| |
UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
|
FORM N-CSR |
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED |
MANAGEMENT INVESTMENT COMPANIES |
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Investment Company Act file number 811-21777 |
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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 |
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Boston, Massachusetts 02210 |
|
(Name and address of agent for service) |
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Registrant's telephone number, including area code: 617-663-3000 |
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Date of fiscal year end: | February 28 |
|
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Date of reporting period: | August 31, 2008 |
ITEM 1. REPORT TO SHAREHOLDERS.
John Hancock
Intrinsic Value Fund
Semiannual Report
8.31.08
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 March 1, 2008 with the same investment held until August 31, 2008.
Actual expenses/actual return | | | | | |
|
Account value | | | | Expenses paid | |
$1,000.00 | | Ending value | | during period | |
on 3-1-08 | | on 8-31-08 | | ending 8-31-08 | 1 |
| | | | | |
Class A | $ | 948.40 | $ | 6.63 | |
Class B | $ | 945.00 | $ | 10.05 | |
Class C | $ | 945.50 | $ | 10.06 | |
Class I | $ | 950.60 | $ | 4.67 | |
Class R1 | $ | 947.70 | $ | 7.12 | |
Class 1 | $ | 950.60 | $ | 4.42 | |
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 August 31, 2008, 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:
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
Hypothetical example for comparison purposes | | | | | |
|
Account value | | | | Expenses paid | |
$1,000.00 | | Ending value | | during period | |
on 3-1-08 | | on 8-31-08 | | ending 8-31-08 | 1 |
| | | | | |
Class A | $ | 1,018.40 | $ | 6.87 | |
Class B | $ | 1,014.90 | $ | 10.41 | |
Class C | $ | 1,014.90 | $ | 10.41 | |
Class I | $ | 1,020.40 | $ | 4.84 | |
Class R1 | $ | 1,017.90 | $ | 7.38 | |
Class 1 | $ | 1,020.70 | $ | 4.58 | |
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund's annualized expense ratio of 1.35%, 2.05%, 2.05%, 0.95%, 1.45% 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 most recent fiscal half year/365 (to reflect the one-half year period).
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited)
(showing percentage of total net assets)
| | | |
Intrinsic Value Fund | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
COMMON STOCKS - 96.81% | | | |
| | | |
Aerospace - 1.61% | | | |
General Dynamics Corp. | 1,700 | $ | 156,910 |
Northrop Grumman Corp. | 200 | | 13,770 |
Raytheon Company | 400 | | 23,996 |
Rockwell Collins, Inc. | 200 | | 10,518 |
United Technologies Corp. | 1,200 | | 78,708 |
| |
|
| | | 283,902 |
Agriculture - 0.20% | | | |
Archer-Daniels-Midland Company | 1,400 | | 35,644 |
| | | |
Apparel & Textiles - 0.32% | | | |
Coach, Inc. * | 700 | | 20,293 |
Jones Apparel Group, Inc. | 100 | | 1,986 |
Liz Claiborne, Inc. | 500 | | 8,105 |
Mohawk Industries, Inc. * | 200 | | 13,810 |
NIKE, Inc., Class B | 200 | | 12,122 |
| |
|
| | | 56,316 |
Auto Parts - 0.39% | | | |
AutoZone, Inc. * | 180 | | 24,701 |
BorgWarner, Inc. | 100 | | 4,135 |
Johnson Controls, Inc. | 700 | | 21,644 |
O'Reilly Automotive, Inc. * | 400 | | 11,648 |
TRW Automotive Holdings Corp. * | 400 | | 7,672 |
| |
|
| | | 69,800 |
Auto Services - 0.24% | | | |
AutoNation, Inc. * | 1,700 | | 19,295 |
Avis Budget Group, Inc. * | 1,800 | | 13,716 |
Copart, Inc. * | 200 | | 8,802 |
| |
|
| | | 41,813 |
Automobiles - 0.25% | | | |
General Motors Corp. (a) | 1,700 | | 17,000 |
PACCAR, Inc. | 650 | | 27,989 |
| |
|
| | | 44,989 |
Banking - 3.82% | | | |
Bank of America Corp. | 11,355 | | 353,595 |
BB&T Corp. | 1,800 | | 54,000 |
Comerica, Inc. | 800 | | 22,472 |
Fifth Third Bancorp | 1,200 | | 18,936 |
First Horizon National Corp. | 800 | | 8,984 |
Hudson City Bancorp, Inc. | 1,700 | | 31,348 |
KeyCorp | 400 | | 4,804 |
Marshall & Ilsley Corp. | 700 | | 10,780 |
Popular, Inc. (a) | 900 | | 7,335 |
SunTrust Banks, Inc. | 200 | | 8,378 |
U.S. Bancorp | 3,000 | | 95,580 |
UnionBanCal Corp. | 400 | | 29,472 |
Wachovia Corp. | 1,400 | | 22,246 |
Zions Bancorp | 300 | | 8,052 |
| |
|
| | | 675,982 |
Biotechnology - 1.21% | | | |
Amgen, Inc. * | 1,500 | | 94,275 |
Biogen Idec, Inc. * | 1,300 | | 66,209 |
Charles River Laboratories International, Inc. * | 200 | | 13,122 |
Genzyme Corp. * | 300 | | 23,490 |
| | | |
Intrinsic Value Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
| |
COMMON STOCKS (continued) | | | |
Biotechnology (continued) | | | |
Invitrogen Corp. * | 400 | $ | 16,984 |
| |
|
| | | 214,080 |
Broadcasting - 0.07% | | | |
Discovery Holding Company * | 600 | | 12,138 |
| | | |
Building Materials & Construction - 0.12% | | | |
Lennox International, Inc. | 300 | | 11,100 |
Masco Corp. | 500 | | 9,530 |
| |
|
| | | 20,630 |
Business Services - 0.54% | | | |
Affiliated Computer Services, Inc., Class A * | 100 | | 5,324 |
FactSet Research Systems, Inc. | 200 | | 12,542 |
Fiserv, Inc. * | 700 | | 36,302 |
Global Payments, Inc. | 200 | | 9,642 |
Hewitt Associates, Inc., Class A * | 300 | | 12,063 |
Manpower, Inc. | 200 | | 9,612 |
URS Corp. * | 200 | | 9,592 |
| | |
| | | 95,077 |
Cellular Communications - 0.04% | | | |
Telephone & Data Systems, Inc. | 200 | | 7,680 |
| | | |
Chemicals - 0.31% | | | |
Air Products & Chemicals, Inc. | 200 | | 18,370 |
Dow Chemical Company | 300 | | 10,239 |
FMC Corp. | 200 | | 14,708 |
Sigma-Aldrich Corp. | 200 | | 11,352 |
| | |
| | | 54,669 |
Colleges & Universities - 0.08% | | | |
Career Education Corp. * | 800 | | 15,000 |
| | | |
Computers & Business Equipment - 2.79% | | | |
Cisco Systems, Inc. * | 9,300 | | 223,665 |
Dell, Inc. * | 2,200 | | 47,806 |
EMC Corp. * | 800 | | 12,224 |
Hewlett-Packard Company | 800 | | 37,536 |
Ingram Micro, Inc., Class A * | 1,000 | | 18,910 |
International Business Machines Corp. | 600 | | 73,038 |
Juniper Networks, Inc. * | 600 | | 15,420 |
Lexmark International, Inc. * | 500 | | 17,985 |
Tech Data Corp. * | 400 | | 13,656 |
Western Digital Corp. * | 1,200 | | 32,712 |
| |
|
| | | 492,952 |
Cosmetics & Toiletries - 2.45% | | | |
Avon Products, Inc. | 300 | | 12,849 |
Colgate-Palmolive Company | 600 | | 45,618 |
Estee Lauder Companies, Inc., Class A | 200 | | 9,954 |
Kimberly-Clark Corp. | 600 | | 37,008 |
Procter & Gamble Company | 4,700 | | 327,919 |
| | |
| | | 433,348 |
Crude Petroleum & Natural Gas - 5.08% | | | |
Apache Corp. | 1,690 | | 193,302 |
Chesapeake Energy Corp. | 1,100 | | 53,240 |
Cimarex Energy Company | 300 | | 16,662 |
Devon Energy Corp. | 1,200 | | 122,460 |
EOG Resources, Inc. | 500 | | 52,210 |
|
The accompanying notes are an integral part of the financial statements. |
1 |
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited) - continued
(showing percentage of total net assets)
| | | |
Intrinsic Value Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
Crude Petroleum & Natural Gas | | | |
(continued) | | | |
Forest Oil Corp. * | 200 | $ | 11,384 |
Hess Corp. | 700 | | 73,297 |
Newfield Exploration Company * | 200 | | 9,044 |
Noble Energy, Inc. | 200 | | 14,346 |
Occidental Petroleum Corp. | 3,500 | | 277,760 |
Patterson-UTI Energy, Inc. | 900 | | 25,578 |
Sunoco, Inc. | 400 | | 17,752 |
Unit Corp. * | 200 | | 13,546 |
W&T Offshore, Inc. | 200 | | 7,032 |
Whiting Petroleum Corp. * | 100 | | 9,624 |
| | |
| | | 897,237 |
Domestic Oil - 0.08% | | | |
Encore Aquisition Company * | 100 | | 5,156 |
St. Mary Land & Exploration Company | 200 | | 8,444 |
| | |
| | | 13,600 |
Drugs & Health Care - 0.37% | | | |
Wyeth | 1,500 | | 64,920 |
| | | |
Educational Services - 0.14% | | | |
Apollo Group, Inc., Class A * | 100 | | 6,368 |
ITT Educational Services, Inc. * | 200 | | 17,782 |
| | |
| | | 24,150 |
Electrical Equipment - 0.05% | | | |
Emerson Electric Company | 200 | | 9,360 |
| | | |
Electrical Utilities - 0.08% | | | |
FirstEnergy Corp. | 200 | | 14,528 |
| | | |
Electronics - 0.35% | | | |
L-3 Communications Holdings, Inc. | 600 | | 62,364 |
| | | |
Financial Services - 3.27% | | | |
BlackRock, Inc. | 200 | | 43,450 |
Capital One Financial Corp. | 400 | | 17,656 |
Citigroup, Inc. | 17,800 | | 338,022 |
Federal Home Loan Mortgage Corp. | 300 | | 1,353 |
Federal National Mortgage Association | 4,500 | | 30,780 |
Goldman Sachs Group, Inc. | 100 | | 16,397 |
JP Morgan Chase & Company | 300 | | 11,547 |
Knight Capital Group, Inc. * | 600 | | 10,344 |
Leucadia National Corp. | 600 | | 27,774 |
Morgan Stanley | 500 | | 20,415 |
SLM Corp. * | 500 | | 8,255 |
State Street Corp. | 100 | | 6,767 |
Synovus Financial Corp. | 1,100 | | 10,120 |
T. Rowe Price Group, Inc. | 200 | | 11,872 |
Washington Mutual, Inc. | 2,700 | | 10,935 |
Wells Fargo & Company | 400 | | 12,108 |
| | |
| | | 577,795 |
Food & Beverages - 4.18% | | | |
Coca-Cola Enterprises, Inc. | 900 | | 15,363 |
General Mills, Inc. | 400 | | 26,472 |
Kellogg Company | 200 | | 10,888 |
Kraft Foods, Inc., Class A | 822 | | 25,901 |
PepsiAmericas, Inc. | 500 | | 11,715 |
PepsiCo, Inc. | 3,900 | | 267,072 |
| | | |
Intrinsic Value Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
Food & Beverages (continued) | | | |
The Coca-Cola Company | 6,800 | $ | 354,076 |
Tyson Foods, Inc., Class A | 800 | | 11,616 |
William Wrigley, Jr. Company | 200 | | 15,896 |
| | |
| | | 738,999 |
Gas & Pipeline Utilities - 0.07% | | | |
Transocean, Inc. * | 100 | | 12,720 |
| | | |
Healthcare Products - 5.09% | | | |
Johnson & Johnson | 8,600 | | 605,698 |
Medtronic, Inc. | 1,300 | | 70,980 |
Patterson Companies, Inc. * | 300 | | 9,762 |
Stryker Corp. | 800 | | 53,752 |
Zimmer Holdings, Inc. * | 2,200 | | 159,258 |
| | |
| | | 899,450 |
Healthcare Services - 6.23% | | | |
Cardinal Health, Inc. | 1,800 | | 98,964 |
Coventry Health Care, Inc. * | 1,500 | | 52,530 |
Express Scripts, Inc. * | 800 | | 58,728 |
Health Net, Inc. * | 400 | | 11,060 |
Lincare Holdings, Inc. * | 300 | | 9,900 |
McKesson Corp. | 3,000 | | 173,340 |
Medco Health Solutions, Inc. * | 500 | | 23,425 |
Quest Diagnostics, Inc. | 400 | | 21,620 |
UnitedHealth Group, Inc. | 14,834 | | 451,695 |
WellPoint, Inc. * | 3,800 | | 200,602 |
| | |
| | | 1,101,864 |
Holdings Companies/Conglomerates - 1.49% | | | |
General Electric Company | 9,400 | | 264,140 |
| | | |
Homebuilders - 0.45% | | | |
Centex Corp. | 600 | | 9,732 |
D.R. Horton, Inc. | 900 | | 11,214 |
KB Home | 300 | | 6,240 |
Lennar Corp., Class A | 700 | | 9,205 |
M.D.C. Holdings, Inc. | 400 | | 16,580 |
Pulte Homes, Inc. | 800 | | 11,608 |
Toll Brothers, Inc. * | 600 | | 14,928 |
| |
|
| | | 79,507 |
Hotels & Restaurants - 0.18% | | | |
McDonald's Corp. | 500 | | 31,025 |
| | | |
Household Appliances - 0.07% | | | |
Black & Decker Corp. | 200 | | 12,650 |
| | | |
Household Products - 0.10% | | | |
Energizer Holdings, Inc. * | 200 | | 16,988 |
| | | |
Industrial Machinery - 0.99% | | | |
AGCO Corp. * | 200 | | 12,326 |
Deere & Company | 1,400 | | 98,798 |
Ingersoll-Rand Company, Ltd., Class A | 292 | | 10,784 |
Kennametal, Inc. | 400 | | 14,092 |
Parker-Hannifin Corp. | 600 | | 38,442 |
| | |
| | | 174,442 |
Insurance - 7.61% | | | |
ACE, Ltd. * | 500 | | 26,305 |
Aetna, Inc. | 400 | | 17,256 |
|
The accompanying notes are an integral part of the financial statements. |
2 |
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited) - continued
(showing percentage of total net assets)
| | | |
Intrinsic Value Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
Insurance (continued) | | | |
AFLAC, Inc. | 800 | $ | 45,360 |
Allstate Corp. | 5,300 | | 239,189 |
American International Group, Inc. | 9,600 | | 206,304 |
Aon Corp. | 400 | | 18,996 |
Arch Capital Group, Ltd. * | 200 | | 13,952 |
Assurant, Inc. | 400 | | 23,372 |
Axis Capital Holdings, Ltd. | 300 | | 10,029 |
Chubb Corp. | 2,900 | | 139,229 |
Everest Re Group, Ltd. | 200 | | 16,426 |
First American Corp. | 400 | | 10,108 |
Hartford Financial Services Group, Inc. | 1,100 | | 69,388 |
HCC Insurance Holdings, Inc. | 400 | | 10,072 |
MBIA, Inc. (a) | 1,300 | | 21,086 |
MetLife, Inc. | 400 | | 21,680 |
MGIC Investment Corp. | 800 | | 6,728 |
Nationwide Financial Services, Inc., Class A | 400 | | 20,576 |
Old Republic International Corp. | 1,600 | | 17,488 |
PartnerRe, Ltd. | 100 | | 6,891 |
Progressive Corp. | 3,100 | | 57,257 |
Protective Life Corp. | 400 | | 14,516 |
SAFECO Corp. | 300 | | 20,280 |
The Travelers Companies, Inc. | 4,900 | | 216,384 |
Torchmark Corp. | 500 | | 29,870 |
Transatlantic Holdings, Inc. | 200 | | 12,020 |
Unum Group | 600 | | 15,246 |
W.R. Berkley Corp. | 1,200 | | 28,272 |
XL Capital, Ltd., Class A | 500 | | 10,050 |
| | |
| | | 1,344,330 |
International Oil - 18.60% | | | |
Anadarko Petroleum Corp. | 1,300 | | 80,249 |
Chevron Corp. | 11,400 | | 984,048 |
ConocoPhillips | 8,500 | | 701,335 |
Exxon Mobil Corp. | 17,800 | | 1,424,178 |
Murphy Oil Corp. | 500 | | 39,265 |
Nabors Industries, Ltd. * | 500 | | 17,800 |
Noble Corp. | 200 | | 10,058 |
Weatherford International, Ltd. * | 800 | | 30,864 |
| |
| | | 3,287,797 |
Internet Content - 0.34% | | | |
Google, Inc., Class A * | 130 | | 60,228 |
| | | |
Internet Retail - 0.44% | | | |
eBay, Inc. * | 3,100 | | 77,283 |
| | | |
Internet Software - 0.05% | | | |
VeriSign, Inc. * | 300 | | 9,591 |
| | | |
Manufacturing - 1.38% | | | |
3M Company | 900 | | 64,440 |
Danaher Corp. | 1,000 | | 81,570 |
Harley-Davidson, Inc. | 500 | | 19,890 |
SPX Corp. | 100 | | 11,925 |
Tyco International, Ltd. | 1,550 | | 66,464 |
| |
|
| | | 244,289 |
Metal & Metal Products - 0.11% | | | |
Commercial Metals Company | 300 | | 7,809 |
| | | |
Intrinsic Value Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
Metal & Metal Products (continued) | | | |
Reliance Steel & Aluminum Company | 200 | $ | 11,402 |
| |
|
| | | 19,211 |
Mining - 0.10% | | | |
Newmont Mining Corp. | 400 | | 18,040 |
| | | |
Office Furnishings & Supplies - 0.03% | | | |
Office Depot, Inc. * | 700 | | 4,928 |
| | | |
Petroleum Services - 0.85% | | | |
Baker Hughes, Inc. | 100 | | 8,001 |
BJ Services Company | 1,000 | | 26,850 |
Helmerich & Payne, Inc. | 200 | | 11,424 |
Valero Energy Corp. | 3,000 | | 104,280 |
| |
|
| | | 150,555 |
Pharmaceuticals - 5.67% | | | |
Abbott Laboratories | 1,200 | | 68,916 |
AmerisourceBergen Corp. | 1,700 | | 69,717 |
Bristol-Myers Squibb Company | 400 | | 8,536 |
Eli Lilly & Company | 2,100 | | 97,965 |
Endo Pharmaceutical Holdings, Inc. * | 400 | | 9,088 |
Forest Laboratories, Inc. * | 1,600 | | 57,104 |
Gilead Sciences, Inc. * | 1,500 | | 79,020 |
King Pharmaceuticals, Inc. * | 1,400 | | 16,016 |
Merck & Company, Inc. | 1,600 | | 57,072 |
Pfizer, Inc. | 28,200 | | 538,902 |
| |
|
| | | 1,002,336 |
Publishing - 0.21% | | | |
Gannett Company, Inc. | 2,100 | | 37,359 |
| | | |
Railroads & Equipment - 0.41% | | | |
Burlington Northern Santa Fe Corp. | 230 | | 24,702 |
CSX Corp. | 500 | | 32,340 |
Norfolk Southern Corp. | 200 | | 14,706 |
| |
|
| | | 71,748 |
Real Estate - 0.48% | | | |
Annaly Capital Management, Inc., REIT | 1,000 | | 14,960 |
Boston Properties, Inc., REIT | 100 | | 10,247 |
Equity Residential, REIT | 500 | | 21,100 |
HCP, Inc., REIT | 300 | | 10,866 |
Health Care, Inc., REIT | 200 | | 10,374 |
Public Storage, Inc., REIT | 200 | | 17,664 |
| |
|
| | | 85,211 |
Retail Grocery - 0.09% | | | |
SUPERVALU, Inc. | 700 | | 16,233 |
| | | |
Retail Trade - 10.03% | | | |
Abercrombie & Fitch Company, Class A | 400 | | 20,980 |
Advance Auto Parts, Inc. | 300 | | 12,912 |
American Eagle Outfitters, Inc. | 600 | | 9,030 |
Bed Bath & Beyond, Inc. * | 1,100 | | 33,726 |
Best Buy Company, Inc. | 200 | | 8,954 |
Costco Wholesale Corp. | 800 | | 53,648 |
CVS Caremark Corp. | 900 | | 32,940 |
Dollar Tree, Inc. * | 500 | | 19,180 |
Family Dollar Stores, Inc. | 700 | | 17,444 |
Home Depot, Inc. | 15,100 | | 409,512 |
Kohl's Corp. * | 900 | | 44,253 |
|
The accompanying notes are an integral part of the financial statements. |
3 |
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited) - continued
(showing percentage of total net assets)
| | | | |
Intrinsic Value Fund (continued) | | | | |
| | Shares or | | |
| | Principal | | |
| | Amount | | Value |
|
|
COMMON STOCKS (continued) | | | | |
Retail Trade (continued) | | | | |
Lowe's Companies, Inc. | | 7,900 | $ | 194,656 |
Staples, Inc. | | 3,000 | | 72,600 |
Target Corp. | | 2,100 | | 111,342 |
The Gap, Inc. | | 1,200 | | 23,340 |
Walgreen Company | | 3,400 | | 123,862 |
Wal-Mart Stores, Inc. | | 9,900 | | 584,793 |
| |
|
| | | | 1,773,172 |
|
|
Semiconductors - 0.27% | | | | |
|
Cypress Semiconductor Corp. * | | 400 | | 12,968 |
Intel Corp. | | 600 | | 13,722 |
|
Lam Research Corp. * | | 300 | | 11,028 |
QLogic Corp. * | | 500 | | 9,340 |
| |
|
| | | | 47,058 |
Software - 3.50% | | | | |
Citrix Systems, Inc. * | | 300 | | 9,081 |
Microsoft Corp. | | 14,300 | | 390,247 |
Oracle Corp. * | | 9,500 | | 208,335 |
Sybase, Inc. * | | 300 | | 10,323 |
| |
|
| | | | 617,986 |
Steel - 0.21% | | | | |
Nucor Corp. | | 700 | | 36,750 |
|
Telecommunications Equipment & | | | | |
Services - 1.28% | | | | |
QUALCOMM, Inc. | | 4,300 | | 226,394 |
| | | | |
Telephone - 0.66% | | | | |
AT&T, Inc. | | 1,427 | | 45,650 |
Verizon Communications, Inc. | | 2,000 | | 70,240 |
| |
|
| | | | 115,890 |
|
Tobacco - 1.43% | | | | |
Altria Group, Inc. | | 6,700 | | 140,901 |
Philip Morris International, Inc. | | 1,900 | | 102,030 |
UST, Inc. | | 200 | | 10,718 |
| |
|
| | | | 253,649 |
Transportation - 0.06% | | | | |
C.H. Robinson Worldwide, Inc. | | 200 | | 10,422 |
| | | | |
Trucking & Freight - 0.29% | | | | |
FedEx Corp. | | 100 | | 8,282 |
Ryder Systems, Inc. | | 100 | | 6,452 |
United Parcel Service, Inc., Class B | | 400 | | 25,648 |
YRC Worldwide, Inc. * | | 600 | | 10,860 |
| |
|
| | | | 51,242 |
|
TOTAL COMMON STOCKS (Cost $19,219,845) | | | $ | 17,111,461 |
|
SHORT TERM INVESTMENTS - 0.24% | | | | |
John Hancock Cash | | | | |
Investment Trust, 2.5657% (c)(f) | $ | 42,542 | $ | 42,542 |
|
TOTAL SHORT TERM INVESTMENTS | | | | |
(Cost $42,542) | | | $ | 42,542 |
|
| | | | |
Intrinsic Value Fund (continued) | | | | |
| | Shares or | | |
| | Principal | | |
| | Amount | | Value |
|
|
REPURCHASE AGREEMENTS - 3.17% | | | | |
Repurchase Agreement with State | | | | |
Street Corp. dated 08/29/2008 at | | | | |
1.70% to be repurchased at | | | | |
$561,106 on 09/02/2008, | | | | |
collateralized by $565,000 Federal | | | | |
National Mortgage Association, | | | | |
3.375% due 03/05/2010 (valued at | | | | |
$574,775, including interest) | $ | 561,000 | $ | 561,000 |
|
TOTAL REPURCHASE AGREEMENTS | | | | |
(Cost $561,000) | | | $ | 561,000 |
|
|
Total Investments (Intrinsic Value Fund) | | | | |
(Cost $19,823,387) - 100.22% | | | $ | 17,715,003 |
Liabilities in Excess of Other Assets - (0.22)% | | | | (39,248 ) |
| | |
|
TOTAL NET ASSETS - 100.00% | | | $ | 17,675,755 |
| | |
|
Percentages are stated as a percent of net assets.
Key to Security Abbreviations and Legend
REIT - Real Estate Investment Trust
Non-Income Producing
(a) All or a portion of this security was out on loan.
(c) The investment is an affiliate of the Fund, the adviser and/or subadviser.
(f) John Hancock Cash Investment Trust is managed by MFC Global Investment Management (U.S.), LLC. The rate shown is the seven-day effective yield at period end.
|
The accompanying notes are an integral part of the financial statements. |
4 |
† At August 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $19,874,332. Net unrealized depreciation aggregated $2,159,329, of which $788,997 related to appreciated investment securities and $2,948,326 related to depreciated investment securities.
The Fund had the following financial futures contracts open on August 31, 2008:
| | | | |
| NUMBER OF | | | |
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | UNREALIZED APPRECIATION |
|
|
S&P Mini 500 Index Futures | 5 | Long | Sep 2008 | $6,173 |
|
John Hancock Funds III
Intrinsic Value Fund
Statements of Assets and Liabilities — August 31, 2008 (Unaudited))1
| | |
Assets | | |
|
Investments in unaffiliated issuers, at value | | |
(Cost $19,780,845) including $41,708 of | | |
securities loaned (Note 2) | $ | 17,672,461 |
Investments in affiliated issuers, at value (Cost | | |
$42,542) | | 42,542 |
| | |
Total investments, at value (Cost | | |
$19,823,387) | | 17,715,003 |
| | |
Cash | | 186 |
Cash collateral at broker for futures contracts | | 21,600 |
Receivable for fund shares sold | | 572 |
Dividends and interest receivable | | 47,003 |
Other assets | | 33,745 |
| | |
Total assets | | 17,818,109 |
|
|
Liabilities | | |
|
Payable for fund shares repurchased | | 16,314 |
Payable upon return of securities loaned (Note | | |
2) | | 42,542 |
Payable for futures variation margin | | 3,875 |
Payable to affiliates | | |
Fund administration fees | | 133 |
Transfer agent fees | | 4,105 |
Trustees’ fees | | 935 |
Distribution and service fees | | 189 |
Investment management fees | | 2,489 |
Other payables and accrued expenses | | 71,772 |
| | |
Total liabilities | | 142,354 |
|
|
Net assets | | |
|
Capital paid-in | $ | 20,862,305 |
Undistributed net investment income | | 106,050 |
Accumulated undistributed net realized loss on | | |
investments and futures contracts | | (1,190,389) |
Net unrealized depreciation on investments and | | |
futures | | (2,102,211) |
| | |
Net assets | $ | 17,675,755 |
| | |
Net asset value per share | | |
|
The Funds have an unlimited number of shares | | |
authorized with no par value. Net asset value is | | |
calculated by dividing the net assets of each | | |
class of shares by the number of outstanding | | |
shares in the class. | | |
| | |
Class A | | |
Net assets | $ | 16,757,558 |
Shares outstanding | | 970,909 |
Net asset value and redemption price per share | $ | 17.26 |
| | |
Class B1 | | |
Net assets | $ | 235,167 |
Shares outstanding | | 13,687 |
Net asset value and offering price per share | $ | 17.18 |
| | |
Class C1 | | |
Net assets | $ | 353,915 |
Shares outstanding | | 20,589 |
Net asset value and offering price per share | $ | 17.19 |
| | |
Class I | | |
Net assets | $ | 129,042 |
Shares outstanding | | 7,456 |
Net asset value, offering price and redemption | | |
price per share | $ | 17.31 |
| | |
Class R1 | | |
|
See notes to financial statements |
| | |
Net assets | $ | 103,572 |
Shares outstanding | | 6,017 |
Net asset value, offering price and redemption | | |
price per share | $ | 17.21 |
| | |
Class 1 | | |
Net assets | $ | 96,501 |
Shares outstanding | | 5,575 |
Net asset value, offering price and redemption | | |
price per share | $ | 17.31 |
|
Maximum public offering price per share | | |
Class A (net asset value per share ÷ 95%)2 | $ | 18.17 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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 |
John Hancock Funds III
Intrinsic Value Fund
Statements of Operations — August 31, 2008 (Unaudited)1
| | |
Investment income | | |
|
Dividends | $ | 200,382 |
Interest | | 5,178 |
Income from affiliated issuers | | 302 |
Securities lending | | 184 |
Less foreign taxes withheld | | (14) |
| | |
Total investment income | | 206,032 |
|
Expenses | | |
|
Investment management fees (Note 3) | | 71,852 |
Distribution and service fees (Note 3) | | 29,714 |
Transfer agent fees (Note 3) | | 7,748 |
Blue sky fees (Note 3) | | 37,282 |
Fund administration fees (Note 3) | | 1,061 |
Audit and legal fees | | 19,693 |
Printing and postage fees (Note 3) | | 4,762 |
Custodian fees | | 12,636 |
Trustees' fees (Note 3) | | 1,275 |
Registration and filing fees | | 7,273 |
Miscellaneous | | 158 |
| | |
Total expenses | | 193,454 |
Less expense reductions (Note 3) | | (67,216) |
Transfer agent credits (Note 3) | | (20) |
| | |
Net expenses | | 126,218 |
|
Net investment loss | | 79,814 |
|
|
Realized and unrealized gain (loss) | | |
|
Net realized loss on | | |
Investments in unaffiliated issuers | | (700,097) |
Futures contracts | | (25,881) |
| | (725,978) |
|
Change in net unrealized appreciation | | |
(depreciation) of | | |
Investments in unaffiliated issuers | | (348,461) |
Futures contracts | | 17,926 |
| | (330,535) |
|
Net realized and unrealized gain (loss) | | (1,056,513) |
|
Decrease in net assets from operations | $ | (976,699) |
|
1Semiannual period from 3-1-08 to 8-31-08. |
|
See notes to financial statements |
John Hancock Funds III
Intrinsic Value Fund
Statements of Changes in Net Assets
| | | | |
| | Year ended | | Period ended |
| | 2-29-08 | | 8-31-081 |
|
Increase (decrease) in net assets | | | | |
|
From operations | | | | |
Net investment income | $ | 216,099 | $ | 79,814 |
Net realized gain (loss) | | 617,049 | | (725,978) |
Change in net unrealized appreciation | | | | |
(depreciation) | | (3,490,770) | | (330,535) |
| | | | |
Decrease in net assets resulting from | | | | |
operations | | (2,657,622) | | (976,699) |
|
|
Distributions to shareholders | | | | |
From net investment income | | | | |
Class A | | (224,181) | | — |
Class B | | (1,449) | | — |
Class C | | (2,335) | | — |
Class I | | (2,359) | | — |
Class R1 | | (1,273) | | — |
Class 1 | | (1,843) | | — |
From net realized gain | | | | |
Class A | | (1,330,407) | | — |
Class B | | (23,393) | | — |
Class C | | (37,862) | | — |
Class I | | (10,289) | | — |
Class R1 | | (8,307) | | — |
Class 1 | | (7,782) | | — |
Total distributions | | (1,651,480) | | — |
|
From Fund share transactions (Note 5) | | 2,600,501 | | 49,825 |
|
|
Total increase decrease | | (1,708,601) | | (926,874) |
|
Net assets | | | | |
|
Beginning of period | | 20,311,230 | | 18,602,629 |
End of period | $ | 18,602,629 | $ | 17,675,755 |
|
Undistributed net investment income | $ | 26,236 | $ | 106,050 |
|
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited. |
|
See notes to financial statements |
Intrinsic Value Fund
Financial Highlights
Class A
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
| | | | | | | |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $22.68 | | $18.20 | |
Net investment income | 3 | 0.18 | | 0.24 | | 0.08 | |
Net realized and unrealized gain (loss) on investments | | 2.85 | | (2.93) | | (1.02) | |
Total from investment operations | | 3.03 | | (2.69) | | (0.94) | |
Less distributions | | | | | | | |
From net investment income | | (0.13) | | (0.26) | | - | |
From net realized gain | | (0.22) | | (1.53) | | - | |
| | (0.35) | | (1.79) | | - | |
Net asset value, end of period | | $22.68 | | $18.20 | | $17.26 | |
Total return (%) | 4,5 | 15.19 | 6 | (12.52) | | (5.16) | 6 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | $19 | | $18 | | $17 | |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 1.94 | 7 | 1.89 | | 1.75 | 7 |
Expenses net of fee waivers | | 1.34 | 7 | 1.35 | | 1.35 | 7 |
Expenses net of all fee waivers and credits | | 1.34 | 7 | 1.35 | | 1.35 | 7 |
Net investment income | | 1.13 | 7 | 1.05 | | 0.89 | 7 |
Portfolio turnover (%) | | 32 | | 72 | | 27 | |
1 Class A shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Annualized.
Intrinsic Value Fund
Financial Highlights
Class B
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
| | | | | | | |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $22.64 | | $18.18 | |
Net investment income | 3 | 0.07 | | 0.08 | | 0.02 | |
Net realized and unrealized gain (loss) on investments | | 2.85 | | (2.92) | | (1.02) | |
Total from investment operations | | 2.92 | | (2.84) | | (1.00) | |
Less distributions | | | | | | | |
From net investment income | | (0.06) | | (0.09) | | - | |
From net realized gain | | (0.22) | | (1.53) | | - | |
| | (0.28) | | (1.62) | | - | |
Net asset value, end of period | | $22.64 | | $18.18 | | $17.18 | |
Total return (%) | 4,5 | 14.61 | 6 | (13.13) | | (5.50) | 6 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | - | 7 | - | 7 | - | 7 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 9.00 | 8 | 6.13 | | 7.82 | 8 |
Expenses net of fee waivers | | 2.04 | 8 | 2.06 | | 2.05 | 8 |
Expenses net of all fee waivers and credits | | 2.04 | 8 | 2.05 | | 2.05 | 8 |
Net investment income | | 0.42 | 8 | 0.35 | | 0.18 | 8 |
Portfolio turnover (%) | | 32 | | 72 | | 27 | |
1 Class B shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
Intrinsic Value Fund
Financial Highlights
Class C
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
| | | | | | | |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $22.64 | | $18.18 | |
Net investment income | 3 | 0.06 | | 0.08 | | 0.02 | |
Net realized and unrealized gain (loss) on investments | | 2.86 | | (2.92) | | (1.01) | |
Total from investment operations | | 2.92 | | (2.84) | | (0.99) | |
Less distributions | | | | | | | |
From net investment income | | (0.06) | | (0.09) | | - | |
From net realized gain | | (0.22) | | (1.53) | | - | |
| | (0.28) | | (1.62) | | - | |
Net asset value, end of period | | $22.64 | | $18.18 | | $17.19 | |
Total return (%) | 4,5 | 14.61 | 6 | (13.13) | | (5.45) | 6 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | - | 7 | - | 7 | - | 7 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 10.08 | 8 | 6.21 | | 6.33 | 8 |
Expenses net of fee waivers | | 2.04 | 8 | 2.06 | | 2.05 | 8 |
Expenses net of all fee waivers and credits | | 2.04 | 8 | 2.05 | | 2.05 | 8 |
Net investment income | | 0.37 | 8 | 0.36 | | 0.18 | 8 |
Portfolio turnover (%) | | 32 | | 72 | | 27 | |
1 Class C shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
Intrinsic Value Fund
Financial Highlights
Class I
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
| | | | | | | |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $22.70 | | $18.21 | |
Net investment income | 3 | 0.24 | | 0.32 | | 0.12 | |
Net realized and unrealized gain (loss) on investments | | 2.86 | | (2.93) | | (1.02) | |
Total from investment operations | | 3.10 | | (2.61) | | (0.90) | |
Less distributions | | | | | | | |
From net investment income | | (0.18) | | (0.35) | | - | |
From net realized gain | | (0.22) | | (1.53) | | - | |
| | (0.40) | | (1.88) | | - | |
Net asset value, end of period | | $22.70 | | $18.21 | | $17.31 | |
Total return (%) | 4,5 | 15.50 | 6 | (12.18) | | (4.94) | 6 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | - | 7 | - | 7 | - | 7 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 17.60 | 8 | 13.79 | | 12.49 | 8 |
Expenses net of fee waivers | | 0.95 | 8 | 0.95 | | 0.95 | 8 |
Expenses net of all fee waivers and credits | | 0.95 | 8 | 0.95 | | 0.95 | 8 |
Net investment income | | 1.53 | 8 | 1.45 | | 1.29 | 8 |
Portfolio turnover (%) | | 32 | | 72 | | 27 | |
1 Class I shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
Intrinsic Value Fund
Financial Highlights
Class R1
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
|
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $22.63 | | $18.16 | |
Net investment income | 3 | 0.12 | | 0.21 | | 0.07 | |
Net realized and unrealized gain (loss) on investments | | 2.85 | | (2.92) | | (1.02) | |
Total from investment operations | | 2.97 | | (2.71) | | (0.95) | |
Less distributions | | | | | | | |
From net investment income | | (0.12) | | (0.23) | | - | |
From net realized gain | | (0.22) | | (1.53) | | - | |
| | (0.34) | | (1.76) | | - | |
Net asset value, end of period | | $22.63 | | $18.16 | | $17.21 | |
Total return (%) | 4,5 | 14.88 | 6 | (12.60) | | (5.23) | 6 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | - | 7 | - | 7 | - | 7 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 20.85 | 8 | 15.27 | | 16.61 | 8 |
Expenses net of fee waivers | | 1.69 | 8 | 1.45 | | 1.45 | 8 |
Expenses net of all fee waivers and credits | | 1.69 | 8 | 1.45 | | 1.45 | 8 |
Net investment income | | 0.78 | 8 | 0.95 | | 0.79 | 8 |
Portfolio turnover (%) | | 32 | | 72 | | 27 | |
1 Class R1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
Intrinsic Value Fund
Financial Highlights
Class 1
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
|
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $22.70 | | $18.21 | |
Net investment income | 3 | 0.25 | | 0.34 | | 0.12 | |
Net realized and unrealized gain (loss) on investments | | 2.85 | | (2.94) | | (1.02) | |
Total from investment operations | | 3.10 | | (2.60) | | (0.90) | |
Less distributions | | | | | | | |
From net investment income | | (0.18) | | (0.36) | | - | |
From net realized gain | | (0.22) | | (1.53) | | - | |
| | (0.40) | | (1.89) | | - | |
Net asset value, end of period | | $22.70 | | $18.21 | | $17.31 | |
Total return (%) | 4,5 | 15.53 | 6 | (12.13) | | (4.94) | 6 |
|
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | - | 7 | - | 7 | - | 7 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 1.44 | 8 | 1.47 | | 1.32 | 8 |
Expenses net of fee waivers | | 0.90 | 8 | 0.90 | | 0.90 | 8 |
Expenses net of all fee waivers and credits | | 0.90 | 8 | 0.90 | | 0.90 | 8 |
Net investment income | | 1.58 | 8 | 1.50 | | 1.34 | 8 |
Portfolio turnover (%) | | 32 | | 72 | | 27 | |
1 Class 1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
Note 1
Organization
John Hancock Intrinsic Value Fund (the Fund) is a 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 and Class 1 shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. Class 1 shares are sold only to certain exempt separate accounts of John Hancock USA and John Hancock New York. 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 (SEC) and the Internal Revenue Service. Shareho lders of a class that bear distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Class B shares will convert to Class A shares eight years after purchase.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B and Class C, Class I, Class R1 and Class 1 shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. Short-term debt investments that have a remaining maturity 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. Investments in John Hancock Cash Investment Trust (JHCIT), an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. 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 the principal securities exchange (domestic or f oreign) 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. Securities for which there are no such quotations, principally debt securities, are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| Investments in | Other Financial |
Valuation Inputs | Securities | Instruments* |
|
|
Level 1 – Quoted Prices | $17,154,003 | $6,173 |
|
Level 2 – Other Significant Observable Inputs | 561,000 | - |
|
Level 3 – Significant Unobservable Inputs | - | - |
|
Total | $17,715,003 | $6,173 |
|
* Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument.
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 coun terparty.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C, Class I, Class R1 and Class 1 shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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 August 31, 2008, there were no significant borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
Securities lending
The Fund may lend portfolio securities from time to time in order to earn additional income. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their value. On the settlement date of the loan, the Fund receives cash collateral against the loaned securities and maintains the cash collateral in an amount not less than 100% of the market value of the loaned securities 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 cash collateral is delivered to the Fund on the next business day. Cash collateral received is invested in the JHCIT. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. The Fund may receive compensation for lending their securities either in the form of fees, guarantees, and/or by retaining a portion of interest on the investment of any cash received as collateral.
The Fund has entered into an agreement with Morgan Stanley & Co., Inc. and MS Securities Services, Inc. (collectively, Morgan Stanley) which permits the Fund to lend securities to Morgan Stanley on a principal basis. Morgan Stanley is the primary borrower of securities of the Fund. The risk of having one primary borrower of Fund securities (as opposed to several borrowers) is that should Morgan Stanley fail financially, all securities lent will be affected by the failure and by any delays in recovery of the securities (or in the rare event, loss of rights in the collateral).
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, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by 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.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. Net capital losses of $425,219 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on March 1, 2008, the first day of the Fund’s next taxable year.
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund's fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund's financial statements. Each of the Fund’s federal tax returns for the prior three years remain subject to examination by the Internal Revenue Service.
New accounting pronouncements
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company, and any credit risk-related contingent features of the agreements. Management is currently evaluating the adoption of FAS 161 on the Fund’s financial statement disclosures.
Distribution of income and gains
The Fund generally declares dividends and pays dividends annually. Capital gains, if any, are distributed annually. 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 29, 2008, the tax character of distributions paid was as follows: ordinary income $1,019,233 and long-term capital gain $632,247. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Note 3
Investment advisory and other agreements
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. 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% of the Fund’s 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. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.78% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.08% of the Fund’s average annual net assets which are allocated pro rata to all share classes. This agreement excludes taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded. The reimbursements and limits are such that these expenses will not exceed 1.35% for Class A shares, 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 or reimbursements related to this agreement were $35,061, $7,992, $8,119, $7,711, $8,082 and $210 for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively for the period ended August 31, 2008. The expense reimbursements and limits will continue in effect until December 31, 2008 and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $1,061 with an annual effective rate of 0.01% of the Fund’s average daily net assets.
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 pay 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 Financial Industry Regulatory Authority (formerly 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, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 average daily net asset value for certain other services. There were no Service Plan fees incurred for the period ended August 31, 2008.
Class A shares are assessed up-front sales charges. During the period ended August 31, 2008, the Distributor received net up-front sales charges of $3,365 with regard to sales of Class A shares. Of this amount, $562 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $2,698 was paid as sales commissions to unrelated broker-dealers and $105 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 August 31, 2008, CDSCs received by JH Funds amounted to $85 for Class C shares. There were no CDSCs received for Class B shares.
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. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C, Class I and Class R1 shareholder accounts.
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, 2008. Signature Services reserves the right to terminate this limitation in the future. 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 August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $41.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $20 for transfer agent credits earned.
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent fees | Blue sky fees | postage fees |
|
Class A | $26,140 | $6,984 | $7,440 | $4,364 |
Class B | 1,384 | 280 | 7,331 | 122 |
Class C | 1,897 | 383 | 7,267 | 117 |
Class I | - | 33 | 7,430 | 55 |
Class R1 | 268 | 68 | 7,814 | 87 |
Class 1 | 25 | - | - | 17 |
Total | $29,714 | $7,748 | $37,282 | $4,762 |
Note 4
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.
Note 5
Fund share transactions
The listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended February 28, 2007, and the period ended August 31, 2008, along with the corresponding dollar value:
| | | | | | | |
| Year ended | | Period ended |
| 2-29-08 | | 8-31-081 |
|
| |
|
| Shares | | Amount | | Shares | | Amount |
Class A shares | | | | | | | |
Sold | 133,987 | $ | 2,940,726 | | 52,388 | $ | 935,216 |
Distributions reinvested | 76,470 | | 1,516,395 | | — | | — |
Repurchased | (92,564) | | (2,053,477) | | (45,974) | | (808,743) |
|
| |
| |
| |
|
Net increase | 117,893 | $ | 2,403,644 | | 6,414 | $ | 126,473 |
|
| |
| |
| |
|
Class B shares | | | | | | | |
Sold | 5,662 | $ | 132,547 | | 2,042 | $ | 36,002 |
Distributions reinvested | 1,131 | | 22,436 | | — | | — |
Repurchased | (11,519) | | (264,243) | | (4,297) | | (74,637) |
|
| |
| |
| |
|
Net decrease | (4,726) | $ | (109,260) | | (2,255) | $ | (38,635) |
|
| |
| |
| |
|
Class C shares | | | | | | | |
Sold | 16,074 | $ | 359,010 | | 3,031 | $ | 54,947 |
Distributions reinvested | 1,822 | | 36,151 | | — | | — |
Repurchased | (7,825) | | (155,541) | | (5,186) | | (94,810) |
Net increase (decrease) | 10,071 | $ | 239,620 | | (2,155) | $ | (39,863) |
|
| |
| |
| |
|
Class I shares | | | | | | | |
Sold | 1,135 | $ | 26,925 | | 60 | $ | 1,050 |
Distributions reinvested | 638 | | 12,648 | | — | | — |
Repurchased | (22) | | (500) | | — | | — |
|
| |
| |
| |
|
Net increase | 1,751 | $ | 39,073 | | 60 | $ | 1,050 |
|
| |
| |
| |
|
Class R1 shares | | | | | | | |
Sold | 407 | $ | 8,923 | | 49 | $ | 800 |
Distributions reinvested | 484 | | 9,580 | | — | | — |
Repurchased | (32) | | (704) | | — | | — |
|
| |
| |
| |
|
Net increase | 859 | $ | 17,799 | | 49 | $ | 800 |
| | | | | | | |
Class 1 shares | | | | | | | |
Distributions reinvested | 485 | | 9,625 | | — | | — |
|
| |
| |
| |
|
Net increase | 485 | $ | 9,625 | | — | $ | — |
|
| |
| |
| |
|
Net increase | 126,333 | $ | 2,600,501 | | 2,113 | $ | 49,825 |
|
| |
| |
| |
|
1Semiannual period from 3-1-08 to 8-31-08. Unaudited.
The Adviser and other affiliates of John Hancock USA owned 802,790, 5,571, 5,529 and 5,575 shares of beneficial interest of Class A, Class I, Class R1 and Class 1, respectively, on August 31, 2008.
Note 6
Purchase and sale of securities
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 August 31, 2008, aggregated $4,997,546 and $4,791,360, respectively.
Note 7
Subsequent event
On September 8, 2008, the Board of Trustees of the Fund approved the proposed liquidation of the Fund. The liquidation occurred on October 24, 2008.
|
INSERT TO SHAREHOLDER REPORTS |
|
Board Consideration of and Continuation of |
Investment Advisory Agreement and Sub-Advisory Agreement: |
John Hancock Intrinsic Value Fund |
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Trustees (the “Board”) of John Hancock Funds III (the “Trust”), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the “Advisory Agreement”) with John Hancock Investment Management Services, LLC (the “Adviser”) and (ii) the investment sub-advisory agreement (the “Sub-Advisory Agreement”) with Grantham, Mayo, Van Otterloo & Co. LLC (the “Sub-Adviser”) for the John Hancock Intrinsic Value Fund (the “Fund”). The Advisory Agreement and the Sub-Advisory Agreement are collectively referred to as the “Advisory Agreements .”
At meetings held on May 5-6 and June 9-10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Sub-Adviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the investment performance of the Fund relative to a category of relevant funds (the “Category”) and a peer group of comparable funds (the “Peer Group”). The funds within each Category and Peer Group were selected by Morningstar Inc. (“Morningstar”), an independent provider of investment company data. Data covered the period since the Fund’s inception through December 31, 2007,
(ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group,
(iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Sub-Adviser,
(iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund,
(v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale,
(vi) the Adviser’s and Sub-Adviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Sub-Adviser’s compliance department,
(vii) the background and experience of senior management and investment professionals, and
(viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Sub-Adviser.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board principally considered data on performance and other information provided by Morningstar as of December 31, 2007. The Board also considered updated performance information provided to it by the Adviser or Sub-Adviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below.
Nature, Extent and Quality of Services
The Board considered the ability of the Adviser and the Sub-Adviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and Sub-Adviser. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Sub-Adviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Sub-Adviser supported renewal of the Advisory Agreements.
Fund Performance
The Board noted that the Fund had less than two full years of operational history, and considered the performance results for the Fund since its inception through December 31, 2007. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. The Board reviewed with representatives of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance was lower than the performance of the Category and Peer Group medians, and its benchmark index, the Russell 1000 Value Index, over the 1-year period. The Adviser discussed its plans with respect to the Fund. The Board recognized the short operational history of the Fund and indicated its intent to continue to monitor the Fund’s performance trends.
