R to Class R1.
2. Significant accounting policies
In the preparation of the financial statements, the Fund follows the policies described below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Security valuation
The net asset value of the shares of the Fund is determined daily as of the close of the New York Stock Exchange, normally at 4:00 p.m., Eastern Time. Short-term debt instruments with remaining maturities of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on a principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Fund securities for which there are no such quotations, principally debt securities, are valued based on the valuation provided by an independent pricing
U.S. Core Fund
26
service, which utilizes both dealer-supplied and electronic data processing techniques.
Other assets and securities for which no such quotations are readily available are valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the New York Stock Exchange. The values of such securities used in computing the net asset value of a Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the New York Stock Exchange. Upon such an occurrence, these securities will then be valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
In deciding whether to make a fair value adjustment to the price of a security, the Board of Trustees or their designee may review a variety of factors, including, developments in foreign markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations, for example, when a particular foreign market is closed, but the Fund is calculating the net asset value. In view of these factors, it is likely that a fund investing significant amounts of assets in securities in foreign markets will be fair valued more frequently than a fund investing significant amounts of assets in frequently traded, U.S. exchange listed securities of large capitalization U.S. issuers.
For purposes of determining when fair value adjustments may be appropriate with respect to the Fund investing in securities in foreign markets that close prior to the New York Stock Exchange, the Fund will, on an ongoing basis, monitor for “significant market events.” A significant market event may be a certain percentage change in the value of an index or of certain Exchange Traded Funds (“ETFs”) that track foreign markets in which the Fund has significant investments. If a significant market event occurs due to a change in the value of the index or of ETFs, the pricing for the Fund will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Trust’s Pricing Committee where applicable.
Fair value pricing of securities is intended to help ensure that the net asset value of the Fund’s shares reflects the value of the Fund’s securities as of the close of the New York Stock Exchange (as opposed to a value which is no longer accurate as of such close), thus limiting the opportunity for aggressive traders to purchase shares of the Fund at deflated prices, reflecting stale security valuations, and to promptly sell such shares at a gain. However, a security’s valuation may differ depending on the method used for determining value and no assurance can be given that fair value pricing of securities will successfully eliminate all potential opportunities for such trading gains.
Repurchase agreements
The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement through its custodian, it receives delivery of securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is generally at least 102% of the repurchase amount. The Fund will take constructive receipt of all securities underlying the repurchase agreements it has entered into until such agreements expire. If the seller defaults, the Fund would suffer a loss to the extent that proceeds from the sale of underlying securities were less than the repurchase amount. The Fund may enter into repurchase agreements maturing within seven days with domestic dealers, banks or other financial institutions deemed to be creditworthy by the Adviser. Collateral for certain tri-party repurchase agreements is held at the custodian bank in a segregated account for the benefit of the Fund and the counterpa rty.
U.S. Core Fund
27
Security transactions and related
investment income
Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Foreign dividends are recorded on the ex-date or as soon after the ex-date that the Fund becomes aware of such dividends, net of all taxes. Discounts/premiums are accreted/amortized for financial reporting purposes. Non-cash dividends are recorded at the fair market value of the securities received. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful, based upon consistently applied procedures.
From time to time, the Fund may invest in Real Estate Investment Trusts (“REITs”) and as a result, will estimate the components of distributions from these securities. Distributions from REITs received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain.
The Fund uses the First In, First Out method for fixed income securities and Highest Cost, First Out for all other securities for determining realized gain or loss on investments for both financial and federal income tax reporting purposes.
Multi-class operations
All income, expenses (except for class-specific expenses) and realized and unrealized gains (losses) are allocated to each class of shares based upon the relative net assets of each class. Dividends to shareholders from net investment income are determined at a class level and distributions from capital gains are determined at a Fund level.
Expense allocation
Expenses are allocated based on the relative share of net assets of the Fund at the time the expense was incurred. Class-specific expenses, such as distribution (Rule 12b-1) fees, are accrued daily and charged directly to the respective share classes.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poor’s 500 Index (the “S&P 500 Index), in order to hedge against a decline in the value of securities owned by the Fund.
Upon entering into futures contracts, the Fund is required to deposit with a broker an amount, termed the initial margin, which typically represents a certain percentage of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates, making the long or short positions in the contract more or less valuable. If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker, and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
U.S. Core Fund
28
The following is a summary of open futures contracts on February 28, 2007: | |
| | | | | |
| | NUMBER OF | | | UNREALIZED |
OPEN CONTRACTS | | CONTRACTS | POSITION | EXPIRATION | DEPRECIATION |
|
S&P 500 Index | | 3 | Long | Mar 2007 | ($5,550) |
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. Therefore, no federal income tax provision is required.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than August 31, 2007.
In September 2006, FASB Standard No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Distribution of income and gains
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. During the period ended February 28, 2007, the tax character of distributions paid was as follows: ordinary income $244,037 and long-term capital gains $29,472. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions 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 Fund’s financial statements as a return of capital.
As of February 28, 2007, the components of distributable earnings on a tax basis included $361,888 of undistributed ordinary income and $3,643 of undistributed long-term gain.
Capital accounts
The Fund reports the undistributed net investment income and accumulated undistributed net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carryforward is available). Accordingly, the Fund may periodically make reclassifications among certain capital accounts without affecting its net asset value.
3. Investment advisory and
other agreements
Advisory fees
The Trust has entered into an Investment Advisory Agreement with the Adviser. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvisers to handle the investment of the assets of the Fund, subject to the supervision of the Trust’s Board of Trustees. Under the Advisory Agreement the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.78% of the first $500,000,000 of the Fund’s aggregate daily net assets; (b) 0.76% of the next $500,000,000 of the Fund’s aggregate daily net assets; (c) 0.75%
U.S. Core Fund
29
of the next $1,500,000,000 of the Fund’s aggregate daily net assets; and (d) 0.74% of the Fund’s aggregate daily net assets in excess of $2,500,000,000. Aggregate net assets include the net assets of the Fund, the U.S. Core Trust and a portion of the net assets of the Managed Trust that is subadvised by Grantham, Mayo, Van Otterloo & Co. LLC. U.S. Core Trust and Managed Trust are a series of John Hancock Trust. John Hancock Trust is an open-end investment company advised by the Adviser and distributed by John Hancock Distributors, LLC. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
Expense reimbursements
The Adviser has agreed contractually to reimburse for certain fund level expenses that exceed 0.10% of the average annual net assets, or to make a payment to a specific class of shares of the Fund in an amount equal to the amount by which the expenses attributable to such class of shares (excluding taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business and fees under any agreement or plans of the Fund dealing with services for shareholders and others with beneficial interests in shares of the Fund) exceed the percentage of average annual net assets (on an annualized basis) attributable as follows: 1.35% for Class A, 2.05% for Class B, 2.05% for Class C, 0.95% for Class I and 1.45% for Class R1. Accordingly, the expense reductions related to this expense limitation amounted to $73,402, $15,013, $19,684, $14,594 and $15,173 for Class A, Class B, Class C, Class I and Class R1, respectively, for the period ended February 28, 2007. This expense reimbursement shall continue in effect until June 30, 2007 and thereafter until terminated by the Adviser on notice to the Trust.
Administration fees
The Fund has an agreement with the Adviser that requires the Fund to reimburse the Adviser for all expenses associated with providing the administrative, financial, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, annual, semiannual and periodic reports to shareholders and the preparation of all regulatory reports. These expenses are allocated based on the relative share of net assets of each fund at the time the expense was incurred.
Distribution plan
The Trust has a Distribution Agreement with the Distributor. The Fund has adopted Distribution Plans with respect to Class A, Class B, Class C and Class R1, pursuant to Rule 12b-1 under the 1940 Act, to reimburse the Distributor for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00%, 1.00% and 0.50% of average daily net asset value of Class A, Class B, Class C and Class R1, respectively. 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 R1 shares, the Fund pays up to 0.25% of Class R1 average daily net asset value for certain other services.
Sales charges
Class A shares are assessed up-front sales charges of up to 5.00% of net asset value of such shares. During the period ended February 28, 2007, the Fund was informed that the Distributor received net up-front sales charges of $41,624 with regard to sales of Class A shares. Of this amount, $6,642 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $34,841 was paid as sales commissions to unrelated broker-dealers and $141 was paid as sales commissions to sales personnel of Signator Investors, Inc. (“Signator Investors”), a related broker-dealer, an indirect subsidiary of MFC.
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
U.S. Core Fund
30
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 the Distributor and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended February 28, 2007, the Fund was informed that CDSCs received by the Distributor amounted to $25 for Class B shares and $22 for Class C shares.
Transfer agent fees
The Fund has a Transfer Agency Agreement with John Hancock Signature Services, Inc. (“Signature Services”), an indirect subsidiary of MFC. For Class A, Class B, Class C, Class I and Class R1 shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’ average daily net assets, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Expenses not directly attributable to a particular class of shares are aggregated and allocated to each class on the basis of its relative net asset value.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.20% annually of Class A, Class B, Class C, Class I and Class R1 share average daily net assets. This agreement is effective until December 31, 2007. Signature Services reserves the right to terminate this limitation in the future. Accordingly, there were no transfer agent fee reductions for Class A, Class B, Class C, Class I and Class R1 shares, respectively, during the period ended February 28, 2007.
Trustees’ fees
The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. Total Trustees’ expenses are allocated to the Fund based on its average daily net asset value.
4. Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
5. Line of credit
The Fund has entered into an agreement which enables it to participate in a $100 million unsecured committed line of credit with State Street Corporation. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to the Fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50% . In addition, a commitment fee of 0.07% per annum, payable at the end of each calendar quarter, based on the average daily-unused portion of the line of credit, is charged to the Fund on a prorated basis based on average net assets. For the year ended February 28, 2007, there were no borrowings under the line of credit.
U.S. Core Fund
31
Expenses under the agreements described above for the period ended February 28, 2007, were |
as follows: | | | | |
| | | | |
| Distribution | Transfer | | Printing and |
Share Class | and service fees | agent | Blue sky | postage |
|
|
Class A | $37,223 | $8,043 | $14,321 | $8,862 |
Class B | 1,296 | 259 | 14,077 | 246 |
Class C | 11,048 | 1,448 | 14,078 | 673 |
Class I | — | 43 | 14,077 | 90 |
Class R1 | 582 | 40 | 14,077 | 713 |
Total | $50,149 | $9,833 | $70,630 | $10,584 |
6. Capital shares
Share activities for the Fund for the period ended February 28, 2007, were as follows:
| Period ended 2-28-07a |
| Shares | Amount |
|
Class A shares | | |
|
Sold | 864,514 | $17,543,185 |
Distributions reinvested | 10,725 | 239,263 |
Repurchased | (2,906) | (65,923) |
Net increase | 872,333 | $17,716,525 |
|
Class B shares | | |
|
Sold | 13,046 | $278,326 |
Distributions reinvested | 94 | 2,087 |
Repurchased | (292) | (6,586) |
Net increase | 12,848 | $273,827 |
|
Class C shares | | |
|
Sold | 147,710 | $3,240,381 |
Distributions reinvested | 1,205 | 26,878 |
Repurchased | (5,402) | (121,094) |
Net increase | 143,513 | $3,146,165 |
|
Class I shares | | |
|
Sold | 5,545 | $111,000 |
Distributions reinvested | 82 | 1,835 |
Net increase | 5,627 | $112,835 |
|
Class R1 shares | | |
|
Sold | 5,000 | $100,000 |
Distributions reinvested | 62 | 1,390 |
Net increase | 5,062 | $101,390 |
|
Net increase | 1,039,383 | $21,350,742 |
aPeriod from 6-12-06 (commencement of operations) to 2-28-07.
U.S. Core Fund
32
7. 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 February 28, 2007, aggregated $27,108,772 and $6,680,003, respectively.
The cost of investments owned on February 28, 2007, including short-term investments, for federal income tax purposes, was $21,653,098. Gross unrealized appreciation and depreciation of investments aggregated $1,631,071 and $223,139, respectively, resulting in net unrealized appreciation of $1,407,932.
8. Federal income tax information
Federal income tax regulations may differ from generally accepted accounting principles and income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
9. Reclassification of accounts
During the period ended February 28, 2007, the Fund reclassified amounts to reflect an increase in accumulated net investment income of $12,291 and a decrease in capital paid-in of $12,291. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2007. 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 non-deductible 12b-1 fees. The calculation of net investment income per share in the Fund’s Financial Highlights excludes these adjustments.
U.S. Core Fund
33
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Funds III and Shareholders of John Hancock U.S. Core 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 U.S. Core Fund (the “Fund”) at February 28, 2007, and the results of its operations, the changes in its net assets and the financial highlights for the period June 12, 2006 (commencement of operations) through February 28, 2007, 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 audit. We conducted our audit 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 audit, which included confirmation of investments at February 28, 2007 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2007
34
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 February 28, 2007.
The Fund has designated distributions to shareholders of $29,472 as a long-term capital gain dividend.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended February 28, 2007, 41.39% of the dividends qualifies 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 2007.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
35
Trustees and 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, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
Ronald R. Dion , Born: 1946 | 2006 | 66 |
|
Independent Chairman (since 2005); 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. | | |
|
|
James F. Carlin , Born: 1940 | 2006 | 66 |
|
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | | |
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | | |
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | | |
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | | |
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | | |
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | | |
|
|
Richard P. Chapman, Jr.,2 Born: 1935 | 2006 | 66 |
|
President and Chief Executive Officer, Brookline Bancorp, Inc. (lending) (since | | |
1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); | | |
Chairman and Director, Northeast Retirement Services, Inc. (retirement | | |
administration) (since 1998); Vice Chairman, Northeastern University Board | | |
of Trustees (since 2004). | | |
|
|
William H. Cunningham , Born: 1944 | 2006 | 66 |
|
Former Chancellor, University of Texas System and former President of the | | |
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, | | |
IBT Technologies (until 2001); Director of the following: Hire.com (until 2004), | | |
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. | | |
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until | | |
2004), Pinnacle Foods Corporation (until 2003), rateGenius (until 2003), Lincoln | |
National Corporation (insurance) (since 2006), Jefferson-Pilot Corporation | | |
(diversified life insurance company) (until 2006), New Century Equity Holdings | | |
(formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com | | |
(until 2001), Agile Ventures (until 2001), AskRed.com (until 2001), Southwest | | |
Airlines (since 2000), Introgen (since 2000) and Viasystems Group, Inc. (electronic | |
manufacturer) (until 2003); Advisory Director, Interactive Bridge, Inc. (college | | |
fundraising) (until 2001); Advisory Director, Q Investments (until 2003); | | |
36
Independent Trustees (continued) | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
William H. Cunningham , Born: 1944 (continued) | 2006 | 66 |
|
Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce Bank – | | |
Austin), LIN Television (since 2002), WilTel Communications (until 2003) and | | |
Hayes Lemmerz International, Inc. (diversified automotive parts supply company) | |
(since 2003). | | |
|
|
Charles L. Ladner,2 Born: 1938 | 2006 | 66 |
|
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, AmeriGas, Inc. | | |
(retired 1998); Director, AmeriGas Partners, L.P. (gas distribution) (until 1997); | | |
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | |
(until 2005). | | |
|
|
John A. Moore,2 Born: 1939 | 2006 | 66 |
|
President and Chief Executive Officer, Institute for Evaluating Health Risks, | | |
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | | |
(health research) (until 2003); Former Assistant Administrator and Deputy | | |
Administrator, Environmental Protection Agency; Principal, Hollyhouse | | |
(consulting) (since 2000); Director, CIIT Center for Health Science Research | | |
(nonprofit research) (2002–2006). | | |
|
|
Patti McGill Peterson,2 Born: 1943 | 2006 | 66 |
|
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 | 2006 | 66 |
|
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). | | |
37
Non-Independent Trustee3 | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
James R. Boyle, Born: 1959 | 2006 | 272 |
|
President, John Hancock Insurance Group; Executive Vice President, John | | |
Hancock Life Insurance Company (since June 2004); Chairman and Director, | | |
John Hancock Advisers, LLC (the “Adviser”), John Hancock Funds, LLC and | | |
The Berkeley Financial Group, LLC (“The Berkeley Group”) (holding company) | | |
(since 2005); Senior Vice President, The Manufacturers Life Insurance Company | |
(U.S.A.) (until 2004). | | |
|
Principal officers who are not Trustees | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Keith F. Hartstein, Born: 1956 | | 2006 |
|
President and Chief Executive Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, John | | |
Hancock Funds, LLC (since 2005); Director, MFC Global Investment Management | |
(U.S.), LLC (“MFC Global (U.S.)”) (since 2005); Director, John Hancock Signature | |
Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock | |
Investment Management Services, LLC (since 2006); President and Chief Executive | |
Officer, John Hancock Funds II, John Hancock Funds III and John Hancock Trust; | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | | |
Chairman, Investment Company Institute Sales Force Marketing Committee | | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | | |
|
|
Thomas M. Kinzler, Born: 1955 | | 2006 |
|
Secretary and Chief Legal Officer | | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2006); | |
Vice President and Associate General Counsel, Massachusetts Mutual Life | | |
Insurance Company (1999–2006); Secretary and Chief Legal Counsel, MML | | |
Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, | | |
MassMutual Institutional Funds (2000–2004); Secretary and Chief Legal Counsel, | |
MassMutual Select Funds and MassMutual Premier Funds (2004–2006). | | |
|
|
Francis V. Knox, Jr., Born: 1947 | | 2006 |
|
Chief Compliance Officer | | |
Vice President and Chief Compliance Officer, John Hancock Investment | | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | | |
Vice President and Chief Compliance Officer, John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and | | |
Ethics & Compliance Officer, Fidelity Investments (until 2001). | | |
38
Principal officers who are not Trustees (continued) | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Gordon M. Shone, Born: 1956 | | 2006 |
|
Treasurer | | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | | |
(1998–2000). | | |
|
|
John G. Vrysen, Born: 1955 | | 2006 |
|
Chief Financial Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | | |
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley | | |
Group and John Hancock Funds, LLC (since 2005); Executive Vice President and | | |
Chief Financial Officer, John Hancock Investment Management Services, LLC | | |
(since 2005); Vice President and Chief Financial Officer, MFC Global (U.S.) | | |
(since 2005); Director, John Hancock Signature Services, Inc. (since 2005); | | |
Chief Financial Officer, John Hancock Funds II, John Hancock Funds III and John | | |
Hancock Trust (since 2005); Vice President and General Manager, Fixed Annuities, | | |
U.S. Wealth Management (until 2005); Vice President, Operations, Manulife | | |
Wood Logan (2000–2004). | | |
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.
1Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2Member of Audit Committee.
3Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
39
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 | Custodian | Legal counsel |
John Hancock Investment | State Street Bank & Trust Co. | Kirkpatrick & Lockhart |
Management Services, LLC | 2 Avenue de Lafayette | Preston Gates Ellis LLP |
601 Congress Street | Boston, MA 02111 | 1 Lincoln Street |
Boston, MA 02210-2805 | | Boston, MA 02110-2950 |
| Transfer agent | |
Subadviser | John Hancock Signature | Independent registered |
Grantham, Mayo, | Services, Inc. | public accounting firm |
Van Otterloo & Co. LLC | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
40 Rowes Wharf | Suite 1000 | 125 High Street |
Boston, MA 02110 | Boston, MA 02217-1000 | Boston, MA 02110 |
| | |
Principal distributor | | |
John Hancock Funds, LLC | | |
601 Congress Street | | |
Boston, MA 02210-2805 | | |
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 | 380 Stuart Street |
| | Boston, MA 02116 |
|
|
Phone | Customer service representatives | 1-800-225-5291 |
| EASI-Line | 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.
40
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Fund |
Focused Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Mid Cap Growth Fund | TAX-FREE INCOME |
Multi Cap Growth Fund | California Tax-Free Income Fund |
Small Cap Equity Fund | High Yield Municipal Bond Fund |
Small Cap Fund | Massachusetts Tax-Free Income Fund |
Small Cap Intrinsic Value Fund | New York Tax-Free Income Fund |
Sovereign Investors Fund | Tax-Free Bond Fund |
U.S. Core Fund | |
U.S. Global Leaders Growth Fund | MONEY MARKET |
Value Opportunities Fund | Money Market Fund |
| U.S. Government Cash Reserve |
ASSET ALLOCATION | |
Allocation Core Portfolio | CLOSED-END |
Allocation Growth + Value Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2010 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2015 Portfolio | Income Securities Trust |
Lifecycle 2020 Portfolio | Investors Trust |
Lifecycle 2025 Portfolio | Patriot Global Dividend Fund |
Lifecycle 2030 Portfolio | Patriot Preferred Dividend Fund |
Lifecycle 2035 Portfolio | Patriot Premium Dividend Fund I |
Lifecycle 2040 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2045 Portfolio | Patriot Select Dividend Trust |
Lifecycle Retirement Portfolio | Preferred Income Fund |
Lifestyle Aggressive Portfolio | Preferred Income II Fund |
Lifestyle Balanced Portfolio | Preferred Income III Fund |
Lifestyle Conservative Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
|
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund | |
For more complete information on any John Hancock Fund and an Open-End fund prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291 for Open-End fund information and 1-800-852-0218 for Closed-End fund information. Please read the Open-End fund prospectus carefully before investing or sending money.
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 U.S. Core Fund.
6500A 2/07
4/07
TABLE OF CONTENTS |
|
|
Your fund at a glance |
page 1 |
|
Managers’ report |
page 2 |
|
A look at performance |
page 6 |
|
Your expenses |
page 8 |
|
Fund’s investments |
page 10 |
|
Financial statements |
page 20 |
|
Notes to financial |
statements |
page 31 |
|
Trustees and officers |
page 45 |
|
For more information |
page 52 |
|
CEO corner
To Our Shareholders,
Financial markets around the world produced stellar results over the last 12 months, outperforming the U.S. market for the fourth straight year in an environment of strong global economic growth, low interest rates, good corporate earnings growth and more stable energy prices. Even with a sharp decline in the last days of the period, foreign markets, as measured by the MSCI EAFE Index, returned 21.07% for the year ended February 28, 2007.
But after a remarkably long period of calm, the financial markets were rocked at the end of the period by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. In the United States, for example, the Dow Jones Industrial Average had its steepest one-day percentage decline in nearly four years on February 27, 2007. The event served to jog investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
It was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the world markets’ moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. China’s market was long overdue for a correction after frothy returns of more than 100% recently. We believe economic conditions remain sound and that, even if volatility continues, this global downturn was a healthy correction.
The latest events could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon — not a sprint — approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of February 28, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks high total return by, under normal circumstances, investing at least 80% of its assets in a diversified portfolio of equity investments from a number of developed markets outside the U.S.
Over the last twelve months
► The Fund produced double-digit gains during a strong period for global stocks.
► The U.S. dollar depreciated against most foreign currencies, which accounted for a large portion of the Fund’s absolute returns.
► Valuation was more fruitful than momentum as a selection tool, as investors adopted a somewhat defensive, value-conscious stance following the May-July market correction.
Top 10 holdings | | | | |
| | | | |
Total SA | 3.0% | | ING Groep NV | 2.0% |
| | |
GlaxoSmithKline PLC | 2.7% | | Eni SpA | 1.8% |
| | |
Vodafone Group PLC | 2.1% | | Takeda Pharmaceutical Company, Ltd. | 1.6% |
| | |
Royal Bank of Scotland Group PLC | 2.1% | | ABN AMRO Holdings NV | 1.6% |
| | |
Honda Motor Company Ltd. | 2.1% | | BNP Paribas SA | 1.4% |
| | |
As a percentage of net assets on February 28, 2007.
1
Managers’ report
John Hancock
International Core Fund
Foreign stocks turned in strong gains during the one-year review period ended February 28, 2007, aided by both advancing share prices in local currency terms and further weakness in the U.S. dollar. The list of countries in the Fund’s benchmark sporting double-digit share price gains was headed by Singapore, Denmark, Portugal and Spain. In fact, only Japan finished with a single-digit gain, a result partly attributable to the fact that the Japanese yen was one of the few foreign currencies to weaken against the U.S. dollar.
Economic conditions in the Fund’s investment universe remained generally favorable. Japan’s economic recovery continued, albeit at an uneven pace, and the country began to back away from the zero interest rate policy to which it resorted for economic stimulation during its long bout with deflation. In the eurozone, economic growth for all of 2006 came in at 2.7%, almost double the 1.4% rate recorded for 2005. While 2006 economic growth in the United Kingdom was comparable at 2.7%, infla-tion was more of a concern, prompting U.K. monetary authorities to boost short-term interest rates to the 5.25% level by the end of the period.
Looking at performance
For the 12 months ended February 28, 2007, John Hancock International Core Fund’s Class A shares returned 20.48% at net asset value. By comparison, the MSCI EAFE Net Total Return Index returned 21.07%, while the average foreign large value fund monitored by
SCORECARD
INVESTMENT | | PERIOD’S PERFORMANCE. . . AND WHAT’S BEHIND THE NUMBERS |
| | |
ThyssenKrupp | ▲ | Robust demand for steel; rising prices |
BT Group | ▲ | Expanding profit margins; industry consolidation |
Mitsui Trust | ▼ | Disappointing economic reports; Livedoor scandal |
Holdings | | |
2
From the Grantham, Mayo, Van Otterloo & Co. LLC (GMO)
Portfolio Management Team
Morningstar, Inc. gained 19.47% .a The Fund’s Class B, Class C, Class I and Class R1, which were launched on June 12, 2006, returned 21.01%, 21.04%, 21.99% and 21.32%, respectively, through the end of February 2007. Class NAV, which was launched August 29, 2006, returned 11.90% and Class 1, which was launched November 6, 2006, returned 8.11% through February 28, 2007. Keep in mind that your returns will differ from those listed above if you were not invested in the Fund for the entire period for your respective share class or did not reinvest all distributions.
“Foreign stocks turned in strong
gains during the one-year
review period...”
Of the two main factors guiding our analysis of the markets, valuation proved more fruitful than momentum during the review period. Although both approaches were successful early in the year, the market correction from mid-May through mid-July prompted investors to rotate capital into more defensive areas of the market that were still attractively valued, whereas many of the commodity-oriented, momentum-based picks underperformed. As the market rebounded later in the year, defensive sectors such as utilities and telecommunications services fared better than more speculative groups. A major theme throughout the year in Europe was mergers and acquisitions driven by cross-border deals and private equity. This trend tended to lead to the outperformance of high-cash-flow potential takeover targets.
Overweighting Japan proves unrewarding
Relative to the benchmark, the Fund’s performance was hampered by its positioning in Japan, which was one of our larger overweightings at the beginning of the period due to our assessment that both valuations and momentum were favorable there. While our stock selection in Japan added value, overweighting a market that lagged most other markets dampened
International Core Fund
3
the Fund’s gains, as did the depreciating Japanese yen. In response to flagging momentum, we lessened the Fund’s overweighting in Japan during the period. Also working against our results was an underweighting in the strong U.K. market, a situation exacerbated by the appreciation of the British pound versus the dollar.
Conversely, overweighting the strong-performing German market boosted the Fund’s returns, as did favorable stock picking there. Also adding value was a heavier-than-benchmark exposure to Singapore, the top-performing market for the Fund as well as the benchmark.
Materials tops sector results
On a sector basis, the Fund was aided most by materials, information technology, health care and consumer discretionary. Among individual stocks, a sizeable underweighting in major benchmark component BP PLC, a United Kingdom holding, was beneficial, as falling energy prices hampered share prices in the sector. Additionally, we were able to sell our position and lock in profits before the stock’s return fell into negative territory. Steel producer Thyssen Krupp AG, based in Germany, was aided by rising steel prices and widening profit margins. In the telecommunication services sector, the United Kingdom’s BT Group PLC was a standout, as that sector enjoyed improving profitability and increased merger and acquisition activity. German auto manufacturer Volkswagen AG also added value, enjoying particularly strong sales at its Audi and Skoda units.
Picks in financials disappoint
Sectors that detracted from performance included financials, utilities and energy. In the first two, our stock selection was primarily responsible for the shortfall, whereas in energy, overweighting that relatively weak sector held back performance. In addition, an average cash position of approximately 3.5% worked against us in a strongly rising market.
SECTOR DISTRIBUTIONb | |
Financial | 21% |
Other | 14% |
Consumer, cyclical | 14% |
Consumer, non-cyclical | 13% |
Energy | 8% |
Basic materials | 7% |
Communications | 6% |
Industrial | 6% |
Utilities | 5% |
Technology | 1% |
Four out of the five largest detractors were Japanese stocks, including two Japanese banks, Mitsui Trust Holdings, Inc. and Resona Holdings, Inc. Earlier in the period, these two stocks were hurt by disappointing GDP reports reflecting weaker-than-expected economic growth. An insider trading scandal involving Japanese Internet company Livedoor Co. Ltd. also had a
International Core Fund
4
negative impact on investor sentiment toward many stocks, including those in the banking industry. Given their deteriorating momentum, we sold Mitsui and Resona shortly after the period ended. In the case of Daiei, Inc., a Japanese department store chain, we anticipated a turnaround for the financially distressed company, but the process was taking longer than we anticipated. Lastly, French oil company Total SA, the Fund’s largest position at the end of February 2007, was undermined by the softness in energy prices during the second half of the period.
“On a sector basis, the Fund
was aided most by materials,
information technology, health
care and consumer discretionary.”
Outlook
In response to the valuation and momentum trends we’ve been seeing, we’ve given the Fund a more defensive tilt during the past few months. In part, that shift has been driven by the dissipation of momentum in sectors such as consumer discretionary and financials. However, it’s also a result of valuation considerations. For example, we think the pharmaceutical segment of health care hasn’t been given its due, so we’ve increased the Fund’s holdings there. We’ve also raised the Fund’s stakes in utilities and telecommunication services, both defensive sectors. Should the markets experience further volatility, these recent adjustments, dictated by our valuation and momentum guidelines, could be helpful. Additionally, any further volatility could prompt an overall higher aversion to risk, leading to the unwinding of trades involving borrowing Japanese yen and buying non- Japanese assets — the so-called “yen-carry trade” — which likely would cause the yen to appreciate, aiding our overweighted position in that country.
This commentary reflects the views of the portfolio management team through the end of the Fund’s period discussed in this report. The team’s statements reflect its 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.
International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting.
a Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
b As a percentage of net assets on February 28, 2007.
International Core Fund
5
A look at performance
For the period ended February 28, 2007
| | Average annual returns | | | Cumulative total returns | | |
| | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| Inception | | | | Since | | | | Since |
Class | date | 1-year | 5-year | 10-year | inception | 1-year | 5-year | 10-year | inception |
|
Aa,b | 9-16-05 | 14.46% | — | — | 18.08% | 14.46% | — | — | 27.30% |
|
B | 6-12-06 | — | — | — | — | — | — | — | 16.01 |
|
C | 6-12-06 | — | — | — | — | — | — | — | 20.04 |
|
Ic | 6-12-06 | — | — | — | — | — | — | — | 21.99 |
|
R1c | 6-12-06 | — | — | — | — | — | — | — | 21.32 |
|
1c | 11-6-06 | — | — | — | — | — | — | — | 8.11 |
|
NAVc | 8-29-06 | — | — | — | — | — | — | — | 11.90 |
|
Performance figures assume all distributions are reinvested. POP (Public Offering Price) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I, Class R1, Class 1 and Class NAV 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 increase and results would have been less favorable.
Performance is calculated with an opening price (prior day’s close) on the inception date.
a Effective June 12, 2006, shareholders of the former GMO International Disciplined Equity Fund (the “Predecessor Fund”) became owners of that number of full and fractional shares of John Hancock International Core Fund Class A. Additionally, the accounting and performance history of the former GMO International Disciplined Equity Fund was redesignated as that of John Hancock International Core Fund Class A.
b Class A performance linked back to the Predecessor Fund.
c For certain types of investors as described in the Fund’s Class I, Class R1, Class 1 and Class NAV share prospectuses.
International Core Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in International
Core Fund Class Aa shares for the period indicated. For comparison, we’ve shown the
same investment in the MSCI EAFE Total Return Index.
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 6-12-06 | $12,101 | $11,601 | $12,151 |
|
C | 6-12-06 | 12,104 | 12,004 | 12,151 |
|
Ic | 6-12-06 | 12,199 | 12,199 | 12,151 |
|
R1c | 6-12-06 | 12,132 | 12,132 | 12,151 |
|
1c | 11-6-06 | 10,811 | 10,811 | 10,802 |
|
NAVb | 8-29-06 | 11,190 | 11,190 | 11,304 |
|
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, Class R1, Class 1 and Class NAV shares, respectively, as of February 28, 2007. 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.
MSCI EAFE Total Return Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. As of June 2006, the MSCI EAFE Index consisted of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Returns are calculated and presented net of withholding tax.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
a Class A performance linked back to the Predecessor Fund.
b NAV repesents net asset value and POP represents public offering price.
c For certain types of investors as described in the Fund’s Class I, Class R1, Class 1 and Class NAV share prospectuses.
International Core Fund
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 September 1, 2006, with the same investment held until February 28, 2007.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,110.80 | $8.22 |
|
Class B | 1,000.00 | 1,106.59 | 12.54 |
|
Class C | 1,000.00 | 1,106.56 | 12.54 |
|
Class I | 1,000.00 | 1,112.98 | 6.29 |
|
Class R1 | 1,000.00 | 1,108.55 | 10.19 |
|
Class NAV | 1,000.00 | 1,113.64 | 5.66 |
|
| Account value | Ending value | Expenses paid during period |
| on 11-6-06 | on 2-28-07 | ended 2-28-07a |
|
Class 1 | $1,000.00 | $1,081.06 | $3.82 |
|
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 February 28, 2007 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:
International Core Fund
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’ actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on September 1, 2006, with the same investment held until February 28, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,017.01 | $7.85 |
|
Class B | 1,000.00 | 1,012.89 | 11.98 |
|
Class C | 1,000.00 | 1,012.89 | 11.98 |
|
Class I | 1,000.00 | 1,018.84 | 6.01 |
|
Class R1 | 1,000.00 | 1,015.12 | 9.74 |
|
Class NAV | 1,000.00 | 1,019.44 | 5.41 |
|
| Account value | Ending value | Expenses paid during period |
| on 11-6-06 | on 2-28-07 | ended 2-28-07a |
|
Class 1 | $1,000.00 | $1,021.12 | $3.71 |
|
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.
a Expenses are equal to the Fund's annualized expense ratio of 1.57%, 2.40%, 2.40%, 1.20%, 1.95%, 1.17% and 1.08% for Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV, 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).