Investment Advisory Fee and Sub-Advisory Fee Rates and Expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the “Advisory Agreement Rate”). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was not appreciably higher than the median rates of the Peer Group and Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (“Gross Expense Ratio”) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (“Net Expense Ratio”). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross Expense Ratio was higher than the Peer Group and Category medians. The Board also noted that the Fund’s Net Expense Ratio was higher than the Category median, but lower than the Peer Group median.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s expenses and overall plans to improve performance supported the re-approval of the Advisory Agreements.
The Board also received information about the investment sub-advisory fee rate (the “Sub-Advisory Agreement Rate”) payable by the Adviser to the Sub-Adviser for investment sub-advisory services. The Board concluded that the Sub-Advisory Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Sub-Adviser, which is not affiliated with the Adviser. The Board considered that the Sub-Advisory Agreement Rate paid to the Sub-Adviser had been negotiated by the Adviser on an arm’s length basis and that the Sub-Adviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of Scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information About Services to Other Clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Sub-Adviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Sub-Advisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Sub-Adviser, respectively, after giving effect to differences in services.
Other Benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Sub-Adviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Sub-Adviser with the Fund and benefits potentially derived from an increase in business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Sub-Adviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other Factors and Broader Review
As discussed above, the Board reviewed detailed materials received from the Adviser and Sub-Adviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the
continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
A look at performance
For the periods ended August 31, 2008
| | | | | | | | | | | | |
| | | Average annual returns (%) | | | Cumulative total returns (%) | | |
| | | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| | |
| |
|
| Inception | | | | | Since | | Six | | | | Since |
Class | date | | 1-year | 5-year | 10-year | inception | | months | 1-year | 5-year | 10-year | inception |
|
A | 6-12-06 | | –17.04 | — | — | –5.31 | | –2.74 | –17.04 | — | — | –11.44 |
|
B | 6-12-06 | | –17.43 | — | — | –5.02 | | –2.99 | –17.43 | — | — | –10.85 |
|
C | 6-12-06 | | –14.13 | — | — | –3.77 | | 1.01 | –14.13 | — | — | –8.20 |
|
I1 | 6-12-06 | | –12.29 | — | — | –2.71 | | 2.59 | –12.29 | — | — | –5.94 |
|
R11 | 6-12-06 | | –12.67 | — | — | –3.29 | | 2.30 | –12.67 | — | — | –7.18 |
|
11 | 6-12-06 | | –12.29 | — | — | –2.68 | | 2.59 | –12.29 | — | — | –5.87 |
|
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 to 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 expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The waivers and expense limitations are contractual at least until June 30, 2009. The net expenses are as follows: Class A — 1.39%, Class B — 2.09%, Class C —2.09%, Class I — 0.99%, Class R1 — 1.49%, Class 1 — 0.94%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 2.04%, Class B —6.82%, Class C — 3.88%, Class I — 8.80%, Class R1 — 15.22%, Class 1 — 1.62%.
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 current to the most recent month end performance data, 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.
1 For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
| |
6 | Value Opportunities Fund | Semiannual report |
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 | $9,175 | $8,915 | $10,260 |
|
C2 | 6-12-06 | 9,180 | 9,180 | 10,260 |
|
I3 | 6-12-06 | 9,406 | 9,406 | 10,260 |
|
R13 | 6-12-06 | 9,282 | 9,282 | 10,260 |
|
13 | 6-12-06 | 9,413 | 9,413 | 10,260 |
|
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 August 31, 2008. 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.
1 NAV represents net asset value and POP represents public offering price.
2 No contingent deferred sales charge applicable.
3 For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
| |
Semiannual report | 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 March 1, 2008 with the same investment held until August 31, 2008.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,023.50 | $7.09 |
|
Class B | 1,000.00 | 1,020.10 | 10.64 |
|
Class C | 1,000.00 | 1,020.10 | 10.64 |
|
Class I | 1,000.00 | 1,025.90 | 5.06 |
|
Class R1 | 1,000.00 | 1,023.00 | 7.60 |
|
Class 1 | 1,000.00 | 1,025.90 | 4.80 |
|
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 August 31, 2008, 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:
| |
8 | Value Opportunities Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. 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 |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,018.20 | $7.07 |
|
Class B | 1,000.00 | 1,014.70 | 10.61 |
|
Class C | 1,000.00 | 1,014.70 | 10.61 |
|
Class I | 1,000.00 | 1,020.20 | 5.04 |
|
Class R1 | 1,000.00 | 1,017.70 | 7.58 |
|
Class 1 | 1,000.00 | 1,020.50 | 4.79 |
|
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.39%, 2.09%, 2.09%, 0.99%, 1.49% and 0.94% 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 number of days in most recent fiscal half-year/365 (to reflect the one-half year period).
| |
Semiannual report | Value Opportunities Fund | 9 |
Portfolio summary
| | | | |
Top 10 holdings1 | | | | |
|
Patterson-UTI Energy, Inc. | 1.4% | | Lexmark International, Inc. | 1.0% |
| |
|
Philadelphia Consolidated | | | Sigma-Aldrich Corp. | 1.0% |
Holding Corp. | 1.4% | |
|
| | Tech Data Corp. | 1.0% |
Ingram Micro, Inc. | 1.2% | |
|
| | King Pharmaceuticals, Inc. | 1.0% |
Cimarex Energy Company | 1.1% | |
|
| | Transatlantic Holdings, Inc. | 1.0% |
Annaly Capital Management, Inc. | 1.1% | |
|
| | | |
|
Sector distribution1,2 | | | | |
|
Financial | 29% | | Short-term Securities | 7% |
| |
|
Consumer, Cyclical | 18% | | Technology | 5% |
| |
|
Consumer, Non-cyclical | 16% | | Basic Materials | 5% |
| |
|
Industrial | 9% | | Utilities | 2% |
| |
|
Energy | 8% | | Communications | 1% |
| |
|
1 As a percentage of net assets on August 31, 2008.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| |
10 | Value Opportunities Fund | Semiannual report |
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 8-31-08 (unaudited)
This schedule is divided into three main categories: common stocks, short-term investments 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 95.95% | | $17,600,833 |
|
(Cost $18,685,452) | | |
| | |
Aerospace 0.54% | | 99,690 |
|
Alliant Techsystems, Inc. * | 600 | 63,138 |
|
Curtiss-Wright Corp. | 100 | 5,387 |
|
Teledyne Technologies, Inc. * | 500 | 31,165 |
| | |
Agriculture 0.25% | | 46,420 |
|
Fresh Del Monte Produce, Inc. * | 2,000 | 46,420 |
| | |
Air Travel 0.22% | | 41,016 |
|
SkyWest, Inc. | 2,400 | 41,016 |
| | |
Apparel & Textiles 2.04% | | 373,331 |
|
Cintas Corp. | 2,300 | 70,840 |
|
Columbia Sportswear Company | 1,200 | 48,468 |
|
Jones Apparel Group, Inc. | 4,000 | 79,440 |
|
K-Swiss, Inc., Class A | 1,300 | 22,295 |
|
Liz Claiborne, Inc. | 5,000 | 81,050 |
|
Oxford Industries, Inc. | 900 | 20,565 |
|
Timberland Company, Class A * | 1,600 | 26,976 |
|
Wolverine World Wide, Inc. | 900 | 23,697 |
| | |
Auto Parts 1.52% | | 279,419 |
|
ArvinMeritor, Inc. | 900 | 13,509 |
|
Autoliv, Inc. | 2,100 | 80,619 |
|
BorgWarner, Inc. | 1,700 | 70,295 |
|
O’Reilly Automotive, Inc. * | 2,500 | 72,800 |
|
TRW Automotive Holdings Corp. * | 2,200 | 42,196 |
| | |
Auto Services 1.36% | | 249,051 |
|
AutoNation, Inc. * (a) | 13,800 | 156,630 |
|
Copart, Inc. * | 2,100 | 92,421 |
| | |
Automobiles 1.04% | | 189,943 |
|
Asbury Automotive Group, Inc. | 3,800 | 46,132 |
|
Group 1 Automotive, Inc. | 2,100 | 44,436 |
|
Penske Auto Group, Inc. | 7,500 | 99,375 |
See notes to financial statements
| |
Semiannual report | 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 10.40% | | $1,907,340 |
|
AMCORE Financial, Inc. | 823 | 7,236 |
|
Anchor BanCorp Wisconsin, Inc. | 2,400 | 18,432 |
|
Associated Banc Corp. | 6,100 | 106,750 |
|
Astoria Financial Corp. | 2,800 | 61,180 |
|
BancFirst Corp. | 200 | 9,628 |
|
BancorpSouth, Inc. | 2,500 | 57,550 |
|
Bank Mutual Corp. | 1,100 | 13,255 |
|
Bank of Hawaii Corp. | 1,000 | 52,880 |
|
BOK Financial Corp. | 700 | 30,492 |
|
Cathay General Bancorp, Inc. | 2,400 | 46,464 |
|
Central Pacific Financial Corp. | 1,700 | 20,230 |
|
Chemical Financial Corp. (a) | 1,200 | 34,596 |
|
City National Corp. | 2,000 | 98,980 |
|
Commerce Bancshares, Inc. | 2,364 | 106,380 |
|
Community Bank Systems, Inc. | 1,800 | 40,680 |
|
Cullen Frost Bankers, Inc. | 400 | 22,272 |
|
Dime Community Bancorp, Inc. | 1,500 | 24,630 |
|
East West Bancorp, Inc. (a) | 1,400 | 17,458 |
|
F.N.B. Corp. | 600 | 7,038 |
|
First Niagara Financial Group, Inc. | 1,600 | 23,936 |
|
FirstMerit Corp. | 4,700 | 95,128 |
|
Flagstar Bancorp, Inc. (a) | 1,000 | 4,430 |
|
Flushing Financial Corp. | 1,300 | 22,607 |
|
Hancock Holding Company | 800 | 39,240 |
|
Hanmi Financial Corp. | 2,700 | 13,797 |
|
International Bancshares Corp. | 3,840 | 99,226 |
|
Nara Bancorp, Inc. | 900 | 9,855 |
|
New York Community Bancorp, Inc. | 1,600 | 26,384 |
|
Northwest Bancorp, Inc. | 900 | 24,966 |
|
Old National Bancorp | 2,900 | 50,547 |
|
Oriental Financial Group, Inc. | 1,700 | 29,376 |
|
Pacific Capital Bancorp (a) | 900 | 13,239 |
|
Park National Corp. (a) | 700 | 42,910 |
|
Popular, Inc. (a) | 12,200 | 99,430 |
|
PrivateBancorp, Inc. | 400 | 12,256 |
|
Provident Bankshares Corp. (a) | 2,100 | 16,254 |
|
Provident Financial Services, Inc. | 1,300 | 19,825 |
|
S & T Bancorp, Inc. | 1,400 | 46,984 |
|
SVB Financial Group * | 300 | 16,815 |
|
TCF Financial Corp. | 7,200 | 113,400 |
|
Trustmark Corp. | 3,100 | 59,489 |
|
United Bankshares, Inc. | 800 | 20,600 |
|
Washington Federal, Inc. | 1,400 | 24,122 |
|
Webster Financial Corp. | 1,000 | 21,320 |
|
WestAmerica Bancorp | 1,100 | 56,320 |
See notes to financial statements
| |
12 | Value Opportunities Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Banking (continued) | | |
|
Whitney Holding Corp. | 2,100 | $45,465 |
|
Wilmington Trust Corp. | 2,400 | 56,328 |
|
Wilshire Bancorp, Inc. | 800 | 10,856 |
|
Zions Bancorp | 600 | 16,104 |
| | |
Biotechnology 1.42% | | 259,987 |
|
Bio-Rad Laboratories, Inc., Class A * | 400 | 43,040 |
|
Charles River Laboratories International, Inc. * | 900 | 59,049 |
|
Invitrogen Corp. * | 2,500 | 106,150 |
|
Pharmanet Development Group, Inc. * | 800 | 20,880 |
|
Techne Corp. * | 400 | 30,868 |
| | |
Building Materials & Construction 0.06% | | 11,100 |
|
Lennox International, Inc. | 300 | 11,100 |
| | |
Business Services 4.07% | | 747,178 |
|
Affiliated Computer Services, Inc., Class A * | 1,600 | 85,184 |
|
Convergys Corp. * | 2,800 | 41,300 |
|
Core-Mark Holding Company, Inc. * | 900 | 26,550 |
|
CSG Systems International, Inc. * | 1,100 | 20,790 |
|
Deluxe Corp. | 3,300 | 54,483 |
|
Ennis Business Forms, Inc. | 600 | 9,906 |
|
FactSet Research Systems, Inc. | 500 | 31,355 |
|
Global Payments, Inc. | 1,600 | 77,136 |
|
Harte-Hanks, Inc. | 1,000 | 12,350 |
|
Hewitt Associates, Inc., Class A * | 300 | 12,063 |
|
Insight Enterprises, Inc. * | 3,300 | 54,912 |
|
Kelly Services, Inc., Class A | 2,800 | 54,152 |
|
Manpower, Inc. | 1,200 | 57,672 |
|
MAXIMUS, Inc. | 700 | 25,900 |
|
Pre-Paid Legal Services, Inc. * (a) | 400 | 17,856 |
|
Resources Connection, Inc. * | 900 | 21,762 |
|
SAIC, Inc. * | 1,100 | 22,055 |
|
SRA International, Inc., Class A * | 800 | 18,784 |
|
SYNNEX Corp. * | 2,100 | 48,279 |
|
Total Systems Services, Inc. | 1,300 | 25,896 |
|
Volt Information Sciences, Inc. * | 800 | 11,216 |
|
Watson Wyatt Worldwide, Inc., Class A | 300 | 17,577 |
| | |
Cellular Communications 0.16% | | 29,286 |
|
Brightpoint, Inc. * | 1,100 | 9,471 |
|
Syniverse Holdings, Inc. * | 500 | 8,295 |
|
Telephone & Data Systems, Inc. | 300 | 11,520 |
| | |
Chemicals 3.28% | | 601,257 |
|
Arch Chemicals, Inc. | 300 | 11,010 |
|
Celanese Corp., Series A | 700 | 26,992 |
|
Cytec Industries, Inc. | 600 | 30,480 |
|
Eastman Chemical Company | 500 | 30,160 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Chemicals (continued) | | |
|
FMC Corp. | 2,100 | $154,434 |
|
Lubrizol Corp. | 900 | 47,691 |
|
Newmarket Corp. | 600 | 40,764 |
|
Olin Corp. | 400 | 10,764 |
|
PolyOne Corp. * | 3,200 | 26,272 |
|
Sensient Technologies Corp. | 600 | 17,526 |
|
Sigma-Aldrich Corp. | 3,200 | 181,632 |
|
Stepan Company | 400 | 23,532 |
| | |
Colleges & Universities 0.31% | | 57,029 |
|
Career Education Corp. * | 2,900 | 54,375 |
|
Corinthian Colleges, Inc. * | 200 | 2,654 |
| | |
Commercial Services 0.06% | | 11,050 |
|
CBIZ, Inc. * | 1,300 | 11,050 |
| | |
Computers & Business Equipment 4.30% | | 788,924 |
|
Benchmark Electronics, Inc. * | 700 | 11,543 |
|
CACI International, Inc., Class A * | 300 | 15,195 |
|
Diebold, Inc. | 500 | 19,825 |
|
Ingram Micro, Inc., Class A * | 11,400 | 215,574 |
|
Lexmark International, Inc. * | 5,200 | 187,044 |
|
Plexus Corp. * | 900 | 25,227 |
|
Tech Data Corp. * | 5,300 | 180,942 |
|
Western Digital Corp. * | 4,900 | 133,574 |
| | |
Construction & Mining Equipment 0.12% | | 22,164 |
|
Rowan Companies, Inc. | 600 | 22,164 |
| | |
Construction Materials 0.61% | | 111,449 |
|
Applied Industrial Technologies, Inc. | 600 | 17,466 |
|
Clarcor, Inc. | 300 | 11,979 |
|
Comfort Systems USA, Inc. | 1,600 | 24,384 |
|
Simpson Manufacturing Company, Inc. (a) | 1,600 | 44,480 |
|
Universal Forest Products, Inc. | 400 | 13,140 |
| | |
Containers & Glass 0.45% | | 82,736 |
|
Ball Corp. | 800 | 36,736 |
|
Bemis Company, Inc. | 1,400 | 39,088 |
|
Sonoco Products Company | 200 | 6,912 |
| | |
Cosmetics & Toiletries 0.48% | | 88,318 |
|
Alberto-Culver Company | 1,200 | 31,392 |
|
Chattem, Inc. * | 100 | 7,012 |
|
Estee Lauder Companies, Inc., Class A | 700 | 34,839 |
|
Nu Skin Enterprises, Inc., Class A | 900 | 15,075 |
| | |
Crude Petroleum & Natural Gas 4.44% | | 814,775 |
|
Cimarex Energy Company | 3,600 | 199,944 |
|
Forest Oil Corp. * | 900 | 51,228 |
|
Patterson-UTI Energy, Inc. | 9,200 | 261,464 |
See notes to financial statements
| |
14 | Value Opportunities Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Crude Petroleum & Natural Gas (continued) | | |
|
Plains Exploration & Production Company * | 200 | $10,780 |
|
Swift Energy Company * | 1,000 | 46,710 |
|
Unit Corp. * | 2,500 | 169,325 |
|
W&T Offshore, Inc. | 500 | 17,580 |
|
Whiting Petroleum Corp. * | 600 | 57,744 |
| | |
Domestic Oil 1.91% | | 350,304 |
|
Berry Petroleum Company, Class A | 900 | 37,458 |
|
Comstock Resources, Inc. * | 300 | 19,482 |
|
Encore Aquisition Company * | 1,100 | 56,716 |
|
Frontier Oil Corp. | 900 | 17,433 |
|
Helix Energy Solutions Group, Inc. * | 200 | 6,154 |
|
Holly Corp. | 1,100 | 35,200 |
|
Natural Gas Services Group, Inc. * | 500 | 12,970 |
|
Oil States International, Inc. * | 1,500 | 83,445 |
|
St. Mary Land & Exploration Company | 800 | 33,776 |
|
Stone Energy Corp. * | 1,000 | 47,670 |
| | |
Drugs & Health Care 1.15% | | 211,550 |
|
Invacare Corp. | 2,400 | 61,032 |
|
Landauer, Inc. | 200 | 13,052 |
|
Molina Healthcare, Inc. * | 2,000 | 62,940 |
|
Perrigo Company | 1,800 | 62,982 |
|
Res-Care, Inc. * | 600 | 11,544 |
| | |
Educational Services 0.41% | | 74,330 |
|
ITT Educational Services, Inc. * | 600 | 53,346 |
|
Strayer Education, Inc. | 100 | 20,984 |
| | |
Electrical Equipment 0.65% | | 119,688 |
|
A.O. Smith Corp. | 300 | 12,351 |
|
Anixter International, Inc. * | 200 | 14,762 |
|
FLIR Systems, Inc. * | 800 | 28,560 |
|
Hubbell, Inc., Class B | 700 | 30,457 |
|
W.H. Brady Company, Class A | 600 | 22,026 |
|
Wesco International, Inc. * | 300 | 11,532 |
| | |
Electrical Utilities 0.68% | | 124,311 |
|
Hawaiian Electric Industries, Inc. | 2,000 | 52,900 |
|
IDACORP, Inc. | 400 | 11,920 |
|
Teco Energy, Inc. | 2,000 | 35,680 |
|
UIL Holding Corp. | 300 | 9,780 |
|
Wisconsin Energy Corp. | 300 | 14,031 |
| | |
Electronics 0.78% | | 143,891 |
|
Arrow Electronics, Inc. * | 1,800 | 59,742 |
|
Avnet, Inc. * | 400 | 11,740 |
|
Checkpoint Systems, Inc. * | 100 | 2,129 |
|
Enersys * | 300 | 8,436 |
|
Harman International Industries, Inc. | 300 | 10,209 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Electronics (continued) | | |
|
Jabil Circuit, Inc. | 700 | $11,802 |
|
Rogers Corp. * | 200 | 8,002 |
|
Teleflex, Inc. | 300 | 19,371 |
|
Zoran Corp. * | 1,400 | 12,460 |
| | |
Energy 0.95% | | 174,825 |
|
Energen Corp. | 1,200 | 67,008 |
|
Energy East Corp. | 1,100 | 29,920 |
|
Headwaters, Inc. * (a) | 2,700 | 41,553 |
|
MDU Resources Group, Inc. | 1,100 | 36,344 |
| | |
Financial Services 2.15% | | 394,144 |
|
City Holding Company | 900 | 37,629 |
|
Delphi Financial Group, Inc. | 400 | 10,732 |
|
Encore Capital Group, Inc. * | 800 | 10,160 |
|
Federal Agricultural Mortgage Corp., Class C | 1,500 | 43,950 |
|
Fulton Financial Corp. | 5,500 | 58,630 |
|
Knight Capital Group, Inc. * | 1,200 | 20,688 |
|
NBT Bancorp, Inc. | 600 | 15,054 |
|
SEI Investments Company | 2,800 | 66,136 |
|
Student Loan Corp. | 300 | 35,373 |
|
Synovus Financial Corp. | 5,700 | 52,440 |
|
UMB Financial Corp. | 400 | 20,812 |
|
Waddell & Reed Financial, Inc., Class A | 700 | 22,540 |
| | |
Food & Beverages 2.39% | | 438,863 |
|
Chiquita Brands International, Inc. * | 1,100 | 16,148 |
|
Dean Foods Company * | 3,400 | 85,578 |
|
Flowers Foods, Inc. | 1,900 | 50,236 |
|
Hormel Foods Corp. | 600 | 21,396 |
|
J.M. Smucker Company | 100 | 5,423 |
|
McCormick & Company, Inc. | 800 | 32,360 |
|
Nash Finch Company | 1,500 | 61,080 |
|
PepsiAmericas, Inc. | 2,900 | 67,947 |
|
Seaboard Corp. | 19 | 24,643 |
|
Tyson Foods, Inc., Class A | 5,100 | 74,052 |
| | |
Furniture & Fixtures 0.95% | | 174,434 |
|
American Woodmark Corp. (a) | 100 | 2,376 |
|
Ethan Allen Interiors, Inc. (a) | 2,000 | 54,280 |
|
Furniture Brands International, Inc. | 1,500 | 13,425 |
|
Hooker Furniture Corp. | 500 | 8,420 |
|
Leggett & Platt, Inc. | 4,300 | 95,933 |
| | |
Gas & Pipeline Utilities 0.48% | | 88,710 |
|
National Fuel Gas Company | 600 | 28,386 |
|
ONEOK, Inc. | 300 | 13,113 |
|
Piedmont Natural Gas, Inc. | 400 | 11,540 |
See notes to financial statements
| |
16 | Value Opportunities Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Gas & Pipeline Utilities (continued) | | |
|
The Laclede Group, Inc. | 300 | $13,479 |
|
Vectren Corp. | 800 | 22,192 |
| | |
Healthcare Products 1.27% | | 233,284 |
|
CONMED Corp. * | 100 | 3,196 |
|
IDEXX Laboratories, Inc. * | 700 | 39,410 |
|
Merit Medical Systems, Inc. * | 700 | 13,552 |
|
Owens & Minor, Inc. | 2,500 | 115,300 |
|
Patterson Companies, Inc. * | 1,900 | 61,826 |
| | |
Healthcare Services 2.61% | | 478,182 |
|
AMERIGROUP Corp. * | 1,500 | 38,820 |
|
Apria Healthcare Group, Inc. * | 2,300 | 45,494 |
|
Covance, Inc. * | 600 | 56,604 |
|
Health Net, Inc. * | 1,700 | 47,005 |
|
IMS Health, Inc. | 1,100 | 24,442 |
|
Kindred Healthcare, Inc. * | 1,300 | 40,209 |
|
Lincare Holdings, Inc. * | 1,500 | 49,500 |
|
Omnicare, Inc. | 2,600 | 83,850 |
|
Pediatrix Medical Group, Inc. * | 1,400 | 79,730 |
|
WellCare Health Plans, Inc. * | 300 | 12,528 |
| | |
Homebuilders 0.27% | | 49,740 |
|
M.D.C. Holdings, Inc. | 1,200 | 49,740 |
| | |
Hotels & Restaurants 0.64% | | 116,913 |
|
Brinker International, Inc. | 2,300 | 43,516 |
|
CBRL Group, Inc. | 1,200 | 31,008 |
|
CEC Entertainment, Inc. * | 1,100 | 37,686 |
|
O’Charley’s, Inc. | 400 | 4,004 |
|
Ruby Tuesday, Inc. * | 100 | 699 |
| | |
Household Appliances 0.36% | | 66,064 |
|
Black & Decker Corp. | 800 | 50,600 |
|
National Presto Industries, Inc. | 200 | 15,464 |
| | |
Household Products 1.07% | | 195,649 |
|
Blyth, Inc. | 3,800 | 60,078 |
|
Energizer Holdings, Inc. * | 800 | 67,952 |
|
Tupperware Brands Corp. | 1,600 | 57,152 |
|
WD-40 Company | 300 | 10,467 |
| | |
Industrial Machinery 0.84% | | 153,901 |
|
AGCO Corp. * | 300 | 18,489 |
|
Crane Company | 1,400 | 51,408 |
|
Flowserve Corp. | 100 | 13,212 |
|
Gardner Denver, Inc. * | 1,100 | 49,654 |
|
Kennametal, Inc. | 600 | 21,138 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Insurance 16.82% | | $3,084,848 |
|
Alleghany Corp. * | 32 | 10,240 |
|
Allied World Assurance Holdings, Ltd. | 300 | 11,586 |
|
American Financial Group, Inc. | 4,900 | 139,797 |
|
American National Insurance Company | 300 | 28,635 |
|
American Physicians Capital, Inc. | 400 | 16,920 |
|
Arch Capital Group, Ltd. * | 1,900 | 132,544 |
|
Aspen Insurance Holdings, Ltd. | 2,400 | 65,040 |
|
Axis Capital Holdings, Ltd. | 3,500 | 117,005 |
|
Brown & Brown, Inc. | 1,400 | 28,448 |
|
Donegal Group, Inc. | 400 | 7,192 |
|
Endurance Specialty Holdings, Ltd. | 1,800 | 58,716 |
|
Erie Indemnity Company, Class A | 1,200 | 55,500 |
|
FBL Financial Group, Inc., Class A | 600 | 13,770 |
|
First American Corp. | 3,700 | 93,499 |
|
Hanover Insurance Group, Inc. | 700 | 33,061 |
|
Harleysville Group, Inc. | 1,200 | 43,524 |
|
HCC Insurance Holdings, Inc. | 6,600 | 166,188 |
|
Horace Mann Educators Corp. | 3,300 | 49,170 |
|
Infinity Property & Casualty Corp. | 300 | 13,950 |
|
IPC Holdings, Ltd. | 400 | 12,668 |
|
Kansas City Life Insurance Company | 200 | 9,516 |
|
Markel Corp. * | 100 | 37,000 |
|
Max Re Capital, Ltd. | 1,300 | 33,800 |
|
Mercury General Corp. | 2,200 | 112,068 |
|
Montpelier Re Holdings, Ltd. | 800 | 12,952 |
|
National Western Life Insurance Company, Class A | 200 | 47,888 |
|
Nationwide Financial Services, Inc., Class A | 1,700 | 87,448 |
|
Navigators Group, Inc. * | 600 | 31,440 |
|
Odyssey Re Holdings Corp. | 200 | 7,552 |
|
Old Republic International Corp. | 7,000 | 76,510 |
|
PartnerRe, Ltd. | 1,500 | 103,365 |
|
Philadelphia Consolidated Holding Corp. * | 4,200 | 250,866 |
|
Platinum Underwriters Holdings, Ltd. | 1,300 | 46,995 |
|
PMI Group, Inc. | 100 | 359 |
|
Presidential Life Corp. | 500 | 9,000 |
|
Protective Life Corp. | 2,100 | 76,209 |
|
Reinsurance Group of America, Inc. | 3,100 | 149,296 |
|
RenaissanceRe Holdings, Ltd. | 1,000 | 50,710 |
|
RLI Corp. | 1,600 | 89,456 |
|
SAFECO Corp. | 800 | 54,080 |
|
Safety Insurance Group, Inc. | 1,600 | 68,800 |
|
Selective Insurance Group, Inc. | 3,100 | 74,834 |
|
Stancorp Financial Group, Inc. | 2,100 | 102,921 |
|
State Auto Financial Corp. | 800 | 24,696 |
|
Stewart Information Services Corp. | 1,700 | 31,807 |
See notes to financial statements
| |
18 | Value Opportunities Fund | Semiannual report |
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. | 2,900 | $174,290 |
|
United Fire & Casualty Company | 700 | 20,818 |
|
Unitrin, Inc. | 1,200 | 30,636 |
|
W.R. Berkley Corp. | 3,900 | 91,884 |
|
Zenith National Insurance Corp. | 2,100 | 80,199 |
| | |
Internet Service Provider 0.17% | | 30,756 |
|
Earthlink, Inc. * | 3,300 | 30,756 |
| | |
Leisure Time 0.55% | | 100,513 |
|
Brunswick Corp. | 5,000 | 68,950 |
|
Polaris Industries, Inc. (a) | 700 | 31,563 |
| | |
Life Sciences 0.46% | | 84,570 |
|
Pharmaceutical Product Development, Inc. | 400 | 16,320 |
|
Waters Corp. * | 1,000 | 68,250 |
| | |
Liquor 0.03% | | 4,765 |
|
Molson Coors Brewing Company, Class B | 100 | 4,765 |
| | |
Manufacturing 1.76% | | 323,045 |
|
AptarGroup, Inc. | 500 | 20,195 |
|
Ceradyne, Inc. * | 1,400 | 63,084 |
|
Mine Safety Appliances Company | 800 | 29,064 |
|
Pentair, Inc. | 700 | 25,725 |
|
Snap-on, Inc. | 500 | 28,510 |
|
SPX Corp. | 910 | 108,517 |
|
Stanley Works | 1,000 | 47,950 |
| | |
Medical-Hospitals 1.24% | | 228,034 |
|
Centene Corp. * | 1,900 | 42,902 |
|
Health Management Associates, Inc., Class A * | 6,800 | 39,508 |
|
LifePoint Hospitals, Inc. * | 2,000 | 67,480 |
|
RehabCare Group, Inc. * | 1,400 | 25,676 |
|
Universal Health Services, Inc., Class B | 700 | 43,246 |
|
VCA Antech, Inc. * | 300 | 9,222 |
| | |
Metal & Metal Products 1.53% | | 280,657 |
|
Commercial Metals Company | 1,600 | 41,648 |
|
Lawson Products, Inc. | 300 | 9,036 |
|
Matthews International Corp., Class A | 600 | 30,156 |
|
Mueller Industries, Inc. | 1,500 | 42,075 |
|
Reliance Steel & Aluminum Company | 2,200 | 125,422 |
|
Timken Company | 1,000 | 32,320 |
| | |
Mining 0.34% | | 63,073 |
|
AMCOL International Corp. | 400 | 14,584 |
|
Compass Minerals International, Inc. | 700 | 48,489 |
| | |
Mobile Homes 0.31% | | 57,450 |
|
Thor Industries, Inc. (a) | 2,500 | 57,450 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Newspapers 0.01% | | $2,250 |
|
Lee Enterprises, Inc. | 600 | 2,250 |
| | |
Office Furnishings & Supplies 0.80% | | 146,780 |
|
HNI Corp. | 1,200 | 27,768 |
|
IKON Office Solutions, Inc. | 1,000 | 17,310 |
|
Office Depot, Inc. * | 3,900 | 27,456 |
|
OfficeMax, Inc. | 800 | 9,792 |
|
United Stationers, Inc. * | 1,300 | 64,454 |
| | |
Petroleum Services 1.20% | | 220,843 |
|
Grey Wolf, Inc. * | 3,000 | 26,130 |
|
Helmerich & Payne, Inc. | 1,700 | 97,104 |
|
Hornbeck Offshore Services, Inc. * | 200 | 8,812 |
|
Petroleum Development Corp. * | 200 | 12,158 |
|
Pioneer Drilling Company * | 700 | 11,732 |
|
Tidewater, Inc. | 500 | 30,335 |
|
World Fuel Services Corp. | 1,200 | 34,572 |
| | |
Pharmaceuticals 1.46% | | 266,804 |
|
Endo Pharmaceutical Holdings, Inc. * | 2,800 | 63,616 |
|
King Pharmaceuticals, Inc. * | 15,800 | 180,752 |
|
Mylan, Inc. * | 800 | 10,312 |
|
Watson Pharmaceuticals, Inc. * | 400 | 12,124 |
| | |
Publishing 0.28% | | 51,621 |
|
Meredith Corp. | 400 | 11,352 |
|
The New York Times Company, Class A (a) | 3,100 | 40,269 |
| | |
Real Estate 1.53% | | 279,825 |
|
Annaly Capital Management, Inc., REIT | 12,900 | 192,984 |
|
Anthracite Capital, Inc., REIT | 2,500 | 14,075 |
|
Anworth Mortgage Asset Corp., REIT | 1,400 | 9,156 |
|
Health Care, Inc., REIT | 200 | 10,374 |
|
Inland Real Estate Corp., REIT | 700 | 10,528 |
|
LTC Properties, Inc., REIT | 400 | 10,748 |
|
MFA Mortgage Investments, Inc., REIT | 4,700 | 31,960 |
| | |
Retail Grocery 0.65% | | 118,546 |
|
Ingles Markets, Inc. | 1,900 | 46,949 |
|
Ruddick Corp. | 1,000 | 31,840 |
|
SUPERVALU, Inc. | 1,300 | 30,147 |
|
United Natural Foods, Inc. * | 500 | 9,610 |
| | |
Retail Trade 6.24% | | 1,144,119 |
|
Advance Auto Parts, Inc. | 3,000 | 129,120 |
|
Aeropostale, Inc. * | 900 | 31,374 |
|
American Eagle Outfitters, Inc. | 3,800 | 57,190 |
|
BJ’s Wholesale Club, Inc. * | 3,200 | 121,696 |
|
Casey’s General Stores, Inc. | 1,400 | 40,600 |
|
Dollar Tree, Inc. * | 2,600 | 99,736 |
|
Family Dollar Stores, Inc. | 3,300 | 82,236 |
See notes to financial statements
| |
20 | Value Opportunities Fund | Semiannual report |
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) | | |
|
Foot Locker, Inc. | 2,800 | $45,612 |
|
Longs Drug Stores Corp. | 800 | 57,320 |
|
NBTY, Inc. * | 1,600 | 53,184 |
|
Pantry, Inc. * | 2,100 | 38,514 |
|
RadioShack Corp. | 2,800 | 53,228 |
|
Regis Corp. | 2,500 | 68,650 |
|
Rent-A-Center, Inc. * | 3,600 | 81,576 |
|
Ross Stores, Inc. | 1,900 | 76,399 |
|
Sonic Automotive, Inc. | 2,800 | 30,128 |
|
The Dress Barn, Inc. * | 600 | 9,756 |
|
The Men’s Wearhouse, Inc. | 1,000 | 21,900 |
|
Tractor Supply Company * | 300 | 12,786 |
|
Williams-Sonoma, Inc. | 1,100 | 19,459 |
|
Zale Corp. * (a) | 500 | 13,655 |
| | |
Semiconductors 0.78% | | 143,351 |
|
Actel Corp. * | 800 | 11,024 |
|
Cabot Microelectronics Corp. * | 400 | 15,448 |
|
Intersil Corp., Class A | 600 | 14,058 |
|
QLogic Corp. * | 4,000 | 74,720 |
|
Semtech Corp. * | 1,900 | 28,101 |
| | |
Software 0.42% | | 77,157 |
|
ManTech International Corp. * | 200 | 11,778 |
|
Sybase, Inc. * | 1,900 | 65,379 |
| | |
Steel 0.75% | | 137,940 |
|
Carpenter Technology Corp. | 800 | 31,048 |
|
Olympic Steel, Inc. | 500 | 23,805 |
|
Schnitzer Steel Industries, Inc. | 700 | 47,887 |
|
Worthington Industries, Inc. | 2,000 | 35,200 |
| | |
Telecommunications Equipment & Services 0.39% | | 70,935 |
|
ADTRAN, Inc. | 600 | 13,680 |
|
J2 Global Communications, Inc. * | 900 | 22,203 |
|
Plantronics, Inc. | 1,300 | 33,540 |
|
Premiere Global Services, Inc. * | 100 | 1,512 |
| | |
Telephone 0.42% | | 77,260 |
|
CenturyTel, Inc. | 2,000 | 77,260 |
| | |
Toys, Amusements & Sporting Goods 0.21% | | 38,655 |
|
Hasbro, Inc. | 700 | 26,180 |
|
Jakks Pacific, Inc. * | 500 | 12,475 |
| | |
Transportation 0.45% | | 82,132 |
|
Bristow Group, Inc. * | 400 | 16,308 |
|
Overseas Shipholding Group, Inc. | 800 | 57,392 |
|
Pacer International, Inc. | 400 | 8,432 |
See notes to financial statements
| |
Semiannual report | Value Opportunities Fund | 21 |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Trucking & Freight 0.46% | | $84,658 |
|
Ryder Systems, Inc. | 1,100 | 70,972 |
|
Werner Enterprises, Inc. | 600 | 13,686 |
|
| Principal | |
| amount | |
|
Short-term investments 3.32% | | $608,741 |
|
(Cost $608,741) | | |
|
John Hancock Cash Investment Trust, 2.5657% (c)(f) | $608,741 | 608,741 |
|
Repurchase agreements 4.13% | | $758,000 |
|
(Cost $758,000) | | |
|
Repurchase Agreement with State Street Corp. dated 8/29/2008 | | |
at 1.70% to be repurchased at $758,143 on 9/2/2008, | | |
collateralized by $765,000 Federal National Mortgage Association, | | |
3.375% due 3/5/2010 (valued at $778,235, including interest) | $758,000 | 758,000 |
|
Total investments (Cost $20,052,193)† 103.40% | | $18,967,574 |
|
|
Liabilities in excess of other assets (3.40%) | | ($623,478) |
|
|
Total net assets 100.00% | | $18,344,096 |
|
Percentages are stated as a percent of net assets.
REIT Real Estate Investment Trust
* Non-Income Producing
(a) All or a portion of this security was out on loan.
(c) The investment is an affiliate of the Fund, the adviser and/or subadviser.
(f) John Hancock Cash Investment Trust is managed by MFC Global Investment Management (U.S.), LLC. The rate shown is the seven-day effective yield at period end.
† At July 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $20,076,153. Net unrealized depreciation aggregated $1,108,579, of which $1,234,140 related to appreciated investment securities and $2,342,719 related to depreciated investment securities.
The Fund had the following financial futures contracts open on August 31, 2008:
| | | | | |
| | | | | UNREALIZED |
OPEN | NUMBER OF | | EXPIRATION | NOTIONAL | APPRECIATION |
CONTRACTS | CONTRACTS | POSITION | DATE | VALUE | (DEPRECIATION) |
| | | | | |
Russell 2000 Mini | 3 | Long | Sep 2008 | $244,800 | $19,089 |
Index Futures | | | | | |
S&P Mid 400 E-Mini | 3 | Long | Sep 2008 | 221,970 | (13,333) |
Index Futures | | | | | |
|
| | | | | $5,756 |
See notes to financial statements
| |
22 | Value Opportunities Fund | Semiannual report |
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 8-31-08 (unaudited)
This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum public offering price per share.
| |
Assets | |
|
Investments, at value (Cost $19,443,452) including $596,805 | |
of securities loaned (Note 2) | $18,358,833 |
Investments in affiliated issuers, at value (Cost $608,741) (Note 2) | 608,741 |
| |
Total investments, at value (Cost $20,052,193) | 18,967,574 |
Cash | 60 |
Cash collateral at broker for futures contracts | 22,200 |
Receivable for fund shares sold | 12,109 |
Dividends and interest receivable | 19,560 |
Receivable for security lending income | 846 |
Other assets | 33,627 |
| |
Total assets | 19,055,976 |
|
Liabilities | |
|
Payable for fund shares repurchased | 10,999 |
Payable upon return of securities loaned (Note 2) | 608,741 |
Payable for futures variation margin | 3,690 |
Payable to affiliates | |
Fund administration fees | 147 |
Transfer agent fees | 3,879 |
Distribution and service fees | 148 |
Investment management fees | 3,083 |
Trustees’ fees | 984 |
Other payables and accrued expenses | 80,209 |
| |
Total liabilities | 711,880 |
|
Net assets | |
|
Capital paid-in | $21,569,616 |
Undistributed net investment income | 49,446 |
Accumulated undistributed net realized loss on investments | |
and futures contracts | (2,196,103) |
Net unrealized appreciation (depreciation) on investments and futures contracts | (1,078,863) |
| |
Net assets | $18,344,096 |
See notes to financial statements
| |
Semiannual report | 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 assets and liabilities (continued)
| |
Net asset value per share | |
|
The Funds have an unlimited number of shares authorized with no par | |
value. Net asset value is calculated by dividing the net assets of each class | |
of shares by the number of outstanding shares in the class. | |
| |
Class A | |
Net assets | $16,004,907 |
Shares outstanding | 919,731 |
Net asset value and redemption price per share | $17.40 |
| |
Class B1 | |
Net assets | $256,490 |
Shares outstanding | 14,843 |
Net asset value and offering price per share | $17.28 |
| |
Class C1 | |
Net assets | $805,929 |
Shares outstanding | 46,613 |
Net asset value and offering price per share | $17.29 |
| |
Class I | |
Net assets | $88,045 |
Shares outstanding | 5,043 |
Net asset value, offering price and redemption price per share | $17.46 |
| |
Class R1 | |
Net assets | $118,326 |
Shares outstanding | 6,819 |
Net asset value, offering price and redemption price per share | $17.35 |
| |
Class 1 | |
Net assets | $1,070,399 |
Shares outstanding | 61,299 |
Net asset value, offering price and redemption price per share | $17.46 |
|
Maximum public offering price per share | |
|
Class A (net asset value per share + 95%)2 | $18.32 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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
| |
24 | Value Opportunities Fund | Semiannual report |
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 8-31-08 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
| |
Investment income | |
|
Dividends | $149,302 |
Securities lending | 10,637 |
Income from affiliated issuers | 6,309 |
Interest | 5,365 |
Less foreign taxes withheld | (209) |
| |
Total investment income | 171,404 |
|
Expenses | |
|
Investment management fees (Note 3) | 73,234 |
Distribution and service fees (Note 3) | 30,727 |
Transfer agent fees (Note 3) | 7,795 |
Blue sky fees (Note 3) | 37,194 |
Fund administration fees (Note 3) | 1,032 |
Audit and legal fees | 19,595 |
Printing and postage fees (Note 3) | 4,896 |
Custodian fees | 23,798 |
Trustees’ fees (Note 3) | 1,309 |
Registration and filing fees | 7,423 |
Miscellaneous | 162 |
| |
Total expenses | 207,165 |
Less expense reductions (Note 3) | (77,466) |
Less transfer agency credits (Note 3) | (30) |
| |
Net expenses | 129,669 |
| |
Net investment income | 41,735 |
|
Realized and unrealized gain (loss) | |
|
Net realized loss on | |
Investments in unaffiliated issuers | (833,009) |
Futures contracts | (19,741) |
| |
| (852,750) |
| |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 1,213,502 |
Futures contracts | 12,331 |
| |
| 1,225,833 |
| |
Net realized and unrealized gain | 373,083 |
| |
Increase in net assets from operations | $414,818 |
1 Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements
| |
Semiannual report | Value Opportunities Fund | 25 |
F I N A N C I A L S T A T E M E N T S
Statements 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 | Period |
| ended | ended |
| 2-29-08 | 8-31-081 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $113,625 | $41,735 |
Net realized loss | (637,359) | (852,750) |
Change in net unrealized appreciation (depreciation) | (4,119,589) | 1,225,833 |
| | |
Increase (decrease) in net assets resulting from operations | (4,643,323) | 414,818 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | (98,667) | — |
Class I | (1,006) | — |
Class R1 | (547) | — |
Class 1 | (4,886) | — |
From net realized gain | | |
Class A | (875,720) | — |
Class B | (16,516) | — |
Class C | (64,954) | — |
Class I | (5,327) | — |
Class R1 | (5,854) | — |
Class 1 | (24,644) | — |
| | |
Total distributions | (1,098,121) | — |
| | |
From Fund share transactions (Note 5) | 1,738,819 | (260,232) |
| | |
Total increase (decrease) | (4,002,625) | 154,586 |
|
Net assets | | |
|
Beginning of period | 22,192,135 | 18,189,510 |
| | |
End of period | $18,189,510 | $18,344,096 |
| | |
Undistributed net investment income | $7,711 | $49,446 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements
| |
26 | Value Opportunities Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.36 | $17.00 |
Net investment income3 | 0.074 | 0.12 | 0.04 |
Net realized and unrealized | | | |
gain (loss) on investments | 2.53 | (4.41) | 0.36 |
Total from investment operations | 2.60 | (4.29) | 0.40 |
Less distributions | | | |
From net investment income | (0.08) | (0.11) | — |
From net realized gain | (0.16) | (0.96) | — |
Total distributions | (0.24) | (1.07) | — |
Net asset value, end of period | $22.36 | $17.00 | $17.40 |
Total return (%)5,6 | 13.067 | (19.45) | 2.357 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $20 | $16 | $16 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 2.138 | 2.04 | 1.918 |
Expenses net of fee waivers, if any | 1.388 | 1.39 | 1.398 |
Expenses net of all fee waivers and credits | 1.388 | 1.39 | 1.398 |
Net investment income | 0.474,8 | 0.56 | 0.488 |
Portfolio turnover (%) | 30 | 68 | 34 |
1 Class A shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Net investment income per share and ratio of net investment income to average net assets reflects a special dividend received by the Fund which amounted to $0.02 per share and 0.09% of average net assets.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment and does not reflect the effect of sales charges.
7 Not annualized.
8 Annualized.
See notes to financial statements
| |
Semiannual report | 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 B SHARES | | | |
|
Period ended | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.33 | $16.94 |
Net investment loss3 | (0.01)4 | (0.03) | (0.02) |
Net realized and unrealized | | | |
gain (loss) on investments | 2.51 | (4.40) | 0.36 |
Total from investment operations | 2.50 | (4.43) | 0.34 |
Less distributions | | | |
From net investment income | (0.01) | — | — |
From net realized gain | (0.16) | (0.96) | — |
Total distributions | (0.17) | (0.96) | — |
Net asset value, end of period | $22.33 | $16.94 | $17.28 |
Total return (%)5,6 | 12.547 | (20.08) | 2.017 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 8 | — 8 | — 8 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 11.319 | 6.82 | 8.039 |
Expenses net of fee waivers, if any | 2.089 | 2.10 | 2.099 |
Expenses net of all fee waivers and credits | 2.089 | 2.09 | 2.099 |
Net investment loss | (0.07)4,9 | (0.14) | (0.21)9 |
Portfolio turnover (%) | 30 | 68 | 34 |
1 Class B shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 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 $0.02 per share and 0.10% of average net assets.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Less than $500,0000.
9 Annualized.
See notes to financial statements
| |
28 | Value Opportunities Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.33 | $16.95 |
Net investment loss3 | (0.01)4 | (0.03) | (0.02) |
Net realized and unrealized | | | |
gain (loss) on investments | 2.51 | (4.39) | 0.36 |
Total from investment operations | 2.50 | (4.42) | 0.34 |
Less distributions | | | |
From net investment income | (0.01) | — | — |
From net realized gain | (0.16) | (0.96) | — |
Total distributions | (0.17) | (0.96) | — |
Net asset value, end of period | $22.33 | $16.95 | $17.29 |
Total return (%)5,6 | 12.547 | (20.03) | 2.017 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $1 | $1 | $1 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 5.098 | 3.88 | 4.268 |
Expenses net of fee waivers, if any | 2.088 | 2.10 | 2.098 |
Expenses net of all fee waivers and credits | 2.088 | 2.09 | 2.098 |
Net investment loss | (0.07)4,8 | (0.14) | (0.21)8 |
Portfolio turnover (%) | 30 | 68 | 34 |
1 Class C shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 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 $0.02 per share and 0.10% of average net assets.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Annualized.
See notes to financial statements
| |
Semiannual report | 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 I SHARES | | | |
|
Period ended | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.39 | $17.02 |
Net investment income3 | 0.154 | 0.18 | 0.08 |
Net realized and unrealized | | | |
gain (loss) on investments | 2.53 | (4.41) | 0.36 |
Total from investment operations | 2.68 | (4.23) | 0.44 |
Less distributions | | | |
From net investment income | (0.13) | (0.18) | — |
From net realized gain | (0.16) | (0.96) | — |
Total distributions | (0.29) | (1.14) | — |
Net asset value, end of period | $22.39 | $17.02 | $17.46 |
Total return (%)5,6 | 13.427 | (19.16) | 2.597 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 8 | — 8 | — 8 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 12.639 | 8.80 | 17.059 |
Expenses net of fee waivers, if any | 0.999 | 0.99 | 0.999 |
Expenses net of all fee waivers and credits | 0.999 | 0.99 | 0.999 |
Net investment income | 0.964,9 | 0.86 | 0.899 |
Portfolio turnover (%) | 30 | 68 | 34 |
1 Class I shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Net investment income per share and ratio of net investment income to average net assets reflects a special dividend received by the Fund which amounted to $0.02 per share and 0.10% of average net assets.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Less than $500,0000.
9 Annualized.
See notes to financial statements
| |
30 | Value Opportunities Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.32 | $16.96 |
Net investment income3 | 0.024 | 0.10 | 0.03 |
Net realized and unrealized | | | |
gain (loss) on investments | 2.53 | (4.41) | 0.36 |
Total from investment operations | 2.55 | (4.31) | 0.39 |
Less distributions | | | |
From net investment income | (0.07) | (0.09) | — |
From net realized gain | (0.16) | (0.96) | — |
Total distributions | (0.23) | (1.05) | — |
Net asset value, end of period | $22.32 | $16.96 | $17.35 |
Total return (%)5,6 | 12.807 | (19.57) | 2.307 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 8 | — 8 | — 8 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 21.699 | 15.22 | 15.539 |
Expenses net of fee waivers, if any | 1.739 | 1.49 | 1.499 |
Expenses net of all fee waivers and credits | 1.739 | 1.49 | 1.499 |
Net investment income | 0.124,9 | 0.48 | 0.399 |
Portfolio turnover (%) | 30 | 68 | 34 |
1 Class R1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Net investment income per share and ratio of net investment income to average net assets reflects a special dividend received by the Fund which amounted to $0.02 per share and 0.09% of average net assets.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Less than $500,0000.
9 Annualized.
See notes to financial statements
| |
Semiannual report | Value Opportunities Fund | 31 |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.39 | $17.02 |
Net investment income3 | 0.144 | 0.23 | 0.08 |
Net realized and unrealized | | | |
gain (loss) on investments | 2.54 | (4.45) | 0.36 |
Total from investment operations | 2.68 | (4.22) | 0.44 |
Less distributions | | | |
From net investment income | (0.13) | (0.19) | — |
From net realized gain | (0.16) | (0.96) | — |
Total distribtions | (0.29) | (1.15) | — |
Net asset value, end of period | $22.39 | $17.02 | $17.46 |
Total return (%)5,6 | 13.447 | (19.12) | 2.597 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 8 | $1 | $1 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 1.679 | 1.62 | 1.439 |
Expenses net of fee waivers, if any | 0.949 | 0.94 | 0.949 |
Expenses net of all fee waivers and credits | 0.949 | 0.94 | 0.949 |
Net investment income | 0.894,9 | 1.14 | 0.949 |
Portfolio turnover (%) | 30 | 68 | 34 |
1 Class 1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Net investment income per share and ratio of net investment income to average net assets reflects a special dividend received by the Fund which amounted to $0.02 per share and 0.09% of average net assets.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Less than $500,0000.
9 Annualized.
See notes to financial statements
| |
32 | Value Opportunities Fund | Semiannual report |
Notes to financial statements (unaudited)
Note 1
Organization
John Hancock Value Opportunities Fund (the Fund) is a 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 and Class 1 shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. Class 1 shares are sold only to certain exempt separate accounts of John Hancock USA and John Hancock New York. 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 Reve nue 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. Class B shares will convert to Class A shares eight years after purchase.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B and Class C, Class I, Class R1 and Class 1 shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. Short-term debt investments that have a remaining maturity 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. Investments in John Hancock Cash Investment Trust (JHCIT), an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business
| |
Semiannual report | Value Opportunities Fund | 33 |
day. 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 the 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. Securities for which there are no such quotations, principally debt securities, are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
| |
34 | Value Opportunities Fund | Semiannual report |
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| INVESTMENTS IN | OTHER FINANCIAL |
VALUATION INPUTS | SECURITIES | INSTRUMENTS* |
|
Level 1 — Quoted Prices | $18,209,574 | $5,756 |
Level 2 — Other Significant Observable Inputs | 758,000 | — |
Level 3 — Significant Unobservable Inputs | — | — |
Total | $18,967,574 | $5,756 |
*Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/ depreciation on the instrument.
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.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C, Class I, Class R1 and Class 1 shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
| |
Semiannual report | Value Opportunities Fund | 35 |
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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 August 31, 2008, there were no borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
Securities lending
The Fund may lend portfolio securities from time to time in order to earn additional income. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their value. On the settlement date of the loan, the Fund receives cash collateral against the loaned securities and maintains the cash collateral in an amount not less than 100% of the market value of the loaned securities 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 cash collateral is delivered to the Fund on the next business day. Cash collateral received is invested in the JHCIT. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the secur ities loaned or in gaining access to the collateral. The Fund may receive compensation for lending their securities either in the form of fees, guarantees, and/or by retaining a portion of interest on the investment of any cash received as collateral.
The Fund has entered into an agreement with Morgan Stanley & Co., Inc. and MS Securities Services, Inc. (collectively, Morgan Stanley) which permits the Fund to lend securities to Morgan Stanley on a principal basis. Morgan Stanley is the primary borrower of securities of the Fund. The risk of having one primary borrower of Fund securities (as opposed to several borrowers) is that should Morgan Stanley fail financially, all securities lent will be affected by the failure and by any delays in recovery of the securities (or in the rare event, loss of rights in the collateral).
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, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by 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
| |
36 | Value Opportunities Fund | Semiannual report |
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.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. Net capital losses of $1,325,968 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on March 1, 2008, the first day of the Fund’s next taxable year.
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund’s fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund’s financial statements. Each of the Fund’s federal tax returns for the prior two years remain subject to examination by the Internal Revenue Service.
New accounting pronouncement
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations, and how these instruments affect a company’s financial position, performance and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company and any credit risk-related contingent features of the agreements. Ma nagement is currently evaluating the adoption of FAS 161 on the Fund’s financial statement disclosures.
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 29, 2008, the tax character of distributions paid was as follows: ordinary income $760,204 and long-term capital gain $337,917. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Note 3
Investment advisory and
other agreements
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. 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
| |
Semiannual report | Value Opportunities Fund | 37 |
Fund’s aggregate daily net assets; (c) 0.77% of the Fund’s 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. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.80% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.09% of the Fund’s average annual net assets which are allocated pro rata to all share classes. This agreement excludes taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded. The reimbursements and limits are such that these expenses will not exceed 1.39% for Class A shares, 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 or reimbursements related to this agreement were $41,654, $8,012, $10,090, $7,745, $8,152 and $1,769 for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively, for the period ended August 31, 2008. The exp ense reimbursements and limits will continue in effect until June 30, 2009 and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $1,032 with an annual effective rate of 0.01% of the Fund’s average daily net assets.
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 pay 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 the average daily net asset value of Class A, Class B, Class C, Class R1 and Class 1 shares, respectively. A maximum of 0.25% of such payments may be service fees, as defined by the Conduct Rules of the Financial Industry Regulatory Authority (formerly 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, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 shares’ average daily net asset value for certain other services. There were no Service Plan fees incurred for the period ended August 31, 2008.
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38 | Value Opportunities Fund | Semiannual report |
Class A shares are assessed up-front sales charges. During the period ended August 31, 2008, the Distributor received net up-front sales charges of $2,187 with regard to sales of Class A shares. Of this amount, $348 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $1,810 was paid as sales commissions to unrelated broker-dealers; and $29 was paid as sales commissions to sales personnel of Signator Investor, 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 period ended August 31, 2008, CDSCs received by the Distributor amounted to $1,256 for Class B shares and $328 for Class C shares.
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. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C and Class R1 shareholder account.
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 shares’ average daily net assets. This agreement is effective until December 31, 2008. Signature Services reserves the right to terminate this limitation in the future. 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 August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $44.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $30 for transfer agent credits earned.
Class level expenses including the allocation of the Transfer Agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent fees | Blue sky fees | postage fees |
|
Class A | $24,259 | $6,486 | $7,368 | $4,126 |
Class B | 1,353 | 274 | 7,241 | 104 |
Class C | 4,641 | 937 | 7,378 | 409 |
Class I | — | 25 | 7,411 | 121 |
Class R1 | 293 | 73 | 7,796 | 96 |
Class 1 | 181 | — | — | 40 |
Total | $30,727 | $7,795 | $37,194 | $4,896 |
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Semiannual report | Value Opportunities Fund | 39 |
The Adviser and other affiliates of John Hancock USA owned 776,719 and 5,350 shares of beneficial interest of Class A and Class R1, respectively, on August 31, 2008.
Note 4
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.
Note 5
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value.
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 83,981 | $1,839,886 | 21,563 | $375,429 |
Distributions reinvested | 53,292 | 958,716 | — | — |
Repurchased | (80,983) | (1,597,867) | (47,813) | (821,590) |
Net increase (decrease) | 56,290 | $1,200,735 | (26,250) | ($446,161) |
|
Class B shares | | | | |
|
Sold | 7,022 | $153,171 | 1,530 | $26,247 |
Distributions reinvested | 795 | 14,285 | — | — |
Repurchased | (4,077) | (80,691) | (4,443) | (77,051) |
Net increase (decrease) | 3,740 | $86,765 | (2,913) | ($50,804) |
|
Class C shares | | | | |
|
Sold | 21,502 | $466,603 | 8,744 | $150,815 |
Distributions reinvested | 3,408 | 61,199 | — | — |
Repurchased | (27,872) | (538,229) | (22,268) | (371,193) |
Net decrease | (2,962) | ($10,427) | (13,524) | ($220,378) |
|
Class I shares | | | | |
|
Sold | 5,764 | $129,736 | 175 | $3,000 |
Distributions reinvested | 288 | 5,191 | — | — |
Repurchased | (12,096) | (243,103) | (1,005) | (17,600) |
Net decrease | (6,044) | ($108,176) | (830) | ($14,600) |
|
Class R1 shares | | | | |
|
Sold | 1,049 | $24,953 | 551 | $9,692 |
Distributions reinvested | 357 | 6,401 | — | — |
Repurchased | — | — | (192) | (3,314) |
Net increase | 1,406 | $31,354 | 359 | $6,378 |
|
Class 1 shares | | | | |
|
Sold | 37,501 | $765,929 | 37,999 | $649,126 |
Distributions reinvested | 1,640 | 29,511 | — | — |
Repurchased | (13,639) | (256,872) | (10,840) | (183,793) |
Net increase | 25,502 | $538,568 | 27,159 | $465,333 |
|
Net increase (decrease) | 77,932 | $1,738,819 | (16,001) | ($260,232) |
|
1Semiannual period from 3-1-08 to 8-31-08. Unaudited.
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40 | Value Opportunities Fund | Semiannual report |
Note 6
Purchase and sale of securities
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 August 31, 2008, aggregated $5,907,926 and $6,446,857, respectively.
| |
Semiannual report | Value Opportunities Fund | 41 |
Board Consideration of and
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock
Value Opportunities Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Funds III (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) for the John Hancock Value Opportunities Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements.
At meetings held on May 5–6 and June 9–10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the investment performance of the Fund relative to a category of relevant funds (the “Category”) and a peer group of comparable funds (the “Peer Group”). The funds within each Category and Peer Group were selected by Morningstar Inc. (“Morningstar”), an independent provider of investment company data. Data covered the period since the Fund’s inception through December 31, 2007,
(ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group,
(iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser,
(iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund,
(v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale,
(vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department,
(vii) the background and experience of senior management and investment professionals, and
(viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board principally considered data on performance and other information provided by Morningstar as of December 31, 2007. The Board also considered updated performance information provided to it by the Adviser or Subadviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below.
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42 | Value Opportunities Fund | Semiannual report |
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and Subadviser. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser supported renewal of the Advisory Agreements.
Fund performance
The Board noted that the Fund had less than two full years of operational history, and considered the performance results for the Fund since its inception through December 31, 2007. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. The Board reviewed with representatives of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance was lower than the performance of the Category and Peer Group medians, and its benchmark index, the Russell 2500 Value Index, over the 1-year period. The Adviser discussed its plans with respect to the Fund. The Board recognized the short operational history of the Fund and indicated its intent to continue to monitor the Fund’s performance trends.
Investment advisory fee and subadvisory fee
rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was not appreciably higher than the median rate of the Peer Group and equal to the median rate of the Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross Expense Ratio was higher than the median of the Peer Group and Category. The Board also noted that the Fund’s Net Expense Ratio was higher than the median of the Category but not appreciably higher than the Peer Group.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s expenses and overall plans to improve performance supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory
| |
Semiannual report | Value Opportunities Fund | 43 |
Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Subadviser, which is not affiliated with the Adviser. The Board considered that the Subadvisory Agreement Rate paid to the Subadviser had been negotiated by the Adviser on an arm’s length basis and that the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadviser with the Fund and benefits potentially derived from an increase in business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
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44 | Value Opportunities Fund | Semiannual report |
More information
| |
Trustees | Investment adviser |
James F. Carlin, Chairman | John Hancock Investment Management |
James R. Boyle† | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson | Subadviser |
Charles L. Ladner* | Grantham, Mayo, Van Otterloo & Co. LLC |
Stanley Martin* | |
Dr. John A. Moore* | Principal distributor |
Patti McGill Peterson* | John Hancock Funds, LLC |
Steven R. Pruchansky | |
Gregory A. Russo* | Custodian |
*Members of the Audit Committee | State Street Bank & Trust Company |
†Non-Independent Trustee | |
| Transfer agent |
Officers | John Hancock Signature Services, Inc. |
Keith F. Hartstein | |
President and Chief Executive Officer | Legal counsel |
| K&L Gates LLP |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
| |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Gordon M. Shone | |
Treasurer | |
| |
John G. Vrysen | |
Chief Operating Officer | |
Additional information about your fund is available without charge in several ways. As required by the SEC, you can access proxy voting information and quarterly portfolio information on your fund. The proxy voting information includes a description of proxy voting policies, procedures and information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30. The quarterly portfolio information that includes a complete list of the fund’s holdings for the first and third quarters of the fund’s fiscal period is filed on Form N-Q. You have access to this information:
| | |
By phone | On the fund’s Website | At the SEC |
1-800-225-5291 | www.jhfunds.com | www.sec.gov |
| | 1-800-SEC-0330 |
| | SEC Public Reference Room |
|
| |
You can also contact us: | |
| |
Regular mail | Express mail |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 9510 | Mutual Fund Image Operations |
Portsmouth, NH 03802-9510 | 164 Corporate Drive |
| Portsmouth, NH 03801 |
|
Month-end portfolio holdings are available at www.jhfunds.com.
| |
Semiannual report | Value Opportunities Fund | 45 |
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. | 630SA 8/08 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/08 |
A look at performance
For the periods ended August 31, 2008
| | | | | | | | | | | | |
| | | Average annual returns (%) | | | Cumulative total returns (%) | | |
| | | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| | |
| |
|
| Inception | | | | | Since | | Six | | | | Since |
Class | date | | 1-year | 5-year | 10-year | inception | | months | 1-year | 5-year | 10-year | inception |
|
A | 6-12-06 | | –16.53 | — | — | –1.65 | | –6.85 | –16.53 | — | — | –3.64 |
|
B | 6-12-06 | | –16.94 | — | — | –1.36 | | –7.16 | –16.94 | — | — | –3.00 |
|
C | 6-12-06 | | –13.59 | — | — | –0.07 | | –3.30 | –13.59 | — | — | –0.16 |
|
I1 | 6-12-06 | | –11.77 | — | — | 1.02 | | –1.75 | –11.77 | — | — | 2.29 |
|
R11 | 6-12-06 | | –12.10 | — | — | 0.45 | | –1.96 | –12.10 | — | — | 1.01 |
|
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 to 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 expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The waivers and expense limitations are contractual at least until June 30, 2009. The net expenses are as follows: Class A — 1.34%, Class B — 2.05%, Class C — 2.05%, Class I — 0.95%, Class R1 — 1.45%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 1.86%, Class B — 6.98%, Class C — 2.94%, Class I — 12.79%, Class R1 — 15.98%.
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 current to the most recent month end performance data, 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.
1 For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
| |
6 | U.S. Core Fund | Semiannual report |
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 | $9,984 | $9,700 | $10,699 |
|
C2 | 6-12-06 | 9,984 | 9,984 | 10,699 |
|
I3 | 6-12-06 | 10,229 | 10,229 | 10,699 |
|
R13 | 6-12-06 | 10,101 | 10,101 | 10,699 |
|
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 August 31, 2008. 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.
1 NAV represents net asset value and POP represents public offering price.
2 No contingent deferred sales charge applicable.
3 For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
| |
Semiannual report | 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 March 1, 2008 with the same investment held until August 31, 2008.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $980.40 | $6.74 |
|
Class B | 1,000.00 | 977.30 | 10.22 |
|
Class C | 1,000.00 | 976.80 | 10.21 |
|
Class I | 1,000.00 | 982.50 | 4.75 |
|
Class R1 | 1,000.00 | 980.40 | 7.24 |
|
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 August 31, 2008, 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:
| |
8 | U.S. Core Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. 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 |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,018.40 | $6.87 |
|
Class B | 1,000.00 | 1,014.90 | 10.41 |
|
Class C | 1,000.00 | 1,014.90 | 10.41 |
|
Class I | 1,000.00 | 1,020.40 | 4.84 |
|
Class R1 | 1,000.00 | 1,017.90 | 7.38 |
|
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.35%, 2.05%, 2.05%, 0.95% and 1.45% 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 (to reflect the one-half year period).
| |
Semiannual report | U.S. Core Fund | 9 |
Portfolio summary
| | | | |
Top 10 holdings1 | | | | |
|
Exxon Mobil Corp. | 5.9% | | Pfizer, Inc. | 3.9% |
| |
|
Johnson & Johnson | 4.7% | | UnitedHealth Group, Inc. | 3.2% |
| |
|
Microsoft Corp. | 4.6% | | The Coca-Cola Company | 3.2% |
| |
|
Chevron Corp. | 4.2% | | PepsiCo, Inc. | 3.0% |
| |
|
Wal-Mart Stores, Inc. | 3.9% | | Procter & Gamble Company | 2.6% |
| |
|
|
Sector distribution1,2 | | | | |
|
Consumer Non-cyclical | 36% | | Financial | 6% |
| |
|
Energy | 19% | | Industrial | 6% |
| |
|
Consumer Cyclical | 11% | | Basic Materials | 3% |
| |
|
Technology | 11% | | Short-term Investments & Other | 1% |
| |
|
Communications | 7% | | | |
| | |
1 As a percentage of net assets on August 31, 2008.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| |
10 | U.S. Core Fund | Semiannual report |
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 8-31-08 (unaudited)
This schedule is divided into three main categories: common stocks, short-term investments 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 99.06% | | $18,265,286 |
|
(Cost $19,249,609) | | |
| | |
Aerospace 1.63% | | 301,179 |
|
General Dynamics Corp. | 1,700 | 156,910 |
|
Goodrich Corp. | 200 | 10,250 |
|
Raytheon Company | 200 | 11,998 |
|
Rockwell Collins, Inc. | 200 | 10,518 |
|
United Technologies Corp. | 1,700 | 111,503 |
| | |
Agriculture 1.28% | | 236,202 |
|
Archer-Daniels-Midland Company | 1,200 | 30,552 |
|
Monsanto Company | 1,800 | 205,650 |
| | |
Apparel & Textiles 0.21% | | 38,636 |
|
Coach, Inc. * | 900 | 26,091 |
|
Liz Claiborne, Inc. | 400 | 6,484 |
|
NIKE, Inc., Class B | 100 | 6,061 |
| | |
Auto Parts 0.23% | | 41,900 |
|
AutoZone, Inc. * | 200 | 27,446 |
|
BorgWarner, Inc. | 200 | 8,270 |
|
Johnson Controls, Inc. | 200 | 6,184 |
| | |
Auto Services 0.12% | | 22,283 |
|
AutoNation, Inc. * | 800 | 9,080 |
|
Copart, Inc. * | 300 | 13,203 |
| | |
Automobiles 0.13% | | 24,224 |
|
General Motors Corp. (a) | 700 | 7,000 |
|
PACCAR, Inc. | 400 | 17,224 |
| | |
Banking 1.57% | | 289,806 |
|
Bank of America Corp. | 6,100 | 189,954 |
|
BB&T Corp. | 900 | 27,000 |
|
Comerica, Inc. | 200 | 5,618 |
|
Hudson City Bancorp, Inc. | 1,400 | 25,816 |
|
U.S. Bancorp | 1,300 | 41,418 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Biotechnology 1.07% | | $196,873 |
|
Amgen, Inc. * | 1,500 | 94,275 |
|
Biogen Idec, Inc. * | 900 | 45,837 |
|
Genentech, Inc. * | 200 | 19,750 |
|
Genzyme Corp. * | 200 | 15,660 |
|
Illumina, Inc. * | 100 | 8,613 |
|
Invitrogen Corp. * | 300 | 12,738 |
| | |
Broadcasting 0.03% | | 6,069 |
|
Discovery Holding Company * | 300 | 6,069 |
| | |
Building Materials & Construction 0.02% | | 3,812 |
|
Masco Corp. | 200 | 3,812 |
| | |
Business Services 0.73% | | 135,460 |
|
Affiliated Computer Services, Inc., Class A * | 500 | 26,620 |
|
Fiserv, Inc. * | 900 | 46,674 |
|
Fluor Corp. | 400 | 32,052 |
|
Jacobs Engineering Group, Inc. * | 300 | 22,146 |
|
Total Systems Services, Inc. | 400 | 7,968 |
| | |
Chemicals 0.44% | | 81,996 |
|
Air Products & Chemicals, Inc. | 200 | 18,370 |
|
FMC Corp. | 100 | 7,354 |
|
Praxair, Inc. | 500 | 44,920 |
|
Sigma-Aldrich Corp. | 200 | 11,352 |
| | |
Computers & Business Equipment 4.29% | | 790,901 |
|
Apple, Inc. * | 1,400 | 237,342 |
|
Cisco Systems, Inc. * | 12,000 | 288,600 |
|
Dell, Inc. * | 2,900 | 63,017 |
|
EMC Corp. * | 1,000 | 15,280 |
|
Hewlett-Packard Company | 700 | 32,844 |
|
International Business Machines Corp. | 1,000 | 121,730 |
|
Juniper Networks, Inc. * | 400 | 10,280 |
|
Western Digital Corp. * | 800 | 21,808 |
| | |
Construction & Mining Equipment 0.04% | | 7,104 |
|
Joy Global, Inc. | 100 | 7,104 |
| | |
Containers & Glass 0.05% | | 8,920 |
|
Owens-Illinois, Inc. * | 200 | 8,920 |
| | |
Cosmetics & Toiletries 3.87% | | 712,636 |
|
Avon Products, Inc. | 400 | 17,132 |
|
Colgate-Palmolive Company | 1,900 | 144,457 |
|
Estee Lauder Companies, Inc., Class A | 300 | 14,931 |
|
Kimberly-Clark Corp. | 1,000 | 61,680 |
|
Procter & Gamble Company | 6,800 | 474,436 |
See notes to financial statements
| |
12 | U.S. Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Crude Petroleum & Natural Gas 4.89% | | $902,429 |
|
Apache Corp. | 1,320 | 150,982 |
|
Chesapeake Energy Corp. | 1,100 | 53,240 |
|
Devon Energy Corp. | 1,400 | 142,870 |
|
EOG Resources, Inc. | 520 | 54,298 |
|
Hess Corp. | 730 | 76,438 |
|
Noble Energy, Inc. | 200 | 14,346 |
|
Occidental Petroleum Corp. | 4,200 | 333,312 |
|
Patterson-UTI Energy, Inc. | 400 | 11,368 |
|
Quicksilver Resources, Inc. * | 400 | 9,676 |
|
Southwestern Energy Company * | 700 | 26,859 |
|
Sunoco, Inc. | 200 | 8,876 |
|
XTO Energy, Inc. | 400 | 20,164 |
| | |
Domestic Oil 0.10% | | 19,240 |
|
Denbury Resources, Inc. * | 400 | 9,956 |
|
Range Resources Corp. | 200 | 9,284 |
| | |
Drugs & Health Care 0.59% | | 108,200 |
|
Wyeth | 2,500 | 108,200 |
| | |
Educational Services 0.22% | | 40,731 |
|
Apollo Group, Inc., Class A * | 500 | 31,840 |
|
ITT Educational Services, Inc. * | 100 | 8,891 |
| | |
Electrical Equipment 0.21% | | 38,790 |
|
Emerson Electric Company | 600 | 28,080 |
|
FLIR Systems, Inc. * | 300 | 10,710 |
| | |
Electrical Utilities 0.12% | | 22,124 |
|
Exelon Corp. | 100 | 7,596 |
|
FirstEnergy Corp. | 200 | 14,528 |
| | |
Electronics 0.34% | | 62,364 |
|
L-3 Communications Holdings, Inc. | 600 | 62,364 |
| | |
Financial Services 1.94% | | 357,477 |
|
BlackRock, Inc. | 150 | 32,588 |
|
Charles Schwab Corp. | 500 | 11,995 |
|
Citigroup, Inc. | 10,000 | 189,900 |
|
Federal Home Loan Mortgage Corp. | 900 | 4,059 |
|
Leucadia National Corp. | 600 | 27,774 |
|
MasterCard, Inc., Class A | 180 | 43,659 |
|
State Street Corp. | 200 | 13,534 |
|
T. Rowe Price Group, Inc. | 200 | 11,872 |
|
Western Union Company | 800 | 22,096 |
| | |
Food & Beverages 6.66% | | 1,227,189 |
|
Coca-Cola Enterprises, Inc. | 500 | 8,535 |
|
General Mills, Inc. | 200 | 13,236 |
|
H.J. Heinz Company | 200 | 10,064 |
|
Kellogg Company | 200 | 10,888 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Food & Beverages (continued) | | |
|
Kraft Foods, Inc., Class A | 722 | $22,750 |
|
PepsiCo, Inc. | 8,100 | 554,688 |
|
The Coca-Cola Company | 11,200 | 583,184 |
|
William Wrigley, Jr. Company | 300 | 23,844 |
| | |
Gas & Pipeline Utilities 0.40% | | 73,649 |
|
Transocean, Inc. * | 579 | 73,649 |
| | |
Gold 0.28% | | 52,095 |
|
Barrick Gold Corp. | 1,500 | 52,095 |
| | |
Healthcare Products 7.34% | | 1,352,736 |
|
Becton, Dickinson & Company | 100 | 8,738 |
|
C.R. Bard, Inc. | 100 | 9,345 |
|
Intuitive Surgical, Inc. * | 100 | 29,527 |
|
Johnson & Johnson | 12,300 | 866,289 |
|
Medtronic, Inc. | 2,100 | 114,660 |
|
Patterson Companies, Inc. * | 200 | 6,508 |
|
Stryker Corp. | 1,200 | 80,628 |
|
Varian Medical Systems, Inc. * | 200 | 12,632 |
|
Zimmer Holdings, Inc. * | 3,100 | 224,409 |
| | |
Healthcare Services 6.51% | | 1,200,577 |
|
Cardinal Health, Inc. | 1,100 | 60,478 |
|
Covance, Inc. * | 100 | 9,434 |
|
Coventry Health Care, Inc. * | 1,600 | 56,032 |
|
Express Scripts, Inc. * | 2,000 | 146,820 |
|
McKesson Corp. | 2,200 | 127,116 |
|
Medco Health Solutions, Inc. * | 800 | 37,480 |
|
Quest Diagnostics, Inc. | 100 | 5,405 |
|
UnitedHealth Group, Inc. | 19,166 | 583,605 |
|
WellPoint, Inc. * | 3,300 | 174,207 |
| | |
Holdings Companies/Conglomerates 0.13% | | 24,660 |
|
Textron, Inc. | 600 | 24,660 |
| | |
Hotels & Restaurants 0.24% | | 43,435 |
|
McDonald’s Corp. | 700 | 43,435 |
| | |
Household Products 0.09% | | 16,988 |
|
Energizer Holdings, Inc. * | 200 | 16,988 |
| | |
Industrial Machinery 0.93% | | 172,389 |
|
Cameron International Corp. * | 300 | 13,977 |
|
Deere & Company | 1,300 | 91,741 |
|
Flowserve Corp. | 100 | 13,212 |
|
FMC Technologies, Inc. * | 400 | 21,424 |
|
Parker-Hannifin Corp. | 500 | 32,035 |
| | |
Insurance 3.53% | | 650,300 |
|
ACE, Ltd. * | 100 | 5,261 |
|
Aetna, Inc. | 100 | 4,314 |
See notes to financial statements
| |
14 | U.S. Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Insurance (continued) | | |
|
AFLAC, Inc. | 1,300 | $73,710 |
|
Allstate Corp. | 2,900 | 130,877 |
|
American International Group, Inc. | 4,400 | 94,556 |
|
Aon Corp. | 300 | 14,247 |
|
Assurant, Inc. | 200 | 11,686 |
|
Chubb Corp. | 2,300 | 110,423 |
|
First American Corp. | 200 | 5,054 |
|
Hartford Financial Services Group, Inc. | 400 | 25,232 |
|
Progressive Corp. | 1,200 | 22,164 |
|
SAFECO Corp. | 100 | 6,760 |
|
The Travelers Companies, Inc. | 2,300 | 101,568 |
|
Torchmark Corp. | 300 | 17,922 |
|
Transatlantic Holdings, Inc. | 200 | 12,020 |
|
Unum Group | 200 | 5,082 |
|
W.R. Berkley Corp. | 400 | 9,424 |
| | |
International Oil 12.95% | | 2,388,343 |
|
Anadarko Petroleum Corp. | 1,100 | 67,903 |
|
Chevron Corp. | 8,900 | 768,248 |
|
ConocoPhillips | 4,300 | 354,793 |
|
Exxon Mobil Corp. | 13,600 | 1,088,136 |
|
Murphy Oil Corp. | 500 | 39,265 |
|
Nabors Industries, Ltd. * | 600 | 21,360 |
|
Noble Corp. | 200 | 10,058 |
|
Weatherford International, Ltd. * | 1,000 | 38,580 |
| | |
Internet Content 1.16% | | 213,113 |
|
Google, Inc., Class A * | 460 | 213,113 |
| | |
Internet Retail 0.98% | | 180,013 |
|
Amazon.com, Inc. * | 500 | 40,405 |
|
eBay, Inc. * | 5,600 | 139,608 |
| | |
Internet Software 0.03% | | 6,394 |
|
VeriSign, Inc. * | 200 | 6,394 |
| | |
Life Sciences 0.07% | | 13,650 |
|
Waters Corp. * | 200 | 13,650 |
| | |
Manufacturing 1.52% | | 280,616 |
|
3M Company | 1,500 | 107,400 |
|
Danaher Corp. | 1,100 | 89,727 |
|
Harley-Davidson, Inc. | 900 | 35,802 |
|
Honeywell International, Inc. | 200 | 10,034 |
|
SPX Corp. | 100 | 11,925 |
|
Tyco International, Ltd. | 600 | 25,728 |
| | |
Office Furnishings & Supplies 0.03% | | 5,632 |
|
Office Depot, Inc. * | 800 | 5,632 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Petroleum Services 1.19% | | $218,761 |
|
Baker Hughes, Inc. | 200 | 16,002 |
|
BJ Services Company | 400 | 10,740 |
|
Diamond Offshore Drilling, Inc. | 200 | 21,982 |
|
Halliburton Company | 700 | 30,758 |
|
Schlumberger, Ltd. | 740 | 69,723 |
|
Smith International, Inc. | 200 | 13,940 |
|
Valero Energy Corp. | 1,600 | 55,616 |
| | |
Pharmaceuticals 8.43% | | 1,554,607 |
|
Abbott Laboratories | 2,100 | 120,603 |
|
AmerisourceBergen Corp. | 900 | 36,909 |
|
Eli Lilly & Company | 3,600 | 167,940 |
|
Forest Laboratories, Inc. * | 2,000 | 71,380 |
|
Gilead Sciences, Inc. * | 2,700 | 142,236 |
|
Merck & Company, Inc. | 7,300 | 260,391 |
|
PDL BioPharma, Inc. * | 2,400 | 28,968 |
|
Pfizer, Inc. | 38,000 | 726,180 |
| | |
Publishing 0.12% | | 21,348 |
|
Gannett Company, Inc. | 1,200 | 21,348 |
| | |
Railroads & Equipment 0.53% | | 98,218 |
|
Burlington Northern Santa Fe Corp. | 260 | 27,924 |
|
CSX Corp. | 600 | 38,808 |
|
Norfolk Southern Corp. | 200 | 14,706 |
|
Union Pacific Corp. | 200 | 16,780 |
| | |
Retail Grocery 0.04% | | 6,957 |
|
SUPERVALU, Inc. | 300 | 6,957 |
| | |
Retail Trade 9.48% | | 1,747,801 |
|
Abercrombie & Fitch Company, Class A | 400 | 20,980 |
|
American Eagle Outfitters, Inc. | 250 | 3,762 |
|
Bed Bath & Beyond, Inc. * | 800 | 24,528 |
|
Best Buy Company, Inc. | 500 | 22,385 |
|
Costco Wholesale Corp. | 800 | 53,648 |
|
CVS Caremark Corp. | 300 | 10,980 |
|
Family Dollar Stores, Inc. | 200 | 4,984 |
|
GameStop Corp., Class A * | 200 | 8,774 |
|
Home Depot, Inc. | 12,900 | 349,848 |
|
Kohl’s Corp. * | 900 | 44,253 |
|
Lowe’s Companies, Inc. | 5,600 | 137,984 |
|
Staples, Inc. | 1,900 | 45,980 |
|
Target Corp. | 1,500 | 79,530 |
|
The Gap, Inc. | 700 | 13,615 |
|
The TJX Companies, Inc. | 700 | 25,368 |
|
Urban Outfitters, Inc. * | 300 | 10,686 |
|
Walgreen Company | 4,500 | 163,935 |
|
Wal-Mart Stores, Inc. | 12,300 | 726,561 |
See notes to financial statements
| |
16 | U.S. Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Semiconductors 0.44% | | $80,701 |
|
Intel Corp. | 3,100 | 70,897 |
|
Texas Instruments, Inc. | 400 | 9,804 |
| | |
Software 6.38% | | 1,176,917 |
|
Citrix Systems, Inc. * | 500 | 15,135 |
|
Microsoft Corp. | 31,000 | 845,990 |
|
Oracle Corp. * | 14,400 | 315,792 |
| | |
Steel 0.20% | | 36,750 |
|
Nucor Corp. | 700 | 36,750 |
| | |
Telecommunications Equipment & Services 2.03% | | 373,815 |
|
QUALCOMM, Inc. | 7,100 | 373,815 |
| | |
Telephone 0.91% | | 167,914 |
|
AT&T, Inc. | 2,175 | 69,578 |
|
Verizon Communications, Inc. | 2,800 | 98,336 |
| | |
Tobacco 1.86% | | 342,589 |
|
Altria Group, Inc. | 7,100 | 149,313 |
|
Philip Morris International, Inc. | 3,200 | 171,840 |
|
UST, Inc. | 400 | 21,436 |
| | |
Transportation 0.20% | | 36,477 |
|
C.H. Robinson Worldwide, Inc. | 700 | 36,477 |
| | |
Trucking & Freight 0.28% | | 51,296 |
|
United Parcel Service, Inc., Class B | 800 | 51,296 |
|
| Principal | |
Issuer, description, maturity date | amount | Value |
|
Short-term investments 0.04% | | $7,383 |
|
(Cost $7,383) | | |
|
John Hancock Cash Investment Trust, 2.5657% (c)(f) | $7,383 | 7,383 |
|
Repurchase agreements 1.36% | | $250,000 |
|
(Cost $250,000) | | |
|
Repurchase Agreement with State Street Corp. dated | | |
8-29-08 at 1.70% to be repurchased at $250,047 | | |
on 9-2-08, collateralized by $200,000 Federal | | |
National Mortgage Association, 7.125% due | | |
1-15-30 (valued at $256,500, including interest) | $250,000 | 250,000 |
|
Total investments (Cost $19,506,992)† 100.46% | | $18,522,669 |
|
|
Liabilities in excess of other assets (0.46%) | | ($84,369) |
|
|
Total net assets 100.00% | | $18,438,300 |
|
See notes to financial statements
| |
Semiannual report | U.S. Core Fund | 17 |
F I N A N C I A L S T A T E M E N T S
Notes to financial statements
Percentages are stated as a percent of net assets.
* Non-Income Producing.
(a) All or a portion of this security was out on loan.
(c) The investment is an affiliate of the Fund, the adviser and/or subadviser.
(f) John Hancock Cash Investment Trust is managed by MFC Global Investment Management (U.S.), LLC. The rate shown is the seven-day effective yield at period end.
† At July 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $19,576,448. Net unrealized depreciation aggregated $1,053,779, of which $964,770 related to appreciated investment securities and $2,018,549 related to depreciated investment securities.
See notes to financial statements
| |
18 | U.S. Core Fund | Semiannual report |
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 8-31-08 (unaudited)
This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum public offering price per share.
| |
Assets | |
|
Investments, at value (Cost $19,249,609) | |
including $7,238 of securities loaned (Note 2) | $18,265,286 |
Repurchase agreement, at value (Cost $250,000) (Note 2) | 250,000 |
Investments in affiliated issuers, at value (Cost $7,383) (Note 2) | 7,383 |
| |
Total investments, at value (Cost $19,506,992) | 18,522,669 |
Cash | 355 |
Cash collateral at broker for futures contracts | 14,400 |
Dividends and interest receivable | 49,760 |
Other assets | 33,737 |
| |
Total assets | 18,620,921 |
|
Liabilities | |
|
Payable for fund shares repurchased | 89,496 |
Payable upon return of securities loaned (Note 2) | 7,383 |
Payable to affiliates | |
Fund administration fees | 140 |
Transfer agent fees | 1,454 |
Distribution and service fees | 193 |
Investment management fees | 4,920 |
Trustees’ fees | 1,068 |
Other payables and accrued expenses | 77,967 |
| |
Total liabilities | 182,621 |
|
Net assets | |
|
Capital paid-in | $20,182,612 |
Undistributed net investment income | 77,144 |
Accumulated undistributed net realized loss on investments and futures contracts | (837,133) |
Net unrealized depreciation on investments and futures contracts | (984,323) |
| |
Net assets | $18,438,300 |
See notes to financial statements
| |
Semiannual report | 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 assets and liabilities (continued)
| |
Net asset value per share | |
|
The Funds have an unlimited number of shares authorized with no par | |
value. Net asset value is calculated by dividing the net assets of each class | |
of shares by the number of outstanding shares in the class. | |
| |
Class A | |
Net assets | $16,871,256 |
Shares outstanding | 886,103 |
Net asset value and redemption price per share | $19.04 |
| |
Class B1 | |
Net assets | $230,623 |
Shares outstanding | 12,177 |
Net asset value and offering price per share | $18.94 |
| |
Class C1 | |
Net assets | $1,091,642 |
Shares outstanding | 57,633 |
Net asset value and offering price per share | $18.94 |
| |
Class I | |
Net assets | $143,777 |
Shares outstanding | 7,531 |
Net asset value, offering price and redemption price per share | $19.09 |
| |
Class R1 | |
Net assets | $101,002 |
Shares outstanding | 5,319 |
Net asset value, offering price and redemption price per share | $18.99 |
|
Maximum public offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $20.04 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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
| |
20 | U.S. Core Fund | Semiannual report |
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 8-31-08 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
| |
Investment income | |
|
Dividends | $199,512 |
Interest | 3,883 |
Income from affiliated issuers | 18 |
Less foreign taxes withheld | (30) |
| |
Total investment income | 203,383 |
|
Expenses | |
|
Investment management fees (Note 3) | 77,660 |
Distribution and service fees (Note 3) | 39,072 |
Transfer agent fees (Note 3) | 7,405 |
Fund administration fees (Note 3) | 1,186 |
Blue sky fees (Note 3) | 37,354 |
Audit and legal fees | 20,048 |
Custodian fees | 13,908 |
Registration and filing fees | 6,994 |
Printing and postage fees (Note 3) | 5,167 |
Trustees’ fees (Note 3) | 1,456 |
Miscellaneous | 203 |
| |
Total expenses | 210,453 |
Less expense reductions (Note 3) | (64,897) |
Less transfer agency credits (Note 3) | (16) |
| |
Net expenses | 145,540 |
| |
Net investment income | 57,843 |
|
Realized and unrealized gain (loss) | |
|
Net realized loss on | |
Investments in unaffiliated issuers | (497,402) |
Futures contracts | (60,958) |
| |
| (558,360) |
| |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 104,381 |
Futures contracts | 25,418 |
| |
| 129,799 |
| |
Net realized and unrealized loss | (428,561) |
| |
Decrease in net assets from operations | ($370,718) |
1 Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements
| |
Semiannual report | U.S. Core Fund | 21 |
F I N A N C I A L S T A T E M E N T S
Statements 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 | Period |
| ended | ended |
| 2-29-08 | 8-31-081 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $143,380 | $57,843 |
Net realized gain (loss) | 376,725 | (558,360) |
Change in net unrealized appreciation (depreciation) | (2,519,080) | 129,799 |
| | |
Decrease in net assets resulting from operations | (1,998,975) | (370,718) |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | (147,501) | — |
Class B | (184) | — |
Class C | (2,027) | — |
Class I | (5,265) | — |
Class R1 | (756) | — |
From net realized gain | | |
Class A | (797,028) | — |
Class B | (14,341) | — |
Class C | (157,675) | — |
Class I | (18,582) | — |
Class R1 | (4,722) | — |
| | |
Total distributions | (1,148,081) | — |
| | |
From Fund share transactions (Note 5) | 1,394,286 | (2,550,125) |
| | |
Total decrease | (1,752,770) | (2,920,843) |
|
Net assets | | |
|
Beginning of period | 23,111,913 | 21,359,143 |
| | |
End of period | $21,359,143 | $18,438,300 |
| | |
Undistributed net investment income | $19,301 | $77,144 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements
| |
22 | U.S. Core Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-08 2 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.24 | $19.42 |
Net investment income (loss)3 | 0.12 | 0.16 | 0.06 |
Net realized and unrealized | | | |
gain (loss) on investments | 2.41 | (1.88) | (0.44) |
Total from investment operations | 2.53 | (1.72) | (0.38) |
Less distributions | | | |
From net investment income | (0.09) | (0.17) | — |
From net realized gain | (0.20) | (0.93) | — |
Total distributions | (0.29) | (1.10) | — |
Net asset value, end of period | $22.24 | $19.42 | $19.04 |
Total return (%)4,5 | 12.646 | (8.16) | (1.96)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $19 | $18 | $17 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 1.937 | 1.86 | 1.707 |
Expenses net of fee waivers | 1.347 | 1.34 | 1.357 |
Expenses net of all fee waivers and credits | 1.347 | 1.34 | 1.357 |
Net investment income | 0.767 | 0.70 | 0.667 |
Portfolio turnover (%) | 36 | 81 | 26 |
1 Class A shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment and does not reflect the effect of sales charges.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
Semiannual report | 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 B SHARES | | | |
|
Period ended | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.20 | $19.38 |
Net investment income (loss)3 | 0.02 | —4 | —4 |
Net realized and unrealized | | | |
gain (loss) on investments | 2.40 | (1.88) | (0.44) |
Total from investment operations | 2.42 | (1.88) | (0.44) |
Less distributions | | | |
From net investment income | (0.02) | (0.01) | — |
From net realized gain | (0.20) | (0.93) | — |
Total distributions | (0.22) | (0.94) | — |
Net asset value, end of period | $22.20 | $19.38 | $18.94 |
Total return (%)5,6 | 12.077 | (8.84) | (2.27)7 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | —8 | —8 | —8 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 13.589 | 6.98 | 8.369 |
Expenses net of fee waivers | 2.049 | 2.05 | 2.059 |
Expenses net of all fee waivers and credits | 2.049 | 2.05 | 2.059 |
Net investment income (loss) | 0.129 | —10 | (0.01)9 |
Portfolio turnover (%) | 36 | 81 | 26 |
1 Class B shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Less than $0.01 per share.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Less than 0.01%.
See notes to financial statements
| |
24 | U.S. Core Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.21 | $19.39 |
Net investment income (loss)3 | 0.03 | —4 | (0.01) |
Net realized and unrealized | | | |
gain (loss) on investments | 2.40 | (1.88) | (0.44) |
Total from investment operations | 2.43 | (1.88) | (0.45) |
Less distributions | | | |
From net investment income | (0.02) | (0.01) | — |
From net realized gain | (0.20) | (0.93) | — |
Total distributions | (0.22) | (0.94) | — |
Net asset value, end of period | $22.21 | $19.39 | $18.94 |
Total return (%)5,6 | 12.127 | (8.84) | (2.32)7 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $3 | $3 | $1 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 3.828 | 2.94 | 3.008 |
Expenses net of fee waivers | 2.048 | 2.05 | 2.058 |
Expenses net of all fee waivers and credits | 2.048 | 2.05 | 2.058 |
Net investment income (loss) | 0.168 | (0.01) | (0.10)8 |
Portfolio turnover (%) | 36 | 81 | 26 |
1 Class C shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Less than $0.01 per share.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Annualized.
See notes to financial statements
| |
Semiannual report | U.S. 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 I SHARES | | | |
|
Period ended | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.26 | $19.43 |
Net investment income3 | 0.18 | 0.25 | 0.10 |
Net realized and unrealized | | | |
gain (loss) on investments | 2.41 | (1.89) | (0.44) |
Total from investment operations | 2.59 | (1.64) | (0.34) |
Less distributions | | | |
From net investment income | (0.13) | (0.26) | — |
From net realized gain | (0.20) | (0.93) | — |
Total distributions | (0.33) | (1.19) | — |
Net asset value, end of period | $22.26 | $19.43 | $19.09 |
Total return (%)4,5 | 12.956 | (7.82) | (1.75)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | —7 | —7 | —7 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 17.838 | 12.79 | 8.768 |
Expenses net of fee waivers | 0.958 | 0.95 | 0.958 |
Expenses net of all fee waivers and credits | 0.958 | 0.95 | 0.958 |
Net investment income | 1.168 | 1.10 | 1.058 |
Portfolio turnover (%) | 36 | 81 | 26 |
1 Class I shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
26 | U.S. Core Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $22.20 | $19.37 |
Net investment income3 | 0.06 | 0.13 | 0.05 |
Net realized and unrealized | | | |
gain (loss) on investments | 2.42 | (1.88) | (0.43) |
Total from investment operations | 2.48 8 | (1.75) | (0.38) |
Less distributions | | | |
From net investment income | (0.08) | (0.15) | — |
From net realized gain | (0.20) | (0.93) | — |
Total distributions | (0.28) | (1.08) | — |
Net asset value, end of period | $22.20 | $19.37 | $18.99 |
Total return (%)4,5 | 12.386 | (8.32) | (1.96)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | —7 | —7 | —7 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 21.128 | 15.98 | 17.128 |
Expenses net of fee waivers | 1.698 | 1.45 | 1.458 |
Expenses net of all fee waivers and credits | 1.698 | 1.45 | 1.458 |
Net investment income | 0.418 | 0.59 | 0.578 |
Portfolio turnover (%) | 36 | 81 | 26 |
1 Class R1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
Semiannual report | U.S. Core Fund | 27 |
Notes to financial statements (unaudited)
Note 1
Organization
John Hancock U.S. Core Fund (the Fund) is a 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 have authorized the issuance of multiple classes of shares of the Fund, including classes designated as Class A, Class B, Class C, Class I and Class R1 shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. 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 (SEC) 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. Class B shares will convert to Class A shares eight years after purchase.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B, Class C, Class I and Class R1 shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. Short-term debt investments that have a remaining maturity 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. Investments in John Hancock Cash Investment Trust (JHCIT), an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. 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 the principal securities exchange
| |
28 | U.S. Core Fund | Semiannual report |
(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. Securities for which there are no such quotations, principally debt securities, are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 — Quoted prices in active markets for identical securities.
Level 2 — Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 — Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs
| |
Semiannual report | U.S. Core Fund | 29 |
may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| INVESTMENTS IN | OTHER FINANCIAL |
VALUATION INPUTS | SECURITIES | INSTRUMENTS* |
|
Level 1 — Quoted Prices | $18,272,669 | $— |
Level 2 — Other Significant Observable Inputs | 250,000 | — |
Level 3 — Significant Unobservable Inputs | — | — |
Total | $18,522,669 | $— |
*Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/ depreciation on the instrument.
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.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C, Class I and Class R1 shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things,
| |
30 | U.S. Core Fund | Semiannual report |
the nature and type of expense and the relative size of the funds.
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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. Effective October 15, 2007, the commitment fee was changed from 0.07% to 0.05% . For the period ended August 31, 2008, there were no borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
Securities lending
The Fund may lend portfolio securities from time to time in order to earn additional income. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their value. On the settlement date of the loan, the Fund receives cash collateral against the loaned securities and maintains the cash collateral in an amount not less than 100% of the market value of the loaned securities 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 cash collateral is delivered to the Fund on the next business day. Cash collateral received is invested in the JHCIT. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the secur ities loaned or in gaining access to the collateral. The Fund may receive compensation for lending their securities either in the form of fees, guarantees, and/or by retaining a portion of interest on the investment of any cash received as collateral.