International Core Fund
9
Fund’s investments
F I N A N C I A L S T A T E M E N T S
Securities owned by the Fund on 2-28-07
This schedule is divided into four main categories: common stocks, preferred stocks,
short-term investments and repurchase agreements. Common stocks and preferred
stocks are further broken down by country. Short-term investments and repurchase
agreements, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
|
Common stocks 95.33% | | $1,280,611,134 |
(Cost $1,043,872,809) | | |
| | |
Australia 1.85% | | 24,783,198 |
|
Amcor, Ltd. | 194,168 | 1,117,101 |
|
Australia and New Zealand Banking Group, Ltd. | 139,547 | 3,226,823 |
|
BHP Billiton, Ltd. | 132,986 | 2,847,363 |
|
Commonwealth Bank of Australia, Ltd. | 52,504 | 2,070,150 |
|
Foster’s Group, Ltd. | 199,357 | 994,342 |
|
Investa Property Group, Ltd. | 574,159 | 1,073,909 |
|
Mirvac Group, Ltd. (a) | 487,145 | 2,176,014 |
|
Qantas Airways, Ltd., ADR | 300,772 | 1,222,452 |
|
Rio Tinto, Ltd. (a) | 38,823 | 2,316,317 |
|
Stockland Company, Ltd. (a) | 134,706 | 917,455 |
|
Telstra Corp., Ltd. (a) | 659,574 | 2,217,482 |
|
Woolworths, Ltd. | 112,576 | 2,416,583 |
|
Zinifex, Ltd. | 165,755 | 2,187,207 |
| | |
Austria 0.42% | | 5,677,590 |
|
Austrian Airlines AG * | 244 | 3,225 |
|
Bohler Uddeholm AG | 14,732 | 1,084,684 |
|
OMV AG | 27,834 | 1,553,680 |
|
Voestalpine AG | 49,032 | 3,036,001 |
Belgium 1.34% | | 17,994,267 |
|
Bekaert SA | 47 | 5,640 |
|
Belgacom SA | 40,944 | 1,756,223 |
|
Colruyt SA | 3,066 | 668,507 |
|
Delhaize Group (a) | 21,021 | 1,751,034 |
|
Dexia | 171,964 | 5,071,355 |
|
Fortis Group SA | 159,364 | 6,856,733 |
|
UCB SA | 29,180 | 1,884,775 |
| | |
Bermuda 0.16% | | 2,163,685 |
|
Esprit Holdings, Ltd. | 70,500 | 734,643 |
|
Frontline, Ltd. (a) | 7,613 | 266,224 |
|
Noble Group, Ltd. (a) | 518,361 | 461,308 |
See notes to financial statements
International Core Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Bermuda (continued) | | |
|
Ship Finance International, Ltd. (a) | 380 | $9,880 |
|
Yue Yuen Industrial Holdings, Ltd. | 201,218 | 691,630 |
| | |
Canada 2.14% | | 28,800,255 |
|
Alcan Aluminum, Ltd. | 32,500 | 1,689,228 |
|
BCE, Inc. | 69,288 | 1,817,837 |
|
Canadian Imperial Bank of Commerce | 84,470 | 7,266,376 |
|
Canadian Natural Resources, Ltd. | 98,737 | 4,955,625 |
|
EnCana Corp. | 75,097 | 3,648,476 |
|
Magna International, Inc. | 11,800 | 865,525 |
|
National Bank of Canada | 40,365 | 2,252,561 |
|
Petro-Canada | 84,467 | 3,121,991 |
|
Research In Motion, Ltd. * | 22,700 | 3,182,636 |
| | |
Denmark 0.18% | | 2,393,615 |
|
A P Moller-Maersk A/S | 1 | 10,315 |
|
A P Moller-Maersk AS, Series A | 121 | 1,203,040 |
|
Danske Bank AS | 25,519 | 1,180,260 |
| | |
Finland 1.87% | | 25,133,524 |
|
Amer Sport Oyj (a) | 24,700 | 543,131 |
|
Elcoteq SE (a) | 14,700 | 164,732 |
|
Fortum Corp. Oyj | 72,744 | 2,007,649 |
|
Kesko Oyj | 40,267 | 2,123,552 |
|
Neste Oil Oyj (a) | 30,900 | 992,621 |
|
Nokia AB Oyj | 321,135 | 7,006,236 |
|
OKO Bank - A (a) | 33,400 | 573,143 |
|
Oriola-KD Oyj * | 1,300 | 5,504 |
|
Outokumpu Oyj (a) | 91,904 | 3,424,077 |
|
Rautaruukki Oyj | 81,209 | 3,717,549 |
|
Sampo Oyj, A Shares (a) | 140,604 | 3,925,153 |
|
YIT Oyj (a) | 19,936 | 650,177 |
| | |
France 10.46% | | 140,547,405 |
|
Air France KLM | 50,858 | 2,207,037 |
|
Arkema * | 187 | 9,189 |
|
BNP Paribas SA (a) | 180,529 | 18,854,740 |
|
Cap Gemini SA | 30,446 | 2,128,882 |
|
Carrefour SA (a) | 48,225 | 3,220,832 |
|
Casino Guich-Perrachon SA | 34,335 | 2,957,294 |
|
Compagnie De Saint Gobain SA | 48,722 | 4,538,102 |
|
Compagnie Generale des Etablissements Michelin, Class B | 30,545 | 3,177,237 |
|
Credit Agricole SA | 160,184 | 6,391,855 |
|
Groupe Danone SA | 22,928 | 3,631,998 |
|
Lafarge SA | 31,855 | 4,764,580 |
|
L’Oreal SA | 33,875 | 3,546,475 |
|
Pernod-Ricard SA | 7 | 1,445 |
|
Peugeot SA | 95,313 | 6,430,039 |
See notes to financial statements
International Core Fund
11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
France (continued) | | |
|
Pinault-Printemps-Redoute SA | 6,688 | $1,006,081 |
|
Publicis Groupe SA | 42,539 | 1,906,809 |
|
Renault Regie Nationale SA | 88,641 | 10,541,987 |
|
Sanofi-Aventis (a) | 133,604 | 11,358,909 |
|
Societe Generale | 28,903 | 4,869,498 |
|
Suez SA | 109,899 | 5,324,619 |
|
Total SA (a) | 606,353 | 40,930,065 |
|
Vinci SA | 19,856 | 2,749,732 |
| | |
Germany 7.99% | | 107,333,969 |
|
Adidas-Salomon AG | 12,832 | 630,201 |
|
Allianz AG | 17,479 | 3,764,385 |
|
Altana AG (a) | 74,424 | 4,504,852 |
|
BASF AG | 23,736 | 2,413,392 |
|
Bayerische Motoren Werke (BMW) AG | 89,416 | 5,194,636 |
|
Commerzbank AG | 52,157 | 2,152,998 |
|
DaimlerChrysler AG | 65,719 | 4,470,077 |
|
Deutsche Bank AG | 103,964 | 13,651,801 |
|
Deutsche Lufthansa AG | 94,357 | 2,554,208 |
|
Deutsche Post AG | 132,636 | 4,232,677 |
|
Deutsche Telekom AG | 112,992 | 2,027,140 |
|
E.ON AG | 47,807 | 6,270,712 |
|
Fresenius AG | 24,648 | 1,822,604 |
|
Heidelberger Druckmaschinen AG | 214 | 9,174 |
|
Henkel KGaA | 5,400 | 680,440 |
|
Hochtief AG | 12,896 | 1,123,025 |
|
Infineon Technologies AG * | 110,564 | 1,696,869 |
|
KarstadtQuelle AG * (a) | 24,188 | 840,371 |
|
MAN AG | 47,990 | 5,157,552 |
|
Metro AG | 30,156 | 2,085,863 |
|
Muenchener Rueckversicherungs-Gesellschaft AG | 83,522 | 13,307,976 |
|
Puma AG | 2,025 | 719,359 |
|
Salzgitter AG | 26,934 | 3,327,244 |
|
Solarworld AG (a) | 13,722 | 990,894 |
|
Suedzucker AG (a) | 71,197 | 1,504,330 |
|
ThyssenKrupp AG | 237,832 | 11,658,293 |
|
TUI AG (a) | 114,133 | 2,662,196 |
|
Volkswagen AG (a) | 62,476 | 7,880,700 |
| | |
Hong Kong 0.79% | | 10,666,238 |
|
Bank of East Asia, Ltd. | 330,000 | 1,892,582 |
|
BOC Hong Kong Holdings, Ltd. | 592,500 | 1,433,550 |
|
CLP Holdings, Ltd. | 459,904 | 3,379,418 |
|
Hong Kong Electric Holdings, Ltd. | 261,854 | 1,317,391 |
|
Hong Kong Exchange & Clearing, Ltd. | 256,500 | 2,643,297 |
See notes to financial statements
International Core Fund
12
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Ireland 1.05% | | $14,074,766 |
|
Allied Irish Banks PLC | 28,302 | 833,151 |
|
Anglo Irish Bank Corp. PLC | 415 | 8,840 |
|
Bank of Ireland | 87,122 | 1,988,353 |
|
CRH PLC | 122,165 | 5,099,441 |
|
DCC PLC | 30,714 | 1,036,223 |
|
Depfa Bank PLC | 250,133 | 4,199,611 |
|
Kerry Group PLC | 34,358 | 909,147 |
| | |
Italy 3.46% | | 46,468,923 |
|
Banca Monte dei Paschi Siena SpA (a) | 209,426 | 1,352,156 |
|
Banco Popolare Di Verona e Novara SpA (a) | 89,211 | 2,702,902 |
|
Benetton Group SpA (a) | 48,523 | 797,986 |
|
Enel SpA | 681,712 | 7,120,812 |
|
Eni SpA | 799,515 | 24,488,042 |
|
Fiat SpA - RNC * | 39,512 | 890,790 |
|
Fiat SpA * | 165,715 | 3,928,948 |
|
Fondiaria-Sai SpA | 20,600 | 724,706 |
|
Italcementi SpA | 36,738 | 717,428 |
|
UniCredito Italiano SpA | 404,385 | 3,745,153 |
| | |
Japan 23.98% | | 322,107,000 |
|
Aderans Company, Ltd. (a) | 12,565 | 323,977 |
|
Alps Electric Company, Ltd. (a) | 43,246 | 518,045 |
|
Astellas Pharmaceuticals, Inc. | 62,400 | 2,737,814 |
|
Canon, Inc. | 227,800 | 12,459,768 |
|
Central Japan Railway Company, Ltd. | 148 | 1,776,651 |
|
Chubu Electric Power Company, Inc. | 163,099 | 5,501,437 |
|
Cosmo Oil Company, Ltd. (a) | 143,000 | 606,864 |
|
Daiei, Inc. * (a) | 90,758 | 1,245,247 |
|
Daiichi Sankyo Company, Ltd. (a) | 201,053 | 6,475,712 |
|
Daikyo, Inc. * (a) | 294,888 | 1,692,696 |
|
Daito Trust Construction Company, Ltd. | 100 | 4,852 |
|
Daiwa Securities Group, Inc. (a) | 92,000 | 1,167,402 |
|
East Japan Railway Company | 310 | 2,379,576 |
|
Eisai Company, Ltd. (a) | 56,280 | 2,868,953 |
|
Elpida Memory, Inc. * (a) | 45,000 | 2,016,231 |
|
Fanuc, Ltd. | 100 | 8,944 |
|
Fuji Heavy Industries, Ltd. (a) | 340,116 | 1,857,426 |
|
Fuji Photo Film Company, Ltd. | 47,400 | 2,039,615 |
|
Fujikura, Ltd. | 125,000 | 880,252 |
|
Haseko Corp. * (a) | 779,847 | 2,999,665 |
|
Hokkaido Electric Power Company, Inc. (a) | 50,799 | 1,391,400 |
|
Hokugin Financial Group, Inc. | 2,000 | 7,541 |
|
Honda Motor Company, Ltd. | 738,112 | 27,580,142 |
|
Ishikawajima-Harima Heavy Industries Company, Ltd. (a) | 261,769 | 1,048,935 |
|
Isuzu Motors, Ltd. | 439,542 | 2,281,501 |
See notes to financial statements
International Core Fund
13
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Japan (continued) | | |
|
Itochu Corp. | 816,047 | $7,871,415 |
|
Japan Tobacco, Inc. | 698 | 3,192,307 |
|
JFE Holdings, Inc. (a) | 67,500 | 4,159,904 |
|
Kansai Electric Power Company, Ltd. | 167,700 | 4,990,312 |
|
Kao Corp. (a) | 95,050 | 2,780,227 |
|
Kawasaki Kisen Kaisha, Ltd. (a) | 526,000 | 5,238,211 |
|
Kirin Brewery Company, Ltd. (a) | 79,000 | 1,222,834 |
|
Konami Corp. (a) | 51,323 | 1,366,704 |
|
Konica Minolta Holdings, Inc. (a) | 111,500 | 1,430,865 |
|
Kyocera Corp. | 27,300 | 2,487,903 |
|
Kyushu Electric Power Company, Inc. (a) | 87,580 | 2,509,901 |
|
Marubeni Corp. | 744,824 | 4,678,369 |
|
Mazda Motor Corp. | 401,488 | 2,369,081 |
|
Mediceo Holdings Company, Ltd. (a) | 34,700 | 648,297 |
|
Mitsubishi Corp. | 506,395 | 11,815,455 |
|
Mitsubishi Estate Company, Ltd. | 130,404 | 4,067,890 |
|
Mitsubishi Rayon Company, Ltd. (a) | 148,920 | 983,232 |
|
Mitsui & Company, Ltd. | 383,560 | 6,906,609 |
|
Mitsui O.S.K. Lines, Ltd. (a) | 338,000 | 3,823,180 |
|
Mitsui Trust Holdings, Inc. | 531,553 | 5,936,102 |
|
Mitsumi Electric Company, Ltd. (a) | 57,000 | 1,696,170 |
|
Mizuho Financial Group, Inc. | 520 | 3,648,660 |
|
Murata Manufacturing Company, Ltd. | 29,600 | 2,146,995 |
|
Nidec Corp. | 100 | 6,552 |
|
Nikon Corp. (a) | 69,227 | 1,591,829 |
|
Nintendo Company, Ltd. (a) | 24,200 | 6,444,332 |
|
Nippon Building Fund, Inc. | 85 | 1,235,946 |
|
Nippon Mining Holdings, Inc. | 500 | 4,189 |
|
Nippon Oil Corp. | 398,000 | 2,910,390 |
|
Nippon Sheet Glass Company, Ltd. | 145,000 | 745,287 |
|
Nippon Steel Corp. | 802,000 | 5,457,858 |
|
Nippon Telegraph & Telephone Corp. | 1,269 | 6,737,104 |
|
Nippon Yakin Kogyo Company, Ltd. (a) | 165,000 | 1,560,867 |
|
Nippon Yusen Kabushiki Kaisha (a) | 307,000 | 2,426,621 |
|
Nissan Diesel Motor Company, Ltd. (a) | 355,000 | 1,611,590 |
|
Nissan Motor Company, Ltd. (a) | 1,125,900 | 13,058,879 |
|
NTT DoCoMo, Inc. | 5,150 | 9,447,544 |
|
Orix Corp. (a) | 1,747 | 481,463 |
|
Osaka Gas Company, Ltd. (a) | 821,120 | 3,227,837 |
|
Pacific Metals Company, Ltd. (a) | 158,000 | 2,205,241 |
|
Pioneer Electronic Corp. (a) | 80,900 | 1,109,990 |
|
Resona Holdings, Inc. * (a) | 2,320 | 6,589,906 |
|
Ricoh Company, Ltd. | 315,000 | 6,976,921 |
|
Seven & I Holdings Company, Ltd. (a) | 31,000 | 995,858 |
|
Shin-Etsu Chemical Company, Ltd. | 19,200 | 1,204,362 |
See notes to financial statements
International Core Fund
14
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Japan (continued) | | |
|
Shinko Securities Company, Ltd. | 196,000 | $1,042,218 |
|
Showa Shell Sekiyu K.K. (a) | 52,000 | 601,809 |
|
Sojitz Holdings Corp. * (a) | 654,700 | 2,922,323 |
|
Sony Corp. | 61,500 | 3,207,837 |
|
Sumco Corp. (a) | 66,000 | 2,449,404 |
|
Sumitomo Chemical Company, Ltd. | 234,000 | 1,780,370 |
|
Sumitomo Corp. (a) | 282,596 | 5,088,591 |
|
Sumitomo Light Metal Industries, Ltd. | 217,000 | 565,018 |
|
Sumitomo Metal Mining Company, Ltd. (a) | 165,000 | 2,950,165 |
|
Sumitomo Mitsui Financial Group, Inc. (a) | 41 | 398,597 |
|
Sumitomo Realty & Development Company, Ltd. | 119,000 | 4,748,330 |
|
Taisho Pharmaceuticals Company, Ltd. (a) | 44,790 | 833,021 |
|
Takeda Pharmaceutical Company, Ltd. | 321,789 | 22,143,566 |
|
Teijin, Ltd. | 1,000 | 5,444 |
|
Terumo Corp. (a) | 32,400 | 1,240,781 |
|
The Tokyo Electric Power Company, Ltd. (a) | 137,039 | 4,784,606 |
|
Toho Zinc Company, Ltd. (a) | 96,000 | 915,445 |
|
Tohoku Electric Power Company, Inc. | 79,100 | 2,113,078 |
|
Tokyo Electron, Ltd. (a) | 35,700 | 2,595,486 |
|
Tokyo Gas Company, Ltd. | 469,397 | 2,638,845 |
|
Tokyo Steel Manufacturing Company, Ltd. (a) | 77,300 | 1,291,927 |
|
TonenGeneral Sekiyu K.K. (a) | 121,133 | 1,331,244 |
|
Toray Industries, Inc. (a) | 209,000 | 1,510,652 |
|
Toshiba Corp. (a) | 314,000 | 1,985,561 |
|
Toyo Tire & Rubber Company, Ltd. | 53,812 | 235,646 |
|
Toyota Motor Corp. | 130,500 | 8,847,832 |
|
Ube Industries, Ltd. (a) | 2,282 | 7,369 |
| | |
Netherlands 7.56% | | 101,596,735 |
|
ABN AMRO Holdings NV | 597,495 | 20,956,582 |
|
Aegon NV | 475,478 | 9,404,768 |
|
Akzo Nobel NV | 38,954 | 2,401,161 |
|
Buhrmann NV | 67,998 | $929,336 |
|
CSM NV | 31,180 | 1,082,884 |
|
DSM NV | 34,775 | 1,506,798 |
|
Euronext NV (a) | 20,632 | 2,245,193 |
|
Heineken Holding NV | 28,268 | 1,193,434 |
|
Heineken NV | 138,273 | 6,814,596 |
|
ING Groep NV | 617,133 | 26,348,396 |
|
Koninklijke (Royal) KPN NV | 102,079 | 1,574,749 |
|
Koninklijke Ahold NV * | 255,619 | 2,556,768 |
|
Mittal Steel Company NV | 283,743 | 14,381,817 |
|
Oce-Van Der Grinten NV (a) | 37,046 | 616,593 |
|
Reed Elsevier NV | 253,329 | 4,477,832 |
|
Stork NV * (a) | 12,001 | 620,827 |
See notes to financial statements
International Core Fund
15
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Netherlands (continued) | | |
|
TNT Post Group NV | 59,827 | $2,573,301 |
|
Vedior NV | 49,346 | 1,076,587 |
|
Wereldhave NV (a) | 6,280 | 835,113 |
| | |
Norway 0.22% | | 2,890,721 |
|
Statoil ASA (a) | 62,968 | 1,606,562 |
|
Telenor ASA (a) | 69,400 | 1,284,159 |
| | |
Singapore 1.41% | | 18,897,748 |
|
Ascendas., REIT * (a) | 376,000 | 592,959 |
|
CapitaLand, Ltd. * | 435,203 | 2,007,709 |
|
ComfortDelGro Corp., Ltd. | 8,000 | 9,580 |
|
Cosco Corp. Singapore, Ltd. | 908,600 | 1,605,300 |
|
DBS Group Holdings, Ltd. | 383,231 | 5,391,615 |
|
Keppel Corp., Ltd. | 117,000 | 1,385,748 |
|
Keppel Land, Ltd. (a) | 231,538 | 1,265,111 |
|
K-REIT Asia * | 46,908 | 100,679 |
|
MobileOne, Ltd. | 6,000 | 8,167 |
|
Neptune Orient Lines, Ltd. (a) | 577,488 | 1,110,990 |
|
SembCorp Industries, Ltd. | 396,802 | 1,147,667 |
|
SembCorp Marine, Ltd. (a) | 111,267 | 250,464 |
|
Singapore Press Holdings, Ltd. | 2,000 | 5,758 |
|
Singapore Telecommunications, Ltd. (a) | 783,350 | 1,630,057 |
|
United Overseas Bank, Ltd. (a) | 177,000 | 2,385,944 |
| | |
Spain 1.94% | | 26,114,096 |
|
ACS Actividades SA (a) | 31,527 | 1,784,849 |
|
Banco Popular Espanol SA (a) | 123,455 | 2,428,824 |
|
Banco Santander Central Hispano SA | 78,738 | 1,459,483 |
|
Fomento de Construcciones SA | 14,015 | 1,457,445 |
|
Gas Natural SDG SA | 39,851 | 1,706,177 |
|
Iberdrola SA (a) | 97,969 | 4,299,427 |
|
Repsol SA (a) | 213,037 | 6,773,065 |
|
Telefonica SA | 287,717 | 6,204,826 |
| | |
Sweden 2.09% | | 28,051,977 |
|
Alfa Laval AB | 20,200 | 1,009,128 |
|
Electrolux AB, Series B * | 132,773 | 2,975,337 |
|
ForeningsSparbanken AB, Series A | 30,200 | 1,036,690 |
|
Nordea Bank AB | 217,400 | 3,301,627 |
|
Sandvik AB | 138,300 | 2,171,409 |
|
Scania AB, Series B (a) | 44,400 | 3,276,425 |
|
Skandinaviska Enskilda Banken AB, Series A | 98,800 | 3,024,900 |
|
Svenska Cellulosa AB, Series B | 35,394 | 1,833,847 |
|
Svenska Handelsbanken AB, Series A | 38,800 | 1,115,921 |
|
Tele2 AB, Series B (a) | 148,220 | 2,231,958 |
|
Teliasonera AB | 286,500 | 2,412,700 |
|
Volvo AB, Series B | 47,600 | 3,662,035 |
See notes to financial statements
International Core Fund
16
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
| | |
Switzerland 3.88% | | $52,165,407 |
|
ABB, Ltd. | 266,407 | 4,469,256 |
|
Baloise Holding AG | 12,826 | 1,308,904 |
|
Credit Suisse Group AG | 38,980 | 2,702,059 |
|
Geberit AG | 1,161 | 1,918,174 |
|
Logitech International SA * | 21,151 | 554,368 |
|
Nestle SA | 8,472 | 3,155,281 |
|
Novartis AG | 188,383 | 10,485,469 |
|
Serono AG, Series B (a) | 1,491 | 1,346,670 |
|
Swiss Life Holding * | 5,599 | 1,427,309 |
|
Swiss Re | 42,915 | 3,661,329 |
|
UBS AG * | 47,845 | 2,835,768 |
|
Unaxis Holding AG * (a) | 3,934 | 1,965,387 |
|
Zurich Financial Services AG | 57,057 | 16,335,433 |
| | |
United Kingdom 22.54% | | 302,750,015 |
|
3i Group PLC | 48,376 | 1,059,889 |
|
Alliance & Leicester PLC | 95,433 | 2,087,135 |
|
Anglo American PLC | 75,061 | 3,557,038 |
|
ARM Holdings PLC (a) | 2,123 | 5,341 |
|
Arriva PLC | 98,312 | 1,384,548 |
|
AstraZeneca Group PLC | 305,809 | 17,179,101 |
|
Aviva PLC | 240,293 | 3,855,419 |
|
Barratt Developments PLC | 164,331 | 3,797,012 |
|
BBA Aviation PLC | 241,779 | 1,297,039 |
|
Berkeley Group Holdings PLC * | 23,046 | 688,450 |
|
BG Group PLC | 294,896 | 4,002,692 |
|
Biffa PLC | 111 | 707 |
|
Boots Group PLC | 218,360 | 3,381,445 |
|
British American Tobacco, Ltd. | 52,329 | 1,589,904 |
|
British Land Company PLC | 54,024 | 1,588,421 |
|
BT Group PLC | 2,182,521 | 12,660,777 |
|
Burberry Group PLC | 50,746 | 628,568 |
|
Cadbury Schweppes PLC | 54,668 | 584,396 |
|
Centrica PLC | 999,965 | 7,340,468 |
|
Cobham PLC | 453,562 | 1,765,933 |
|
Compass Group PLC | 388,415 | 2,308,425 |
|
Dixons Group PLC | 789,738 | 2,648,844 |
|
George Wimpey PLC | 381,148 | 4,253,859 |
|
GlaxoSmithKline PLC | 1,310,644 | 36,761,900 |
|
Hanson PLC | 97,271 | 1,552,094 |
|
HBOS PLC | 264,049 | 5,598,703 |
|
Home Retail Group | 184,380 | 1,529,788 |
|
IMI PLC | 108,521 | 1,086,643 |
|
Imperial Chemical Industries PLC | 279,166 | 2,525,667 |
|
Imperial Tobacco Group PLC | 196,153 | 8,156,578 |
See notes to financial statements
International Core Fund
17
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
United Kingdom (continued) | | |
|
Invensys PLC * | 62,663 | $348,143 |
|
J Sainsbury PLC | 375,943 | 3,769,923 |
|
Kingfisher PLC | 512,023 | 2,525,833 |
|
Ladbrokes PLC | 133,566 | 1,057,101 |
|
Lloyds TSB Group PLC | 255,720 | 2,879,080 |
|
Man Group PLC | 335,124 | 3,608,735 |
|
Marks & Spencer Group PLC | 319,885 | 4,235,209 |
|
National Grid PLC, ADR | 407,823 | 6,103,422 |
|
Next Group PLC | 102,537 | 4,106,894 |
|
Old Mutual PLC | 1,166,484 | 4,032,599 |
|
Reckitt Benckiser PLC | 77,189 | 3,881,956 |
|
Rio Tinto PLC | 272,581 | 14,628,131 |
|
Royal & Sun Alliance PLC | 1,171,012 | 3,525,713 |
|
Royal Bank of Scotland Group PLC | 701,352 | 27,637,143 |
|
Royal Dutch Shell PLC, A Shares, Dutch listing | 327,014 | 10,647,666 |
|
Royal Dutch Shell PLC, A Shares, United Kingdom listing (a) | 155,872 | 5,050,744 |
|
Royal Dutch Shell PLC, B Shares | 216,227 | 6,985,230 |
|
Scottish & Newcastle PLC | 129,258 | 1,334,852 |
|
Scottish & Southern Energy PLC | 161,591 | 4,554,609 |
|
Scottish Power PLC | 139,374 | 2,091,319 |
|
Severn Trent PLC | 74 | 2,005 |
|
Smiths News PLC | 2,121 | 6,168 |
|
Tate & Lyle PLC | 167,909 | 1,849,272 |
|
Taylor Woodrow PLC | 605,439 | 4,830,311 |
|
Tesco PLC | 560,309 | 4,747,757 |
|
Tomkins PLC | 525,325 | 2,645,548 |
|
United Utilities PLC | 149,177 | 2,128,688 |
|
Vodafone Group PLC | 10,222,563 | 28,372,226 |
|
William Morrison Supermarket PLC | 599,870 | 3,494,546 |
|
Wolseley PLC | 32,661 | 819,365 |
|
Xstrata PLC | 127,149 | 5,973,043 |
|
|
Issuer | Shares | Value |
|
Preferred stocks 0.67% | | $8,990,003 |
(Cost $6,506,039) | | |
| | |
Germany 0.49% | | 6,588,685 |
|
Bayerische Motoren Werke (BMW) AG (a) | 10,400 | 605,428 |
|
Henkel KGaA, Non-Voting | 13,089 | 1,849,153 |
|
Porsche AG, Non-Voting | 1,683 | 2,207,478 |
|
RWE AG, Non-Voting | 89 | 8,153 |
|
Volkswagen AG, Non-Voting | 21,756 | 1,918,473 |
| | |
Italy 0.18% | | 2,401,318 |
|
IFI-Istituto Finanziario Industriale SpA * | 24,500 | 824,955 |
|
Unipol SpA | 463,153 | 1,576,363 |
See notes to financial statements
International Core Fund
18
F I N A N C I A L S T A T E M E N T S
| Principal | |
Issuer, description | Amount | Value |
|
Short-term investments 16.90% | | $227,043,756 |
(Cost $227,043,756) | | |
|
State Street Navigator Securities Lending Prime Portfolio (c) | $227,043,756 | 227,043,756 |
|
| Principal | |
Issuer, description, maturity date | Amount | Value |
|
Repurchase agreements 3.65% | | $48,992,000 |
(Cost $48,992,000) | | |
|
Repurchase Agreement with State Street Corp. dated 2/28/2007 at | | |
4.60% to be repurchased at $48,998,260 on 3/1/2007, | | |
collateralized by $49,730,000, Federal Home Loan Bank, 5.75% | | |
due 8/7/2009 (valued at $49,973,677, including interest) (c) | $48,992,000 | $48,992,000 |
|
Total investments (Cost $1,326,414,604) 116.55% | | $1,565,636,893 |
|
|
Liabilities in excess of other assets (16.55%) | | (222,341,718) |
|
|
Total net assets 100.00% | | $1,343,295,175 |
The portfolio had the following five top industry concentrations as of February 28, 2007 (as a percentage of total net assets):
Banking | 12.19% |
| |
Automobiles | 7.84% |
| |
International Oil | 7.68% |
| |
Insurance | 6.78% |
| |
Pharmaceuticals | 6.08% |
ADR American Depository Receipt
REIT Real Estate Investment Trust
* Non-income producing.
(a) All or a portion of this security was out on loan.
(c) Investment is an affiliate of the Trust’s subadvisor or custodian bank.
See notes to financial statements
International Core Fund
19
Financial statements
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities 2-28-07
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 $1,277,422,604) including $215,945,005 of | |
securities loaned | $1,516,644,893 |
Repurchase agreement, at value (Cost $48,992,000) | 48,992,000 |
Cash | 698 |
Foreign currency, at value (Cost $439,497) | 441,826 |
Cash segregated for futures contracts | 5,900,000 |
Receivable for forward foreign currency exchange contracts | 2,731,666 |
Receivable for fund shares sold | 590,621 |
Dividends and interest receivable | 1,823,960 |
Receivable due from adviser | 17,549 |
Other assets | 8,280 |
Total assets | 1,577,151,493 |
|
Liabilities | |
|
Payable for forward foreign currency exchange contracts | 941,709 |
Payable for fund shares repurchased | 3,516,409 |
Payable upon return of securities loaned | 227,043,756 |
Payable for futures variation margin | 1,368,902 |
Payable to affiliates | |
Fund administration fees | 133,014 |
Transfer agent fees | 10,061 |
Service fees | 472 |
Accrued expenses | 841,995 |
Total liabilities | 233,856,318 |
|
Net assets | |
|
Capital paid-in | 1,075,974,353 |
Distributions in excess of net investment income | (4,292,153) |
Accumulated undistributed net realized gain on investments, futures | |
contracts and foreign currency transactions | 30,693,569 |
Net unrealized appreciation on investments, futures contracts and foreign | |
currency translations | 240,919,406 |
| |
Net assets | $1,343,295,175 |
See notes to financial statements
International Core Fund
20
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities 2-28-07 (continued)
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 ($12,118,330 ÷ 279,845 shares) | $43.30 |
Class B ($973,372 ÷ 22,594 shares)a | $43.08 |
Class C ($4,484,964 ÷ 104,083 shares)a | $43.09 |
Class I ($222,906 ÷ 5,133 shares) | $43.43 |
Class R1 ($122,866 ÷ 2,845 shares) | $43.19 |
Class 1 ($81,760,049 ÷ 1,882,363 shares) | $43.43 |
Class NAV ($1,243,612,688 ÷ 28,640,549 shares) | $43.42 |
|
Maximum offering price per share | |
|
Class Ab ($43.30 ÷ 95%) | $45.58 |
a Redemption price equal to net asset value less any applicable contingent deferred sales charges.
b On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements
International Core Fund
21
F I N A N C I A L S T A T E M E N T S
Statement of operations For the year ended 2-28-07
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 | |
|
Dividends (net of foreign withholding taxes of $591,911) | $7,910,865 |
Interest | 989,054 |
Securities lending | 406,014 |
Total investment income | 9,305,933 |
|
Expenses | |
|
Investment management fees (Note 3) | 5,513,179 |
Distribution and service fees (Note 3) | 67,235 |
Transfer agent fees (Note 3) | 25,570 |
Fund administration fees (Note 3) | 134,751 |
Custodian fees | 753,211 |
Audit and legal fees | 435,354 |
Blue sky fees (Note 3) | 70,630 |
Printing and postage fees (Note 3) | 23,679 |
Trustees’ fees (Note 3) | 6,536 |
Registration and filing fees | 6,147 |
Miscellaneous | 6,672 |
| |
Total expenses | 7,042,964 |
Less: expense reductions (Note 3) | (221,577) |
| |
Net expenses | 6,821,387 |
| |
Net investment income | 2,484,546 |
|
Realized and unrealized gain (loss) | |
|
| |
Net realized gain (loss) on | |
Investments | 36,851,525 |
Futures contracts | 6,540,323 |
Foreign currency transactions | (7,063,413) |
| |
Change in net unrealized appreciation (depreciation) of | |
Investments | 100,122,893 |
Futures contracts | (107,064) |
Translation of assets and liabilities in foreign currencies | 1,797,699 |
| |
Net realized and unrealized gain | 138,141,963 |
| |
Increase in net assets from operations | $140,626,509 |
See notes to financial statements
International Core Fund
22
F I N A N C I A L S T A T E M E N T S
Statement of 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.
| Period | Year |
| ended | ended |
| 2-28-06a | 2-28-07 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income (loss) | $86,760 | $2,484,546 |
Net realized gain (loss) | 52,057 | 36,328,435 |
Change in net unrealized appreciation (depreciation) | 1,556,207 | 101,813,528 |
| | |
Increase in net assets resulting from operations | 1,695,024 | 140,626,509 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class 1 | — | (56,793) |
Class NAV | — | (986,755) |
From net realized gain | | |
Class A | — | (73,495) |
Class B | — | (6,331) |
Class C | — | (22,267) |
Class R1 | — | (1,056) |
Class I | — | (1,930) |
Class 1 | — | (731,024) |
Class NAV | — | (10,547,441) |
| | |
Total distributions | — | (12,427,092) |
| | |
From Fund share transactions | 15,078,711 | 1,198,322,023 |
|
Net assets | | |
Beginning of period | — | 16,773,735 |
End of periodb | $16,773,735 | $1,343,295,175 |
a Period from 9-16-05 (commencement of operation) to 2-28-06.
b Includes undistributed (distributions in excess of) net investment income of $86,760 and ($4,292,153), respectively.
See notes to financial statements
International Core Fund
23
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed
since the end of the previous period.
CLASS A SHARES | | |
|
Period ended | 2-28-06a | 2-28-07b |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $32.60 | $36.26 |
Net investment incomeh | 0.19 | 0.63 |
Net realized and unrealized | | |
gain on investments | 3.47 | 6.79 |
Total from investment operations | 3.66 | 7.42 |
Less distributions | | |
From net realized gain | — | (0.38) |
Net asset value, end of period | $36.26 | $43.30 |
Total returnk,l (%) | 11.23m | 20.48s |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | $17 | $12 |
Ratio of net expenses to average | | |
net assets (%) | 0.55r | 1.40 |
Ratio of gross expenses to average | | |
net assets (%)p | 2.22r | 2.23 |
Ratio of net investment income | | |
to average net assets (%) | 1.23r | 1.58 |
Portfolio turnover (%) | 22m | 37 |
See notes to financial statements
International Core Fund
24
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | | |
|
Period ended | | 2-28-07c |
|
Per share operating performance | | |
|
Net asset value, beginning of period | | $35.92 |
Net investment lossh | | (0.25) |
Net realized and unrealized | | |
gain on investments | | 7.79 |
Total from investment operations | | 7.54 |
Less distributions | | |
From net realized gain | | (0.38) |
Net asset value, end of period | | $43.08 |
Total return (%) | | 21.01k,l,m |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | | $1 |
Ratio of net expenses to average | | |
net assets (%) | | 2.39r |
Ratio of gross expenses to average | | |
net assets (%) | | 6.83p,r |
Ratio of net investment loss | | |
to average net assets (%) | | (0.84)r |
Portfolio turnover (%) | | 37m |
See notes to financial statements
International Core Fund
25
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |
|
Period ended | 2-28-07c |
|
Per share operating performance | |
|
Net asset value, beginning of period | $35.92 |
Net investment lossh | (0.24) |
Net realized and unrealized | |
gain on investments | 7.79 |
Total from investment operations | 7.55 |
Less distributions | |
From net realized gain | (0.38) |
Net asset value, end of period | $43.09 |
Total return (%) | 21.04k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | $4 |
Ratio of net expenses to average | |
net assets (%) | 2.39r |
Ratio of gross expenses to average | |
net assets (%) | 3.72p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.79)r |
Portfolio turnover (%) | 37m |
See notes to financial statements
International Core Fund
26
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |
|
Period ended | 2-28-07c |
|
Per share operating performance | |
|
Net asset value, beginning of period | $35.92 |
Net investment incomeh | 0.16 |
Net realized and unrealized | |
gain on investments | 7.73 |
Total from investment operations | 7.89 |
Less distributions | |
From net realized gain | (0.38) |
Net asset value, end of period | $43.43 |
Total return (%) | 21.99k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 1.20r |
Ratio of gross expenses to average | |
net assets (%) | 12.52p,r |
Ratio of net investment income | |
to average net assets (%) | 0.56r |
Portfolio turnover (%) | 37m |
See notes to financial statements
International Core Fund
27
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS R1 SHARES | |
|
Period ended | 2-28-07c |
|
Per share operating performance | |
| |
Net asset value, beginning of period | $35.92 |
Net investment lossh | (0.03) |
Net realized and unrealized | |
gain on investments | 7.68 |
Total from investment operations | 7.65 |
Less distributions | |
From net realized gain | (0.38) |
Net asset value, end of period | $43.19 |
Total return (%) | 21.32k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 1.94r |
Ratio of gross expenses to average | |
net assets (%) | 20.40p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.10)r |
Portfolio turnover (%) | 37m |
See notes to financial statements
International Core Fund
28
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS 1 SHARES | |
|
Period ended | 2-28-07e |
|
Per share operating performance | |
|
Net asset value, beginning of period | $40.56 |
Net investment incomeh | 0.02 |
Net realized and unrealized | |
gain on investments | 3.26 |
Total from investment operations | 3.28 |
Less distributions | |
From net investment income | (0.03) |
From net realized gain | (0.38) |
| (0.41) |
Net asset value, end of period | $43.43 |
Total return (%) | 8.11k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | $82 |
Ratio of net expenses to average | |
net assets (%) | 1.17r |
Ratio of gross expenses to average | |
net assets (%) | 1.23p,r |
Ratio of net investment income | |
to average net assets (%) | 0.16r |
Portfolio turnover (%) | 37m |
See notes to financial statements
International Core Fund
29
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS NAV SHARES | |
|
Period ended | 2-28-07d |
|
Per share operating performance | |
|
Net asset value, beginning of period | $39.18 |
Net investment incomeh | 0.08 |
Net realized and unrealized | |
gain on investments | 4.58 |
Total from investment operations | 4.66 |
Less distributions | |
From net investment income | (0.04) |
From net realized gain | (0.38) |
| (0.42) |
Net asset value, end of period | $43.42 |
Total return (%) | 11.90k,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | $1,244 |
Ratio of net expenses to average | |
net assets (%) | 1.08r |
Ratio of net investment income | |
to average net assets (%) | 0.38r |
Portfolio turnover (%) | 37m |
a Class A shares began operations on 9-16-05.
b Effective June 12, 2006, shareholders of the former GMO International Disciplined Equity Fund (the “Predecessor Fund”) became owners of an equal number of full and fractional Class A shares of the John Hancock International Core Fund. Additionally, the accounting and performance history of the former GMO International Disciplined Equity Fund was redesignated as that of John Hancock International Core Fund Class A.
c Class B, Class C, Class I and Class R1 shares began operations on 6-12-06.
d Class NAV shares began operations on 8-29-06.
e Class 1 shares began operations on 11-6-06.
h Based on the average of the shares outstanding.
i Less than $500,000.
k Assumes dividend reinvestment.
l Total returns would have been lower had certain expenses not been reduced during the period shown.
m Not annualized.
p Does not take into consideration expense reductions during the periods shown.
r Annualized.
s Class A returns linked back to the Predecessor Fund.
See notes to financial statements
International Core Fund
30
Notes to financial statements
1. Organization
John Hancock International Core Fund (the “Fund”) is a newly organized diversified series of John Hancock Funds III (the “Trust”). The Trust was established as a Massachusetts business trust on June 9, 2005. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end investment management company. The investment objective of the Fund is to seek high total return.
John Hancock Life Insurance Company of New York (“John Hancock New York”) is a wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.) (“John Hancock USA”). John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of The Manufacturers Life Insurance Company (“Manulife”), which in turn is a wholly owned subsidiary of Manulife Financial Corporation (“MFC”), a publicly traded company. MFC and its subsidiaries are known collectively as “Manulife Financial.”
John Hancock Investment Management Services, LLC (the “Adviser”), a Delaware limited liability company controlled by John Hancock USA, serves as investment adviser for the Trust and John Hancock Funds, LLC (the “Distributor”), a Delaware limited liability company, an affiliate of the Adviser, serves as principal underwriter.
The Board of Trustees has authorized the issuance of multiple classes of shares of the Fund, including classes designated as Class A, Class B, Class C, Class I, Class R1, Class 1, Class 3 and Class NAV 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 Board of 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 bear distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Effective November 6, 2006, the Board of Trustees elected to change the name of Class R to Class R1.
Class 1 shares are sold only to certain exempt separate accounts of John Hancock USA and John Hancock New York. Class NAV shares are sold to affiliated funds of funds which are funds of funds within the John Hancock funds complex.
The Fund is the accounting and performance successor to the GMO International Disciplined Equity Fund (the “Predecessor Fund”), a diversified open-end investment management company organized as a Massachusetts corporation on September 16, 2005. On June 12, 2006, the Fund acquired substantially all the assets and assumed the liabilities of the Predecessor Fund pursuant to an agreement and plan of reorganization, in exchange for Class A shares of the Fund.
2. Significant accounting policies
In the preparation of the financial statements, the Fund follows the policies described below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
International Core Fund
31
Security valuation
The net asset value of the shares of the Fund is determined daily as of the close of the New York Stock Exchange, normally at 4:00 p.m. Eastern Time. Short-term debt instruments with remaining maturities of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on a principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Fund securities for which there are no such quotations, principally debt securities, are valued based on the valuation provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques.
Other assets and securities for which no such quotations are readily available are valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the New York Stock Exchange. The values of such securities used in computing the net asset value of a Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the New York Stock Exchange. Upon such an occurrence, these securities will then be valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
In deciding whether to make a fair value adjustment to the price of a security, the Board of Trustees or their designee may review a variety of factors, including, developments in foreign markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations, for example, when a particular foreign market is closed, but the Fund is calculating the net asset value. In view of these factors, it is likely that a fund investing significant amounts of assets in securities in foreign markets will be fair valued more frequently than a fund investing significant amounts of assets in frequently traded, U.S. exchange listed securities of large capitalization U.S. issuers.
For purposes of determining when fair value adjustments may be appropriate with respect to the Fund investing in securities in foreign markets that close prior to the New York Stock Exchange, the Fund will, on an ongoing basis, monitor for “significant market events.” A significant market event may be a certain percentage change in the value of an index or of certain Exchange Traded Funds (“ETFs”) that track foreign markets in which the Fund has significant investments. If a significant market event occurs due to a change in the value of the index or of ETFs, the pricing for the Fund will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Trust’s Pricing Committee, where applicable.
Fair value pricing of securities is intended to help ensure that the net asset value of the Fund’s shares reflects the value of the Fund’s securities as of the close of the New York Stock Exchange (as opposed to a value which is no longer accurate as of such close), thus limiting the opportunity for aggressive traders to purchase shares of the Fund at deflated prices, reflecting stale security valuations, and to promptly sell such shares at a gain. However, a security’s valuation may differ depending on the method used for determining value and no assurance can be given that fair value pricing of securities will successfully eliminate all potential opportunities for such trading gains.
International Core Fund
32
Repurchase agreements
The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement through its custodian, it receives delivery of securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is generally at least 102% of the repurchase amount. The Fund will take constructive receipt of all securities underlying the repurchase agreements it has entered into until such agreements expire. If the seller defaults, the Fund would suffer a loss to the extent that proceeds from the sale of underlying securities were less than the repurchase amount. The Fund may enter into repurchase agreements maturing within seven days with domestic dealers, banks or other financial institutions deemed to be creditworthy by the Adviser. Collateral for certain tri-party repurchase agreements is held at the custodian bank in a segregated account for the benefit of the Fund and the counterpa rty.
Foreign currency transactions
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
(1) market value of securities, other assets and other liabilities at the current rate of exchange at period end of such currencies against U.S. dollars; and
(2) purchases and sales of securities, income and expenses at the rate of exchange quoted on the respective dates of such transactions.
Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of foreign currency contracts, disposition of foreign currencies, the difference between the amount of net investment income accrued and the U.S. dollar amount actually received, and gains and losses between trade and settlement date on purchases and sales of securities. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities.
The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which the Fund invests. Such taxes are generally based upon income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation.
Investing in securities of foreign companies and foreign governments involves special risks and consideration not typically associated with investing in securities of domestic companies and the U. S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of the United States.
Security transactions and
related investment income
Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Foreign dividends are recorded on the ex-date or as soon after the ex-date that the Fund becomes aware of such dividends, net of all taxes. Discounts/premiums are accreted/amortized for financial reporting purposes. Non-cash dividends are recorded at the fair market value of the securities received. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful, based upon consistently applied procedures.
From time to time, the Fund may invest in Real Estate Investment Trusts (“REITs”) and as a result, will estimate the components of distributions from these securities. Distributions from REITs received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain.
The Fund uses the First In, First Out method for fixed income securities and Highest Cost, First
International Core Fund
33
Out for all other securities for determining realized gain or loss on investments for both financial and federal income tax reporting purposes.
Multi-class operations
All income, expenses (except for class-specific expenses) and realized and unrealized gains (losses) are allocated to each class of shares based upon the relative net assets of each class. Dividends to shareholders from net investment income are determined at a class level and distributions from capital gains are determined at a Fund level.
Expense allocation
Expenses are allocated based on the relative share of net assets of the Fund at the time the expense was incurred. Class-specific expenses, such as distribution (Rule 12b-1) fees, are accrued daily and charged directly to the respective share classes.
Securities lending
The Fund may lend securities in amounts up to 33 1 / 3% of the Fund’s total non-cash assets to brokers, dealers and other financial institutions, provided such loans are callable at any time and are at all times fully secured by cash, cash equivalents or securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities, marked to market to the value of the loaned securities on a daily basis. The Fund may bear the risk of delay in recovery of, or even of rights in, the securities loaned should the borrower of the securities fail financially. Consequently, loans of the Fund’s securities will only be made to firms deemed by the subadvisers to be cred-itworthy. The Fund receives compensation for lending its securities either in the form of fees or by retaining a portion of interest on the investment of any cash received as collateral. Cash collateral is in vested in the State Street Navigator Securities Lending Prime Portfolio.
All collateral received will be in an amount equal to at least 100% of the market value of the loaned securities and is intended to be maintained at that level during the period of the loan. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund the next business day. During the loan period, the Fund continues to retain rights of ownership, including dividends and interest of the loaned securities. At February 28, 2007, the Fund loaned securities having a market value of $215,945,005 collateralized by securities in the amount of $227,043,756.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poor’s 500 Index (the “S&P 500 Index”), in order to hedge against a decline in the value of securities owned by the Fund.
Upon entering into futures contracts, the Fund is required to deposit with a broker an amount, termed the initial margin, which typically represents a certain percentage of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates, making the long or short positions in the contract more or less valuable. If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
International Core Fund
34
The following is a summary of open futures contracts on February 28, 2007:
| | | | UNREALIZED |
| NUMBER OF | | | APPRECIATION |
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | (DEPRECIATION) |
|
DAX Index | 165 | Long | Mar 2007 | 1,064,108 |
Hang Seng Stock Index | 57 | Long | Mar 2007 | (438,885) |
TOPIX Index | 19 | Long | Mar 2007 | 63,142 |
MSCI Singapore Stock Index | 266 | Long | Mar 2007 | (854,783) |
Share Price Index 200 | 16 | Short | Mar 2007 | 658 |
S+P/Toronto Stock | | | | |
Exchange 60 Index | 179 | Short | Mar 2007 | (4,348) |
FTSE 100 Index | 19 | Short | Mar 2007 | 63,044 |
| | | | ($107,064) |
Forward foreign currency contracts
The Fund may purchase and sell forward foreign currency contracts in order to hedge a specific transaction or Fund position. Forward foreign currency contracts are valued at forward foreign currency exchange rates and marked to market daily. Net realized gains (losses) on foreign currency and forward foreign currency contracts shown in the Statements of Operations include net gains or losses realized by the Fund on contracts that have matured.
The net U.S. dollar value of foreign currency underlying all contractual commitments held at the end of the period, the resulting net unrealized appreciation (depreciation) and related net receivable or payable amount are determined using forward foreign currency exchange rates supplied by a quotation service. The Fund could be exposed to risks in excess of amounts recognized on the Statements of Assets and Liabilities if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the forward foreign currency contract changes unfavorably.
At February 28, 2007, the Fund entered into forward foreign currency contracts, which contractually obligate the Fund to deliver currencies at future dates.
Open forward foreign currency contracts on February 28, 2007, were as follows:
| | | UNREALIZED |
CURRENCY | PRINCIPAL AMOUNT | | APPRECIATION |
BUYS | COVERED BY CONTRACT | SETTLEMENT DATE | (DEPRECIATION) |
|
Canadian Dollar | 578,500 | May 2007 | ($2,481) |
Swiss Franc | 19,956,025 | May 2007 | 239,478 |
Swiss Franc | 19,956,025 | May 2007 | 207,689 |
Swiss Franc | 19,956,025 | May 2007 | 244,985 |
Swiss Franc | 19,956,024 | May 2007 | 236,644 |
Swiss Franc | 19,956,025 | May 2007 | 231,344 |
Swiss Franc | 19,956,025 | May 2007 | 243,384 |
Swiss Franc | 19,956,025 | May 2007 | 231,145 |
Japanese Yen | 1,258,548,410 | May 2007 | 147,420 |
Japanese Yen | 1,258,548,410 | May 2007 | 136,312 |
Japanese Yen | 1,258,548,410 | May 2007 | 141,520 |
Japanese Yen | 1,258,548,410 | May 2007 | 151,991 |
Japanese Yen | 1,258,548,410 | May 2007 | 139,817 |
Japanese Yen | 1,258,548,410 | May 2007 | 149,353 |
Japanese Yen | 1,258,548,410 | May 2007 | 92,105 |
International Core Fund
35
| | | UNREALIZED |
CURRENCY | PRINCIPAL AMOUNT | | APPRECIATION |
BUYS | COVERED BY CONTRACT | SETTLEMENT DATE | (DEPRECIATION) |
|
Norwegian Krone | 23,347,312 | May 2007 | $10,359 |
Norwegian Krone | 23,347,312 | May 2007 | 612 |
Norwegian Krone | 23,347,312 | May 2007 | 8,927 |
Norwegian Krone | 23,347,313 | May 2007 | 10,789 |
Norwegian Krone | 23,347,312 | May 2007 | 11,657 |
Norwegian Krone | 23,347,312 | May 2007 | 10,020 |
Norwegian Krone | 23,347,312 | May 2007 | 13,455 |
Swedish Krona | 41,367,936 | May 2007 | 9,911 |
Swedish Krona | 41,367,936 | May 2007 | (1,556) |
Swedish Krona | 41,367,936 | May 2007 | 5,328 |
Swedish Krona | 41,367,936 | May 2007 | 9,530 |
Swedish Krona | 41,367,936 | May 2007 | 15,335 |
Swedish Krona | 41,367,936 | May 2007 | 11,684 |
Swedish Krona | 41,367,936 | May 2007 | 16,858 |
| | | $2,723,615 |
|
| | | UNREALIZED |
CURRENCY | PRINCIPAL AMOUNT | | APPRECIATION |
SELLS | COVERED BY CONTRACT | SETTLEMENT DATE | (DEPRECIATION) |
|
Australian Dollar | 2,335,116 | May 2007 | ($11,384) |
Australian Dollar | 2,335,363 | May 2007 | (11,136) |
Australian Dollar | 2,333,593 | May 2007 | (12,907) |
Australian Dollar | 7,516,840 | May 2007 | (95,397) |
Australian Dollar | 2,336,543 | May 2007 | (9,956) |
Australian Dollar | 2,334,466 | May 2007 | (12,034) |
Australian Dollar | 4,928,619 | May 2007 | (46,811) |
Danish Kroner | 141,108 | May 2007 | (965) |
Euro | 12,294,066 | May 2007 | (82,239) |
Euro | 12,318,701 | May 2007 | (57,604) |
Euro | 12,294,234 | May 2007 | (82,071) |
Euro | 12,291,532 | May 2007 | (84,774) |
Euro | 12,306,351 | May 2007 | (69,954) |
Euro | 12,291,410 | May 2007 | (84,896) |
Euro | 12,316,082 | May 2007 | (60,223) |
Pound Sterling | 12,313,943 | May 2007 | (22,358) |
Pound Sterling | 12,326,688 | May 2007 | (9,613) |
Pound Sterling | 12,308,161 | May 2007 | (28,139) |
Pound Sterling | 12,310,074 | May 2007 | (26,227) |
Pound Sterling | 12,325,839 | May 2007 | (10,462) |
Pound Sterling | 12,306,349 | May 2007 | (29,951) |
Pound Sterling | 12,311,621 | May 2007 | (24,679) |
Hong Kong Dollar | 1,223,611 | May 2007 | 623 |
Hong Kong Dollar | 1,223,548 | May 2007 | 560 |
Hong Kong Dollar | 1,223,611 | May 2007 | 623 |
International Core Fund
36
| | | UNREALIZED |
CURRENCY | PRINCIPAL AMOUNT | | APPRECIATION |
SELLS | COVERED BY CONTRACT | SETTLEMENT DATE | (DEPRECIATION) |
|
Hong Kong Dollar | 1,223,454 | May 2007 | $466 |
Hong Kong Dollar | 1,223,376 | May 2007 | 387 |
Hong Kong Dollar | 1,223,580 | May 2007 | 591 |
Hong Kong Dollar | 1,223,753 | May 2007 | 764 |
Japanese Yen | 4,745,265 | May 2007 | (63,892) |
| | | ($933,658) |
| | | $1,789,957 |
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. Therefore, no federal income tax provision is required.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than August 31, 2007.
In September 2006, FASB Standard No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Distribution of income and gains
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 February 28, 2007, the tax character of distributions paid was as follows: ordinary income $12,427,092. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions 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 Fund’s financial statements as a return of capital.
As of February 28, 2007, the components of distributable earnings on a tax basis included $7,277,820 of undistributed ordinary income and $23,064,055 of undistributed long-term gain.
Capital accounts
The Fund reports the undistributed net investment income and accumulated undistributed net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carryforward is available). Accordingly, the Fund may periodically make reclassifications among certain capital accounts without affecting its net asset value.
International Core Fund
37
3. Investment advisory and
other agreements
Advisory fees
The Trust has entered into an Investment Advisory Agreement with the Adviser. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvisers to handle the investment of the assets of the Fund, subject to the supervision of the Trust’s Board of Trustees. Under the Advisory Agreement, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.92% of the first $100,000,000 of the Fund’s aggregate daily net assets; (b) 0.895% of the next $900,000,000 of the Fund’s aggregate daily net assets; and (c) 0.88% of the Fund’s aggregate daily net assets in excess of $1,000,000,000. Aggregate net assets include the net assets of the Fund and International Core Trust, a series of John Hancock Trust and International Stock Fund, a series of John Hancock Funds II. John Hancock Trust, distributed by John Hancock Distributors, LLC and John Hancock Fun ds II, distributed by the Distributor, are open-end investment companies advised by the Adviser. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
Prior to June 12, 2006, the Predecessor Fund paid a monthly management fee to its investment advisor, Grantham, Mayo, Van Otterloo & Co. LLC, at an annual rate of 0.40% of the Predecessor Fund’s average daily net assets.
Expense reimbursements
The Adviser has agreed contractually to reimburse for certain fund level expenses that exceed 0.20% of the average annual net assets, or to make a payment to a specific class of shares of the Fund in an amount equal to the amount by which the expenses attributable to such class of shares (excluding taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business and fees under any agreement or plans of the Fund dealing with services for shareholders and others with beneficial interests in shares of the Fund) exceed the percentage of average annual net assets (on an annualized basis) attributable as follows: 1.70% for Class A, 2.40% for Class B, 2.40% for Class C, 1.20% for Class I, 1.70% for Class R1, 1.15% for Class 1 and 1.10% for Class NAV. Accordingly, the expense reductions related to this expense limitation a mounted to $145,477, $15,087, $16,376, $14,254, $14,870 and $15,513 for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively, for the year ended February 28, 2007. This expense reimbursement shall continue in effect until June 30, 2007 and thereafter until terminated by the Adviser on notice to the Trust.
Administration fees
The Fund has an agreement with the Adviser that requires the Fund to reimburse the Adviser for all expenses associated with providing the administrative, financial, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, annual, semi-annual and periodic reports to shareholders and the preparation of all regulatory reports. These expenses are allocated based on the relative shares of net assets of each fund at the time the expense was incurred.
Distribution plan
The Trust has a Distribution Agreement with the Distributor. The Fund has adopted Distribution Plans with respect to Class A, Class B, Class C, Class R1 and Class 1, pursuant to Rule 12b-1 under the 1940 Act, to reimburse the Distributor for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00%, 1.00%, 0.50% and 0.05% of average daily net asset value of Class A, Class B, Class C, Class R1 and Class 1, respectively. 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 R1 shares, the Fund pays up to 0.25% of Class R1 average daily net asset value for certain other services.
International Core Fund
38
Prior to June 12, 2006, Funds Distributor, Inc. served as the Predecessors Fund’s principal underwriter and was compensated at an annual rate of 0.15% of the Predecessor Fund’s average daily net asset value.
Sales charges
Class A shares are assessed up-front sales charges of up to 5.00% of net asset value of such shares. During the year ended February 28, 2007, the Fund was informed that the Distributor received net up-front sales charges of $15,870 with regard to sales of Class A shares. Of this amount, $2,756 was retained and used for printing prospectuses, advertising, sales literature and other purposes and $13,114 was paid as sales commissions to unrelated broker-dealers.
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 the Distributor 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 February 28, 2007, CDSCs received by the Distributor amounted to $49 for Class B shares and $46 for Class C shares.
Transfer agent fees
The Fund has a Transfer Agency Agreement with John Hancock Signature Services, Inc. (“Signature Services”), an indirect subsidiary of MFC. For Class A, Class B, Class C, Class I and Class R1 shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’ average daily net assets, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Expenses not directly attributable to a particular class of shares are aggregated and allocated to each class on the basis of its relative net asset value.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.20% annually of Class A, Class B, Class C, Class I and Class R1 share average daily net assets. This agreement is effective until December 31, 2007. Signature Services reserves the right to terminate this limitation in the future. Accordingly, there were no transfer agent fee reductions for Class A, Class B, Class C, Class I and Class R1 shares, respectively, during the year ended February 28, 2007.