The Fund has entered into an agreement with Morgan Stanley & Co., Inc. and MS Securities Services, Inc. (collectively, Morgan Stanley) which permits the Fund to lend securities to Morgan Stanley on a principal basis. Morgan Stanley is the primary borrower of securities of the Fund. The risk of having one primary borrower of Fund securities (as opposed to several borrowers) is that should Morgan Stanley fail financially, all securities lent will be affected by the failure and by any delays in recovery of the securities (or in the rare event, loss of rights in the collateral).
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, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by 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
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Semiannual report | U.S. Core Fund | 31 |
close out futures positions because of an illiquid secondary market or the inability of counter-parties 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 Fund had no open financial futures contracts on August 31, 2008.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. Net capital losses of $234,735 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on March 1, 2008, the first day of the Fund’s next taxable year.
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund’s fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund’s financial statements. Each of the Fund’s federal tax returns for the prior fiscal years remain subject to examination by the Internal Revenue Service.
New accounting pronouncement
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company, and any credit risk-related contingent features of the agreements. M anagement is currently evaluating the adoption of FAS 161 on the Fund’s financial statement disclosures.
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 29, 2008, the tax character of distributions paid was as follows: ordinary income $761,252 and long-term capital gain $386,829. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Note 3
Investment advisory and
other agreements
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. 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% 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
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32 | U.S. Core Fund | Semiannual report |
$2,500,000,000. Aggregate net assets include the net assets of the Fund, the U.S. Core Trust, Growth and Income Trust, and a portion of the net assets of the Managed Trust Series of John Hancock Trust, the U.S. Core Fund, a series of John Hancock Funds II, that are subadvised by Grantham, Mayo, Van Otterloo & Co. 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.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.76% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.09% of the Fund’s average annual net assets which are allocated pro rata to all share classes. This agreement excludes taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded. The reimbursements and limits are such that these expenses will not exceed 1.35% for Class A shares, 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 or reimbursements related to this agreement were $30,259, $7,794, $10,843, $7,891 and $8,071 for Class A, Class B, Class C, Class I and Class R1, respectively for the period ended August 31, 2008. The expense reimbursements and limits will c ontinue in effect until June 30, 2009 and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $1,186 with an annual effective rate of 0.01% of the Fund’s average daily net assets.
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 pay 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 Financial Industry Regulatory Authority (formerly 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, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 average daily net asset value for certain other services. There were no Service Plan fees incurred for the period ended August 31, 2008.
Class A shares are assessed up-front sales charges. During the period ended August 31, 2008, the Distributor received net up-front sales charges of $1,834 with regard to sales of Class A
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Semiannual report | U.S. Core Fund | 33 |
shares. Of this amount, $266 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $1,547 was paid as sales commissions to unrelated broker-dealers and $21 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 August 31, 2008, CDSCs received by the Distributor amounted to $637 for Class B shares and $453 for Class C shares.
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. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C and Class R1 shareholder account.
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, 2008. Signature Services reserves the right to terminate this limitation in the future. 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 August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $39.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $16 for transfer agent credits earned.
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent fees | Blue sky fees | postage fees |
|
Class A | $26,221 | $6,130 | $7,398 | $4,162 |
Class B | 1,234 | 249 | 7,291 | 78 |
Class C | 11,358 | 910 | 7,291 | 799 |
Class I | — | 51 | 7,528 | 54 |
Class R1 | 259 | 65 | 7,846 | 74 |
Total | $39,072 | $7,405 | $37,354 | $5,167 |
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34 | U.S. Core Fund | Semiannual report |
The Adviser and other affiliates of John Hancock USA owned 777,709, 5,359 and 5,319 shares of beneficial interest of Class A, Class I and Class R1, respectively, on August 31, 2008.
Note 4
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.
Note 5
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value:
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 106,396 | $2,395,336 | 14,289 | $276,396 |
Distributions reinvested | 43,986 | 939,554 | — | — |
Repurchased | (117,140) | (2,611,267) | (33,761) | (655,758) |
Net increase (decrease) | 33,242 | $723,623 | (19,472) | ($379,362) |
|
Class B shares | | | | |
|
Sold | 5,003 | $110,340 | 1,269 | $24,810 |
Distributions reinvested | 640 | 13,671 | — | — |
Repurchased | (1,099) | (25,142) | (6,484) | (124,958) |
Net increase (decrease) | 4,544 | $98,869 | (5,215) | ($100,148) |
|
Class C shares | | | | |
|
Sold | 31,279 | $715,779 | 672 | $12,655 |
Distributions reinvested | 7,433 | 158,760 | — | — |
Repurchased | (19,244) | (404,858) | (106,020) | (2,051,811) |
Net increase (decrease) | 19,468 | $469,681 | (105,348) | ($2,039,156) |
|
Class I shares | | | | |
|
Sold | 14,516 | $326,350 | 1,367 | $25,800 |
Distributions reinvested | 1,116 | 23,848 | — | — |
Repurchased | (12,136) | (253,563) | (2,959) | (57,259) |
Net increase (decrease) | 3,496 | $96,635 | (1,592) | ($31,459) |
|
Class R1 shares | | | | |
|
Distributions reinvested | 257 | 5,478 | — | — |
Net increase | 257 | $5,478 | — | — |
|
Net increase (decrease) | 61,007 | $1,394,286 | (131,627) | ($2,550,125) |
|
1Semiannual period from 3-1-08 to 8-31-08. Unaudited..
Note 6
Purchase and sale of securities
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 August 31, 2008, aggregated $5,206,478 and $7,184,993, respectively.
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Semiannual report | U.S. Core Fund | 35 |
Board Consideration of and
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock U.S.
Core Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Funds III (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) for the John Hancock U.S. Core Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements.
At meetings held on May 5–6 and June 9–10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the investment performance of the Fund relative to a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group). The funds within each Category and Peer Group were selected by Morningstar, Inc. (Morningstar), an independent provider of investment company data. Data covered the period since the Fund’s inception through December 31, 2007;
(ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group;
(iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser;
(iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund;
(v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale;
(vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department;
(vii) the background and experience of senior management and investment professionals; and
(viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board principally considered data on performance and other information provided by Morningstar as of December 31, 2007. The Board also considered updated performance information provided to it by the Adviser or Subadviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders report. The key factors
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36 | U.S. Core Fund | Semiannual report |
considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and Subadviser. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser supported renewal of the Advisory Agreements.
Fund performance
The Board noted that the Fund had less than two full years of operational history, and considered the performance results for the Fund since its inception through December 31, 2007. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark indexes. The Board reviewed with representatives of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance was lower than the performance of the Category and Peer Group medians, and its benchmark indexes, the Standard & Poor’s 500 Index and the Russell 1000 TR Index, over the 1-year period. The Adviser discussed its plans with respect to the Fund. The Board recognized the short operational history of the Fund and indicated its intent to continue to monitor the Fund’s performance trends.
Investment advisory fee and subadvisory
fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was lower than the median rate of the Peer Group and not appreciably higher than the median rate of the Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross Expense Ratio was higher than the median of the Peer Group and Category. The Board also noted that the Fund’s Net Expense Ratio was higher than the median of the Category but not appreciably higher than the Peer Group.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s expenses and overall plans to improve performance supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory
| |
Semiannual report | U.S. Core Fund | 37 |
Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Subadviser, which is not affiliated with the Adviser. The Board considered that the Subadvisory Agreement Rate paid to the Subadviser had been negotiated by the Adviser on an arm’s length basis and that the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadviser with the Fund and benefits potentially derived from an increase in business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
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38 | U.S. Core Fund | Semiannual report |
More information
| |
Trustees | Investment adviser |
James F. Carlin, Chairman | John Hancock Investment Management |
James R. Boyle† | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson | Subadviser |
Charles L. Ladner* | Grantham, Mayo, Van Otterloo & Co. LLC |
Stanley Martin* | |
Dr. John A. Moore* | Principal distributor |
Patti McGill Peterson* | John Hancock Funds, LLC |
Steven R. Pruchansky | |
Gregory A. Russo* | Custodian |
*Members of the Audit Committee | State Street Bank & Trust Company |
†Non-Independent Trustee | |
| Transfer agent |
Officers | John Hancock Signature Services, Inc. |
Keith F. Hartstein | |
President and Chief Executive Officer | Legal counsel |
| K&L Gates LLP |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
| |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Gordon M. Shone | |
Treasurer | |
| |
John G. Vrysen | |
Chief Operating Officer | |
Additional information about your fund is available without charge in several ways. As required by the SEC, you can access proxy voting information and quarterly portfolio information on your fund. The proxy voting information includes a description of proxy voting policies, procedures and information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30. The quarterly portfolio information that includes a complete list of the fund’s holdings for the first and third quarters of the fund’s fiscal period is filed on Form N-Q. You have access to this information:
| | |
By phone | On the fund’s Website | At the SEC |
1-800-225-5291 | www.jhfunds.com | www.sec.gov |
| | 1-800-SEC-0330 |
| | SEC Public Reference Room |
|
| |
You can also contact us: | |
| |
Regular mail | Express mail |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 9510 | Mutual Fund Image Operations |
Portsmouth, NH 03802-9510 | 164 Corporate Drive |
| Portsmouth, NH 03801 |
|
Month-end portfolio holdings are available at www.jhfunds.com.
| |
Semiannual report | U.S. Core Fund | 39 |
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. | 650SA 8/08 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/08 |
A look at performance
For the periods ended August 31, 2008
| | | | | | | | | | | | |
| | | Average annual returns (%) | | | Cumulative total returns (%) | | |
| | | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| | |
| |
|
| Inception | | | | | Since | | Six | | | | Since |
Class | date | | 1-year | 5-year | 10-year | inception | | months | 1-year | 5-year | 10-year | inception |
|
A1,2 | 9-16-05 | | –18.58 | — | — | 5.27 | | –12.48 | –18.58 | — | — | 16.40 |
|
B | 6-12-06 | | –18.79 | — | — | 2.87 | | –12.76 | –18.79 | — | — | 6.50 |
|
C | 6-12-06 | | –15.68 | — | — | 4.15 | | –9 .11 | –15.68 | — | — | 9.48 |
|
I3 | 6-12-06 | | –13.88 | — | — | 5.35 | | –7.63 | –13.88 | — | — | 12.31 |
|
R13 | 6-12-06 | | –14.24 | — | — | 4.73 | | –7.88 | –14.24 | — | — | 10.84 |
|
13 | 11-6-06 | | –13.86 | — | — | –0.21 | | –7.62 | –13.86 | — | — | –0.38 |
|
NAV3 | 8-29-06 | | –13.80 | — | — | 1.58 | | –7.60 | –13.80 | — | — | 3.19 |
|
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 to 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 expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The waivers and expense limitations are contractual at least until June 30, 2009. The net expenses are as follows: Class A — 1.65%, Class B — 2.40%, Class C —2.40%, Class I — 1.18%, Class R1 — 1.70%, Class 1 — 1.14%, Class NAV — 1.08%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A —1.68%, Class B — 2.48%, Class C — 2.49%, Class I — 2.34%, Class R1 — 13.85%, Class 1 — 1.16%, Class NAV — 1.11%.
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 current to the most recent month end performance data, 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.
1 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.
2 Class A performance linked back to the Predecessor Fund.
3 For certain types of investors as described in the Fund’s Class I, Class R1, Class 1 and Class NAV share prospectuses.
| |
6 | International Core Fund | Semiannual report |
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in International Core Fund Class A1 shares for the period indicated. For comparison, we’ve shown the same investment in the MSCI EAFE Net Total Return Index.
| | | | |
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 6-12-06 | $10,948 | $10,650 | $11,006 |
|
C3 | 6-12-06 | 10,948 | 10,948 | 11,006 |
|
I4 | 6-12-06 | 11,231 | 11,231 | 11,006 |
|
R14 | 6-12-06 | 11,084 | 11,084 | 11,006 |
|
14 | 11-6-06 | 9,962 | 9,962 | 9,785 |
|
NAV4 | 8-29-06 | 10,319 | 10,319 | 10,239 |
|
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 August 31, 2008. 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 Net Total Return Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2007, the MSCI EAFE Index consisted of the following 21 developed market country indices Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the 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.
1 Class A performance linked back to the Predecessor Fund.
2 NAV represents net asset value and POP represents public offering price.
3 No contingent deferred sales charge applicable.
4 For certain types of investors as described in the Fund’s Class I, Class R1, Class 1 and Class NAV share prospectuses.
| |
Semiannual report | 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 March 1, 2008, with the same investment held until August 31, 2008.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $921.40 | $8.18 |
|
Class B | 1,000.00 | 918.30 | 11.60 |
|
Class C | 1,000.00 | 918.10 | 11.60 |
|
Class I | 1,000.00 | 923.70 | 5.72 |
|
Class R1 | 1,000.00 | 921.20 | 8.23 |
|
Class 1 | 1,000.00 | 923.80 | 5.58 |
|
Class NAV | 1,000.00 | 924.00 | 5.24 |
|
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 August 31, 2008, 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:
| |
8 | International Core Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. 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 |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,016.70 | $8.59 |
|
Class B | 1,000.00 | 1,013.10 | 12.18 |
|
Class C | 1,000.00 | 1,013.10 | 12.18 |
|
Class I | 1,000.00 | 1,019.30 | 6.01 |
|
Class R1 | 1,000.00 | 1,016.60 | 8.64 |
|
Class 1 | 1,000.00 | 1,019.40 | 5.85 |
|
Class NAV | 1,000.00 | 1,019.80 | 5.50 |
|
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.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.69%, 2.40%, 2.40%, 1.18%, 1.70, 1.15% 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 the number of days in the most recent fiscal half year/365 (to reflect the one-half year period).
| |
Semiannual report | International Core Fund | 9 |
Portfolio summary
| | | | |
Top 10 holdings1 | | | | |
|
GlaxoSmithKline PLC | 4.6% | | AstraZeneca Group PLC | 1.8% |
| |
|
Total SA | 3.5% | | BG Group PLC | 1.8% |
| |
|
Sanofi-Aventis SA | 2.9% | | Vodafone Group PLC | 1.7% |
| |
|
Novartis AG | 2.8% | | Royal Bank of Scotland Group PLC | 1.6% |
| |
|
Eni SpA | 2.6% | | Honda Motor Company, Ltd. | 1.5% |
| |
|
|
Sector distribution1,2 | | | | |
|
Consumer Non-cyclical | 22% | | Communications | 8% |
| |
|
Energy | 13% | | Industrial | 7% |
| |
|
Financial | 13% | | Utilities | 5% |
| |
|
Consumer Cyclical | 12% | | Technology | 3% |
| |
|
Basic Materials | 10% | | Short-term Investments & Other | 7% |
| |
|
1 As a percentage of net assets on August 31, 2008.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors. International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting.
| |
10 | International Core Fund | Semiannual report |
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 8-31-08 (unaudited)
This schedule is divided into five main categories: common stocks, preferred stocks, rights, short-term investments and repurchase agreements. Common stocks and preferred stocks are further broken down by country. Repurchase agreements, which represent the Fund’s cash position, are listed last.
| | |
Issuer | Shares | Value |
|
Common stocks 93.67% | | $1,146,699,740 |
|
(Cost $1,238,814,211) | | |
| | |
Australia 3.53% | | 43,243,440 |
|
Australia and New Zealand Banking Group, Ltd. | 178,489 | 2,513,413 |
|
BHP Billiton, Ltd. | 70,741 | 2,484,549 |
|
Bluescope Steel, Ltd. | 240,047 | 1,887,498 |
|
CSL, Ltd. | 95,596 | 3,336,327 |
|
Fortescue Metals Group, Ltd. * | 223,556 | 1,452,368 |
|
Foster’s Group, Ltd. | 318,706 | 1,521,128 |
|
Incitec Pivot, Ltd. | 12,911 | 1,756,452 |
|
Leighton Holdings, Ltd. | 23,910 | 943,531 |
|
Macquarie Infrastructure Group, Ltd. | 312,479 | 582,333 |
|
Mirvac Group, Ltd. | 548,870 | 1,346,662 |
|
Newcrest Mining, Ltd. * | 27,750 | 650,752 |
|
Origin Energy, Ltd. | 51,864 | 715,460 |
|
Rio Tinto, Ltd. | 9,365 | 1,015,384 |
|
Stockland Company, Ltd. | 690,164 | 3,088,699 |
|
Suncorp-Metway, Ltd. | 282,809 | 2,745,775 |
|
TABCORP Holdings, Ltd. | 208,101 | 1,520,181 |
|
Telstra Corp., Ltd. | 973,827 | 3,614,925 |
|
Westpac Banking Corp., Ltd. | 66,993 | 1,338,836 |
|
Woodside Petroleum, Ltd. | 149,857 | 8,049,253 |
|
Woolworths, Ltd. | 111,004 | 2,679,914 |
| | |
Austria 0.15% | | 1,771,119 |
|
OMV AG | 27,645 | 1,771,119 |
| | |
Belgium 0.91% | | 11,154,240 |
|
Belgacom SA | 22,881 | 911,101 |
|
Colruyt SA | 4,465 | 1,217,338 |
|
Dexia SA | 221,329 | 3,127,909 |
|
Fortis Group SA | 286,314 | 3,964,374 |
|
Solvay SA | 10,153 | 1,243,083 |
|
UCB SA | 17,656 | 690,435 |
| | |
Canada 3.78% | | 46,267,396 |
|
Agrium, Inc. | 31,300 | 2,647,441 |
|
Bank Nova Scotia Halifax | 24,100 | 1,113,303 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Canada (continued) | | |
|
Bank of Montreal | 102,900 | $4,509,264 |
|
BCE, Inc. | 22,888 | 867,192 |
|
Canadian Imperial Bank of Commerce | 13,800 | 834,005 |
|
Canadian Natural Resources, Ltd. | 29,437 | 2,512,874 |
|
Canadian Pacific Railway, Ltd. | 32,500 | 1,982,812 |
|
EnCana Corp. | 16,697 | 1,255,027 |
|
Fording Canadian Coal Trust | 16,200 | 1,441,034 |
|
IGM Financial, Inc. * | 17,900 | 748,334 |
|
Magna International, Inc. | 28,100 | 1,613,805 |
|
National Bank of Canada * | 76,765 | 3,616,298 |
|
Penn West Energy Trust | 33,700 | 989,291 |
|
Petro-Canada | 21,700 | 959,517 |
|
Potash Corp. of Saskatchewan, Inc. | 74,800 | 13,015,679 |
|
Research In Motion, Ltd. * | 44,100 | 5,373,156 |
|
Sun Life Financial, Inc. | 72,300 | 2,788,364 |
| | |
Denmark 0.91% | | 11,156,133 |
|
FLS Industries AS, B Shares | 8,350 | 669,482 |
|
Novo Nordisk AS | 93,300 | 5,208,178 |
|
Vestas Wind Systems AS * | 38,900 | 5,278,473 |
| | |
Finland 2.32% | | 28,441,939 |
|
Fortum Corp. Oyj | 71,965 | 2,953,860 |
|
Kone Corp. Oyj | 15,214 | 471,201 |
|
Neste Oil Oyj | 75,507 | 1,800,456 |
|
Nokia AB Oyj | 581,239 | 14,552,695 |
|
Nokian Renkaat Oyj | 13,114 | 467,024 |
|
Outokumpu Oyj | 84,541 | 2,024,396 |
|
Rautaruukki Oyj * | 25,437 | 862,794 |
|
Sampo Oyj, A Shares | 187,920 | 4,727,577 |
|
TietoEnator Oyj | 29,639 | 581,936 |
| | |
France 11.94% | | 146,205,502 |
|
Air France KLM | 36,910 | 888,017 |
|
Air Liquide | 27,398 | 3,327,780 |
|
Alstom | 44,104 | 4,480,177 |
|
BNP Paribas SA | 130,708 | 11,725,176 |
|
Cap Gemini SA | 17,309 | 1,021,930 |
|
Casino Guich-Perrachon SA | 31,584 | 3,095,035 |
|
Compagnie de Saint-Gobain SA | 17,325 | 1,058,487 |
|
Dassault Systemes SA | 19,477 | 1,177,141 |
|
Eramet | 1,343 | 735,385 |
|
Essilor International SA | 37,411 | 1,990,178 |
|
France Telecom SA | 233,569 | 6,886,774 |
|
Gaz de France | 143,368 | 8,253,304 |
|
Hermes International SA | 27,512 | 3,907,076 |
|
Lafarge SA | 6,769 | 816,599 |
See notes to financial statements
| |
12 | International Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
France (continued) | | |
|
L’Oreal SA | 19,890 | $1,974,272 |
|
Pernod-Ricard SA | 14 | 1,309 |
|
PSA Peugeot Citroen SA | 33,911 | 1,611,163 |
|
Renault Regie Nationale SA | 40,489 | 3,380,960 |
|
Sanofi-Aventis SA | 491,884 | 34,896,976 |
|
Societe Generale | 68,290 | 6,587,425 |
|
Suez Environnement SA * | 16,661 | 478,585 |
|
Technip SA | 10,155 | 833,419 |
|
Total SA | 590,358 | 42,409,034 |
|
UbiSoft Entertainment SA * | 15,760 | 1,470,088 |
|
Unibail-Rodamco, REIT | 4,033 | 837,373 |
|
Vallourec SA | 8,490 | 2,361,839 |
| | |
Germany 5.89% | | 72,119,229 |
|
Adidas-Salomon AG | 60,788 | 3,558,673 |
|
Aixtron AG | 68,997 | 725,264 |
|
Altana AG | 41,796 | 666,751 |
|
BASF AG | 68,954 | 3,978,238 |
|
Bayerische Motoren Werke (BMW) AG | 72,419 | 2,962,686 |
|
Beiersdorf AG | 17,815 | 1,034,713 |
|
Bilfinger Berger AG | 14,308 | 1,006,114 |
|
Demag Cranes AG | 6,586 | 358,635 |
|
Deutsche Boerse AG | 31,890 | 3,012,790 |
|
Deutsche Post AG | 30,998 | 725,974 |
|
E.ON AG | 185,556 | 10,836,411 |
|
Gildemeister AG | 32,706 | 787,938 |
|
Hannover Rueckversicherung AG | 38,579 | 1,646,062 |
|
Heidelberger Druckmaschinen AG | 38,403 | 785,626 |
|
K&S AG | 51,776 | 6,248,717 |
|
Kloeckner & Company AG | 22,967 | 915,597 |
|
Linde AG | 18,815 | 2,366,631 |
|
Merck KGAA * | 7,433 | 851,711 |
|
Norddeutsche Affinerie AG | 46,094 | 2,133,490 |
|
Puma AG | 2,764 | 868,306 |
|
Q-Cells AG * | 23,417 | 2,358,781 |
|
RWE AG | 17,998 | 1,941,502 |
|
Salzgitter AG | 28,366 | 4,347,819 |
|
SAP AG | 114,806 | 6,432,534 |
|
SGL Carbon AG * | 32,494 | 1,950,099 |
|
Stada Arzneimittel AG | 8,420 | 458,546 |
|
Suedzucker AG | 45,857 | 777,284 |
|
Thyssen Krupp AG | 28,644 | 1,429,071 |
|
Volkswagen AG | 18,391 | 5,492,153 |
|
Wacker Chemie AG | 7,952 | 1,461,113 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Greece 0.19% | | $2,281,166 |
|
Coca-Cola Hellenic Bottling Company SA | 30,184 | 743,368 |
|
Marfin Financial Group SA Holdings * | 63,634 | 401,774 |
|
OPAP SA | 32,439 | 1,136,024 |
| | |
Hong Kong 1.86% | | 22,778,734 |
|
CLP Holdings, Ltd. (a) | 1,013,699 | 8,223,586 |
|
Esprit Holdings, Ltd. | 164,700 | 1,359,642 |
|
Hang Seng Bank, Ltd. | 121,800 | 2,402,295 |
|
Hong Kong & China Gas Company, Ltd. (a) | 740,300 | 1,660,992 |
|
Hong Kong Electric Holdings, Ltd. (a) | 847,854 | 5,383,229 |
|
Noble Group, Ltd. | 571,633 | 772,395 |
|
Sun Hung Kai Properties, Ltd. | 151,000 | 2,058,952 |
|
Yue Yuen Industrial Holdings, Ltd. | 331,218 | 917,643 |
| | |
Ireland 0.39% | | 4,709,489 |
|
Bank of Ireland | 104,307 | 836,134 |
|
CRH PLC | 115,628 | 3,016,256 |
|
Kerry Group PLC | 31,605 | 857,099 |
| | |
Italy 3.19% | | 39,052,398 |
|
Banco Popolare Societa Cooperativa | 48,087 | 915,989 |
|
Eni SpA | 962,830 | 31,231,601 |
|
Italcementi SpA, RNC | 33,795 | 387,237 |
|
Luxottica Group SpA | 42,787 | 1,073,676 |
|
Mediaset SpA | 256,795 | 1,864,417 |
|
Snam Rete Gas SpA | 187,746 | 1,172,860 |
|
Telecom Italia SpA | 1,187,436 | 1,505,051 |
|
Terna SpA | 224,383 | 901,567 |
| | |
Japan 21.50% | | 263,227,958 |
|
Acom Company, Ltd. | 37,880 | 1,055,033 |
|
Aisin Seiki Company | 29,400 | 773,989 |
|
Alps Electric Company, Ltd. | 66,546 | 601,443 |
|
Asahi Breweries, Ltd. | 111,400 | 2,063,438 |
|
Astellas Pharmaceuticals, Inc. | 67,600 | 3,044,824 |
|
Canon, Inc. | 117,700 | 5,278,109 |
|
Capcom Company, Ltd. | 11,900 | 363,774 |
|
Cosmo Oil Company, Ltd. | 387,000 | 1,130,319 |
|
CyberAgent, Inc. * | 929 | 887,661 |
|
Dai Nippon Printing Company, Ltd. | 52,000 | 734,162 |
|
Daiei, Inc. * | 43,600 | 344,663 |
|
Daiichi Sankyo Company, Ltd. | 210,053 | 6,319,430 |
|
Daikin Industries, Ltd. | 59,900 | 2,019,134 |
|
Dena Company, Ltd. | 225 | 1,097,748 |
|
Denso Corp. | 39,400 | 1,021,385 |
|
Eisai Company, Ltd. | 69,080 | 2,747,235 |
|
Familymart Company, Ltd. | 25,500 | 1,032,823 |
|
Fanuc, Ltd. | 39,800 | 2,961,056 |
See notes to financial statements
| |
14 | International Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Japan (continued) | | |
|
Fast Retailing Company, Ltd. | 40,600 | $4,098,003 |
|
Fuji Heavy Industries, Ltd. | 313,116 | 1,789,961 |
|
Fujitsu, Ltd. | 131,000 | 905,454 |
|
GS Yuasa Corp. (a) | 93,000 | 475,553 |
|
Hanwa Company, Ltd. | 111,000 | 496,397 |
|
Haseko Corp. | 601,000 | 610,005 |
|
Hirose Electric Company, Ltd. | 9,500 | 921,433 |
|
Hitachi, Ltd. | 356,000 | 2,621,920 |
|
Hokkaido Electric Power Company, Inc. | 81,599 | 1,823,357 |
|
Honda Motor Company, Ltd. | 567,912 | 18,444,446 |
|
Hoya Corp. | 112,900 | 2,301,480 |
|
Inpex Holdings, Inc. | 303 | 3,299,418 |
|
Itochu Corp. | 278,047 | 2,236,824 |
|
Japan Real Estate Investment Corp., REIT | 45 | 419,706 |
|
JFE Holdings, Inc. | 83,500 | 3,528,707 |
|
JGC Corp. | 29,000 | 555,330 |
|
Kao Corp. | 193,050 | 5,465,823 |
|
Kawasaki Kisen Kaisha, Ltd. | 326,000 | 2,311,255 |
|
Keyence Corp. | 14,000 | 2,831,929 |
|
Kirin Brewery Company, Ltd. | 75,000 | 1,122,139 |
|
Konami Corp. | 47,223 | 1,442,047 |
|
Konica Minolta Holdings, Inc. | 94,500 | 1,302,475 |
|
Kyocera Corp. | 10,600 | 888,388 |
|
Kyushu Electric Power Company, Inc. | 80,580 | 1,774,346 |
|
Marubeni Corp. | 231,824 | 1,434,382 |
|
Matsushita Electric Industrial Company, Ltd. | 338,000 | 6,947,196 |
|
Mazda Motor Corp. | 335,000 | 1,783,148 |
|
Millea Holdings, Inc. | 27,100 | 919,156 |
|
Mitsubishi Corp. | 275,895 | 7,578,581 |
|
Mitsubishi Electric Corp. | 169,000 | 1,433,271 |
|
Mitsui & Company, Ltd. | 52,560 | 896,113 |
|
Mitsui Mining & Smelting Company, Ltd. | 427,000 | 1,137,736 |
|
Mitsui O.S.K. Lines, Ltd. | 138,000 | 1,635,586 |
|
Murata Manufacturing Company, Ltd. | 41,200 | 1,810,403 |
|
NEC Corp. | 127,000 | 585,273 |
|
Nidec Corp. | 21,500 | 1,445,181 |
|
Nikon Corp. | 62,000 | 2,012,281 |
|
Nintendo Company, Ltd. | 20,200 | 9,483,084 |
|
Nippon Denko Company, Ltd. | 130,000 | 1,118,780 |
|
Nippon Electric Glass Company, Ltd. | 57,000 | 760,322 |
|
Nippon Mining Holdings, Inc. | 592,000 | 3,288,316 |
|
Nippon Oil Corp. | 747,000 | 4,658,968 |
|
Nippon Telegraph & Telephone Corp. | 1,440 | 7,079,242 |
|
Nippon Yakin Kogyo Company, Ltd. | 127,500 | 627,748 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Japan (continued) | | |
|
Nippon Yusen Kabushiki Kaisha | 463,000 | $3,694,856 |
|
Nissan Motor Company, Ltd. | 1,160,400 | 8,814,499 |
|
Nissha Printing Company, Ltd. | 7,500 | 405,056 |
|
Nisshinbo Industries, Inc. | 34,000 | 374,345 |
|
Nitto Denko Corp. | 35,300 | 1,059,613 |
|
Nomura Research Institute, Ltd. | 37,400 | 848,664 |
|
NTT DoCoMo, Inc. | 5,330 | 8,400,176 |
|
Ono Pharmaceutical Company, Ltd. | 16,700 | 874,461 |
|
Orix Corp. | 6,370 | 776,007 |
|
Osaka Gas Company, Ltd. | 1,601,120 | 5,825,413 |
|
Resona Holdings, Inc. | 1,912 | 2,225,402 |
|
Ricoh Company, Ltd. | 131,000 | 2,162,366 |
|
Rohm Company, Ltd. | 22,500 | 1,295,393 |
|
Ryohin Keikaku Company, Ltd. | 14,700 | 788,781 |
|
SANKYO Company, Ltd. | 40,500 | 1,917,615 |
|
SBI Holdings, Inc. | 5,832 | 1,045,825 |
|
Secom Company, Ltd. | 29,000 | 1,335,916 |
|
SEGA SAMMY HOLDINGS, Inc. | 240,200 | 2,278,279 |
|
Seven & I Holdings Company, Ltd. | 383,700 | 11,176,238 |
|
Sharp Corp. | 47,000 | 597,983 |
|
Shin-Etsu Chemical Company, Ltd. | 141,500 | 7,871,666 |
|
Shiseido Company, Ltd. | 65,000 | 1,521,893 |
|
Showa Shell Sekiyu K.K. | 146,100 | 1,651,672 |
|
Sojitz Holdings Corp. | 1,008,300 | 2,876,947 |
|
Sumco Corp. | 114,900 | 2,276,237 |
|
Sumitomo Chemical Company, Ltd. | 167,000 | 1,024,730 |
|
Sumitomo Electric Industries, Ltd. | 62,700 | 719,518 |
|
Sumitomo Metal Industries, Ltd. | 555,000 | 2,451,741 |
|
T&D Holdings, Inc. | 10,750 | 564,065 |
|
Taisho Pharmaceuticals Company, Ltd. | 40,790 | 865,216 |
|
Takeda Pharmaceutical Company, Ltd. | 235,689 | 12,312,459 |
|
Takefuji Corp. (a) | 87,460 | 1,158,418 |
|
TDK Corp. | 33,000 | 1,911,674 |
|
Terumo Corp. | 60,500 | 3,365,754 |
|
The Japan Steel Works, Ltd. | 153,000 | 2,634,956 |
|
Tokyo Gas Company, Ltd. | 431,397 | 1,799,905 |
|
Tokyo Steel Manufacturing Company, Ltd. | 98,400 | 1,038,933 |
|
TonenGeneral Sekiyu K.K. | 111,133 | 894,190 |
|
Toyo Engineering Corp. | 49,000 | 255,419 |
|
Toyota Motor Corp. | 51,600 | 2,302,309 |
|
Trend Micro, Inc. | 23,000 | 778,397 |
|
UNY Company, Ltd. | 132,000 | 1,455,166 |
|
Yahoo Japan Corp. | 6,712 | 2,572,378 |
|
Yamada Denki Company, Ltd. | 17,400 | 1,250,038 |
See notes to financial statements
| |
16 | International Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Luxembourg 0.86% | | $10,560,955 |
|
ArcelorMittal | 134,617 | 10,560,955 |
| | |
Netherlands 3.24% | | 39,672,126 |
|
Aegon NV | 573,262 | 6,753,036 |
|
DSM NV | 54,912 | 3,160,441 |
|
Heineken NV (a) | 109,548 | 5,135,925 |
|
ING Groep NV | 569,271 | 17,735,251 |
|
Reed Elsevier NV | 162,307 | 2,713,787 |
|
Royal Dutch Shell PLC, A Shares | 75,539 | 2,628,847 |
|
TNT Post Group NV | 41,415 | 1,544,839 |
| | |
New Zealand 0.07% | | 787,323 |
|
Telecom Corp. of New Zealand, Ltd. | 343,984 | 787,323 |
| | |
Norway 0.69% | | 8,484,714 |
|
Den Norske Bank ASA | 89,900 | 1,042,260 |
|
Statoil ASA | 164,868 | 5,057,394 |
|
Yara International ASA | 38,520 | 2,385,060 |
| | |
Singapore 1.87% | | 22,909,395 |
|
Cosco Corp. Singapore, Ltd. | 403,600 | 645,097 |
|
DBS Group Holdings, Ltd. | 66,000 | 834,536 |
|
Neptune Orient Lines, Ltd. | 531,488 | 837,599 |
|
Oversea-Chinese Banking Corp., Ltd. | 273,000 | 1,547,035 |
|
SembCorp Industries, Ltd. | 364,802 | 1,058,927 |
|
SembCorp Marine, Ltd. | 1,064,573 | 2,821,552 |
|
Singapore Exchange, Ltd. | 327,000 | 1,443,974 |
|
Singapore Press Holdings, Ltd. (a) | 856,000 | 2,476,118 |
|
Singapore Telecommunications, Ltd. (a) | 3,264,350 | 8,056,636 |
|
United Overseas Bank, Ltd. | 144,000 | 1,916,679 |
|
Wilmar International, Ltd. | 480,000 | 1,271,242 |
| | |
Spain 1.61% | | 19,732,973 |
|
Gas Natural SDG SA | 36,658 | 1,698,297 |
|
Iberdrola SA | 147,168 | 1,773,277 |
|
Industria de Diseno Textil SA | 51,069 | 2,375,055 |
|
Repsol YPF SA | 215,399 | 6,662,391 |
|
Telefonica SA | 292,367 | 7,223,953 |
| | |
Sweden 1.02% | | 12,490,619 |
|
Hennes & Mauritz AB, B shares | 90,550 | 4,487,267 |
|
Investor AB, B shares | 193,600 | 4,076,210 |
|
SKF AB, B Shares | 106,400 | 1,611,346 |
|
Svenska Handelsbanken AB, Series A | 61,700 | 1,484,601 |
|
Swedbank AB, A shares | 47,300 | 831,195 |
| | |
Switzerland 6.54% | | 80,063,202 |
|
ABB, Ltd. * | 204,186 | 5,008,216 |
|
Ciba Specialty Chemicals AG | 35,267 | 868,658 |
|
Compagnie Financiere Richemont AG, Series A * | 46,734 | 2,719,212 |
See notes to financial statements
| |
Semiannual report | 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 |
| | |
Switzerland (continued) | | |
|
Lonza Group AG | 5,144 | $726,159 |
|
Nestle SA | 352,124 | 15,514,438 |
|
Novartis AG | 623,626 | 34,741,282 |
|
Roche Holdings AG Genusschein | 38,065 | 6,405,515 |
|
Swatch Group AG, BR shares | 8,117 | 1,907,740 |
|
Syngenta AG | 21,325 | 5,721,697 |
|
Synthes AG | 18,228 | 2,522,375 |
|
UBS AG * | 180,709 | 3,927,910 |
| | |
United Kingdom 21.21% | | 259,589,690 |
|
3i Group PLC | 319,335 | 5,336,082 |
|
Alliance & Leicester PLC | 87,787 | 520,599 |
|
AMEC PLC | 165,059 | 2,531,876 |
|
Anglo American PLC | 18,514 | 984,125 |
|
Associated British Foods PLC | 56,531 | 829,345 |
|
AstraZeneca Group PLC | 459,595 | 22,406,132 |
|
BAE Systems PLC | 151,118 | 1,318,899 |
|
Barclays PLC | 1,076,650 | 6,889,356 |
|
BG Group PLC | 1,004,273 | 22,276,122 |
|
BHP Billiton PLC | 31,970 | 995,735 |
|
British American Tobacco PLC | 164,944 | 5,572,498 |
|
British Energy Group PLC | 123,731 | 1,652,320 |
|
Cadbury PLC | 170,762 | 1,959,690 |
|
Capita Group PLC | 164,802 | 2,120,379 |
|
Cobham PLC | 175,094 | 731,910 |
|
Compass Group PLC | 281,548 | 1,873,673 |
|
Diageo PLC | 287,551 | 5,310,761 |
|
Dixons Group PLC | 1,544,146 | 1,387,514 |
|
Drax Group PLC | 91,343 | 1,238,958 |
|
Game Group PLC | 78,972 | 387,557 |
|
GlaxoSmithKline PLC | 2,405,581 | 56,605,350 |
|
HBOS PLC | 1,259,156 | 7,207,354 |
|
Home Retail Group | 509,085 | 2,343,813 |
|
Imperial Tobacco Group PLC | 60,886 | 2,007,465 |
|
Kingfisher PLC | 471,000 | 1,137,701 |
|
Ladbrokes PLC | 286,950 | 1,179,403 |
|
London Stock Exchange Group PLC | 28,971 | 416,323 |
|
Man Group PLC, ADR | 91,897 | 946,959 |
|
Next Group PLC | 94,322 | 1,819,969 |
|
Old Mutual PLC | 577,705 | 1,021,723 |
|
Reckitt Benckiser PLC | 70,788 | 3,578,646 |
|
Reed Elsevier PLC | 134,335 | 1,535,320 |
|
Rio Tinto PLC | 188,169 | 17,862,654 |
|
Royal Bank of Scotland Group PLC | 4,682,788 | 19,916,251 |
|
Royal Dutch Shell PLC, A Shares | 378,868 | 13,240,398 |
See notes to financial statements
| |
18 | International Core Fund | Semiannual report |
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 | 52,074 | $1,790,643 |
|
Scottish & Southern Energy PLC | 111,710 | 2,942,368 |
|
Signet Group PLC | 876,797 | 1,001,045 |
|
Smith & Nephew PLC | 195,874 | 2,350,570 |
|
Taylor Woodrow PLC | 819,046 | 804,972 |
|
Tesco PLC | 266,920 | 1,850,121 |
|
The Sage Group PLC | 326,548 | 1,245,059 |
|
Trinity Mirror PLC | 121,182 | 236,732 |
|
Tullow Oil PLC | 107,851 | 1,616,551 |
|
United Utilities Group PLC * | 106,037 | 1,379,697 |
|
Vedanta Resources PLC | 37,449 | 1,236,487 |
|
Vodafone Group PLC | 8,189,261 | 20,928,010 |
|
William Hill PLC | 142,345 | 732,251 |
|
Wolseley PLC | 219,585 | 1,771,749 |
|
Xstrata PLC | 45,927 | 2,560,575 |
|
Preferred stocks 0.29% | | $3,580,528 |
|
(Cost $2,026,341) | | |
| | |
Germany 0.29% | | 3,580,528 |
|
Bayerische Motoren Werke (BMW) AG (f) | 9,567 | 327,284 |
|
Volkswagen AG (f) | 21,123 | 3,253,244 |
|
Rights 0.00% | | $16,367 |
|
(Cost $0) | | |
| | |
Leighton Holdings, Ltd. (Expiration Date 9-11-08, | | |
Strike Price AUD 35.35) | 1,708 | 16,367 |
|
| Principal | |
| amount | |
|
Short term investments 2.14% | | $26,187,653 |
|
(Cost $26,187,653) | | |
| | |
John Hancock Cash Investment Trust, 2.5657% (c)(g) | $26,187,653 | 26,187,653 |
|
Repurchase agreements 4.62% | | $56,567,000 |
|
(Cost $56,567,000) | | |
| | |
Repurchase Agreement with State Street Corp. dated 8-29-08 | | |
at 1.70% to be repurchased at $56,577,685 on 9-02-08, | | |
collateralized by $57,415,000 Federal Home Loan Bank, | | |
3.00% due 06/30/2009 (valued at $57,702,075, including interest) | $56,567,000 | 56,567,000 |
|
Total investments (Cost $1,323,595,205)† 100.72% | | $1,233,051,288 |
|
|
Liabilities in excess of other assets (0.72%) | | ($8,775,556) |
|
|
Total net assets 100.00% | | $1,224,275,732 |
|
See notes to financial statements
| |
Semiannual report | International Core Fund | 19 |
F I N A N C I A L S T A T E M E N T S
Notes to Schedule of Investments
Percentages are stated as a percent of net assets.
The portfolio had the following five top industry concentrations as of August 31, 2008 (as a percentage of total net assets):
| | | |
Pharmaceuticals | 10.44% | | |
International oil | 8.58% | | |
Banking | 6.45% | | |
Telecommunications equipment & services | 5.92% | | |
Drugs & health care | 5.66% | | |
ADR American Depositary Receipts
PLC Public Limited Company
REIT Real Estate Investment Trust
SBI Shares Beneficial Interest
* Non-Income Producing.
(a) All or a portion of this security was out on loan.
(c) The investment is an affiliate of the Fund, the adviser and/or subadviser.
(f) Variable Rate Preferred .
(g) John Hancock Cash Investment Trust is managed by MFC Global Investment Management (U.S.), LLC. The rate shown is the seven-day effective yield at period end.
† At August 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $1,325,754,600. Net unrealized depreciation aggregated $92,703,312, of which $68,401,382 related to appreciated investment securities and $161,104,694 related to depreciated investment securities.
The following is a summary of open futures contracts at August 31, 2008:
| | | | | | |
| | | | | | UNREALIZED |
| NUMBER OF | | | EXPIRATION | NOTIONAL | APPRECIATION |
OPEN CONTRACTS | CONTRACTS | | POSITION | DATE | AMOUNT | (DEPRECIATION) |
|
S&P/MIB 30 Index Futures | 13 | | Long | Sep 2008 | 1,874,145 | $12,017 |
|
EOE Dutch Stock Index Futures | 9 | | Long | Sep 2008 | 742,770 | 14,570 |
|
FTSE 100 Index Futures | 46 | | Long | Sep 2008 | 2,598,310 | 159,449 |
|
Hang Seng Stock Index Futures | 4 | | Long | Sep 2008 | 4,252,000 | 12,286 |
|
DAX Index Futures | 176 | | Long | Sep 2008 | 28,320,600 | (2,566,647) |
|
OMX Stock Index Futures | 41 | | Long | Sep 2008 | 3,568,025 | 3,841 |
|
MSCI Singapore Index Futures | 149 | | Long | Sep 2008 | 10,117,100 | 104,119 |
|
CAC 4010 Euro Index Futures | 106 | | Long | Sep 2008 | 4,754,100 | 66,225 |
|
Topix Index Futures | 303 | | Long | Sep 2008 | 3,804,165,000 | (2,311,891) |
|
IBEX 35 Index Futures | 90 | | Short | Sep 2008 | 10,553,850 | 248,686 |
|
S&P/Canada 60 Index Futures | 87 | | Short | Sep 2008 | 14,311,500 | 1,164,216 |
|
SPI 200 Index Futures | 136 | | Short | Sep 2008 | 17,489,600 | 252,821 |
|
|
Total | | | | | | ($2,840,308) |
See notes to financial statements
| |
20 | International Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
Open forward foreign currency contracts as of August 31, 2008, were as follows:
| | | | | |
| | | | |
| | | | | UNREALIZED |
| PRINCIPAL AMOUNT | | SETTLEMENT | | APPRECIATION |
CURRENCY | COVERED BY CONTRACT | | DATE | | (DEPRECIATION) |
|
Buys | | | | |
Euro | 7,300,000 | | Nov 2008 | ($82,379) |
Japanese Yen | 1,886,140,000 | | Nov 2008 | 215,075 |
Japanese Yen | 1,886,140,000 | | Nov 2008 | 210,745 |
Japanese Yen | 1,886,140,000 | | Nov 2008 | 223,100 |
Japanese Yen | 1,886,140,000 | | Nov 2008 | 215,765 |
New Zealand Dollar | 2,382,619 | | Nov 2008 | (29,937) |
New Zealand Dollar | 2,382,619 | | Nov 2008 | (27,116) |
New Zealand Dollar | 2,454,819 | | Nov 2008 | (30,147) |
Pound Sterling | 5,047,705 | | Nov 2008 | (620,569) |
Swedish Krona | 102,755,389 | | Nov 2008 | (208,502) |
Swedish Krona | 102,755,389 | | Nov 2008 | (240,017) |
Swedish Krona | 102,755,389 | | Nov 2008 | (237,170) |
Swedish Krona | 102,755,389 | | Nov 2008 | (221,958) |
Swiss Franc | 28,040,186 | | Nov 2008 | (41,301) |
Swiss Franc | 34,162,186 | | Nov 2008 | (74,259) |
Swiss Franc | 28,889,888 | | Nov 2008 | (42,313) |
Total | | | | ($990,983) |
|
|
Sells | | | | |
Australian Dollar | 12,344,630 | | Nov 2008 | 179,882 |
Australian Dollar | 12,713,404 | | Nov 2008 | 180,026 |
Australian Dollar | 12,348,207 | | Nov 2008 | 183,459 |
Canadian Dollar | 8,778,697 | | Nov 2008 | 22,991 |
Canadian Dollar | 8,525,560 | | Nov 2008 | 27,374 |
Canadian Dollar | 8,520,573 | | Nov 2008 | 22,387 |
Danish Kroner | 2,104,559 | | Nov 2008 | 2,095 |
Danish Kroner | 3,769,276 | | Nov 2008 | 177,134 |
Danish Kroner | 2,044,630 | | Nov 2008 | 4,003 |
Danish Kroner | 2,043,851 | | Nov 2008 | 3,224 |
Euro | 10,498,291 | | Nov 2008 | 11,900 |
Euro | 10,199,322 | | Nov 2008 | 21,354 |
Euro | 10,187,999 | | Nov 2008 | 10,031 |
Norwegian Krone | 2,107,658 | | Nov 2008 | 4,463 |
Norwegian Krone | 2,165,928 | | Nov 2008 | (1,000) |
Norwegian Krone | 2,105,169 | | Nov 2008 | 1,974 |
Pound Sterling | 26,037,766 | | Nov 2008 | 569,588 |
Pound Sterling | 26,052,467 | | Nov 2008 | 584,289 |
Pound Sterling | 26,849,959 | | Nov 2008 | 610,017 |
| | | | $2,615,191 |
See notes to financial statements
| |
Semiannual report | International Core 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 8-31-08 (unaudited)
This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum public offering price per share.
| |
Assets | |
|
Investments, at value (Cost $1,297,407,552) including $24,940,622 | |
of securities loaned (Note 2) | $1,206,863,635 |
Investments in affiliated issuers, at value (Cost $26,187,653) (Note 2) | 26,187,653 |
| |
Total investments, at value (Cost $1,323,595,205) | 1,233,051,288 |
Cash | 238 |
Foreign currency, at value (Cost $952,945) | 946,484 |
Cash collateral at broker for futures contracts | 12,200,000 |
Receivable for forward foreign currency exchange contracts (Note 2) | 2,615,191 |
Receivable for fund shares sold | 140,348 |
Receivable for futures variation margin | 855,502 |
Dividends and interest receivable | 3,243,303 |
Receivable from security lending income | 157,889 |
Other assets | 42,650 |
| |
Total assets | 1,253,252,893 |
|
Liabilities | |
|
Payable for forward foreign currency exchange contracts (Note 2) | 990,983 |
Payable for fund shares repurchased | 225,673 |
Payable for security lending income | 110,518 |
Payable upon return of securities loaned (Note 2) | 26,187,653 |
Payable to affiliates | |
Fund administration fees | 17,813 |
Transfer agent fees | 91,747 |
Distribution and service fees | 435 |
Investment management fees | 124,730 |
Trustees’ fees | 63,543 |
Other payables and accrued expenses | 1,164,066 |
| |
Total liabilities | 28,977,161 |
|
Net assets | |
|
Capital paid-in | $1,205,843,951 |
Undistributed net investment income | 41,222,601 |
Accumulated undistributed net realized gain on investments, | |
futures contracts and foreign currency transactions | 69,050,893 |
Net unrealized depreciation on investments, futures and translation of | |
assets and liabilities in foreign currencies | (91,841,713) |
| |
Net assets | $1,224,275,732 |
See notes to financial statements
| |
22 | International Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
| |
Net asset value per share | |
|
The Funds have an unlimited number of shares authorized with no par | |
value. Net asset value is calculated by dividing the net assets of each | |
class of shares by the number of outstanding shares in the class. | |
| |
Class A | |
Net assets | $114,081,838 |
Shares outstanding | 3,169,590 |
Net asset value and redemption price per share | $35.99 |
| |
Class B1 | |
Net assets | $15,169,317 |
Shares outstanding | 425,708 |
Net asset value and offering price | $35.63 |
| |
Class C1 | |
Net assets | $11,042,588 |
Shares outstanding | 309,939 |
Net asset value and offering price | $35.63 |
| |
Class I | |
Net assets | $1,525,302 |
Shares outstanding | 42,126 |
Net asset value, offering price and redemption price per share | $36.21 |
| |
Class R1 | |
Net assets | $133,059 |
Shares outstanding | 3,709 |
Net asset value, offering price and redemption price per share | $35.87 |
| |
Class 1 | |
Net assets | $64,502,759 |
Shares outstanding | 1,780,249 |
Net asset value, offering price and redemption price per share | $36.23 |
| |
Class NAV | |
Net assets | $1,017,820,869 |
Shares outstanding | 28,089,581 |
Net asset value, offering price and redemption price per share | $36.23 |
|
Maximum public offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $37.88 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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
| |
Semiannual report | International Core Fund | 23 |
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 8-31-08 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
| |
Investment income | |
|
Dividends | $36,523,335 |
Interest | 693,355 |
Securities lending | 813,870 |
Income from affiliated issuers | 285,577 |
Less foreign taxes withheld | (3,225,608) |
| |
Total investment income | 35,090,529 |
|
|
Expenses | |
|
Investment management fees (Note 3) | 6,490,775 |
Distribution and service fees (Note 3) | 371,333 |
Transfer agent fees (Note 3) | 204,595 |
Blue sky fees (Note 3) | 43,790 |
Fund administration fees (Note 3) | 79,392 |
Audit and legal fees | 199,220 |
Printing and postage fees (Note 3) | 36,850 |
Custodian fees | 972,817 |
Trustees’ fees (Note 3) | 94,685 |
Registration and filing fees | 82,522 |
Miscellaneous | 12,156 |
| |
Total expenses | 8,588,135 |
Less expense reductions (Note 3) | (33,552) |
Transfer agent credits (Note 3) | (1,159) |
| |
Net expenses | 8,553,424 |
| |
Net investment income | 26,537,105 |
|
|
Realized and unrealized gain (loss) | |
|
Net realized gain (loss) on | |
Investments in unaffiliated issuers | 57,020,762 |
Futures contracts | (18,380,926) |
Foreign currency transactions | (398,587) |
| 38,241,249 |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (152,776,634) |
Futures contracts | 10,875,315 |
Translation of assets and liabilities in foreign currencies | (4,217,306) |
| |
| (146,118,625) |
| |
Net realized and unrealized gain (loss) | (107,877,376) |
| |
Decrease in net assets from operations | ($81,340,271) |
1 Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements
| |
24 | International Core Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
Statements 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 | Period |
| ended | ended |
| 2-29-08 | 8-31-081 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $31,797,681 | $26,537,105 |
Net realized gain | 159,866,565 | 38,241,249 |
Change in net unrealized appreciation (depreciation) | (210,972,387) | (146,118,625) |
| | |
Increase (decrease) in net assets resulting from operations | (19,308,141) | (81,340,271) |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | (1,428,621) | — |
Class B | (84,722) | — |
Class C | (64,270) | — |
Class I | (34,527) | — |
Class R1 | (1,255) | — |
Class 1 | (1,180,905) | — |
Class NAV | (20,701,580) | — |
From net realized gain | | |
Class A | (12,052,892) | — |
Class B | (1,960,810) | — |
Class C | (1,487,649) | — |
Class I | (206,228) | — |
Class R1 | (10,954) | — |
Class 1 | (6,868,892) | — |
Class NAV | (116,609,468) | — |
| | |
Total distributions | (162,692,773) | — |
| | |
From Fund share transactions (Note 5) | 495,364,086 | (351,042,344) |
| | |
Total increase (decrease) | 313,363,172 | (432,382,615) |
|
Net assets | | |
|
Beginning of period | 1,343,295,175 | 1,656,658,347 |
| | |
End of period | $1,656,658,347 | $1,224,275,732 |
| | |
Undistributed net investment income | $14,685,496 | $41,222,601 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements
| |
Semiannual report | 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
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 | 2-28-061 | 2-28-072 | 2-29-08 | 8-31-083 |
|
Per share operating performance | | | | |
|
Net asset value, beginning of period | $32.60 | $36.26 | $43.30 | $39.06 |
Net investment income4 | 0.19 | 0.63 | 0.35 | 0.59 |
Net realized and unrealized gain | | | | |
(loss) on investments | 3.47 | 6.79 | (0.35) | (3.66) |
Total from investment operations | 3.66 | 7.42 | — | (3.07) |
Less distributions | | | | |
From net investment income | — | — | (0.45) | — |
From net realized gain | — | (0.38) | (3.79) | — |
Total distributions | — | (0.38) | (4.24) | — |
Net asset value, end of period | $36.26 | $43.30 | $39.06 | $35.99 |
Total return (%)5,6 | 11.237 | 20.488 | (0.76) | (7.86)7 |
|
Ratios and supplemental data | | | | |
|
Net assets, end of period (in millions) | $17 | $12 | $130 | $114 |
Ratios (as a percentage of average net assets): | | | | |
Expenses before reductions | 2.229 | 2.23 | 1.68 | 1.699 |
Expenses net of fee waivers | 0.559 | 1.40 | 1.65 | 1.699 |
Expenses net of all fee waivers and credits | 0.559 | 1.40 | 1.65 | 1.699 |
Net investment income | 1.239 | 1.58 | 0.78 | 3.019 |
Portfolio turnover (%) | 22 | 37 | 5010 | 24 |
1 Class A shares began operations on 9-16-05.
2 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.