Prior to June 12, 2006, Investors Bank and Trust Company served as the Predecessor Fund’s transfer agent and Brown Brothers Harriman & Co. served as the fund accountant.
Expenses under the agreements described above for the year ended February 28, 2007, were as follows:
| Distribution and | Transfer | | Printing and |
Share Class | service fees | agent | Blue sky | postage |
|
|
Class A | 37,846 | 21,801 | 14,319 | 21,358 |
Class B | 3,388 | 1,016 | 14,077 | 610 |
Class C | 12,318 | 2,648 | 14,080 | 723 |
Class I | — | 63 | 14,077 | 128 |
Class R1 | 601 | 42 | 14,077 | 732 |
Class 1 | 13,082 | — | — | 128 |
Class NAV | — | — | — | — |
Total | 67,235 | 25,570 | 70,630 | 23,679 |
International Core Fund
39
Trustees’ fees
The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. Total Trustees’ expenses are allocated to the Fund based on its average daily net asset value.
4. Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
5. Line of credit
The Fund has entered into an agreement which enables it to participate in a $100 million unsecured committed line of credit with State Street Corporation. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to the Fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50% .
In addition, a commitment fee of 0.07% per annum, payable at the end of each calendar quarter, based on the average daily-unused portion of the line of credit, is charged to the Fund on a prorated basis based on average net assets. For the year ended February 28, 2007, there were no borrowings under the line of credit.
6. Capital shares
Share activities for the Fund for the period ended February 28, 2006 and the year ended February 28, 2007, were as follows:
| Period ended 2-28-06a | Year ended 2-28-07 |
| Shares | Amount | Shares | Amount |
|
Class A shares | | | | |
Sold | 462,581 | $15,078,711 | 284,321 | $11,617,841 |
Distributions reinvested | — | — | 1,655 | 70,124 |
Repurchased | — | — | (468,712) | (19,816,280) |
Net increase (decrease) | 462,581 | $15,078,711 | (182,736) | ($8,128,315) |
|
|
Class B shares | | | | |
Sold | — | — | 27,188 | $1,088,930 |
Distributions reinvested | — | — | 145 | 6,146 |
Repurchased | — | — | (4,739) | (194,969) |
Net increase | — | — | 22,594 | $900,107b |
|
|
Class C shares | | | | |
Sold | — | — | 108,359 | $4,434,998 |
Distributions reinvested | — | — | 478 | 20,196 |
Repurchased | — | — | (4,754) | (197,095) |
Net increase | — | — | 104,083 | $4,258,099b |
|
|
Class I shares | | | | |
Sold | — | — | 5,134 | $189,482 |
Distributions reinvested | — | — | 45 | 1,930 |
Repurchased | — | — | (46) | (2,038) |
Net increase | — | — | 5,133 | $189,374b |
International Core Fund
40
| Period ended 2-28-06a | Year ended 2-28-07 |
| Shares | Amount | Shares | Amount |
|
Class R1 shares | | | | |
Sold | — | — | 2,820 | $101,500 |
Distributions reinvested | — | — | 25 | 1,056 |
Net increase | — | — | 2,845 | $102,556b |
|
|
Class 1 shares | | | | |
Sold | — | — | 48,304 | $2,043,017 |
Issued in reorganization | — | — | 1,953,542 | 79,235,655 |
Distributions reinvested | — | — | 18,537 | 787,817 |
Repurchased | — | — | (138,020) | (5,874,002) |
Net increase | — | — | 1,882,363 | $76,192,487c |
|
|
Class NAV shares | | | | |
Sold | — | — | 3,063,357 | $123,822,093 |
Issued in reorganization | — | — | 26,094,263 | 1,022,391,188 |
Distributions reinvested | — | — | 271,456 | 11,534,195 |
Repurchased | — | — | (788,527) | (32,939,761) |
Net increase | — | — | 28,640,549 | $1,124,807,715d |
|
|
Net increase | 462,581 | $15,078,711 | 30,474,831 | $1,198,322,023 |
a Period from 9-16-05 (commencement of operation) to 2-28-06.
b Period from 6-12-06 (commencement of operation) to 2-28-07.
c Period from 11-6-06 (commencement of operation) to 2-28-07.
d Period from 8-29-06 (commencement of operation) to 2-28-07.
7. 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 February 28, 2007, aggregated $295,101,613 and $233,769,423, respectively.
The cost of investments owned on February 28, 2007, including short-term investments, for federal income tax purposes, was $1,328,568,143. Gross unrealized appreciation and depreciation of investments aggregated $244,708,911 and $7,640,161, respectively, resulting in net unrealized appreciation of $237,068,750.
8. Federal income tax information
Federal income tax regulations may differ from generally accepted accounting principles and income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
9. Reclassification of accounts
During the year ended February 28, 2007, the Fund reclassified amounts to reflect an increase in accumulated net realized gain on investments of $5,696,621, a decrease in accumulated net investment income of $5,819,911 and an increase in capital paid-in of $123,290. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2007. 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 PFIC reclass, non-deductible 12b-1 fees and foreign currency. The calculation of net investment income (loss) per share in the Fund’s Financial Highlights ex cludes these adjustments.
International Core Fund
41
10. Reorganization
On June 12, 2006, the Fund acquired substantially all of the assets and liabilities of the Predecessor Fund in exchange solely for Class A shares of the Fund. The acquisition was accounted for as a tax-free exchange of 462,581 Class A shares of the Fund for the net assets of the Predecessor Fund, which amounted to $16,617,195, including $884,271 of unrealized appreciation, after the close of business on June 9, 2006. Accounting and performance history of the Predecessor Fund was redesignated as that of Class A of the Fund.
On August 29, 2006, the Board of Trustees of John Hancock Funds II International Stock Fund (the “International Stock Fund”) approved an Agreement and Plan of Reorganization, which provided for the transfer of substantially all of the assets and liabilities of the International Stock Fund Class NAV in exchange for the Class NAV of the Fund. The acquisition was accounted for as a tax-free exchange of 26,094,263 of the Class NAV shares of the Fund for the net assets of the International Stock Fund Class NAV, which amounted to $1,022,391,188, including the total of $122,941,561 of unrealized appreciation, after the close of business on August 29, 2006.
In addition, on August 29, 2006, the Board of Trustees of International Stock Fund approved an agreement and Plan of Reorganization, which provided for the transfer of substantially all of the assets and liabilities of the International Stock Fund Class 1 in exchange for the Class 1 of the Fund. The acquisition was accounted for as a tax-free exchange of 1,953,542 of the Class 1 shares of the Fund for the net assets of the International Stock Fund Class 1, which amounted to $79,235,655, including the total of $14,608,110 of unrealized appreciation, after the close of business on November 6, 2006.
42
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Funds III and Shareholders of John Hancock
International Core 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 International Core Fund (the “Fund”) at February 28, 2007, the results of its operations, the changes in its net assets and the financial highlights for each of 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 Stat es). 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 investments at February 28, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2007
43
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 February 28, 2007.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended February 28, 2007, 0.34% of the dividends qualifies 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 2007.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
44
Trustees and 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, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
Ronald R. Dion , Born: 1946 | 2006 | 66 |
|
Independent Chairman (since 2005); 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. | | |
|
James F. Carlin , Born: 1940 | 2006 | 66 |
|
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | | |
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | | |
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | | |
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | | |
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | | |
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | | |
|
Richard P. Chapman, Jr.,2 Born: 1935 | 2006 | 66 |
|
President and Chief Executive Officer, Brookline Bancorp, Inc. (lending) (since | | |
1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); | | |
Chairman and Director, Northeast Retirement Services, Inc. (retirement | | |
administration) (since 1998); Vice Chairman, Northeastern University Board | | |
of Trustees (since 2004). | | |
|
William H. Cunningham , Born: 1944 | 2006 | 66 |
|
Former Chancellor, University of Texas System and former President of the | | |
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, | | |
IBT Technologies (until 2001); Director of the following: Hire.com (until 2004), | | |
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. | | |
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until | | |
2004), Pinnacle Foods Corporation (until 2003), rateGenius (until 2003), Lincoln | |
National Corporation (insurance) (since 2006), Jefferson-Pilot Corporation | | |
(diversified life insurance company) (until 2006), New Century Equity Holdings | | |
(formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com | | |
(until 2001), Agile Ventures (until 2001), AskRed.com (until 2001), Southwest | | |
Airlines (since 2000), Introgen (since 2000) and Viasystems Group, Inc. (electronic | |
manufacturer) (until 2003); Advisory Director, Interactive Bridge, Inc. (college | | |
fundraising) (until 2001); Advisory Director, Q Investments (until 2003); | | |
45
Independent Trustees (continued) | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
William H. Cunningham , Born: 1944 (continued) | 2006 | 66 |
|
Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce Bank – | | |
Austin), LIN Television (since 2002), WilTel Communications (until 2003) and | | |
Hayes Lemmerz International, Inc. (diversified automotive parts supply company) | |
(since 2003). | | |
|
Charles L. Ladner,2 Born: 1938 | 2006 | 66 |
|
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, AmeriGas, Inc. | | |
(retired 1998); Director, AmeriGas Partners, L.P. (gas distribution) (until 1997); | | |
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | |
(until 2005). | | |
|
John A. Moore,2 Born: 1939 | 2006 | 66 |
|
President and Chief Executive Officer, Institute for Evaluating Health Risks, | | |
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | | |
(health research) (until 2003); Former Assistant Administrator and Deputy | | |
Administrator, Environmental Protection Agency; Principal, Hollyhouse | | |
(consulting) (since 2000); Director, CIIT Center for Health Science Research | | |
(nonprofit research) (2002–2006). | | |
|
Patti McGill Peterson,2 Born: 1943 | 2006 | 66 |
|
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 | 2006 | 66 |
|
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). | | |
46
Non-Independent Trustee3 | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
James R. Boyle, Born: 1959 | 2006 | 272 |
|
President, John Hancock Insurance Group; Executive Vice President, John | | |
Hancock Life Insurance Company (since June 2004); Chairman and Director, | | |
John Hancock Advisers, LLC (the “Adviser”), John Hancock Funds, LLC and | | |
The Berkeley Financial Group, LLC (“The Berkeley Group”) (holding company) | | |
(since 2005); Senior Vice President, The Manufacturers Life Insurance Company | |
(U.S.A.) (until 2004). | | |
|
Principal officers who are not Trustees | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Keith F. Hartstein, Born: 1956 | | 2006 |
|
President and Chief Executive Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, John | | |
Hancock Funds, LLC (since 2005); Director, MFC Global Investment Management | |
(U.S.), LLC (“MFC Global (U.S.)”) (since 2005); Director, John Hancock Signature | |
Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock | |
Investment Management Services, LLC (since 2006); President and Chief Executive | |
Officer, John Hancock Funds II, John Hancock Funds III and John Hancock Trust; | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | | |
Chairman, Investment Company Institute Sales Force Marketing Committee | | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | | |
|
Thomas M. Kinzler, Born: 1955 | | 2006 |
|
Secretary and Chief Legal Officer | | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2006); | |
Vice President and Associate General Counsel, Massachusetts Mutual Life | | |
Insurance Company (1999–2006); Secretary and Chief Legal Counsel, MML | | |
Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, | | |
MassMutual Institutional Funds (2000–2004); Secretary and Chief Legal Counsel, | |
MassMutual Select Funds and MassMutual Premier Funds (2004–2006). | | |
|
Francis V. Knox, Jr., Born: 1947 | | 2006 |
|
Chief Compliance Officer | | |
Vice President and Chief Compliance Officer, John Hancock Investment | | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | | |
Vice President and Chief Compliance Officer, John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and | | |
Ethics & Compliance Officer, Fidelity Investments (until 2001). | | |
47
Principal officers who are not Trustees (continued) | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Gordon M. Shone, Born: 1956 | | 2006 |
|
Treasurer | | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | | |
(1998–2000). | | |
|
John G. Vrysen, Born: 1955 | | 2006 |
|
Chief Financial Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | | |
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley | | |
Group and John Hancock Funds, LLC (since 2005); Executive Vice President and | | |
Chief Financial Officer, John Hancock Investment Management Services, LLC | | |
(since 2005); Vice President and Chief Financial Officer, MFC Global (U.S.) | | |
(since 2005); Director, John Hancock Signature Services, Inc. (since 2005); | | |
Chief Financial Officer, John Hancock Funds II, John Hancock Funds III and John | | |
Hancock Trust (since 2005); Vice President and General Manager, Fixed Annuities, | | |
U.S. Wealth Management (until 2005); Vice President, Operations, Manulife | | |
Wood Logan (2000–2004). | | |
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.
1Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2Member of Audit Committee.
3Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
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 | Custodian | Legal counsel |
John Hancock Investment | State Street Bank & Trust Co. | Kirkpatrick & Lockhart |
Management Services, LLC | 2 Avenue de Lafayette | Preston Gates Ellis LLP |
601 Congress Street | Boston, MA 02111 | 1 Lincoln Street |
Boston, MA 02210-2805 | | Boston, MA 02110-2950 |
| Transfer agent | |
Subadviser | John Hancock Signature | Independent registered |
Grantham, Mayo, | Services, Inc. | public accounting firm |
Van Otterloo & Co. LLC | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
40 Rowes Wharf | Suite 1000 | 125 High Street |
Boston, MA 02110 | Boston, MA 02217-1000 | Boston, MA 02110 |
| | |
Principal distributor | | |
John Hancock Funds, LLC | | |
601 Congress Street | | |
Boston, MA 02210-2805 | | |
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 | 380 Stuart Street |
| | Boston, MA 02116 |
|
|
Phone | Customer service representatives | 1-800-225-5291 |
| EASI-Line | 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.
52
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Fund |
Focused Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Mid Cap Growth Fund | TAX-FREE INCOME |
Multi Cap Growth Fund | California Tax-Free Income Fund |
Small Cap Equity Fund | High Yield Municipal Bond Fund |
Small Cap Fund | Massachusetts Tax-Free Income Fund |
Small Cap Intrinsic Value Fund | New York Tax-Free Income Fund |
Sovereign Investors Fund | Tax-Free Bond Fund |
U.S. Core Fund | |
U.S. Global Leaders Growth Fund | MONEY MARKET |
Value Opportunities Fund | Money Market Fund |
| U.S. Government Cash Reserve |
ASSET ALLOCATION | |
Allocation Core Portfolio | CLOSED END |
Allocation Growth + Value Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2010 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2015 Portfolio | Income Securities Trust |
Lifecycle 2020 Portfolio | Investors Trust |
Lifecycle 2025 Portfolio | Patriot Global Dividend Fund |
Lifecycle 2030 Portfolio | Patriot Preferred Dividend Fund |
Lifecycle 2035 Portfolio | Patriot Premium Dividend Fund I |
Lifecycle 2040 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2045 Portfolio | Patriot Select Dividend Trust |
Lifecycle Retirement Portfolio | Preferred Income Fund |
Lifestyle Aggressive Portfolio | Preferred Income II Fund |
Lifestyle Balanced Portfolio | Preferred Income III Fund |
Lifestyle Conservative Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
|
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund | |
For more complete information on any John Hancock Fund and an Open-End fund prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291 for Open-End fund information and 1-800-852-0218 for Closed-End fund information. Please read the Open-End fund prospectus carefully before investing or sending money.
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 International Core Fund.
6600A 2/07
4/07
CEO corner
TABLE OF CONTENTS |
|
|
Your fund at a glance |
page 1 |
|
|
Managers’ report |
page 2 |
|
|
A look at performance |
page 6 |
|
|
Your expenses |
page 8 |
|
|
Fund’s investments |
page 10 |
|
|
Financial statements |
page 22 |
|
|
Notes to financial |
statements |
page 31 |
|
|
Trustees and officers |
page 41 |
|
|
For more information |
page 48 |
|
To Our Shareholders,
The U.S. financial markets turned in strong results over the last 12 months, as earlier concerns of rising inflation, a housing slowdown and high energy prices gave way to news of slower, but still resilient, economic growth, stronger than expected corporate earnings and dampened inflation fears and energy costs. This environment also led the Federal Reserve Board to hold short-term interest rates steady. Even with a sharp decline in the last days of the period, the broad stock market returned 11.97% for the year ended February 28, 2007, as measured by the S&P 500 Index. With interest rates remaining relatively steady, fixed-income securities also produced positive results.
But after a remarkably long period of calm, the financial markets were rocked at the end of the period by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. In the United States, for example, the Dow Jones Industrial Average had its steepest one-day percentage decline in nearly four years on February 27, 2007. The event served to jog investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
It was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the market’s moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes well for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more-than-four-year-old bull market. The recent downturn bolsters this uncertainty, although we believe it was a healthy correction for which we were overdue.
The recent volatility could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon — not a sprint — approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of February 28, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks long-term capital growth by, under normal circumstances, investing at least 80% of its assets in small- and mid-cap companies whose stocks are included in the Russell 2500 Index, and in companies with total market capitalizations similar to those of companies in the Index.
Over the last twelve months
► The Fund posted solid gains, but trailed the Russell 2500 Growth Index against a backdrop of rising share prices and investors’ preference for cheap stocks.
► The Fund’s performance was particularly limited by unfavorable positioning in the technology sector.
► Market volatility was evident at the beginning of the period, diminished to near-record-low levels during the rally and returned as the period came to a close.
Top 10 holdings | | | | |
| | | | |
American Eagle Outfitters, Inc. | 1.6% | | CarMax, Inc. | 1.1% |
| | |
Terex Corp. | 1.5% | | Alliance Data Systems Corp. | 1.0% |
| | |
Akamai Technologies, Inc. | 1.4% | | CDW Corp. | 0.9% |
| | |
The First Marblehead Corp. | 1.3% | | Family Dollar Stores, Inc. | 0.9% |
| | |
Energizer Holdings, Inc. | 1.1% | | BMC Software, Inc. | 0.8% |
| | |
As a percentage of net assets on February 28, 2007.
1
Managers’ report
John Hancock
Growth Opportunities Fund
U.S. growth stocks recorded modest gains during the one-year review period ending February 28, 2007, although not without some sharp pullbacks along the way. Early in the period, the market edged higher, as solid economic growth and favorable corporate earnings news were countered by surging energy prices and rising short-term interest rates.
Following the Federal Reserve Board’s May 10, 2006, rate hike, the market sold off sharply, reflecting investors’ concerns about inflationary pressures and the possibility of an extended Fed credit tightening cycle. The market correction lasted approximately two months and in mid-July share prices embarked on an extended rally that lasted until late February. Factors helping to drive stocks higher included falling energy prices and the Fed’s decision in August to put its credit-tightening campaign on hold.
The rally was characterized by extremely low share price volatility and investors’ preference for stocks with low price-to-book value (P/B) or price-to-earnings (P/E) ratios, as evidenced by the dramatic outperformance of the Russell 2500 Value Index over the Fund’s benchmark, the Russell 2500 Growth Index. Corporate profits continued to grow at a healthy pace and, while short-term interest rates were higher than they had been prior to the Fed’s tightening moves, access to capital remained relatively unhindered. However, on the second-to-last trading day of the period, the market experienced a sizable setback, with
SCORECARD INVESTMENT | | PERIOD’S PERFORMANCE... AND WHAT’S BEHIND THE NUMBERS |
William Lyon | ▲ | Taken private on attractive terms |
Homes | | |
Terex | ▲ | Positive earnings surprise |
Citrix Systems | ▼ | Deceleration in core business; weaker licensing revenues |
2
From the Grantham, Mayo, Van Otterloo & Co. LLC (GMO) Portfolio Management Team
the Dow Jones Industrial Average and the Russell 2500 Growth Index each falling more than 3%. It was the Dow’s worst one-day percentage loss since 2003, leaving many investors wondering if the long run of benign market conditions had come to an end.
“U.S. growth stocks recorded |
modest gains during the one- |
year review period ending |
February 28, 2007, although not |
without some sharp pullbacks |
along the way.” |
Looking at performance
For the 12 months ending February 28, 2007, John Hancock Growth Opportunities Fund’s Class A shares returned 5.57% at net asset value. By comparison, the Russell 2500 Growth Index returned 7.95% for the year, while the average mid-cap growth fund monitored by Morningstar, Inc. gained 5.99% .a The Fund’s Class B, Class C, Class I, Class R1 and Class 1 shares, which began trading on June 12, 2006, returned 10.40%, 10.40%, 11.22%, 10.58% and 11.26%, respectively, at net asset value, through the end of February 2007. Keep in mind that your returns will differ from those listed above if you were not invested in the Fund for the entire period for your respective share class or did not reinvest all distributions.
The market environment proved challenging to both of our primary stock selection tools — momentum and valuation. Our momentum criteria, which guide the majority of the Fund’s assets, are designed to identify stocks that have performed well recently and appear poised to continue outperforming. That said, although the broader earnings environment was favorable and the market rose for most of the period, our momentum strategy rotated out of low P/B and low P/E stocks after they plummeted during the market’s early summer correction. Consequently, the strategy underperformed when the market shifted back toward these stocks as the market recovered.
Growth Opportunities Fund
3
Valuation, which determines the positioning for less than half of this Fund’s assets, accounted for some of the performance shortfall. During the period, investors wanted stocks that were cheap on a P/B or P/E basis, whereas our valuation discipline seeks out stocks selling at a significant discount from their intrinsic value. The difference is that our methodology encompasses various yardsticks of quality, such as stability of earnings, leverage and long-term profitability. Over the longer term, the market has rewarded an emphasis on quality stocks acquired at a discount, but over shorter periods of time investors sometimes spurn quality in favor of low prices, concept stocks or other fads.
Technology, construction and retail limit gains
The sector detracting most from performance during the period was technology, with stock selection accounting for most of that shortfall. Technology stocks that dampened the Fund’s gains included Internet software provider Citrix Systems, Inc. The stock was attractive on a valuation and momentum basis but lost ground in October after its third-quarter earnings report revealed lower-than-expected licensing revenue and weakness in the company’s core presentation server business. Other technology holdings that hampered performance were OmniVision Technologies, Inc., a maker of semiconductor image sensor devices, and Red Hat, which markets the Linux personal computer operating system. We sold Red Hat during the period. In our overweighted position in the retail sector, construction supplies seller Fastenal Company detracted from relative returns. We were similarly disappointed by Omnicare Inc., a geriatric pharmaceutical services company, and we sold it.
Oil and gas, machinery add value
On the positive side, the Fund’s performance benefited from its positioning in the oil and gas sector, where an underweighting and favorable stock selection added value. Our picks in the machinery sector were beneficial as well. Among individual holdings, homebuilder William Lyon Homes was the Fund’s top contributor. Over the summer, the stock was taken private at an attractive premium. Construction machinery manufacturer Terex Corp. also added value, aided in part by stronger-than-expected fourth-quarter profits and an upward revision in its earnings guidance for all of 2007. Other contributors included
SECTOR DISTRIBUTIONb | |
Consumer, cyclical | 29% |
Industrial | 19% |
Consumer, non-cyclical | 16% |
Financial | 8% |
Technology | 7% |
Communications | 6% |
Basic materials | 5% |
Energy | 1% |
Growth Opportunities Fund
4
casual apparel marketer Guess?, Inc., beverage merchant Hansen Natural Corp., which we sold during the period, and Internet services provider Akamai Technologies, Inc.
“The sector detracting most from |
performance during the period |
was technology, with stock |
selection accounting for most of |
that shortfall.” |
Outlook
The plunge in share prices near the end of the period raises the possibility that the era of low volatility might be coming to an end. Likewise, the mean-reverting nature of corporate profitability and access to capital indicate that challenges in those areas could lie in the market’s future. Against this backdrop, we believe the Fund’s emphasis on buying quality stocks below their intrinsic value — together with its focus on momentum opportunities — positions it well to face the remainder of 2007 and beyond.
This commentary reflects the views of the portfolio management team through the end of the Fund’s period discussed in this report. The team’s statements reflect its 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.
a Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
b As a percentage of net assets on February 28, 2007.
Growth Opportunities Fund
5
A look at performance
For the period ended February 28, 2007
| | Average annual returns | | | Cumulative total returns | | |
| | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| Inception | | | | Since | | | | Since |
Class | date | 1-year | 5-year | 10-year | inception | 1-year | 5-year | 10-year | inception |
|
Aa,b | 9-16-05 | 0.27% | — | — | 6.53% | 0.27% | — | — | 9.61% |
|
B | 6-12-06 | — | — | — | — | — | — | — | 5.40 |
|
C | 6-12-06 | — | — | — | — | — | — | — | 9.40 |
|
Ic | 6-12-06 | — | — | — | — | — | — | — | 11.22 |
|
R1c | 6-12-06 | — | — | — | — | — | — | — | 10.58 |
|
1c | 6-12-06 | — | — | — | — | — | — | — | 11.26 |
|
Performance figures assume all distributions are reinvested. POP (Public Offering Price) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I, Class R1 and Class 1 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.
Performance is calculated with an opening price (prior day’s close) on the inception date.
a Effective June 12, 2006, shareholders of the former GMO Small/Mid Cap Growth Fund (the “Predecessor Fund”) became owners of that number of full and fractional shares of John Hancock Growth Opportunities Fund. Additionally, the accounting and performance history of the former GMO Small/Mid Cap Growth Fund was redesignated as that of Class A of John Hancock Growth Opportunities Fund.
b Performance linked to the Predecessor Fund.
c For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
Growth Opportunities Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Growth Opportunities Fund Class A sharesa for the period indicated. For comparison, we’ve shown the same investment in the Russell 2500 Growth Index.
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 6-12-06 | $11,040 | $10,540 | $11,334 |
|
C | 6-12-06 | 11,040 | 10,940 | 11,334 |
|
Ic | 6-12-06 | 11,122 | 11,122 | 11,334 |
|
R1c | 6-12-06 | 11,058 | 11,058 | 11,334 |
|
1c | 6-12-06 | 11,126 | 11,126 | 11,334 |
|
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, Class R1 and Class 1 shares, respectively, as of February 28, 2007. 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.
Russell 2500 Growth Index is an unmanaged index containing those securities in the Russell 2500 Index with a greater-than-average growth orientation.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
a Performance linked to the Predecessor Fund.
b NAV represents net asset value and POP represents public offering price.
c For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
Growth Opportunities Fund
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 September 1, 2006, with the same investment held until February 28, 2007.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,130.93 | $8.08 |
|
Class B | 1,000.00 | 1,127.41 | 11.76 |
|
Class C | 1,000.00 | 1,127.93 | 11.77 |
|
Class I | 1,000.00 | 1,133.12 | 5.98 |
|
Class R1 | 1,000.00 | 1,129.20 | 9.98 |
|
Class 1 | 1,000.00 | 1,133.58 | 5.77 |
|
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 February 28, 2007 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:
Growth Opportunities Fund
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’ actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on September 1, 2006, with the same investment held until February 28, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,017.21 | $7.65 |
|
Class B | 1,000.00 | 1,013.74 | 11.13 |
|
Class C | 1,000.00 | 1,013.74 | 11.13 |
|
Class I | 1,000.00 | 1,019.19 | 5.66 |
|
Class R1 | 1,000.00 | 1,015.42 | 9.44 |
|
Class 1 | 1,000.00 | 1,019.39 | 5.46 |
|
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.
a Expenses are equal to the Fund’s annualized expense ratio of 1.53%, 2.23%, 2.23%, 1.13%, 1.89% and 1.09% for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively, multiplied by the average account value over the period, multiplied by the number of days in the period/365 or 366 (to reflect the one-half year period).
Growth Opportunities Fund
9
F I N A N C I A L S T A T E M E N T S
Fund’s investments
Securities owned by the Fund on 2-28-07
This schedule is divided into two main categories: common stocks and repurchase agreements. Common stocks are further broken down by industry group. Repurchase agreements, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
|
Common stocks 91.16% | | $6,225,424 |
(Cost $5,845,013) | | |
Advertising 0.20% | | 13,849 |
|
Interpublic Group of Companies, Inc. * | 1,100 | 13,849 |
Aerospace 0.35% | | 24,181 |
|
Alliant Techsystems, Inc. * | 100 | 8,655 |
|
Orbital Sciences Corp., Class A * | 400 | 7,916 |
|
Teledyne Technologies, Inc. * | 200 | 7,610 |
Agriculture 0.06% | | 4,208 |
|
Andersons, Inc. | 100 | 4,208 |
Air Freight 0.11% | | 7,230 |
|
ExpressJet Holdings, Inc. * | 1,000 | 7,230 |
Air Travel 0.80% | | 54,917 |
|
Continental Airlines, Inc., Class B * | 900 | 35,640 |
|
Pinnacle Airline Corp. * | 200 | 3,590 |
|
US Airways Group, Inc. * | 300 | 15,687 |
Aluminum 0.09% | | 6,362 |
|
Superior Essex, Inc. * | 200 | 6,362 |
Apparel & Textiles 3.39% | | 231,582 |
|
Bebe Stores, Inc. | 900 | 16,542 |
|
Columbia Sportswear Company | 300 | 19,071 |
|
Crocs, Inc. * | 200 | 9,744 |
|
Deckers Outdoor Corp. * | 200 | 13,040 |
|
Guess?, Inc. | 300 | 24,444 |
|
K-Swiss, Inc., Class A | 300 | 8,457 |
|
Liz Claiborne, Inc. | 400 | 18,000 |
|
Oakley, Inc. | 200 | 4,196 |
|
Oxford Industries, Inc. | 100 | 4,939 |
|
Perry Ellis International, Inc. * | 100 | 3,055 |
|
Phillips-Van Heusen Corp. | 400 | 21,936 |
|
Polo Ralph Lauren Corp., Class A | 400 | 34,792 |
|
Skechers United States of America, Inc., Class A * | 200 | 6,984 |
|
The Gymboree Corp. * | 600 | 22,614 |
See notes to financial statements
Growth Opportunities Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Apparel & Textiles (continued) | | |
|
Timberland Company, Class A * | 400 | $10,848 |
|
Under Armour, Inc., Class A * | 100 | 4,595 |
|
Wolverine World Wide, Inc. | 300 | 8,325 |
Auto Parts 0.65% | | 44,621 |
|
Keystone Automotive Industries, Inc. * | 100 | 3,305 |
|
O’Reilly Automotive, Inc. * | 1,200 | 41,316 |
Auto Services 0.32% | | 22,062 |
|
AutoNation, Inc. * | 200 | 4,392 |
|
Copart, Inc. * | 600 | 17,670 |
Automobiles 0.27% | | 18,508 |
|
Group 1 Automotive, Inc. | 400 | 18,508 |
Banking 0.80% | | 54,843 |
|
BankUnited Financial Corp., Class A | 100 | 2,442 |
|
Downey Financial Corp. | 100 | 6,554 |
|
FirstFed Financial Corp. * | 100 | 5,720 |
|
Flagstar Bancorp, Inc. | 100 | 1,384 |
|
Hancock Holding Company | 200 | 8,914 |
|
People’s Bank Corp. | 200 | 8,878 |
|
Sterling Bancshares, Inc. | 300 | 3,468 |
|
TCF Financial Corp. | 500 | 13,220 |
|
Wilmington Trust Corp. | 100 | 4,263 |
Biotechnology 0.43% | | 29,636 |
|
Cephalon, Inc. * | 100 | 7,108 |
|
Techne Corp. * | 400 | 22,528 |
Broadcasting 0.06% | | 4,287 |
|
Sinclair Broadcast Group, Inc., Class A | 300 | 4,287 |
Building Materials & Construction 0.34% | | 23,180 |
|
EMCOR Group, Inc. * | 200 | 12,012 |
|
NCI Building Systems, Inc. * | 200 | 11,168 |
Business Services 5.03% | | 343,796 |
|
Acxiom Corp. | 200 | 4,272 |
|
Alliance Data Systems Corp. * | 1,100 | 65,725 |
|
Brinks Company | 100 | 5,923 |
|
Corporate Executive Board Company | 100 | 7,781 |
|
CSG Systems International, Inc. * | 100 | 2,466 |
|
Diamond Management & Technology Consultants, Inc. | 200 | 3,018 |
|
Ezcorp, Inc., Class A * | 1,100 | 16,335 |
|
FactSet Research Systems, Inc. | 900 | 54,774 |
|
Geo Group, Inc. * | 300 | 14,037 |
|
Global Payments, Inc. | 400 | 15,388 |
|
Jacobs Engineering Group, Inc. * | 200 | 18,068 |
|
Manpower, Inc. | 400 | 29,720 |
|
MPS Group, Inc. * | 900 | 12,888 |
See notes to financial statements
Growth Opportunities Fund
11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Business Services (continued) | | |
|
Pre-Paid Legal Services, Inc. * | 300 | $12,414 |
|
Robert Half International, Inc. | 400 | 15,628 |
|
Scansource, Inc. * | 300 | 8,298 |
|
Sonicwall, Inc. * | 800 | 6,976 |
|
Spherion Corp. * | 400 | 3,548 |
|
Teletech Holdings, Inc. * | 400 | 12,592 |
|
Total Systems Services, Inc. | 100 | 3,122 |
|
Tyler Technologies, Inc. * | 200 | 2,726 |
|
Volt Information Sciences, Inc. * | 400 | 13,676 |
|
Watson Wyatt Worldwide, Inc., Class A | 300 | 14,421 |
Cellular Communications 0.51% | | 34,795 |
|
Brightpoint, Inc. * | 1,960 | 23,657 |
|
Telephone & Data Systems, Inc. | 200 | 11,138 |
Chemicals 1.89% | | 129,296 |
|
Airgas, Inc. | 200 | 8,254 |
|
Albemarle Corp. | 400 | 32,740 |
|
Eastman Chemical Company | 100 | 5,912 |
|
Hercules, Inc. * | 900 | 18,144 |
|
Newmarket Corp. | 400 | 17,556 |
|
OM Group, Inc. * | 400 | 20,268 |
|
PolyOne Corp. * | 1,000 | 6,710 |
|
W. R. Grace & Company * | 800 | 19,712 |
Colleges & Universities 1.09% | | 74,274 |
|
Career Education Corp. * | 700 | 20,706 |
|
Corinthian Colleges, Inc. * | 400 | 5,580 |
|
ITT Educational Services, Inc. * | 600 | 47,988 |
Commercial Services 0.19% | | 12,620 |
|
PeopleSupport, Inc. * | 200 | 4,232 |
|
Pool Corp. | 100 | 3,510 |
|
Vertrue, Inc. * | 100 | 4,878 |
Computers & Business Equipment 2.40% | | 164,135 |
|
Benchmark Electronics, Inc. * | 300 | 6,444 |
|
Brocade Communications Systems, Inc. * | 3,300 | 29,733 |
|
CDW Corp. | 1,000 | 62,080 |
|
Ingram Micro, Inc., Class A * | 1,000 | 19,430 |
|
National Instruments Corp. | 100 | 2,683 |
|
Parametric Technology Corp. * | 200 | 3,814 |
|
Plexus Corp. * | 500 | 8,200 |
|
Sykes Enterprises, Inc. * | 200 | 3,208 |
|
Tech Data Corp. * | 200 | 7,456 |
|
Western Digital Corp. * | 1,100 | 21,087 |
See notes to financial statements
Growth Opportunities Fund
12
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Construction Materials 0.67% | | $45,388 |
|
Columbus McKinnon Corp. * | 200 | 4,640 |
|
Comfort Systems USA, Inc. | 200 | 2,722 |
|
Florida Rock Industries, Inc. | 300 | 20,214 |
|
Regal-Beloit Corp. | 100 | 4,524 |
|
Simpson Manufacturing Company, Inc. | 400 | 13,288 |
Containers & Glass 1.16% | | 79,348 |
|
Packaging Corp. of America | 400 | 9,800 |
|
Pactiv Corp. * | 1,700 | 54,740 |
|
Sonoco Products Company | 400 | 14,808 |
Correctional Facilities 0.38% | | 26,180 |
|
Corrections Corp. of America * | 500 | 26,180 |
Cosmetics & Toiletries 0.68% | | 46,624 |
|
Alberto-Culver Company | 400 | 8,860 |
|
Estee Lauder Companies, Inc., Class A | 300 | 14,364 |
|
International Flavors & Fragrances, Inc. | 500 | 23,400 |
Crude Petroleum & Natural Gas 0.12% | | 8,359 |
|
Vaalco Energy, Inc. * | 1,300 | 8,359 |
Domestic Oil 0.68% | | 46,111 |
|
Frontier Oil Corp. | 500 | 14,775 |
|
Holly Corp. | 500 | 27,735 |
|
St. Mary Land & Exploration Company | 100 | 3,601 |
Drugs & Health Care 0.87% | | 59,406 |
|
Abaxis, Inc. * | 200 | 4,562 |
|
Candela Corp. * | 500 | 5,695 |
|
Immucor, Inc. * | 500 | 14,870 |
|
Mannatech, Inc. | 200 | 2,968 |
|
Molina Healthcare, Inc. * | 300 | 9,348 |
|
Parexel International Corp. * | 300 | 10,203 |
|
Savient Pharmaceuticals, Inc. * | 200 | 2,708 |
|
West Pharmaceutical Services, Inc. | 200 | 9,052 |
Educational Services 0.04% | | 2,700 |
|
Renaissance Learning, Inc. | 200 | 2,700 |
Electrical Equipment 2.55% | | 173,973 |
|
Anixter International, Inc. * | 300 | 18,600 |
|
Baldor Electric Company | 200 | 7,280 |
|
Encore Wire Corp. * | 800 | 20,768 |
|
FLIR Systems, Inc. * | 300 | 10,428 |
|
Genlyte Group, Inc. * | 200 | 13,878 |
|
Lamson & Sessions Company * | 400 | 12,052 |
|
Littelfuse, Inc. * | 200 | 7,366 |
|
Molex, Inc. | 900 | 26,397 |
|
Tektronix, Inc. | 600 | 17,166 |
|
Wesco International, Inc. * | 600 | 40,038 |
See notes to financial statements
Growth Opportunities Fund
13
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Electrical Utilities 0.11% | | $7,722 |
|
OGE Energy Corp. | 200 | 7,722 |
Electronics 2.25% | | 153,482 |
|
AVX Corp. | 700 | 10,696 |
|
Belden CDT, Inc. | 200 | 9,274 |
|
Daktronics, Inc. | 600 | 16,002 |
|
Mentor Graphics Corp. * | 900 | 15,201 |
|
Multi-Fineline Electronix, Inc. * | 300 | 5,523 |
|
Rogers Corp. * | 300 | 14,523 |
|
Supertex, Inc. * | 300 | 12,315 |
|
Technitrol, Inc. | 400 | 8,796 |
|
Thomas & Betts Corp. * | 400 | 20,328 |
|
Trimble Navigation, Ltd. * | 1,200 | 31,752 |
|
TTM Technologies, Inc. * | 800 | 9,072 |
Energy 0.07% | | 4,848 |
|
Energen Corp. | 100 | 4,848 |
Financial Services 5.77% | | 393,938 |
|
A.G. Edwards, Inc. | 300 | 19,263 |
|
American Capital Strategies, Ltd. | 300 | 13,344 |
|
AmeriCredit Corp. * | 200 | 4,884 |
|
Blackrock, Inc., Class A | 100 | 15,904 |
|
Capitalsource, Inc. | 300 | 7,737 |
|
Federated Investors, Inc., Class B | 100 | 3,577 |
|
IntercontinentalExchange, Inc. * | 300 | 45,255 |
|
International Securities Exchange Holdings, Inc. | 200 | 9,250 |
|
Investors Financial Services Corp. | 700 | 40,978 |
|
Jefferies Group, Inc. | 500 | 13,525 |
|
Knight Capital Group, Inc. * | 800 | 12,648 |
|
Leucadia National Corp. | 100 | 2,831 |
|
MoneyGram International, Inc. | 1,000 | 30,060 |
|
Ocwen Financial Corp. * | 200 | 2,326 |
|
Piper Jaffray Companies, Inc. * | 100 | 6,511 |
|
Raymond James Financial, Inc. | 650 | 19,565 |
|
SEI Investments Company | 800 | 48,360 |
|
SWS Group, Inc. | 150 | 3,954 |
|
The First Marblehead Corp. | 1,900 | 85,766 |
|
World Acceptance Corp. * | 200 | 8,200 |
Food & Beverages 1.08% | | 73,831 |
|
Corn Products International, Inc. | 700 | 22,379 |
|
McCormick & Company, Inc. | 700 | 26,803 |
|
MGP Ingredients, Inc. | 200 | 3,968 |
|
Ralcorp Holdings, Inc. * | 200 | 11,604 |
|
Sanderson Farms, Inc. | 100 | 3,235 |
|
Smithfield Foods, Inc. * | 200 | 5,842 |
See notes to financial statements
Growth Opportunities Fund
14
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Furniture & Fixtures 0.54% | | $36,984 |
|
American Woodmark Corp. | 200 | 7,948 |
|
Ethan Allen Interiors, Inc. | 400 | 14,744 |
|
Leggett & Platt, Inc. | 600 | 14,292 |
Gas & Pipeline Utilities 0.12% | | 8,332 |
|
ONEOK, Inc. | 200 | 8,332 |
Healthcare Products 2.40% | | 163,772 |
|
Cytyc Corp. * | 400 | 12,120 |
|
DENTSPLY International, Inc. | 700 | 22,078 |
|
Edwards Lifesciences Corp. * | 200 | 10,094 |
|
Henry Schein, Inc. * | 200 | 10,434 |
|
Hillenbrand Industries, Inc. | 200 | 11,960 |
|
ICU Medical, Inc. * | 100 | 3,906 |
|
IDEXX Laboratories, Inc. * | 400 | 34,472 |
|
Kinetic Concepts, Inc. * | 100 | 4,915 |
|
Owens & Minor, Inc. | 300 | 9,891 |
|
Patterson Companies, Inc. * | 700 | 23,366 |
|
PSS World Medical, Inc. * | 200 | 4,148 |
|
Respironics, Inc. * | 400 | 16,388 |
Healthcare Services 1.94% | | 132,535 |
|
AMERIGROUP Corp. * | 800 | 26,464 |
|
Apria Healthcare Group, Inc. * | 600 | 19,110 |
|
CorVel Corp. * | 50 | 1,506 |
|
Covance, Inc. * | 300 | 18,498 |
|
Emdeon Corp. * | 300 | 4,482 |
|
Genesis HealthCare Corp. * | 100 | 6,305 |
|
Lincare Holdings, Inc. * | 600 | 23,430 |
|
Magellan Health Services, Inc. * | 200 | 8,362 |
|
Odyssey Healthcare, Inc. * | 600 | 8,148 |
|
Pediatrix Medical Group, Inc. * | 300 | 16,230 |
Holdings Companies/Conglomerates 0.24% | | 16,185 |
|
United Industrial Corp. | 300 | 16,185 |
Homebuilders 0.88% | | 59,930 |
|
Beazer Homes USA, Inc. | 200 | 7,892 |
|
Hovnanian Enterprises, Inc., Class A * | 200 | 6,220 |
|
KB Home | 200 | 9,920 |
|
M.D.C. Holdings, Inc. | 300 | 15,318 |
|
M/I Homes, Inc. | 100 | 3,143 |
|
Ryland Group, Inc. | 300 | 14,451 |
|
Toll Brothers, Inc. * | 100 | 2,986 |
Hotels & Restaurants 2.53% | | 172,596 |
|
Applebee’s International, Inc. | 500 | 12,780 |
|
Brinker International, Inc. | 700 | 23,807 |
|
Buffalo Wild Wings, Inc. * | 200 | 11,000 |
See notes to financial statements
Growth Opportunities Fund
15
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Hotels & Restaurants (continued) | | |
|
CBRL Group, Inc. | 100 | $4,666 |
|
CEC Entertainment, Inc. * | 200 | 8,528 |
|
Chipotle Mexican Grill, Inc., Class A * | 100 | 5,999 |
|
Choice Hotels International, Inc. | 600 | 22,494 |
|
CKE Restaurants, Inc. | 600 | 11,592 |
|
Jack in the Box, Inc. * | 400 | 27,336 |
|
Krispy Kreme Doughnuts, Inc. * | 300 | 3,051 |
|
OSI Restaurant Partners, Inc. | 100 | 4,000 |
|
Papa Johns International, Inc. * | 600 | 17,718 |
|
Ruby Tuesday, Inc. | 300 | 8,790 |
|
Sonic Corp. * | 500 | 10,835 |
Household Products 2.11% | | 144,355 |
|
Church & Dwight, Inc. | 200 | 9,590 |
|
Energizer Holdings, Inc. * | 900 | 77,328 |
|
Select Comfort Corp. * | 900 | 16,677 |
|
Smith & Wesson Holding Corp. * | 500 | 6,210 |
|
Tempur-Pedic International, Inc. | 1,200 | 29,868 |
|
Tupperware Brands Corp. | 200 | 4,682 |
Industrial Machinery 4.25% | | 290,155 |
|
AGCO Corp. * | 700 | 25,375 |
|
Cummins, Inc. | 100 | 13,468 |
|
FMC Technologies, Inc. * | 600 | 39,468 |
|
Gardner Denver, Inc. * | 300 | 10,161 |
|
Graco, Inc. | 500 | 20,255 |
|
Lincoln Electric Holdings, Inc. | 300 | 18,720 |
|
Middleby Corp. * | 100 | 11,028 |
|
Rofin Sinar Technologies, Inc. * | 200 | 12,028 |
|
Terex Corp. * | 1,500 | 98,760 |
|
The Manitowoc Company, Inc. | 600 | 35,220 |
|
Valmont Industries, Inc. | 100 | 5,672 |
Industrials 1.05% | | 71,475 |
|
Crane Company | 500 | 19,045 |
|
Fastenal Co. | 1,000 | 35,270 |
|
Harsco Corp. | 200 | 17,160 |
Insurance 1.74% | | 118,804 |
|
Brown & Brown, Inc. | 1,600 | 45,040 |
|
Erie Indemnity Company., Class A | 200 | 10,782 |
|
Meadowbrook Insurance Group, Inc. * | 300 | 3,159 |
|
Philadelphia Consolidated Holding Corp. * | 200 | 9,182 |
|
PMI Group, Inc. | 200 | 9,374 |
|
Radian Group, Inc. | 100 | 5,745 |
|
Reinsurance Group of America, Inc. | 200 | 11,416 |
|
Triad Guaranty, Inc. * | 100 | 4,546 |
|
W.R. Berkley Corp. | 600 | 19,560 |
See notes to financial statements
Growth Opportunities Fund
16
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Internet Content 0.30% | | $20,166 |
|
Travelzoo, Inc. * | 600 | 20,166 |
Internet Retail 0.61% | | 41,566 |
|
PetMed Express, Inc. * | 800 | 10,120 |
|
Priceline.com, Inc. * | 600 | 31,446 |
Internet Software 2.91% | | 198,686 |
|
Akamai Technologies, Inc. * | 1,800 | 92,826 |
|
Checkfree Corp. * | 400 | 15,168 |
|
Digital River, Inc. * | 400 | 22,156 |
|
McAfee, Inc. * | 800 | 24,096 |
|
RealNetworks, Inc. * | 700 | 5,712 |
|
TIBCO Software, Inc. * | 1,400 | 12,670 |
|
WebEx Communications, Inc. * | 600 | 26,058 |
Leisure Time 0.30% | | 20,336 |
|
Brunswick Corp. | 200 | 6,530 |
|
Movie Gallery, Inc. * | 100 | 485 |
|
Polaris Industries, Inc. | 200 | 9,578 |
|
WMS Industries, Inc. * | 100 | 3,743 |
Life Sciences 0.69% | | 47,136 |
|
Pharmaceutical Product Development, Inc. | 800 | 25,432 |
|
Waters Corp. * | 400 | 21,704 |
Liquor 0.10% | | 6,550 |
|
Brown Forman Corp., Class B | 100 | 6,550 |
Manufacturing 1.59% | | 108,689 |
|
Acuity Brands, Inc. | 300 | 16,620 |
|
Carlisle Companies, Inc. | 200 | 17,428 |
|
Ceradyne, Inc. * | 200 | 10,320 |
|
General Cable Corp. * | 500 | 24,975 |
|
Insteel Industries, Inc. | 400 | 7,364 |
|
Kaydon Corp. | 400 | 17,348 |
|
Nordson Corp. | 300 | 14,634 |
Medical—Hospitals 1.19% | | 81,421 |
|
Lifepoint Hospitals, Inc. * | 200 | 7,320 |
|
Manor Care, Inc. | 800 | 42,864 |
|
Medcath Corp. * | 100 | 2,902 |
|
RehabCare Group, Inc. * | 100 | 1,520 |
|
Universal Health Services, Inc., Class B | 400 | 23,144 |
|
VCA Antech, Inc. * | 100 | 3,671 |
Metal & Metal Products 1.58% | | 108,183 |
|
A. M. Castle & Company | 100 | 2,880 |
|
Brush Engineered Materials, Inc. * | 100 | 4,482 |
|
Commercial Metals Company | 900 | 24,786 |
|
Ladish Company, Inc. * | 400 | 16,720 |
|
Matthews International Corp., Class A | 100 | 4,001 |
See notes to financial statements
Growth Opportunities Fund
17
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Metal & Metal Products (continued) | | |
|
Mueller Industries, Inc. | 400 | $11,920 |
|
Reliance Steel & Aluminum Company | 700 | 31,962 |
|
Timken Company | 400 | 11,432 |
Mining 0.14% | | 9,200 |
|
AMCOL International Corp. | 100 | 2,835 |
|
Stillwater Mining Company * | 500 | 6,365 |
Mobile Homes 0.94% | | 64,148 |
|
Thor Industries, Inc. | 1,300 | 54,392 |
|
Winnebago Industries, Inc. | 300 | 9,756 |
Newspapers 0.04% | | 2,840 |
|
Journal Register Company | 400 | 2,840 |
Office Furnishings & Supplies 0.70% | | 47,991 |
|
Herman Miller, Inc. | 300 | 11,541 |
|
HNI Corp. | 100 | 5,000 |
|
OfficeMax, Inc. | 500 | 25,950 |
|
United Stationers, Inc. * | 100 | 5,500 |
Petroleum Services 0.52% | | 35,712 |
|
Oceaneering International, Inc. * | 300 | 11,832 |
|
RPC, Inc. | 400 | 5,980 |
|
Universal Compression Holdings, Inc. * | 200 | 13,390 |
|
World Fuel Services Corp. | 100 | 4,510 |
Pharmaceuticals 0.66% | | 44,795 |
|
Auxilium Pharmaceuticals, Inc. * | 200 | 2,486 |
|
Endo Pharmaceutical Holdings, Inc. * | 300 | 9,363 |
|
Enzon Pharmaceuticals, Inc. * | 400 | 3,312 |
|
Hi-Tech Pharmacal Company, Inc. * | 300 | 3,303 |
|
King Pharmaceuticals, Inc. * | 500 | 9,325 |
|
Medicis Pharmaceutical Corp., Class A | 400 | 14,544 |
|
Noven Pharmaceuticals, Inc. * | 100 | 2,462 |
Publishing 0.23% | | 15,446 |
|
Consolidated Graphics, Inc. * | 100 | 7,126 |
|
Valassis Communications, Inc. * | 500 | 8,320 |
Real Estate 0.94% | | 63,943 |
|
Apartment Investment & Management Company, Class A, REIT | 100 | 5,886 |
|
Home Properties, Inc., REIT | 200 | 11,716 |
|
Jones Lang LaSalle, Inc., REIT | 300 | 31,755 |
|
SL Green Realty Corp., REIT | 100 | 14,586 |
Retail Trade 12.91% | | 881,628 |
|
Abercrombie & Fitch Company, Class A | 100 | 7,817 |
|
Aeropostale, Inc. * | 900 | 32,976 |
|
American Eagle Outfitters, Inc. | 3,500 | 108,675 |
|
AnnTaylor Stores Corp. * | 900 | 31,941 |
|
Big Lots, Inc. * | 800 | 20,024 |
See notes to financial statements
Growth Opportunities Fund
18
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Retail Trade (continued) | | |
|
BJ’s Wholesale Club, Inc. * | 300 | $9,684 |
|
CarMax, Inc. * | 1,400 | 73,780 |
|
Cash America International, Inc. | 300 | 12,183 |
|
Casual Male Retail Group, Inc. * | 200 | 2,500 |
|
Charlotte Russe Holding, Inc. * | 500 | 14,595 |
|
Children’s Place Retail Stores, Inc. * | 300 | 16,338 |
|
Christopher & Banks Corp. | 800 | 14,856 |
|
Circuit City Stores, Inc. | 700 | 13,321 |
|
Claire’s Stores, Inc. | 700 | 22,498 |
|
Conn’s, Inc. * | 200 | 5,062 |
|
Dick’s Sporting Goods, Inc. * | 300 | 15,702 |
|
Dillard’s, Inc., Class A | 500 | 16,700 |
|
Dollar General Corp. | 400 | 6,752 |
|
Dollar Tree Stores, Inc. * | 1,500 | 51,165 |
|
Family Dollar Stores, Inc. | 2,000 | 57,940 |
|
First Cash Financial Services, Inc. * | 500 | 11,240 |
|
Foot Locker, Inc. | 700 | 15,904 |
|
Fossil, Inc. * | 600 | 16,152 |
|
Kenneth Cole Productions, Inc., Class A | 100 | 2,555 |
|
MSC Industrial Direct Company, Inc., Class A | 200 | 8,628 |
|
NBTY, Inc. * | 800 | 38,944 |
|
Pacific Sunwear of California, Inc. * | 500 | 9,000 |
|
Pantry, Inc. * | 200 | 9,430 |
|
Payless ShoeSource, Inc. * | 500 | 15,450 |
|
PETsMART, Inc. | 900 | 27,279 |
|
RadioShack Corp. | 400 | 9,988 |
|
Regis Corp. | 200 | 8,416 |
|
Rent-A-Center, Inc. * | 1,100 | 31,152 |
|
Ross Stores, Inc. | 400 | 13,108 |
|
Steven Madden, Ltd. * | 600 | 17,736 |
|
Talbots, Inc. | 200 | 5,048 |
|
The Buckle, Inc. | 50 | 1,724 |
|
The Dress Barn, Inc. * | 800 | 16,816 |
|
The Men’s Wearhouse, Inc. | 600 | 26,568 |
|
Tween Brands, Inc. * | 700 | 25,095 |
|
United Rentals, Inc. * | 700 | 20,006 |
|
Williams-Sonoma, Inc. | 500 | 16,880 |
Sanitary Services 0.11% | | 7,692 |
|
Allied Waste Industries, Inc. * | 600 | 7,692 |
Semiconductors 1.32% | | 89,871 |
|
Amkor Technology, Inc. * | 600 | 6,918 |
|
Atmel Corp. * | 1,800 | 9,972 |
|
Novellus Systems, Inc. * | 700 | 22,540 |
|
OmniVision Technologies, Inc. * | 1,700 | 22,032 |
See notes to financial statements
Growth Opportunities Fund
19
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Semiconductors (continued) | | |
|
QLogic Corp. * | 800 | $14,072 |
|
Varian Semiconductor Equipment Associates, Inc. * | 300 | 14,337 |
Software 2.15% | | 146,451 |
|
BEA Systems, Inc. * | 300 | 3,579 |
|
BMC Software, Inc. * | 1,800 | 55,548 |
|
Citrix Systems, Inc. * | 1,200 | 38,640 |
|
Keane, Inc. * | 300 | 4,116 |
|
Macrovision Corp. * | 800 | 19,736 |
|
Manhattan Associates, Inc. * | 100 | 2,782 |
|
MicroStrategy, Inc., Class A * | 100 | 12,607 |
|
Smith Micro Software, Inc. * | 700 | 9,443 |
Steel 2.05% | | 140,023 |
|
AK Steel Holding Corp. * | 2,000 | 46,260 |
|
Carpenter Technology Corp. | 300 | 35,565 |
|
Chaparral Steel Company | 200 | 9,966 |
|
Olympic Steel, Inc. | 100 | 2,944 |
|
Steel Dynamics, Inc. | 1,200 | 45,288 |
Telecommunications Equipment & Services 1.63% | | 110,983 |
|
ADTRAN, Inc. | 300 | 6,909 |
|
Commscope, Inc. * | 800 | 30,776 |
|
InterDigital Communication Corp. * | 200 | 6,944 |
|
Level 3 Communications, Inc. * | 2,800 | 18,396 |
|
Oplink Communications, Inc. * | 200 | 3,298 |
|
Polycom, Inc. * | 1,400 | 44,660 |
Tires & Rubber 0.32% | | 22,158 |
|
Goodyear Tire & Rubber Company * | 900 | 22,158 |
Toys, Amusements & Sporting Goods 0.62% | | 42,035 |
|
Hasbro, Inc. | 700 | 19,803 |
|
Marvel Entertainment, Inc. * | 800 | 22,232 |
Transportation 0.77% | | 52,690 |
|
American Commercial Lines, Inc. * | 400 | 14,452 |
|
Kirby Corp. * | 400 | 14,616 |
|
Overseas Shipholding Group, Inc. | 300 | 18,174 |
|
Saia, Inc. * | 200 | 5,448 |
Trucking & Freight 2.63% | | 179,670 |
|
Arkansas Best Corp. | 400 | 15,788 |
|
Celadon Group, Inc. * | 400 | 7,164 |
|
EGL, Inc. * | 600 | 21,126 |
|
Forward Air Corp. | 400 | 13,048 |
|
Hub Group, Inc., Class A * | 200 | 6,334 |
|
J.B. Hunt Transport Services, Inc. | 800 | 21,248 |
|
Landstar Systems, Inc. | 300 | 13,407 |
|
Navistar International Corp. * | 400 | 16,220 |
See notes to financial statements
Growth Opportunities Fund
20
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Trucking & Freight (continued) | | |
|
Old Dominion Freight Lines, Inc. * | 500 | $15,555 |
|
Oshkosh Truck Corp. | 200 | 10,730 |
|
Ryder Systems, Inc. | 400 | 20,576 |
|
Swift Transportation, Inc. * | 600 | 18,474 |
|
|
| Principal | |
Issuer, description, maturity date | amount | Value |
|
Repurchase agreements 7.10% | | $485,000 |
(Cost $485,000) | | |
|
Repurchase Agreement with State Street Corp. | | |
dated 2/28/2007 at 4.60% to be repurchased | | |
at $485,062 on 3/1/2007, collateralized by | | |
$460,000 Federal Home Loan Bank, 5.75% | | |
due 6/12/2026 (Valued at $499,675, | | |
including interest) (c) | $485,000 | 485,000 |
|
Total investments (Cost $6,330,013) 98.26% | | $6,710,424 |
|
|
Other assets in excess of liabilities 1.74% | | 118,707 |
|
|
Total net assets 100.00% | | $6,829,131 |
REIT Real Estate Investment Trust.