3 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
4 Based on the average of the shares outstanding.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Assumes dividend reinvestment and does not reflect the effect of sales charges.
8 Class A returns linked back to the Predecessor Fund.
9 Annualized.
10 Excludes merger activity.
See notes to financial statements
| |
26 | International Core Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $35.92 | $43.08 | $38.80 |
Net investment income3 | (0.25) | — 4 | 0.45 |
Net realized and unrealized gain | | | |
(loss) on investments | 7.79 | (0.33) | (3.62) |
Total from investment operations | 7.54 | (0.33) | (3.17) |
Less distributions | | | |
From net investment income | — | (0.16) | — |
From net realized gain | (0.38) | (3.79) | — |
Total distributions | (0.38) | (3.95) | — |
Net asset value, end of period | $43.08 | $38.80 | $35.63 |
Total return (%)5,6 | 21.017 | (1.48) | (8.17)7 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $1 | $20 | $15 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 6.838 | 2.48 | 2.538 |
Expenses net of fee waivers | 2.398 | 2.41 | 2.408 |
Expenses net of all fee waivers and credits | 2.398 | 2.40 | 2.408 |
Net investment income (loss) | (0.84)8 | — 9 | 2.308 |
Portfolio turnover (%) | 37 | 5010 | 24 |
1 Class B shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Less than $0.01 per share.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Annualized.
9 Less than 0.01%.
10 Excludes merger activity.
See notes to financial statements
| |
Semiannual report | 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 C SHARES | | | |
|
Period ended | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $35.92 | $43.09 | $38.81 |
Net investment income (loss)3 | (0.24) | 0.13 | 0.45 |
Net realized and unrealized gain | | | |
(loss) on investments | 7.79 | (0.46) | (3.63) |
Total from investment operations | 7.55 | (0.33) | (3.18) |
Less distributions | | | |
From net investment income | — | (0.16) | — |
From net realized gain | (0.38) | (3.79) | — |
Total distributions | (0.38) | (3.95) | — |
Net asset value, end of period | $43.09 | $38.81 | $35.63 |
Total return (%)4,5 | 21.046 | (1.48) | (8.19)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $4 | $15 | $11 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 3.727 | 2.49 | 2.457 |
Expenses net of fee waivers | 2.397 | 2.40 | 2.407 |
Expenses net of all fee waivers and credits | 2.397 | 2.40 | 2.407 |
Net investment income (loss) | (0.79)7 | 0.28 | 2.327 |
Portfolio turnover (%) | 37 | 508 | 24 |
1 Class C shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Annualized.
8 Excludes merger activity.
See notes to financial statements
| |
28 | International Core Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $35.92 | $43.43 | $39.20 |
Net investment income3 | 0.16 | 0.55 | 0.69 |
Net realized and unrealized gain | | | |
(loss) on investments | 7.73 | (0.35) | (3.68) |
Total from investment operations | 7.89 | 0.20 | (2.99) |
Less distributions | | | |
From net investment income | — | (0.64) | — |
From net realized gain | (0.38) | (3.79) | — |
Total distributions | (0.38) | (4.43) | — |
Net asset value, end of period | $43.43 | $39.20 | $36.21 |
Total return (%)4,5 | 21.996 | (0.33) | (7.63)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 7 | $3 | $2 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 12.528 | 2.34 | 2.188 |
Expenses net of fee waivers | 1.208 | 1.18 | 1.188 |
Expenses net of all fee waivers and credits | 1.208 | 1.18 | 1.188 |
Net investment income | 0.568 | 1.24 | 3.498 |
Portfolio turnover (%) | 37 | 509 | 24 |
1 Class I shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Excludes merger activity.
See notes to financial statements
| |
Semiannual report | 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 R1 SHARES | | | |
|
Period ended | 2-28-071 | 2-29-08 | 8-31-08 2 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $35.92 | $43.19 | $38.94 |
Net investment income (loss)3 | (0.03) | 0.66 | 0.58 |
Net realized and unrealized gain | | | |
(loss) on investments | 7.68 | (0.69) | (3.65) |
Total from investment operations | 7.65 | (0.03) | (3.07) |
Less distributions | | | |
From net investment income | — | (0.43) | — |
From net realized gain | (0.38) | (3.79) | — |
Total distributions | (0.38) | (4.22) | — |
Net asset value, end of period | $43.19 | $38.94 | $35.87 |
Total return (%)4,5 | 21.326 | (0.82) | (7.88)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 7 | — 7 | —7 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 20.408 | 13.85 | 12.898 |
Expenses net of fee waivers | 1.948 | 1.70 | 1.708 |
Expenses net of all fee waivers and credits | 1.948 | 1.70 | 1.708 |
Net investment income (loss) | (0.10)8 | 1.48 | 2.948 |
Portfolio turnover (%) | 37 | 509 | 24 |
1 Class R1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Excludes merger activity.
See notes to financial statements
| |
30 | International Core Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $40.56 | $43.43 | $39.22 |
Net investment income3 | 0.02 | 0.95 | 0.70 |
Net realized and unrealized gain | | | |
(loss) on investments | 3.26 | (0.72) | (3.69) |
Total from investment operations | 3.28 | 0.23 | (2.99) |
Less distributions | | | |
From net investment income | (0.03) | (0.65) | — |
From net realized gain | (0.38) | (3.79) | — |
Total distributions | (0.41) | (4.44) | — |
Net asset value, end of period | $43.43 | $39.22 | $36.23 |
Total return (%)4,5 | 8.116 | (0.25) | (7.62)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $82 | $74 | $64 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 1.237 | 1.16 | 1.157 |
Expenses net of fee waivers | 1.177 | 1.14 | 1.157 |
Expenses net of all fee waivers and credits | 1.177 | 1.14 | 1.157 |
Net investment income | 0.167 | 2.09 | 3.527 |
Portfolio turnover (%) | 37 | 508 | 24 |
1 Class 1 shares began operations on 11-6-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Annualized.
8 Excludes merger activity.
See notes to financial statements
| |
Semiannual report | International Core Fund | 31 |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $39.18 | $43.42 | $39.21 |
Net investment income3 | 0.08 | 0.95 | 0.74 |
Net realized and unrealized gain | | | |
(loss) on investments | 4.58 | (0.70) | (3.72) |
Total from investment operations | 4.66 | 0.25 | (2.98) |
Less distributions | | | |
From net investment income | (0.04) | (0.67) | — |
From net realized gain | (0.38) | (3.79) | — |
Total distributions | (0.42) | (4.46) | — |
Net asset value, end of period | $43.42 | $39.21 | $36.23 |
Total return (%)4 | 11.905 | (0.20)6 | (7.60) |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $1,244 | $1,415 | $1,018 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 1.087 | 1.11 | 1.087 |
Expenses net of fee waivers | 1.087 | 1.08 | 1.087 |
Expenses net of all fee waivers and credits | 1.087 | 1.08 | 1.087 |
Net investment income | 0.387 | 2.09 | 3.737 |
Portfolio turnover (%) | 37 | 508 | 24 |
1 Class NAV shares began operations on 8-29-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Not annualized.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Annualized.
8 Excludes merger activity.
See notes to financial statements
| |
32 | International Core Fund | Semiannual report |
Notes to financial statements (unaudited)
Note 1
Organization
John Hancock International Core Fund (the Fund) is a 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 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 and Class NAV shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. 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 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 differe ntly to each class of shares in accordance with current regulations of the Securities and Exchange Commission (SEC) 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. Class B shares will convert to Class A shares eight years after purchase.
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.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B, Class C, Class I, Class 1 and Class R1 shares of the Fund is determined daily as of the close of the
| |
Semiannual report | International Core Fund | 33 |
New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. Short-term debt investments that have a remaining maturity 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. Investments in John Hancock Cash Investment Trust (JHCIT), an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. 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 the 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. Securities for which there are no such quotations, principally debt securities, are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The
| |
34 | International Core Fund | Semiannual report |
three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| INVESTMENTS IN | OTHER FINANCIAL |
VALUATION INPUTS | SECURITIES | INSTRUMENTS* |
|
Level 1 — Quoted Prices | $73,682,251 | ($3,005,163) |
Level 2 — Other Significant Observable Inputs | 1,159,369,037 | — |
Level 3 — Significant Unobservable Inputs | — | — |
Total | $1,233,051,288 | ($3,005,163) |
*Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/ depreciation on the instrument.
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 translation
The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
| |
Semiannual report | International Core Fund | 35 |
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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. Effective October 15, 2007, the commitment fee was changed from 0.07% to 0.05%. For the period ended August 31, 2008, there were no borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
Securities lending
The Fund may lend portfolio securities from time to time in order to earn additional income. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their value. On the settlement date of the loan, the Fund receives cash collateral against the loaned securities and maintains the cash collateral in an amount not less than 100% of the market value of the loaned securities 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 cash collateral is delivered to the Fund on the next business day. Cash collateral received is invested in the JHCIT. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining acce ss to the collateral. The Fund may receive compensation for lending their securities either in the form of fees, guarantees, and/or by retaining a portion of interest on the investment of any cash received as collateral.
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36 | International Core Fund | Semiannual report |
The Fund has entered into an agreement with Morgan Stanley & Co., Inc. and MS Securities Services, Inc. (collectively, Morgan Stanley) which permits the Fund to lend securities to Morgan Stanley on a principal basis. Morgan Stanley is the primary borrower of securities of the Fund. The risk of having one primary borrower of Fund securities (as opposed to several borrowers) is that should Morgan Stanley fail financially, all securities lent will be affected by the failure and by any delays in recovery of the securities (or in the rare event, loss of rights in the collateral).
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, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by 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.
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 August 31, 2008, the Fund entered into forward foreign currency contracts, which contractually obligate the Fund to deliver currencies at future dates.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund had $5,573,841 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforward expires as follows: February 28, 2009 — $2,640,620 and February 28, 2010 — $2,933,221. Availability of a certain amount of the loss carryforwards, which were acquired on May 25, 2007, in a merger with John Hancock International Fund, may be limited in a given year.
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Semiannual report | International Core Fund | 37 |
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund’s fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund’s financial statements. Each of the Fund’s federal tax returns for the prior three years remain subject to examination by the Internal Revenue Service.
Risks associated with foreign investments
Investing in securities issued by companies whose principal business activities are outside the United States may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on the removal of funds or other assets of the Fund, political or financial instability or diplomatic and other developments which could affect such investments. Foreign stock markets, while growing in volume and sophistication, are general ly not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker-dealers and issuers than in the United States.
New accounting pronouncement
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company, and any credit risk-related contingent features of the agreements. M anagement is currently evaluating the adoption of FAS 161 on the Fund’s financial statement disclosures.
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. The Fund declares income dividends at least annually and capital gains are distributed at least annually. During the year ended February 29, 2008, the tax character of distributions paid was as follows: ordinary income $61,419,948 and long-term capital gain $101,272,825. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Note 3
Investment advisory and
other agreements
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
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38 | International Core Fund | Semiannual report |
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. 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. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.87% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.20% of the Fund’s average annual net assets which are allocated pro rata to all share classes. This agreement excludes taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded. The reimbursements and limits are such that these expenses will not exceed 1.70% for Class A shares, 2.40% for Class B, 2.40% for Class C, 1.18% for Class I, 1.70% for Class R1, 1.15% for Class 1 and 1.12% for Class NAV. Accordingly, the expense reductions or reimbursements related to this agreement were $450, $11,587, $3,304, $9,890, $8,027, $218 and $0 for Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV, respectively for the period ended August 31, 2008. The expense reimbursements and limits will continue in effect until June 30, 2009 and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $79,392 with an annual effective rate of 0.01% of the Fund’s average daily net assets.
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 pay 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 Financial Industry Regulatory Authority (formerly 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.
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Semiannual report | International Core Fund | 39 |
In addition, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 average daily net asset value for certain other services. There were no Service Plan fees incurred for the period ended August 31, 2008.
Class A shares are assessed up-front sales charges. During the period ended August 31, 2008, the Distributor received net up-front sales charges of $28,438 with regard to sales of Class A shares. Of this amount, $3,841 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $23,133 was paid as sales commissions to unrelated broker-dealers and $1,464 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 August 31, 2008, CDSCs received by the Distributor amounted to $10,182 for Class B shares and $1,727 for Class C shares.
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. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C, Class 1 and Class R1 shareholder account.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.30% 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, 2008. Signature Services reserves the right to terminate this limitation in the future. 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 August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $76.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $1,159 for transfer agent credits earned.
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40 | International Core Fund | Semiannual report |
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution | | | |
| and service | Transfer | Blue | Printing and |
Share class | fees | agent fees | sky fees | postage fees |
|
Class A | $195,586 | $163,869 | $10,703 | $23,027 |
Class B | 90,503 | 27,353 | 7,896 | 4,961 |
Class C | 66,787 | 12,763 | 9,294 | 2,346 |
Class I | — | 497 | 7,914 | 2,439 |
Class R1 | 362 | 113 | 7,983 | 92 |
Class 1 | 18,095 | — | — | 3,985 |
Total | $371,333 | $204,595 | $43,790 | $36,850 |
Note 4
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.
Note 5
Fund share transactions
The listing illustrates the number of Fund shares sold, issued in reorganization, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value.
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 1,465,538 | $65,700,113 | 705,390 | $27,106,463 |
Issued in reorganization | 2,188,767 | 102,289,840 | — | — |
Distributions reinvested | 298,965 | 12,673,075 | — | — |
Repurchased | (903,245) | (38,268,180) | (865,670) | (33,401,594) |
Net increase (decrease) | 3,050,025 | $142,394,848 | (160,280) | ($6,295,131) |
|
Class B shares | | | | |
|
Sold | 111,794 | $5,054,286 | 19,156 | $740,056 |
Issued in reorganization | 519,204 | 24,096,952 | — | — |
Distributions reinvested | 45,949 | 1,937,144 | — | — |
Repurchased | (195,340) | (8,566,851) | (97,649) | (3,723,287) |
Net increase (decrease) | 481,607 | $22,521,531 | (78,493) | ($2,983,231) |
|
Class C shares | | | | |
|
Sold | 239,764 | $11,103,560 | 16,884 | $655,372 |
Issued in reorganization | 123,192 | 5,718,520 | — | — |
Distributions reinvested | 34,387 | 1,450,443 | — | — |
Repurchased | (104,940) | (4,451,373) | (103,431) | (3,995,777) |
Net increase (decrease) | 292,403 | $13,821,150 | (86,547) | ($3,340,405) |
|
Class I shares | | | | |
|
Sold | 66,404 | $3,070,600 | 14,164 | $564,950 |
Issued in reorganization | 3,865 | 181,228 | — | — |
Distributions reinvested | 4,834 | 205,394 | — | — |
Repurchased | (6,887) | (323,804) | (45,387) | (1,770,919) |
Net increase (decrease) | 68,216 | $3,133,418 | (31,223) | ($1,205,969) |
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Semiannual report | International Core Fund | 41 |
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
| Shares | Amount | Shares | Amount |
Class R1 shares | | | | |
|
Sold | 1,245 | $48,556 | 82 | $3,099 |
Distributions reinvested | 289 | 12,209 | — | — |
Repurchased | (144) | (5,493) | (608) | (22,876) |
Net increase (decrease) | 1,390 | $55,272 | (526) | ($19,777) |
| | | | |
Class 1 shares | | | | |
|
Sold | 188,611 | $8,598,212 | 40,020 | $1,570,203 |
Distributions reinvested | 189,362 | 8,049,797 | — | — |
Repurchased | (376,865) | (16,502,541) | (143,242) | (5,568,427) |
Net increase (decrease) | 1,108 | $145,468 | (103,222) | ($3,998,224) |
| | | | |
Class NAV shares | | | | |
|
Sold | 6,108,534 | $264,764,263 | 1,704,143 | $64,108,893 |
Distributions reinvested | 3,230,848 | 137,311,048 | — | — |
Repurchased | (1,895,287) | (88,782,912) | (9,699,205) | (397,308,500) |
Net increase (decrease) | 7,444,095 | $313,292,399 | (7,995,062) | ($333,199,607) |
| | | | |
Net increase (decrease) | 11,338,844 | $495,364,086 | (8,455,353) | ($351,042,344) |
|
1Semiannual period from 3-1-08 to 8-31-08. Unaudited.
The Adviser and other affiliates of John Hancock USA owned 3,090 shares of beneficial interest of Class R1 on August 31, 2008.
Note 6
Purchase and sale of securities
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 August 31, 2008, aggregated $326,116,101 and $647,437,589, respectively.
Note 7
Reorganization
On April 18, 2007, the shareholders of John Hancock International Fund (International Fund) approved an Agreement and Plan of Reorganization, which provided for the transfer of substantially all of the assets and liabilities of the International Fund in exchange for Class A, Class B, Class C and Class I shares of the Fund. The acquisition was accounted for as a tax-free exchange of 2,188,767 Class A shares, 519,204 Class B shares, 123,192 Class C shares and 3,865 Class I shares of the Fund for the net assets of the International Fund, which amounted to $102,289,840, $24,096,952, $5,718,520 and $181,228 for Class A, Class B, Class C and Class I shares of the International Fund, respectively, including the total of $24,329,893 of unrealized appreciation, after the close of business on May 25, 2007.
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42 | International Core Fund | Semiannual report |
Board Consideration of and
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock
International Core Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Funds III (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) for the John Hancock International Core Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements.
At meetings held on May 5–6 and June 9–10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the investment performance of the Fund relative to a category of relevant funds (the “Category”) and a peer group of comparable funds (the “Peer Group”). The funds within each Category and Peer Group were selected by Morningstar Inc. (“Morningstar”), an independent provider of investment company data. Data covered the period since the Fund’s inception through December 31, 2007,
(ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group,
(iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser,
(iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund,
(v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale,
(vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department,
(vii) the background and experience of senior management and investment professionals, and
(viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board principally considered data on performance and other information provided by Morningstar as of December 31, 2007. The Board also considered updated performance information provided to it by the Adviser or Subadviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders report. The
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Semiannual report | International Core Fund | 43 |
key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and Subadviser. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser supported renewal of the Advisory Agreements.
Fund performance
The Board noted that the Fund had less than three full years of operational history, and considered the performance results for the Fund since its inception through December 31, 2007. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. The Board reviewed with representatives of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance during the 1-year period was lower than the performance its benchmark index, the MSCI EAFE Index, as was the Category and Peer Group medians. The Board viewed favorably that the Fund’s performance was higher than the performance of its Peer Group and Category medians.
Investment advisory fee and subadvisory fee
rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was not appreciably higher than the median rate of the Peer Group and Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross and Net Expense Ratios were highe r than the medians of the Peer Group and Category.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s overall performance and expenses supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory Agreement Rate was fair and equitable, based on its consideration of the factors described here.
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44 | International Core Fund | Semiannual report |
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Subadviser, which is not affiliated with the Adviser. The Board considered that the Subadvisory Agreement Rate paid to the Subadviser had been negotiated by the Adviser on an arm’s length basis and that the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadviser with the Fund and benefits potentially derived from an increase in business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
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Semiannual report | International Core Fund | 45 |
More information
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Trustees | Investment adviser |
James F. Carlin, Chairman | John Hancock Investment Management |
James R. Boyle† | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson | Subadviser |
Charles L. Ladner* | Grantham, Mayo, Van Otterloo & Co. LLC |
Stanley Martin* | |
Dr. John A. Moore* | Principal distributor |
Patti McGill Peterson* | John Hancock Funds, LLC |
Steven R. Pruchansky | |
Gregory A. Russo* | Custodian |
*Members of the Audit Committee | State Street Bank & Trust Company |
†Non-Independent Trustee | |
| Transfer agent |
Officers | John Hancock Signature Services, Inc. |
Keith F. Hartstein | |
President and Chief Executive Officer | Legal counsel |
| K&L Gates LLP |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
| |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Gordon M. Shone | |
Treasurer | |
| |
John G. Vrysen | |
Chief Operating Officer | |
Additional information about your fund is available without charge in several ways. As required by the SEC, you can access proxy voting information and quarterly portfolio information on your fund. The proxy voting information includes a description of proxy voting policies, procedures and information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30. The quarterly portfolio information that includes a complete list of the fund’s holdings for the first and third quarters of the fund’s fiscal period is filed on Form N-Q. You have access to this information:
| | |
By phone | On the fund’s Website | At the SEC |
1-800-225-5291 | www.jhfunds.com | www.sec.gov |
| | 1-800-SEC-0330 |
| | SEC Public Reference Room |
|
| |
You can also contact us: | |
Regular mail | Express mail |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 9510 | Mutual Fund Image Operations |
Portsmouth, NH 03802-9510 | 164 Corporate Drive |
| Portsmouth, NH 03801 |
|
Month-end portfolio holdings are available at www.jhfunds.com.
| |
46 | International Core Fund | Semiannual report |
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. | 660SA 8/08 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/08 |
A look at performance
| | | | | | | | | | | | |
| | | Average annual returns (%) | | | Cumulative total returns (%) | | |
| | | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| |
| |
|
|
| Inception | | | | | Since | | Six | | | | Since |
Class | date | | 1-year | 5-year | 10-year | inception | | months | 1-year | 5-year | 10-year | inception |
|
A1,2 | 9-16-05 | | –13.49 | — | — | –0.46 | | 0.23 | –13.49 | — | — | –1.35 |
|
B | 6-12-06 | | –14.10 | — | — | –2.10 | | 0.12 | –14.10 | — | — | –4.62 |
|
C | 6-12-06 | | –10.48 | — | — | –0.74 | | 4.11 | –10.48 | — | — | –1.65 |
|
I3 | 6-12-06 | | –8.58 | — | — | 0.34 | | 5.79 | –8.58 | — | — | 0.76 |
|
R13 | 6-12-06 | | –8.92 | — | — | –0.27 | | 5.46 | –8.92 | — | — | –0.61 |
|
13 | 6-12-06 | | –8.54 | — | — | 0.36 | | 5.74 | –8.54 | — | — | 0.80 |
|
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 to 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 expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The waivers and expense limitations are contractual at least until June 30, 2009. The net expenses are as follows: Class A — 1.54%, Class B — 2.24%, Class C — 2.24%, Class I — 1.14%, Class R1 — 1.64%, Class 1 — 1.09%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 1.81%, Class B — 2.61%, Class C — 3.14%, Class I — 12.17%, Class R1 — 15.83%, Class 1 — 1.81%.
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 current to the most recent month end performance data, 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.
1 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.
2 Performance linked to the Predecessor Fund.
3 For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
| |
6 | Growth Opportunities Fund | Semiannual report |
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Growth Opportunities Fund Class A shares1 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 | $9,830 | $9,538 | $11,253 |
|
C3 | 6-12-06 | 9,835 | 9,835 | 11,253 |
|
I4 | 6-12-06 | 10,076 | 10,076 | 11,253 |
|
R14 | 6-12-06 | 9,939 | 9,939 | 11,253 |
|
14 | 6-12-06 | 10,080 | 10,080 | 11,253 |
|
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 August 31, 2008. 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.
1 Performance linked to the Predecessor Fund.
2 NAV represents net asset value and POP represents public offering price.
3 No contingent deferred sales charge applicable.
4 For certain types of investors as described in the Fund’s Class I, Class R1 and Class 1 share prospectuses.
| |
Semiannual report | 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 March 1, 2008 with the same investment held until August 31, 2008.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,054.90 | $7.98 |
|
Class B | 1,000.00 | 1,051.20 | 11.58 |
|
Class C | 1,000.00 | 1,051.10 | 11.58 |
|
Class I | 1,000.00 | 1,057.90 | 5.45 |
|
Class R1 | 1,000.00 | 1,054.60 | 8.49 |
|
Class 1 | 1,000.00 | 1,057.40 | 5.55 |
|
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 August 31, 2008, 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:
| |
8 | Growth Opportunities Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. 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 |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,017.40 | $7.83 |
|
Class B | 1,000.00 | 1,013.90 | 11.37 |
|
Class C | 1,000.00 | 1,013.90 | 11.37 |
|
Class I | 1,000.00 | 1,019.90 | 5.35 |
|
Class R1 | 1,000.00 | 1,016.90 | 8.34 |
|
Class 1 | 1,000.00 | 1,019.80 | 5.45 |
|
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.54%, 2.24%, 2.24%, 1.05%, 1.64% and 1.07% 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 most recent fiscal half-year/365 (to reflect the one-half year period).
| |
Semiannual report | Growth Opportunities Fund | 9 |
Portfolio summary
| | | | |
Top 10 holdings1 | | | | |
|
FLIR Systems, Inc. | 1.8% | | ANSYS, Inc. | 1.3% |
| |
|
Urban Outfitters, Inc. | 1.5% | | Covance, Inc. | 1.3% |
| |
|
Cleveland-Cliffs, Inc. | 1.5% | | Strayer Education, Inc. | 1.1% |
| |
|
Walter Industries, Inc. | 1.4% | | Ross Stores, Inc. | 1.1% |
| |
|
Massey Energy Company | 1.3% | | Bucyrus International, Inc., Class A | 1.1% |
| |
|
|
|
Sector distribution1,2 | | | | |
|
Consumer Non-cyclical | 25% | | Basic Materials | 5% |
| |
|
Industrial | 22% | | Financial | 4% |
| |
|
Consumer Cyclical | 12% | | Communications | 4% |
| |
|
Energy | 12% | | Diversified | 1% |
| |
|
Technology | 10% | | Short-term Investments & Other | 5% |
| |
|
|
1 As a percentage of net assets on August 31, 2008.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| |
10 | Growth Opportunities Fund | Semiannual report |
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 8-31-08 (unaudited)
This schedule is divided into three main categories: common stocks, short-term investments 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 96.61% | | $83,619,347 |
|
(Cost $79,076,471) | | |
| | |
Aerospace 1.32% | | 1,140,392 |
|
Integral Systems, Inc. * | 4,000 | 179,960 |
|
Orbital Sciences Corp., Class A * | 1,800 | 47,591 |
|
Teledyne Technologies, Inc. * | 5,800 | 361,514 |
|
Woodward Governor Company | 11,900 | 551,327 |
| | |
Apparel & Textiles 1.16% | | 1,002,429 |
|
Columbia Sportswear Company | 400 | 16,156 |
|
Deckers Outdoor Corp. * | 2,200 | 250,118 |
|
Gymboree Corp. * | 4,000 | 157,000 |
|
Jos. A. Bank Clothiers, Inc. * | 1,800 | 46,782 |
|
True Religion Apparel, Inc. * | 6,600 | 179,190 |
|
Warnaco Group, Inc. * | 4,500 | 232,065 |
|
Wolverine World Wide, Inc. | 4,600 | 121,118 |
| | |
Auto Parts 1.01% | | 875,941 |
|
Autoliv, Inc. | 1,000 | 38,390 |
|
BorgWarner, Inc. | 4,100 | 169,535 |
|
Exide Technologies * | 6,800 | 83,912 |
|
Gentex Corp. | 10,800 | 172,044 |
|
LKQ Corp. * | 22,000 | 412,060 |
| | |
Auto Services 0.96% | | 831,789 |
|
Copart, Inc. * | 18,900 | 831,789 |
| | |
Banking 0.50% | | 431,495 |
|
Capitol Federal Financial | 3,000 | 131,160 |
|
First Financial Bankshares, Inc. | 900 | 44,163 |
|
Greenhill & Company, Inc. | 1,000 | 66,100 |
|
Oritani Financial Corp. * | 5,200 | 87,672 |
|
WestAmerica Bancorp | 2,000 | 102,400 |
| | |
Biotechnology 2.84% | | 2,459,590 |
|
Acorda Therapeutics, Inc. * | 3,600 | 101,340 |
|
Bio-Rad Laboratories, Inc., Class A * | 1,700 | 182,920 |
|
Charles River Laboratories International, Inc. * | 4,600 | 301,806 |
|
Illumina, Inc. * | 9,900 | 852,687 |
See notes to financial statements
| |
Semiannual report | 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 |
Biotechnology (continued) | | |
|
Immucor, Inc. * | 4,900 | $157,829 |
|
Invitrogen Corp. * | 4,000 | 169,840 |
|
Martek Biosciences Corp. * | 2,500 | 83,525 |
|
Techne Corp. * | 7,900 | 609,643 |
| | |
Broadcasting 0.12% | | 96,490 |
|
World Wrestling Entertainment, Inc., Class A | 6,400 | 104,128 |
| | |
Building Materials & Construction 0.11% | | 96,490 |
|
Quanex Building Products Corp. | 3,500 | 57,610 |
|
RPM International, Inc. | 1,800 | 38,880 |
| | |
Business Services 6.32% | | 5,473,951 |
|
Arbitron, Inc. | 2,700 | 129,492 |
|
Brinks Company | 700 | 48,846 |
|
Corporate Executive Board Company | 500 | 18,200 |
|
Dun & Bradstreet Corp. | 500 | 45,985 |
|
Exponent, Inc. * | 3,100 | 95,356 |
|
EZCORP, Inc., Class A * | 1,300 | 20,267 |
|
FactSet Research Systems, Inc. | 8,700 | 545,577 |
|
Forrester Research, Inc. * | 4,200 | 145,278 |
|
FTI Consulting, Inc. * | 11,700 | 858,780 |
|
Global Payments, Inc. | 15,300 | 737,613 |
|
Healthcare Services Group, Inc. | 8,500 | 165,580 |
|
Hewitt Associates, Inc., Class A * | 6,600 | 265,386 |
|
Informatica Corp. * | 13,500 | 227,745 |
|
Jacobs Engineering Group, Inc. * | 5,500 | 406,010 |
|
Kendle International, Inc. * | 1,100 | 54,395 |
|
Navigant Consulting Company * | 3,000 | 51,930 |
|
Net 1 UEPS Technologies, Inc. * | 4,000 | 107,280 |
|
Pre-Paid Legal Services, Inc. * (a) | 2,200 | 98,208 |
|
Quest Software, Inc. * | 3,600 | 53,244 |
|
Rollins, Inc. | 9,300 | 165,261 |
|
ScanSource, Inc. * | 2,700 | 81,243 |
|
SRA International, Inc., Class A * | 3,600 | 84,528 |
|
Stanley, Inc. * | 2,100 | 71,526 |
|
Syntel, Inc. | 10,700 | 353,849 |
|
Total Systems Services, Inc. | 14,600 | 290,832 |
|
Watson Wyatt Worldwide, Inc., Class A | 6,000 | 351,540 |
| | |
Cellular Communications 0.09% | | 74,655 |
|
Syniverse Holdings, Inc. * | 4,500 | 74,655 |
| | |
Chemicals 2.47% | | 2,139,596 |
|
Airgas, Inc. | 2,800 | 165,872 |
|
Balchem Corp. | 4,300 | 117,347 |
|
Calgon Carbon Corp. * (a) | 2,800 | 59,724 |
|
CF Industries Holdings, Inc. | 600 | 91,440 |
|
FMC Corp. | 2,200 | 161,788 |
See notes to financial statements
| |
12 | Growth Opportunities Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
Chemicals (continued) | | |
|
Intrepid Potash, Inc. * | 1,100 | $52,096 |
|
Newmarket Corp. | 4,100 | 278,554 |
|
ShengdaTech, Inc. * (a) | 4,100 | 38,950 |
|
Sigma-Aldrich Corp. | 2,500 | 141,900 |
|
Terra Industries, Inc. | 17,800 | 894,450 |
|
Valhi, Inc. (a) | 7,500 | 137,475 |
| | |
Coal 3.23% | | 2,792,058 |
|
Alpha Natural Resources, Inc. * | 6,000 | 594,600 |
|
Foundation Coal Holdings, Inc. | 8,400 | 496,860 |
|
International Coal Group, Inc. * | 7,400 | 75,702 |
|
James River Coal Company * | 5,600 | 236,152 |
|
Massey Energy Company | 17,600 | 1,160,896 |
|
Patriot Coal Corp. * | 3,800 | 227,848 |
| | |
Commercial Services 0.19% | | 166,983 |
|
Team, Inc. * | 3,300 | 125,763 |
|
TNS, Inc. * | 1,800 | 41,220 |
| | |
Computers & Business Equipment 1.89% | | 1,635,355 |
|
CACI International, Inc., Class A * | 900 | 45,585 |
|
IHS, Inc., Class A * | 1,400 | 89,824 |
|
Jack Henry & Associates, Inc. | 8,100 | 162,243 |
|
MICROS Systems, Inc. * | 16,400 | 505,448 |
|
National Instruments Corp. | 6,200 | 200,136 |
|
Parametric Technology Corp. * | 1,800 | 36,144 |
|
Plexus Corp. * | 2,300 | 64,469 |
|
Radiant Systems, Inc. * | 5,000 | 45,600 |
|
STEC, Inc. * | 4,200 | 42,546 |
|
Stratasys, Inc. * | 6,100 | 101,626 |
|
Synaptics, Inc. * | 3,300 | 172,722 |
|
Western Digital Corp. * | 6,200 | 169,012 |
| | |
Construction & Mining Equipment 1.29% | | 1,113,249 |
|
Bucyrus International, Inc., Class A | 13,100 | 915,035 |
|
Carbo Ceramics, Inc. | 1,700 | 102,170 |
|
Rowan Companies, Inc. | 2,600 | 96,044 |
| | |
Construction Materials 0.39% | | 336,648 |
|
Applied Industrial Technologies, Inc. | 2,100 | 61,131 |
|
Clarcor, Inc. | 6,900 | 275,517 |
| | |
Containers & Glass 0.29% | | 249,202 |
|
Greif, Inc., Class A | 3,000 | 207,330 |
|
Silgan Holdings, Inc. | 800 | 41,872 |
| | |
Cosmetics & Toiletries 0.33% | | 280,946 |
|
Alberto-Culver Company | 1,100 | 28,776 |
|
Chattem, Inc. * | 2,100 | 147,252 |
|
Intermediate Parfums, Inc. | 2,200 | 31,218 |
|
Nu Skin Enterprises, Inc., Class A | 4,400 | 73,700 |
See notes to financial statements
| |
Semiannual report | 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 |
Crude Petroleum & Natural Gas 3.71% | | $3,212,648 |
|
Arena Resources, Inc. * | 9,300 | 415,431 |
|
Bill Barrett Corp. * | 900 | 35,442 |
|
Cabot Oil & Gas Corp. | 11,200 | 497,728 |
|
Carrizo Oil & Gas, Inc. * | 600 | 29,784 |
|
Concho Resources, Inc. * | 3,300 | 107,811 |
|
Contango Oil & Gas Company * | 3,200 | 227,584 |
|
Goodrich Petroleum Corp. * | 600 | 30,510 |
|
Patterson-UTI Energy, Inc. | 16,300 | 463,246 |
|
Penn Virginia Corp. | 1,200 | 79,416 |
|
Petroquest Energy, Inc. * | 4,800 | 88,752 |
|
Quicksilver Resources, Inc. * | 4,100 | 99,179 |
|
Unit Corp. * | 4,500 | 304,785 |
|
W&T Offshore, Inc. | 11,100 | 390,276 |
|
Whiting Petroleum Corp. * | 4,600 | 442,704 |
| | |
Domestic Oil 2.79% | | 2,410,564 |
|
Berry Petroleum Company, Class A | 2,700 | 112,374 |
|
Comstock Resources, Inc. * | 7,800 | 506,532 |
|
Continental Resources, Inc. * | 5,300 | 265,901 |
|
Denbury Resources, Inc. * | 18,800 | 467,932 |
|
Encore Aquisition Company * | 4,400 | 226,864 |
|
Mariner Energy, Inc. * | 4,200 | 122,178 |
|
McMoran Exploration Company * | 6,100 | 166,835 |
|
Oil States International, Inc. * | 4,400 | 244,772 |
|
Range Resources Corp. | 2,900 | 134,618 |
|
St. Mary Land & Exploration Company | 2,700 | 113,994 |
|
Williams Clayton Energy, Inc. * | 600 | 48,564 |
| | |
Drugs & Health Care 3.18% | | 2,750,255 |
|
Abaxis, Inc. * | 2,200 | 43,758 |
|
Abiomed, Inc. * | 5,900 | 106,318 |
|
BioMarin Pharmaceutical, Inc. * | 6,800 | 204,952 |
|
Datascope Corp. | 1,200 | 60,000 |
|
ImClone Systems, Inc. * | 1,600 | 103,040 |
|
Landauer, Inc. | 2,200 | 143,572 |
|
Luminex Corp. * | 6,800 | 173,332 |
|
Meridian Bioscience, Inc. | 19,000 | 539,980 |
|
Parexel International Corp. * | 5,800 | 184,266 |
|
Perrigo Company | 25,400 | 888,746 |
|
Savient Pharmaceuticals, Inc. * | 10,700 | 243,211 |
|
Vital Signs, Inc. | 800 | 59,080 |
| | |
Educational Services 1.74% | | 1,504,273 |
|
Capella Education Company * | 1,800 | 89,478 |
|
DeVry, Inc. | 4,000 | 206,320 |
|
ITT Educational Services, Inc. * | 1,900 | 168,929 |
See notes to financial statements
| |
14 | Growth Opportunities Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
Educational Services (continued) | | |
|
Renaissance Learning, Inc. | 4,200 | $53,298 |
|
Strayer Education, Inc. | 4,700 | 986,248 |
| | |
Electrical Equipment 2.77% | | 2,397,529 |
|
AMETEK, Inc. | 9,300 | 451,422 |
|
AZZ, Inc. * | 1,600 | 69,520 |
|
FLIR Systems, Inc. * | 43,500 | 1,552,950 |
|
GrafTech International, Ltd. * | 2,700 | 54,864 |
|
Powell Industries, Inc. * | 600 | 26,508 |
|
Universal Electronics, Inc. * | 4,500 | 117,990 |
|
Varian, Inc. * | 2,500 | 124,275 |
| | |
Electronics 1.57% | | 1,362,075 |
|
Axsys Technologies, Inc. * | 1,300 | 88,309 |
|
Dolby Laboratories, Inc., Class A * | 3,800 | 154,660 |
|
II-VI, Inc. * | 7,500 | 329,325 |
|
Itron, Inc. * | 1,600 | 165,728 |
|
Trimble Navigation, Ltd. * | 15,300 | 517,905 |
|
Zebra Technologies Corp., Class A * | 3,400 | 106,148 |
| | |
Energy 0.98% | | 848,561 |
|
Energen Corp. | 1,600 | 89,344 |
|
Energy Conversion Devices, Inc. * | 10,100 | 759,217 |
| | |
Financial Services 3.38% | | 2,927,934 |
|
Bankrate, Inc. * (a) | 1,200 | 38,712 |
|
Broadridge Financial Solutions, Inc. | 2,100 | 41,937 |
|
Cass Information Systems, Inc. | 1,000 | 36,420 |
|
Cohen & Steers, Inc. (a) | 2,400 | 69,840 |
|
Eaton Vance Corp. | 18,200 | 649,922 |
|
Federated Investors, Inc., Class B | 12,700 | 424,688 |
|
GAMCO Investors, Inc. | 1,500 | 71,100 |
|
Interactive Data Corp. | 5,300 | 159,530 |
|
Investment Technology Group, Inc. * | 1,900 | 60,800 |
|
Knight Capital Group, Inc. * | 7,200 | 124,128 |
|
optionsXpress Holdings, Inc. | 4,700 | 108,429 |
|
SEI Investments Company | 20,000 | 472,400 |
|
Waddell & Reed Financial, Inc., Class A | 17,900 | 576,380 |
|
World Acceptance Corp. * | 2,400 | 93,648 |
| | |
Food & Beverages 1.34% | | 1,161,440 |
|
Cal-Maine Foods, Inc. (a) | 7,600 | 300,124 |
|
Flowers Foods, Inc. | 15,300 | 404,532 |
|
Green Mountain Coffee Roasters, Inc. * (a) | 4,900 | 178,801 |
|
J & J Snack Foods Corp. | 1,200 | 40,428 |
|
M & F Worldwide Corp. * | 1,100 | 48,422 |
|
McCormick & Company, Inc. | 2,100 | 84,945 |
|
National Beverage Corp. * | 3,900 | 35,568 |
|
Sanderson Farms, Inc. (a) | 2,000 | 68,620 |
See notes to financial statements
| |
Semiannual report | 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 |
Funeral Services 0.21% | | $180,728 |
|
Hillenbrand, Inc. | 7,600 | 180,728 |
| | |
Healthcare Products 5.30% | | 4,590,113 |
|
ArthroCare Corp. * (a) | 3,600 | 92,304 |
|
Beckman Coulter, Inc. | 2,000 | 147,640 |
|
Bruker BioSciences Corp. * | 3,300 | 50,952 |
|
CardioNet, Inc. * | 2,300 | 70,150 |
|
Cyberonics, Inc. * | 5,300 | 113,685 |
|
DENTSPLY International, Inc. | 4,700 | 184,193 |
|
Edwards Lifesciences Corp. * | 7,500 | 444,075 |
|
Gen-Probe, Inc. * | 3,500 | 209,125 |
|
Haemonetics Corp. * | 3,000 | 188,160 |
|
Henry Schein, Inc. * | 5,400 | 315,792 |
|
Herbalife, Ltd. | 3,400 | 160,140 |
|
IDEXX Laboratories, Inc. * | 9,800 | 551,740 |
|
Intuitive Surgical, Inc. * | 1,600 | 472,432 |
|
Kensey Nash Corp. * | 2,300 | 82,823 |
|
Merit Medical Systems, Inc. * | 7,400 | 143,264 |
|
Natus Medical, Inc. * | 3,400 | 83,640 |
|
Owens & Minor, Inc. | 6,700 | 309,004 |
|
Patterson Companies, Inc. * | 11,200 | 364,448 |
|
ResMed, Inc. * | 1,400 | 65,520 |
|
STERIS Corp. | 5,700 | 209,589 |
|
SurModics, Inc. * (a) | 1,900 | 74,043 |
|
The Medicines Company * | 4,600 | 112,056 |
|
USANA Health Sciences, Inc. * | 900 | 34,074 |
|
Zoll Medical Corp. * | 3,200 | 111,264 |
| | |
Healthcare Services 2.79% | | 2,415,697 |
|
Amedisys, Inc. * | 6,600 | 351,252 |
|
CorVel Corp. * | 3,600 | 104,796 |
|
Covance, Inc. * | 11,500 | 1,084,910 |
|
Emergency Medical Services Corp., Class A * | 2,100 | 69,888 |
|
Healthextras, Inc. * | 3,200 | 104,320 |
|
Healthways, Inc. * | 3,400 | 64,770 |
|
Hill-Rom Holdings, Inc. | 1,600 | 47,904 |
|
Lincare Holdings, Inc. * | 1,700 | 56,100 |
|
National Healthcare Corp. | 800 | 39,776 |
|
Pediatrix Medical Group, Inc. * | 6,400 | 364,480 |
|
The Advisory Board Company * | 3,100 | 95,821 |
|
Weight Watchers International, Inc. | 800 | 31,680 |
| | |
Homebuilders 1.46% | | 1,260,413 |
|
NVR, Inc. * | 100 | 59,773 |
|
Walter Industries, Inc. | 12,800 | 1,200,640 |
See notes to financial statements
| |
16 | Growth Opportunities Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
Hotels & Restaurants 1.06% | | $914,860 |
|
Chipotle Mexican Grill, Inc. * | 700 | 45,549 |
|
Choice Hotels International, Inc. | 7,000 | 188,930 |
|
Jack in the Box, Inc. * | 6,400 | 151,872 |
|
P.F. Chang’s China Bistro, Inc. * | 1,900 | 49,362 |
|
Panera Bread Company, Class A * | 6,100 | 327,814 |
|
Papa John’s International, Inc. * | 3,500 | 97,720 |
|
Sonic Corp. * | 3,700 | 53,613 |
| | |
Household Products 0.97% | | 841,735 |
|
Church & Dwight, Inc. | 7,500 | 468,750 |
|
Tupperware Brands Corp. | 8,000 | 285,760 |
|
WD-40 Company | 2,500 | 87,225 |
| | |
Industrial Machinery 5.09% | | 4,401,215 |
|
AGCO Corp. * | 800 | 49,304 |
|
Badger Meter, Inc. (a) | 3,300 | 151,932 |
|
Chart Industries, Inc. * | 1,800 | 83,124 |
|
Circor International, Inc. | 800 | 48,208 |
|
Dionex Corp. * | 3,200 | 208,608 |
|
Donaldson Company, Inc. | 10,600 | 465,446 |