* Non-income producing.
(c) Investment is an affiliate of the Trust’s subadvisor or custodian bank.
See notes to financial statements
Growth Opportunities Fund
21
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 2-28-07
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 $5,845,013) | $6,225,424 |
Repurchase agreement, at value (Cost $485,000) | 485,000 |
Cash | 478 |
Cash segregated for futures contracts | 25,000 |
Receivable for fund shares sold | 162,858 |
Dividends and interest receivable | 1,670 |
Receivable for futures variation margin | 3,000 |
Receivable due from adviser | 29,312 |
Other assets | 882 |
Total assets | 6,933,624 |
|
|
Liabilities | |
|
Payable for fund shares repurchased | 170 |
Payable to affiliates | |
Fund administration fees | 666 |
Transfer agent fees | 2,014 |
Service fees | 284 |
Accrued expenses | 101,359 |
Total liabilities | 104,493 |
|
|
Net assets | |
|
Capital paid-in | 6,375,375 |
Accumulated undistributed net realized gain on investments and futures contracts | 83,801 |
Unrealized appreciation on investments and futures contracts | 369,955 |
Net assets | $6,829,131 |
|
|
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 ($5,197,356 ÷ 213,571 shares) | $24.34 |
Class B ($402,232 ÷ 16,601 shares)a | $24.23 |
Class C ($652,625 ÷ 26,933 shares)a | $24.23 |
Class I ($202,539 ÷ 8,298 shares) | $24.41 |
Class R1 ($112,132 ÷ 4,620 shares) | $24.27b |
Class 1 ($262,247 ÷ 10,739 shares) | $24.42 |
|
|
Maximum public offering price per share | |
|
Class Ac ($24.34 ÷ 95%) | $25.62 |
a Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
b Net assets and shares outstanding have been rounded for presentation purposes. The net asset value is as reported on February 28, 2007.
c On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements
Growth Opportunities Fund
22
F I N A N C I A L S T A T E M E N T S
Statement of operations For the year ended 2-28-07
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 | |
|
Dividends (including special dividends of $5,000) | $23,790 |
Interest | 10,292 |
Total investment income | 34,082 |
|
Expenses | |
|
Investment management fees (Note 3) | 24,905 |
Distribution and service fees (Note 3) | 12,058 |
Transfer agent fees (Note 3) | 4,189 |
Fund administration fees (Note 3) | 942 |
Blue sky fees (Note 3) | 70,630 |
Audit and legal fees | 70,214 |
Custodian fees | 51,833 |
Registration and filing fees | 3,581 |
Printing and postage fees (Note 3) | 2,726 |
Trustees’ fees (Note 3) | 28 |
Miscellaneous | 1,268 |
Total expenses | 242,374 |
Less expense reductions (Note 3) | (193,273) |
Net expenses | 49,101 |
Net investment loss | (15,019) |
|
Realized and unrealized gain | |
|
Net realized gain on | |
Investments | 124,786 |
Futures contracts | 20,805 |
Change in net unrealized appreciation (depreciation) of | |
Investments | 233,911 |
Futures contracts | (10,456) |
Net realized and unrealized gain | 369,046 |
Increase in net assets from operations | $354,027 |
See notes to financial statements
Growth Opportunities Fund
23
F I N A N C I A L S T A T E M E N T S
Statement of 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 |
| 2-28-06a | 2-28-07 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income (loss) | $3,332 | ($15,019) |
Net realized gain | 11,839 | 145,591 |
Change in net unrealized appreciation (depreciation) | 146,500 | 223,455 |
Increase in net assets resulting from operations | 161,671 | 354,027 |
Distributions to shareholders | | |
From net realized gain | | |
Class A | — | (38,393) |
Class B | — | (2,305) |
Class C | — | (5,246) |
Class R1 | — | (1,078) |
Class I | — | (1,806) |
Class 1 | — | (1,082) |
Total distributions | — | (49,910) |
From Fund share transactions | 1,736,387 | 4,626,956 |
|
Net assets | | |
|
Beginning of period | — | 1,898,058 |
End of periodb | $1,898,058 | $6,829,131 |
a Period from 9-16-05 (commencement of operations) to 2-28-06.
b Includes undistributed net investment income of $3,332 and $0, respectively.
See notes to financial statements
Growth Opportunities Fund
24
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.
CLASS A SHARES | | |
|
Period ended | 2-28-06b | 2-28-07c |
|
Per share operating performance | | |
|
Net asset value, beginning of period | 21.31 | $23.29 |
Net investment income (loss)h | 0.04 | (0.07)t |
Net realized and unrealized | | |
gain on investments | 1.94 | 1.36 |
Total from investment operations | 1.98 | 1.29 |
Less distributions | | |
From net realized gain | — | (0.24) |
Net asset value, end of period | $23.29 | $24.34 |
Total return (%) | 9.29l,m | 5.57k,l,s |
|
Ratios and supplemental data | | |
|
Net assets, end of period | | |
(in millions) | $2 | $5 |
Ratio of net expenses to average | | |
net assets (%) | 0.48r | 1.32 |
Ratio of gross expenses to average | | |
net assets (%)p | 5.45r | 5.59 |
Ratio of net investment income | | |
(loss) to average net assets (%) | 0.41r | (0.34)t |
Portfolio turnover (%) | 43m | 96 |
See notes to financial statements
Growth Opportunities Fund
25
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $22.17 |
Net investment lossh | (0.20)t |
Net realized and unrealized | |
gain on investments | 2.50 |
Total from investment operations | 2.30 |
Less distributions | |
From net realized gain | (0.24) |
Net asset value, end of period | $24.23 |
Total return (%) | 10.40k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | ��i |
Ratio of net expenses to average | |
net assets (%) | 2.22r |
Ratio of gross expenses to average | |
net assets (%) | 14.62p,r |
Ratio of net investment loss | |
to average net assets (%) | (1.21)r,t |
Portfolio turnover (%) | 96m |
See notes to financial statements
Growth Opportunities Fund
26
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $22.17 |
Net investment lossh | (0.19)t |
Net realized and unrealized | |
gain on investments | 2.49 |
Total from investment operations | 2.30 |
Less distributions | |
From net realized gain | (0.24) |
Net asset value, end of period | $24.23 |
Total return (%) | 10.40k,l,m |
|
Ratios and sup plemental data | |
|
Net assets, end of period | |
(in millions) | $1 |
Ratio of net expenses to average | |
net assets (%) | 2.22r |
Ratio of gross expenses to average | |
net assets (%) | 10.43p,r |
Ratio of net investment loss | |
to average net assets (%) | (1.15)r,t |
Portfolio turnover (%) | 96m |
See notes to financial statements
Growth Opportunities Fund
27
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $22.17 |
Net investment lossh | (0.02)t |
Net realized and unrealized | |
gain on investments | 2.50 |
Total from investment operations | 2.48 |
Less distributions | |
From net realized gain | (0.24) |
Net asset value, end of period | $24.41 |
Total return (%) | 11.22k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 1.13r |
Ratio of gross expenses to average | |
net assets (%) | 16.26p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.10)r,t |
Portfolio turnover (%) | 96m |
See notes to financial statements
Growth Opportunities Fund
28
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS R1 SHARES | |
|
Period ended | 2-28-07a,d |
|
Per share operating performance | |
|
Net asset value, beginning of period | $22.17 |
Net investment lossh | (0.14)t |
Net realized and unrealized | |
gain on investments | 2.48 |
Total from investment operations | 2.34 |
Less distributions | |
From net realized gain | (0.24) |
Net asset value, end of period | $24.27 |
Total return (%) | 10.58k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 1.88r |
Ratio of gross expenses to average | |
net assets (%) | 24.20p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.86)r,t |
Portfolio turnover (%) | 96m |
See notes to financial statements
Growth Opportunities Fund
29
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS 1 SHARES | |
|
Period ended | 2-28-07a |
|
|
Per share operating performance | |
|
Net asset value, beginning of period | $22.17 |
Net investment lossh | (0.02)t |
Net realized and unrealized | |
gain on investments | 2.51 |
Total from investment operations | 2.49 |
Less distributions | |
From net realized gain | (0.24) |
Net asset value, end of period | $24.42 |
Total return (%) | 11.26k,l,m |
|
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 1.09r |
Ratio of gross expenses to average | |
net assets (%) | 3.81p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.10)r,t |
Portfolio turnover (%) | 96m |
a Class B, Class C, Class I, Class R1 and Class 1 shares began operations on 6-12-06.
b Class A shares began operations on 9-16-05.
c Effective June 12, 2006, shareholders of the former GMO Small/Mid Cap Growth Fund (the “Predecessor Fund”) became owners of an equal number of full and fractional Class A shares of the John Hancock Growth Opportunities Fund. Additionally, the accounting and performance history of the former GMO Small/Mid Cap Growth Fund was redesignated as that of John Hancock Growth Opportunities Fund Class A.
d Effective November 6, 2006, the Board of Trustees elected to change the name of Class R to Class R1.
h Based on the average of the shares outstanding.
i Less than $500,000.
k Assumes dividend reinvestment.
l Total returns would have been lower had certain expenses not been reduced during the period shown.
m Not annualized.
p Does not take into consideration expense reductions during the periods shown.
r Annualized.
s Class A returns linked back to the Predecessor Fund.
t Net investment loss per share and ratio of net investment loss to average net assets reflects a special dividend received by the Fund which amounted to the following amounts:
| | Percentage |
| | of average |
| Per share | net assets |
|
Class A | $0.03 | 0.14% |
|
Class B | 0.02 | 0.11 |
|
Class C | 0.03 | 0.11 |
|
Class I | 0.03 | 0.11 |
|
Class R1 | 0.02 | 0.11 |
|
Class 1 | 0.02 | 0.10 |
|
See notes to financial statements
Growth Opportunities Fund
30
Notes to financial statements
1. Organization
John Hancock Growth Opportunities Fund (the “Fund”) is a newly organized non-diversified series of John Hancock Funds III (the “Trust”). The Trust was established as a Massachusetts business trust on June 9, 2005. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end investment management company. The investment objective of the Fund is to seek long-term capital growth.
John Hancock Life Insurance Company of New York (“John Hancock New York”) is a wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.) (“John Hancock USA”). John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of The Manufacturers Life Insurance Company (“Manulife”), which in turn is a wholly owned subsidiary of Manulife Financial Corporation (“MFC”), a publicly traded company. MFC and its subsidiaries are known collectively as “Manulife Financial.”
John Hancock Investment Management Services, LLC (the “Adviser”), a Delaware limited liability company controlled by John Hancock USA, serves as investment adviser for the Trust and John Hancock Funds, LLC (the “Distributor”), a Delaware limited liability company, an affiliate of the Adviser, serves as principal underwriter.
The Board of Trustees has authorized the issuance of multiple classes of shares of the Fund, including classes designated as Class A, Class B, Class C, Class I, Class R1, Class 1, Class 3 and Class NAV 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 Board of 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 bear distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Effective November 6, 2006, the Board of Trustees elected to change the name of Class R to Class R1.
Class 1 shares are sold only to certain exempt separate accounts of John Hancock USA and John Hancock New York. Class NAV shares are sold to affilliated funds of funds which are funds of funds within the John Hancock funds complex.
The Fund is the accounting and performance successor to the GMO Small/Mid Cap Growth Fund (the “Predecessor Fund”), a diversified open-end management investment company organized as a Massachusetts business trust. On June 12, 2006, the Fund acquired substantially all the assets and assumed the liabilities of the Predecessor Fund pursuant to an agreement and plan of reorganization, in exchange for Class A shares of the Fund.
2. Significant accounting policies
In the preparation of the financial statements, the Fund follows the policies described below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Security valuation
The net asset value of the shares of the Fund is determined daily as of the close of the New York Stock Exchange, normally at 4:00 p.m., Eastern Time. Short-term debt instruments with remaining maturities of 60 days or less
Growth Opportunities Fund
31
are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on a principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Fund securities for which there are no such quotations, principally debt securities, are valued based on the valuation provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques.
Other assets and securities for which no such quotations are readily available are valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the New York Stock Exchange. The values of such securities used in computing the net asset value of a Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the New York Stock Exchange. Upon such an occurrence, these securities will then be valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
In deciding whether to make a fair value adjustment to the price of a security, the Board of Trustees or their designee may review a variety of factors, including, developments in foreign markets, the performance of U. S. securities markets and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations, for example, when a particular foreign market is closed, but the Fund is calculating the net asset value. In view of these factors, it is likely that a fund investing significant amounts of assets in securities in foreign markets will be fair valued more frequently than a fund investing significant amounts of assets in frequently traded, U.S. exchange listed securities of large capitalization U.S. issuers.
For purposes of determining when fair value adjustments may be appropriate with respect to the Fund investing in securities in foreign markets that close prior to the New York Stock Exchange, the Fund will, on an ongoing basis, monitor for “significant market events.” A significant market event may be a certain percentage change in the value of an index or of certain Exchange Traded Funds (“ETFs”) that track foreign markets in which the Fund has significant investments. If a significant market event occurs due to a change in the value of the index or of ETFs, the pricing for the Fund will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Trust’s Pricing Committee, where applicable.
Fair value pricing of securities is intended to help ensure that the net asset value of the Fund’s shares reflects the value of the Fund’s securities as of the close of the New York Stock Exchange (as opposed to a value which is no longer accurate as of such close), thus limiting the opportunity for aggressive traders to purchase shares of the Fund at deflated prices, reflecting stale security valuations, and to promptly sell such shares at a gain. However, a security’s valuation may differ depending on the method used for determining value and no assurance can be given that fair value pricing of securities will successfully eliminate all potential opportunities for such trading gains.
Repurchase agreements
The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement through its custodian, it receives delivery of securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market
Growth Opportunities Fund
32
value is generally at least 102% of the repurchase amount. The Fund will take constructive receipt of all securities underlying the repurchase agreements it has entered into until such agreements expire. If the seller defaults, the Fund would suffer a loss to the extent that proceeds from the sale of underlying securities were less than the repurchase amount. The Fund may enter into repurchase agreements maturing within seven days with domestic dealers, banks or other financial institutions deemed to be creditworthy by the Adviser. Collateral for certain tri-party repurchase agreements is held at the custodian bank in a segregated account for the benefit of the Fund and the counterparty.
Security transactions and related investment income
Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Foreign dividends are recorded on the ex-date or as soon after the ex-date that the Fund becomes aware of such dividends, net of all taxes. Discounts/premiums are accreted/amortized for financial reporting purposes. Non-cash dividends are recorded at the fair market value of the securities received. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful, based upon consistently applied procedures.
From time to time, the Fund may invest in Real Estate Investment Trusts (“REITs”) and as a result, will estimate the components of distributions from these securities. Distributions from REITs received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain.
The Fund uses the First In, First Out method for fixed income securities and Highest Cost, First Out for all other securities for determining realized gain or loss on investments for both financial and federal income tax reporting purposes.
Multi-class operations
All income, expenses (except for class-specific expenses) and realized and unrealized gains (losses) are allocated to each class of shares based upon the relative net assets of each class. Dividends to shareholders from net investment income are determined at a class level and distributions from capital gains are determined at a Fund level.
Expense allocation
Expenses are allocated based on the relative share of net assets of the Fund at the time the expense was incurred. Class-specific expenses, such as distribution (Rule 12b-1) fees, are accrued daily and charged directly to the respective share classes.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poor’s 500 Index (the “S&P 500 Index”), in order to hedge against a decline in the value of securities owned by the Fund.
Upon entering into futures contracts, the Fund is required to deposit with a broker an amount, termed the initial margin, which typically represents a certain percentage of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates, making the long or short positions in the contract more or less valuable. If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker, and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase
Growth Opportunities Fund
33
is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
The following is a summary of open futures contracts on February 28, 2007: | |
| NUMBER OF | | | UNREALIZED |
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | DEPRECIATION |
|
Russell 2000 Mini Index | 4 | Long | Mar 2007 | ($10,456) |
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. Therefore, no federal income tax provision is required.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than August 31, 2007.
In September 2006, FASB Standard No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Distribution of income and gains
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 February 28, 2007, the tax character of distributions paid was as follows: ordinary income $37,434 and long-term capital gains $12,476. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions 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 Fund’s financial statements as a return of capital. As of February 28, 2007, the components of distributable earnings on a tax basis included $43,306 of undis tributed ordinary income and $47,405 of undistributed long-term gain.
Capital accounts
The Fund reports the undistributed net investment income and accumulated undistributed net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carryforward is available). Accordingly, the Fund may periodically make reclassifications among certain capital accounts without affecting its net asset value.
Growth Opportunities Fund
34
3. Investment advisory and other agreements
Advisory fees
The Trust has entered into an Investment Advisory Agreement with the Adviser. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvisers to handle the investment of the assets of the Fund, subject to the supervision of the Trust’s Board of Trustees. Under the Advisory Agreement, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.80% of the first $500,000,000 of the Fund’s aggregate daily net assets; (b) 0.78% of the next $500,000,000 of the Fund’s aggregate daily net assets; (c) 0.77% of the next $1,500,000,000 of the Fund’s aggregate daily net assets; and (d) 0.76% of the Fund’s aggregate daily net assets in excess of $2,500,000,000. Aggregate net assets include the net assets of the Fund and Growth Opportunities Trust, a series of John Hancock Trust. John Hancock Trust is an open-end investment company advised by t he Adviser and distributed by John Hancock Distributors, LLC. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
Prior to June 12, 2006, the Predecessor Fund paid a monthly management fee to its investment advisor, Grantham, Mayo, Van Otterloo & Co., LLC, at an annual rate of 0.33% of the Predecessor Fund’s average daily net assets.
Expense reimbursements
The Adviser has agreed contractually to reimburse for certain fund level expenses that exceed 0.24% of the average annual net assets, or to make a payment to a specific class of shares of the Fund in an amount equal to the amount by which the expenses attributable to such class of shares (excluding taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business and fees under any agreement or plans of the Fund dealing with services for shareholders and others with beneficial interests in shares of the Fund) exceed the percentage of average annual net assets (on an annualized basis) attributable as follows: 1.54% for Class A, 2.24% for Class B, 2.24% for Class C, 1.14% for Class I, 1.64% for Class R1 and 1.09% for Class 1. Accordingly, the expense reductions related to this expense limitation amounted to $118,010, $ 18,420, $20,639, $17,026, $16,699 and $2,479 for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively, for the year ended February 28, 2007. This expense reimbursement shall continue in effect until June 30, 2007 and thereafter until terminated by the Adviser on notice to the Trust.
Administration fees
The Fund has an agreement with the Adviser that requires the Fund to reimburse the Adviser for all expenses associated with providing the administrative, financial, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, annual, semi-annual and periodic reports to shareholders and the preparation of all regulatory reports. These expenses are allocated based on the relative shares of net assets of each fund at the time the expense was incurred.
Distribution plan
The Trust has a Distribution Agreement with the Distributor. The Fund has adopted Distribution Plans with respect to Class A, Class B, Class C, Class R1 and Class 1, pursuant to Rule 12b-1 under the 1940 Act, to reimburse the Distributor for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00%, 1.00%, 0.50% and 0.05% of average daily net asset value of Class A, Class B, Class C, Class R1 and Class 1, respectively. 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 R1 shares, the Fund pays up to 0.25% of Class R1 average daily net asset value for certain other services.
Growth Opportunities Fund
35
Prior to June 12, 2006, Funds Distributor, Inc. served as the Predecessors Fund’s principal underwriter and was compensated at an annual rate of 0.15% of the Predecessor Fund’s average daily net asset value.
Sales charges
Class A shares are assessed up-front sales charges of up to 5.00% of net asset value of such shares. During the year ended February 28, 2007, the Fund was informed that the Distributor received net up-front sales charges of $31,272 with regard to sales of Class A shares. Of this amount, $5,245 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $26,025 was paid as sales commissions to unrelated broker-dealers and $2 was paid as sales commissions to sales personnel of Signator Investors, Inc. (“Signator Investors”), a related broker-dealer and indirect subsidiary of MFC.
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 the Distributor 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 February 28, 2007, the Fund was informed that the Distributor received no CDSCs for Class B and Class C shares.
Transfer agent fees
The Fund has a Transfer Agency Agreement with John Hancock Signature Services, Inc. (“Signature Services”), an indirect subsidiary of MFC. For Class A, Class B, Class C, Class I and Class R1 shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’ average daily net assets, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Expenses not directly attributable to a particular class of shares are aggregated and allocated to each class on the basis of its relative net asset value.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.20% annually of Class A, Class B, Class C, Class I and Class R1 share average daily net assets. This agreement is effective until December 31, 2007. Signature Services reserves the right to terminate this limitation in the future. Accordingly, there were no transfer agent fee reductions for Class A, Class B, Class C, Class I and Class R1 shares, respectively, during the year ended February 28, 2007.
Prior to June 12, 2006, Investors Bank and Trust Company served as the Predecessor Fund’s transfer agent and fund accountant.
Expenses under the agreements described above for the period ended February 28, 2007, were as follows:
| Distribution and | Transfer | | Printing and |
Share Class | service fees | agent | Blue sky | postage |
|
|
Class A | $7,473 | $3,298 | $14,279 | $1,500 |
Class B | 1,479 | 296 | 14,087 | 270 |
Class C | 2,504 | 501 | 14,089 | 161 |
Class I | — | 56 | 14,088 | 114 |
Class R1 | 557 | 38 | 14,087 | 680 |
Class 1 | 45 | — | — | 1 |
Total | $12,058 | $4,189 | $70,630 | $2,726 |
Growth Opportunities Fund
36
Trustees’ fees
The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. Total Trustees’ expenses are allocated to the Fund based on its average daily net asset value.
4. Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
5. Line of credit
The Fund has entered into an agreement which enables it to participate in a $100 million unsecured committed line of credit with State Street Corporation. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to the Fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50% . In addition, a commitment fee of 0.07% per annum, payable at the end of each calendar quarter, based on the average daily-unused portion of the line of credit, is charged to the Fund on a prorated basis based on average net assets. For the year ended February 28, 2007, there were no borrowings under the line of credit.
6. Capital shares
Share activities for the Fund for the period ended February 28, 2006, and the year ended February 28, 2007, were as follows:
| | Year ended 2-28-06a | Year ended 2-28-07 |
| Shares | Amount | Shares | Amount |
|
Class A shares | | | | |
Sold | 81,480 | $1,736,387 | 134,743 | $3,150,486 |
Distributions reinvested | — | — | 1,586 | 37,457 |
Repurchased | — | — | (4,238) | (100,934) |
Net increase | 81,480 | $1,736,387 | 132,091 | $3,087,009 |
|
|
Class B shares | | | | |
Sold | — | — | 16,576 | $380,025 |
Distributions reinvested | — | — | 89 | 2,095 |
Repurchased | — | — | (64) | (1,503) |
Net increase | — | — | 16,601 | $380,617b |
|
|
Class C shares | | | | |
Sold | — | — | 26,822 | $617,497 |
Distributions reinvested | — | — | 112 | 2,625 |
Repurchased | — | — | (1) | (14) |
Net increase | — | — | 26,933 | $620,108b |
|
|
Class R1 shares | | | | |
Sold | — | — | 4,574 | $101,500 |
Distributions reinvested | — | — | 46 | 1,078 |
Net increase | — | — | 4,620 | $102,578b |
Growth Opportunities Fund
37
| | Year ended 2-28-06a | Year ended 2-28-07 |
| Shares | Amount | Shares | Amount |
|
Class I shares | | | | |
Sold | — | — | 8,222 | $183,402 |
Distributions reinvested | — | — | 76 | 1,806 |
Net increase | — | — | 8,298 | $185,208b |
|
|
Class 1 shares | | | | |
Sold | — | — | 10,706 | $250,671 |
Distributions reinvested | — | — | 46 | 1,082 |
Repurchased | — | — | (13) | (317) |
Net increase | — | — | 10,739 | $251,436 b |
|
|
Net increase | 81,480 | $1,736,387 | 199,282 | $4,626,956 |
|
a Period from 9-16-05 (commencement of operations) to 2-28-06. | | |
bPeriod from 6-12-06 (commencement of operations) to 2-28-07. | | |
7. 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 February 28, 2007, aggregated $7,191,377 and $3,199,270, respectively.
The cost of investments owned on February 28, 2007, including short-term investments, for federal income tax purposes, was $6,347,379. Gross unrealized appreciation and depreciation of investments aggregated $523,307 and $160,262, respectively, resulting in net unrealized appreciation of $363,045.
8. Federal income tax information
Federal income tax regulations may differ from generally accepted accounting principles and income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
9. Reclassification of accounts
During the year ended February 28, 2007, the Fund reclassified amounts to reflect a decrease in accumulated net realized gain on investments of $23,719, a decrease in accumulated net investment loss of $11,687 and an increase in capital paid-in of $12,032. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2007. 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 non-deductible 12b-1 fees. The calculation of net investment loss per share in the Fund’s Financial Highlights excludes these adjustment s.
10. Reorganization
On June 12, 2006, the Fund acquired substantially all of the assets and liabilities of the Predecessor Fund in exchange solely for Class A shares of the Fund. The acquisition was accounted for as a tax-free exchange of 81,480 Class A shares of the Fund for the net assets of the Predecessor Fund, which amounted to $1,806,642, including $14,098 of unrealized depreciation, after the close of business on June 9, 2006. Accounting and performance history of the Predecessor Fund was redesignated as that of Class A of the Fund.
Growth Opportunities Fund
38
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Funds III and Shareholders of John Hancock Growth Opportunities 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 Growth Opportunities Fund (the “Fund”) at February 28, 2007, the results of its operations, the changes in its net assets and the financial highlights for each of 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 investments at February 28, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2007
39
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 February 28, 2007.
The Fund has designated distributions to shareholders of $12,476 as a long-term capital gain dividend.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended February 28, 2007, 13.57% of the dividends qualifies 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 2003.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
40
Trustees and 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, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
Ronald R. Dion , Born: 1946 | 2006 | 66 |
Independent Chairman (since 2005); 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. | | |
|
|
James F. Carlin , Born: 1940 | 2006 | 66 |
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | | |
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | | |
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | | |
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | | |
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | | |
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | | |
|
|
Richard P. Chapman, Jr.,2 Born: 1935 | 2006 | 66 |
President and Chief Executive Officer, Brookline Bancorp, Inc. (lending) (since | | |
1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); | | |
Chairman and Director, Northeast Retirement Services, Inc. (retirement | | |
administration) (since 1998); Vice Chairman, Northeastern University Board | | |
of Trustees (since 2004). | | |
|
|
William H. Cunningham , Born: 1944 | 2006 | 66 |
Former Chancellor, University of Texas System and former President of the | | |
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, | | |
IBT Technologies (until 2001); Director of the following: Hire.com (until 2004), | | |
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. | | |
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until | | |
2004), Pinnacle Foods Corporation (until 2003), rateGenius (until 2003), Lincoln | |
National Corporation (insurance) (since 2006), Jefferson-Pilot Corporation | | |
(diversified life insurance company) (until 2006), New Century Equity Holdings | | |
(formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com | | |
(until 2001), Agile Ventures (until 2001), AskRed.com (until 2001), Southwest | | |
Airlines (since 2000), Introgen (since 2000) and Viasystems Group, Inc. (electronic | |
manufacturer) (until 2003); Advisory Director, Interactive Bridge, Inc. (college | | |
fundraising) (until 2001); Advisory Director, Q Investments (until 2003); | | |
41
Independent Trustees (continued) | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
William H. Cunningham , Born: 1944 (continued) | 2006 | 66 |
Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce Bank – | | |
Austin), LIN Television (since 2002), WilTel Communications (until 2003) and | | |
Hayes Lemmerz International, Inc. (diversified automotive parts supply company) | |
(since 2003). | | |
|
|
Charles L. Ladner,2 Born: 1938 | 2006 | 66 |
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, AmeriGas, Inc. | | |
(retired 1998); Director, AmeriGas Partners, L.P. (gas distribution) (until 1997); | | |
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | |
(until 2005). | | |
|
|
John A. Moore,2 Born: 1939 | 2006 | 66 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, | | |
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | | |
(health research) (until 2003); Former Assistant Administrator and Deputy | | |
Administrator, Environmental Protection Agency; Principal, Hollyhouse | | |
(consulting) (since 2000); Director, CIIT Center for Health Science Research | | |
(nonprofit research) (2002–2006). | | |
|
|
Patti McGill Peterson,2 Born: 1943 | 2006 | 66 |
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 | 2006 | 66 |
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). | | |
42
Non-Independent Trustee3 | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
James R. Boyle, Born: 1959 | 2006 | 272 |
President, John Hancock Insurance Group; Executive Vice President, John | | |
Hancock Life Insurance Company (since June 2004); Chairman and Director, | | |
John Hancock Advisers, LLC (the “Adviser”), John Hancock Funds, LLC and | | |
The Berkeley Financial Group, LLC (“The Berkeley Group”) (holding company) | | |
(since 2005); Senior Vice President, The Manufacturers Life Insurance Company | |
(U.S.A.) (until 2004). | | |
|
Principal officers who are not Trustees | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Keith F. Hartstein, Born: 1956 | | 2006 |
President and Chief Executive Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, John | | |
Hancock Funds, LLC (since 2005); Director, MFC Global Investment Management | |
(U.S.), LLC (“MFC Global (U.S.)”) (since 2005); Director, John Hancock Signature | |
Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock | |
Investment Management Services, LLC (since 2006); President and Chief Executive | |
Officer, John Hancock Funds II, John Hancock Funds III and John Hancock Trust; | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | | |
Chairman, Investment Company Institute Sales Force Marketing Committee | | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | | |
|
|
Thomas M. Kinzler, Born: 1955 | | 2006 |
Secretary and Chief Legal Officer | | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2006); | |
Vice President and Associate General Counsel, Massachusetts Mutual Life | | |
Insurance Company (1999–2006); Secretary and Chief Legal Counsel, MML | | |
Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, | | |
MassMutual Institutional Funds (2000–2004); Secretary and Chief Legal Counsel, | |
MassMutual Select Funds and MassMutual Premier Funds (2004–2006). | | |
|
|
Francis V. Knox, Jr., Born: 1947 | | 2006 |
Chief Compliance Officer | | |
Vice President and Chief Compliance Officer, John Hancock Investment | | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | | |
Vice President and Chief Compliance Officer, John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and | | |
Ethics & Compliance Officer, Fidelity Investments (until 2001). | | |
43
Principal officers who are not Trustees (continued) | |
|
Name, Year of Birth | |
Position(s) held with Fund | Officer |
Principal occupation(s) and | of Fund |
directorships during past 5 years | since |
|
Gordon M. Shone, Born: 1956 | 2006 |
Treasurer | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | |
(1998–2000). | |
|
|
John G. Vrysen, Born: 1955 | 2006 |
Chief Financial Officer | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | |
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley | |
Group and John Hancock Funds, LLC (since 2005); Executive Vice President and | |
Chief Financial Officer, John Hancock Investment Management Services, LLC | |
(since 2005); Vice President and Chief Financial Officer, MFC Global (U.S.) | |
(since 2005); Director, John Hancock Signature Services, Inc. (since 2005); | |
Chief Financial Officer, John Hancock Funds II, John Hancock Funds III and John | |
Hancock Trust (since 2005); Vice President and General Manager, Fixed Annuities, | |
U.S. Wealth Management (until 2005); Vice President, Operations, Manulife | |
Wood Logan (2000–2004). | |
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.
1Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2Member of Audit Committee.
3Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
44
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 | Custodian | Legal counsel |
John Hancock Investment | State Street Bank & Trust Co. | Kirkpatrick & Lockhart |
Management Services, LLC | 2 Avenue de Lafayette | Preston Gates Ellis LLP |
601 Congress Street | Boston, MA 02111 | 1 Lincoln Street |
Boston, MA 02210-2805 | | Boston, MA 02110-2950 |
| Transfer agent | |
Subadviser | John Hancock Signature | Independent registered |
Grantham, Mayo, | Services, Inc. | public accounting firm |
Van Otterloo & Co. LLC | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
40 Rowes Wharf | Suite 1000 | 125 High Street |
Boston, MA 02110 | Boston, MA 02217-1000 | Boston, MA 02110 |
| | |
Principal distributor | | |
John Hancock Funds, LLC | | |
601 Congress Street | | |
Boston, MA 02210-2805 | | |
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 | 380 Stuart Street |
| | Boston, MA 02116 |
|
|
Phone | Customer service representatives | 1-800-225-5291 |
| EASI-Line | 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.
48
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Fund |
Focused Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Mid Cap Growth Fund | TAX-FEE INCOME |
Multi Cap Growth Fund | California Tax-Free Income Fund |
Small Cap Equity Fund | High Yield Municipal Bond Fund |
Small Cap Fund | Massachusetts Tax-Free Income Fund |
Small Cap Intrinsic Value Fund | New York Tax-Free Income Fund |
Sovereign Investors Fund | Tax-Free Bond Fund |
U.S. Core Fund | |
U.S. Global Leaders Growth Fund | MONEY MARKET |
Value Opportunities Fund | Money Market Fund |
| U.S. Government Cash Reserve |
ASSET ALLOCATION | |
Allocation Core Portfolio | CLOSED-END |
Allocation Growth + Value Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2010 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2015 Portfolio | Income Securities Trust |
Lifecycle 2020 Portfolio | Investors Trust |
Lifecycle 2025 Portfolio | Patriot Global Dividend Fund |
Lifecycle 2030 Portfolio | Patriot Preferred Dividend Fund |
Lifecycle 2035 Portfolio | Patriot Premium Dividend Fund I |
Lifecycle 2040 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2045 Portfolio | Patriot Select Dividend Trust |
Lifecycle Retirement Portfolio | Preferred Income Fund |
Lifestyle Aggressive Portfolio | Preferred Income II Fund |
Lifestyle Balanced Portfolio | Preferred Income III Fund |
Lifestyle Conservative Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
|
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund | |
For more complete information on any John Hancock Fund and an Open-End fund prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291 for Open-End fund information and 1-800-852-0218 for Closed-End fund information. Please read the Open-End fund prospectus carefully before investing or sending money.
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 Growth Opportunities Fund.
8400A 2/07
4/07
CEO corner
TABLE OF CONTENTS |
|
|
Your fund at a glance |
page 1 |
|
|
Managers’ report |
page 2 |
|
|
A look at performance |
page 6 |
|
|
Your expenses |
page 8 |
|
|
Fund’s investments |
page 10 |
|
|
Financial statements |
page 18 |
|
|
Notes to financial |
statements |
page 26 |
|
|
Trustees and officers |
page 36 |
|
|
For more information |
page 40 |
|
To Our Shareholders,
The U.S. financial markets turned in strong results over the last 12 months, as earlier concerns of rising inflation, a housing slowdown and high energy prices gave way to news of slower, but still resilient, economic growth, stronger than expected corporate earnings and dampened inflation fears and energy costs. This environment also led the Federal Reserve Board to hold short-term interest rates steady. Even with a sharp decline in the last days of the period, the broad stock market returned 11.97% for the year ended February 28, 2007, as measured by the S&P 500 Index. With interest rates remaining relatively steady, fixed-income securities also produced positive results.
But after a remarkably long period of calm, the financial markets were rocked at the end of the period by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. In the United States, for example, the Dow Jones Industrial Average had its steepest one-day percentage decline in nearly four years on February 27, 2007. The event served to jog investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
It was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the market’s moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes well for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more-than-four-year-old bull market. The recent downturn bolsters this uncertainty, although we believe it was a healthy correction for which we were overdue.
The recent volatility could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon — not a sprint — approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of February 28, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks long-term capital growth by typically investing in U.S. companies that issue stocks included in the Russell 1000 Index, and in companies with size and growth characteristics similar to those of companies with stocks in the Index.
Since inception
► The Fund produced solid results, but trailed the Russell 1000 Growth Index against a backdrop of rising share prices and investors’ preference for cheap stocks.
► The Fund’s performance was particularly limited by unfavorable positioning in the technology sector.