|
Flowserve Corp. | 5,400 | 713,448 |
|
FMC Technologies, Inc. * | 6,300 | 337,428 |
|
Gorman-Rupp Company | 5,000 | 201,150 |
|
Graco, Inc. | 6,900 | 263,235 |
|
IDEX Corp. | 3,000 | 111,210 |
|
Lincoln Electric Holdings, Inc. | 2,100 | 169,617 |
|
Lindsay Corp. | 5,100 | 417,741 |
|
Lufkin Industries, Inc. | 1,800 | 167,022 |
|
Middleby Corp. * | 1,900 | 101,384 |
|
Pall Corp. | 5,200 | 211,172 |
|
Robbins & Myers, Inc. | 1,500 | 67,275 |
|
Rofin-Sinar Technologies, Inc. * | 4,900 | 198,058 |
|
Sauer-Danfoss, Inc. | 1,900 | 62,263 |
|
Valmont Industries, Inc. | 3,500 | 373,590 |
| | |
Industrials 0.57% | | 492,136 |
|
Clean Harbors, Inc. * | 3,600 | 292,104 |
|
Harsco Corp. | 3,800 | 200,032 |
| | |
Insurance 0.40% | | 345,221 |
|
Brown & Brown, Inc. | 1,100 | 22,352 |
|
Erie Indemnity Company, Class A | 600 | 27,750 |
|
HCC Insurance Holdings, Inc. | 900 | 22,662 |
|
PartnerRe, Ltd. | 400 | 27,564 |
|
Philadelphia Consolidated Holding Corp. * | 4,100 | 244,893 |
See notes to financial statements
| |
Semiannual report | 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 |
International Oil 0.11% | | $98,500 |
|
BPZ Energy, Inc. * | 5,000 | 98,500 |
| | |
Internet Content 1.01% | | 873,480 |
|
Sohu.com, Inc. * | 11,600 | 873,480 |
| | |
Internet Retail 1.25% | | 1,080,368 |
|
1-800-Flowers.com, Inc. * | 7,100 | 43,594 |
|
Netflix, Inc. * | 9,800 | 302,232 |
|
Priceline.com, Inc. * | 7,900 | 734,542 |
| | |
Internet Service Provider 0.02% | | 20,504 |
|
Earthlink, Inc. * | 2,200 | 20,504 |
| | |
Internet Software 0.55% | | 474,497 |
|
Digital River, Inc. * | 2,900 | 126,875 |
|
eResearch Technology, Inc. * | 9,400 | 126,806 |
|
McAfee, Inc. * | 1,900 | 75,164 |
|
Salesforce.com, Inc. * | 2,600 | 145,652 |
| | |
Leisure Time 0.35% | | 303,183 |
|
Bally Technologies, Inc. * | 4,200 | 143,766 |
|
Polaris Industries, Inc. (a) | 1,300 | 58,617 |
|
WMS Industries, Inc. * | 3,000 | 100,800 |
| | |
Life Sciences 1.24% | | 1,075,764 |
|
American Ecology Corp. | 4,700 | 152,562 |
|
Dawson Geophysical Company * | 600 | 37,638 |
|
PerkinElmer, Inc. | 900 | 25,569 |
|
Pharmaceutical Product Development, Inc. | 17,900 | 730,320 |
|
Waters Corp. * | 1,900 | 129,675 |
| | |
Liquor 0.96% | | 826,779 |
|
Boston Beer Company, Inc. * | 5,300 | 238,341 |
|
Central European Distribution Corp. * | 10,200 | 588,438 |
| | |
Manufacturing 2.25% | | 1,947,887 |
|
Acuity Brands, Inc. | 2,100 | 91,371 |
|
AptarGroup, Inc. | 2,200 | 88,858 |
|
Ceradyne, Inc. * | 600 | 27,036 |
|
Colfax Corp. * | 1,400 | 34,426 |
|
ESCO Technologies, Inc. * | 2,200 | 104,742 |
|
Koppers Holdings, Inc. | 800 | 36,648 |
|
Lancaster Colony Corp. | 1,700 | 59,126 |
|
Mettler-Toledo International, Inc. * | 6,700 | 704,840 |
|
Mine Safety Appliances Company | 3,200 | 116,256 |
|
Nordson Corp. | 4,600 | 246,698 |
|
Polypore International, Inc. * | 6,400 | 175,552 |
|
Raven Industries, Inc. | 5,800 | 262,334 |
See notes to financial statements
| |
18 | Growth Opportunities Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
Medical-Hospitals 0.31% | | $270,993 |
|
Centene Corp. * | 1,700 | 38,386 |
|
Exactech, Inc. * | 2,000 | 51,740 |
|
Tenet Healthcare Corp. * | 17,700 | 106,731 |
|
Universal Health Services, Inc., Class B | 1,200 | 74,136 |
| | |
Metal & Metal Products 0.55% | | 479,011 |
|
Dynamic Materials Corp. | 3,200 | 98,464 |
|
L.B. Foster Company * | 1,200 | 46,272 |
|
Matthews International Corp., Class A | 5,400 | 271,404 |
|
Sun Hydraulics, Inc. | 1,900 | 62,871 |
| | |
Mining 1.65% | | 1,431,357 |
|
Cleveland-Cliffs, Inc. | 12,600 | 1,275,372 |
|
Compass Minerals International, Inc. | 1,400 | 96,978 |
|
Royal Gold, Inc. (a) | 1,700 | 59,007 |
| | |
Mobile Homes 0.06% | | 55,152 |
|
Thor Industries, Inc. (a) | 2,400 | 55,152 |
| | |
Petroleum Services 2.05% | | 1,774,620 |
|
Atwood Oceanics, Inc. * | 9,200 | 374,072 |
|
Hercules Offshore, Inc. * | 1,700 | 37,519 |
|
Oceaneering International, Inc. * | 8,300 | 518,003 |
|
PetroHawk Energy Corp. * | 9,400 | 325,334 |
|
Petroleum Development Corp. * | 1,600 | 97,264 |
|
RPC, Inc. | 5,600 | 102,088 |
|
Superior Energy Services, Inc. * | 4,000 | 188,160 |
|
T-3 Energy Services, Inc. * | 1,700 | 94,911 |
|
Willbros Group, Inc. * | 900 | 37,269 |
| | |
Pharmaceuticals 0.83% | | 715,227 |
|
Auxilium Pharmaceuticals, Inc. * | 8,400 | 330,204 |
|
Endo Pharmaceutical Holdings, Inc. * | 1,250 | 28,400 |
|
Isis Pharmaceuticals, Inc. * | 2,800 | 49,504 |
|
Rigel Pharmaceuticals, Inc. * | 4,700 | 111,202 |
|
Valeant Pharmaceuticals International * | 10,700 | 195,917 |
| | |
Publishing 0.25% | | 214,110 |
|
John Wiley & Sons, Inc., Class A | 4,500 | 214,110 |
| | |
Railroads & Equipment 0.81% | | 699,251 |
|
Genesee & Wyoming, Inc., Class A * | 3,000 | 129,030 |
|
Kansas City Southern * | 5,000 | 257,150 |
|
Wabtec Corp. | 5,300 | 313,071 |
| | |
Real Estate 0.59% | | 510,920 |
|
Essex Property Trust, Inc., REIT | 500 | 58,675 |
|
Health Care, Inc., REIT | 2,500 | 129,675 |
|
Home Properties, Inc., REIT | 2,200 | 116,050 |
|
Nationwide Health Properties, Inc., REIT | 6,000 | 206,520 |
See notes to financial statements
| |
Semiannual report | 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 |
Retail Grocery 0.11% | | $95,530 |
|
Arden Group, Inc. | 400 | 66,700 |
|
United Natural Foods, Inc. * | 1,500 | 28,830 |
| | |
Retail Trade 6.30% | | 5,451,370 |
|
Aaron Rents, Inc., Class B | 1,100 | 31,416 |
|
Advance Auto Parts, Inc. | 10,450 | 449,768 |
|
Aeropostale, Inc. * | 17,600 | 613,536 |
|
Big Lots, Inc. * | 8,600 | 254,302 |
|
Cash America International, Inc. | 3,700 | 153,143 |
|
Children’s Place Retail Stores, Inc. * | 2,800 | 117,460 |
|
Dollar Tree, Inc. * | 7,300 | 280,028 |
|
Family Dollar Stores, Inc. | 2,900 | 72,268 |
|
Finish Line, Inc. | 7,400 | 89,466 |
|
Fossil, Inc. * | 9,500 | 284,240 |
|
MSC Industrial Direct Company, Inc., Class A | 8,500 | 432,905 |
|
Ross Stores, Inc. | 23,900 | 961,019 |
|
The Buckle, Inc. | 6,050 | 314,177 |
|
Titan Machinery, Inc. * | 3,200 | 83,264 |
|
Urban Outfitters, Inc. * | 36,900 | 1,314,378 |
| | |
Sanitary Services 1.02% | | 883,252 |
|
Darling International, Inc. * | 16,300 | 223,799 |
|
Stericycle, Inc. * | 9,100 | 539,630 |
|
Waste Connections, Inc. * | 3,300 | 119,823 |
| | |
Semiconductors 1.91% | | 1,656,387 |
|
Cree, Inc. * | 6,000 | 139,860 |
|
Hittite Microwave Corp. * | 1,100 | 38,929 |
|
IXYS Corp. * | 5,700 | 72,561 |
|
Micrel, Inc. | 11,400 | 104,994 |
|
Microsemi Corp. * | 6,400 | 176,000 |
|
Netlogic Microsystems, Inc. * | 2,000 | 69,460 |
|
Novellus Systems, Inc. * | 1,400 | 31,738 |
|
Power Integrations, Inc. * | 1,600 | 47,088 |
|
QLogic Corp. * | 18,400 | 343,712 |
|
Rambus, Inc. * | 1,800 | 31,662 |
|
Semtech Corp. * | 7,600 | 112,404 |
|
Silicon Image, Inc. * | 14,900 | 103,257 |
|
Silicon Laboratories, Inc. * | 3,600 | 121,356 |
|
Skyworks Solutions, Inc. * | 13,700 | 132,890 |
|
Volterra Semiconductor Corp. * | 8,300 | 130,476 |
| | |
Software 3.74% | | 3,239,023 |
|
ANSYS, Inc. * | 24,786 | 1,099,259 |
|
Blackbaud, Inc. | 6,000 | 121,140 |
|
Compuware Corp. * | 6,800 | 77,724 |
|
Concur Technologies, Inc. * | 5,800 | 254,910 |
See notes to financial statements
| |
20 | Growth Opportunities Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
Software (continued) | | |
|
FARO Technologies, Inc. * | 2,900 | $68,498 |
|
ManTech International Corp. * | 8,800 | 518,232 |
|
MSCI, Inc. * | 1,300 | 38,805 |
|
Pegasystems, Inc. | 6,200 | 90,892 |
|
Progress Software Corp. * | 3,000 | 87,630 |
|
Quality Systems, Inc. | 2,200 | 94,204 |
|
Solera Holdings, Inc. * | 8,700 | 268,221 |
|
Sybase, Inc. * | 12,400 | 426,684 |
|
Websense, Inc. * | 4,100 | 92,824 |
| | |
Steel 0.69% | | 601,143 |
|
AK Steel Holding Corp. | 5,800 | 305,138 |
|
Olympic Steel, Inc. | 1,300 | 61,893 |
|
Schnitzer Steel Industries, Inc. | 700 | 47,887 |
|
Steel Dynamics, Inc. | 7,500 | 186,225 |
| | |
Telecommunications Equipment & Services 0.32% | | 275,321 |
|
ADTRAN, Inc. | 3,100 | 70,680 |
|
Atheros Communications, Inc. * | 1,500 | 48,915 |
|
InterDigital, Inc. * | 1,100 | 29,194 |
|
J2 Global Communications, Inc. * | 2,800 | 69,076 |
|
Premiere Global Services, Inc. * | 3,800 | 57,456 |
| | |
Toys, Amusements & Sporting Goods 0.76% | | 659,701 |
|
Hasbro, Inc. | 6,500 | 243,100 |
|
Marvel Entertainment, Inc. * | 12,300 | 416,601 |
| | |
Transportation 1.32% | | 1,139,380 |
|
Con-way, Inc. | 1,400 | 68,740 |
|
Frontline, Ltd. | 8,500 | 513,485 |
|
Genco Shipping & Trading, Ltd. | 600 | 37,644 |
|
Golar LNG, Ltd. (a) | 2,400 | 38,496 |
|
Kirby Corp. * | 5,500 | 251,845 |
|
Knightsbridge Tankers, Ltd. | 2,200 | 63,756 |
|
Pacer International, Inc. | 2,800 | 59,024 |
|
PHI, Inc. * | 1,000 | 38,410 |
|
Ship Finance International, Ltd. | 1,300 | 36,179 |
|
TBS International, Ltd. * | 1,100 | 31,801 |
| | |
Trucking & Freight 1.78% | | 1,544,343 |
|
Forward Air Corp. | 3,500 | 123,515 |
|
Heartland Express, Inc. | 5,700 | 94,164 |
|
Hub Group, Inc., Class A * | 3,300 | 131,802 |
|
J.B. Hunt Transport Services, Inc. | 16,900 | 616,005 |
|
Knight Transportation, Inc. | 2,300 | 41,147 |
|
Landstar Systems, Inc. | 7,000 | 343,140 |
|
Old Dominion Freight Lines, Inc. * | 1,000 | 33,270 |
|
Ryder Systems, Inc. | 2,500 | 161,300 |
See notes to financial statements
| |
Semiannual report | Growth Opportunities Fund | 21 |
F I N A N C I A L S T A T E M E N T S
| | |
| Principal | |
Issuer, description, maturity date | amount | Value |
|
Short-term investments 1.24% | | $1,071,718 |
|
(Cost $1,071,718) | | |
|
John Hancock Cash Investment Trust, 2.5657% (c)(f) | $1,071,718 | 1,071,718 |
|
|
Repurchase agreements 3.29% | | $2,851,000 |
|
(Cost $2,851,000) | | |
|
Repurchase Agreement with State Street Corp. dated 08/29/2008 | | |
at 1.70% to be repurchased at $2,851,539 on 09/02/2008, | | |
collateralized by $2,945,000 Federal Home Loan Bank, 5.70% due | | |
04/03/2028 (valued at $2,908,188, including interest) | $2,851,000 | 2,851,000 |
|
Total investments (Cost $82,999,189)† 101.14% | | $87,542,065 |
|
|
Liabilities in Excess of Other Assets (1.14)% | | (986,165) |
|
|
Total net assets 100.00% | | $86,555,900 |
|
Percentages are stated as a percent of net assets.
REIT Real Estate Investment Trust
* Non-income producing
(a) All or a portion of this security was out on loan.
(c) The investment is an affiliate of the Fund, the adviser and/or subadviser.
(f) John Hancock Cash Investment Trust is managed by MFC Global Investment Management (U.S.), LLC. The rate shown is the seven-day effective yield at period end.
† At August 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $83,484,667. Net unrealized appreciation aggregated $4,507,398, of which $7,217,945 related to appreciated investment securities and $3,160,547 related to depreciated investment securities.
The Fund had the following financial futures contracts open on August 31, 2008:
| | | | | |
| NUMBER OF | | | NOTIONAL | UNREALIZED |
OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | VALUE | APPRECIATION |
|
Russell 2000 Mini Index Futures | 12 | Long | Sep 2008 | $887,800 | $42,998 |
|
S&P Mid 400 E-mini Index Futures | 11 | Long | Sep 2008 | 897,600 | 20,532 |
|
| | | | | $63,530 |
See notes to financial statements
| |
22 | Growth Opportunities Fund | Semiannual report |
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 8-31-08 (unaudited)
This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum public offering price per share.
| |
Assets | |
|
Investments in unaffiliated issuers, at value (Cost $81,927,471) including | |
$1,050,704 of securities loaned (Note 2) | $86,470,347 |
Investments in affiliated issuers, at value (Cost $1,071,718) | 1,071,718 |
| |
Total investments, at value (Cost $82,999,189) | 87,542,065 |
Cash | 814 |
Cash collateral at broker for futures contracts | 118,400 |
Receivable for investments sold | 2,725,091 |
Receivable for fund shares sold | 17,021 |
Dividends and interest receivable | 29,851 |
Receivable for security lending income | 255 |
Other assets | 34,618 |
| |
Total assets | 90,468,115 |
|
Liabilities | |
|
Payable for investments purchased | 2,575,174 |
Payable for fund shares repurchased | 47,680 |
Payable upon return of securities loaned (Note 2) | 1,071,718 |
Payable for futures variation margin | 14,040 |
Payable to affiliates | |
Fund administration fees | 1,030 |
Transfer agent fees | 49,815 |
Distribution and service fees | 259 |
Investment management fees | 17,666 |
Trustees’ fees | 2,786 |
Other payables and accrued expenses | 132,047 |
| |
Total liabilities | 3,912,215 |
|
Net assets | |
|
Capital paid-in | $135,166,501 |
Accumulated net investment loss | (398,785) |
Accumulated undistributed net realized loss on investments | |
and futures contracts | (52,818,222) |
Net unrealized appreciation on investments and futures contracts | 4,606,406 |
| |
Net assets | $86,555,900 |
See notes to financial statements
| |
Semiannual report | 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 assets and liabilities (continued)
| |
Net asset value per share | |
|
The Funds have an unlimited number of shares authorized with no par | |
value. Net asset value is calculated by dividing the net assets of each class | |
of shares by the number of outstanding shares in the class. | |
| |
Class A | |
Net assets | $72,115,470 |
Shares outstanding | 3,293,340 |
Net asset value and redemption price per share | $21.90 |
| |
Class B1 | |
Net assets | $10,827,262 |
Shares outstanding | 501,872 |
Net asset value and offering price | $21.57 |
| |
Class C1 | |
Net assets | $2,445,414 |
Shares outstanding | 113,336 |
Net asset value and offering price | $21.58 |
| |
Class I | |
Net assets | $13,879 |
Shares outstanding | 628 |
Net asset value, offering price and redemption price per share | $22.112 |
| |
Class R1 | |
Net assets | $128,653 |
Shares outstanding | 5,900 |
Net asset value, offering price and redemption price per share | $21.81 |
| |
Class 1 | |
Net assets | $1,025,222 |
Shares outstanding | 46,343 |
Net asset value, offering price and redemption price per share | $22.12 |
|
Maximum public offering price per share | |
|
Class A (net asset value per share ÷ 95%)3 | $23.05 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 Net assets and shares outstanding have been rounded for presentation purposes. The net asset value is as reported on August 31, 2008.
3 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
| |
24 | Growth Opportunities Fund | Semiannual report |
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 8-31-08 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
| |
Investment income | |
|
Dividends | $239,948 |
Securities lending | 40,570 |
Income from affiliated issuers | 31,248 |
Interest | 20,634 |
| |
Total investment income | 332,400 |
|
Expenses | |
|
Investment management fees (Note 3) | 354,663 |
Distribution and service fees (Note 3) | 182,279 |
Transfer agent fees (Note 3) | 88,971 |
Fund administration fees (Note 3) | 4,674 |
Custodian fees | 62,921 |
Blue sky fees (Note 3) | 38,685 |
Audit and legal fees | 28,696 |
Printing and postage fees (Note 3) | 21,161 |
Registration and filing fees | 14,293 |
Trustees’ fees (Note 4) | 4,169 |
Miscellaneous | 964 |
| |
Total expenses | 801,476 |
Less: expense reductions (Note 3) | (69,248) |
Less: transfer agency credits (Note 3) | (1,043) |
| |
Net expenses | 731,185 |
| |
Net investment loss | (398,785) |
|
Realized and unrealized gain (loss) | |
|
Net realized gain (loss) on | |
Investments in unaffiliated issuers | (5,277,228) |
Futures contracts | 73,144 |
| (5,204,084) |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 10,154,719 |
Futures contracts | 89,955 |
| 10,244,674 |
Net realized and unrealized gain | 5,040,590 |
| |
Increase in net assets from operations | $4,641,805 |
1 Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements
| |
Semiannual report | Growth Opportunities Fund | 25 |
F I N A N C I A L S T A T E M E N T S
Statements 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 | Period |
| ended | ended |
| 2-29-08 | 8-31-081 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment loss | ($651,411) | ($398,785) |
Net realized gain (loss) | 5,796,627 | (5,204,084) |
Change in net unrealized appreciation (depreciation) | (27,290,245) | 10,244,674 |
| | |
Increase (decrease) in net assets resulting from operations | (22,145,029) | 4,641,805 |
Distributions to shareholders | | |
From net realized gain | | |
Class A | (17,472) | — |
Class B | (3,315) | — |
Class C | (663) | — |
Class I | (7) | — |
Class R1 | (26) | — |
Class 1 | (69) | — |
Total distributions | (21,552) | — |
| | |
From Fund share transactions (Note 5) | 102,847,160 | (5,595,615) |
| | |
Total increase (decrease) | 80,680,579 | (953,810) |
|
Net assets | | |
|
Beginning of period | 6,829,131 | 87,509,710 |
End of period | $87,509,710 | $86,555,900 |
| | |
Accumulated net investment loss | — | $398,785 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements
| |
26 | Growth Opportunities Fund | Semiannual report |
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 | 2-28-061 | 2-28-072 | 2-29-08 | 8-31-083 |
|
Per share operating performance | | | | |
|
Net asset value, beginning of period | $21.31 | $23.29 | $24.34 | $20.76 |
Net investment income (loss)4 | 0.04 | (0.07)5 | (0.15) | (0.09) |
Net realized and unrealized | | | | |
gain (loss) on investments | 1.94 | 1.36 | (3.43) | 1.23 |
Total from investment operations | 1.98 | 1.29 | (3.58) | 1.14 |
Less distributions | | | | |
From net realized gain | — | (0.24) | — 6 | — |
Net asset value, end of period | $23.29 | $24.34 | $20.76 | $21.90 |
Total return (%)7,8 | 9.299 | 5.5710 | (14.69) | 5.499 |
|
Ratios and supplemental data | | | | |
|
Net assets, end of period (in millions) | $2 | $5 | $72 | $72 |
Ratios (as a percentage of average net assets): | | | | |
Expenses before reductions | 5.4511 | 5.59 | 1.81 | 1.6311 |
Expenses net of fee waivers | 0.4811 | 1.32 | 1.55 | 1.5411 |
Expenses net of all fee waivers and credits | 0.4811 | 1.32 | 1.54 | 1.5411 |
Net investment income (loss) | 0.4111 | (0.34)5 | (0.64) | (0.79)11 |
Portfolio turnover (%) | 43 | 96 | 26212 | 80 |
1 Class A shares began operations on 9-16-05.
2 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.
3 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
4 Based on the average of the shares outstanding.
5 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 $0.03 per share and 0.14% of average net assets.
6 Less than $0.01 per share.
7 Total returns would have been lower had certain expenses not been reduced during the periods shown..
8 Assumes dividend reinvestment and does not reflect the effect of sales charges.
9 Not annualized.
10 Class A returns linked back to the Predecessor Fund.
11 Annualized.
12 Excludes merger activity.
See notes to financial statements
| |
Semiannual report | 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 B SHARES | | | |
|
Period ended | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $22.17 | $24.23 | $20.52 |
Net investment loss3 | (0.20)4 | (0.31) | (0.16) |
Net realized and unrealized gain | | | |
(loss) on investments | 2.50 | (3.40) | 1.21 |
Total from investment operations | 2.30 | (3.71) | 1.05 |
Less distributions | | | |
From net realized gain | (0.24) | —5 | — |
Net asset value, end of period | $24.23 | $20.52 | $21.57 |
Total return (%)6,7 | 10.408 | (15.29) | 5.128 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | —9 | $13 | $11 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 14.6210 | 2.61 | 2.4510 |
Expenses net of fee waivers | 2.2210 | 2.25 | 2.2410 |
Expenses net of all fee waivers and credits | 2.2210 | 2.24 | 2.2410 |
Net investment loss | (1.21)4,10 | (1.34) | (1.49)10 |
Portfolio turnover (%) | 96 | 26211 | 80 |
1 Class B shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 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 $0.02 per share and 0.11% of average net assets.
5 Less than $0.01 per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment.
8 Not annualized.
9 Less than $500,000.
10 Annualized.
11 Excludes merger activity.
See notes to financial statements
| |
28 | Growth Opportunities Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $22.17 | $24.23 | $20.53 |
Net investment loss3 | (0.19)4 | (0.32) | (0.16) |
Net realized and unrealized | | | |
gain (loss) on investments | 2.49 | (3.38) | 1.21 |
Total from investment operations | 2.30 | (3.70) | 1.05 |
Less distributions | | | |
From net realized gain | (0.24) | —5 | — |
Net asset value, end of period | $24.23 | $20.53 | $21.58 |
Total return (%)6,7 | 10.408 | (15.25) | 5.118 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $1 | $3 | $2 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 10.439 | 3.14 | 2.919 |
Expenses net of fee waivers | 2.229 | 2.25 | 2.249 |
Expenses net of all fee waivers and credits | 2.229 | 2.24 | 2.249 |
Net investment loss | (1.15)4,9 | (1.35) | (1.49)9 |
Portfolio turnover (%) | 96 | 26210 | 80 |
1 Class C shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 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 $0.03 per share and 0.11% of average net assets.
5 Less than $0.01 per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment.
8 Not annualized.
9 Annualized.
10 Excludes merger activity.
See notes to financial statements
| |
Semiannual report | 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 I SHARES | | | |
|
Period ended | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $22.17 | $24.41 | $20.90 |
Net investment loss3 | (0.02)4 | (0.07) | (0.03) |
Net realized and unrealized | | | |
gain (loss) on investments | 2.50 | (3.44) | 1.24 |
Total from investment operations | 2.48 | (3.51) | 1.21 |
Less distributions | | | |
From net realized gain | (0.24) | — 5 | — |
Net asset value, end of period | $24.41 | $20.90 | $22.11 |
Total return (%)6,7 | 11.228 | (14.36) | 5.798 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 9 | — 9 | — 9 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 16.2610 | 12.17 | 116.9110 |
Expenses net of fee waivers | 1.1310 | 1.04 | 1.0510 |
Expenses net of all fee waivers and credits | 1.1310 | 1.04 | 1.0510 |
Net investment loss | (0.10)4,10 | (0.30) | (0.31)10 |
Portfolio turnover (%) | 96 | 26211 | 80 |
1 Class I shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 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 $0.03 per share and 0.11% of average net assets.
5 Less than $0.01 per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment.
8 Not annualized.
9 Less than $500,000.
10 Annualized.
11 Excludes merger activity.
See notes to financial statements
| |
30 | Growth Opportunities Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $22.17 | $24.27 | $20.68 |
Net investment loss3 | (0.14)4 | (0.19) | (0.10) |
Net realized and unrealized | | | |
gain (loss) on investments | 2.48 | (3.40) | 1.23 |
Total from investment operations | 2.34 | (3.59) | 1.13 |
Less distributions | | | |
From net realized gain | (0.24) | — 5 | — |
Net asset value, end of period | $24.27 | $20.68 | $21.81 |
Total return (%)6,7 | 10.588 | (14.77) | 5.468 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 9 | — 9 | — 9 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 24.2010 | 15.83 | 14.2210 |
Expenses net of fee waivers | 1.8810 | 1.64 | 1.6410 |
Expenses net of all fee waivers and credits | 1.8810 | 1.64 | 1.6410 |
Net investment loss | (0.86)4,10 | (0.78) | (0.89)10 |
Portfolio turnover (%) | 96 | 26211 | 80 |
1 Class R1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 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 $0.02 per share and 0.11% of average net assets.
5 Less than $0.01 per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment.
8 Not annualized.
9 Less than $500,000.
10 Annualized.
11 Excludes merger activity.
See notes to financial statements
| |
Semiannual report | Growth Opportunities Fund | 31 |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $22.17 | $24.42 | $20.92 |
Net investment loss3 | (0.02)4 | (0.05) | (0.04) |
Net realized and unrealized | | | |
gain (loss) on investments | 2.51 | (3.45) | 1.24 |
Total from investment operations | 2.49 | (3.50) | 1.20 |
Less distributions | | | |
From net realized gain | (0.24) | — 5 | — |
Net asset value, end of period | $24.42 | $20.92 | $22.12 |
Total return (%)6,7 | 11.268 | (14.31) | 5.748 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 9 | $1 | $1 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 3.8110 | 1.81 | 1.1010 |
Expenses net of fee waivers | 1.0910 | 1.09 | 1.0710 |
Expenses net of all fee waivers and credits | 1.0910 | 1.09 | 1.0710 |
Net investment loss | (0.10)4,10 | (0.22) | (0.33)10 |
Portfolio turnover (%) | 96 | 26211 | 80 |
1 Class 1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 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 $0.02 per share and 0.10% of average net assets.
5 Less than $0.01 per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment.
8 Not annualized.
9 Less than $500,000.
10 Annualized.
11 Excludes merger activity.
See notes to financial statements
| |
32 | Growth Opportunities Fund | Semiannual report |
Notes to financial statements (unaudited)
Note 1
Organization
John Hancock Growth Opportunities Fund (the Fund) is a 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 and Class 1 shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. Class 1 shares are sold only to certain exempt separate accounts of John Hancock USA and
John Hancock New York. 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 (SEC) 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. Class B shares will convert to Class A shares eight years after purchase.
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.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B, Class C, Class I, Class R1 and Class 1 shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. Short-term debt investments that have a remaining maturity of 60 days or less are valued at amortized cost,
| |
Semiannual report | Growth Opportunities Fund | 33 |
and thereafter assume a constant amortization to maturity of any discount or premium, which approximates market value. Investments in John Hancock Cash Investment Trust (JHCIT), an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. 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 the 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. Securities for which there are no such quotations, principally debt securities, are val ued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
| |
34 | Growth Opportunities Fund | Semiannual report |
Level 1 — Quoted prices in active markets for identical securities.
Level 2 — Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 — Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| INVESTMENTS IN | OTHER FINANCIAL |
VALUATION INPUTS | SECURITIES | INSTRUMENTS* |
|
Level 1 — Quoted Prices | $84,691,065 | $63,530 |
|
Level 2 — Other Significant Observable Inputs | 2,851,000 | — |
|
Level 3 — Significant Unobservable Inputs | — | — |
Total | $87,542,065 | $63,530 |
*Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/ depreciation on the instrument
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.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C, Class I, Class R1 and Class 1 shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business,
| |
Semiannual report | Growth Opportunities Fund | 35 |
the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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 August 31, 2008, there were no borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
Securities lending
The Fund may lend portfolio securities from time to time in order to earn additional income. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their value. On the settlement date of the loan, the Fund receives cash collateral against the loaned securities and maintains the cash collateral in an amount not less than 100% of the market value of the loaned securities 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 cash collateral is delivered to the Fund on the next business day. Cash collateral received is invested in the JHCIT. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the secur ities loaned or in gaining access to the collateral. The Fund may receive compensation for lending their securities either in the form of fees, guarantees, and/or by retaining a portion of interest on the investment of any cash received as collateral.
The Fund has entered into an agreement with Morgan Stanley & Co., Inc. and MS Securities Services, Inc. (collectively, Morgan Stanley) which permits the Fund to lend securities to Morgan Stanley on a principal basis. Morgan Stanley is the primary borrower of securities of the Fund. The risk of having one primary borrower of Fund securities (as opposed to several borrowers) is that should Morgan Stanley fail financially, all securities lent will be affected by the failure and by any delays in recovery of the securities (or in the rare event, loss of rights in the collateral).
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, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by 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.
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36 | Growth Opportunities Fund | Semiannual report |
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.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund had $33,521,041 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforward expires as follows: February 28, 2009 — $8,514,595 and February 28, 2010 — $25,006,446. Availability of a certain amount of the loss carryforwards, which were acquired on May 25, 2007 in a merger with the John Hancock Mid Cap Growth Fund, may be limited in a given year. Net capital losses of $13,634,044 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on March 1, 2008, the first day of the Fund’s next taxable year.
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund’s fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund’s financial statements. Each of the Fund’s federal tax returns for the prior year remain subject to examination by the Internal Revenue Service.
New accounting pronouncements
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company, and any credit risk-related contingent features of the agreements. Management is currently evaluati ng the adoption of FAS 161 on the Fund’s financial statement disclosures.
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. The Fund declares income dividends and capital gains dividends, if any, annually. During the year ended February 29, 2008, the tax character of distributions paid was as follows: long-term capital gain $21,552. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
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Semiannual report | Growth Opportunities Fund | 37 |
Note 3
Investment advisory and
other agreements
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. 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 o f John Hancock Trust. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.80% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.24% of the Fund’s average annual net assets which are allocated pro rata to all share classes. Furthermore, the Adviser has voluntarily agreed to reimburse or limit these Fund level expenses to 0.20% for the period from May 26, 2007 to February 29, 2009. The agreements exclude taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded. The reimbursements and limits are such that these expenses will not exceed 1.54% for Class A shares, 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 or reimbursements related to this agreement were $32,609, $12,298, $8,475, $7,801, $7,921 and $98 for Class A, Class B, Class C, Class I, Class R1 and Class 1, respectively for the period ended August 31, 2008. The expense reimbursements and limits will continue in effect until June 30, 2009 and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $4,674 with an annual effective rate of 0.01% of the Fund’s average daily net assets.
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 pay the Distributor for the services it provides as distributor of shares of the Fund. Accordingly,
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38 | Growth Opportunities Fund | Semiannual report |
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 Financial Industry Regulatory Authority (formerly 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, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 average daily net asset value for certain other services. There were no Service Plan fees incurred for the period ended August 31, 2008.
Class A shares are assessed up-front sales charges of up to 5.00% of the net asset value of such shares. During the period ended August 31, 2008 the Distributor received net up-front sales charges of $14,077 with regard to sales of Class A shares. Of this amount, $2,000 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $8,545 was paid as sales commissions to unrelated broker-dealers and $3,532 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 August 31, 2008, CDSCs received by the Distributor amounted to $8,191 for Class B shares and $76 for Class C shares.
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. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C, Class I and Class R1 shareholder account.
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, 2008. Signature Services reserves the right to terminate this limitation in the future. 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 August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $46.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $1,043 for transfer agent credits earned.
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Semiannual report | Growth Opportunities Fund | 39 |
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent fees | Blue sky fees | postage fees |
|
|
Class A | $110,331 | $74,371 | $7,858 | $17,116 |
Class B | 58,741 | 11,948 | 7,704 | 3,196 |
Class C | 12,720 | 2,570 | 7,557 | 647 |
Class I | — | 4 | 7,715 | 82 |
Class R1 | 317 | 78 | 7,851 | 89 |
Class 1 | 170 | — | — | 31 |
Total | $182,279 | $88,971 | $38,685 | $21,161 |
The Adviser and other affiliates of John Hancock USA owned 4,557 shares of beneficial interest of Class R1 respectively, on August 31, 2008.
Note 4
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.
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40 | Growth Opportunities Fund | Semiannual report |
Note 5
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value.
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 199,710 | $4,734,281 | 140,144 | $3,003,917 |
Issued in reorganization | 3,812,316 | 97,964,692 | — | — |
Distributions reinvested | 717 | 16,781 | — | — |
Repurchased | (769,487) | (18,231,640) | (303,631) | (6,524,360) |
Net increase (decrease) | 3,243,256 | $84,484,114 | (163,487) | ($3,520,443) |
|
Class B shares | | | | |
|
Sold | 44,734 | $1,047,067 | 23,577 | $501,035 |
Issued in reorganization | 781,214 | 19,954,400 | — | — |
Distributions reinvested | 138 | 3,188 | — | — |
Repurchased | (228,240) | (5,308,318) | (136,152) | (2,874,696) |
Net increase (decrease) | 597,846 | $15,696,337 | (112,575) | ($2,373,661) |
|
Class C shares | | | | |
|
Sold | 23,285 | $556,494 | 11,133 | $236,770 |
Issued in reorganization | 126,693 | 3,236,288 | — | — |
Distributions reinvested | 26 | 597 | — | — |
Repurchased | (54,551) | (1,266,527) | (20,183) | (432,318) |
Net increase (decrease) | 95,453 | $2,526,852 | (9,050) | ($195,548) |
|
Class I shares | | | | |
|
Sold | 1,206 | $29,806 | 25 | $540 |
Issued in reorganization | 2,191 | 56,536 | — | — |
Distributions reinvested | — | 7 | — | — |
Repurchased | (11,091) | (267,783) | (1) | (11) |
Net increase (decrease) | (7,694) | ($181,434) | 24 | $529 |
|
Class R1 shares | | | | |
|
Sold | 1,329 | $30,792 | 236 | $5,037 |
Distributions reinvested | 1 | 26 | — | — |
Repurchased | (166) | (3,725) | (120) | (2,468) |
Net increase | 1,164 | $27,093 | 116 | $2,569 |
|
Class 1 shares | | | | |
|
Sold | 27,623 | $639,853 | 26,849 | $593,909 |
Distributions reinvested | 3 | 69 | — | — |
Repurchased | (14,096) | (345,724) | (4,775) | (102,970) |
Net increase | 13,530 | $294,198 | 22,074 | $490,939 |
|
Net increase (decrease) | 3,943,555 | $102,847,160 | (262,898) | ($5,595,615) |
|
1Semiannual period from 3-1-08 to 8-31-08. Unaudited. | | | |
| |
Semiannual report | Growth Opportunities Fund | 41 |
Note 6
Purchases and sales of securities
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 August 31, 2008, aggregated $68,429,242 and $74,717,054, respectively.
Note 7
Reorganization
On May 9, 2007, the shareholders of John Hancock Mid Cap Growth Fund (Mid Cap Growth Fund) approved an Agreement and Plan of Reorganization, which provided for the transfer of substantially all of the assets and liabilities of the Mid Cap Growth Fund in exchange for Class A, Class B, Class C and Class I shares of the Fund. The acquisition was accounted for as a tax-free exchange of 3,812,316 Class A shares, 781,214 Class B shares, 126,693 Class C shares and 2,191 Class I shares of the Fund for the net assets of the Mid Cap Growth Fund, which amounted to $97,964,692, $19,954,400, $3,236,288 and $56,536 for Class A, Class B, Class C and Class I shares of the Mid Cap Growth Fund, respectively, including the total of $21,282,022 of unrealized appreciation, after the close of business on May 25, 2007.
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42 | Growth Opportunities Fund | Semiannual report |
Board Consideration of and
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock Growth
Opportunities Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Funds III (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) for the John Hancock Growth Opportunities Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements.
At meetings held on May 5–6 and June 9–10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the investment performance of the Fund relative to a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group). The funds within each Category and Peer Group were selected by Morningstar, Inc. (Morningstar), an independent provider of investment company data. Data covered the period since the Fund’s inception through December 31, 2007;
(ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group;
(iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser;
(iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund;
(v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale;
(vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department;
(vii) the background and experience of senior management and investment professionals; and
(viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board principally considered data on performance and other information provided by Morningstar as of December 31, 2007. The Board also considered updated performance information provided to it by the Adviser or Subadviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders’ report. The key factors considered by the Board and the conclusions reached are described below.
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Semiannual report | Growth Opportunities Fund | 43 |
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and Subadviser. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser supported renewal of the Advisory Agreements.
Fund performance
The Board noted that the Fund had less than two full years of operational history, and considered the performance results for the Fund since its inception through December 31, 2007. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. The Board reviewed with representatives of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance was lower than the performance of the Category and Peer Group medians, and its benchmark index, the Russell 2500 Growth Index, over the 1-year period. The Adviser discussed its plans with respect to the Fund. The Board recognized the short operational history of the Fund and indicated its intent to continue to monitor the Fund’s performance trends.
Investment advisory fee and subadvisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was equal to the median rate of the Peer Group and lower than the median rate of the Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross Expense Ratio was higher than the median of the Peer Group and Category. The Board also noted that the Fund’s Net Expense Ratio was higher than the median of the Category but not appreciably higher than the Peer Group.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s expenses and overall plans to improve performance supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory
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44 | Growth Opportunities Fund | Semiannual report |
Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Subadviser, which is not affiliated with the Adviser. The Board considered that the Subadvisory Agreement Rate paid to the Subadviser had been negotiated by the Adviser on an arm’s length basis and that the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadviser with the Fund and benefits potentially derived from an increase in business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
| |
Semiannual report | Growth Opportunities Fund | 45 |
More information
| |
Trustees | Investment adviser |
James F. Carlin, Chairman | John Hancock Investment Management |
James R. Boyle† | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson | Subadviser |
Charles L. Ladner* | Grantham, Mayo, Van Otterloo & Co. LLC |
Stanley Martin* | |
Dr. John A. Moore* | Principal distributor |
Patti McGill Peterson* | John Hancock Funds, LLC |
Steven R. Pruchansky | |
Gregory A. Russo* | Custodian |
*Members of the Audit Committee | State Street Bank & Trust Company |
†Non-Independent Trustee | |
| Transfer agent |
Officers | John Hancock Signature Services, Inc. |
Keith F. Hartstein | |
President and Chief Executive Officer | Legal counsel |
| K&L Gates LLP |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
| |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Gordon M. Shone | |
Treasurer | |
| |
John G. Vrysen | |
Chief Operating Officer | |
Additional information about your fund is available without charge in several ways. As required by the SEC, you can access proxy voting information and quarterly portfolio information on your fund. The proxy voting information includes a description of proxy voting policies, procedures and information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30. The quarterly portfolio information that includes a complete list of the fund’s holdings for the first and third quarters of the fund’s fiscal period is filed on Form N-Q. You have access to this information:
| | | |
By phone | On the fund’s Website | At the SEC |
1-800-225-5291 | www.jhfunds.com | www.sec.gov |
| | | 1-800-SEC-0330 |
| | | SEC Public Reference Room |
|
|
You can also contact us: | | | |
| | | |
Regular mail | | Express mail | |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 9510 | | Mutual Fund Image Operations |
Portsmouth, NH 03802-9510 | | 164 Corporate Drive | |
| | Portsmouth, NH 03801 | |
| |
46 | Growth Opportunities Fund | Semiannual report |
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. | 840SA 8/08 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/08 |
John Hancock
Growth Fund
Semiannual Report
8.31.08
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 March 1, 2008 with the same investment held until August 31, 2008.
| | | | | |
Actual expenses/actual return | | | | | |
|
Account value | | | | Expenses paid | |
$1,000.00 | | Ending value | | during period | |
on 3-1-08 | | on 8-31-08 | | ended 8-31-08 | 1 |
Class A | $ | 1,005.70 | $ | 7.08 | |
Class B | $ | 1,002.60 | $ | 10.60 | |
Class C | $ | 1,002.60 | $ | 10.60 | |
Class I | $ | 1,007.70 | $ | 5.06 | |
Class R1 | $ | 1,005.20 | $ | 7.58 | |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at August 31, 2008, 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:
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| | | | | |
Hypothetical example for comparison purposes | | | | | |
|
Account value | | | | Expenses paid | |
$1,000.00 | | Ending value | | during period | |
on 3-1-08 | | on 8-31-08 | | ended 8-31-08 | 1 |
Class A | $ | 1,018.10 | $ | 7.12 | |
Class B | $ | 1,014.60 | $ | 10.66 | |
Class C | $ | 1,014.60 | $ | 10.66 | |
Class I | $ | 1,020.20 | $ | 5.09 | |
Class R1 | $ | 1,017.60 | $ | 7.63 | |
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund's annualized expense ratio of 1.40%, 2.10%, 2.10%, 1.00% and 1.50% 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 most recent fiscal half year/365 (to reflect the one-half year period).
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited)
(showing percentage of total net assets)
| | | |
Growth Fund | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS - 98.06% | | | |
| | | |
Advertising - 0.10% | | | |
Omnicom Group, Inc. | 500 | $ | 21,195 |
| | | |
Aerospace - 1.82% | | | |
Alliant Techsystems, Inc. * | 100 | | 10,523 |
Boeing Company | 200 | | 13,112 |
General Dynamics Corp. | 1,300 | | 119,990 |
Goodrich Corp. | 300 | | 15,375 |
Lockheed Martin Corp. | 300 | | 34,932 |
Raytheon Company | 200 | | 11,998 |
Rockwell Collins, Inc. | 300 | | 15,777 |
United Technologies Corp. | 2,700 | | 177,093 |
| |
|
| | | 398,800 |
Agriculture - 1.92% | | | |
Archer-Daniels-Midland Company | 900 | | 22,914 |
Monsanto Company | 3,480 | | 397,590 |
| |
|
| | | 420,504 |
Apparel & Textiles - 0.44% | | | |
Coach, Inc. * | 1,000 | | 28,990 |
Mohawk Industries, Inc. * | 200 | | 13,810 |
NIKE, Inc., Class B | 900 | | 54,549 |
| |
|
| | | 97,349 |
Auto Parts - 0.34% | | | |
AutoZone, Inc. * | 200 | | 27,446 |
Johnson Controls, Inc. | 600 | | 18,552 |
LKQ Corp. * | 600 | | 11,238 |
O'Reilly Automotive, Inc. * | 600 | | 17,472 |
| |
|
| | | 74,708 |
Auto Services - 0.14% | | | |
AutoNation, Inc. * | 400 | | 4,540 |
Copart, Inc. * | 600 | | 26,406 |
| |
|
| | | 30,946 |
Automobiles - 0.11% | | | |
PACCAR, Inc. | 550 | | 23,683 |
Banking - 0.27% | | | |
Bank of America Corp. | 500 | | 15,570 |
Hudson City Bancorp, Inc. | 1,900 | | 35,036 |
Northern Trust Corp. | 100 | | 8,039 |
| |
|
| | | 58,645 |
Biotechnology - 1.59% | | | |
Amgen, Inc. * | 1,400 | | 87,990 |
Biogen Idec, Inc. * | 1,200 | | 61,116 |
Genentech, Inc. * | 1,200 | | 118,500 |
Genzyme Corp. * | 500 | | 39,150 |
Illumina, Inc. * | 200 | | 17,226 |
Invitrogen Corp. * | 400 | | 16,984 |
Techne Corp. * | 100 | | 7,717 |
| |
|
| | | 348,683 |
Business Services - 1.24% | | | |
Accenture, Ltd., Class A | 700 | | 28,952 |
Automatic Data Processing, Inc. | 1,000 | | 44,380 |
FactSet Research Systems, Inc. | 100 | | 6,271 |
Fiserv, Inc. * | 800 | | 41,488 |
Fluor Corp. | 700 | | 56,091 |
| | | |
Growth Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
| | | |
Business Services (continued) | | | |
FTI Consulting, Inc. * | 200 | $ | 14,680 |
Global Payments, Inc. | 300 | | 14,463 |
Iron Mountain, Inc. * | 400 | | 11,564 |
Jacobs Engineering Group, Inc. * | 400 | | 29,528 |
Manpower, Inc. | 200 | | 9,612 |
Total Systems Services, Inc. | 700 | | 13,944 |
| |
|
| | | 270,973 |
Cable & Television - 0.05% | | | |
DIRECTV Group, Inc. * | 400 | | 11,284 |
| | | |
Chemicals - 0.50% | | | |
Air Products & Chemicals, Inc. | 200 | | 18,370 |
FMC Corp. | 200 | | 14,708 |
Praxair, Inc. | 600 | | 53,904 |
Sigma-Aldrich Corp. | 400 | | 22,704 |
| |
|
| | | 109,686 |
Coal - 0.16% | | | |
Arch Coal, Inc. | 200 | | 10,848 |
Foundation Coal Holdings, Inc. | 200 | | 11,830 |
Peabody Energy Corp. | 200 | | 12,590 |
| |
|
| | | 35,268 |
Colleges & Universities - 0.06% | | | |
Career Education Corp. * | 700 | | 13,125 |
| | | |
Computers & Business Equipment - 8.14% | | | |
Apple, Inc. * | 2,780 | | 471,294 |
Cisco Systems, Inc. * | 23,400 | | 562,770 |
Cognizant Technology Solutions Corp., | | | |
Class A * | 100 | | 2,932 |
Dell, Inc. * | 5,300 | | 115,169 |
EMC Corp. * | 1,100 | | 16,808 |
Hewlett-Packard Company | 4,000 | | 187,680 |
Ingram Micro, Inc., Class A * | 300 | | 5,673 |
International Business Machines Corp. | 2,980 | | 362,755 |
Juniper Networks, Inc. * | 600 | | 15,420 |
Lexmark International, Inc. * | 200 | | 7,194 |
Western Digital Corp. * | 1,300 | | 35,438 |
| |
|
| | | 1,783,133 |
Construction & Mining Equipment - 0.13% | | | |
Joy Global, Inc. | 200 | | 14,208 |
National Oilwell Varco, Inc. * | 200 | | 14,746 |
| |
|
| | | 28,954 |
Containers & Glass - 0.08% | | | |
Owens-Illinois, Inc. * | 400 | | 17,840 |
| | | |
Cosmetics & Toiletries - 4.89% | | | |
Avon Products, Inc. | 1,000 | | 42,830 |
Colgate-Palmolive Company | 2,900 | | 220,487 |
Estee Lauder Companies, Inc., Class A | 300 | | 14,931 |
Kimberly-Clark Corp. | 1,300 | | 80,184 |
Procter & Gamble Company | 10,200 | | 711,654 |
| |
|
| | | 1,070,086 |
Crude Petroleum & Natural Gas - 3.63% | | | |
Apache Corp. | 1,000 | | 114,380 |
Cabot Oil & Gas Corp. | 200 | | 8,888 |
|
The accompanying notes are an integral part of the financial statements. |
1 |
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited) - continued
(showing percentage of total net assets)
| | | |
Growth Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
| | | |
Crude Petroleum & Natural Gas | | | |
(continued) | | | |
Chesapeake Energy Corp. | 1,200 | $ | 58,080 |
Devon Energy Corp. | 300 | | 30,615 |
EOG Resources, Inc. | 900 | | 93,978 |
Hess Corp. | 1,120 | | 117,275 |
Noble Energy, Inc. | 200 | | 14,346 |
Occidental Petroleum Corp. | 2,300 | | 182,528 |
Patterson-UTI Energy, Inc. | 400 | | 11,368 |
Pioneer Natural Resources Company | 200 | | 12,634 |
Quicksilver Resources, Inc. * | 300 | | 7,257 |
Southwestern Energy Company * | 1,300 | | 49,881 |
Sunoco, Inc. | 400 | | 17,752 |
Unit Corp. * | 200 | | 13,546 |
W&T Offshore, Inc. | 200 | | 7,032 |
Whiting Petroleum Corp. * | 100 | | 9,624 |
XTO Energy, Inc. | 900 | | 45,369 |
| |
|
| | | 794,553 |
Domestic Oil - 0.23% | | | |
Comstock Resources, Inc. * | 200 | | 12,988 |
Denbury Resources, Inc. * | 700 | | 17,423 |
Encore Aquisition Company * | 200 | | 10,312 |
Range Resources Corp. | 200 | | 9,284 |
| |
|
| | | 50,007 |
Drugs & Health Care - 0.57% | | | |
BioMarin Pharmaceutical, Inc. * | 300 | | 9,042 |
Perrigo Company | 700 | | 24,493 |
Wyeth | 2,100 | | 90,888 |
| |
|
| | | 124,423 |
Educational Services - 0.33% | | | |
Apollo Group, Inc., Class A * | 600 | | 38,208 |
DeVry, Inc. | 100 | | 5,158 |
ITT Educational Services, Inc. * | 200 | | 17,782 |
Strayer Education, Inc. | 50 | | 10,492 |
| |
|
| | | 71,640 |
Electrical Equipment - 0.55% | | | |
Emerson Electric Company | 2,100 | | 98,280 |
FLIR Systems, Inc. * | 600 | | 21,420 |
| |
|
| | | 119,700 |
Electrical Utilities - 0.07% | | | |
Exelon Corp. | 100 | | 7,596 |
FirstEnergy Corp. | 100 | | 7,264 |
| |
|
| | | 14,860 |
Electronics - 0.28% | | | |
Amphenol Corp., Class A | 200 | | 9,504 |
Itron, Inc. * | 100 | | 10,358 |
L-3 Communications Holdings, Inc. | 400 | | 41,576 |
| |
|
| | | 61,438 |
Financial Services - 2.03% | | | |
BlackRock, Inc. | 200 | | 43,450 |
Capital One Financial Corp. | 200 | | 8,828 |
Charles Schwab Corp. | 700 | | 16,793 |
Citigroup, Inc. | 3,200 | | 60,768 |
Goldman Sachs Group, Inc. | 340 | | 55,750 |
| | | |
Growth Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
| | | |
Financial Services (continued) | | | |
JP Morgan Chase & Company | 300 | $ | 11,547 |
Leucadia National Corp. | 200 | | 9,258 |
MasterCard, Inc., Class A | 360 | | 87,318 |
Merrill Lynch & Company, Inc. | 500 | | 14,175 |
Morgan Stanley | 700 | | 28,581 |
Nasdaq Stock Market, Inc. * | 300 | | 9,807 |
SEI Investments Company | 400 | | 9,448 |
SLM Corp. * | 700 | | 11,557 |
State Street Corp. | 200 | | 13,534 |
T. Rowe Price Group, Inc. | 300 | | 17,808 |
Western Union Company | 1,700 | | 46,954 |
| |
|
| | | 445,576 |
Food & Beverages - 6.15% | | | |
General Mills, Inc. | 900 | | 59,562 |
H.J. Heinz Company | 400 | | 20,128 |
Kellogg Company | 400 | | 21,776 |
Kraft Foods, Inc., Class A | 1,107 | | 34,881 |
Pepsi Bottling Group, Inc. | 400 | | 11,832 |
PepsiCo, Inc. | 7,700 | | 527,296 |
Sysco Corp. | 1,100 | | 35,013 |
The Coca-Cola Company | 11,600 | | 604,012 |
William Wrigley, Jr. Company | 400 | | 31,792 |
| |
|
| | | 1,346,292 |
Gas & Pipeline Utilities - 0.63% | | | |
Transocean, Inc. * | 1,089 | | 138,521 |
| | | |
Healthcare Products - 6.88% | | | |
Baxter International, Inc. | 1,200 | | 81,312 |
Becton, Dickinson & Company | 600 | | 52,428 |
C.R. Bard, Inc. | 300 | | 28,035 |
DENTSPLY International, Inc. | 300 | | 11,757 |
Gen-Probe, Inc. * | 200 | | 11,950 |
IDEXX Laboratories, Inc. * | 200 | | 11,260 |
Intuitive Surgical, Inc. * | 150 | | 44,290 |
Johnson & Johnson | 9,800 | | 690,214 |
Medtronic, Inc. | 3,600 | | 196,560 |
Patterson Companies, Inc. * | 500 | | 16,270 |
Stryker Corp. | 2,000 | | 134,380 |
Varian Medical Systems, Inc. * | 500 | | 31,580 |
Zimmer Holdings, Inc. * | 2,700 | | 195,453 |
| |
|
| | | 1,505,489 |
Healthcare Services - 4.58% | | | |
Cardinal Health, Inc. | 1,200 | | 65,976 |
Covance, Inc. * | 300 | | 28,302 |
Coventry Health Care, Inc. * | 1,200 | | 42,024 |
Express Scripts, Inc. * | 2,300 | | 168,843 |
Humana, Inc. * | 200 | | 9,280 |
McKesson Corp. | 1,200 | | 69,336 |
Medco Health Solutions, Inc. * | 1,100 | | 51,535 |
Quest Diagnostics, Inc. | 200 | | 10,810 |
UnitedHealth Group, Inc. | 15,500 | | 471,975 |
WellPoint, Inc. * | 1,600 | | 84,464 |
| |
|
| | | 1,002,545 |
Holdings Companies/Conglomerates - 0.11% | | | |
Textron, Inc. | 600 | | 24,660 |
|
The accompanying notes are an integral part of the financial statements. |
2 |
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited) - continued
(showing percentage of total net assets)
| | | |
Growth Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
| | | |
Homebuilders - 0.04% | | | |
D.R. Horton, Inc. | 100 | $ | 1,246 |
Lennar Corp., Class A | 600 | | 7,890 |
| |
|
| | | 9,136 |
Hotels & Restaurants - 0.42% | | | |
McDonald's Corp. | 1,000 | | 62,050 |
Starbucks Corp. * | 1,000 | | 15,560 |
Yum! Brands, Inc. | 400 | | 14,272 |
| |
|
| | | 91,882 |
Household Products - 0.13% | | | |
Clorox Company | 200 | | 11,820 |
Energizer Holdings, Inc. * | 200 | | 16,988 |
| |
|
| | | 28,808 |
Industrial Machinery - 1.36% | | | |
AGCO Corp. * | 200 | | 12,326 |
Cameron International Corp. * | 500 | | 23,295 |
Deere & Company | 2,300 | | 162,311 |
Donaldson Company, Inc. | 300 | | 13,173 |
Flowserve Corp. | 300 | | 39,636 |
FMC Technologies, Inc. * | 400 | | 21,424 |
Parker-Hannifin Corp. | 400 | | 25,628 |
| |
|
| | | 297,793 |
Industrials - 0.12% | | | |
Fastenal Company | 300 | | 15,579 |
Harsco Corp. | 200 | | 10,528 |
| |
|
| | | 26,107 |
Insurance - 1.54% | | | |
Aetna, Inc. | 200 | | 8,628 |
AFLAC, Inc. | 2,100 | | 119,070 |
Allstate Corp. | 300 | | 13,539 |
American International Group, Inc. | 1,900 | | 40,831 |
Assurant, Inc. | 200 | | 11,686 |
Brown & Brown, Inc. | 400 | | 8,128 |
Chubb Corp. | 300 | | 14,403 |
MetLife, Inc. | 200 | | 10,840 |
Philadelphia Consolidated Holding Corp. * | 400 | | 23,892 |
Prudential Financial, Inc. | 200 | | 14,742 |
The Travelers Companies, Inc. | 1,400 | | 61,824 |
W.R. Berkley Corp. | 400 | | 9,424 |
| |
|
| | | 337,007 |
International Oil - 8.59% | | | |
Anadarko Petroleum Corp. | 300 | | 18,519 |
Chevron Corp. | 5,500 | | 474,760 |
ConocoPhillips | 1,800 | | 148,518 |
Exxon Mobil Corp. | 13,600 | | 1,088,136 |
Murphy Oil Corp. | 500 | | 39,265 |
Nabors Industries, Ltd. * | 800 | | 28,480 |
Noble Corp. | 400 | | 20,116 |
Weatherford International, Ltd. * | 1,600 | | 61,728 |
| |
|
| | | 1,879,522 |
Internet Content - 1.54% | | | |
Google, Inc., Class A * | 730 | | 338,202 |
Internet Retail - 0.99% | | | |
Amazon.com, Inc. * | 700 | | 56,567 |
| | | |
Growth Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
| | | |
Internet Retail (continued) | | | |
eBay, Inc. * | 6,400 | $ | 159,552 |
| |
|
| | | 216,119 |
Internet Software - 0.11% | | | |
Salesforce.com, Inc. * | 200 | | 11,204 |
VeriSign, Inc. * | 400 | | 12,788 |
| |
|
| | | 23,992 |
Leisure Time - 0.03% | | | |
International Game Technology | 300 | | 6,429 |
| | | |
Life Sciences - 0.18% | | | |
Applied Biosystems, Inc. | 400 | | 14,596 |
Pharmaceutical Product Development, Inc. | 300 | | 12,240 |
Waters Corp. * | 200 | | 13,650 |
| |
|
| | | 40,486 |
Liquor - 0.46% | | | |
Anheuser-Busch Companies, Inc. | 1,400 | | 95,004 |
Central European Distribution Corp. * | 100 | | 5,769 |
| |
|
| | | 100,773 |
Manufacturing - 1.24% | | | |
3M Company | 2,200 | | 157,520 |
Danaher Corp. | 1,000 | | 81,570 |
Harley-Davidson, Inc. | 500 | | 19,890 |
SPX Corp. | 100 | | 11,925 |
| |
|
| | | 270,905 |
Metal & Metal Products - 0.10% | | | |
Precision Castparts Corp. | 100 | | 10,326 |
Reliance Steel & Aluminum Company | 200 | | 11,402 |
| |
|
| | | 21,728 |
Mining - 0.24% | | | |
Compass Minerals International, Inc. | 100 | | 6,927 |
Freeport-McMoRan Copper & Gold, Inc., | | | |
Class B | 100 | | 8,932 |
Newmont Mining Corp. | 800 | | 36,080 |
| |
|
| | | 51,939 |
Mobile Homes - 0.03% | | | |
Thor Industries, Inc. | 300 | | 6,894 |
| | | |
Office Furnishings & Supplies - 0.03% | | | |
Office Depot, Inc. * | 800 | | 5,632 |
| | | |
Petroleum Services - 1.52% | | | |
Atwood Oceanics, Inc. * | 200 | | 8,132 |
Baker Hughes, Inc. | 400 | | 32,004 |
BJ Services Company | 800 | | 21,480 |
Diamond Offshore Drilling, Inc. | 300 | | 32,973 |
ENSCO International, Inc. | 100 | | 6,778 |
Halliburton Company | 900 | | 39,546 |
Helmerich & Payne, Inc. | 200 | | 11,424 |
Oceaneering International, Inc. * | 200 | | 12,482 |
Schlumberger, Ltd. | 850 | | 80,087 |
Smith International, Inc. | 300 | | 20,910 |
Valero Energy Corp. | 1,900 | | 66,044 |
| |
|
| | | 331,860 |
|
The accompanying notes are an integral part of the financial statements. |
3 |
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited) - continued
(showing percentage of total net assets)
| | | |
Growth Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
| | | |
Pharmaceuticals - 6.34% | | | |
Abbott Laboratories | 4,300 | $ | 246,949 |
Allergan, Inc. | 300 | | 16,761 |
AmerisourceBergen Corp. | 300 | | 12,303 |
Barr Pharmaceuticals, Inc. * | 200 | | 13,508 |
Bristol-Myers Squibb Company | 3,600 | | 76,824 |
Eli Lilly & Company | 2,500 | | 116,625 |
Forest Laboratories, Inc. * | 2,100 | | 74,949 |
Gilead Sciences, Inc. * | 6,100 | | 321,348 |
Merck & Company, Inc. | 3,900 | | 139,113 |
OSI Pharmaceuticals, Inc. * | 200 | | 10,100 |
Pfizer, Inc. | 18,800 | | 359,268 |
| |
|
| | | 1,387,748 |
Publishing - 0.06% | | | |
McGraw-Hill Companies, Inc. | 300 | | 12,852 |
| | | |
Railroads & Equipment - 0.76% | | | |
Burlington Northern Santa Fe Corp. | 500 | | 53,700 |
CSX Corp. | 1,100 | | 71,148 |
Norfolk Southern Corp. | 100 | | 7,353 |
Union Pacific Corp. | 400 | | 33,560 |
| |
|
| | | 165,761 |
Real Estate - 0.05% | | | |
Annaly Capital Management, Inc., REIT | 700 | | 10,472 |
| | | |
Retail Grocery - 0.05% | | | |
The Kroger Company | 400 | | 11,048 |
| | | |
Retail Trade - 11.11% | | | |
Abercrombie & Fitch Company, Class A | 600 | | 31,470 |
Advance Auto Parts, Inc. | 500 | | 21,520 |
American Eagle Outfitters, Inc. | 600 | | 9,030 |
Bed Bath & Beyond, Inc. * | 1,400 | | 42,924 |
Best Buy Company, Inc. | 1,000 | | 44,770 |
Costco Wholesale Corp. | 1,100 | | 73,766 |
CVS Caremark Corp. | 1,200 | | 43,920 |
Dollar Tree, Inc. * | 300 | | 11,508 |
Family Dollar Stores, Inc. | 200 | | 4,984 |
GameStop Corp., Class A * | 400 | | 17,548 |
Home Depot, Inc. | 7,700 | | 208,824 |
Kohl's Corp. * | 1,300 | | 63,921 |
Lowe's Companies, Inc. | 6,400 | | 157,696 |
Ross Stores, Inc. | 300 | | 12,063 |
Staples, Inc. | 3,300 | | 79,860 |
Target Corp. | 3,000 | | 159,060 |
The Gap, Inc. | 600 | | 11,670 |
The TJX Companies, Inc. | 900 | | 32,616 |
Urban Outfitters, Inc. * | 400 | | 14,248 |
Walgreen Company | 5,400 | | 196,722 |
Wal-Mart Stores, Inc. | 20,200 | | 1,193,214 |
| |
|
| | | 2,431,334 |
Sanitary Services - 0.14% | | | |
Ecolab, Inc. | 300 | | 13,722 |
Stericycle, Inc. * | 300 | | 17,790 |
| |
|
| | | 31,512 |
Semiconductors - 0.75% | | | |
Cypress Semiconductor Corp. * | 500 | | 16,210 |
| | | |
Growth Fund (continued) | | | |
| Shares or | | |
| Principal | | |
| Amount | | Value |
|
|
|
COMMON STOCKS (continued) | | | |
| | | |
Semiconductors (continued) | | | |
Intel Corp. | 4,300 | $ | 98,341 |
Lam Research Corp. * | 300 | | 11,028 |
QLogic Corp. * | 600 | | 11,208 |
Silicon Laboratories, Inc. * | 400 | | 13,484 |
Texas Instruments, Inc. | 600 | | 14,706 |
| |
|
| | | 164,977 |
Software - 6.60% | | | |
Adobe Systems, Inc. * | 900 | | 38,547 |
ANSYS, Inc. * | 300 | | 13,305 |
BMC Software, Inc. * | 300 | | 9,768 |
Citrix Systems, Inc. * | 800 | | 24,216 |
Microsoft Corp. | 32,400 | | 884,196 |
Oracle Corp. * | 21,700 | | 475,881 |
| |
|
| | | 1,445,913 |
Steel - 0.17% | | | |
Nucor Corp. | 700 | | 36,750 |
Telecommunications Equipment & | | | |
| | | |
Services - 2.07% | | | |
QUALCOMM, Inc. | 8,600 | | 452,790 |
| | | |
Telephone - 0.55% | | | |
AT&T, Inc. | 1,700 | | 54,383 |
Verizon Communications, Inc. | 1,900 | | 66,728 |
| |
|
| | | 121,111 |
Tobacco - 2.01% | | | |
Altria Group, Inc. | 8,900 | | 187,167 |
Philip Morris International, Inc. | 4,400 | | 236,280 |
UST, Inc. | 300 | | 16,077 |
| |
|
| | | 439,524 |
Transportation - 0.22% | | | |
C.H. Robinson Worldwide, Inc. | 800 | | 41,688 |
Frontline, Ltd. | 100 | | 6,041 |
| |
|
| | | 47,729 |
Trucking & Freight - 0.49% | | | |
FedEx Corp. | 200 | | 16,564 |
United Parcel Service, Inc., Class B | 1,400 | | 89,768 |
| |
|
| | | 106,332 |
|
TOTAL COMMON STOCKS (Cost $21,216,159) | | $ | 21,465,633 |
|
|
The accompanying notes are an integral part of the financial statements. |
4 |
JOHN HANCOCK FUNDS III
PORTFOLIO OF INVESTMENTS - August 31, 2008 (Unaudited) - continued
(showing percentage of total net assets)
| | | | |
Growth Fund (continued) | | | | |
| | Shares or | | |
| | Principal | | |
| | Amount | | Value |
|
|
|
REPURCHASE AGREEMENTS - 1.79% | | | | |
| | | | |
Repurchase Agreement with State | | | | |
Street Corp. dated 08/29/2008 at | | | | |
1.70% to be repurchased at | | | | |
$393,074 on 09/02/2008, | | | | |
collateralized by $315,000 Federal | | | | |
National Mortgage Association, | | | | |
7.125% due 01/15/2030 (valued at | | | | |
$403,988, including interest) | $ | 393,000 | $ | 393,000 |
|
|
TOTAL REPURCHASE AGREEMENTS | | | | |
(Cost $393,000) | | | $ | 393,000 |
| |
|
Total Investments (Growth Fund) | | | | |
(Cost $21,609,159) - 99.85% | | | $ | 21,858,633 |
Other Assets in Excess of Liabilities - 0.15% | | | | 32,469 |
|
|
TOTAL NET ASSETS - 100.00% | | | $ | 21,891,102 |
|
|
Footnotes
Percentages are stated as a percent of net assets.
Key to Security Abbreviations and Legend
REIT - Real Estate Investment Trust
* Non-Income Producing
|
The accompanying notes are an integral part of the financial statements. |
5 |
† At August 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $21,647,208. Net unrealized appreciation aggregated $211,425, of which $1,789,879 related to appreciated investment securities and $1,578,454 related to depreciated investment securities.
The Fund had the following financial futures contracts open on August 31, 2008:
| | | | |
| | | | |
OPEN CONTRACTS | NUMBER OF | | EXPIRATION | |
| CONTRACTS | POSITION | DATE | UNREALIZED DEPRECIATION |
|
|
S&P Mini 500 Index Futures | 2 | Long | Sep 2008 | $2,720 |
|
John Hancock Funds III
Funds III Growth Fund
Statements of Assets and Liabilities — August 31, 2008 (Unaudited)
| | |
Assets | | |
|
Investments, at value (Cost $21,609,159) | $ | 21,858,633 |
Cash | | 566 |
Cash collateral at brokers for futures contracts | | 21,600 |
Receivable for fund shares sold | | 18,331 |
Dividends and interest receivable | | 44,513 |
Receivable due from adviser | | 613 |
Other assets | | 34,227 |
Total assets | | 21,978,483 |
|
|
Liabilities | | |
|
Payable for fund shares repurchased | | 425 |
Payable for futures variation margin | | 1,540 |
Payable to affiliates | | |
Fund administration fees | | 129 |
Transfer agent fees | | 5,387 |
Distribution and service fees | | 185 |
Other payables and accrued expenses | | 79,715 |
Total liabilities | | 87,381 |
|
|
Net assets | | |
|
Capital paid-in | $ | 23,208,947 |
Undistributed net investment income | | 11,983 |
Accumulated undistributed net realized loss on | | |
investments and futures contracts | | (1,576,582) |
Net unrealized appreciation on investments and | | |
futures | | 246,754 |
Net assets | $ | 21,891,102 |
|
|
Net asset value per share | | |
|
The Funds have an unlimited number of shares | | |
authorized with no par value. Net asset value is | | |
calculated by dividing the net assets of each | | |
class of shares by the number of outstanding | | |
shares in the class. | | |
| | |
Class A | | |
Net assets | $ | 19,763,646 |
Shares outstanding | | 1,022,108 |
Net asset value and redemption price per share | $ | 19.34 |
| | |
Class B1 | | |
Net assets | $ | 644,091 |
Shares outstanding | | 33,782 |
Net asset value and offering price per share | $ | 19.07 |
| | |
Class C1 | | |
Net assets | $ | 1,290,987 |
Shares outstanding | | 67,715 |
Net asset value and offering price per share | $ | 19.07 |
| | |
Class I | | |
Net assets | $ | 69,126 |
Shares outstanding | | 3,540 |
Net asset value, offering price and redemption | | |
price per share | $ | 19.53 |
| | |
Class R1�� | | |
Net assets | $ | 123,252 |
Shares outstanding | | 6,400 |
Net asset value, offering price and redemption | | |
price per share | $ | 19.26 |
|
Maximum public offering price per share | | |
Class A (net asset value per share ÷ 95%)2 | $ | 20.36 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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.
John Hancock Funds III
Funds III Growth Fund
Statements of Operations — August 31, 2008 (Unaudited)1
| | |
Investment income | | |
|
Dividends | $ | 180,815 |
Interest | | 3,486 |
| | |
Total investment income | | 184,301 |
|
Expenses | | |
|
Investment management fees (Note 3) | | 93,728 |
Distribution and service fees (Note 3) | | 43,531 |
Transfer agent fees (Note 3) | | 10,866 |
Blue sky fees (Note 3) | | 38,240 |
Fund administration fees (Note 3) | | 1,392 |
Audit and legal fees | | 20,179 |
Printing and postage fees (Note 3) | | 5,638 |
Custodian fees | | 17,102 |
Trustees' fees (Note 4) | | 1,698 |
Registration and filing fees | | 6,909 |
Miscellaneous | | 199 |
| | |
Total expenses | | 239,482 |
| | |
Less expense reductions (Note 3) | | (67,120) |
Transfer agent credits (Note 3) | | (44) |
| | |
Net expenses | | 172,318 |
|
Net investment income | | 11,983 |
|
|
Realized and unrealized gain (loss) | | |
|
Net realized gain (loss) on | | |
Investments | | (826,738) |
Futures contracts | | 971 |
| | (825,767) |
|
Change in net unrealized appreciation | | |
(depreciation) of | | |
Investments | | 1,001,886 |
Futures contracts | | (1,282) |
| | 1,000,604 |
|
Net realized and unrealized gain | | 174,837 |
|
Increase in net assets from operations | $ | 186,820 |
1Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements.
John Hancock Funds III
Funds III Growth Fund
Statements of Changes in Net Assets
| | | | |
| | Year ended | | Period ended |
| | 2-29-08 | | 8-31-08 1 |
|
Increase (decrease) in net assets | | | | |
|
From operations | | | | |
Net investment income (loss) | $ | (7,022) | $ | 11,983 |
Net realized gain (loss) | | 99,196 | | (825,767) |
Change in net unrealized appreciation | | | | |
(depreciation) | | (2,053,304) | | 1,000,604 |
| | | | |
Increase (decrease) in net assets resulting | | | | |
from operations | | (1,961,130) | | 186,820 |
|
Distributions to shareholders | | | | |
From net realized gain | | | | |
Class A | | (1,315,122) | | — |
Class B | | (41,970) | | — |
Class C | | (111,505) | | — |
Class I | | (11,243) | | — |
Class R1 | | (6,262) | | — |
| | | | |
Total distributions | | (1,486,102) | | — |
| | | | |
From Fund share transactions (Note 5) | | 6,383,423 | | (3,370,377) |
|
Total increase (decrease) | | 2,936,191 | | (3,183,557) |
| | | | |
Net assets | | | | |
|
Beginning of period | | 22,138,468 | | 25,074,659 |
| | | | |
End of period | $ | 25,074,659 | $ | 21,891,102 |
| | | | |
Undistributed net investment income | $ | — | $ | 11,983 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements.
Growth Fund
Financial Highlights
Class A
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $21.65 | | $19.23 | |
Net investment income | 3 | - | 4 | 0.01 | | 0.02 | |
Net realized and unrealized gain (loss) on investments | | 1.91 | | (1.25) | | 0.09 | |
Total from investment operations | | 1.91 | | (1.24) | | 0.11 | |
Less distributions | | | | | | | |
From net investment income | | (0.04) | | - | | - | |
From net realized gain | | (0.22) | | (1.18) | | - | |
| | (0.26) | | (1.18) | | - | |
Net asset value, end of period | | $21.65 | | $19.23 | | $19.34 | |
Total return (%) | 5,6 | 9.57 | 7 | (6.28) | | 0.57 | 7 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | $21 | | $22 | | $20 | |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 2.00 | 8 | 1.85 | | 1.71 | 8 |
Expenses net of fee waivers | | 1.39 | 8 | 1.40 | | 1.40 | 8 |
Expenses net of all fee waivers and credits | | 1.39 | 8 | 1.40 | | 1.40 | 8 |
Net investment income | | 0.01 | 8 | 0.04 | | 0.17 | 8 |
Portfolio turnover (%) | | 93 | | 95 | | 32 | |
1 Class A shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Less than $0.01 per share.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment and does not reflect the effect of sales charges.
7 Not annualized.
8 Annualized.
Growth Fund
Financial Highlights
Class B
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $21.59 | | $19.02 | |
Net investment loss | 3 | (0.11) | | (0.15) | | (0.05) | |
Net realized and unrealized gain (loss) on investments | | 1.92 | | (1.24) | | 0.10 | |
Total from investment operations | | 1.81 | | (1.39) | | 0.05 | |
Less distributions | | | | | | | |
From net realized gain | | (0.22) | | (1.18) | | - | |
| | | | | | | |
Net asset value, end of period | | $21.59 | | $19.02 | | $19.07 | |
Total return (%) | 4,5 | 9.05 | 6 | (7.01) | | 0.26 | 6 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | - | 7 | $1 | | $1 | |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 11.94 | 8 | 4.74 | | 4.58 | 8 |
Expenses net of fee waivers | | 2.09 | 8 | 2.10 | | 2.10 | 8 |
Expenses net of all fee waivers and credits | | 2.09 | 8 | 2.10 | | 2.10 | 8 |
Net investment income (loss) | | (0.68) | 8 | (0.68) | | (0.53) | 8 |
Portfolio turnover (%) | | 93 | | 95 | | 32 | |
1 Class B shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment and does not reflect the effect of sales charges.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
Growth Fund
Financial Highlights
Class C
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | | 8-31-08 | 2 |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $21.59 | | $19.02 | |
Net investment loss | 3 | (0.10) | | (0.15) | | (0.05) | |
Net realized and unrealized gain (loss) on investments | | 1.91 | | (1.24) | | 0.10 | |
Total from investment operations | | 1.81 | | (1.39) | | 0.05 | |
Less distributions | | | | | | | |
From net realized gain | | (0.22) | | (1.18) | | - | |
| | | | | | | |
Net asset value, end of period | | $21.59 | | $19.02 | | $19.07 | |
Total return (%) | 4,5 | 9.05 | 6 | (7.01) | | 0.26 | 6 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | $1 | | $2 | | $1 | |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 7.70 | 7 | 3.46 | | 3.31 | 7 |
Expenses net of fee waivers | | 2.10 | 7 | 2.10 | | 2.10 | 7 |
Expenses net of all fee waivers and credits | | 2.10 | 7 | 2.10 | | 2.10 | 7 |
Net investment loss | | (0.66) | 7 | (0.68) | | (0.52) | 7 |
Portfolio turnover (%) | | 93 | | 95 | | 32 | |
1 Class C shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment and does not reflect the effect of sales charges.
6 Not annualized.
7 Annualized.
Growth Fund
Financial Highlights
Class I
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | 8-31-08 | 2 |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $21.73 | $19.38 | |
Net investment income | 3 | 0.06 | | 0.09 | 0.06 | |
Net realized and unrealized gain (loss) on investments | | 1.97 | | (1.26) | 0.09 | |
Total from investment operations | | 2.03 | | (1.17) | 0.15 | |
Less distributions | | | | | | | |
From net investment income | | (0.08) | | - | | - | |
From net realized gain | | (0.22) | | (1.18) | - | |
| | (0.30) | | (1.18) | - | |
Net asset value, end of period | | $21.73 | | $19.38 | $19.53 | |
Total return (%) | 4,5 | 10.18 | 6 | (5.94) | 0.77 | 6 |
| | | | | | | |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | - | 7 | - | 7 | - | 7 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 1.90 | 8 | 9.72 | 28.55 | 8 |
Expenses net of fee waivers | | 1.00 | 8 | 1.00 | 1.00 | 8 |
Expenses net of all fee waivers and credits | | 1.00 | 8 | 1.00 | 1.00 | 8 |
Net investment income | | 0.43 | 8 | 0.40 | 0.58 | 8 |
Portfolio turnover (%) | | 93 | | 95 | 32 | |
1 Class I shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment and does not reflect the effect of sales charges.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
Growth Fund
Financial Highlights
Class R1
| | | | | | | |
Period ended | | 2-28-07 | 1 | 2-29-08 | 2-29-08 | 2 |
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $20.00 | | $21.60 | $19.16 | |
Net investment income (loss) | 3 | (0.05) | | (0.01) | 0.01 | |
Net realized and unrealized gain (loss) on investments | | 1.90 | | (1.25) | 0.09 | |
Total from investment operations | | 1.85 | | (1.26) | 0.10 | |
Less distributions | | | | | | | |
From net investment income | | (0.03) | | - | - | |
From net realized gain | | (0.22) | | (1.18) | - | |
| | (0.25) | | (1.18) | - | |
Net asset value, end of period | | $21.60 | | $19.16 | $19.26 | |
Total return (%) | 4,5 | 9.27 | 6 | (6.39) | 0.52 | 6 |
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | - | 7 | - | 7 | - | 7 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | 21.55 | 8 | 15.85 | 14.56 | 8 |
Expenses net of fee waivers | | 1.74 | 8 | 1.50 | 1.50 | 8 |
Expenses net of all fee waivers and credits | | 1.74 | 8 | 1.50 | 1.50 | 8 |
Net investment income (loss) | | (0.34) | 8 | (0.06) | 0.08 | 8 |
Portfolio turnover (%) | | 93 | | 95 | 32 | |
1 Class R1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment and does not reflect the effect of sales charges.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
Note 1
Organization
John Hancock Growth Fund (the Fund) is a 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 and Class R1 shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. 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 (SEC) 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. Class B shares will convert to Class A shares eight years after purchase.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B and Class C, Class I and Class R1 shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. Short-term debt investments that have a remaining maturity 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. Investments in John Hancock Cash Investment Trust (JHCIT), an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. 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 the principal securities exchange (domestic or foreign) on w hich 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. Securities for which there are no such quotations, principally debt securities, are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| Investments in | Other Financial |
Valuation Inputs | Securities | Instruments* |
|
|
Level 1 – Quoted Prices | $21,465,633 | ($2,720) |
|
Level 2 – Other Significant Observable Inputs | 393,000 | - |
|
Level 3 – Significant Unobservable Inputs | - | - |
|
Total | $21,858,633 | ($2,720) |
|
* Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument.
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 counter party.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C, Class I and Class R1 shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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 August 31, 2008, there were no significant borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
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, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by 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.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. Net capital losses of $733,332 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on March 1, 2008, the first day of the Fund’s next taxable year.
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund's fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund's financial statements. Each of the Fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
New accounting pronouncement
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company, and any credit risk-related contingent features of the agreements. Management is curren tly evaluating the adoption of FAS 161 on the Fund’s financial statement disclosures.
Distribution of income and gains
The Fund declares and pays dividends annually. Capital gains, if any, are distributed annually. 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 29, 2008, the tax character of distributions paid was as follows: ordinary income $1,248,461 and long-term capital gain $237,641. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Note 3
Investment advisory and other agreements
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. 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 Trust, a series of John Hanco ck Trust. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.80% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.11% of the Fund’s average annual net assets which are allocated pro rata to all share classes. This agreement excludes taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded. The reimbursements and limits are such that these expenses will not exceed 1.40% for Class A shares, 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 or reimbursements related to this agreement were $32,468, $8,467, $10,332, $7,745 and $8,062 for Class A, Class B, Class C, Class I and Class R1, respectively for the period August 31, 2008. The expense reimbursements and limits will continue in effect until June 30, 2009 and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $1,392 with an annual effective rate of 0.01% of the Fund’s average daily net assets.
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 pay 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 Financial Industry Regulatory Authority (formerly 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, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 average daily net asset value for certain other services. There were no Service Plan fees incurred for the year ended August 31, 2008.
Class A shares are assessed up-front sales charges. During the period ended August 31, 2008, the Distributor received net up-front sales charges of $6,943 with regard to sales of Class A shares. Of this amount, $1,049 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $5,894 was paid as sales commissions to unrelated broker-dealers and there were no sales commissions paid 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 August 31, 2008, CDSCs received by the Distributor amounted to $2,722 for Class B shares and there were no CDSCs for Class C shares.
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. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C, Class I and Class R1 shareholder accounts.
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, 2008. Signature Services reserves the right to terminate this limitation in the future. 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 August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $46.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $44 for transfer agent credits earned.
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent fees | Blue sky fees | postage fees |
|
Class A | $31,303 | $8,375 | $8,369 | $4,761 |
| | | | |
Class B | 3,408 | 685 | 7,271 | 154 |
| | | | |
Class C | 8,510 | 1,713 | 7,338 | 413 |
| | | | |
Class I | - | 15 | 7,437 | 234 |
| | | | |
Class R1 | 310 | 78 | 7,825 | 76 |
| | | | |
Total | $43,531 | $10,866 | $38,240 | $5,638 |
Note 4
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.
Note 5
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value.
| | | | | | | |
| Year ended | | Period ended1 |
| 2-29-08 | | 8-31-08 |
|
|
| Shares | | Amount | | Shares | | Amount |
Class A shares | | | | | | | |
Sold | 253,211 | $ | 5,635,153 | | 36,032 | $ | 696,127 |
Distributions reinvested | 60,442 | | 1,296,476 | | — | | — |
Repurchased | (100,129) | | (2,102,448) | | (176,260) | | (3,450,541) |
|
| |
| |
| |
|
Net increase (decrease) | 213,524 | $ | 4,829,181 | | (140,228) | $ | (2,754,414) |
|
| |
| | | | |
Class B shares | | | | | | | |
Sold | 29,429 | $ | 643,344 | | 3,136 | $ | 60,242 |
Distributions reinvested | 1,972 | | 41,918 | | — | | — |
Repurchased | (13,671) | | (298,183) | | (6,721) | | (129,677) |
|
| |
| |
| |
|
Net increase (decrease) | 17,730 | $ | 387,079 | | (3,585) | $ | (69,435) |
|
| |
| | | | |
Class C shares | | | | | | | |
Sold | 71,331 | $ | 1,568,194 | | 11,443 | $ | 219,149 |
Distributions reinvested | 4,932 | | 104,855 | | — | | — |
Repurchased | (22,472) | | (471,936) | | (40,032) | | (770,943) |
|
| |
| |
| |
|
Net increase (decrease) | 53,791 | $ | 1,201,113 | | (28,589) | $ | (551,794) |
|
| |
| | | |
|
Class I shares | | | | | | | |
Sold | 7,959 | $ | 180,651 | | 2,898 | $ | 56,824 |
Distributions reinvested | 520 | | 11,243 | | — | | — |
Repurchased | (11,806) | | (252,855) | | (2,630) | | (52,028) |
|
| |
| |
| |
|
Net increase | (3,327) | $ | (60,961) | | 268 | $ | 4,796 |
|
| |
| |
| |
|
Class R1 shares | | | | | | | |
Sold | 1,028 | $ | 20,749 | | 188 | $ | 3,640 |
Distributions reinvested | 293 | | 6,262 | | — | | — |
Repurchased | — | | — | | (168) | | (3,170) |
|
| |
| |
| |
|
Net increase | 1,321 | $ | 27,011 | | 20 | $ | 470 |
|
| |
| | | |
|
Net increase (decrease) | 283,039 | $ | 6,383,423 | | (172,114) | $ | (3,370,377) |
|
| |
| |
| |
|
1Semiannual period from 3-1-08 to 8-31-08. Unaudited.
The Adviser and other affiliates of John Hancock USA owned 779,618 and 5,338 shares of beneficial interest of Class A and Class R1, respectively, on August 31, 2008.
Note 6
Purchase and sale of securities
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 August 31, 2008, aggregated $7,372,720 and $10,849,696, respectively.
Note 7
Subsequent event
On September 8, 2008, the Board of Trustees of the Fund approved the proposed liquidation of the Fund. The liquidation occurred on October 24, 2008.
|
INSERT TO SHAREHOLDER REPORTS |
|
Board Consideration of and Continuation of |
Investment Advisory Agreement and Subadvisory Agreement: |
John Hancock Growth Fund |
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Trustees (the “Board”) of John Hancock Funds III (the “Trust”), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the “Advisory Agreement”) with John Hancock Investment Management Services, LLC (the “Adviser”) and (ii) the investment subadvisory agreement (the “Subadvisory Agreement”) with Grantham, Mayo, Van Otterloo & Co. LLC (the “Subadviser”) for the John Hancock Growth Fund (the “Fund”). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the “Advisory Agreements.”
At meetings held on May 5-6 and June 9-10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the investment performance of the Fund relative to a category of relevant funds (the “Category”) and a peer group of comparable funds (the “Peer Group”). The funds within each Category and Peer Group were selected by Morningstar Inc. (“Morningstar”), an independent provider of investment company data. Data covered the period since the Fund’s inception through December 31, 2007,
(ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group,
(iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser,
(iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund,
(v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale,
(vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department,
(vii) the background and experience of senior management and investment professionals, and
(viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board principally considered data on performance and other information provided by Morningstar as of December 31, 2007. The Board also considered updated performance information provided to it by the Adviser or Subadviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below.
Nature, Extent and Quality of Services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and Subadviser. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser supported renewal of the Advisory Agreements.
Fund Performance
The Board noted that the Fund had less than two full years of operational history, and considered the performance results for the Fund since its inception through December 31, 2007. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. The Board reviewed with representatives of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance was lower than the performance of the Category and Peer Group medians, and its benchmark index, the Russell 1000 Growth Index, over the 1-year period. The Adviser discussed its plans with respect to the Fund. The Board recognized the short operational history of the Fund and indicated its intent to continue to monitor the Fund’s performance trends.
Investment Advisory Fee and Subadvisory Fee Rates and Expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the “Advisory Agreement Rate”). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was not appreciably higher than the median rate of the Peer Group or Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (“Gross Expense Ratio”) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (“Net Expense Ratio”). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross Expense Ratio was higher than the median of the Peer Group and Category. The Board also noted that the Fund’s Net Expense Ratio was higher than the median of the Category but not appreciably higher than the Peer Group.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s expenses and overall plans to improve performance supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the “Subadvisory Agreement Rate”) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Subadviser, which is not affiliated with the Adviser. The Board considered that the Subadvisory Agreement Rate paid to the Subadviser had been negotiated by the Adviser on an arm’s length basis and that the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of Scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information About Services to Other Clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other Benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadviser with the Fund and benefits potentially derived from an increase in business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other Factors and Broader Review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its
shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
A look at performance
For the periods ended August 31, 2008
| | | | | | | | | | | |
| | Average annual returns (%) | | | Cumulative total returns (%) | | |
| | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| |
| |
|
| Inception | | | | Since | | Six | | | | Since |
Class | date | 1-year | 5-year | 10-year | inception | | months | 1-year | 5-year | 10-year | inception |
|
A | 6-12-06 | –15.74 | — | — | 4.21 | | –12.76 | –15.74 | — | — | 9.62 |
|
B | 6-12-06 | –16.14 | — | — | 4.59 | | –13.12 | –16.14 | — | — | 10.50 |
|
C | 6-12-06 | –12.85 | — | — | 5.83 | | –9.43 | –12.85 | — | — | 13.45 |
|
I1 | 6-12-06 | –10.96 | — | — | 7.09 | | –7.99 | –10.96 | — | — | 16.49 |
|
R11 | 6-12-06 | –11.31 | — | — | 6.45 | | –8.24 | –11.31 | — | — | 14.93 |
|
11 | 6-12-06 | –10.91 | — | — | 7.13 | | –7.95 | –10.91 | — | — | 16.58 |
|
NAV1 | 12-27-06 | –10.85 | — | — | –2.46 | | –7.92 | –10.85�� | — | — | –4.09 |
|
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 to 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 expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The waivers and expense limitations are contractual at least until June 30, 2009. The net expenses are as follows: Class A — 1.56%, Class B — 2.40%, Class C —2.40%, Class I — 1.20%, Class R1 — 1.70%, Class 1 — 1.15%, Class NAV — 1.10%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A —2.21%, Class B — 4.62%, Class C — 3.73%, Class I — 5.07%, Class R1 — 14.42%, Class 1 — 1.83%, Class NAV — 1.77%.
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 current to the most recent month end performance data, 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.
1 For certain types of investors as described in the Fund’s Class I, Class R1, Class 1 and Class NAV share prospectuses.
| |
6 | International Growth Fund | Semiannual report |
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 | $11,350 | $11,050 | $11,055 | $11,006 |
|
C2 | 6-12-06 | 11,345 | 11,345 | 11,055 | 11,006 |
|
I3 | 6-12-06 | 11,649 | 11,649 | 11,055 | 11,006 |
|
R13 | 6-12-06 | 11,493 | 11,493 | 11,055 | 11,006 |
|
13 | 6-12-06 | 11,658 | 11,658 | 11,055 | 11,006 |
|
NAV3 | 12-27-06 | 9,591 | 9,591 | 9,444 | 9,212 |
|
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 August 31, 2008. 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 USD 100 million), representing the top 80% of available capital of the BMI in each country.
MSCI EAFE (Europe, Australasia, Far East) Net Total Return Index — Index 2 — is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. As of June 2007, 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, the 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.