► Market volatility was evident at the beginning of the period, diminished to near-record low levels during the rally and returned as the period came to a close.
Top 10 holdings | | | | |
Cisco Systems, Inc. | 3.5% | | Wal-Mart Stores, Inc. | 2.7% |
| | |
Home Depot, Inc. | 3.3% | | Oracle Corp. | 2.2% |
| | |
Merck & Company, Inc. | 3.3% | | Fedex Corp. | 2.2% |
| | |
Exxon Mobil Corp. | 3.2% | | Comcast Corp. | 2.1% |
| | |
Johnson & Johnson | 2.9% | | Lowe’s Companies, Inc. | 1.9% |
| | |
As a percentage of net assets on February 28, 2007.
1
Managers’ report
John Hancock
Growth Fund
U.S. stocks enjoyed solid performance during the review period, which began in June, 2006 in the midst of a market correction triggered by the Federal Reserve Board’s hawkish comments about inflation and fears of a longer-than-anticipated cycle of interest rate hikes. Rising energy prices were another factor adding to the negative investor sentiment early in the period.
As the summer progressed, however, the prospects for both interest rates and energy prices improved. Inflationary pressures eased a bit and more data emerged indicating a slowing U.S. economy, prompting the Fed to leave interest rates unchanged in August after 17 consecutive 0.25% increases. At subsequent meetings in September, November, December and January, the Fed reaffirmed its stand-pat position. At the same time, energy prices registered substantial declines. In response, the market embarked on a rally that began in July and continued almost through the end of February.
The rally was characterized by extremely low share price volatility and investors’ preference for stocks with low price-to-book value (P/B) or price-to-earnings (P/E) ratios, as evidenced by the dramatic outperformance of the Russell 1000 Value Index over the Fund’s benchmark, Russell 1000 Growth Index. Corporate profits continued to grow at a healthy pace and, while short-term interest rates were higher than they had been prior to the Fed’s tightening moves, access to capital remained relatively unhindered. However, on the second-to-last trading
SCORECARD
INVESTMENT | | PERIOD’S PERFORMANCE... AND WHAT’S BEHIND THE NUMBERS |
Merck | ▲ | Undervalued; controversy over Vioxx fading |
Forest Laboratories | ▲ | Favorable legal developments on Lexapro |
QUALCOMM | ▼ | Favorable valuation but disappointing performance |
2
From the Grantham, Mayo, Van Otterloo & Co. LLC (GMO) Portfolio Management Team
day of the period, volatility returned with a vengeance, as the Dow Jones Industrial Average and the Russell 1000 Growth Index each fell by more than 3%. It was the Dow’s worst one-day percentage loss since 2003, leaving many investors wondering if the long run of benign market conditions had come to an end.
“U.S. stocks enjoyed solid |
performance during the review |
period…” |
Looking at performance
From their inception on June 12, 2006, through February 28, 2007, John Hancock Growth Fund’s Class A, Class B, Class C, Class I and Class R1 shares returned 9.57%, 9.05%, 9.05%, 10.18% and 9.27%, respectively, at net asset value. By comparison, the Russell 1000 Growth Index returned 12.25%, while the average large growth fund monitored by Morningstar, Inc. gained 12.94% .a Keep in mind that your returns will differ from those listed above if you were not invested in the Fund for the entire period or did not reinvest all distributions.
The market environment proved challenging to both of our primary stock selection tools — valuation and momentum. Valuation, which determines the positioning for approximately half of this Fund’s assets, accounted for much of the performance shortfall. During the period, investors wanted cheap stocks on a P/B or P/E basis, whereas our valuation discipline seeks out stocks selling at a significant discount from their intrinsic value. The difference is that our methodology encompasses various yardsticks of quality, such as stability of earnings, leverage and long-term profitability. Over the longer term, the market has rewarded an emphasis on quality stocks acquired at a discount, but over shorter periods of time investors sometimes spurn quality in favor of low prices, concept stocks or other fads.
Growth Fund
3
Our momentum criteria are designed to identify stocks that have performed well recently and appear poised to continue outperforming. That said, although the broader earnings environment was favorable and the market rose for most of the period, our momentum strategy rotated out of low P/B and low P/E stocks after they plummeted during the market’s early summer correction. Consequently, the strategy underperformed when the market shifted back toward these stocks as the market recovered.
Technology, retail and services limit gains
The sector detracting most from performance during the period was technology, where our stock selection, along with an underweighting, negatively affected the Fund’s returns. In fact, four of the five largest detractors were from the technology sector. For example, having a significant underweighting in software giant Microsoft Corp. undermined our results, as investors who bought the stock in anticipation of a successful launch for Vista, the company’s major upgrade of its Windows operating system, bid the price up over 30% during the period.
Likewise, enterprise software provider Oracle Corp. was underweighted by our valuation model, but the stock gained ground anyway. An underweighted exposure to networking equipment maker Cisco Systems, Inc. also was counterproductive, as the stock advanced smartly amid the company’s market-share gains in its core router business. On the other hand, wireless chip maker QUALCOMM, Inc., a stock that was attractive on the basis of both valuation and momentum, turned in a disappointing performance during the period.
Health care and utilities add value
On the positive side, the health care, manufacturing and metals and mining sectors made notable contributions to performance. Of the three, health care had by far the largest positive impact. In particular, our valuation and momentum screens signaled opportunity in pharmaceutical stocks, which had been beaten down due to controversies surrounding the safety of various patent medications. Merck & Company, Inc. had been one of the downtrodden, and as investors began to realize its inherent value, the stock responded with a strong gain. Forest Laboratories, Inc. was another contributor from
SECTOR DISTRIBUTIONb |
Consumer, non-cyclical | 24% |
Consumer, cyclical | 24% |
Industrial | 15% |
Communications | 10% |
Technology | 9% |
Financial | 7% |
Energy | 5% |
Basic materials | 1% |
Growth Fund
4
the health care sector. The stock had a strong run following a favorable legal decision in July that protected Lexapro, the company’s antidepressant medication, from generic competition. We took profits in personal computer and printer maker Hewlett-Packard Co., a position which had aided the Fund’s performance, as it exhibited both favorable valuation characteristics and positive momentum during the period. Two other contributors to relative performance added value because we didn’t own them and they performed poorly: General Electric Co. and 3M Co.
“On the positive side, the health |
care, manufacturing and metals |
and mining sectors made notable |
contributions to performance.” |
Outlook
The plunge in share prices near the end of the period raises the possibility that the era of low volatility might be coming to an end. Likewise, the mean-reverting nature of corporate profitability and access to capital indicate that challenges in those areas could lie in the market’s future. Against this backdrop, we believe the Fund’s emphasis on buying quality stocks below their intrinsic value — together with its focus on momentum opportunities — positions it well to face the remainder of 2007 and beyond.
This commentary reflects the views of the portfolio management team through the end of the Fund’s period discussed in this report. The team’s statements reflect its 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.
a Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
b As a percentage of net assets on February 28, 2007.
Growth Fund
5
A look at performance
For the period ended February 28, 2007
| | Cumulative total returns |
| | with maximum sales charge (POP) |
| Inception | Since |
Class | date | | inception |
|
A | 6-12-06 | 4.10% |
|
B | 6-12-06 | 4.05 |
|
C | 6-12-06 | 8.05 |
|
Ia | 6-12-06 | 10.18 |
|
R1a | 6-12-06 | 9.27 |
|
Performance figures assume all distributions are reinvested. POP (Public Offering Price) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I and Class R1 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.
Performance is calculated with an opening price (prior day’s close) on the inception date.
a For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
Growth Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Growth Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in the Russell 1000 Growth Index.
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 6-12-06 | $10,905 | $10,405 | $11,225 |
|
C | 6-12-06 | 10,905 | 10,805 | 11,225 |
|
Ib | 6-12-06 | 11,018 | 11,018 | 11,225 |
|
R1b | 6-12-06 | 10,927 | 10,927 | 11,225 |
|
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 R1 shares, respectively, as of February 28, 2007. 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.
Russell 1000 Growth Index is an unmanaged index containing those securities in the Russell 1000 Index with a greater-than-average growth orientation.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
a NAV represents net asset value and POP represents public offering price.
b For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
Growth Fund
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 September 1, 2006, with the same investment held until February 28, 2007.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,062.76 | $7.16 |
|
Class B | 1,000.00 | 1,059.29 | 10.72 |
|
Class C | 1,000.00 | 1,059.29 | 10.77 |
|
Class I | 1,000.00 | 1,067.63 | 5.13 |
|
Class R1 b | 1,000.00 | 1,060.84 | 8.94 |
|
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 February 28, 2007 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:
Growth Fund
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’ actual expense ratio and an assumed 5% annualized return before expenses (which is not your Fund’s actual return). It assumes an account value of $1,000.00 on September 1, 2006, with the same investment held until February 28, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,017.85 | $7.00 |
|
Class B | 1,000.00 | 1,014.38 | 10.49 |
|
Class C | 1,000.00 | 1,014.33 | 10.54 |
|
Class I | 1,000.00 | 1,019.84 | 5.01 |
|
Class R1 | 1,000.00 | 1,016.12 | 8.75 |
|
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.
a Expenses are equal to the Fund’s annualized expense ratio of 1.40%, 2.10%, 2.11%, 1.00% and 1.75% for Class A, Class B, Class C, Class I and Class R1, respectively, multiplied by the average account value over the period, multiplied by the number of days in the period/365 or 366 (to reflect the one-half year period).
Growth Fund
9
F I N A N C I A L S T A T E M E N T S
Fund’s investments
Securities owned by the Fund on 2-28-07
This schedule is divided into two main categories: common stocks and repurchase agreements. Common stocks are further broken down by industry group. Repurchase agreements, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
|
Common stocks 95.14% | | $21,062,875 |
(Cost $19,750,459) | | |
Advertising 0.14% | | 31,083 |
|
Omnicom Group, Inc. | 300 | 31,083 |
Aerospace 3.35% | | 740,791 |
|
General Dynamics Corp. | 600 | 45,876 |
|
Lockheed Martin Corp. | 3,100 | 301,568 |
|
Northrop Grumman Corp. | 1,400 | 100,590 |
|
Raytheon Company | 1,300 | 69,615 |
|
United Technologies Corp. | 3,400 | 223,142 |
Agriculture 0.62% | | 137,520 |
|
Archer-Daniels-Midland Company | 4,000 | 137,520 |
Aluminum 0.36% | | 80,184 |
|
Alcoa, Inc. | 2,400 | 80,184 |
Apparel & Textiles 0.57% | | 126,178 |
|
Coach, Inc. * | 900 | 42,480 |
|
Liz Claiborne, Inc. | 300 | 13,500 |
|
Mohawk Industries, Inc. * | 100 | 8,752 |
|
Timberland Company, Class A * | 500 | 13,560 |
|
VF Corp. | 600 | 47,886 |
Auto Parts 0.75% | | 165,523 |
|
AutoZone, Inc. * | 400 | 50,116 |
|
Johnson Controls, Inc. | 900 | 84,420 |
|
O’Reilly Automotive, Inc. * | 900 | 30,987 |
Auto Services 0.21% | | 46,116 |
|
AutoNation, Inc. * | 2,100 | 46,116 |
Automobiles 0.53% | | 118,133 |
|
PACCAR, Inc. | 1,700 | 118,133 |
Biotechnology 0.37% | | 82,200 |
|
Amgen, Inc. * | 400 | 25,704 |
|
Applera Corp. | 1,100 | 33,968 |
|
Techne Corp. * | 400 | 22,528 |
See notes to financial statements
Growth Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Broadcasting 0.70% | | $154,956 |
|
Liberty Media Corp. — Capital, Series A * | 100 | 10,788 |
|
News Corp. | 5,600 | 126,168 |
|
Univision Communications, Inc., Class A * | 500 | 18,000 |
Building Materials & Construction 0.34% | | 75,227 |
|
American Standard Companies, Inc. | 800 | 42,392 |
|
Masco Corp. | 1,100 | 32,835 |
Business Services 1.89% | | 417,769 |
|
Affiliated Computer Services, Inc., Class A * | 800 | 41,576 |
|
Alliance Data Systems Corp. * | 200 | 11,950 |
|
Computer Sciences Corp. * | 600 | 31,758 |
|
First Data Corp. | 2,200 | 56,166 |
|
Fluor Corp. | 200 | 16,894 |
|
Manpower, Inc. | 1,200 | 89,160 |
|
Moody’s Corp. | 1,900 | 122,968 |
|
Pitney Bowes, Inc. | 500 | 23,855 |
|
Robert Half International, Inc. | 600 | 23,442 |
Cable and Television 3.20% | | 709,158 |
|
Comcast Corp., Class A * | 18,450 | 474,534 |
|
DIRECTV Group, Inc. * | 10,400 | 234,624 |
Chemicals 0.78% | | 172,728 |
|
Air Products & Chemicals, Inc. | 400 | 29,928 |
|
E.I. Du Pont De Nemours & Company | 1,900 | 96,425 |
|
PPG Industries, Inc. | 700 | 46,375 |
Colleges & Universities 0.23% | | 51,822 |
|
Career Education Corp. * | 400 | 11,832 |
|
ITT Educational Services, Inc. * | 500 | 39,990 |
Computers & Business Equipment 7.57% | | 1,676,763 |
|
CDW Corp. | 800 | 49,664 |
|
Cisco Systems, Inc. * | 29,800 | 773,012 |
|
Cognizant Technology Solutions Corp. , Class A * | 1,500 | 135,300 |
|
Dell, Inc. * | 11,700 | 267,345 |
|
International Business Machines Corp. | 2,500 | 232,525 |
|
Lexmark International, Inc. * | 1,900 | 115,064 |
|
Network Appliance, Inc. * | 2,300 | 88,941 |
|
Tech Data Corp. * | 400 | 14,912 |
Construction Materials 0.09% | | 19,965 |
|
Sherwin-Williams Company | 300 | 19,965 |
Containers & Glass 0.25% | | 54,740 |
|
Pactiv Corp. * | 1,700 | 54,740 |
See notes to financial statements
Growth Fund
11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Cosmetics & Toiletries 1.29% | | $286,241 |
|
Avon Products, Inc. | 2,200 | 80,652 |
|
Colgate-Palmolive Company | 300 | 20,208 |
|
Estee Lauder Companies, Inc., Class A | 600 | 28,728 |
|
Kimberly-Clark Corp. | 2,300 | 156,653 |
Crude Petroleum & Natural Gas 0.62% | | 137,018 |
|
Devon Energy Corp. | 200 | 13,142 |
|
Marathon Oil Corp. | 500 | 45,370 |
|
Occidental Petroleum Corp. | 1,700 | 78,506 |
Drugs & Health Care 0.13% | | 29,352 |
|
Wyeth | 600 | 29,352 |
Electrical Equipment 1.13% | | 249,689 |
|
Emerson Electric Company | 4,600 | 198,214 |
|
Molex, Inc. | 1,300 | 38,129 |
|
Wesco International, Inc. * | 200 | 13,346 |
Electrical Utilities 0.23% | | 51,168 |
|
The AES Corp. * | 2,400 | 51,168 |
Electronics 0.43% | | 94,760 |
|
Amphenol Corp., Class A | 600 | 38,724 |
|
Harman International Industries, Inc. | 200 | 19,832 |
|
Thomas & Betts Corp. * | 400 | 20,328 |
|
Trimble Navigation, Ltd. * | 600 | 15,876 |
Energy 0.06% | | 13,230 |
|
TXU Corp. | 200 | 13,230 |
Financial Services 4.38% | | 969,721 |
|
Bear Stearns Companies, Inc. | 300 | 45,672 |
|
Countrywide Financial Corp. | 300 | 11,484 |
|
Federated Investors, Inc., Class B | 700 | 25,039 |
|
Fiserv, Inc. * | 600 | 31,776 |
|
Goldman Sachs Group, Inc. | 1,600 | 322,560 |
|
Jefferies Group, Inc. | 1,200 | 32,460 |
|
JPMorgan Chase & Company | 4,100 | 202,540 |
|
Mellon Financial Corp. | 200 | 8,686 |
|
MoneyGram International, Inc. | 1,600 | 48,096 |
|
Morgan Stanley | 2,700 | 202,284 |
|
Raymond James Financial, Inc. | 400 | 12,040 |
|
The First Marblehead Corp. | 600 | 27,084 |
Food & Beverages 1.75% | | 387,317 |
|
Campbell Soup Company | 1,400 | 57,162 |
|
Corn Products International, Inc. | 300 | 9,591 |
|
H.J. Heinz Company | 2,000 | 91,740 |
|
Kraft Foods, Inc., Class A | 1,100 | 35,112 |
|
Pepsi Bottling Group, Inc. | 500 | 15,500 |
|
Sara Lee Corp. | 400 | 6,584 |
See notes to financial statements
Growth Fund
12
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Food & Beverages (continued) | | |
|
Sysco Corp. | 1,100 | $36,256 |
|
The Coca-Cola Company | 2,900 | 135,372 |
Healthcare Products 4.73% | | 1,047,863 |
|
Baxter International, Inc. | 500 | 25,005 |
|
Becton, Dickinson & Company | 1,500 | 113,985 |
|
Biomet, Inc. | 400 | 16,932 |
|
C.R. Bard, Inc. | 200 | 15,960 |
|
IDEXX Laboratories, Inc. * | 200 | 17,236 |
|
Johnson & Johnson | 10,300 | 649,415 |
|
Medtronic, Inc. | 400 | 20,144 |
|
Respironics, Inc. * | 500 | 20,485 |
|
Stryker Corp. | 1,200 | 74,424 |
|
Varian Medical Systems, Inc. * | 400 | 18,380 |
|
Zimmer Holdings, Inc. * | 900 | 75,897 |
Healthcare Services 3.19% | | 707,091 |
|
Cardinal Health, Inc. | 1,000 | 70,090 |
|
Express Scripts, Inc. * | 1,200 | 90,492 |
|
Laboratory Corp. of America Holdings * | 500 | 39,875 |
|
Lincare Holdings, Inc. * | 800 | 31,240 |
|
McKesson Corp. | 1,000 | 55,760 |
|
Quest Diagnostics, Inc. | 2,700 | 137,754 |
|
UnitedHealth Group, Inc. | 5,400 | 281,880 |
Holdings Companies/Conglomerates 0.33% | | 73,832 |
|
Textron, Inc. | 800 | 73,832 |
Homebuilders 0.11% | | 23,756 |
|
Centex Corp. | 300 | 13,908 |
|
Lennar Corp., Class A | 200 | 9,848 |
Hotels & Restaurants 2.60% | | 575,743 |
|
Brinker International, Inc. | 800 | 27,208 |
|
Jack in the Box, Inc. * | 200 | 13,668 |
|
Marriott International, Inc., Class A | 2,700 | 129,357 |
|
McDonald’s Corp. | 1,500 | 65,580 |
|
Starbucks Corp. * | 8,700 | 268,830 |
|
Starwood Hotels & Resorts Worldwide, Inc. | 200 | 13,160 |
|
Yum! Brands, Inc. | 1,000 | 57,940 |
Household Appliances 0.08% | | 17,642 |
|
Whirlpool Corp. | 200 | 17,642 |
Household Products 0.23% | | 51,552 |
|
Energizer Holdings, Inc. * | 600 | 51,552 |
Industrial Machinery 1.56% | | 345,959 |
|
Caterpillar, Inc. | 1,300 | 83,746 |
|
Cummins, Inc. | 400 | 53,872 |
|
Deere & Company | 900 | 97,578 |
See notes to financial statements
Growth Fund
13
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Industrial Machinery (continued) | | |
|
FMC Technologies, Inc. * | 400 | $26,312 |
|
Graco, Inc. | 300 | 12,153 |
|
Lincoln Electric Holdings, Inc. | 400 | 24,960 |
|
Parker-Hannifin Corp. | 200 | 16,478 |
|
W.W. Grainger, Inc. | 400 | 30,860 |
Industrials 0.26% | | 57,278 |
|
Crane Company | 300 | 11,427 |
|
Fastenal Company | 1,300 | 45,851 |
Insurance 2.87% | | 634,922 |
|
AFLAC, Inc. | 2,500 | 118,000 |
|
Allstate Corp. | 400 | 24,024 |
|
Ambac Financial Group, Inc. | 600 | 52,584 |
|
American International Group, Inc. | 2,400 | 161,040 |
|
Brown & Brown, Inc. | 1,100 | 30,965 |
|
Chubb Corp. | 200 | 10,210 |
|
Lincoln National Corp. | 200 | 13,630 |
|
MBIA, Inc. | 300 | 19,941 |
|
PMI Group, Inc. | 1,100 | 51,557 |
|
Progressive Corp. | 2,100 | 48,153 |
|
Radian Group, Inc. | 200 | 11,490 |
|
The Travelers Companies, Inc. * | 500 | 25,380 |
|
Torchmark Corp. | 400 | 25,568 |
|
W.R. Berkley Corp. | 1,300 | 42,380 |
International Oil 3.94% | | 873,087 |
|
Anadarko Petroleum Corp. | 700 | 28,161 |
|
Chevron Corp. | 1,200 | 82,332 |
|
ConocoPhillips | 700 | 45,794 |
|
Exxon Mobil Corp. | 10,000 | 716,800 |
Internet Software 0.11% | | 23,424 |
|
Checkfree Corp. * | 300 | 11,376 |
|
McAfee, Inc. * | 400 | 12,048 |
Leisure Time 1.48% | | 328,611 |
|
International Game Technology, Inc. | 2,900 | 119,625 |
|
Walt Disney Company | 6,100 | 208,986 |
Life Sciences 0.04% | | 9,537 |
|
Pharmaceutical Product Development, Inc. | 300 | 9,537 |
Liquor 1.28% | | 283,040 |
|
Anheuser-Busch Companies, Inc. | 5,500 | 269,940 |
|
Brown Forman Corp., Class B | 200 | 13,100 |
See notes to financial statements
Growth Fund
14
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Manufacturing 3.32% | | $733,988 |
|
Danaher Corp. | 3,700 | 265,068 |
|
Harley-Davidson, Inc. | 2,800 | 184,520 |
|
Illinois Tool Works, Inc. | 4,300 | 222,310 |
|
Rockwell Automation, Inc. | 1,000 | 62,090 |
Medical-Hospitals 0.23% | | 50,218 |
|
Health Management Associates, Inc., Class A | 100 | 1,996 |
|
Manor Care, Inc. | 900 | 48,222 |
Metal & Metal Products 0.06% | | 13,698 |
|
Reliance Steel & Aluminum Company | 300 | 13,698 |
Mobile Homes 0.27% | | 58,576 |
|
Thor Industries, Inc. | 1,400 | 58,576 |
Office Furnishings & Supplies 0.27% | | 58,938 |
|
Office Depot, Inc. * | 1,300 | 43,368 |
|
OfficeMax, Inc. | 300 | 15,570 |
Petroleum Services 0.12% | | 26,044 |
|
Baker Hughes, Inc. | 400 | 26,044 |
Pharmaceuticals 7.69% | | 1,703,270 |
|
Abbott Laboratories | 4,600 | 251,252 |
|
Barr Pharmaceuticals, Inc. * | 200 | 10,600 |
|
Bristol-Myers Squibb Company | 3,400 | 89,726 |
|
Forest Laboratories, Inc. * | 4,600 | 238,096 |
|
Merck & Company, Inc. | 16,500 | 728,640 |
|
Pfizer, Inc. | 14,200 | 354,432 |
|
Schering-Plough Corp. | 1,300 | 30,524 |
Publishing 0.17% | | 37,426 |
|
Gannett Company, Inc. | 400 | 24,504 |
|
McGraw-Hill Companies, Inc. | 200 | 12,922 |
Railroads & Equipment 1.11% | | 246,040 |
|
Burlington Northern Santa Fe Corp. | 1,000 | 79,190 |
|
CSX Corp. | 1,600 | 60,272 |
|
Norfolk Southern Corp. | 1,000 | 47,400 |
|
Union Pacific Corp. | 600 | 59,178 |
Retail Grocery 0.38% | | 84,711 |
|
The Kroger Company | 3,300 | 84,711 |
Retail Trade 15.62% | | 3,458,789 |
|
Abercrombie & Fitch Company, Class A | 200 | 15,634 |
|
American Eagle Outfitters, Inc. | 3,600 | 111,780 |
|
AnnTaylor Stores Corp. * | 1,000 | 35,490 |
|
Bed Bath & Beyond, Inc. * | 1,900 | 75,791 |
|
Best Buy Company, Inc. | 1,200 | 55,764 |
See notes to financial statements
Growth Fund
15
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Retail Trade (continued) | | |
|
CarMax, Inc. * | 900 | $47,430 |
|
Circuit City Stores, Inc. | 1,600 | 30,448 |
|
Claire’s Stores, Inc. | 900 | 28,926 |
|
Costco Wholesale Corp. | 2,500 | 139,725 |
|
CVS Corp. | 1,300 | 40,833 |
|
Dollar General Corp. | 1,400 | 23,632 |
|
Dollar Tree Stores, Inc. * | 1,800 | 61,398 |
|
Family Dollar Stores, Inc. | 2,200 | 63,734 |
|
Gap, Inc. | 1,100 | 21,109 |
|
Home Depot, Inc. | 18,500 | 732,600 |
|
J.C. Penney Company, Inc. | 900 | 72,999 |
|
Kohl’s Corp. * | 5,400 | 372,546 |
|
Limited Brands, Inc. | 3,300 | 91,344 |
|
Lowe’s Companies, Inc. | 13,100 | 426,536 |
|
PetSmart, Inc. | 700 | 21,217 |
|
Sears Holdings Corp. * | 200 | 36,050 |
|
Staples, Inc. | 4,400 | 114,488 |
|
Target Corp. | 900 | 55,377 |
|
The TJX Companies, Inc. | 2,000 | 55,000 |
|
Walgreen Company | 2,800 | 125,188 |
|
Wal-Mart Stores, Inc. | 12,500 | 603,750 |
Sanitary Services 0.73% | | 160,545 |
|
Ecolab, Inc. | 1,300 | 54,990 |
|
Waste Management, Inc. | 3,100 | 105,555 |
Semiconductors 0.13% | | 28,286 |
|
Intel Corp. | 1,200 | 23,820 |
|
Lam Research Corp. * | 100 | 4,466 |
Software 3.88% | | 859,353 |
|
BEA Systems, Inc. * | 5,700 | 68,001 |
|
BMC Software, Inc. * | 800 | 24,688 |
|
Citrix Systems, Inc. * | 2,300 | 74,060 |
|
Intuit, Inc. * | 1,700 | 50,167 |
|
Microsoft Corp. | 5,600 | 157,752 |
|
Oracle Corp. * | 29,500 | 484,685 |
Telecommunications Equipment & Services 0.37% | | 81,912 |
|
Polycom, Inc. * | 800 | 25,520 |
|
QUALCOMM, Inc. | 1,400 | 56,392 |
Telephone 1.04% | | 229,552 |
|
AT&T, Inc. | 5,900 | 217,120 |
|
Qwest Communications International, Inc. * | 1,400 | 12,432 |
Tobacco 1.16% | | 257,372 |
|
Altria Group, Inc. | 1,600 | 134,848 |
|
Reynolds American, Inc. | 200 | 12,210 |
|
UST, Inc. | 1,900 | 110,314 |
See notes to financial statements
Growth Fund
16
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
|
Toys, Amusements & Sporting Goods 0.33% | | $72,828 |
|
Mattel, Inc. | 2,800 | 72,828 |
Transportation 1.10% | | 242,788 |
|
C.H. Robinson Worldwide, Inc. | 2,300 | 117,208 |
|
Expeditors International of Washington, Inc. | 2,800 | 125,580 |
Trucking & Freight 2.38% | | 525,852 |
|
Fedex Corp. | 4,200 | 479,556 |
|
Ryder Systems, Inc. | 900 | 46,296 |
|
| Principal | |
Issuer, description, maturity date | amount | Value |
|
Repurchase agreements 4.30% | | $951,000 |
(Cost $951,000) | | |
|
Repurchase Agreement with State Street Corp. | | |
dated 2/28/2007 at 4.60% to be repurchased at | | |
$951,122 on 3/1/2007, collateralized by $895,000 | | |
Federal Home Loan Bank, 5.75% due 6/12/2026 | | |
(valued at $972,194, including interest) (c) | $951,000 | 951,000 |
|
Total investments (Cost $20,701,459) 99.44% | | $22,013,875 |
|
|
Other assets in excess of liabilities 0.56% | | 124,593 |
|
|
Total net assets 100.00% | | $22,138,468 |
|
* Non-income producing. | | |
(c) Investment is an affiliate of the Trust’s subadvisor or custodian bank. | | |
See notes to financial statements
Growth Fund
17
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 2-28-07
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 $19,750,459) | $21,062,875 |
Repurchase agreement, at value (Cost $951,000) | 951,000 |
Cash | 965 |
Cash segregated for futures contracts | 50,000 |
Receivable for fund shares sold | 125,647 |
Dividends and interest receivable | 25,401 |
Receivable for futures variation margin | 1,617 |
Receivable due from adviser | 6,138 |
Other assets | 1,514 |
Total assets | 22,225,157 |
|
Liabilities | |
|
Payable for fund shares repurchased | 250 |
Payable to affiliates | |
Fund administration fees | 4,167 |
Transfer agent fees | 4,452 |
Service fees | 189 |
Accrued expenses | 77,631 |
Total liabilities | 86,689 |
|
Net assets | |
|
Capital paid-in | 20,196,214 |
Accumulated undistributed net realized gain on investments and futures contracts | 642,800 |
Net unrealized appreciation on investments and futures contracts | 1,299,454 |
Net assets | $22,138,468 |
|
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 ($20,544,174 ÷ 948,812 shares) | $21.65 |
Class B ($423,882 ÷ 19,637 shares)a | $21.59 |
Class C ($917,732 ÷ 42,513 shares)a | $21.59 |
Class I ($143,390 ÷ 6,599 shares) | $21.73 |
Class R1 ($109,290 ÷ 5,059 shares) | $21.60 |
|
Maximum offering price per share | |
|
Class Ab ($21.65 ÷ 95%) | $22.79 |
a Redemption price is equal to net asset value less any applicable contingent deferred sales charges.
b On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements
Growth Fund
18
F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 2-28-07a
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 | |
|
Dividends | $195,094 |
Interest | 41,625 |
Total investment income | 236,719 |
|
Expenses | |
|
Investment management fees (Note 3) | 133,802 |
Distribution and service fees (Note 3) | 42,557 |
Transfer agent fees (Note 3) | 10,913 |
Fund administration fees (Note 3) | 6,385 |
Blue sky fees (Note 3) | 70,630 |
Audit and legal fees | 53,682 |
Custodian fees | 37,203 |
Printing and postage fees (Note 3) | 14,423 |
Registration and filing fees | 2,736 |
Trustees’ fees (Note 3) | 120 |
Miscellaneous | 7,253 |
Total expenses | 379,704 |
Less expense reductions (Note 3) | (156,932) |
Net expenses | 222,772 |
Net investment income | 13,947 |
|
Realized and unrealized gain (loss) | |
|
Net realized gain on | |
Investments | 782,334 |
Futures contracts | 80,907 |
Change in net unrealized appreciation (depreciation) of | |
Investments | 1,312,416 |
Futures contracts | (12,962) |
Net realized and unrealized gain | 2,162,695 |
Increase in net assets from operations | $2,176,642 |
|
a Period from 6-12-06 (commencement of operations) to 2-28-07. | |
See notes to financial statements
Growth Fund
19
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
This Statement of Changes in Net Assets shows how the value of the Fund’s net assets has changed since inception. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Period |
| ended |
| 2-28-07a |
|
Increase (decrease) in net assets | |
|
From operations | |
Net investment income | $13,947 |
Net realized gain | 863,241 |
Change in net unrealized appreciation (depreciation) | 1,299,454 |
Increase in net assets resulting from operations | 2,176,642 |
Distributions to shareholders | |
From net investment income | |
Class A | (38,325) |
Class I | (108) |
Class R1 | (163) |
From net realized gain | |
Class A | (197,001) |
Class B | (2,867) |
Class C | (6,435) |
Class I | (281) |
Class R1 | (1,108) |
Total distributions | (246,288) |
From Fund share transactions | 20,208,114 |
|
Net assets | |
|
Beginning of period | — |
End of period | $22,138,468 |
|
a Period from 6-12-06 (commencement of operations) to 2-28-07. | |
See notes to financial statements
Growth Fund
20
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.
CLASS A SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | —j |
Net realized and unrealized | |
gain on investments | 1.91 |
Total from investments operations | 1.91 |
Less distributions | |
From net investment income | (0.04) |
From net realized gain | (0.22) |
| (0.26) |
Net asset value, end of period | $21.65 |
Total return (%) | 9.57k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | $21 |
Ratio of net expenses to average | |
net assets (%) | 1.39r |
Ratio of gross expenses to average | |
net assets (%) | 2.00p,r |
Ratio of net investment income | |
to average net assets (%) | 0.01r |
Portfolio turnover (%) | 93m |
See notes to financial statements
Growth Fund
21
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment lossh | (0.11) |
Net realized and unrealized | |
gain on investments | 1.92 |
Total from investments operations | 1.81 |
Less distributions | |
From net realized gain | (0.22) |
Net asset value, end of period | $21.59 |
Total return (%) | 9.05k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —n |
Ratio of net expenses to average | |
net assets (%) | 2.09r |
Ratio of gross expenses to average | |
net assets (%) | 11.94p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.68)r |
Portfolio turnover (%) | 93m |
See notes to financial statements
Growth Fund
22
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment lossh | (0.10) |
Net realized and unrealized | |
gain on investments | 1.91 |
Total from investments operations | 1.81 |
Less distributions | |
From net realized gain | (0.22) |
Net asset value, end of period | $21.59 |
Total return (%) | 9.05k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | $1 |
Ratio of net expenses to average | |
net assets (%) | 2.10r |
Ratio of gross expenses to average | |
net assets (%) | 7.70p.r |
Ratio of net investment loss | |
to average net assets (%) | (0.66)r |
Portfolio turnover (%) | 93m |
See notes to financial statements
Growth Fund
23
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.06 |
Net realized and unrealized | |
gain on investments | 1.97 |
Total from investments operations | 2.03 |
Less distributions | |
From net investment income | (0.08) |
From net realized gain | (0.22) |
| (0.30) |
Net asset value, end of period | $21.73 |
Total return (%) | 10.18k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —n |
Ratio of net expenses to average | |
net assets (%) | 1.00r |
Ratio of gross expenses to average | |
net assets (%) | 1.90p,r |
Ratio of net investment income | |
to average net assets (%) | 0.43r |
Portfolio turnover (%) | 93m |
See notes to financial statements
Growth Fund
24
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS R1 SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
|
Net asset value, beginning of period | $20.00 |
Net investment lossh | (0.05) |
Net realized and unrealized | |
gain on investments | 1.90 |
Total from investments operations | 1.85 |
Less distributions | |
From net investment income | (0.03) |
From net realized gain | (0.22) |
| (0.25) |
Net asset value, end of period | $21.60 |
Total return (%) | 9.27k,l,m |
|
Ratios and supplemental data | |
|
Net assets, end of period | |
(in millions) | —n |
Ratio of net expenses to average | |
net assets (%) | 1.74r |
Ratio of gross expenses to average | |
net assets (%) | 21.55p,r |
Ratio of net investment income (loss) | |
to average net assets (%) | (0.34)r |
Portfolio turnover (%) | 93m |
a Class A, Class B, Class C, Class I and Class R1 shares began operations on 6-12-06.
h Based on the average of the shares outstanding.
j Less than $0.01 per share.
k Assumes dividend reinvestment.
l Total returns would have been lower had certain expenses not been reduced during the period shown.
m Not annualized.
n Less than $500,000.
p Does not take into consideration expense reduction during period shown.
r Annualized.
See notes to financial statements
Growth Fund
25
Notes to financial statements
1. Organization
John Hancock Growth Fund (the “Fund”) is a newly organized non-diversified series of John Hancock Funds III (the “Trust”). The Trust was established as a Massachusetts business trust on June 9, 2005. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end investment management company. The investment objective of the Fund is to seek long-term capital growth.
John Hancock Life Insurance Company of New York (“John Hancock New York”) is a wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.) (“John Hancock USA”). John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of The Manufacturers Life Insurance Company (“Manulife”), which in turn is a wholly owned subsidiary of Manulife Financial Corporation (“MFC”), a publicly traded company. MFC and its subsidiaries are known collectively as “Manulife Financial.”
John Hancock Investment Management Services, LLC (the “Adviser”) a Delaware limited liability company controlled by John Hancock USA, serves as investment adviser for the Trust and John Hancock Funds, LLC (the “Distributor”), a Delaware limited liability company, an affiliate of the Adviser, serves as principal underwriter.
The Board of Trustees have authorized the issuance of multiple classes of shares of the Fund, including classes designated as Class A, Class B, Class C, Class I, Class R1, Class 1, Class 3 and Class NAV 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 Board of 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. Effective November 6, 2006, the Board of Trustees elected to change the name of Class R to Class R1.
2. Significant accounting policies
In the preparation of the financial statements, the Fund follows the policies described below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Security valuation
The net asset value of the shares of the Fund is determined daily as of the close of the New York Stock Exchange, normally at 4:00 p.m., Eastern Time. Short-term debt instruments with remaining maturities of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on a principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Fund securities for which there are no such quotations, principally debt securities, are valued based on the valuation provided by an independent pricing
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service, which utilizes both dealer-supplied and electronic data processing techniques.
Other assets and securities for which no such quotations are readily available are valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the New York Stock Exchange. The values of such securities used in computing the net asset value of a Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the New York Stock Exchange. Upon such an occurrence, these securities will then be valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
In deciding whether to make a fair value adjustment to the price of a security, the Board of Trustees or their designee may review a variety of factors, including, developments in foreign markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations, for example, when a particular foreign market is closed, but the Fund is calculating the net asset value. In view of these factors, it is likely that a fund investing significant amounts of assets in securities in foreign markets will be fair valued more frequently than a fund investing significant amounts of assets in frequently traded, U.S. exchange listed securities of large capitalization U.S. issuers.
For purposes of determining when fair value adjustments may be appropriate with respect to the Fund investing in securities in foreign markets that close prior to the New York Stock Exchange, the Fund will, on an ongoing basis, monitor for “significant market events.” A significant market event may be a certain percentage change in the value of an index or of certain Exchange Traded Funds (“ETFs”) that track foreign markets in which the Fund has significant investments. If a significant market event occurs due to a change in the value of the index or of ETFs, the pricing for the Fund will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Trust’s Pricing Committee where applicable.
Fair value pricing of securities is intended to help ensure that the net asset value of the Fund’s shares reflects the value of the Fund’s securities as of the close of the New York Stock Exchange (as opposed to a value which is no longer accurate as of such close), thus limiting the opportunity for aggressive traders to purchase shares of the Fund at deflated prices, reflecting stale security valuations, and to promptly sell such shares at a gain. However, a security’s valuation may differ depending on the method used for determining value and no assurance can be given that fair value pricing of securities will successfully eliminate all potential opportunities for such trading gains.
Repurchase agreements
The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement through its custodian, it receives delivery of securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is generally at least 102% of the repurchase amount. The Fund will take constructive receipt of all securities underlying the repurchase agreements it has entered into until such agreements expire. If the seller defaults, the Fund would suffer a loss to the extent that proceeds from the sale of underlying securities were less than the repurchase amount. The Fund may enter into repurchase agreements maturing within seven days with domestic dealers, banks or other financial institutions deemed to be creditworthy by the Adviser. Collateral for certain tri-party repurchase agreements is held at the custodian bank in a segregated account for the benefit of the Fund and the counterpa rty.
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Security transactions and related investment income
Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Foreign dividends are recorded on the ex-date or as soon after the ex-date that the Fund becomes aware of such dividends, net of all taxes. Discounts/premiums are accreted/amortized for financial reporting purposes. Non-cash dividends are recorded at the fair market value of the securities received. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful, based upon consistently applied procedures.
From time to time, the Fund may invest in Real Estate Investment Trusts (“REITs”) and, as a result, will estimate the components of distributions from these securities. Distributions from REITs received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain.
The Fund uses the First In, First Out method for fixed income securities and Highest Cost, First Out for all other securities for determining realized gain or loss on investments for both financial and federal income tax reporting purposes.
Multi-class operations
All income, expenses (except for class-specific expenses) and realized and unrealized gains (losses) are allocated to each class of shares based upon the relative net assets of each class. Dividends to shareholders from net investment income are determined at a class level and distributions from capital gains are determined at a Fund level.
Expense allocation
Expenses are allocated based on the relative share of net assets of the Fund at the time the expense was incurred. Class-specific expenses, such as distribution (Rule 12b-1) fees, are accrued daily and charged directly to the respective share classes.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indices such as the Standard & Poor’s 500 Index (the “S&P 500 Index), in order to hedge against a decline in the value of securities owned by the Fund.
Upon entering into futures contracts, the Fund is required to deposit with a broker an amount, termed the initial margin, which typically represents a certain percentage of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates, making the long or short positions in the contract more or less valuable. If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker, and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
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The following is a summary of open futures contracts on February 28, 2007:
| NUMBER OF | | | UNREALIZED |
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | DEPRECIATION |
|
|
S&P 500 Index | 9 | Long | Mar 2007 | ($12,962) |
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 tax able income. Therefore, no federal income tax provision is required.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than August 31, 2007
In September 2006, FASB Standard No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Distribution of income and gains
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. During the period ended February 28, 2007, the tax character of distributions paid was as follows: ordinary income $205,911 and long-term capital gains $40,377. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class. Such distributions 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 Fund’s financial statements as a return of capital.
As of February 28, 2007, the components of distributable earnings on a tax basis included $685,544 of undistributed ordinary income and $390 of undistributed long-term gain.
Capital accounts
The Fund reports the undistributed net investment income and accumulated undistributed net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carryforward is available). Accordingly, the Fund may periodically make reclassifications among certain capital accounts without affecting its net asset value.
3. Investment advisory and other agreements Advisory fees
The Trust has entered into an Investment Advisory Agreement with the Adviser. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvisers to handle the investment of the assets of the Fund, subject to the supervision of the Trust’s Board of Trustees. Under the Advisory Agreement the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.80% of the first $500,000,000 of the Fund’s aggregate daily net assets, (b) 0.78% of the next $500,000,000 of the Fund’s aggregate daily net assets, (c) 0.77% of the next $1,500,000,000
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of the Fund’s aggregate daily net assets and (d) 0.76% of the Fund’s aggregate daily net assets in excess of $2,500,000,000. Aggregate net assets include the net assets of the Fund and Growth Trust, a series of John Hancock Trust. John Hancock Trust is an open-end investment company advised by the Adviser and distributed by John Hancock Distributors, LLC. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
Expense reimbursements
The Adviser has agreed contractually to reimburse for certain fund level expenses that exceed 0.11% of the average annual net assets, or to make a payment to a specific class of shares of the Fund in an amount equal to the amount by which the expenses attributable to such class of shares (excluding taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business and fees under any agreement or plans of the Fund dealing with services for shareholders and others with beneficial interests in shares of the Fund) exceed the percentage of average annual net assets (on an annualized basis) attributable as follows: 1.40% for Class A, 2.10% for Class B, 2.10% for Class C, 1.00% for Class I and 1.50% for Class R1. Accordingly, the expense reductions related to this expense limitation amounted to $76,702, $15,373, $16,130, $33,569 and $15,158 for Class A, Class B, Class C, Class I and Class R1, respectively, for the period ended February 28, 2007. This expense reimbursement shall continue in effect until June 30, 2007 and thereafter until terminated by the Adviser on notice to the Trust.
Administration fees
The Fund has an agreement with the Adviser that requires the Fund to reimburse the Adviser for all expenses associated with providing the administrative, financial, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, annual, semiannual and periodic reports to shareholders and the preparation of all regulatory reports. These expenses are allocated based on the relative share of net assets of each fund at the time the expense was incurred.
Distribution plan
The Trust has a Distribution Agreement with the Distributor. The Fund has adopted Distribution Plans with respect to Class A, Class B, Class C and Class R1, pursuant to Rule 12b-1 under the 1940 Act, to reimburse the Distributor for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00%, 1.00% and 0.50% of average daily net asset value of Class A, Class B, Class C and Class R1, respectively. 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 R1 shares, the Fund pays up to 0.25% of Class R1 average daily net asset value for certain other services.
Sales charges
Class A shares are assessed up-front sales charges of up to 5.00% of net asset value of such shares. During the period ended February 28, 2007, the Fund was informed that the Distributor received net up-front sales charges of $58,205 with regard to sales of Class A shares. Of this amount, $9,165 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $49,017 was paid as sales commissions to unrelated broker-dealers and $23 was paid as sales commissions to sales personnel of Signator Investors, Inc. (“Signator Investors”), a related broker-dealer, an indirect subsidiary of MFC.
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 the Distributor and are used, in whole
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or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended February 28, 2007, the Fund was informed that the Distributor received no CDSCs for Class B and Class C shares.
Transfer agent fees
The Fund has a Transfer Agency Agreement with John Hancock Signature Services, Inc. (“Signature Services”), an indirect subsidiary of MFC. For Class A, Class B, Class C, Class I and Class R1 shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’ average daily net assets, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Expenses not directly attributable to a particular class of shares are aggregated and allocated to each class on the basis of its relative net asset value.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.20% annually of Class A, Class B, Class C, Class I and Class R1 share average daily net assets. This agreement is effective until December 31, 2007. Signature Services reserves the right to terminate this limitation in the future. Accordingly, there were no transfer agent fee reductions for Class A, Class B, Class C, Class I and Class R1 shares, respectively, during the period ended February 28, 2007.
Expenses under the agreements described above for the period ended February 28, 2007, were as follows:
| Distribution and | Transfer | | Printing and |
Share Class | service fees | agent | Blue sky | postage |
|
|
Class A | $37,564 | $8,146 | $14,263 | $8,905 |
Class B | 1,556 | 311 | 14,077 | 279 |
Class C | 2,867 | 574 | 14,077 | 173 |
Class I | — | 1,843 | 14,136 | 4,366 |
Class R1 | 570 | 39 | 14,077 | 700 |
Total | $42,557 | $10,913 | $70,630 | $14,423 |
Trustees’ fees
The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. Total Trustees’ expenses are allocated to the Fund based on its average daily net asset value.
4. Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
5. Line of credit
The Fund has entered into an agreement which enables it to participate in a $100 million unsecured committed line of credit with State Street Corporation. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to the Fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50% . In addition, a commitment fee of 0.07% per annum, payable at the end of each calendar quarter, based on the average daily-unused portion of the line of credit, is charged to the Fund on a prorated basis based on average net assets. For the period ended February 28, 2007, there were no borrowings under the line of credit.
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6. Capital shares
Share activities for the Fund for the period ended February 28, 2007 were as follows:
| Period ended 2-28-07a |
| Shares | Amount |
|
Class A shares | | |
Sold | 941,625 | $19,160,734 |
Distributions reinvested | 10,718 | 232,682 |
Repurchased | (3,531) | (77,567) |
Net increase | 948,812 | $19,315,849 |
|
|
Class B shares | | |
Sold | 19,722 | $418,160 |
Distributions reinvested | 132 | 2,867 |
Repurchased | (217) | (4,845) |
Net increase | 19,637 | $416,182 |
|
|
Class C shares | | |
Sold | 42,249 | $911,629 |
Distributions reinvested | 277 | 6,002 |
Repurchased | (13) | (287) |
Net increase | 42,513 | $917,344 |
|
|
Class I shares | | |
Sold | 368,724 | $7,471,000 |
Distributions reinvested | 18 | 389 |
Repurchased | (362,143) | (8,013,922) |
Net increase | 6,599 | ($542,533) |
|
|
Class R1 shares | | |
Sold | 5,000 | $100,000 |
Distributions reinvested | 59 | 1,272 |
Net increase | 5,059 | $101,272 |
|
|
Net increase | 1,022,620 | $20,208,114 |
|
a Period from 6-12-06 (commencement of operations) to 2-28-07. | | |
7. 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 February 28, 2007, aggregated $39,278,575 and $20,310,450, respectively.
The cost of investments owned on February 28, 2007, including short-term investments, for federal income tax purposes, was $20,757,556. Gross unrealized appreciation and depreciation of investments aggregated $1,605,421 and $349,102, respectively, resulting in net unrealized appreciation of $1,256,319.
8. Federal income tax information
Federal income tax regulations may differ from generally accepted accounting principles and income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
9. Reclassification of accounts
During the period ended February 28, 2007, the Fund reclassified amounts to reflect a decrease in accumulated net realized gain on investments of $12,749, a decrease in accumulated net investment loss of $24,649 and a decrease in capital paid-in of $11,900. This
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represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2007. 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 non-deductible 12b-1 fees. The calculation of net investment income (loss) per share in the Fund’s Financial Highlights excludes these adjustments.
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Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Funds III and Shareholders of John Hancock Growth 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 Growth Fund (the “Fund”) at February 28, 2007, and the results of its operations, the changes in its net assets and the financial highlights for the period June 12, 2006 (commencement of operations) through February 28, 2007, 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 audit. We conducted our audit 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 audit, which included confirmation of investments at February 28, 2007 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2007
34
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 February 28, 2007.
The Fund has designated distributions to shareholders of $40,377 as a long-term capital gain dividend.
With respect to the ordinary dividends paid by the Fund for the fiscal year ended February 28, 2007, 21.31% of the dividends qualifies 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 2007.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
35
Trustees and 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, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
Ronald R. Dion , Born: 1946 | 2006 | 66 |
Independent Chairman (since 2005); 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. | | |
|
|
James F. Carlin , Born: 1940 | 2006 | 66 |
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | | |
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | | |
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | | |
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | | |
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | | |
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | | |
|
|
Richard P. Chapman, Jr.,2 Born: 1935 | 2006 | 66 |
President and Chief Executive Officer, Brookline Bancorp, Inc. (lending) (since | | |
1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); | | |
Chairman and Director, Northeast Retirement Services, Inc. (retirement | | |
administration) (since 1998); Vice Chairman, Northeastern University Board | | |
of Trustees (since 2004). | | |
|
|
William H. Cunningham , Born: 1944 | 2006 | 66 |
Former Chancellor, University of Texas System and former President of the | | |
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, | | |
IBT Technologies (until 2001); Director of the following: Hire.com (until 2004), | | |
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. | | |
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until | | |
2004), Pinnacle Foods Corporation (until 2003), rateGenius (until 2003), Lincoln | |
National Corporation (insurance) (since 2006), Jefferson-Pilot Corporation | | |
(diversified life insurance company) (until 2006), New Century Equity Holdings | | |
(formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com | | |
(until 2001), Agile Ventures (until 2001), AskRed.com (until 2001), Southwest | | |
Airlines (since 2000), Introgen (since 2000) and Viasystems Group, Inc. (electronic | |
manufacturer) (until 2003); Advisory Director, Interactive Bridge, Inc. (college | | |
fundraising) (until 2001); Advisory Director, Q Investments (until 2003); | | |
36
Independent Trustees (continued) | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
William H. Cunningham , Born: 1944 (continued) | 2006 | 66 |
Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce Bank – | | |
Austin), LIN Television (since 2002), WilTel Communications (until 2003) and | | |
Hayes Lemmerz International, Inc. (diversified automotive parts supply company) | |
(since 2003). | | |
|
|
Charles L. Ladner,2 Born: 1938 | 2006 | 66 |
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, AmeriGas, Inc. | | |
(retired 1998); Director, AmeriGas Partners, L.P. (gas distribution) (until 1997); | | |
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | |
(until 2005). | | |
|
|
John A. Moore,2 Born: 1939 | 2006 | 66 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, | | |
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | | |
(health research) (until 2003); Former Assistant Administrator and Deputy | | |
Administrator, Environmental Protection Agency; Principal, Hollyhouse | | |
(consulting) (since 2000); Director, CIIT Center for Health Science Research | | |
(nonprofit research) (2002–2006). | | |
|
|
Patti McGill Peterson,2 Born: 1943 | 2006 | 66 |
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 | 2006 | 66 |
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). | | |
37
Non-Independent Trustee3 | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
James R. Boyle, Born: 1959 | 2006 | 272 |
President, John Hancock Insurance Group; Executive Vice President, John | | |
Hancock Life Insurance Company (since June 2004); Chairman and Director, | | |
John Hancock Advisers, LLC (the “Adviser”), John Hancock Funds, LLC and | | |
The Berkeley Financial Group, LLC (“The Berkeley Group”) (holding company) | | |
(since 2005); Senior Vice President, The Manufacturers Life Insurance Company | |
(U.S.A.) (until 2004). | | |
|
Principal officers who are not Trustees | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Keith F. Hartstein, Born: 1956 | | 2006 |
President and Chief Executive Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, John | | |
Hancock Funds, LLC (since 2005); Director, MFC Global Investment Management | |
(U.S.), LLC (“MFC Global (U.S.)”) (since 2005); Director, John Hancock Signature | |
Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock | |
Investment Management Services, LLC (since 2006); President and Chief Executive | |
Officer, John Hancock Funds II, John Hancock Funds III and John Hancock Trust; | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | | |
Chairman, Investment Company Institute Sales Force Marketing Committee | | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | | |
|
|
Thomas M. Kinzler, Born: 1955 | | 2006 |
Secretary and Chief Legal Officer | | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2006); | |
Vice President and Associate General Counsel, Massachusetts Mutual Life | | |
Insurance Company (1999–2006); Secretary and Chief Legal Counsel, MML | | |
Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, | | |
MassMutual Institutional Funds (2000–2004); Secretary and Chief Legal Counsel, | |
MassMutual Select Funds and MassMutual Premier Funds (2004–2006). | | |
|
|
Francis V. Knox, Jr., Born: 1947 | | 2006 |
Chief Compliance Officer | | |
Vice President and Chief Compliance Officer, John Hancock Investment | | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | | |
Vice President and Chief Compliance Officer, John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and | | |
Ethics & Compliance Officer, Fidelity Investments (until 2001). | | |
38
Principal officers who are not Trustees (continued) | |
|
Name, Year of Birth | |
Position(s) held with Fund | Officer |
Principal occupation(s) and | of Fund |
directorships during past 5 years | since |
|
Gordon M. Shone, Born: 1956 | 2006 |
Treasurer | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | |
(1998–2000). | |
|
|
John G. Vrysen, Born: 1955 | 2006 |
Chief Financial Officer | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | |
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley | |
Group and John Hancock Funds, LLC (since 2005); Executive Vice President and | |
Chief Financial Officer, John Hancock Investment Management Services, LLC | |
(since 2005); Vice President and Chief Financial Officer, MFC Global (U.S.) | |
(since 2005); Director, John Hancock Signature Services, Inc. (since 2005); | |
Chief Financial Officer, John Hancock Funds II, John Hancock Funds III and John | |
Hancock Trust (since 2005); Vice President and General Manager, Fixed Annuities, | |
U.S. Wealth Management (until 2005); Vice President, Operations, Manulife | |
Wood Logan (2000–2004). | |
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.
1Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2Member of Audit Committee.
3Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
39
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 | Custodian | Legal counsel |
John Hancock Investment | State Street Bank & Trust Co. | Kirkpatrick & Lockhart |
Management Services, LLC | 2 Avenue de Lafayette | Preston Gates Ellis LLP |
601 Congress Street | Boston, MA 02111 | 1 Lincoln Street |
Boston, MA 02210-2805 | | Boston, MA 02110-2950 |
| Transfer agent | |
Subadviser | John Hancock Signature | Independent registered |
Grantham, Mayo, | Services, Inc. | public accounting firm |
Van Otterloo & Co. LLC | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
40 Rowes Wharf | Suite 1000 | 125 High Street |
Boston, MA 02110 | Boston, MA 02217-1000 | Boston, MA 02110 |
| | |
Principal distributor | | |
John Hancock Funds, LLC | | |
601 Congress Street | | |
Boston, MA 02210-2805 | | |
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 | 380 Stuart Street |
| | Boston, MA 02116 |
|
|
Phone | Customer service representatives | 1-800-225-5291 |
| EASI-Line | 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.
40
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Fund |
Focused Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Mid Cap Growth Fund | TAX-FREE INCOME |
Multi Cap Growth Fund | California Tax-Free Income Fund |
Small Cap Equity Fund | High Yield Municipal Bond Fund |
Small Cap Fund | Massachusetts Tax-Free Income Fund |
Small Cap Intrinsic Value Fund | New York Tax-Free Income Fund |
Sovereign Investors Fund | Tax-Free Bond Fund |
U.S. Core Fund | |
U.S. Global Leaders Growth Fund | MONEY MARKET |
Value Opportunities Fund | Money Market Fund |
| U.S. Government Cash Reserve |
ASSET ALLOCATION | |
Allocation Core Portfolio | CLOSED-END |
Allocation Growth + Value Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2010 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2015 Portfolio | Income Securities Trust |
Lifecycle 2020 Portfolio | Investors Trust |
Lifecycle 2025 Portfolio | Patriot Global Dividend Fund |
Lifecycle 2030 Portfolio | Patriot Preferred Dividend Fund |
Lifecycle 2035 Portfolio | Patriot Premium Dividend Fund I |
Lifecycle 2040 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2045 Portfolio | Patriot Select Dividend Trust |
Lifecycle Retirement Portfolio | Preferred Income Fund |
Lifestyle Aggressive Portfolio | Preferred Income II Fund |
Lifestyle Balanced Portfolio | Preferred Income III Fund |
Lifestyle Conservative Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
|
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund | |
For more complete information on any John Hancock Fund and an Open-End fund prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291 for Open-End fund information and 1-800-852-0218 for Closed-End fund information. Please read the Open-End fund prospectus carefully before investing or sending money.
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 Growth Fund. |
8600A 2/07
4/07
TABLE OF CONTENTS |
|
|
Your fund at a glance |
page 1 |
|
|
Managers’ report |
page 2 |
|
|
A look at performance |
page 6 |
|
|
Your expenses |
page 8 |
|
|
Fund’s investments |
page 10 |
|
|
Financial statements |
page 18 |
|
|
Notes to financial |
statements |
page 28 |
|
|
Trustees and officers |
page 39 |
|
|
For more information |
page 44 |
|
CEO corner
To Our Shareholders,
Financial markets around the world produced stellar results over the last 12 months, outperforming the U.S. market for the fourth straight year in an environment of strong global economic growth, low interest rates, good corporate earnings growth and more stable energy prices. Even with a sharp decline in the last days of the period, foreign markets, as measured by the MSCI EAFE Index, returned 21.07% for the year ended February 28, 2007.
But after a remarkably long period of calm, the financial markets were rocked at the end of the period by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. In the United States, for example, the Dow Jones Industrial Average had its steepest one-day percentage decline in nearly four years on February 27, 2007. The event served to jog investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
It was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the world markets’ moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. China’s market was long overdue for a correction after frothy returns of more than 100% recently. We believe economic conditions remain sound and that, even if volatility continues, this global downturn was a healthy correction.
The latest events could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon — not a sprint — approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of February 28, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks high total return primarily through capital appreciation by, under normal circumstances, investing at least 80% of its assets in a diversified portfolio of equity investments from a number of developed markets outside the U.S.
Since inception
► The Fund outperformed its benchmark in a period of strong absolute returns, with stock selection in financials, health care and materials driving performance.
► Valuation worked better than momentum for most of the period, as a market correction near the Fund’s inception prompted investors to favor value over growth.
► U.S. dollar weakness accounted for a significant portion of the Fund’s absolute returns.
John Hancock International Growth Fund
Fund performance from inception June 12, 2006, through February 28, 2007.
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
a Class R shares were renamed R1.
b Class NAV shares began operations on 12-27-06.
Top 10 holdings | | | | |
Total SA | 3.5% | | Telefonica SA | 1.6% |
| | | |
Canon, Inc. | 2.3% | | ING Groep NV | 1.4% |
| | | |
Eni SpA | 2.3% | | AstraZeneca Group PLC | 1.4% |
| | | |
Honda Motor Company, Ltd. | 2.2% | | BT Group PLC | 1.4% |
| | | |
Toyota Motor Corp. | 1.9% | | GlaxoSmithKline PLC | 1.1% |
|
As a percentage of net assets on February 28, 2007.
1
Managers’ report
John Hancock
International Growth Fund
From the Fund’s inception June 12, 2006 through February 28, 2007, foreign stocks posted robust returns, aided by both advancing share prices in local currency terms and further weakness in the U.S. dollar. All of the markets in the benchmark posted double-digit gains, led by Iceland, Singapore, Slovenia and Ireland. Japan, with roughly a 12% advance, recorded the most modest increase, a result partly attributable to the fact that the Japanese yen was one of the few foreign currencies to weaken against the U.S. dollar.
Economic conditions in the Fund’s investment universe remained generally favorable. Japan’s economic recovery continued, albeit at an uneven pace, and the country began to back away from the zero interest rate policy to which it resorted for economic stimulation during its long bout with deflation. In the eurozone, economic growth for all of 2006 came in at 2.7%, almost double the 1.4% rate recorded for 2005. While 2006 economic growth in the United Kingdom was comparable, at 2.7%, inflation was more of a concern, prompting U.K. monetary authorities to boost short-term interest rates to the 5.25% level by the end of the period.
Looking at performance
From their inception on June 12, 2006, through February 28, 2007, John Hancock International Growth Fund’s Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV shares, which began operations on December 27, 2006, returned 22.18%, 21.64%, 21.59%, 22.60%,
SCORECARD
INVESTMENT | | PERIOD’S PERFORMANCE... AND WHAT’S BEHIND THE NUMBERS |
Anglo American | ▲ | Profit margins aided by high copper and nickel prices |
Zinifex | ▲ | Strong zinc prices drive performance |
Resona Holdings | ▼ | Disappointing economic reports; Livedoor scandal |
2
From the Grantham, Mayo, Van Otterloo & Co. LLC (GMO) Portfolio
Management Team
21.92%, 22.63% and 0.80%, respectively, at net asset value. By comparison, the S&P/Citigroup Primary Market Index (PMI) Europe, Pacific, Asia Composite (EPAC) Growth Style Index returned 18.53%, while the average foreign large growth fund monitored by Morningstar, Inc. gained 22.65% .a Keep in mind that your returns will differ from those listed above if you were not invested in the Fund for the entire period or did not reinvest all distributions.
“…foreign stocks posted robust
returns, aided by both advancing
share prices in local currency
terms and further weakness in
the U.S. dollar.”
Of the two main factors guiding our analysis of the markets, valuation proved more fruitful than momentum during the review period. Although both approaches were successful early in the year, the market correction from mid-May through mid-July prompted investors to rotate capital into more defensive areas of the market that were still attractively valued, whereas many of the commodity-oriented momentum-based picks underperformed. As the market rebounded later in the year, defensive sectors such as utilities and telecommunications services fared better than more speculative groups. A major theme throughout the year in Europe was mergers and acquisitions driven by cross-border deals and private equity. This trend tended to lead to the outperformance of high-cash-flow potential takeover targets.
Stock picks in Japan prove rewarding
Relative to the benchmark, the Fund’s performance was aided by its positioning in Japan, where significant benefits from favorable stock selection effectively countered the modest drag on performance resulting from slightly overweighting a market that lagged most other markets, along with a weaker yen. Avoiding many of the weakest performers in Japan, particularly in the financial sector, and focusing on stocks with stable earnings growth,
International Growth Fund
3
benefited the Fund. Stock selection also was a positive factor in the United Kingdom, Switzerland and Australia.
Conversely, weakness in the Canadian dollar and ineffective stock picks in the Canadian market detracted from performance. Underweighting the strong-performing Spanish market was detrimental as well.
Stock picks in financials stand out
On a sector basis, the Fund was aided most by financials, health care and materials. Among individual stocks, a sizeable underweighting in major benchmark component BP PLC, a U.K. holding, was beneficial, as falling energy prices hampered stocks in the sector. Additionally, we were able to sell our position and lock in profits before the stock’s return fell into negative territory. Diversified mining company Anglo American PLC, a producer of gold, copper and nickel, also provided a performance boost, as did zinc producer Zinifex, Ltd. Both were momentum plays that performed well primarily because of the strength in industrial commodity prices. Meanwhile, a lighter-than-benchmark exposure to two index components that finished with negative returns, French drug stock Sanofi-Aventis and Japanese bank Mizuho Financial Group, Inc., also helped our results.
Consumer staples disappoint
Sectors that detracted from performance included consumer staples, utilities and telecommunication services, the damage in all three cases being relatively minimal. In consumer staples, an underweighting caused the shortfall, while a mixture of underweighted exposure and ineffective stock picks were at work in the other two sectors. Since this Fund has a growth mandate, momentum typically takes center stage while valuation plays a less important role in our analysis, which can result in underweighting defensive sectors such as those just mentioned.
Japanese bank Resona Holdings, Inc. was the Fund’s largest detractor. Earlier in the period, the stock was hurt by disappointing Gross Domestic Product reports reflecting weaker-than-expected economic growth in Japan. An insider trading scandal involving Japanese Internet company Livedoor Co. Ltd. also had a negative impact on investor sentiment toward many stocks, including those in the banking industry. Given its deteriorating momentum, we sold Resona shortly after
SECTOR DISTRIBUTIONb |
Financial | 20% |
Consumer, non-cyclical | 17% |
Consumer, cyclical | 15% |
Energy | 11% |
Basic materials | 9% |
Industrial | 8% |
Communications | 7% |
Utilities | 4% |
Technology | 3% |
International Growth Fund
4
the period ended. Another Japanese holding that disappointed us was automaker Nissan Motor Company, Ltd., whose stock dropped sharply at the beginning of February after the company reported that operating profits fell by more than 16% for its fiscal third quarter ending December 31, 2006. Unit sales slipped by 3% as well. Additionally, not owning or underweighting three benchmark components that delivered robust returns, German electronics conglomerate Siemens AG, Dutch steel producer Arcelor Mittal and Spanish telecommunication services provider Telefonica SA, worked against the Fund.
“Relative to the benchmark, the
Fund’s performance was aided by
its positioning in Japan…”
Outlook
In response to the momentum and valuation trends we’ve been seeing, we’ve given the Fund a more defensive tilt during the past few months. In part, that shift has been driven by the dissipation of momentum in sectors such as consumer discretionary and financials. However, it’s also a result of valuation considerations. For example, we think the pharmaceutical segment of health care hasn’t been given its due, so we’ve increased the Fund’s holdings there. We’ve also raised the Fund’s stakes in utilities and telecommunication services, both defensive sectors. Should the markets experience further volatility, these recent adjustments, dictated by our momentum and valuation guidelines, could be helpful. Additionally, any further volatility could prompt an overall higher aversion to risk, leading to the unwinding of trades involving borrowing Japanese yen and buying non-Japanese assets — the so-called “yen-carry trade” — which likely would cause the yen to appreciate, aiding our overweighted position in that country.
This commentary reflects the views of the portfolio management team through the end of the Fund’s period discussed in this report. The team’s statements reflect its 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.
International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting.
a Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
b As a percentage of net assets on February 28, 2007.
International Growth Fund
5
A look at performance
For the period ended February 28, 2007
| | Cumulative total returns | |
| | with maximum sales charge (POP) | |
| Inception | | Since |
Class | date | | inception |
|
A | 6-12-06 | | 16.08% |
|
B | 6-12-06 | | 16.64 |
|
C | 6-12-06 | | 20.59 |
|
Ia | 6-12-06 | | 22.60 |
|
R1a | 6-12-06 | | 21.92 |
|
1a | 6-12-06 | | 22.63 |
|
NAVa | 12-27-06 | | 0.80 |
|
Performance figures assume all distributions are reinvested. POP (Public Offering Price) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I, Class R1, Class 1 and Class NAV 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 increase and results would have been less favorable.
Performance is calculated with an opening price (prior day’s close) on the inception date. a For certain types of investors as described in the Fund’s Class I, Class R1, Class 1 and Class NAV share prospectuses.
International Growth Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in International
Growth Fund Class A shares for the period indicated. For comparison, we’ve shown the
same investment in two separate indexes.
| | Without sales | With maximum | | |
Class | Period beginning | charge | sales charge | Index 1 | Index 2 |
|
B | 6-12-06 | $12,164 | $11,664 | $11,853 | $12,151 |
|
C | 6-12-06 | 12,159 | 12,059 | 11,853 | 12,151 |
|
1b | 6-12-06 | 12,263 | 12,263 | 11,853 | 12,151 |
|
R1b | 6-12-06 | 12,192 | 12,192 | 11,853 | 12,151 |
|
Ib | 6-12-06 | 12,260 | 12,260 | 11,853 | 12,151 |
|
NAVb | 12-27-06 | 10,080 | 10,080 | 10,126 | 10,170 |
|
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, Class R1, Class 1 and Class NAV shares, respectively, as of February 28, 2007. 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.
S&P/Citigroup Primary Market Index (“PMI”) Europe, Pacific, Asia Composite (“EPAC”) Growth Style Index — Index 1 — is an independently maintained and published index composed of stocks in the EPAC regions of the PMI that have a growth style. The PMI is the large-capitalization stock component of the S&P/Citigroup Broad Market Index (“BMI”) (which includes listed shares of companies from developed and emerging market countries with a total available market capitalization of at least the local equivalent of USD100 million), representing the top 80% of available capital of the BMI in each country.
MSCI EAFE Net Total Return Index (Europe, Australasia, Far East) — Index 2 — is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. As of June 2006, the MSCI EAFE Index consisted of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Returns are calculated and presented net of withholding tax.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
a NAV represents net asset value and POP represents public offering price.
b For certain types of investors as described in the Fund’s Class I, Class R1, Class 1 and Class NAV share prospectuses.
International Growth Fund
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 September 1, 2006, with the same investment held until February 28, 2007.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,107.11 | $8.67 |
|
Class B | 1,000.00 | 1,103.59 | 12.52 |
|
Class C | 1,000.00 | 1,103.13 | 12.52 |
|
Class I | 1,000.00 | 1,110.09 | 6.28 |
|
Class R1 | 1,000.00 | 1,105.30 | 10.18 |
|
Class 1 | 1,000.00 | 1,109.85 | 6.02 |
|
| Account value | Ending value | Expenses paid during period |
| on 12-27-06 | on 2-28-07 | ended 2-28-07a |
|
NAV | $1,000.00 | $1,008.01 | $1.98 |
|
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 February 28, 2007 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:
International Growth Fund
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’ actual expense ratio and an assumed 5% annualized return before expenses (which is not your Fund’s actual return). It assumes an account value of $1,000.00 on September 1, 2006, with the same investment held until February 28, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during period |
| on 9-1-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,016.56 | $8.30 |
|
Class B | 1,000.00 | 1,012.89 | 11.98 |
|
Class C | 1,000.00 | 1,012.89 | 11.98 |
|
Class I | 1,000.00 | 1,018.84 | 6.01 |
|
Class R1 | 1,000.00 | 1,015.12 | 9.74 |
|
Class 1 | 1,000.00 | 1,019.09 | 5.76 |
|
| Account value | Ending value | Expenses paid during period |
| on 12-27-06 | on 2-28-07 | ended 2-28-07a |
|
NAV | $1,000.00 | $1,006.52 | $1.98 |
|
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.
a Expenses are equal to the Fund’s annualized expense ratio of 1.66%, 2.40%, 2.40%, 1.20%, 1.95%, 1.15% and 1.16% for Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV, respectively, multiplied by the average account value over the period, multiplied by the number of days in the inception period/365 or 366 (to reflect the one-half year period).
International Growth Fund
9
F I N A N C I A L S T A T E M E N T S
Fund’s investments
Securities owned by the Fund on 2-28-07
This schedule is divided into four main categories: common stocks, preferred stocks, rights and repurchase agreements. Common stocks, preferred stocks and rights are further broken down by country. Repurchase agreements, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
|
Common stocks 93.90% | | $22,110,187 |
(Cost $19,413,262) | | |
Australia 5.15% | | 1,212,933 |
|
Australia and New Zealand Banking Group, Ltd. | 1,759 | 40,674 |
|
BHP Billiton, Ltd. | 2,238 | 47,918 |
|
Coles Myer, Ltd. | 3,379 | 40,961 |
|
CSL, Ltd. | 1,568 | 96,089 |
|
CSR, Ltd. | 17,494 | 50,117 |
|
Lihir Gold, Ltd. * | 8,098 | 21,218 |
|
Macquarie Bank, Ltd. | 1,267 | 78,983 |
|
Newcrest Mining, Ltd. | 1,573 | 27,994 |
|
NRMA Insurance Group, Ltd. | 17,611 | 83,114 |
|
Oxiana, Ltd. | 15,700 | 35,437 |
|
Promina Group, Ltd. | 18,105 | 103,877 |
|
QBE Insurance Group, Ltd. | 3,351 | 84,627 |
|
Rio Tinto, Ltd. | 1,708 | 101,905 |
|
Telstra Corp., Ltd. | 18,875 | 63,458 |
|
Toll Holdings, Ltd. | 2,887 | 44,133 |
|
Westpac Banking Corp., Ltd. | 1,557 | 31,285 |
|
Woodside Petroleum, Ltd. | 1,381 | 40,609 |
|
Woolworths, Ltd. | 2,970 | 63,755 |
|
WorleyParsons, Ltd. | 2,114 | 45,713 |
|
Zinifex, Ltd. | 8,417 | 111,066 |
Austria 0.15% | | 34,664 |
|
OMV AG | 621 | 34,664 |
Belgium 2.29% | | 540,124 |
|
Belgacom SA | 1,667 | 71,503 |
|
Colruyt SA | 209 | 45,570 |
|
Fortis Group SA | 4,921 | 211,729 |
|
Interbrew | 961 | 63,712 |
|
KBC Bancassurance Holding NV | 447 | 54,386 |
|
UCB SA | 855 | 55,226 |
|
Union Miniere SA | 222 | 37,998 |
See notes to financial statements
International Growth Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Bermuda 0.37% | | $87,921 |
|
Esprit Holdings, Ltd. | 6,000 | 62,523 |
|
Li & Fung, Ltd. | 8,000 | 25,398 |
Canada 2.89% | | 680,925 |
|
Canadian Natural Resources, Ltd. | 1,000 | 50,190 |
|
EnCana Corp. | 3,200 | 155,467 |
|
Goldcorp, Inc. | 2,900 | 77,770 |
|
Petro-Canada | 1,100 | 40,657 |
|
Research In Motion, Ltd. * | 1,000 | 140,204 |
|
Royal Bank of Canada | 2,700 | 124,807 |
|
Suncor Energy, Inc. | 500 | 35,440 |
|
Teck Cominco, Ltd. | 800 | 56,390 |
Cayman Islands 0.15% | | 34,283 |
|
Foxconn International Holdings, Ltd. * | 13,000 | 34,283 |
Denmark 0.67% | | 157,819 |
|
Danske Bank AS | 600 | 27,750 |
|
Novo Nordisk AS | 1,200 | 103,331 |
|
Topdanmark AS * | 150 | 26,738 |
Finland 1.40% | | 329,694 |
|
Fortum Corp. Oyj | 1,072 | 29,586 |
|
Metso Oyj | 400 | 19,851 |
|
Nokia AB Oyj | 8,221 | 179,358 |
|
Rautaruukki Oyj | 609 | 27,879 |
|
Sampo Oyj, A Shares | 1,639 | 45,755 |
|
YIT Oyj | 836 | 27,265 |
France 8.75% | | 2,060,726 |
|
BNP Paribas SA | 1,058 | 110,499 |
|
Carrefour SA | 2,334 | 155,882 |
|
Casino Guich-Perrachon SA | 262 | 22,566 |
|
Credit Agricole SA | 1,271 | 50,717 |
|
Electricite de France | 375 | 27,492 |
|
Gaz de France | 992 | 43,718 |
|
Groupe Danone SA | 214 | 33,900 |
|
L’Oreal SA | 949 | 99,354 |
|
Peugeot SA | 1,705 | 115,023 |
|
Publicis Groupe SA | 486 | 21,785 |
|
Renault Regie Nationale SA | 1,559 | 185,410 |
|
Sanofi-Aventis | 1,365 | 116,051 |
|
Societe Generale | 638 | 107,489 |
|
Societe Television Francaise 1 | 530 | 17,860 |
|
Total SA | 12,334 | 832,570 |
|
Unibail | 167 | 48,286 |
|
Vallourec SA | 291 | 72,124 |
See notes to financial statements
International Growth Fund
11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Germany 3.77% | | $888,277 |
|
Altana AG | 1,163 | 70,396 |
|
BASF AG | 288 | 29,283 |
|
Bayerische Motoren Werke (BMW) AG | 634 | 36,832 |
|
Beiersdorf AG | 656 | 42,528 |
|
Deutsche Bank AG | 155 | 20,353 |
|
Deutsche Boerse AG | 615 | 123,158 |
|
Fresenius Medical Care AG | 229 | 32,419 |
|
Merck & Company AG | 160 | 19,909 |
|
Metro AG | 319 | 22,065 |
|
Muenchener Rueckversicherungs-Gesellschaft AG | 348 | 55,449 |
|
Puma AG | 200 | 71,048 |
|
Salzgitter AG | 849 | 104,880 |
|
Solarworld AG | 475 | 34,301 |
|
Thyssen Krupp AG | 1,914 | 93,822 |
|
United Internet AG | 3,772 | 69,269 |
|
Volkswagen AG | 496 | 62,565 |
Hong Kong 0.43% | | 101,836 |
|
Hong Kong Electric Holdings, Ltd. | 10,000 | 50,310 |
|
Hong Kong Exchange & Clearing, Ltd. | 5,000 | 51,526 |
Ireland 1.80% | | 422,641 |
|
Allied Irish Banks PLC | 759 | 22,343 |
|
Anglo Irish Bank Corp. PLC | 3,889 | 82,840 |
|
Bank of Ireland | 3,342 | 76,273 |
|
C&C Group PLC | 5,225 | 72,586 |
|
CRH PLC | 2,276 | 95,005 |
|
Depfa Bank PLC | 1,556 | 26,125 |
|
Irish Life & Permanent PLC | 1,675 | 47,469 |
Italy 3.43% | | 806,789 |
|
AEM SpA | 6,199 | 20,914 |
|
Banco Popolare Di Verona e Novara SpA | 2,525 | 76,502 |
|
Enel SpA | 8,015 | 83,721 |
|
Eni SpA | 17,460 | 534,776 |
|
Saipem SpA | 1,193 | 32,215 |
|
UniCredito Italiano SpA | 6,334 | 58,661 |
Japan 24.28% | | 5,716,761 |
|
AEON Company, Ltd. | 1,600 | 33,409 |
|
Aiful Corp. | 1,200 | 32,665 |
|
Asahi Breweries, Ltd. | 1,000 | 16,400 |
|
Astellas Pharmaceuticals, Inc. | 2,000 | 87,750 |
|
Canon, Inc. | 9,900 | 541,491 |
|
Central Japan Railway Company, Ltd. | 5 | 60,022 |
|
Chiyoda Corp. | 1,000 | 22,233 |
|
Chubu Electric Power Company, Inc. | 1,800 | 60,715 |
|
Daiichi Sankyo Company, Ltd. | 1,800 | 57,976 |
See notes to financial statements
International Growth Fund
12
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Japan (continued) | | |
|
Daikin Industries, Ltd. | 1,000 | $35,760 |
|
Denso Corp. | 2,300 | 89,636 |
|
East Japan Railway Company | 11 | 84,437 |
|
Eisai Company, Ltd. | 800 | 40,781 |
|
Fanuc, Ltd. | 300 | 26,832 |
|
Fast Retailing Company, Ltd. | 200 | 16,367 |
|
Fuji Photo Film Company, Ltd. | 800 | 34,424 |
|
Honda Motor Company, Ltd. | 14,100 | 526,858 |
|
Hoya Corp. | 1,800 | 62,389 |
|
Ibiden Company, Ltd. | 500 | 25,066 |
|
Inpex Holdings, Inc. * | 2 | 16,772 |
|
Itochu Corp. | 7,000 | 67,521 |
|
Japan Tobacco, Inc. | 8 | 36,588 |
|
JFE Holdings, Inc. | 2,000 | 123,256 |
|
Kansai Electric Power Company, Ltd. | 2,100 | 62,490 |
|
Kawasaki Heavy Industries, Ltd. | 4,000 | 16,333 |
|
Kawasaki Kisen Kaisha, Ltd. | 10,000 | 99,586 |
|
KDDI Corp. | 6 | 47,020 |
|
Keyence Corp. | 200 | 47,121 |
|
Kirin Brewery Company, Ltd. | 3,000 | 46,437 |
|
Komatsu, Ltd. | 3,000 | 66,827 |
|
Konica Minolta Holdings, Inc. | 2,500 | 32,082 |
|
Kubota Corp. | 2,000 | 19,900 |
|
LeoPalace21 Corp. | 1,100 | 34,872 |
|
Mazda Motor Corp. | 4,000 | 23,603 |
|
Mitsubishi Corp. | 1,000 | 23,332 |
|
Mitsubishi Estate Company, Ltd. | 3,000 | 93,584 |
|
Mitsubishi Gas & Chemicals Company, Inc. | 4,000 | 43,486 |
|
Mitsubishi Rayon Company, Ltd. | 3,000 | 19,807 |
|
Mitsui Fudosan Company, Ltd. | 2,000 | 55,288 |
|
Mitsui O.S.K. Lines, Ltd. | 6,000 | 67,867 |
|
Mitsui Trust Holdings, Inc. | 7,000 | 78,172 |
|
Mizuho Financial Group, Inc. | 10 | 70,167 |
|
Nikon Corp. | 2,000 | 45,989 |
|
Nintendo Company, Ltd. | 400 | 106,518 |
|
Nippon Oil Corp. | 4,000 | 29,250 |
|
Nippon Steel Corp. | 9,000 | 61,248 |
|
Nippon Yusen Kabushiki Kaisha | 10,000 | 79,043 |
|
Nissan Motor Company, Ltd. | 17,300 | 200,656 |
|
Nomura Holdings, Inc. | 1,900 | 41,360 |
|
NTT DoCoMo, Inc. | 28 | 51,365 |
|
Olympus Optical Company, Ltd. | 1,000 | 33,562 |
|
Orix Corp. | 100 | 27,559 |
|
Osaka Gas Company, Ltd. | 14,000 | 55,034 |
|
Pacific Metals Company, Ltd. | 3,000 | 41,872 |
See notes to financial statements
International Growth Fund
13
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Japan (continued) | | |
|
Resona Holdings, Inc. * | 50 | $142,024 |
|
Ricoh Company, Ltd. | 4,000 | 88,596 |
|
SBI Holdings, Inc. | 124 | 53,043 |
|
Sega Sammy Holdings, Inc. | 1,200 | 30,079 |
|
Sekisui House, Ltd. | 2,000 | 29,926 |
|
Seven & I Holdings Company, Ltd. | 1,100 | 35,337 |
|
Sharp Corp. | 2,000 | 37,112 |
|
Shin-Etsu Chemical Company, Ltd. | 1,500 | 94,091 |
|
Shinsei Bank, Ltd. | 6,000 | 32,158 |
|
Sony Corp. | 1,600 | 83,456 |
|
Sumitomo Chemical Company, Ltd. | 6,000 | 45,651 |
|
Sumitomo Metal Mining Company, Ltd. | 4,000 | 71,519 |
|
Sumitomo Mitsui Financial Group, Inc. | 5 | 48,609 |
|
Sumitomo Realty & Development Company, Ltd. | 2,000 | 79,804 |
|
Suzuki Motor Corp. | 2,000 | 54,950 |
|
Takeda Pharmaceutical Company, Ltd. | 3,800 | 261,493 |
|
TDK Corp. | 500 | 41,720 |
|
Terumo Corp. | 1,000 | 38,296 |
|
Tokyo Gas Company, Ltd. | 13,000 | 73,083 |
|
Tokyo Steel Manufacturing Company, Ltd. | 2,600 | 43,454 |
|
Toray Industries, Inc. | 4,000 | 28,912 |
|
Toyota Motor Corp. | 6,500 | 440,697 |
|
Toyota Tsusho Corp. | 1,000 | 27,813 |
|
Trend Micro, Inc. | 500 | 14,160 |
Netherlands 4.07% | | 958,468 |
|
ABN AMRO Holdings NV | 2,741 | 96,138 |
|
Aegon NV | 1,863 | 36,849 |
|
Akzo Nobel NV | 1,110 | 68,422 |
|
ASML Holding NV * | 1,498 | 36,884 |
|
DSM NV | 513 | 22,228 |
|
Euronext NV | 429 | 46,684 |
|
Heineken NV | 2,722 | 134,150 |
|
ING Groep NV | 7,925 | 338,357 |
|
Randstad Holdings NV | 943 | 66,062 |
|
Reed Elsevier NV | 1,830 | 32,347 |
|
TNT Post Group NV | 1,868 | 80,347 |
Norway 0.92% | | 216,913 |
|
Norsk Hydro ASA | 1,342 | 41,569 |
|
Orkla ASA | 380 | 24,718 |
|
Statoil ASA | 2,350 | 59,958 |
|
Telenor ASA | 4,900 | 90,668 |
Portugal 0.17% | | 40,689 |
|
Portugal Telecom, SGPS, SA | 3,054 | 40,689 |
See notes to financial statements
International Growth Fund
14
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Singapore 0.73% | | $170,887 |
|
CapitaLand, Ltd. * | 19,000 | 87,652 |
|
Singapore Telecommunications, Ltd. | 40,000 | 83,235 |
Spain 4.58% | | 1,077,627 |
|
Acerinox SA | 2,195 | 58,459 |
|
ACS Actividades SA | 1,756 | 99,413 |
|
Banco Popular Espanol SA | 5,109 | 100,513 |
|
Banco Sabadell SA * | 758 | 35,512 |
|
Banco Santander Central Hispano SA | 1,282 | 23,763 |
|
Gamesa Corporacion Tecno SA | 1,038 | 29,815 |
|
Gas Natural SDG SA | 985 | 42,172 |
|
Iberdrola SA | 1,778 | 78,029 |
|
Industria de Diseno Textil SA | 2,782 | 161,915 |
|
Repsol SA | 1,791 | 56,941 |
|
Sacyr Vallehermoso SA | 491 | 26,699 |
|
Telefonica SA | 16,897 | 364,396 |
Sweden 3.90% | | 918,415 |
|
Alfa Laval AB | 700 | 34,970 |
|
Assa Abloy AB, Series B | 2,000 | 43,248 |
|
Atlas Copco AB, Series A | 1,300 | 40,915 |
|
Atlas Copco AB, Series B | 1,800 | 53,696 |
|
Boliden AB | 2,150 | 45,418 |
|
Electrolux AB, Series B * | 2,300 | 51,541 |
|
Ericsson LM, Series B | 9,000 | 32,051 |
|
Getinge AB, Series B | 1,000 | 20,696 |
|
Hennes & Mauritz AB, Series B | 1,400 | 73,037 |
|
Investor AB | 1,000 | 23,123 |
|
Nordea Bank AB | 3,400 | 51,635 |
|
Sandvik AB | 2,200 | 34,542 |
|
Scania AB, Series B | 800 | 59,035 |
|
Skandinaviska Enskilda Banken AB, Series A | 2,000 | 61,233 |
|
SKF AB, Series B | 2,000 | 37,253 |
|
Ssab Svenskt Stal AB, Series A | 2,400 | 64,573 |
|
Svenska Cellulosa AB, Series B | 700 | 36,269 |
|
Swedish Match AB | 3,600 | 62,175 |
|
Volvo AB, Series A | 300 | 23,765 |
|
Volvo AB, Series B | 900 | 69,240 |
Switzerland 5.39% | | 1,269,699 |
|
Actelion, Ltd. * | 361 | 78,774 |
|
Adecco SA | 941 | 62,759 |
|
Compagnie Financiere Richemont AG, Series A | 352 | 19,434 |
|
Credit Suisse Group AG | 826 | 57,258 |
|
Geberit AG | 57 | 94,174 |
|
Nestle SA | 265 | 98,696 |
|
Novartis AG | 3,559 | 198,095 |
See notes to financial statements
International Growth Fund
15
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Switzerland (continued) | | |
|
Phonak Holding AG | 294 | $22,237 |
|
Roche Holdings AG | 812 | 144,814 |
|
Serono AG, Series B | 69 | 62,321 |
|
Societe Generale de Surveillance Holdings AG | 17 | 19,217 |
|
Swatch Group AG, BR shares | 97 | 23,693 |
|
Swiss Re | 804 | 68,594 |
|
Synthes AG | 369 | 46,193 |
|
UBS AG * | 1,493 | 88,490 |
|
Zurich Financial Services AG | 646 | 184,950 |
United Kingdom 18.61% | | 4,382,096 |
|
Alliance & Leicester PLC | 867 | 18,961 |
|
Anglo American PLC | 4,766 | 225,854 |
|
AstraZeneca Group PLC | 5,998 | 336,943 |
|
Aviva PLC | 5,964 | 95,690 |
|
Barclays PLC | 4,343 | 63,037 |
|
Barratt Developments PLC | 3,513 | 81,171 |
|
BG Group PLC | 9,794 | 132,936 |
|
BHP Billiton PLC | 2,056 | 41,194 |
|
British Sky Broadcasting Group PLC | 3,003 | 32,809 |
|
BT Group PLC | 54,955 | 318,793 |
|
Capita Group PLC | 5,094 | 64,646 |
|
Centrica PLC | 23,645 | 173,571 |
|
Compass Group PLC | 8,027 | 47,706 |
|
Countrywide PLC | 1,729 | 19,331 |
|
Dixons Group PLC | 13,638 | 45,743 |
|
George Wimpey PLC | 5,315 | 59,319 |
|
GlaxoSmithKline PLC | 9,326 | 261,582 |
|
HBOS PLC | 3,544 | 75,144 |
|
HSBC Holdings PLC | 2,614 | 45,684 |
|
Imperial Tobacco Group PLC | 2,540 | 105,620 |
|
Inchcape PLC | 2,409 | 24,736 |
|
International Power PLC | 3,507 | 25,108 |
|
Ladbrokes PLC | 3,543 | 28,041 |
|
Land Securities Group PLC | 946 | 38,187 |
|
Lloyds TSB Group PLC | 3,424 | 38,550 |
|
Man Group PLC | 10,561 | 113,725 |
|
Marks & Spencer Group PLC | 9,267 | 122,693 |
|
National Grid PLC, American Depository Receipt | 13,066 | 195,544 |
|
Next Group PLC | 3,078 | 123,283 |
|
Northern Rock PLC | 1,388 | 30,873 |
|
Reckitt Benckiser PLC | 1,251 | 62,915 |
|
Rio Tinto PLC | 3,908 | 209,724 |
|
Royal Bank of Scotland Group PLC | 5,709 | 224,966 |
|
Royal Dutch Shell PLC, A Shares | 6,368 | 206,343 |
See notes to financial statements
International Growth Fund
16
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
United Kingdom (continued) | | |
|
Royal Dutch Shell PLC, B Shares | 5,791 | $187,079 |
|
Scottish & Southern Energy PLC | 4,408 | 124,244 |
|
Tate & Lyle PLC | 3,728 | 41,058 |
|
Tesco PLC | 13,439 | 113,875 |
|
Travis Perkins PLC | 1,400 | 53,740 |
|
William Morrison Supermarket PLC | 29,470 | 171,678 |
|
Preferred stocks 0.28% | | $65,582 |
(Cost $53,124) | | |
Germany 0.28% | | 65,582 |
|
Porsche AG, Non-Voting | 50 | 65,582 |
|
Rights 0.00% | | $1,186 |
(Cost $0) | | |
Australia 0.00% | | 1,186 |
|
WorleyParsons Corp. | 235 | 1,186 |
|
| Principal | |
Issuer, description, maturity date | amount | Value |
|
Repurchase agreements 4.40% | | $1,036,000 |
(Cost $1,036,000) | | |
|
Repurchase Agreement with State Street Corp. dated | | |
2/28/2007 at 4.60% to be repurchased at $1,036,132 | | |
on 3/1/2007, collateralized by $975,000 Federal | | |
Home Loan Bank, 5.75% due 6/12/2026 | | |
(Valued at $1,059,094, including interest) (c) | $1,036,000 | 1,036,000 |
|
Total investments (Cost $20,502,386) 98.58% | | $23,212,955 |
|
|
Other assets in excess of liabilities 1.42% | | 334,155 |
|
|
Total net assets 100.00% | | $23,547,110 |
* Non-income producing.
(c) Investment is an affiliate of the Trust’s subadvisor or custodian bank.
See notes to financial statements
International Growth Fund
17
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 2-28-07
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 $19,466,386) | $22,176,955 |
Repurchase agreement, at value (Cost $1,036,000) | 1,036,000 |
Cash | 155 |
Foreign currency, at value (Cost $165,144) | 166,290 |
Cash segregated for futures contracts | 160,000 |
Receivable for forward foreign currency exchange contracts | 24,711 |
Receivable for fund shares sold | 76,402 |
Dividends and interest receivable | 30,185 |
Receivable due from adviser | 6,723 |
Other assets | 1,645 |
Total assets | 23,679,066 |
|
Liabilities | |
Payable for forward foreign currency exchange contracts | 16,584 |
Payable for futures variation margin | 27,895 |
Payable to affiliates | |
Fund administration fees | 3,150 |
Transfer agent fees | 5,032 |
Distribution and service fees | 201 |
Accrued expenses | 79,094 |
|
Total liabilities | 131,956 |
|
Net assets | |
Capital paid-in | 20,447,817 |
Accumulated undistributed net realized gain on investments, | |
futures contracts and foreign currency transactions | 431,461 |
Net unrealized appreciation on investments, futures contracts | |
and foreign currency translations | 2,696,529 |
Distribution in excess of net investment income | (28,697) |
|
Net assets | $23,547,110 |
|
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 ($19,835,502 ÷ 828,622 shares) | $23.94 |
Class B ($507,863 ÷ 21,237 shares)a | $23.91 |
Class C ($1,563,497 ÷ 65,415 shares)a | $23.90 |
Class I ($212,512 ÷ 8,866 shares) | $23.97 |
Class R1 ($121,942 ÷ 5,104 shares) | $23.89 |
Class 1 ($552,641 ÷ 23,056 shares) | $23.97 |
Class NAV ($753,153 ÷ 31,482 shares) | $23.92 |
|
Maximum offering price per share | |
Class Ab ($23.94 ÷ 95%) | $25.20 |
a Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
b On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements
International Growth Fund
18
F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 2-28-07a
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 | |
Dividends | $203,374 |
Interest | 20,454 |
Less foreign taxes withheld | (13,296) |
Total investment income | 210,532 |
|
Expenses | |
Investment management fees (Note 3) | 120,866 |
Distribution and service fees (Note 3) | 43,138 |
Transfer agent fees (Note 3) | 9,315 |
Fund administration fees (Note 3) | 4,814 |
Blue sky fees (Note 3) | 70,630 |
Audit and legal fees | 51,412 |
Custodian fees | 49,297 |
Printing and postage fees (Note 3) | 10,090 |
Registration and filing fees | 2,539 |
Trustees’ fees (Note 3) | 90 |
Miscellaneous | 286 |
Total expenses | 362,477 |
Less expense reductions (Note 3) | (139,760) |
Net expenses | 222,717 |
Net investment loss | (12,185) |
|
Realized and unrealized gain (loss) | |
|
Net realized gain on | |
Investments | 725,221 |
Futures contracts | 45,775 |
Foreign currency transactions | 32,560 |
Change in net unrealized appreciation (depreciation) of | |
Investments | 2,710,569 |
Futures contracts | (23,384) |
Translation of assets and liabilities in foreign currencies | 9,344 |
Net realized and unrealized gain | 3,500,085 |
Increase in net assets from operations | $3,487,900 |
|
a Period from 6-12-06 (commencement of operations) to 2-28-07. | |
See notes to financial statements
International Growth Fund
19
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
This Statement of Changes in Net Assets shows how the value of the Fund’s net assets has changed since inception. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Period ended |
| 2-28-07a |
|
Increase (decrease) in net assets | |
From operations | |
Net investment loss | ($12,185) |
Net realized gain | 803,556 |
Change in net unrealized appreciation (depreciation) | 2,696,529 |
Increase in net assets resulting from operations | 3,487,900 |
Distributions to shareholders | |
From net investment income | |
Class A | (70,554) |
Class B | (221) |
Class C | (267) |
Class I | (805) |
Class R1 | (455) |
Class 1 | (786) |
From net realized gain | |
Class A | (308,669) |
Class B | (5,885) |
Class C | (7,134) |
Class I | (2,205) |
Class R1 | (1,991) |
Class 1 | (2,075) |
Total distributions | (401,047) |
From Fund share transactions | 20,460,257 |
|
Net assets | |
Beginning of period | — |
End of periodb | $23,547,110 |
|
a Period from 6-12-06 (commencement of operations) to 2-28-07. | |
b Includes distributions in excess of net investment income of $28,697. | |
See notes to financial statements
International Growth Fund
20
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.
CLASS A SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $20.00 |
Net investment lossh | (0.01) |
Net realized and unrealized | |
gain on investments | 4.44 |
Total from investment operations | 4.43 |
Less distributions | |
From net investment income | (0.09) |
From net realized gain | (0.40) |
| (0.49) |
Net asset value, end of period | $23.94 |
Total return (%) | 22.18k,l,m |
|
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | $20 |
Ratio of net expenses to average | |
net assets (%) | 1.66r |
Ratio of gross expenses to average | |
net assets (%) | 2.28p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.06)r |
Portfolio turnover (%) | 41m |
See notes to financial statements
International Growth Fund
21
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $20.00 |
Net investment lossh | (0.16) |
Net realized and unrealized | |
gain on investments | 4.48 |
Total from investment operations | 4.32 |
Less distributions | |
From net investment income | (0.01) |
From net realized gain | (0.40) |
| (0.41) |
Net asset value, end of period | $23.91 |
Total return (%) | 21.64k,l,m |
|
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | $1 |
Ratio of net expenses to average | |
net assets (%) | 2.39r |
Ratio of gross expenses to average | |
net assets (%) | 10.94p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.94)r |
Portfolio turnover (%) | 41m |
See notes to financial statements
International Growth Fund
22
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $20.00 |
Net investment lossh | (0.16) |
Net realized and unrealized | |
gain on investments | 4.47 |
Total from investment operations | 4.31 |
Less distributions | |
From net investment income | (0.01) |
From net realized gain | (0.40) |
| (0.41) |
Net asset value, end of period | $23.90 |
Total return (%) | 21.59k,l,m |
|
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | $2 |
Ratio of net expenses to average | |
net assets (%) | 2.39r |
Ratio of gross expenses to average | |
net assets (%) | 6.71p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.98)r |
Portfolio turnover (%) | 41m |
See notes to financial statements
International Growth Fund
23
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.07 |
Net realized and unrealized | |
gain on investments | 4.45 |
Total from investment operations | 4.52 |
Less distributions | |
From net investment income | (0.15) |
From net realized gain | (0.40) |
| (0.55) |
Net asset value, end of period | $23.97 |
Total return (%) | 22.60k,l,m |
|
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 1.19r |
Ratio of gross expenses to average | |
net assets (%) | 17.20p,r |
Ratio of net investment income | |
to average net assets (%) | 0.42r |
Portfolio turnover (%) | 41m |
See notes to financial statements
International Growth Fund
24
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS R1 SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $20.00 |
Net investment lossh | (0.05) |
Net realized and unrealized | |
gain on investments | 4.43 |
Total from investment operations | 4.38 |
Less distributions | |
From net investment income | (0.09) |
From net realized gain | (0.40) |
| (0.49) |
Net asset value, end of period | $23.89 |
Total return (%) | 21.92k,l,m |
|
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | —i |
Ratio of net expenses to average | |
net assets (%) | 1.94r |
Ratio of gross expenses to average | |
net assets (%) | 20.78p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.32)r |
Portfolio turnover (%) | 41m |
See notes to financial statements
International Growth Fund
25
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS 1 SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $20.00 |
Net investment incomeh | 0.07 |
Net realized and unrealized | |
gain on investments | 4.45 |
Total from investment operations | 4.52 |
Less distributions | |
From net investment income | (0.15) |
From net realized gain | (0.40) |
| (0.55) |
Net asset value, end of period | $23.97 |
Total return (%) | 22.63k,l,m |
|
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | $1 |
Ratio of net expenses to average | |
net assets (%) | 1.15r |
Ratio of gross expenses to average | |
net assets (%) | 2.00p,r |
Ratio of net investment income | |
to average net assets (%) | 0.41r |
Portfolio turnover (%) | 41m |
See notes to financial statements
International Growth Fund
26
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS NAV SHARES | |
|
Period ended | 2-28-07a,c |
|
Per share operating performance | |
Net asset value, beginning of period | $23.73 |
Net investment incomeh | 0.01 |
Net realized and unrealized | |
gain on investments | 0.18 |
Total from investment operations | 0.19 |
Net asset value, end of period | $23.92 |
Total return (%) | 0.80l,m |
|
Ratios and supplemental data | |
Net assets, end of period | |
(in millions) | $1 |
Ratio of net expenses to average | |
net assets (%) | 1.13r |
Ratio of gross expenses to average | |
net assets (%) | 2.75p,r |
Ratio of net investment income | |
to average net assets (%) | 0.14r |
Portfolio turnover (%) | 41m |
a Class A, Class B, Class C, Class I, Class R1 and Class 1 shares began operations on 6-12-06.
c Class NAV shares began operations on 12-27-06.
h Based on the average of the shares outstanding.
i Less than $500,000.
k Assumes dividend reinvestment.
l Total returns would have been lower had certain expenses not been reduced during the period shown.
m Not annualized.
p Does not take into consideration expense reductions during period shown.
r Annualized.
See notes to financial statements
International Growth Fund
27
Notes to financial statements
1. Organization
John Hancock International Growth Fund (the “Fund”) is a newly organized diversified series of John Hancock Funds III (the “Trust”). The Trust was established as a Massachusetts business trust on June 9, 2005. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end investment management company. The investment objective of the Fund is to seek high total return primarily through capital appreciation.
John Hancock Life Insurance Company of New York (“John Hancock New York”) is a wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.) (“John Hancock USA”). John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of The Manufacturers Life Insurance Company (“Manulife”), which in turn is a wholly owned subsidiary of Manulife Financial Corporation (“MFC”), a publicly traded company. MFC and its subsidiaries are known collectively as “Manulife Financial.”
John Hancock Investment Management Services, LLC (the “Adviser”), a Delaware limited liability company, controlled by John Hancock USA, serves as investment adviser for the Trust and John Hancock Funds, LLC (the “Distributor”), a Delaware limited liability ompany, an affiliate of the Adviser, serves as principal underwriter.
The Board of Trustees has authorized the issuance of multiple classes of shares of the Fund, including classes designated as Class A, Class B, Class C, Class I, Class R1, Class 1, Class 3 and Class NAV 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 Board of 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 bear distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Effective November 6, 2006, the Board of Trustees elected to change the name of Class R to Class R1.
Class 1 shares are sold only to certain exempt separate accounts of John Hancock USA and John Hancock New York. Class NAV shares are sold to affiliated funds of funds, which are funds of funds within the John Hancock funds complex.
2. Significant accounting policies
In the preparation of the financial statements, the Fund follows the policies described below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Security valuation
The net asset value of the shares of the Fund is determined daily as of the close of the New York Stock Exchange, normally at 4:00 p.m. Eastern Time. Short-term debt instruments with remaining maturities of 60 days or less are valued at amortized cost, and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. All other securities held by the Fund are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) as of the close of business on a principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price. Securities traded only in the over-the-counter
International Growth Fund
28
market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Fund securities for which there are no such quotations, principally debt securities, are valued based on the valuation provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques.
Other assets and securities for which no such quotations are readily available are valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the New York Stock Exchange. The values of such securities used in computing the net asset value of a Fund’s shares are generally determined as of such times. Occasionally, significant events that affect the values of such securities may occur between the times at which such values are generally determined and the close of the New York Stock Exchange. Upon such an occurrence, these securities will then be valued at their fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
In deciding whether to make a fair value adjustment to the price of a security, the Board of Trustees or their designee may review a variety of factors, including, developments in foreign markets, the performance of U.S. securities markets and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The Fund may also fair value securities in other situations, for example, when a particular foreign market is closed, but the Fund is calculating the net asset value. In view of these factors, it is likely that a fund investing significant amounts of assets in securities in foreign markets will be fair valued more frequently than a fund investing significant amounts of assets in frequently traded, U.S. exchange listed securities of large capitalization U.S. issuers.
For purposes of determining when fair value adjustments may be appropriate with respect to the Fund investing in securities in foreign markets that close prior to the New York Stock Exchange, the Fund will, on an ongoing basis, monitor for “significant market events.” A significant market event may be a certain percentage change in the value of an index or of certain Exchange Traded Funds (“ETFs”) that track foreign markets in which the Fund has significant investments. If a significant market event occurs due to a change in the value of the index or of ETFs, the pricing for the Fund will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Trust’s Pricing Committee, where applicable.
Fair value pricing of securities is intended to help ensure that the net asset value of the Fund’s shares reflects the value of the Fund’s securities as of the close of the New York Stock Exchange (as opposed to a value which is no longer accurate as of such close), thus limiting the opportunity for aggressive traders to purchase shares of the Fund at deflated prices, reflecting stale security valuations, and to promptly sell such shares at a gain. However, a security’s valuation may differ depending on the method used for determining value and no assurance can be given that fair value pricing of securities will successfully eliminate all potential opportunities for such trading gains.
Repurchase agreements
The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement through its custodian, it receives delivery of securities, the amount of which at the time of purchase and each subsequent business day is required to be maintained at such a level that the market value is generally at least 102% of the repurchase amount. The Fund will take constructive receipt of all securities underlying the repurchase agreements it has entered into until such agreements expire. If the seller defaults, the Fund would suffer a loss to the extent that proceeds from the sale of underlying securities were less than the repurchase amount. The Fund may enter into repurchase agreements maturing within seven days with domestic dealers, banks or other financial institutions deemed to be creditworthy by the Adviser. Collateral for certain tri-party
International Growth Fund
29
repurchase agreements is held at the custodian bank in a segregated account for the benefit of the Fund and the counterparty.
Foreign currency transactions
The accounting records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:
(1) market value of securities, other assets and other liabilities at the current rate of exchange at period end of such currencies against U.S. dollars; and
(2) purchases and sales of securities, income and expenses at the rate of exchange quoted on the respective dates of such transactions.
Net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of foreign currency contracts, disposition of foreign currencies, the difference between the amount of net investment income accrued and the U.S. dollar amount actually received, and gains and losses between trade and settlement date on purchases and sales of securities. The effects of changes in foreign currency exchange rates on investments in securities are included with the net realized and unrealized gain or loss on investment securities.
The Fund may be subject to capital gains and repatriation taxes imposed by certain countries in which the Fund invests. Such taxes are generally based upon income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation.
Investing in securities of foreign companies and foreign governments involves special risks and consideration not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of the United States.
Security transactions and related investment income
Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. Foreign dividends are recorded on the ex-date or as soon after the ex-date that the Fund becomes aware of such dividends, net of all taxes. Discounts/premiums are accreted/amortized for financial reporting purposes. Non-cash dividends are recorded at the fair market value of the securities received. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful, based upon consistently applied procedures.
From time to time, the Fund may invest in Real Estate Investment Trusts (“REITs”) and, as a result, will estimate the components of distributions from these securities. Distributions from REITs received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain.
The Fund uses the First In, First Out method for fixed income securities and Highest Cost, First Out for all other securities for determining realized gain or loss on investments for both financial and federal income tax reporting purposes.
Multi-class operations
All income, expenses (except for class-specific expenses) and realized and unrealized gains (losses) are allocated to each class of shares based upon the relative net assets of each class.
Dividends to shareholders from net investment income are determined at a class level and distributions from capital gains are determined at a Fund level.
Expense allocation
Expenses are allocated based on the relative share of net assets of the Fund at the time the expense was incurred. Class-specific expenses,
International Growth Fund
30
such as distribution (Rule 12b-1) fees, are accrued daily and charged directly to the respective share classes.
Futures
The Fund may purchase and sell financial futures contracts and options on those contracts. The Fund invests in contracts based on financial instruments such as U.S. Treasury Bonds or Notes or on securities indexes such as the Standard & Poor’s 500 Index (the “S&P 500 Index”), in order to hedge against a decline in the value of securities owned by the Fund.
Upon entering into futures contracts, the Fund is required to deposit with a broker an amount, termed the initial margin, which typically represents a certain percentage of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates, making the long or short positions in the contract more or less valuable.
If the position is closed out by taking an opposite position prior to the settlement date of the futures contract, a final determination of variation margin is made, cash is required to be paid to or released by the broker, and the Fund realizes a gain or loss.
When the Fund sells a futures contract based on a financial instrument, the Fund becomes obligated to deliver that kind of instrument at an agreed upon date for a specified price. The Fund realizes a gain or loss depending on whether the price of an offsetting purchase is less or more than the price of the initial sale or on whether the price of an offsetting sale is more or less than the price of the initial purchase. The Fund could be exposed to risks if it could not close out futures positions because of an illiquid secondary market or the inability of counterparties to meet the terms of their contracts. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
The following is a summary of open futures contracts on February 28, 2007: | |
|
| | | | UNREALIZED |
| NUMBER OF | | | APPRECIATION |
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | (DEPRECIATION) |
|
DAX Index | 3 | Long | Mar 2007 | $9,469 |
MSCI Singapore Stock Index | 5 | Long | Mar 2007 | (15,681) |
OMX 30 Stock Index | 1 | Long | Mar 2007 | (870) |
S&P/TSE 60 Index | 4 | Short | Mar 2007 | (13,417) |
Topix Index | 1 | Long | Mar 2007 | (2,885) |
| | | | ($23,384) |
|
Forward foreign currency contracts
The Fund may purchase and sell forward foreign currency contracts in order to hedge a specific transaction or Fund position. Forward foreign currency contracts are valued at forward foreign currency exchange rates and marked to market daily. Net realized gains (losses) on foreign currency and forward foreign currency contracts shown in the Statements of Operations include net gains or losses realized by the Fund on contracts that have matured.
The net U.S. dollar value of foreign currency underlying all contractual commitments held at the end of the period, the resulting net unrealized appreciation (depreciation) and related net receivable or payable amount are determined using forward foreign currency exchange rates supplied by a quotation service. The Fund could be exposed to risks in excess of amounts recognized on the Statements of Assets and Liabilities if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the forward foreign currency contract changes unfavorably.
At February 28, 2007, the Fund entered into forward foreign currency contracts, which contractually obligate the Fund to deliver currency at future dates.
International Growth Fund
31
Open forward foreign currency contracts on February 28, 2007 were as follows: | |
| | | | UNREALIZED |
| PRINCIPAL AMOUNT | | SETTLEMENT | APPRECIATION |
CURRENCY | COVERED BY CONTRACT | | DATE | (DEPRECIATION) |
|
Buys | | | | |
Australian Dollar | 114,000 | | May 2007 | $426 |
Swiss Franc | 156,000 | | May 2007 | 1,807 |
Euro | 500,000 | | May 2007 | 3,596 |
Euro | 144,000 | | May 2007 | 1,297 |
Pound Sterling | 37,000 | | May 2007 | (12) |
Pound Sterling | 36,000 | | May 2007 | 235 |
Pound Sterling | 139,000 | | May 2007 | 545 |
Japanese Yen | 44,398,000 | | May 2007 | 4,809 |
Japanese Yen | 19,934,000 | | May 2007 | 2,457 |
Japanese Yen | 67,726,000 | | May 2007 | 7,693 |
New Zealand Dollar | 102,000 | | May 2007 | 2,173 |
Swedish Krona | 2,557,000 | | May 2007 | (553) |
Singapore Dollar | 170,000 | | May 2007 | 238 |
| | | | $24,711 |
Sells | | | | |
Australian Dollar | 729,202 | | May 2007 | ($11,686) |
Australian Dollar | 364,659 | | May 2007 | (5,391) |
Danish Kroner | 139,475 | | May 2007 | (3,029) |
Pound Sterling | 944,784 | | May 2007 | 3,522 |
|
| | | | ($16,584) |
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. Therefore, no federal income tax provision is required.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than August 31, 2007.
In September 2006, FASB Standard No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Distribution of income and gains
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. During the period ended February 28, 2007, the tax character of distributions paid was as follows: ordinary income $401,047. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same
International Growth Fund
32
time and are in the same amount, except for the effect of expenses that may be applied differently to each class. 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 Fund’s financial statements as a return of capital. As of February 28, 2007, the components of distributable earnings on a tax basis included $491,686 of undistributed ordinary income.
Capital accounts
The Fund reports the undistributed net investment income and accumulated undistributed net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carryforward is available). Accordingly, the Fund may periodically make reclassifications among certain capital accounts without affecting its net asset value.
3. Investment advisory and other
agreements
Advisory fees
The Trust has entered into an Investment Advisory Agreement with the Adviser. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvis-ers to handle the investment of the assets of the Fund, subject to the supervision of the Trust’s Board of Trustees. Under the Advisory Agreement, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.920% of the first $100,000,000 of the Fund’s aggregate daily net assets; (b) 0.895% of the next $900,000,000 of the Fund’s aggregate daily net assets; and (c) 0.880% of the Fund’s aggregate daily net assets in excess of $1,000,000,000. Aggregate net assets include the net assets of the Fund and International Growth Trust, a series of John Hancock Trust. John Hancock Trust is an open-end investment company advised by the Adviser and distributed by John Hancock Distributors, LLC. The Advisor has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
Expense reimbursements
The Adviser has agreed contractually to reimburse for certain fund level expenses that exceed 0.20% of the average annual net assets, or to make a payment to a specific class of shares of the Fund in an amount equal to the amount by which the expenses attributable to such class of shares (excluding taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business and fees under any agreement or plans of the Fund dealing with services for shareholders and others with beneficial interests in shares of the Fund) exceed the percentage of average annual net assets (on an annualized basis) attributable as follows: 1.70% for Class A, 2.40% for Class B, 2.40% for Class C, 1.20% for Class I, 1.70% for Class R1, 1.15% for Class 1 and 1.10% for Class NAV. Accordingly, the expense reductions related to this expense limitation amounted to $75,276, $15,683, $17,118, $14,734, $15,286, $994 and $669 for Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV, respectively, for the period ended February 28, 2007. This expense reimbursement shall continue in effect until June 30, 2007 and thereafter until terminated by the Adviser on notice to the Trust.
Administration fees
The Fund has an agreement with the Adviser that requires the Fund to reimburse the Adviser for all expenses associated with providing the administrative, financial, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, annual, semiannual and periodic reports to shareholders and the preparation of all regulatory reports. These expenses are allocated based on the relative share of net assets of each fund at the time the expense was incurred.
Distribution plan
The Trust has a Distribution Agreement with the Distributor. The Fund has adopted Distribution Plans with respect to Class A, Class B, Class C, Class R1 and Class 1, pursuant to Rule 12b-1 under the 1940 Act, to reimburse the Distributor for the services it provides as distributor of shares of the Fund. Accordingly, the Fund
International Growth Fund
33
makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00%, 1.00%, 0.50% and 0.05% of average daily net asset value of Class A, Class B, Class C, Class R1 and Class 1, respectively. 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 R1 shares, the Fund pays up to 0.25% of Class R1 average daily net asset value for certain other services.
Sales charges
Class A shares are assessed up-front sales charges of up to 5.00% of net asset value of such shares. During the period ended February 28, 2007, the Fund was informed that the Distributor received net up-front sales charges of $121,004 with regard to sales of Class A shares. Of this amount, $18,176 was retained and used for printing prospectuses, advertising, sales literature and other purposes and $101,935 was paid as sales commissions to unrelated broker-dealers and $893 was paid as sales commissions to sales personnel of Signator Investors, Inc. (“Signator Investors”), a related broker-dealer, an indirect subsidiary of MFC.
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 the Distributor and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended February 28, 2007, CDSCs received by JH Funds amount to $203 for Class B.
Transfer agent fees
The Fund has a Transfer Agency Agreement with John Hancock Signature Services, Inc. (“Signature Services”), an indirect subsidiary of MFC. For Class A, Class B, Class C, Class I and Class R1 shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’ average daily net assets, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Expenses not directly attributable to a particular class of shares are aggregated and allocated to each class on the basis of its relative net asset value.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.20% annually of Class A, Class B, Class C, Class I and Class R1 share average daily net assets. This agreement is effective until December 31, 2007. Signature Services reserves the right to terminate this limitation in the future. Accordingly, there were no transfer agent fee reductions for Class A, Class B, Class C, Class I and Class R1 shares, respectively, during the period ended February 28, 2007.
Expenses under the agreements described above for the period ended February 28, 2007, were as follows:
| Distribution and | Transfer | | Printing and |
Share Class | service fees | agent | Blue sky | postage |
|
|
Class A | $36,695 | $7,824 | $14,320 | $8,713 |
Class B | 1,827 | 548 | 14,077 | 327 |
Class C | 3,953 | 855 | 14,078 | 216 |
Class I | — | 46 | 14,078 | 94 |
Class R1 | 605 | 42 | 14,077 | 739 |
Class 1 | 58 | — | — | 1 |
Total | $43,138 | $9,315 | $70,630 | $10,090 |
International Growth Fund
34
Trustees’ fees
The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. Total Trustees’ expenses are allocated to the Fund based on its average daily net asset value.
4. Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
5. Line of credit
The Fund has entered into an agreement which enables it to participate in a $100 million unsecured committed line of credit with State Street Corporation. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to the Fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50% . In addition, a commitment fee of 0.07% per annum, payable at the end of each calendar quarter, based on the average daily-unused portion of the line of credit, is charged to the Fund on a prorated basis based on average net assets. For the period ended February 28, 2007, there were no borrowings under the line of credit.
6. Capital shares
Share activities for the Fund for the period ended February 28, 2007 were as follows:
| Period ended 2-28-07 |
| Shares | Amount |
|
Class Aa | | |
|
Sold | 813,928 | $16,553,865 |
Distributions reinvested | 15,834 | 374,467 |
Repurchased | (1,140) | (26,802) |
Net increase | 828,622 | $16,901,530 |
|
Class Ba | | |
|
Sold | 23,398 | $520,275 |
Distributions reinvested | 247 | 5,833 |
Repurchased | (2,408) | (52,838) |
Net increase | 21,237 | $473,270 |
|
Class Ca | | |
|
Sold | 70,102 | $1,611,040 |
Distributions reinvested | 313 | 7,402 |
Repurchased | (5,000) | (118,700) |
Net increase | 65,415 | $1,499,742 |
|
Class Ia | | |
|
Sold | 8,739 | $188,288 |
Distributions reinvested | 127 | 3,010 |
Net increase | 8,866 | $191,298 |
|
Class R1a | | |
|
Sold | 5,000 | $100,000 |
Distributions reinvested | 104 | 2,445 |
Net increase | 5,104 | $102,445 |
International Growth Fund
35
| Period ended 2-28-07 |
| Shares | Amount |
|
Class 1a | | |
|
Sold | 23,720 | $544,869 |
Distributions reinvested | 121 | 2,861 |
Repurchased | (785) | (18,107) |
Net increase | 23,056 | $529,623 |
|
Class NAVb | | |
|
Sold | 31,844 | $770,789 |
Repurchased | (362) | (8,440) |
Net increase | 31,482 | $762,349 |
|
Net increase | 983,782 | $20,460,257 |
aPeriod from 6-12-06 (commencement of operation) to 2-28-07.
bPeriod from 12-27-06 (commencement of operation) to 2-28-07.
7. 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 February 28, 2007, aggregated $26,186,430 and $7,445,265, respectively.
The cost of investments owned on February 28, 2007, including short-term investments, for federal income tax purposes, was $20,580,392. Gross unrealized appreciation and depreciation of investments aggregated $2,757,362 and $124,799, respectively, resulting in net unrealized appreciation of $2,632,563.
8. Federal income tax information
Federal income tax regulations may differ from generally accepted accounting principles and income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
9. Reclassification of accounts
During the period ended February 28, 2007, the Fund reclassified amounts to reflect a decrease in accumulated net realized gain on investments of $44,136, a decrease in accumulated net investment loss of $56,576 and a decrease in capital paid-in of $12,440. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2007. 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 non-deductible 12b-1 fees. The calculation of net investment income (loss) per share in the Fund’s Financial Highlights excludes these adjustments.
International Growth Fund
36
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Funds III and Shareholders of John Hancock International Growth 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 International Growth Fund (the “Fund”) at February 28, 2007, and the results of its operations, the changes in its net assets and the financial highlights for the period June 12, 2006 (commencement of operations) through February 28, 2007, 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 audit. We conducted our audit 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 audit, which included confirmation of investments at February 28, 2007 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2007
37
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 February 28, 2007.
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 2003.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
38
Trustees and 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, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
Ronald R. Dion , Born: 1946 | 2006 | 66 |
Independent Chairman (since 2005); 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. | | |
|
|
James F. Carlin , Born: 1940 | 2006 | 66 |
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | | |
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | | |
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | | |
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | | |
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | | |
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | | |
|
|
Richard P. Chapman, Jr.,2 Born: 1935 | 2006 | 66 |
President and Chief Executive Officer, Brookline Bancorp, Inc. (lending) (since | | |
1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); | | |
Chairman and Director, Northeast Retirement Services, Inc. (retirement | | |
administration) (since 1998); Vice Chairman, Northeastern University Board | | |
of Trustees (since 2004). | | |
|
|
William H. Cunningham , Born: 1944 | 2006 | 66 |
Former Chancellor, University of Texas System and former President of the | | |
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, | | |
IBT Technologies (until 2001); Director of the following: Hire.com (until 2004), | | |
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. | | |
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until | | |
2004), Pinnacle Foods Corporation (until 2003), rateGenius (until 2003), Lincoln | |
National Corporation (insurance) (since 2006), Jefferson-Pilot Corporation | | |
(diversified life insurance company) (until 2006), New Century Equity Holdings | | |
(formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com | | |
(until 2001), Agile Ventures (until 2001), AskRed.com (until 2001), Southwest | | |
Airlines (since 2000), Introgen (since 2000) and Viasystems Group, Inc. (electronic | |
manufacturer) (until 2003); Advisory Director, Interactive Bridge, Inc. (college | | |
fundraising) (until 2001); Advisory Director, Q Investments (until 2003); | | |
39
Independent Trustees (continued) | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
William H. Cunningham , Born: 1944 (continued) | 2006 | 66 |
Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce Bank – | | |
Austin), LIN Television (since 2002), WilTel Communications (until 2003) and | | |
Hayes Lemmerz International, Inc. (diversified automotive parts supply company) | |
(since 2003). | | |
|
|
Charles L. Ladner,2 Born: 1938 | 2006 | 66 |
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, AmeriGas, Inc. | | |
(retired 1998); Director, AmeriGas Partners, L.P. (gas distribution) (until 1997); | | |
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | |
(until 2005). | | |
|
|
John A. Moore,2 Born: 1939 | 2006 | 66 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, | | |
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | | |
(health research) (until 2003); Former Assistant Administrator and Deputy | | |
Administrator, Environmental Protection Agency; Principal, Hollyhouse | | |
(consulting) (since 2000); Director, CIIT Center for Health Science Research | | |
(nonprofit research) (2002–2006). | | |
|
|
Patti McGill Peterson,2 Born: 1943 | 2006 | 66 |
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 | 2006 | 66 |
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). | | |
40
Non-Independent Trustee3 | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Fund | Trustee | John Hancock |
Principal occupation(s) and other | of Fund | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
James R. Boyle, Born: 1959 | 2006 | 272 |
President, John Hancock Insurance Group; Executive Vice President, John | | |
Hancock Life Insurance Company (since June 2004); Chairman and Director, | | |
John Hancock Advisers, LLC (the “Adviser”), John Hancock Funds, LLC and | | |
The Berkeley Financial Group, LLC (“The Berkeley Group”) (holding company) | | |
(since 2005); Senior Vice President, The Manufacturers Life Insurance Company | |
(U.S.A.) (until 2004). | | |
|
Principal officers who are not Trustees | | |
|
Name, Year of Birth | | |
Position(s) held with Fund | | Officer |
Principal occupation(s) and | | of Fund |
directorships during past 5 years | | since |
|
Keith F. Hartstein, Born: 1956 | | 2006 |
President and Chief Executive Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, John | | |
Hancock Funds, LLC (since 2005); Director, MFC Global Investment Management | |
(U.S.), LLC (“MFC Global (U.S.)”) (since 2005); Director, John Hancock Signature | |
Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock | |
Investment Management Services, LLC (since 2006); President and Chief Executive | |
Officer, John Hancock Funds II, John Hancock Funds III and John Hancock Trust; | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | | |
Chairman, Investment Company Institute Sales Force Marketing Committee | | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | | |
|
|
Thomas M. Kinzler, Born: 1955 | | 2006 |
Secretary and Chief Legal Officer | | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2006); | |
Vice President and Associate General Counsel, Massachusetts Mutual Life | | |
Insurance Company (1999–2006); Secretary and Chief Legal Counsel, MML | | |
Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, | | |
MassMutual Institutional Funds (2000–2004); Secretary and Chief Legal Counsel, | |
MassMutual Select Funds and MassMutual Premier Funds (2004–2006). | | |
|
|
Francis V. Knox, Jr., Born: 1947 | | 2006 |
Chief Compliance Officer | | |
Vice President and Chief Compliance Officer, John Hancock Investment | | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | | |
Vice President and Chief Compliance Officer, John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and | | |
Ethics & Compliance Officer, Fidelity Investments (until 2001). | | |
41
Principal officers who are not Trustees (continued) | |
|
Name, Year of Birth | |
Position(s) held with Fund | Officer |
Principal occupation(s) and | of Fund |
directorships during past 5 years | since |
|
Gordon M. Shone, Born: 1956 | 2006 |
Treasurer | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | |
(1998–2000). | |
|
|
John G. Vrysen, Born: 1955 | 2006 |
Chief Financial Officer | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | |
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley | |
Group and John Hancock Funds, LLC (since 2005); Executive Vice President and | |
Chief Financial Officer, John Hancock Investment Management Services, LLC | |
(since 2005); Vice President and Chief Financial Officer, MFC Global (U.S.) | |
(since 2005); Director, John Hancock Signature Services, Inc. (since 2005); | |
Chief Financial Officer, John Hancock Funds II, John Hancock Funds III and John | |
Hancock Trust (since 2005); Vice President and General Manager, Fixed Annuities, | |
U.S. Wealth Management (until 2005); Vice President, Operations, Manulife | |
Wood Logan (2000–2004). | |
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.
1Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2Member of Audit Committee.
3Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
42
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 | Custodian | Legal counsel |
John Hancock Investment | State Street Bank & Trust Co. | Kirkpatrick & Lockhart |
Management Services, LLC | 2 Avenue de Lafayette | Preston Gates Ellis LLP |
601 Congress Street | Boston, MA 02111 | 1 Lincoln Street |
Boston, MA 02210-2805 | | Boston, MA 02110-2950 |
| Transfer agent | |
Subadviser | John Hancock Signature | Independent registered |
Grantham, Mayo, | Services, Inc. | public accounting firm |
Van Otterloo & Co. LLC | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
40 Rowes Wharf | Suite 1000 | 125 High Street |
Boston, MA 02110 | Boston, MA 02217-1000 | Boston, MA 02110 |
| | |
Principal distributor | | |
John Hancock Funds, LLC | | |
601 Congress Street | | |
Boston, MA 02210-2805 | | |
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 | 380 Stuart Street |
| | Boston, MA 02116 |
|
|
Phone | Customer service representatives | 1-800-225-5291 |
| EASI-Line | 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.
44
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY
Balanced Fund
Classic Value Fund
Classic Value Fund II
Classic Value Mega Cap Fund
Core Equity Fund
Focused Equity Fund
Global Shareholder Yield Fund
Growth Fund
Growth Opportunities Fund
Growth Trends Fund
Intrinsic Value Fund
Large Cap Equity Fund
Large Cap Select Fund
Mid Cap Equity Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Equity Fund
Small Cap Fund
Small Cap Intrinsic Value Fund
Sovereign Investors Fund
U.S. Core Fund
U.S. Global Leaders Growth Fund
Value Opportunities Fund
ASSET ALLOCATION
Allocation Core Portfolio
Allocation Growth + Value Portfolio
Lifecycle 2010 Portfolio
Lifecycle 2015 Portfolio
Lifecycle 2020 Portfolio
Lifecycle 2025 Portfolio
Lifecycle 2030 Portfolio
Lifecycle 2035 Portfolio
Lifecycle 2040 Portfolio
Lifecycle 2045 Portfolio
Lifecycle Retirement Portfolio
Lifestyle Aggressive Portfolio
Lifestyle Balanced Portfolio
Lifestyle Conservative Portfolio
Lifestyle Growth Portfolio
Lifestyle Moderate Portfolio
SECTOR
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
Technology Leaders Fund
INTERNATIONAL
Greater China Opportunities Fund
International Allocation Portfolio
International Classic Value Fund
International Core Fund
International Fund
International Growth Fund
INCOME
Bond Fund
Government 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
CLOSED-END
Bank and Thrift Opportunity Fund
Financial Trends Fund, Inc.
Income Securities Trust
Investors Trust
Patriot Global Dividend Fund
Patriot Preferred Dividend Fund
Patriot Premium Dividend Fund I
Patriot Premium Dividend Fund II
Patriot Select Dividend Trust
Preferred Income Fund
Preferred Income II Fund
Preferred Income III Fund
Tax-Advantaged Dividend Income Fund
For more complete information on any John Hancock Fund and an Open-End fund prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291 for Open-End fund information and 1-800-852-0218 for Closed-End fund information. Please read the Open-End fund prospectus carefully before investing or sending money.
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 International Growth Fund. 8700A 2/07
&nbs p; 4/07
TABLE OF CONTENTS |
|
|
Your fund at a glance |
page 1 |
|
|
Managers’ report |
page 2 |
|
|
A look at performance |
page 6 |
|
|
Your expenses |
page 8 |
|
|
Financial statements |
page 11 |
|
|
Fund’s investments |
page 10 |
|
|
Notes to financial |
statements |
page 18 |
|
|
Trustees and officers |
page 30 |
|
|
For more information |
page 36 |
|
CEO corner
To Our Shareholders,
Financial markets around the world continued to outperform the U.S. stock market in the brief period between the Portfolio’s launch on December 29, 2006 and its fiscal year end on February 28, 2007. Returns were modest, however, as foreign markets experienced a sharp decline in the last two days of the period. In the two months between the Portfolio’s inception and February 28, 2007, international equity markets gained 1.53%, as measured by the MSCI EAFE Index.
After a remarkably long period of calm, the financial markets were rocked at the end of the period by a dramatic sell-off in China’s stock market, which had ripple effects on markets worldwide. In the United States, for example, the Dow Jones Industrial Average had its steepest one-day percentage decline in nearly four years on February 27, 2007. The event served to jog investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
It was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the world markets’ moves of the last year, we encourage investors to sit back, take stock and set some realistic expectations. China’s market was long overdue for a correction after frothy returns of more than 100% recently. We believe economic conditions remain sound and that, even if volatility continues, this global downturn was a healthy correction.
The latest events could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon — not a sprint — approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of February 28, 2007. They are subject to change at any time.
Your Portfolio at a glance
The Portfolio seeks long-term growth of capital. To pursue this goal, the Portfolio, which is a fund of funds, invests in a number of other funds of the John Hancock Funds complex, as well as in the securities of other investment companies. Under normal circumstances, the Portfolio allocates assets among underlying funds that invest principally in foreign equity securities of issuers of any market capitalization and in foreign fixed-income securities of various types and credit qualities.
Since inception
► In the Portfolio's first two months, international markets took a tumble after four years of sustained growth, but still managed to post small gains.
► Japanese equities turned in a solid performance, while small-cap stocks outpaced large and growth beat value. Emerging markets were hit hard, but results were mixed.
► Two of the Portfolio's six affiliated underlying funds — International Small Company Fund and International Growth Fund — were the biggest contributors to performance in the brief period.
Total returns for the Portfolio 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.
Target asset allocation | % of Total |
International Large Cap | 72.0% |
|
International Small Cap | 25.0% |
|
China | 3.0% |
|
As a percentage of net assets on February 28, 2007.
1
Managers’ report
John Hancock
International Allocation Portfolio
John Hancock International Allocation Portfolio was launched on December 29, 2006. At that time, the international markets were continuing a strong four-year run of outperformance versus the U.S. market. In the brief period from the Portfolio’s inception through February 28, 2007, foreign markets produced a small gain, although the environment changed significantly in the last two days of the period.
For the majority of the reporting period, investors continued to search for higher absolute returns, favoring riskier asset types such as small-cap equities, non-U.S. equities and, particularly, emerging-market equities. The desire for higher returns was fed by abundant global liquidity created by low interest rates across the globe.
In the final week of February, investors abruptly pushed away from the table having filled their appetite for risk. On February 27, 2007, a short-term sell-off in China had ripple effects around the world, producing percentage losses in the mid-to-high single digits for many developed foreign markets and even steeper declines for riskier emerging-market countries. Many factors contributed to the losses, including signs of slowing growth in the U.S. reinforced by pessimistic remarks from former Fed Chairman Alan Greenspan and profit-taking in the white-hot
SCORECARD
INVESTMENT | | PERIOD’S PERFORMANCE... AND WHAT’S BEHIND THE NUMBERS |
International Small | ▲ | Significant exposure to strong-performing Japanese market |
Company Fund | | |
(DFA)a | | |
International Value | ▼ | Underweight to Japan, overweight to China |
Fund (Franklin | | |
Templeton)a | | |
Greater China | ▼ | Volatile environment for emerging markets |
Opportunities Fund | | |
(MFC Global)a | | |
a The Fund’s subadviser in parentheses.
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From the MFC Global Investment Management (U.S.A.), LLC Portfolio Management Team
Chinese equity market brought on by that government’s attempts to curb market speculation. In the final analysis, global equity markets, which had risen persistently without a meaningful correction for some time, finally released some pent-up pressure.
From the Portfolio’s inception on December 29, 2006 through February 28, 2007, international equity markets gained 1.53%, as measured by the MSCI EAFE Index, outpacing the –0.92% return of the U.S. market, as measured by the Standard & Poor’s 500 Index. On a regional basis, a solid showing from Japanese equities helped the MSCI Pacific Index advance 4.45% and outperform the MSCI Europe Index, which returned 0.25% for the period. From a market capitalization and style perspective, small-capitalization stocks outperformed large-cap stocks, while growth stocks generally outpaced value stocks. The MSCI Emerging Markets Index fell 1.33%, although it is important to note that performance varied greatly on a country-by-country basis. For example, China and India fell 6.0% and 6.5%, respectively, while Korea and Taiwan, two other large weights in the Index, held on during the period, ret urning –0.2% and 0.3% respectively. On a sector basis, energy stocks fell nearly 6%, while industrials and materials posted solid gains of approximately 4%.
“In the brief period from the
Portfolio’s inception through
February 28, 2007, foreign
markets produced a small gain,
although the environment
changed significantly in the last
two days of the period. “
Fund strategy
As this is the first time we have had the opportunity to address the performance of this unique Portfolio, we feel it is important to reiterate some of the key tenets of its strategy. First and foremost, the objective is to seek long-term growth of capital by investing in foreign securities.
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We believe that the Portfolio has one major advantage over traditional international funds: diversification, which offers the potential for both higher returns and lower risk. Further compounding this benefit, the Portfolio is designed with multiple layers of diversification. First, the Portfolio is diversified across key international asset classes, including large- and small-capitalization companies, as well as companies domiciled in both developed and emerging markets. Second, the Portfolio allocates across multiple investment styles, such that it is exposed to both value and growth stocks. Third, the Portfolio provides investors with diversification across several leading asset managers — each set of independent minds researching and pursuing highly diverse strategies and opportunities. Each of these managers has been carefully selected through our robust manager due diligence process and is expected to generate solid performance over time.
At the end of the period, the Portfolio, which is a fund of funds, was invested in six affiliated underlying international funds managed by the subadvisors noted in the parentheses: International Small Company Fund (Dimensional Fund Advisors, Inc.), International Growth Fund (Grantham, Mayo, Van Otterloo & Co.), International Value Fund (Franklin Templeton), International Classic Value Fund (Pzena Investment Management LLC), Greater China Opportunities Fund (MFC Global Investment Management (USA) Ltd.) and International Opportunities Fund (Marsico Capital Management, LLC).
Fund performance
For the period from inception December 29, 2006 through February 28, 2007, John Hancock International Allocation Portfolio’s Class A, Class B, Class C and Class I shares returned –0.40%, –0.50%, –0.50% and –0.30%, respectively, at net asset value. By comparison, the MSCI EAFE Index returned 1.53% and the average Morningstar World Allocation fund returned 0.37% .a For this very short performance period, the Portfolio’s underperformance stemmed from an underweight to Japan and an overweight to China, while the financial and telecommunications sectors also detracted on a relative basis.
Performance was positively impacted by allocations to International Small Company Fund and International Growth Fund. International Small Company Fund benefited from significant exposure to strong-performing Japanese equities, as well as an underweight to U.K. equities, which
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generally underperformed during the period. International Growth Fund also benefited from an overweight to Japanese equities, although negative stock selection in that country and an overweight to energy weighed slightly on returns.
Allocations to International Value, International Classic Value, Greater China Opportunities and International Opportunities hurt performance on a relative basis over this short time period. International Value lagged its benchmark primarily from an underweight to the Japanese market and an overweight to China. Poor security selection in both South Korea and France, in addition to an overweight to the financial sector, also detracted from the fund’s performance. International Classic Value, meanwhile, generally underperformed due to poor security selection in the financial, industrial and technology sectors. The most aggressive position in the Portfolio, Greater China Opportunities Fund, struggled due to the volatile environment for emerging-market countries. Similarly, International Opportunities Fund underperformed due to an underweight to Japan and an overweight to Mexico, Hong Kong and Chi na.
“For this very short performance
period, the Portfolio’s
underperformance stemmed
from an underweight to Japan
and an overweight to China…”
Outlook
We continue to believe that global equity valuations are reasonable even when taking into account the potential for a modest contraction in global growth. Our view is that short-term shocks impacting emerging markets, such as the steep correction in Chinese equities, represent a normal, albeit overdue, correction within a longer-term uptrend. Despite the notion of “globalization,” the fact remains that investing in non-U.S. markets — and in emerging markets in particular — brings unique risks. That said, investing in a diversified international portfolio can help to smooth out the short-term ups and downs of volatile markets and help offset some of these risks, while pursuing long-term growth.
This commentary reflects the views of the portfolio managers through the end of the Portfolio’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.
International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. See the prospectus for the risks of investing in small-cap stocks. See the prospectus for the risks of investing in high-yield bonds.
a Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
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A look at performance
For the period ended February 28, 2007 | |
|
| | Cumulative total returns |
| | with maximum sales charge (POP) |
|
| Inception | Since |
Class | date | inception |
|
A | 12-29-06 | –5.41% |
|
B | 12-29-06 | –5.48 |
|
C | 12-29-06 | –1.50 |
|
Ia | 12-29-06 | –0.30 |
|
Performance figures assume all distributions are reinvested. POP (Public Offering Price) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I 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 Portfolio’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 Portfolio’s performance results reflect any applicable expense reductions, without which the expenses increase and results would have been less favorable.
Performance is calculated with an opening price (prior day’s close) on the inception date.
a For certain types of investors as described in the Fund’s Class I share prospectus.
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Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in International
Allocation Portfolio Class A shares for the period indicated. For comparison, we’ve shown
the same investment in the MSCI EAFE Total Return Index.
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 12-29-06 | $9,950 | $9,453 | $10,153 |
|
C | 12-29-06 | 9,950 | 9,851 | 10,153 |
|
I b | 12-29-06 | 9,970 | 9,970 | 10,153 |
|
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 and Class I shares, respectively, as of February 28, 2007. 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.
MSCI EAFE Total Return Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. As of June 2006 the MSCI EAFE Index consisted of the following 21 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Returns are calculated and presented net of withholding tax.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
a NAV represents net asset value and POP represents public offering price.
b For certain types of investors as described in the Fund’s Class I share prospectus.
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Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Portfolio, 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.
In addition to the operating expenses which the Portfolio bears directly, the Portfolio indirectly bears a pro rata share of the operating expenses of the affiliated underlying funds in which the Portfolio invests. Because the affiliated underlying funds have varied operating expenses and transaction costs and the Portfolio may own different proportions of the affiliated underlying funds at different times, the amount of expenses incurred indirectly by the Portfolio will vary. If these indirect expenses were included, your expenses paid during the period would have been higher.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your Portfolio’s actual ongoing operating expenses, and is based on your Portfolio’s actual return. It assumes an account value of $1,000.00 on December 29, 2006, with the same investment held until February 28, 2007.
| Account value | Ending value | Expenses paid during period |
| on 12-29-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $996.00 | $1.04 |
|
Class B | 1,000.00 | 995.00 | 2.13 |
|
Class C | 1,000.00 | 995.00 | 2.13 |
|
Class I | 1,000.00 | 997.00 | 0.30 |
|
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 February 28, 2007 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:
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Hypothetical example for comparison purposes
This table allows you to compare your Portfolio’s ongoing operating expenses with those of any other fund. It provides an example of the Portfolio’s hypothetical account values and hypothetical expenses based on each class’ actual expense ratio and an assumed 5% annualized return before expenses (which is not your portfolio’s actual return). It assumes an account value of $1,000.00 on December 29, 2006, with the same investment held until February 28, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during period |
| on 12-29-06 | on 2-28-07 | ended 2-28-07a |
|
Class A | $1,000.00 | $1,023.75 | $1.05 |
|
Class B | 1,000.00 | 1,022.66 | 2.16 |
|
Class C | 1,000.00 | 1,022.66 | 2.16 |
|
Class I | 1,000.00 | 1,024.50 | 0.30 |
|
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.
a Expenses are equal to the Fund's annualized expense ratio of 0.60%, 1.26%, 1.27% and 0.17% for Class A, Class B, Class C and Class I, 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).
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F I N A N C I A L S T A T E M E N T S
Portfolio’s investments
Securities owned by the Portfolio on 2-28-07
Portfolio of investments, showing all affiliated underlying funds.
Issuer | Shares | Value |
|
Investment companies 89.26% | | $4,076,627 |
(Cost $4,158,654) | | |
| | |
John Hancock Funds 16.07% | | 733,892 |
|
Greater China Opportunities* | | |
(MFC Global Investment Management (U.S.A.) Limited) (a) | 6,802 | 122,368 |
|
International Classic Value* | | |
(Pzena Investment Management, LLC) (a) | 55,898 | 611,524 |
| | |
John Hancock Funds II 58.91% | | 2,690,494 |
|
International Opportunities* | | |
(Marsico Capital Management, LLC) (a) | 50,726 | 896,832 |
|
International Small Company* | | |
(Dimensional Fund Advisors, Inc.) (a) | 93,498 | 1,019,126 |
|
International Value* | | |
(Franklin® Templeton®) (a) | 41,799 | 774,536 |
| | |
John Hancock Funds III 14.28% | | 652,241 |
|
International Growth* | | |
(Grantham, Mayo, Van Otterloo & Co.) (a) | 27,268 | 652,241 |
|
Total investments (Cost $4,158,654) 89.26% | | $4,076,627 |
|
Other assets in excess of liabilities 10.74% | | $490,295 |
|
Total net assets 100.00% | | $4,566,922 |
* Non-income producing.
(a) The underlying fund’s subadvisor.
Percentages are stated as a percent of net assets of the Portfolio.
See notes to financial statements
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F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 2-28-07
This Statement of Assets and Liabilities is the Portfolio’s balance sheet. It shows the value of what the Portfolio owns, is due and owes. You’ll also find the net asset value and the maximum offering price per share.
Assets | |
|
Investments in affiliated funds, at value (Cost $4,158,654) | $4,076,627 |
Receivable for investments sold | 258 |
Receivable for fund shares sold | 547,798 |
Receivable due from adviser | 28,571 |
Other assets | 46,428 |
Total assets | 4,699,682 |
| |
Liabilities | |
|
Payable for investments purchased | 113,386 |
Payable to affiliates | |
Fund administration fees | 9 |
Transfer agent fees | 367 |
Accrued expenses | 18,998 |
Total liabilities | 132,760 |
| |
Net assets | |
|
Capital paid-in | 4,649,544 |
Accumulated undistributed net realized loss on investments | (595) |
Net unrealized depreciation on investments | (82,027) |
Net assets | $4,566,922 |
| |
Net asset value per share | |
|
Based on net asset values and shares outstanding — The Portfolio has an | |
unlimited number of shares authorized with no par value. | |
Class A ($3,253,182 ÷ 326,619 shares) | $9.96 |
Class B ($196,269 ÷ 19,729 shares)a | $9.95 |
Class C ($913,550 ÷ 91,833 shares)a | $9.95 |
Class I ($203,921 ÷ 20,460 shares) | $9.97 |
| |
Maximum offering price per share | |
|
Class Ab ($9.96 ÷ 95%) | $10.48 |
a Redemption price is equal to net asset value less any applicable contingent deferred sales charges.
b On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements
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F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 2-28-07a
This Statement of Operations summarizes the Portfolio’s investment income earned and expenses incurred in operating the Portfolio. It also shows net gains (losses) for the period stated.
Investment income | |
|
Total investment income | — |
| |
Expenses | |
|
Investment management fees (Note 3) | 264 |
Distribution and service fees (Note 3) | 922 |
Transfer agent fees (Note 3) | 367 |
Fund administration fees (Note 3) | 9 |
Audit and legal fees | 14,809 |
Blue sky fees (Note 3) | 9,440 |
Custodian fees | 1,940 |
Printing and postage fees (Note 3) | 1,180 |
Registration and filing fees | 1,180 |
Trustees’ fees (Note 3) | 6 |
Miscellaneous | 5 |
Total expenses | 30,122 |
Less expense reductions (Note 3) | (28,571) |
Net expenses | 1,551 |
Net investment loss | (1,551) |
| |
Realized and unrealized loss | |
|
Net realized loss on investments | (547) |
Change in net unrealized appreciation (depreciation) of investments | (82,027) |
Net realized and unrealized loss | (82,574) |
Decrease in net assets from operations | ($84,125) |
a Period from 12-29-06 (commencement of operations) to 2-28-07.
See notes to financial statements
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F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
This Statement of Changes in Net Assets shows how the value of the Portfolio’s net assets has changed since inception. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Portfolio share transactions.
| Period |
| ended |
| 2-28-07a |
|
Increase (decrease) in net assets | |
From operations | |
Net investment loss | ($1,551) |
Net realized loss | (547) |
Change in net unrealized appreciation (depreciation) | (82,027) |
Decrease in net assets resulting from operations | (84,125) |
From Portfolio share transactions | 4,651,047 |
| |
Net assets | |
|
Beginning of period | — |
End of period | $4,566,922 |
a Period from 12-29-06 (commencement of operations) to 2-28-07.
See notes to financial statements
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F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Portfolio’s net asset value for a share has changed since the end of the previous period.
CLASS A SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $10.00 |
Net investment lossh | (0.01) |
Net realized and unrealized loss | |
on investments | (0.03) |
Total from investment operations | (0.04) |
Net asset value, end of period | $9.96 |
Total return (%) | (0.40)k,l,m |
| |
Ratios and supplemental data | |
|
Net assets, end of period (in millions) | $3 |
Ratio of net expenses to average | |
net assets (%) | 0.60r |
Ratio of gross expenses to average | |
net assets (%) | 8.53p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.60)r |
Portfolio turnover (%) | 3m |
See notes to financial statements
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F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $10.00 |
Net investment lossh | (0.02) |
Net realized and unrealized loss | |
on investments | (0.03) |
Total from investment operations | (0.05) |
Net asset value, end of period | $9.95 |
Total return (%) | (0.50)k,l,m |
| |
Ratios and supplemental data | |
|
Net assets, end of period (in millions) | —n |
Ratio of net expenses to average | |
net assets (%) | 1.26r |
Ratio of gross expenses to average | |
net assets (%) | 28.58p,r |
Ratio of net investment loss | |
to average net assets (%) | (1.26)r |
Portfolio turnover (%) | 3m |
See notes to financial statements
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F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $10.00 |
Net investment lossh | (0.02) |
Net realized and unrealized loss | |
on investments | (0.03) |
Total from investment operations | (0.05) |
Net asset value, end of period | $9.95 |
Total return (%) | (0.50)k,l,m |
| |
Ratios and supplemental data | |
|
Net assets, end of period (in millions) | $1 |
Ratio of net expenses to average | |
net assets (%) | 1.27r |
Ratio of gross expenses to average | |
net assets (%) | 18.62p,r |
Ratio of net investment loss | |
to average net assets (%) | (1.27)r |
Portfolio turnover (%) | 3m |
See notes to financial statements
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F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |
|
Period ended | 2-28-07a |
|
Per share operating performance | |
Net asset value, beginning of period | $10.00 |
Net investment lossh | (0.00)j |
Net realized and unrealized loss | |
on investments | (0.03) |
Total from investment operations | (0.03) |
Net asset value, end of period | $9.97 |
Total return (%) | (0.30)k,l,m |
| |
Ratios and supplemental data | |
|
Net assets, end of period (in millions) | —n |
Ratio of net expenses to average | |
net assets (%) | 0.17r |
Ratio of gross expenses to average | |
net assets (%) | 25.01p,r |
Ratio of net investment loss | |
to average net assets (%) | (0.17)r |
Portfolio turnover (%) | 3m |
a Class A, Class B, Class C and Class I shares began operations on 12-29-06.
h Based on the average of the shares outstanding.
j Less than $(0.01) per share.
k Assumes dividend reinvestment.
l Total returns would have been lower had certain expenses not been reduced during the period shown.
m Not annualized.
n Less than $500,000.
p Does not take into consideration expense reductions during the period shown.
r Annualized.
See notes to financial statements
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Notes to financial statements
1. Organization
John Hancock International Allocation Portfolio (the “Portfolio”) is a newly organized diversified series of John Hancock Funds III (the “Trust”). The Trust was established as a Massachusetts business trust on June 9, 2005. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end investment management company. The investment objective of the Portfolio is to seek long term growth of capital.
The Portfolio operates as a “fund of funds,” investing in Class NAV shares of affiliated underlying funds of the Trust, John Hancock Funds, John Hancock Funds II and in other permitted investments. The Portfolio may also invest in similar class NAV shares and in classes of shares of nonaffiliated funds that could have sales charges and be subject to distributor and/ or Rule 12b-1 fees. The affiliated underlying funds’ accounting policies are outlined in the shareholder reports, available without charge by calling 1-800-225-5291 or on the Securities and Exchange Commission (“SEC”) Web site at www.sec.gov, File #811-21777, CIK 0001329954. The affiliated underlying funds are not covered by this report.
John Hancock Life Insurance Company of New York (“John Hancock New York”) is a wholly owned subsidiary of John Hancock Life Insurance Company (U.S.A.) (“John Hancock USA”). John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of The Manufacturers Life Insurance Company (“Manulife”), which in turn is a wholly owned subsidiary of Manulife Financial Corporation (“MFC”), a publicly traded company. MFC and its subsidiaries are known collectively as “Manulife Financial.”
John Hancock Investment Management Services, LLC (the “Adviser”), a Delaware limited liability company controlled by John Hancock USA, serves as investment adviser for the Trust and John Hancock Funds, LLC (the “Distributor”), a Delaware limited liability company, an affiliate of the Adviser, serves as principal underwriter.
The Board of Trustees has authorized the issuance of multiple classes of shares of the Portfolio, including classes designated as Class A, Class B, Class C, Class I, Class R, Class R1, Class R2, Class R3, Class R4, Class R5, Class 1, Class 3 and Class NAV shares. The shares of each class represent an interest in the same portfolio of investments of the Portfolio, and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Board of Trustees, may be applied differently to each class of shares in accordance with current regulations of the SEC 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.
2. Significant accounting policies
In the preparation of the financial statements, the Portfolio follows the policies described below. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results may differ from these estimates.
Security valuation
The net asset value of the shares of the Portfolio is determined daily as of the close of the New York Stock Exchange, normally at 4:00 p.m., Eastern Time. Investments in the underlying funds are valued at their respective net asset values each business day, or at fair value as determined in good faith in accordance with
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procedures approved by the Trustees. Securities in the affiliated underlying funds’ portfolios are valued in accordance with their respective valuation polices, as outlined in the affiliated underlying funds’ financial statements. Short-term debt investments that have a remaining maturity of 60 days or less are valued at amortized cost.
Security transactions and related investment income
Investment security transactions in the underlying funds are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned.
Dividend income and capital gain distributions from the underlying funds are recorded on the ex-dividend date.
Gains and losses on securities sold are determined on the basis of specific identified cost for both financial and federal income tax reporting purposes.
Multi-class operations
All income, expenses (except for class-specific expenses) and realized and unrealized gains (losses) are allocated to each class of shares based upon the relative net assets of each class. Dividends to shareholders from net investment income are determined at a class level and distributions from capital gains are determined at a Portfolio level.
Expense allocation
Expenses not directly attributable to a particular class of shares are allocated based on the relative share of net assets of the Portfolio at the time the expense was incurred. Class-specific expenses, such as transfer agency fees, blue sky fees, printing and postage fees and distribution and service fees, are accrued daily and charged directly to the respective share classes. Expenses in the Portfolio’s Statement of Operations reflect the expenses of the Portfolio and do not include any indirect expenses related to the underlying funds. Because the underlying funds have varied expense levels and the Portfolio may own different proportions of the underlying funds at different times, the amount of fees and expenses incurred indirectly by the Portfolio will vary.
Federal income taxes
The Portfolio 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. Therefore, no federal income tax provision is required.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Portfolio and has not at this time quantified the impact, if any, resulting from the adoption of the Interpretation on the Portfolio’s financial statements. The Portfolio will implement this pronouncement no later than August 31, 2007.
In September 2006, FASB Standard No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Portfolio and its impact, if any, resulting from the adoption of FAS 157 on the Portfolio’s financial statements.
Distribution of income and gains
The Portfolio records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. During the period ended February 28, 2007, there were no distributions. Distributions paid by the Portfolio 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
International Allocation Portfolio
19
may be applied differently to each class. 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 Portfolio’s financial statements as a return of capital.
As of February 28, 2007, there were no distributable earnings on a tax basis.
Capital accounts
The Portfolio reports the undistributed net investment income and accumulated undistributed net realized gain (loss) accounts on a basis approximating amounts available for future tax distributions (or to offset future taxable realized gains when a capital loss carry-forward is available). Accordingly, the Portfolio may periodically make reclassifications among certain capital accounts without affecting its net asset value.
3. Investment advisory and
other agreements
Advisory fees
The Trust has entered into an Investment Advisory Agreement with the Adviser. The Adviser is responsible for managing the corporate and business affairs of the Trust and for selecting and compensating subadvisers to handle the investment of the assets of the Portfolio, subject to the supervision of the Trust’s Board of Trustees. Under the Advisory Agreement the Portfolio pays the Adviser a management fee that has two components: (a) a fee on assets invested in the Trust or JHF II funds (“Fund Assets”) and (b) a fee on assets not invested in the Trust or JHF II funds (“Other Assets”). The Portfolio pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.05% of the first $500,000,000 of the Portfolio’s Fund assets, (b) 0.04% of the Portfolio’s Fund assets in excess of $500,000,000, (c) 0.50% of the first $500,000,000 of the Portfolio’s Other Assets and (d) 0.49% of the Portfolio’s Other Assets in excess of $500,000,000. The Portfolio is not responsible for payment of the subadvisory fees.
Expense reimbursements
The Adviser has agreed contractually to waive advisory fees of to reimburse for Portfolio expenses to the extent that total Portfolio operating expenses exceed the percentage of average annual net assets (on an annualized basis) attributable as follows: 0.63% for Class A, 1.33% for Class B, 1.33% for Class C and 0.18% for Class I. Accordingly, the expense reductions related to this expense limitation amounted to $10,176, $5,693, $6,530 and $6,172 for Class A, Class B, Class C and Class I, respectively, for the period ended February 28, 2007. This expense reimbursement shall continue in effect until December 31, 2007 and thereafter until terminated by the Adviser at any time.
Administration fees
The Portfolio has an agreement with the Adviser that requires the Portfolio to reimburse the Adviser for all expenses associated with providing the administrative, financial, accounting and recordkeeping services of the Portfolio, including the preparation of all tax returns, annual, semiannual and periodic reports to shareholders and the preparation of all regulatory reports. These expenses are allocated based on the relative share of net assets of each fund at the time the expense was incurred.
Distribution plan
The Trust has a Distribution Agreement with the Distributor. The Portfolio has adopted Distribution Plans with respect to Class A, Class B and Class C, pursuant to Rule 12b-1 under the 1940 Act, to reimburse the Distributor for the services it provides as distributor of shares of the Portfolio. Accordingly, the Portfolio makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00% and 1.00% of average daily net asset value of Class A, Class B and Class C, respectively. 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 Portfolio’s 12b-1 payments could occur under certain circumstances.
International Allocation Portfolio
20
Sales charges
Class A shares are assessed up-front sales charges of up to 5.00% of net asset value of such shares. During the period ended February 28, 2007, The Fund was informed that the Distributor received net up-front sales charges of $45,396 with regard to sales of Class A shares. Of this amount, $8,260 was retained and used for printing prospectuses, advertising, sales literature and other purposes and $37,136 was paid as sales commissions to unrelated broker-dealers.
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 the Distributor and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Portfolio in connection with the sale of Class B and Class C shares. During the period ended February 28, 2007, the Portfolio was informed that no CDSCs were received by the Distributor for Class B shares and Class C shares.
Transfer agent fees
The Portfolio has a Transfer Agency Agreement with John Hancock Signature Services, Inc. (“Signature Services”), an indirect subsidiary of MFC. For Class A, Class B, Class C and Class I shares, the Portfolio pays a monthly transfer agent fee at an annual rate of 0.05% of each class’ average daily net assets, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses. Expenses not directly attributable to a particular class of shares are aggregated and allocated to each class on the basis of its relative net asset value.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.20% annually of Class A, Class B, Class C and Class I share average daily net assets. This agreement is effective until December 31, 2007. Signature Services reserves the right to terminate this limitation in the future beyond December 31, 2007. Accordingly, there were no transfer agent fee reductions for Class A, Class B, Class C and Class I shares, respectively, during the period ended February 28, 2007.
Expenses under the agreements described above for the period ended February 28, 2007, were as follows:
| Distribution | Transfer | | Printing and |
Share Class | and service fees | agent | Blue sky | postage |
|
|
Class A | $366 | $244 | $ 2,360 | $295 |
Class B | 198 | 40 | 2,360 | 295 |
Class C | 358 | 72 | 2,360 | 295 |
Class I | — | 11 | 2,360 | 295 |
Total | $922 | $367 | $9,440 | $1,180 |
Trustees’ fees
The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. Total Trustees’ expenses are allocated to the Portfolio based on its average daily net asset value.
4. Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust believes the risk of loss to be remote.
International Allocation Portfolio
21
5. Line of credit
The Portfolio has entered into an agreement which enables it to participate in a $100 million unsecured committed line of credit with State Street Corporation. Borrowings will be made solely to temporarily finance the repurchase of capital shares. Interest is charged to the Portfolio based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50% . In addition, a commitment fee of 0.07% per annum, payable at the end of each calendar quarter, based on the average daily-unused portion of the line of credit, is charged to the Portfolio on a prorated basis based on average net assets. For the period ended February 28, 2007, there were no borrowings under the line of credit.
6. Capital shares
Share activities for the Portfolio for the period ended February 28, 2007 were as follows:
| | Period ended 2-28-07a |
| Shares | Amount |
|
Class A shares | | |
|
Sold | 326,619 | $3,320,543 |
Net increase | 326,619 | $3,320,543 |
| | |
Class B shares | | |
|
Sold | 19,756 | $198,648 |
Repurchased | (27) | (277) |
Net increase | 19,729 | $198,371 |
| | |
Class C shares | | |
|
Sold | 91,833 | $927,133 |
Net increase | 91,833 | $927,133 |
| | |
Class I shares | | |
|
Sold | 20,460 | $205,000 |
Net increase | 20,460 | $205,000 |
Net increase | 458,641 | $4,651,047 |
|
aPeriod from 12-29-06 (commencement of operations) to 2-28-07.
7. Investment transactions
Purchases and proceeds from sales of the underlying funds during the period ended February 28, 2007, aggregated $4,216,062 and $56,861, respectively.
The cost of investments owned on February 28, 2007, including for federal income tax purposes, was $4,159,249. Gross unrealized appreciation and depreciation of investments aggregated $0 and $82,622, respectively, resulting in net unrealized depreciation of $82,622.
International Allocation Portfolio
22
8. Investment in affiliated
underlying funds
The Portfolio invests primarily in the affiliated underlying funds that are managed by affiliates of the Adviser. The Portfolio does not invest in the affiliated underlying funds for the purpose of exercising management or control. The Portfolio invests primarily in affiliated underlying funds. The Portfolio does not invest in the underlying affiliated funds for the purpose of exercising management or control. A summary of the Portfolio’s transactions in the securities of affiliated issuers is set forth below.
Affiliate — | Shares | Shares | Ending Share | | Ending |
Class NAV | Purchased | Sold | Amount | Proceeds | Value |
|
JHF Greater China Opportunities Fund | 6,895 | 93 | 6,802 | $1,675 | $122,368 |
JHF International Classic Value Fund | 56,748 | 850 | 55,898 | 9,454 | 611,524 |
JHF II International Opportunities Fund | 51,405 | 679 | 50,726 | 11,981 | 896,832 |
JHF II International Small Company Fund | 94,885 | 1,387 | 93,498 | 14,444 | 1,019,126 |
JHF II International Value Fund | 42,381 | 582 | 41,799 | 10,755 | 774,536 |
JHF III International Growth Fund | 27,635 | 367 | 27,268 | 8,552 | 652,241 |
9. Federal income tax information
Federal income tax regulations may differ from generally accepted accounting principles and income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes.
10. Reclassification of accounts
During the period ended February 28, 2007, the Portfolio reclassified amounts to reflect an increase in accumulated net realized loss on investments of $48, a decrease in accumulated net investment income loss of $1,551 and a decrease in capital paid-in of $1,503. This represents the amounts necessary to report these balances on a tax basis, excluding certain temporary differences, as of February 28, 2007. Additional adjustments may be needed in subsequent reporting periods. These reclassifications, which have no impact on the net asset value of the Portfolio, 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 non-deductible 12b-1 fees and net operating loss. The calculation of net investment income (loss) per share in the Portfol io’s Financial Highlights excludes these adjustments.
International Allocation Portfolio
23
Auditors’ report
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of John Hancock Funds III and Shareholders of John Hancock
International Allocation Portfolio:
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 International Allocation Portfolio (the “Portfolio”) at February 28, 2007, and the results of its operations, the changes in its net assets and the financial highlights for the period December 29, 2006 (commencement of operations) through February 28, 2007, 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 Portfolio’s management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance wit h 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 audit, which included confirmation of investments at February 28, 2007 by correspondence with the transfer agent, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 26, 2007
Tax information
Unaudited
For federal income tax purposes, the following information is furnished with respect to the distributions of the Portfolio, if any, paid during its taxable year ended February 28, 2007.
The Portfolio 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 2007.
Shareholders will be mailed a 2007 U.S. Treasury Department Form 1099-DIV in January 2008. This will reflect the total of all distributions that are taxable for calendar year 2007.
25
Evaluation of Advisory and Subadvisory
Agreements by the Board of Trustees
This section describes the evaluation
by the Board of Trustees of the
Advisory Agreement and each of the
Subadvisory Agreements.
Evaluation by the Board of Trustees The Board, including the Independent Trustees, is responsible for selecting the Trust’s Adviser, approving the Adviser’s selection of subadvisers for each of the portfolios of the Trust (the “Funds”) and approving the Trust’s advisory and subadvisory agreements, their periodic continuation and any amendments. Consistent with SEC rules, the Board regularly evaluates the Trust’s advisory and subadvisory arrangements, including consideration of the factors listed below. The Board may also consider other factors (including conditions and trends prevailing generally in the economy, the securities markets and the industry) and does not treat any single factor as determinative, and each Trustee may attribute different weights to different factors. The Board is furnished with an analysis of its fiduciary obligations in connection with its evaluation and, throughout the ev aluation process, the Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel. The factors considered by the Board are:
1. the nature, extent and quality of the services to be provided by the Adviser to the Trust and by the subadvisers to the Funds;
2. the investment performance of the Funds and their subadvisers;
3. the extent to which economies of scale would be realized as a Fund grows and whether fee levels reflect these economies of scale for the benefit of Trust shareholders;
4. the costs of the services to be provided and the profits to be realized by the Adviser and its affiliates (including any subadvisers that are affiliated with the Adviser) from the Adviser’s relationship with the Trust; and
5. comparative services rendered and comparative advisory and subadvisory fee rates.
The Board believes that information relating to all of these factors is relevant to its evaluation of the Trust’s advisory agreement. With respect to its evaluation of subadvisory agreements not affiliated with the Adviser, the Board believes that, in view of the Trust’s “manager-of-managers” advisory structure, the costs of the services to be provided and the profits to be realized by those subadvisers that are not affiliated with the Adviser from their relationship with the Trust generally are not a material factor in the Board’s consideration of these subadvisory agreements because such fees are paid by the Adviser and not by the Funds and the Board relies on the ability of the Adviser to negotiate the subadvisory fees at arms-length.
In evaluating subadvisory arrangements, the Board also considers other material business relationships that unaffiliated subadvisers and their affiliates have with the Adviser or its affiliates, including the involvement by certain affiliates of certain subadvisers in the distribution of financial products, including shares of the Trust, offered by the Adviser and other affiliates of the Adviser (“Material Relationships”).
Approval of Advisory Agreement
At its meeting on December 12-13, 2006, the Board, including all the Independent Trustees, approved the Advisory Agreement Amendment.
In approving the Advisory Agreement Amendment, and with reference to the factors that it regularly considers, the Board:
(1) (a) considered the high value to the Trust of continuing its relationship with JHIMS as the Trust’s adviser, the skills and competency with which JHIMS has in the past managed the Trust’s affairs and its subadvisory relationships, JHIMS’s oversight and monitoring of the subadvisers’ investment performance and compliance programs including its timeliness in responding to performance issues and the qualifications of JHIMS’ personnel,
(b) considered JHIMS’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments, and
26
(c) considered JHIMS’s administrative capabilities, including its ability to supervise the other service providers for the Funds and concluded that JHIMS may reasonably be expected to perform its services under the Advisory Agreement with respect to the International Allocation Portfolio;
(2) since there are no funds managed by the proposed Subadviser to the International Allocation Portfolio that have comparable investment objectives and policies to those of the International Allocation Portfolio, the Board considered the Subadviser’s performance in managing other portfolios in the Trust, John Hancock Funds II and John Hancock Trust and that JHIMS may reasonably be expected to ably monitor the performance of the International Allocation Portfolio and its Subadviser.
(3) reviewed the advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded (i) that two of the three subadvisory breakpoints are reflected as breakpoints in the advisory fees for the International Allocation Portfolio, (ii) that the subadvisory consulting fee for DeAM is the product of arms-length negotiations between MFC Global and DeAM and contains breakpoints, and (iii) that, although economies of scale cannot be measured with precision, these arrangements permit shareholders of the International Allocation Portfolio to benefit from economies of scale if the assets of such fund grow;
(4) (a) reviewed the anticipated profitability of the JHIMS’s relationship with the International Allocation Portfolio in terms of the total amount of annual advisory fees it would receive with respect to the International Allocation Portfolio and whether JHIMS has the financial ability to provide a high level of services to the International Allocation Portfolio,
(b) considered that JHIMS derives reputational and other indirect benefits from providing advisory services to the New Portfolio, and
(c) noted that JHIMS will pay the subadvisory fee out of the advisory fees JHIMS will receive from the International Allocation Portfolio and concluded that the advisory fees to be paid by the Trust with respect to these funds are not unreasonable in light of such information; and
(5) The Trustees reviewed the advisory fee to be paid to the Adviser for the International Allocation Portfolio and concluded that the advisory fee to be paid to the Adviser with respect to the International Portfolio is based on services provided that are in addition to, rather than duplicative of, the services provided pursuant to the advisory agreements for the underlying portfolios of the International Portfolio and that the additional services are necessary because of the differences between the investment policies, strategies and techniques of the International Portfolio and those of its underlying portfolios.
Additional information that the Board considered for the International Portfolio is set forth in Appendix A.
Approval of Subadvisory Agreements
At its meeting on December 12-13, 2006, the Board, including all the Independent Trustees, approved the Subadvisory Agreements.
In making its determination with respect to the factors that its considers, the Board reviewed:
(1) information relating to each subadviser’s business, which may include information such as: business performance, representative clients, assets under management, financial stability, personnel and past subadvisory services to the Trust;
(2) the investment performance of other John Hancock Funds II and John Hancock Trust portfolios managed by MFC Global and DeAM; and
27
(3) information relating to the nature and scope of Material Relationships and their significance to the Trust’s adviser and unaffiliated subadvisers.
The Board’s decision to approve the Subadvisory Agreements was based on a number of determinations, including the following:
(1) Each Subadviser has extensive experience and demonstrated skills as a manager;
(2) With respect to each Subadviser except MFC Global, the subadvisory fees are a product of arms-length negotiation between the Adviser and the Subadviser and generally are competitive within the range of industry norms;
(3) Neither MFC Global nor DeAM currently managed comparable funds although the Board is generally satisfied with both MFC Global’s and DeAM’s management of other Trust portfolios which they currently subadvise; and
(4) The Material Relationships consist of arrangements in which the Subadviser (except MFC Global) or its affiliates provide advisory, distribution or management services in connection with financial products sponsored by the Trust’s adviser or its affiliates, which may include other registered investment companies, a 529 education savings plan, managed separate accounts and exempt group annuity contracts sold to qualified plans, and which in no case contained elements which would cause the Board to conclude that approval of the subadvisory agreement with the Subadviser would be inappropriate.
In addition, the Trustees reviewed the subad-visory fee to be paid to MFC Global and DeAM for the International Allocation Portfolio and concluded that the subadvisory fee to be paid to MFC Global and DeAM with respect to International Allocation Portfolio is based on services provided that are in addition to, rather than duplicative of, the services provided pursuant to the subadvisory agreements for the underlying portfolios of the International Allocation Portfolio and that the additional services are necessary because of the differences between the investment policies, strategies and techniques of the International Allocation Portfolio and those of its underlying portfolios.
28
Appendix A | | | |
|
| Performance of | | |
Portfolio | Trust, as of | Fees and | |
(Subadviser) | Sept. 30, 2006 | Expenses | Comments |
|
International | See “Comments”. | The advisory fee | The Board noted |
Allocation | | for this Portfolio is | that this portfolio |
Portfolio (MFC | | lower than its peer | will commence |
Global Investment | | group median. | operations on |
Management | | | December 29, 2006. |
(U.S.A.) Limited) | | See “Comments”. | |
| | | The Board further |
| | | noted that MFC |
| | | Global (U.S.A.)/MFC |
| | | Global (U.S.) do not |
| | | currently manage |
| | | a comparable fund |
| | | although they are |
| | | generally satisfied |
| | | with MFC Global |
| | | (U.S.A.)/MFC Global |
| | | (U.S.) management |
| | | of other Trust port- |
| | | folios which they |
| | | currently subadvise. |
|
| | | The Board noted that |
| | | based on estimates, |
| | | total expenses for |
| | | this Portfolio are |
| | | lower than the peer |
| | | group median. |
29
Trustees and 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, Year of Birth | | | Number of |
Position(s) held with Portfolio | | Trustee | John Hancock |
Principal occupation(s) and other | | of Portfolio | funds overseen |
directorships during past 5 years | | since1 | by Trustee |
|
Ronald R. Dion, Born: 1946 | | 2006 | 66 |
Independent Chairman (since 2005); 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. | | | |
|
|
James F. Carlin, Born: 1940 | | 2006 | 66 |
Director and Treasurer, Alpha Analytical Laboratories Inc. (chemical analysis) | | |
(since 1985); Part Owner and Treasurer, Lawrence Carlin Insurance Agency, | | |
Inc. (since 1995); Part Owner and Vice President, Mone Lawrence Carlin | | |
Insurance Agency, Inc. (until 2005); Chairman and Chief Executive Officer, | | |
Carlin Consolidated, Inc. (management/investments) (since 1987); Trustee, | | |
Massachusetts Health and Education Tax Exempt Trust (1993–2003). | | |
|
|
Richard P. Chapman, Jr.,2 Born: 1935 | | 2006 | 66 |
President and Chief Executive Officer, Brookline Bancorp, Inc. (lending) (since | | |
1972); Chairman and Director, Lumber Insurance Co. (insurance) (until 2000); | | |
Chairman and Director, Northeast Retirement Services, Inc. (retirement | | |
administration) (since 1998); Vice Chairman, Northeastern University Board | | |
of Trustees (since 2004). | | | |
|
|
William H. Cunningham, Born: 1944 | | 2006 | 66 |
Former Chancellor, University of Texas System and former President of the | | |
University of Texas, Austin, Texas; Chairman and Chief Executive Officer, | | |
IBT Technologies (until 2001); Director of the following: Hire.com (until 2004), | | |
STC Broadcasting, Inc. and Sunrise Television Corp. (until 2001), Symtx, Inc. | | |
(electronic manufacturing) (since 2001), Adorno/Rogers Technology, Inc. (until | | |
2004), Pinnacle Foods Corporation (until 2003), rateGenius (until 2003), Lincoln | |
National Corporation (insurance) (since 2006), Jefferson-Pilot Corporation | | |
(diversified life insurance company) (until 2006), New Century Equity Holdings | | |
(formerly Billing Concepts) (until 2001), eCertain (until 2001), ClassMap.com | | |
(until 2001), Agile Ventures (until 2001), AskRed.com (until 2001), Southwest | | |
Airlines (since 2000), Introgen (since 2000) and Viasystems Group, Inc. (electronic | |
manufacturer) (until 2003); Advisory Director, Interactive Bridge, Inc. (college | | |
fundraising) (until 2001); Advisory Director, Q Investments (until 2003); | | |
30
Independent Trustees (continued) | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Portfolio | Trustee | John Hancock |
Principal occupation(s) and other | of Portfolio | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
William H. Cunningham , Born: 1944 (continued) | 2006 | 66 |
Advisory Director, JPMorgan Chase Bank (formerly Texas Commerce Bank – | | |
Austin), LIN Television (since 2002), WilTel Communications (until 2003) and | | |
Hayes Lemmerz International, Inc. (diversified automotive parts supply company) | |
(since 2003). | | |
|
|
Charles L. Ladner,2 Born: 1938 | 2006 | 66 |
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, AmeriGas, Inc. | | |
(retired 1998); Director, AmeriGas Partners, L.P. (gas distribution) (until 1997); | | |
Director, EnergyNorth, Inc. (until 1995); Director, Parks and History Association | |
(until 2005). | | |
|
|
John A. Moore,2 Born: 1939 | 2006 | 66 |
President and Chief Executive Officer, Institute for Evaluating Health Risks, | | |
(nonprofit institution) (until 2001); Senior Scientist, Sciences International | | |
(health research) (until 2003); Former Assistant Administrator and Deputy | | |
Administrator, Environmental Protection Agency; Principal, Hollyhouse | | |
(consulting) (since 2000); Director, CIIT Center for Health Science Research | | |
(nonprofit research) (2002–2006). | | |
|
|
Patti McGill Peterson,2 Born: 1943 | 2006 | 66 |
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 | 2006 | 66 |
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). | | |
31
Non-Independent Trustee3 | | |
|
Name, Year of Birth | | Number of |
Position(s) held with Portfolio | Trustee | John Hancock |
Principal occupation(s) and other | of Portfolio | funds overseen |
directorships during past 5 years | since1 | by Trustee |
|
James R. Boyle, Born: 1959 | 2006 | 272 |
President, John Hancock Insurance Group; Executive Vice President, John | | |
Hancock Life Insurance Company (since June 2004); Chairman and Director, | | |
John Hancock Advisers, LLC (the “Adviser”), John Hancock Funds, LLC and | | |
The Berkeley Financial Group, LLC (“The Berkeley Group”) (holding company) | | |
(since 2005); Senior Vice President, The Manufacturers Life Insurance Company | |
(U.S.A.) (until 2004). | | |
|
Principal officers who are not Trustees | | |
|
Name, Year of Birth | | |
Position(s) held with Portfolio | | Officer |
Principal occupation(s) and | | of Portfolio |
directorships during past 5 years | | since |
|
Keith F. Hartstein, Born: 1956 | | 2006 |
President and Chief Executive Officer | | |
Senior Vice President, Manulife Financial Corporation (since 2004); Director, | | |
President and Chief Executive Officer, the Adviser, The Berkeley Group, John | | |
Hancock Funds, LLC (since 2005); Director, MFC Global Investment Management | |
(U.S.), LLC (“MFC Global (U.S.)”) (since 2005); Director, John Hancock Signature | |
Services, Inc. (since 2005); President and Chief Executive Officer, John Hancock | |
Investment Management Services, LLC (since 2006); President and Chief Executive | |
Officer, John Hancock Funds II, John Hancock Funds III and John Hancock Trust; | |
Director, Chairman and President, NM Capital Management, Inc. (since 2005); | | |
Chairman, Investment Company Institute Sales Force Marketing Committee | | |
(since 2003); Director, President and Chief Executive Officer, MFC Global (U.S.) | |
(2005–2006); Executive Vice President, John Hancock Funds, LLC (until 2005). | | |
|
|
Thomas M. Kinzler, Born: 1955 | | 2006 |
Secretary and Chief Legal Officer | | |
Vice President and Counsel, John Hancock Life Insurance Company (U.S.A.) | | |
(since 2006); Secretary and Chief Legal Officer, John Hancock Funds, John | | |
Hancock Funds II, John Hancock Funds III and John Hancock Trust (since 2006); | |
Vice President and Associate General Counsel, Massachusetts Mutual Life | | |
Insurance Company (1999–2006); Secretary and Chief Legal Counsel, MML | | |
Series Investment Fund (2000–2006); Secretary and Chief Legal Counsel, | | |
MassMutual Institutional Funds (2000–2004); Secretary and Chief Legal Counsel, | |
MassMutual Select Funds and MassMutual Premier Funds (2004–2006). | | |
|
|
Francis V. Knox, Jr., Born: 1947 | | 2006 |
Chief Compliance Officer | | |
Vice President and Chief Compliance Officer, John Hancock Investment | | |
Management Services, LLC, the Adviser and MFC Global (U.S.) (since 2005); | | |
Vice President and Chief Compliance Officer, John Hancock Funds II, John | | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | | |
Assistant Treasurer, Fidelity Group of Funds (until 2004); Vice President and | | |
Ethics & Compliance Officer, Fidelity Investments (until 2001). | | |
32
Principal officers who are not Trustees (continued) | |
|
Name, Year of Birth | |
Position(s) held with Portfolio | Officer |
Principal occupation(s) and | of Portfolio |
directorships during past 5 years | since |
|
Gordon M. Shone, Born: 1956 | 2006 |
Treasurer | |
Treasurer, John Hancock Funds (since 2006), John Hancock Funds II, John | |
Hancock Funds III and John Hancock Trust (since 2005); Vice President and | |
Chief Financial Officer, John Hancock Trust (2003–2005); Senior Vice President, | |
John Hancock Life Insurance Company (U.S.A.) (since 2001); Vice President, | |
John Hancock Investment Management Services, Inc., John Hancock Advisers, | |
LLC (since 2006) and The Manufacturers Life Insurance Company (U.S.A.) | |
(1998–2000). | |
|
|
John G. Vrysen, Born: 1955 | 2006 |
Chief Financial Officer | |
Senior Vice President, Manulife Financial Corporation (since 2006); Director, | |
Executive Vice President and Chief Financial Officer, the Adviser, The Berkeley | |
Group and John Hancock Funds, LLC (since 2005); Executive Vice President and | |
Chief Financial Officer, John Hancock Investment Management Services, LLC | |
(since 2005); Vice President and Chief Financial Officer, MFC Global (U.S.) | |
(since 2005); Director, John Hancock Signature Services, Inc. (since 2005); | |
Chief Financial Officer, John Hancock Funds II, John Hancock Funds III and John | |
Hancock Trust (since 2005); Vice President and General Manager, Fixed Annuities, | |
U.S. Wealth Management (until 2005); Vice President, Operations, Manulife | |
Wood Logan (2000–2004). | |
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.
1Each Trustee serves until resignation, retirement age or until his or her successor is elected.
2Member of Audit Committee.
3Non-Independent Trustee holds positions with the Fund’s investment adviser, underwriter and certain other affiliates.
33
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 | Custodian | Legal counsel |
John Hancock Investment | State Street Bank & Trust Co. | Kirkpatrick & Lockhart |
Management Services, LLC | 2 Avenue de Lafayette | Preston Gates Ellis LLP |
601 Congress Street | Boston, MA 02111 | 1 Lincoln Street |
Boston, MA 02210-2805 | | Boston, MA 02110-2950 |
| Transfer agent | |
Subadviser | John Hancock Signature | Independent registered |
Grantham, Mayo, | Services, Inc. | public accounting firm |
Van Otterloo & Co. LLC | 1 John Hancock Way, | PricewaterhouseCoopers LLP |
40 Rowes Wharf | Suite 1000 | 125 High Street |
Boston, MA 02110 | Boston, MA 02217-1000 | Boston, MA 02110 |
| | |
Principal distributor | | |
John Hancock Funds, LLC | | |
601 Congress Street | | |
Boston, MA 02210-2805 | | |
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 | 380 Stuart Street |
| | Boston, MA 02116 |
|
|
Phone | Customer service representatives | 1-800-225-5291 |
| EASI-Line | 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.
36
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY
Balanced Fund
Classic Value Fund
Classic Value Fund II
Classic Value Mega Cap Fund
Core Equity Fund
Focused Equity Fund
Global Shareholder Yield Fund
Growth Fund
Growth Opportunities Fund
Growth Trends Fund
Intrinsic Value Fund
Large Cap Equity Fund
Large Cap Select Fund
Mid Cap Equity Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Equity Fund
Small Cap Fund
Small Cap Intrinsic Value Fund
Sovereign Investors Fund
U.S. Core Fund
U.S. Global Leaders Growth Fund
Value Opportunities Fund
ASSET ALLOCATION
Allocation Core Portfolio
Allocation Growth + Value Portfolio
Lifecycle 2010 Portfolio
Lifecycle 2015 Portfolio
Lifecycle 2020 Portfolio
Lifecycle 2025 Portfolio
Lifecycle 2030 Portfolio
Lifecycle 2035 Portfolio
Lifecycle 2040 Portfolio
Lifecycle 2045 Portfolio
Lifecycle Retirement Portfolio
Lifestyle Aggressive Portfolio
Lifestyle Balanced Portfolio
Lifestyle Conservative Portfolio
Lifestyle Growth Portfolio
Lifestyle Moderate Portfolio
SECTOR
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
Technology Leaders Fund
INTERNATIONAL
Greater China Opportunities Fund
International Allocation Portfolio
International Classic Value Fund
International Core Fund
International Fund
International Growth Fund
INCOME
Bond Fund
Government 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
CLOSED-END
Bank and Thrift Opportunity Fund
Financial Trends Fund, Inc.
Income Securities Trust
Investors Trust
Patriot Global Dividend Fund
Patriot Preferred Dividend Fund
Patriot Premium Dividend Fund I
Patriot Premium Dividend Fund II
Patriot Select Dividend Trust
Preferred Income Fund
Preferred Income II Fund
Preferred Income III Fund
Tax-Advantaged Dividend Income Fund
For more complete information on any John Hancock Fund and an Open-End fund prospectus, which includes charges and expenses, call your financial professional, or John Hancock Funds at 1-800-225-5291 for Open-End fund information and 1-800-852-0218 for Closed-End fund information. Please read the Open-End fund prospectus carefully before investing or sending money.
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 International Allocation Portfolio (GMO) 3180A 2/07
; 4/07
ITEM 2. CODE OF ETHICS.
As of the end of the period, February 28, 2007, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer and Chief Financial Officer (respectively, the principal executive officer, the principal financial officer, the “Covered Officers”). A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the Registrant has determined that it has one “audit committee financial expert” as that term is defined in Item 3(b) of Form N-CSR: Charles L. Ladner who is “independent” as that term is defined in Item 3(a) (2) of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees billed for the fiscal year ended February 28, 2007, the first year of the registrant’s operation (the “Reporting Period”) for professional services rendered by the principal accountant, PricewaterhouseCoopers LLP (“PWC”) for the audits of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements amounted to $168,778; Intrinsic Value Fund - $19,913, Growth Opportunities Fund - $19,913, Growth Fund - $19,113, International Growth Fund - $23,354, Value Opportunities Fund - $19,913, U.S. Core Fund - $19,113, International Core Fund - $23,354 and International Allocation Portfolio - $24,105.
(b) Audit-Related Services
Audit-related fees for the Reporting Period for assurance and related services by PWC amounted to $34,744 out-of-pocket expenses, Intrinsic Value Fund - $4,343, Growth Opportunities Fund - $4,343, Growth Fund - $4,343, International Growth Fund - $4,343, Value Opportunities Fund - $4,343, U.S. Core Fund - $4,343, International Core Fund - $4,343 and International Allocation Portfolio - $4,343 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"). The nature of the services comprising the out-of-pocket expenses was testing conversion of accounting records from one service provider to another involving multiple service providers in the registrant’s initial year.
(c) Tax Fees
The aggregate fees billed for the Reporting Period for professional services rendered by PWC for the tax compliance, tax advice and tax planning (“tax fees”) amounted to $59,360; Intrinsic Value Fund - $7,420, Growth Opportunities Fund - $7,420, Growth Fund - $7,420, International Growth Fund - $7,420, Value Opportunities Fund - $7,420, U.S. Core Fund - $7,420, International Core Fund - $7,420 and International Allocation Portfolio - $7,420. The nature of the services comprising the tax fees was the review of the registrant’s income and excise tax returns and tax distribution requirements.
(d) All Other Fees
Other fees for the Reporting Period amounted to $103,560 for review of merger activity; Growth Opportunities Fund - $45,280 and International Core Fund - $45,280 and $13,000 for the seed audit, billed to the registrant or to the control affiliates.
(e)(1) The audit committee’s pre-approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X are attached. See attachment "Approval of Audit, Audit-related, Tax and Other Services".
(e)(2) Amount approved by the Audit Committee pursuant paragraph (c) (7) (i) (c) of Rule 2-01 of Regulation S-X: None.
(f) According to PWC for the Reporting Period, 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 PWC for non-audit services rendered to the registrant and rendered to the registrant's control affiliates for the Reporting Period were $872,192.
(h) The registrant’s audit committee of the Board of Trustees has considered the provision of non-audit services that were rendered by PWC to the investment adviser and any control affiliate that provides services that were not pre-approved pursuant to paragraph (c) (7) (ii) of Rule 2-01 of Regulation S-X, to be compatible with maintaining PWC’s independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. 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 – Governance Committee Charter”.
ITEM 11. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in this Form N-CSR is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to the registrant’s management,
including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Within 90 days prior to the filing date of this Form N-CSR, the registrant had carried out an evaluation, under the supervision and with the participation of the registrant’s management, including the registrant's principal executive officer and the registrant’s principal financial officer, of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures relating to information required to be disclosed on Form N-CSR. Based on such evaluation, the registrant’s principal executive officer and principal financial officer concluded that the registrant’s disclosure controls and procedures are operating effectively to ensure that:
(i) information required to be disclosed in this Form N-CSR is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission, and (ii) information is accumulated and communicated to the registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) CHANGE IN REGISTRANT’S INTERNAL CONTROL: Not applicable.
ITEM 12. EXHIBITS.
(a)(1) See attached Code of Ethics.
(a)(2)(i) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER.
(a)(2)(ii) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER.
(b) CERTIFICATION PURSUANT TO Rule 30a-2(b) OF THE INVESTMENT COMPANY ACT OF 1940.
(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 – 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 Funds III
By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and Chief Executive Officer
Date: April 30, 2007
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: April 30, 2007
By: /s/ John G. Vrysen
-------------------------------------
John G. Vrysen
Chief Financial Officer
Date: April 30, 2007