1 NAV represents net asset value and POP represents public offering price.
2 No contingent deferred sales charge applicable.
3 For certain types of investors as described in the Fund’s Class I, Class R1, Class 1 and Class NAV share prospectuses.
| |
Semiannual report | 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 March 1, 2008 with the same investment held until August 31, 2008.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $918.20 | $7.54 |
|
Class B | 1,000.00 | 914.50 | 11.58 |
|
Class C | 1,000.00 | 914.90 | 11.58 |
|
Class I | 1,000.00 | 920.10 | 5.81 |
|
Class R1 | 1,000.00 | 917.60 | 8.22 |
|
Class 1 | 1,000.00 | 920.50 | 5.57 |
|
Class NAV | 1,000.00 | 920.80 | 5.33 |
|
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 August 31, 2008, 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:
| |
8 | International Growth Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. 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 |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,017.30 | $7.93 |
|
Class B | 1,000.00 | 1,013.10 | 12.18 |
|
Class C | 1,000.00 | 1,013.10 | 12.18 |
|
Class I | 1,000.00 | 1,019.20 | 6.11 |
|
Class R1 | 1,000.00 | 1,016.60 | 8.64 |
|
Class 1 | 1,000.00 | 1,019.40 | 5.85 |
|
Class NAV | 1,000.00 | 1,019.70 | 5.60 |
|
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.56%, 2.40%, 2.40%, 1.20%, 1.70%, 1.15%, and 1.10% 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 most recent fiscal half-year/365 (to reflect the one-half year period).
| |
Semiannual report | International Growth Fund | 9 |
Portfolio summary
| | | | |
Top 10 holdings1 | | | | |
|
GlaxoSmithKline PLC | 4.5% | | Potash Corp. of Saskatchewan, Inc. | 2.6% |
| |
|
BG Group PLC | 3.4% | | Roche Holdings AG Genusschein | 2.1% |
| |
|
Nestle SA | 3.4% | | Total SA | 2.1% |
| |
|
Novartis AG | 2.8% | | Nokia AB Oyj | 1.9% |
| |
|
Telefonica SA | 2.6% | | Rio Tinto PLC | 1.8% |
| |
|
|
Sector distribution1,2 | | | | |
|
Consumer Non-cyclical | 29% | | Industrial | 9% |
| |
|
Basic Materials | 13% | | Technology | 4% |
| |
|
Consumer Cyclical | 10% | | Financial | 4% |
| |
|
Energy | 10% | | Utilities | 3% |
| |
|
Communications | 9% | | Short-term Investments & Other | 9% |
| |
|
1 As a percentage of net assets on August 31, 2008.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors. International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting.
| |
10 | International Growth Fund | Semiannual report |
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 8-31-08 (unaudited)
This schedule is divided into four main categories: common stocks, preferred stocks, rights and repurchase agreements. Common stocks and preferred stocks are further broken down by country. Repurchase agreements, which represent the Fund’s cash position, are listed last.
| | |
Issuer | Shares | Value |
|
Common stocks 89.39% | | $43,749,360 |
|
(Cost $46,180,435) | | |
| | |
Australia 5.14% | | 2,516,248 |
|
AMP, Ltd. | 7,540 | 44,638 |
|
Australian Stock Exchange, Ltd. | 3,499 | 104,980 |
|
BHP Billiton, Ltd. | 4,898 | 172,026 |
|
Brambles, Ltd. | 12,040 | 78,999 |
|
CSL, Ltd. | 6,863 | 239,521 |
|
CSR, Ltd. | 17,494 | 39,698 |
|
Foster’s Group, Ltd. | 16,592 | 79,191 |
|
Incitec Pivot, Ltd. | 916 | 124,615 |
|
Leighton Holdings, Ltd. | 923 | 36,423 |
|
Macquarie Group, Ltd. | 662 | 24,548 |
|
Newcrest Mining, Ltd. * | 4,321 | 101,330 |
|
Oil Search, Ltd. | 6,837 | 34,930 |
|
Origin Energy, Ltd. | 6,083 | 83,915 |
|
QBE Insurance Group, Ltd. | 1,124 | 22,860 |
|
Rio Tinto, Ltd. | 1,236 | 134,011 |
|
St. George Bank, Ltd. | 1,640 | 42,294 |
|
TABCORP Holdings, Ltd. | 3,284 | 23,990 |
|
Telstra Corp., Ltd. | 27,131 | 100,712 |
|
Toll Holdings, Ltd. | 6,198 | 36,697 |
|
Virgin Blue Holdings, Ltd. | 6,198 | 3,040 |
|
Wesfarmers, Ltd. | 2,075 | 54,402 |
|
Westpac Banking Corp., Ltd. | 1,338 | 26,740 |
|
Woodside Petroleum, Ltd. | 8,144 | 437,438 |
|
Woolworths, Ltd. | 15,585 | 376,261 |
|
WorleyParsons, Ltd. | 2,954 | 92,989 |
| | |
Austria 0.26% | | 127,771 |
|
Immofinanz Immobilien Anlage AG | 4,969 | 45,133 |
|
Oesterreichische Elektrizitaets AG, Class A | 1,096 | 82,638 |
| | |
Belgium 0.16% | | 78,008 |
|
Belgacom SA | 843 | 33,568 |
|
Colruyt SA | 163 | 44,440 |
See notes to financial statements
| |
Semiannual report | 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 |
Bermuda 0.22% | | $105,166 |
|
Frontline, Ltd. | 435 | 26,024 |
|
SeaDrill, Ltd., GDR | 2,900 | 79,142 |
| | |
Canada 5.66% | | 2,771,087 |
|
Agrium, Inc. | 2,000 | 169,166 |
|
Canadian National Railway Company | 3,500 | 183,636 |
|
Canadian Natural Resources, Ltd. | 1,200 | 102,437 |
|
Canadian Pacific Railway, Ltd. | 1,200 | 73,211 |
|
Enbridge, Inc. | 1,000 | 41,938 |
|
EnCana Corp. | 1,200 | 90,198 |
|
Husky Energy, Inc. | 1,900 | 83,995 |
|
IGM Financial, Inc. * | 900 | 37,626 |
|
Penn West Energy Trust | 1,500 | 44,034 |
|
Potash Corp. of Saskatchewan, Inc. | 7,300 | 1,270,247 |
|
Research In Motion, Ltd. * | 2,700 | 328,969 |
|
Royal Bank of Canada | 2,600 | 119,373 |
|
Shoppers Drug Mart Corp. | 2,800 | 146,091 |
|
Suncor Energy, Inc. | 1,400 | 80,166 |
| | |
Denmark 2.60% | | 1,274,179 |
|
A P Moller Maersk AS, Series A | 7 | 78,440 |
|
A P Moller Maersk AS | 2 | 22,375 |
|
H. Lundbeck AS | 2,600 | 60,397 |
|
Novo Nordisk AS | 9,114 | 508,760 |
|
Rockwool International AS, B Shares | 322 | 31,211 |
|
Sydbank AS | 1,344 | 43,792 |
|
Vestas Wind Systems AS * | 3,900 | 529,204 |
| | |
Finland 2.77% | | 1,354,083 |
|
Fortum Corp. Oyj | 2,325 | 95,431 |
|
Kone Corp. Oyj | 2,028 | 62,810 |
|
Nokia AB Oyj | 37,185 | 931,015 |
|
Nokian Renkaat Oyj | 3,688 | 131,339 |
|
Outokumpu Oyj | 2,157 | 51,651 |
|
Outotec Oyj | 338 | 15,355 |
|
YIT Oyj | 4,274 | 66,482 |
| | |
France 5.72% | | 2,799,140 |
|
Air Liquide | 1,160 | 140,894 |
|
Alstom | 1,438 | 146,075 |
|
Dassault Systemes SA | 740 | 44,724 |
|
Electricite de France | 797 | 68,163 |
|
Eramet | 68 | 37,235 |
|
Essilor International SA | 2,803 | 149,113 |
|
Groupe DANONE | 2,692 | 187,650 |
|
Hermes International SA | 1,008 | 143,150 |
|
Lafarge SA | 240 | 28,953 |
|
L’Oreal SA | 2,020 | 200,504 |
See notes to financial statements
| |
12 | International Growth Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
France (continued) | | |
|
LVMH Moet Hennessy SA | 470 | $49,913 |
|
Neopost SA | 406 | 42,328 |
|
Sanofi-Aventis SA | 4,029 | 285,839 |
|
Total SA | 14,050 | 1,009,298 |
|
UbiSoft Entertainment SA * | 909 | 84,791 |
|
Vallourec SA | 196 | 54,525 |
|
Veolia Environnement SA | 1,504 | 80,670 |
|
Wendel, ADR | 411 | 45,315 |
| | |
Germany 5.80% | | 2,839,865 |
|
Adidas-Salomon AG | 2,578 | 150,922 |
|
BASF AG | 690 | 39,809 |
|
Beiersdorf AG | 1,771 | 102,861 |
|
Bilfinger Berger AG | 703 | 49,434 |
|
Deutsche Boerse AG | 3,142 | 296,839 |
|
E.ON AG | 3,759 | 219,524 |
|
Fresenius SE | 585 | 47,648 |
|
K&S AG | 3,365 | 406,114 |
|
Kloeckner & Company AG | 1,722 | 68,649 |
|
Linde AG | 1,124 | 141,381 |
|
Muenchener Rueckversicherungs – Gesellschaft AG | 87 | 13,507 |
|
Norddeutsche Affinerie AG | 1,022 | 47,304 |
|
Puma AG | 115 | 36,127 |
|
Q-Cells AG * | 932 | 93,880 |
|
RWE AG | 675 | 72,814 |
|
Salzgitter AG | 456 | 69,894 |
|
SAP AG | 13,494 | 756,063 |
|
SGL Carbon AG * | 2,161 | 129,691 |
|
Solarworld AG | 579 | 30,015 |
|
Stada Arzneimittel AG | 566 | 30,824 |
|
Wacker Chemie AG | 199 | 36,565 |
| | |
Greece 0.54% | | 264,698 |
|
Alpha Bank A.E. | 1,263 | 32,138 |
|
Bank of Piraeus SA | 935 | 25,201 |
|
Coca-Cola Hellenic Bottling Company SA | 1,948 | 47,975 |
|
National Bank of Greece SA | 1,798 | 79,258 |
|
OPAP SA | 2,288 | 80,126 |
| | |
Hong Kong 1.58% | | 772,264 |
|
CLP Holdings, Ltd. | 18,000 | 146,024 |
|
Esprit Holdings, Ltd. | 11,600 | 95,761 |
|
Hang Seng Bank, Ltd. | 8,400 | 165,676 |
|
Hong Kong & China Gas Company, Ltd. | 38,500 | 86,382 |
|
Hong Kong Electric Holdings, Ltd. | 17,000 | 107,937 |
|
Hong Kong Exchange & Clearing, Ltd. | 4,500 | 58,129 |
See notes to financial statements
| |
Semiannual report | 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 |
Hong Kong (continued) | | |
|
Li & Fung, Ltd. | 12,000 | $36,489 |
|
Sun Hung Kai Properties, Ltd. | 3,000 | 40,906 |
|
Swire Pacific, Ltd., Class A | 3,500 | 34,960 |
| | |
Ireland 0.10% | | 48,102 |
|
CRH PLC | 1,844 | 48,102 |
| | |
Italy 0.20% | | 99,202 |
|
A2A SpA | 2,952 | 9,226 |
|
Eni SpA | 1,376 | 44,634 |
|
Intesa Sanpaolo SpA | 8,447 | 45,342 |
| | |
Japan 17.44% | | 8,535,227 |
|
Aisin Seiki Company | 2,600 | 68,448 |
|
Asahi Breweries, Ltd. | 2,500 | 46,307 |
|
Astellas Pharmaceuticals, Inc. | 3,500 | 157,646 |
|
Canon, Inc. | 12,200 | 547,094 |
|
Central Japan Railway Company, Ltd. | 10 | 103,879 |
|
Daiichi Sankyo Company, Ltd. | 4,900 | 147,416 |
|
Daikin Industries, Ltd. | 3,800 | 128,092 |
|
Dena Company, Ltd. | 13 | 63,425 |
|
Denso Corp. | 1,700 | 44,070 |
|
East Japan Railway Company | 17 | 135,219 |
|
Eisai Company, Ltd. | 2,900 | 115,330 |
|
Fanuc, Ltd. | 1,700 | 126,477 |
|
Fast Retailing Company, Ltd. | 1,600 | 161,498 |
|
Fujitsu, Ltd. | 7,000 | 48,383 |
|
Hisamitsu Pharmaceutical Company, Inc. | 1,100 | 48,858 |
|
Hitachi Metals, Ltd. | 3,000 | 44,546 |
|
Honda Motor Company, Ltd. | 8,300 | 269,564 |
|
Hoya Corp. | 5,400 | 110,080 |
|
Inpex Holdings, Inc. | 17 | 185,116 |
|
Japan Tobacco, Inc. | 30 | 142,377 |
|
JFE Holdings, Inc. | 700 | 29,582 |
|
JGC Corp. | 2,000 | 38,299 |
|
Kao Corp. | 10,000 | 283,130 |
|
Keyence Corp. | 800 | 161,825 |
|
Komatsu, Ltd. | 1,100 | 23,022 |
|
Konica Minolta Holdings, Inc. | 6,000 | 82,697 |
|
Marubeni Corp. | 8,000 | 49,499 |
|
Matsushita Electric Industrial Company, Ltd. | 36,000 | 739,938 |
|
Mazda Motor Corp. | 8,000 | 42,583 |
|
Mitsubishi Corp. | 15,900 | 436,758 |
|
Mitsubishi Estate Company, Ltd. | 3,000 | 66,267 |
|
Mitsubishi Gas & Chemicals Company, Inc. | 4,000 | 22,655 |
|
Mitsui Fudosan Company, Ltd. | 2,000 | 41,678 |
|
Mitsui O.S.K. Lines, Ltd. | 4,000 | 47,408 |
See notes to financial statements
| |
14 | International Growth Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
Japan (continued) | | |
|
Mitsui Trust Holdings, Inc. | 5,000 | $27,566 |
|
Mizuho Financial Group, Inc. | 13 | 55,340 |
|
Murata Manufacturing Company, Ltd. | 1,700 | 74,701 |
|
NGK INSULATORS, Ltd. | 2,000 | 24,003 |
|
Nidec Corp. | 700 | 47,052 |
|
Nikon Corp. | 4,000 | 129,825 |
|
Nintendo Company, Ltd. | 1,100 | 516,406 |
|
Nippon Electric Glass Company, Ltd. | 6,000 | 80,034 |
|
Nippon Yusen Kabushiki Kaisha | 8,000 | 63,842 |
|
Nitto Denko Corp. | 2,800 | 84,049 |
|
NTT DoCoMo, Inc. | 68 | 107,169 |
|
Olympus Optical Company, Ltd. | 2,000 | 64,980 |
|
Orix Corp. | 240 | 29,237 |
|
Osaka Gas Company, Ltd. | 3,000 | 10,915 |
|
Rakuten, Inc. | 84 | 46,787 |
|
Resona Holdings, Inc. | 10 | 11,639 |
|
Rohm Company, Ltd. | 500 | 28,786 |
|
SANKYO Company, Ltd. | 700 | 33,144 |
|
SBI Holdings, Inc. | 56 | 10,042 |
|
Secom Company, Ltd. | 1,700 | 78,312 |
|
SEGA SAMMY HOLDINGS, Inc. | 3,000 | 28,455 |
|
Seven & I Holdings Company, Ltd. | 9,000 | 262,148 |
|
Shimamura Company, Ltd. | 500 | 28,001 |
|
Shin-Etsu Chemical Company, Ltd. | 6,200 | 344,907 |
|
Shiseido Company, Ltd. | 4,000 | 93,655 |
|
Sojitz Holdings Corp. | 13,400 | 38,234 |
|
Sumco Corp. | 900 | 17,830 |
|
Sumitomo Metal Industries, Ltd. | 26,000 | 114,856 |
|
Takeda Pharmaceutical Company, Ltd. | 10,700 | 558,971 |
|
Terumo Corp. | 3,400 | 189,150 |
|
The Japan Steel Works, Ltd. | 4,000 | 68,888 |
|
Tokyo Electron, Ltd. | 900 | 50,920 |
|
Toshiba Corp. | 13,000 | 72,512 |
|
Toyota Motor Corp. | 1,000 | 44,618 |
|
Toyota Tsusho Corp. | 1,000 | 17,099 |
|
Trend Micro, Inc. | 1,500 | 50,765 |
|
Yahoo Japan Corp. | 479 | 183,577 |
|
Yamada Denki Company, Ltd. | 1,220 | 87,646 |
| | |
Luxembourg 1.63% | | 798,483 |
|
ArcelorMittal | 10,178 | 798,483 |
| | |
Netherlands 1.73% | | 846,238 |
|
Fugro NV | 1,192 | 91,928 |
|
Heineken NV | 2,664 | 124,896 |
|
Koninklijke (Royal) KPN NV | 10,034 | 170,248 |
See notes to financial statements
| |
Semiannual report | 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 |
Netherlands (continued) | | |
|
Koninklijke Boskalis Westinster NV | 874 | $51,623 |
|
Reed Elsevier NV | 3,920 | 65,543 |
|
TNT Post Group NV | 1,112 | 41,479 |
|
Unilever NV | 9,622 | 265,498 |
|
Wolters Kluwer NV | 1,439 | 35,023 |
| | |
Norway 0.65% | | 316,944 |
|
Statoil ASA | 5,550 | 170,249 |
|
Telenor ASA | 2,400 | 37,720 |
|
Yara International ASA | 1,760 | 108,975 |
| | |
Portugal 0.09% | | 43,682 |
|
Portugal Telecom, SGPS, SA | 4,181 | 43,682 |
| | |
Singapore 0.99% | | 485,837 |
|
Keppel Corp., Ltd. | 5,000 | 34,723 |
|
Keppel Land, Ltd. | 12,000 | 32,595 |
|
SembCorp Industries, Ltd. | 20,000 | 58,055 |
|
SembCorp Marine, Ltd. | 31,000 | 82,163 |
|
Singapore Exchange, Ltd. | 7,000 | 30,911 |
|
Singapore Press Holdings, Ltd. | 13,000 | 37,604 |
|
Singapore Telecommunications, Ltd. | 85,000 | 209,786 |
| | |
Spain 3.36% | | 1,645,576 |
|
Banco Bilbao Vizcaya Argentaria SA | 2,583 | 43,585 |
|
Corporacion Mapfre SA | 9,315 | 44,548 |
|
Gas Natural SDG SA | 769 | 35,626 |
|
Iberdrola SA | 3,312 | 39,907 |
|
Industria de Diseno Textil SA | 2,341 | 108,873 |
|
Red Electrica De Espana | 1,463 | 86,317 |
|
Telefonica SA | 52,076 | 1,286,720 |
| | |
Sweden 0.68% | | 330,915 |
|
Hennes & Mauritz AB, B shares | 5,260 | 260,663 |
|
Lundin Petroleum AB, Series A * | 3,600 | 39,269 |
|
Sandvik AB | 2,500 | 30,983 |
| | |
Switzerland 11.35% | | 5,556,603 |
|
ABB, Ltd. * | 15,717 | 385,502 |
|
Compagnie Financiere Richemont AG, Series A * | 3,849 | 223,954 |
|
Credit Suisse Group AG | 947 | 43,924 |
|
Geberit AG, ADR | 329 | 47,887 |
|
Lonza Group AG | 327 | 46,161 |
|
Nestle SA | 37,811 | 1,665,937 |
|
Novartis AG | 24,796 | 1,381,349 |
|
Roche Holdings AG Genusschein | 6,062 | 1,020,103 |
|
Societe Generale de Surveillance Holdings AG | 34 | 43,565 |
|
Swatch Group AG, BR shares | 193 | 45,361 |
|
Swisscom AG | 127 | 40,695 |
See notes to financial statements
| |
16 | International Growth Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
Switzerland (continued) | | |
|
Syngenta AG | 1,739 | $466,590 |
|
Synthes AG | 1,052 | 145,575 |
| | |
United Kingdom 20.72% | | 10,140,042 |
|
3i Group PLC | 3,590 | 59,989 |
|
Antofagasta PLC | 4,725 | 53,109 |
|
AstraZeneca Group PLC | 10,507 | 512,236 |
|
BAE Systems PLC | 10,007 | 87,337 |
|
BG Group PLC | 75,369 | 1,671,785 |
|
BHP Billiton PLC | 4,495 | 140,001 |
|
British American Tobacco PLC | 13,250 | 447,640 |
|
British Energy Group PLC | 3,524 | 47,060 |
|
British Sky Broadcasting Group PLC | 4,325 | 36,645 |
|
BT Group PLC | 21,998 | 69,041 |
|
Burberry Group PLC | 9,004 | 73,290 |
|
Cadbury PLC | 6,591 | 75,639 |
|
Cairn Energy PLC * | 879 | 47,557 |
|
Capita Group PLC | 6,200 | 79,771 |
|
Centrica PLC | 2,343 | 13,948 |
|
Diageo PLC | 36,414 | 672,528 |
|
Drax Group PLC | 3,707 | 50,281 |
|
Enterprise Inns PLC | 3,027 | 16,653 |
|
GlaxoSmithKline PLC | 94,078 | 2,213,735 |
|
ICAP PLC | 4,136 | 35,613 |
|
Imperial Tobacco Group PLC | 5,125 | 168,976 |
|
Kazakhmys PLC | 391 | 9,175 |
|
Man Group PLC, ADR | 6,791 | 69,978 |
|
Marks & Spencer Group PLC | 3,497 | 16,666 |
|
Michael Page International PLC | 6,669 | 44,433 |
|
Next Group PLC | 3,364 | 64,909 |
|
Petrofac, Ltd. * | 3,750 | 44,479 |
|
Prudential PLC | 4,409 | 43,784 |
|
Reckitt Benckiser PLC | 9,144 | 462,270 |
|
Reed Elsevier PLC | 15,353 | 175,470 |
|
Rio Tinto PLC | 9,364 | 888,913 |
|
Scottish & Southern Energy PLC | 6,164 | 162,356 |
|
Smith & Nephew PLC | 10,653 | 127,840 |
|
Smiths Group PLC | 2,064 | 42,916 |
|
Tesco PLC | 13,525 | 93,747 |
|
The Sage Group PLC | 12,288 | 46,852 |
|
Thomson Reuters PLC * | 3,107 | 86,792 |
|
Travis Perkins PLC | 2,014 | 24,527 |
|
Tullow Oil PLC | 5,468 | 81,958 |
|
Unilever PLC | 3,019 | 80,976 |
|
Vedanta Resources PLC | 777 | 25,655 |
See notes to financial statements
| |
Semiannual report | International Growth 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) | | |
|
Vodafone Group PLC | 268,625 | $686,483 |
|
William Hill PLC | 5,045 | 25,953 |
|
Wolseley PLC | 2,990 | 24,125 |
|
Xstrata PLC | 4,250 | 236,951 |
|
Preferred stocks 0.15% | | $75,005 |
|
(Cost $48,666) | | |
| | |
Germany 0.15% | | 75,005 |
|
Volkswagen AG (f) | 487 | 75,005 |
|
Rights 0.00% | | $632 |
|
(Cost $0) | | |
Leighton Holdings, Ltd. (Expiration Date | | |
9-11-08, Strike Price AUD 35.35) | 66 | 632 |
|
| Principal | |
Issuer, description, maturity date | amount | Value |
Repurchase agreements 8.23% | | $4,026,000 |
|
(Cost $4,026,000) | | |
| | |
Repurchase Agreement with State Street Corp. dated | | |
8-29-08 at 1.70% to be repurchased at $4,026,760 | | |
on 9-2-08, collateralized by $4,045,000 Federal Home | | |
Loan Mortgage Corp., 4.25% due 7-15-09 (valued at | | |
$4,110,731, including interest) | $4,026,000 | 4,026,000 |
|
Total investments (Cost $50,255,101)† 97.77% | | $47,850,997 |
|
Other assets in excess of liabilities 2.23% | | $1,089,260 |
|
Total net assets 100.00% | | $48,940,257 |
|
Percentages are stated as a percent of net assets.
The portfolio had the following five top industry concentrations as of August 31, 2008 (as a percentage of total net assets):
| | | |
Pharmaceuticals | 10.18% | | |
Telecommunications Equipment & Services | 7.38% | | |
Chemicals | 6.21% | | |
Drugs & Health Care | 5.52% | | |
Food & Beverages | 4.30% | | |
ADR American Depositary Receipts
GDR Global Depositary Receipts
* Non-Income Producing
(f) Variable Rate Preferred.
† At August 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $50,579,092. Net unrealized depreciation aggregated $2,728,095, of which $1,557,325 related to appreciated investment securities and $4,285,420 related to depreciated investment securities.
See notes to financial statements
| |
18 | International Growth Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | | | | |
The Fund had the following futures contracts open on August 31, 2008: | | |
|
| | | | | UNREALIZED |
| NUMBER OF | | EXPIRATION | NOTIONAL | APPRECIATION |
OPEN CONTRACTS | CONTRACTS | POSITION | DATE | VALUE | (DEPRECIATION) |
|
DAX Index Futures | 8 | Long | Sep 2008 | 1,287,300 | ($5,301) |
|
CAC 4010 Euro Index Futures | 6 | Long | Sep 2008 | 269,100 | 6,406 |
|
FTSE 100 Index Futures | 6 | Long | Sep 2008 | 338,910 | 24,423 |
|
IBEX 35 Index Futures | 1 | Long | Sep 2008 | 117,265 | 4,718 |
|
OMX 30 Stock Index Futures | 4 | Long | Sep 2008 | 348,100 | 434 |
MSCI Singapore Stock | | | | | |
Index Futures | 9 | Long | Sep 2008 | 611,100 | 6,326 |
|
TOPIX Index Futures | 4 | Long | Sep 2008 | 50,200,000 | 5,836 |
|
Share Price 200 Index Futures | 2 | Short | Sep 2008 | 257,200 | (15,422) |
Total | | | | | $27,420 |
Open forward foreign currency contracts as of August 31, 2008, were as follows:
| | | | |
| | | | UNREALIZED |
| PRINCIPAL AMOUNT | | SETTLEMENT | APPRECIATION |
CURRENCY | COVERED BY CONTRACT | | DATE | (DEPRECIATION) |
|
Buys | | | | |
Canadian Dollar | 279,000 | | Nov 2008 | $214 |
|
Euro | 243,000 | | Nov 2008 | (2,202) |
|
Euro | 129,000 | | Nov 2008 | (3,275) |
|
Euro | 1,310,213 | | Nov 2008 | (13,240) |
|
Japanese Yen | 166,621,318 | | Nov 2008 | 19,151 |
|
Japanese Yen | 22,188,000 | | Nov 2008 | 1,753 |
|
Japanese Yen | 152,008,318 | | Nov 2008 | 16,984 |
|
Japanese Yen | 156,614,631 | | Nov 2008 | 17,916 |
|
New Zealand Dollar | 194,745 | | Nov 2008 | (2,392) |
|
Pound Sterling | 198,000 | | Nov 2008 | (6,539) |
|
Pound Sterling | 50,000 | | Nov 2008 | (2,319) |
|
Pound Sterling | 86,000 | | Nov 2008 | (8,221) |
|
Singapore Dollar | 394,000 | | Nov 2008 | (943) |
|
Swedish Krona | 7,001,336 | | Nov 2008 | (16,353) |
|
Swedish Krona | 7,001,336 | | Nov 2008 | (16,160) |
|
Swiss Franc | 225,000 | | Nov 2008 | (4,077) |
|
Swiss Franc | 251,000 | | Nov 2008 | (1,770) |
|
Swiss Franc | 767,295 | | Nov 2008 | (1,124) |
|
| | | | ($22,597) |
|
Sells | | | | |
|
Australian Dollar | 207,325 | | Nov 2008 | $11,349 |
|
Australian Dollar | 2,081,542 | | Nov 2008 | 25,422 |
|
Canadian Dollar | 722,079 | | Nov 2008 | 7,628 |
|
Danish Kroner | 4,662,927 | | Nov 2008 | 910 |
|
Danish Kroner | 736,405 | | Nov 2008 | 7,457 |
|
Hong Kong Dollar | 3,116,000 | | Nov 2008 | (340) |
|
Japanese Yen | 66,364,029 | | Nov 2008 | 5,050 |
|
Norwegian Krone | 1,808,034 | | Nov 2008 | 12,026 |
|
Pound Sterling | 100,964 | | Nov 2008 | 12,975 |
|
Pound Sterling | 844,000 | | Nov 2008 | 35,555 |
|
Swiss Franc | 765,040 | | Nov 2008 | 30,638 |
|
| | | | $148,670 |
See notes to financial statements
| |
Semiannual report | International Growth Fund | 19 |
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 8-31-08 (unaudited)
This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum public offering price per share.
| |
Assets | |
|
Investments, at value (Cost $50,255,101) | $47,850,997 |
Cash | 609 |
Cash collateral at broker for futures contracts | 400,000 |
Foreign currency, at value (Cost $153,310) | 152,292 |
Receivable for forward foreign currency exchange contracts (Note 2) | 205,047 |
Receivable for fund shares sold | 390,008 |
Dividends and interest receivable (net of tax) | 95,806 |
Receivable for futures variation margin | 23,089 |
Receivable due from adviser | 3,304 |
Other assets | 34,328 |
| |
Total assets | 49,155,480 |
|
Liabilities | |
|
Payable for forward foreign currency exchange contracts (Note 2) | 78,974 |
Payable for fund shares repurchased | 37,356 |
Payable to affiliates | |
Fund administration fees | 470 |
Transfer agent fees | 5,364 |
Distribution and service fees | 192 |
Trustees’ fee | 1,338 |
Other payables and accrued expenses | 91,529 |
| |
Total liabilities | 215,223 |
|
Net assets | |
|
Capital paid-in | $53,094,598 |
Accumulated net investment income | 770,046 |
Accumulated undistributed net realized loss on investments, futures | |
contracts and foreign currency transactions | (2,668,172) |
Net unrealized depreciation on investments, futures contract and | |
translation of assets and liabilities in foreign currencies | (2,256,215) |
| |
Net assets | $48,940,257 |
See notes to financial statements
| |
20 | International Growth Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
| |
Net asset value per share | |
|
The Funds have an unlimited number of shares authorized with no par | |
value. Net asset value is calculated by dividing the net assets of each class | |
of shares by the number of outstanding shares in the class. | |
| |
Class A | |
Net assets | $23,903,625 |
Shares outstanding | 1,138,588 |
Net asset value and redemption price per share | $20.99 |
| |
Class B1 | |
Net assets | $1,009,638 |
Shares outstanding | 48,407 |
Net asset value and offering price per share | $20.86 |
| |
Class C1 | |
Net assets | $1,339,598 |
Shares outstanding | 64,263 |
Net asset value and offering price per share | $20.85 |
| |
Class I | |
Net assets | $12,411,755 |
Shares outstanding | 588,953 |
Net asset value, offering price and redemption price per share | $21.07 |
| |
Class R1 | |
Net assets | $128,858 |
Shares outstanding | 6,155 |
Net asset value, offering price and redemption price per share | $20.932 |
| |
Class 1 | |
Net assets | $3,316,228 |
Shares outstanding | 157,418 |
Net asset value, offering price and redemption price per share | $21.07 |
| |
Class NAV | |
Net assets | $6,830,555 |
Shares outstanding | 324,838 |
Net asset value, offering price and redemption price per share | $21.03 |
|
Maximum public offering price per share | |
| |
|
Class A (net asset value per share ÷ 95%)3 | $22.09 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 Net assets and shares outstanding have been rounded for presentation purposes. The net asset value is as reported on August 31, 2008.
3 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
| |
Semiannual report | International Growth 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 period ended 8-31-08 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
| |
Investment income | |
|
Dividends | $836,965 |
Interest | 16,292 |
Less foreign taxes withheld | (69,204) |
| |
Total investment income | 784,053 |
|
Expenses | |
|
Investment management fees (Note 3) | 203,163 |
Distribution and service fees (Note 3) | 56,205 |
Transfer agent fees (Note 3) | 13,746 |
Fund administration fees (Note 3) | 2,312 |
Blue sky fees (Note 3) | 37,428 |
Custodian fees | 69,512 |
Audit and legal fees | 22,722 |
Registration and filing fees | 8,807 |
Printing and postage fees (Note 3) | 5,444 |
Trustees’ fees (Note 4) | 2,131 |
Miscellaneous | 266 |
| |
Total expenses | 421,736 |
| |
Less expense reductions (Note 3) | (95,319) |
Less transfer agency credits (Note 3) | (56) |
| |
Net expenses | 326,361 |
| |
Net investment income | 457,692 |
|
Realized and unrealized loss | |
|
Net realized loss on | |
Investments in unaffiliated issuers | (1,236,471) |
Futures contracts | (357,701) |
Foreign currency transactions | (184,801) |
| (1,778,973) |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (2,741,158) |
Futures contracts�� | 266,402 |
Translation of assets and liabilities in foreign currencies | (24,860) |
| (2,499,616) |
Net realized and unrealized loss | (4,278,589) |
| |
Decrease in net assets from operations | ($3,820,897) |
1 Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements
| |
22 | International Growth Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
Statements 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 | Period |
| ended | ended |
| 2-29-08 | 8-31-081 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $364,838 | $457,692 |
Net realized gain (loss) | 1,778,824 | (1,778,973) |
Change in net unrealized appreciation (depreciation) | (2,453,128) | (2,499,616) |
| | |
Decrease in net assets resulting from operations | (309,466) | (3,820,897) |
| | |
Distributions to shareholders | | |
| | |
From net investment income | | |
Class A | (202,592) | — |
Class I | (5,357) | — |
Class R1 | (830) | — |
Class 1 | (26,034) | — |
Class NAV | (90,102) | — |
From net realized gain | | |
Class A | (1,859,952) | — |
Class B | (90,466) | — |
Class C | (159,205) | — |
Class I | (32,275) | — |
Class R1 | (9,214) | — |
Class 1 | (149,968) | — |
Class NAV | (497,276) | — |
| | |
Total distributions | (3,123,271) | — |
| | |
From Fund share transactions (Note 5) | 20,872,603 | 11,774,178 |
| | |
Total increase | 17,439,866 | 7,953,281 |
|
Net assets | | |
|
Beginning of period | 23,547,110 | 40,986,976 |
| | |
End of period | $40,986,976 | $48,940,257 |
| | |
Accumulated net investment income | 312,354 | 770,046 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements
| |
Semiannual report | 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
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $23.94 | $22.86 |
Net investment income (loss)3 | (0.01) | 0.26 | 0.25 |
Net realized and unrealized | | | |
gain (loss) on investments | 4.44 | 0.53 | (2.12) |
Total from investment operations | 4.43 | 0.79 | (1.87) |
Less distributions | | | |
From net investment income | (0.09) | (0.18) | — |
From net realized gain | (0.40) | (1.69) | — |
| (0.49) | (1.87) | — |
Net asset value, end of period | $23.94 | $22.86 | $20.99 |
Total return (%)4,5 | 22.186 | 2.85 | (8.18)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $20 | $26 | $24 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 2.287 | 2.21 | 1.867 |
Expenses net of fee waivers | 1.667 | 1.56 | 1.567 |
Expenses net of all fee waivers and credits | 1.667 | 1.56 | 1.567 |
Net investment income (loss) | (0.06)7 | 1.02 | 2.147 |
Portfolio turnover (%) | 41 | 97 | 37 |
1 Class A shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment and does not reflect the effect of sales charges.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
24 | International Growth Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $23.91 | $22.81 |
Net investment income (loss)3 | (0.16) | (0.01) | 0.14 |
Net realized and unrealized | | | |
gain (loss) on investments | 4.48 | 0.60 | (2.09) |
Total from investment operations | 4.32 | 0.59 | (1.95) |
Less distributions | | | |
From net investment income | (0.01) | — | — |
From net realized gain | (0.40) | (1.69) | — |
| (0.41) | (1.69) | — |
Net asset value, end of period | $23.91 | $22.81 | $20.86 |
Total return (%)4,5 | 21.646 | 2.03 | (8.55)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $1 | $1 | $1 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 10.947 | 4.62 | 3.987 |
Expenses net of fee waivers | 2.397 | 2.41 | 2.407 |
Expenses net of all fee waivers and credits | 2.397 | 2.40 | 2.407 |
Net investment income (loss) | (0.94)7 | (0.03) | 1.277 |
Portfolio turnover (%) | 41 | 97 | 37 |
1 Class B shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
Semiannual report | 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 C SHARES
| | | |
Period ended | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $23.90 | $22.79 |
Net investment income (loss)3 | (0.16) | 0.05 | 0.17 |
Net realized and unrealized | | | |
gain (loss) on investments | 4.47 | 0.53 | (2.11) |
Total from investment operations | 4.31 | 0.58 | (1.94) |
Less distributions | | | |
From net investment income | (0.01) | — | — |
From net realized gain | (0.40) | (1.69) | — |
| (0.41) | (1.69) | — |
Net asset value, end of period | $23.90 | $22.79 | $20.85 |
Total return (%)4,5 | 21.596 | 1.99 | (8.51)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $2 | $2 | $1 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 6.717 | 3.73 | 3.367 |
Expenses net of fee waivers | 2.397 | 2.40 | 2.407 |
Expenses net of all fee waivers and credits | 2.397 | 2.40 | 2.407 |
Net investment income (loss) | (0.98)7 | 0.21 | 1.467 |
Portfolio turnover (%) | 41 | 97 | 37 |
1 Class C shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
26 | International Growth Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $23.97 | $22.90 |
Net investment income3 | 0.07 | 0.36 | 0.09 |
Net realized and unrealized | | | |
gain (loss) on investments | 4.45 | 0.54 | (1.92) |
Total from investment operations | 4.52 | 0.90 | (1.83) |
Less distributions | | | |
From net investment income | (0.15) | (0.28) | — |
From net realized gain | (0.40) | (1.69) | — |
| (0.55) | (1.97) | — |
Net asset value, end of period | $23.97 | $22.90 | $21.07 |
Total return (%)4,5 | 22.606 | 3.27 | (7.99)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 7 | $1 | $12 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 17.208 | 5.07 | 1.888 |
Expenses net of fee waivers | 1.198 | 1.20 | 1.208 |
Expenses net of all fee waivers and credits | 1.198 | 1.20 | 1.208 |
Net investment income | 0.428 | 1.43 | 0.818 |
Portfolio turnover (%) | 41 | 97 | 37 |
1 Class I shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
Semiannual report | International Growth 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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $23.89 | $22.81 |
Net investment income (loss)3 | (0.05) | 0.25 | 0.22 |
Net realized and unrealized | | | |
gain (loss) on investments | 4.43 | 0.51 | (2.10) |
Total from investment operations | 4.38 | 0.76 | (1.88) |
Less distributions | | | |
From net investment income | (0.09) | (0.15) | — |
From net realized gain | (0.40) | (1.69) | — |
| (0.49) | (1.84) | — |
Net asset value, end of period | $23.89 | $22.81 | $20.93 |
Total return (%)4,5 | 21.926 | 2.73 | (8.24)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | —7 | —7 | —7 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 20.788 | 14.42 | 13.478 |
Expenses net of fee waivers | 1.948 | 1.70 | 1.708 |
Expenses net of all fee waivers and credits | 1.948 | 1.70 | 1.708 |
Net investment income (loss) | (0.32)8 | 1.00 | 1.978 |
Portfolio turnover (%) | 41 | 97 | 37 |
1 Class R1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
28 | International Growth Fund | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $20.00 | $23.97 | $22.89 |
Net investment income3 | 0.07 | 0.29 | 0.28 |
Net realized and unrealized | | | |
gain (loss) on investments | 4.45 | 0.61 | (2.10) |
Total from investment operations | 4.52 | 0.90 | (1.82) |
Less distributions | | | |
From net investment income | (0.15) | (0.29) | — |
From net realized gain | (0.40) | (1.69) | — |
| (0.55) | (1.98) | — |
Net asset value, end of period | $23.97 | $22.89 | $21.07 |
Total return (%)4,5 | 22.636 | 3.28 | (7.95)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $1 | $3 | $3 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 2.007 | 1.83 | 1.457 |
Expenses net of fee waivers | 1.157 | 1.15 | 1.157 |
Expenses net of all fee waivers and credits | 1.157 | 1.15 | 1.157 |
Net investment income | 0.417 | 1.14 | 2.457 |
Portfolio turnover (%) | 41 | 97 | 37 |
1 Class 1 shares began operations on 6-12-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
Semiannual report | International Growth 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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $23.73 | $23.92 | $22.84 |
Net investment income3 | 0.01 | 0.33 | 0.30 |
Net realized and unrealized | | | |
gain (loss) on investments | 0.18 | 0.59 | (2.11) |
Total from investment operations | 0.19 | 0.92 | (1.81) |
Less distributions | | | |
From net investment income | — | (0.31) | — |
From net realized gain | — | (1.69) | — |
| — | (2.00) | — |
Net asset value, end of period | $23.92 | $22.84 | $21.03 |
Total return (%)4,5 | 0.806 | 3.34 | (7.92)6 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $1 | $8 | $7 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 2.757 | 1.77 | 1.407 |
Expenses net of fee waivers | 1.137 | 1.10 | 1.107 |
Expenses net of all fee waivers and credits | 1.137 | 1.10 | 1.107 |
Net investment income | 0.147 | 1.33 | 2.597 |
Portfolio turnover (%) | 41 | 97 | 37 |
1 Class NAV shares began operations on 12-27-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
30 | International Growth Fund | Semiannual report |
Notes to financial statements (unaudited)
Note 1
Organization
John Hancock International Growth Fund (the Fund) is a 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 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 and Class NAV shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. 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 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 differe ntly 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. Class B shares will convert to Class A shares eight years after purchase.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. Short-term debt investments that have a remaining maturity 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 the
| |
Semiannual report | International Growth Fund | 31 |
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. Securities for which there are no such quotations, principally debt securities, are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 — Quoted prices in active markets for identical securities.
Level 2 — Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 — Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own
| |
32 | International Growth Fund | Semiannual report |
assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| INVESTMENTS IN | OTHER FINANCIAL |
VALUATION INPUTS | SECURITIES | INSTRUMENTS* |
|
Level 1 — Quoted Prices | $2,797,671 | $27,420 |
|
Level 2 — Other Significant Observable Inputs | 45,053,326 | 126,073 |
|
Level 3 — Significant Unobservable Inputs | — | — |
Total | $47,850,997 | $153,493 |
*Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/ depreciation on the instrument.
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 translation
The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV shares
| |
Semiannual report | International Growth Fund | 33 |
are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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 August 31, 2008, there were no borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
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, in order to hedge against a decline in the value of securities owned by the Fund.
Initial margin deposits required upon entering into futures contracts are satisfied by the delivery of specific securities or cash as collateral to the broker (the Fund’s agent in acquiring the futures position). If the position is closed out by 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.
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
| |
34 | International Growth Fund | Semiannual report |
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.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. Net capital losses of $590,219 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on March 1, 2008, the first day of the Fund’s next taxable year.
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund’s fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund’s financial statements. Each of the Fund’s federal tax returns for the prior two years remain subject to examination by the Internal Revenue Service.
Risks associated with foreign investments
Investing in securities issued by companies whose principal business activities are outside the United States may involve significant risks not present in domestic investments. For example, there is generally less publicly available information about foreign companies, particularly those not subject to the disclosure and reporting requirements of the U.S. securities laws. Foreign issuers are generally not bound by uniform accounting, auditing, and financial reporting requirements and standards of practice comparable to those applicable to domestic issuers. Investments in foreign securities also involve the risk of possible adverse changes in investment or exchange control regulations, expropriation or confiscatory taxation, limitation on the removal of funds or other assets of the Fund, political or financial instability or diplomatic and other developments which could affect such investments. Foreign stock markets, while growing in volume and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies. In general, there is less overall governmental supervision and regulation of foreign securities markets, broker-dealers and issuers than in the United States.
New accounting pronouncement
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company, and any credit risk-related contingent features of the agreements. M anagement is currently evaluating the adoption of FAS 161 on the Fund’s financial statement disclosures.
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Semiannual report | International Growth Fund | 35 |
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. The Fund declares income dividends and capital gains dividends, if any, annually. During the year ended February 29, 2008, the tax character of distributions paid was as follows: ordinary income $2,246,678 and long-term capital gain $876,593. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Note 3
Investment advisory and
other agreements
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. 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 Growth Trust, a series of John Hancock Trust. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC.
The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.92% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.18% of the Fund’s average annual net assets which are allocated pro rata to all share classes. The agreements exclude taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage, litigation and indemnification expenses, and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded. The reimbursements and limits are such that these expenses will not exceed 1.70% for Class A shares, 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 or reimbursements related to this agreement were $39,287, $9,272, $9,349, $12,969, $8,083, $5,029 and $11,241 for Class A, Class B, Class C, Class I, Class R1, Class 1 and Class NAV, respectively for the period ended August 31, 2008 . The expense reimbursements and limits will continue in effect until June 30, 2009 and thereafter until terminated by the Adviser on notice to the Trust.
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36 | International Growth Fund | Semiannual report |
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $2,312 with an annual effective rate of 0.01% of the Fund’s average daily net assets.
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 pay 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 Financial Industry Regulatory Authority (formerly 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, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 average daily net asset value for certain other services. There were no Service Plan fees incurred for the period ended August 31, 2008.
Class A shares are assessed up-front sales charges of up to 5.00% of the net asset value of such shares. During the period ended August 31, 2008, the Distributor received net up-front sales charges of $6,340 with regard to sales of Class A shares. Of this amount, $1,008 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $5,265 was paid as sales commissions to unrelated broker-dealers and $67 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 August 31, 2008, CDSCs received by the Distributor amounted to $1,532 for Class B shares and $627 for Class C shares.
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. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C, Class I and Class R1 shareholder account.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.30% 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, 2008. Signature Services reserves the right to terminate this limitation in the future. There were no transfer agent fee
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Semiannual report | International Growth Fund | 37 |
reductions for Class A, Class B, Class C, Class I and Class R1 shares, respectively, during the period ended August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $89.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $56 for transfer agent credits earned.
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent fees | Blue sky fees | postage fees |
|
Class A | $39,408 | $9,226 | $7,420 | $4,422 |
Class B | 5,876 | 1,776 | 7,334 | 195 |
Class C | 9,746 | 1,667 | 7,352 | 391 |
Class I | — | 953 | 7,502 | 226 |
Class R1 | 347 | 124 | 7,820 | 91 |
Class 1 | 828 | — | — | 119 |
Total | $56,205 | $13,746 | $37,428 | $5,444 |
The Adviser and other subsidiaries of John Hancock USA owned 797,040 and 5,491 shares of beneficial interest of Class A and Class R1 on August 31, 2008.
Note 4
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.
| |
38 | International Growth Fund | Semiannual report |
Note 5
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value.
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
|
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 414,385 | $10,585,758 | 81,426 | $1,842,497 |
Distributions reinvested | 80,686 | 1,966,314 | — | — |
Repurchased | (172,237) | (4,088,612) | (94,294) | (2,201,093) |
Net increase (decrease) | 322,834 | $8,463,460 | (12,868) | ($358,596) |
| | | | |
Class B shares | | | | |
|
Sold | 49,493 | $1,301,454 | 5,730 | $132,380 |
Distributions reinvested | 3,261 | 79,442 | — | — |
Repurchased | (22,033) | (551,497) | (9,281) | (204,843) |
Net increase (decrease) | 30,721 | $829,399 | (3,551) | ($72,463) |
| | | | |
Class C shares | | | | |
|
Sold | 55,553 | $1,402,156 | 2,608 | $57,341 |
Distributions reinvested | 4,414 | 107,446 | — | — |
Repurchased | (21,855) | (509,068) | (41,872) | (930,961) |
Net increase (decrease) | 38,112 | $1,000,534 | (39,264) | ($873,620) |
| | | | |
Class I shares | | | | |
|
Sold | 148,817 | $3,828,656 | 567,688 | $12,548,863 |
Distributions reinvested | 1,455 | 35,510 | — | — |
Repurchased | (133,227) | (3,446,247) | (4,646) | (104,035) |
Net increase | 17,045 | $417,919 | 563,042 | $12,444,828 |
| | | | |
Class R1 shares | | | | |
|
Sold | 482 | $12,483 | 215 | $4,955 |
Distributions reinvested | 413 | 10,043 | — | — |
Repurchased | (4) | (89) | (55) | (1,271) |
Net increase | 891 | $22,437 | 160 | $3,684 |
| | | | |
Class 1 shares | | | | |
|
Sold | 124,068 | $3,141,773 | 66,994 | $1,520,170 |
Distributions reinvested | 7,219 | 176,002 | — | — |
Repurchased | (31,315) | (790,808) | (32,604) | (740,202) |
Net increase | 99,972 | $2,526,967 | 34,390 | $779,968 |
| | | | |
Class NAV shares | | | | |
|
Sold | 299,764 | $7,594,950 | 34,518 | $781,718 |
Distributions reinvested | 24,142 | 587,378 | — | — |
Repurchased | (23,722) | (570,441) | (41,346) | (931,341) |
Net increase (decrease) | 300,184 | $7,611,887 | (6,828) | ($149,623) |
|
Net increase | 809,759 | $20,872,603 | 535,081 | $11,774,178 |
|
|
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited. | |
Note 6
Purchase and sale of securities
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 August 31, 2008, aggregated $22,808,465 and $15,187,590, respectively.
| |
Semiannual report | International Growth Fund | 39 |
Board Consideration of and Continuation
of Investment Advisory Agreement and
Subadvisory Agreement: John Hancock
International Growth Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Funds III (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) for the John Hancock International Growth Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements.
At meetings held on May 5–6 and June 9–10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/ Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the investment performance of the Fund relative to a category of relevant funds (the “Category”) and a peer group of comparable funds (the “Peer Group”). The funds within each Category and Peer Group were selected by Morningstar Inc. (“Morningstar”), an independent provider of investment company data. Data covered the period since the Fund’s inception through December 31, 2007,
(ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group,
(iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser,
(iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund,
(v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale,
(vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department,
(vii) the background and experience of senior management and investment professionals, and
(viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board principally considered data on performance and other information provided by Morningstar as of December 31, 2007. The Board also considered updated performance information provided to it by the Adviser or Subadviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders report. The key factors
| |
40 | International Growth Fund | Semiannual report |
considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and Subadviser. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser supported renewal of the Advisory Agreements.
Fund performance
The Board noted that the Fund had less than two full years of operational history, and considered the performance results for the Fund since its inception through December 31, 2007. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark indices. The Board reviewed with representatives of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance during the 1-year period was lower than the performance of the Category median, and its benchmark indices, the Standard & Poor’s/ Citigroup PMI EPAC Growth Index and the MSCI World Ex US NR Index. The Board viewed favorably that the Fund’s performance was higher than the performance of its Peer Group median.
Investment advisory fee and subadvisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was lower than the median rate of the Peer Group and not appreciably higher than the median rate of the Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross Expense Ratio was higher than the median of the Peer Group and Category. The Board also noted that the Fund’s Net Expense Ratio was higher than the Category median but lower than the Peer Group median.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s overall performance and expenses supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment sub-advisory services. The Board concluded that the Subadvisory Agreement Rate was fair and
| |
Semiannual report | International Growth Fund | 41 |
equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Subadviser, which is not affiliated with the Adviser. The Board considered that the Subadvisory Agreement Rate paid to the Subadviser had been negotiated by the Adviser on an arm’s length basis and that the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadviser with the Fund and benefits potentially derived from an increase in business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
| |
42 | International Growth Fund | Semiannual report |
More information
| |
Trustees | Investment adviser |
James F. Carlin, Chairman | John Hancock Investment Management |
James R. Boyle† | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson | Subadviser |
Charles L. Ladner* | Grantham, Mayo, Van Otterloo & Co. LLC |
Stanley Martin* | |
Dr. John A. Moore* | Principal distributor |
Patti McGill Peterson* | John Hancock Funds, LLC |
Steven R. Pruchansky | |
Gregory A. Russo* | Custodian |
*Members of the Audit Committee | State Street Bank & Trust Company |
†Non-Independent Trustee | |
| Transfer agent |
Officers | John Hancock Signature Services, Inc. |
Keith F. Hartstein | |
President and Chief Executive Officer | Legal counsel |
| K&L Gates LLP |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
| |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Gordon M. Shone | |
Treasurer | |
| |
John G. Vrysen | |
Chief Operating Officer | |
Additional information about your fund is available without charge in several ways. As required by the SEC, you can access proxy voting information and quarterly portfolio information on your fund. The proxy voting information includes a description of proxy voting policies, procedures and information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30. The quarterly portfolio information that includes a complete list of the fund’s holdings for the first and third quarters of the fund’s fiscal period is filed on Form N-Q. You have access to this information:
| | | |
By phone | On the fund’s Website | At the SEC |
1-800-225-5291 | www.jhfunds.com | www.sec.gov |
| | | 1-800-SEC-0330 |
| | | SEC Public Reference Room |
|
|
You can also contact us: | | | |
Regular mail | | Express mail | |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 9510 | | Mutual Fund Image Operations |
Portsmouth, NH 03802-9510 | | 164 Corporate Drive | |
| | Portsmouth, NH 03801 | |
Month-end portfolio holdings are available at www.jhfunds.com.
| |
Semiannual report | International Growth Fund | 43 |
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. | 870SA 8/08 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/08 |
A look at performance
For the periods ended August 31, 2008
| | | | | | | | | | | | |
| | | Average annual returns (%) | | | Cumulative total returns (%) | | |
| | | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| | |
| |
|
| Inception | | | | | Since | | Six | | | | Since |
Class | date | | 1-year | 5-year | 10-year | inception | | months | 1-year | 5-year | 10-year | inception |
|
A | 12-29-06 | | –20.13 | — | — | –9.19 | | –15.13 | –20.13 | — | — | –14.90 |
|
B | 12-29-06 | | –20.53 | — | — | –9.20 | | –15.44 | –20.53 | — | — | –14.92 |
|
C | 12-29-06 | | –17.34 | — | — | –7.01 | | –11.78 | –17.34 | — | — | –11.45 |
|
I1 | 12-29-06 | | –15.62 | — | — | –5.97 | | –10.43 | –15.62 | — | — | –9.79 |
|
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 to 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 expense ratios of the Portfolio, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectuses for the Portfolio and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The waivers and expense limitations are contractual at least until June 30, 2009. The following expense ratios include expenses of the underlying affiliated funds in which the Portfolio invests. The net expenses are as follows: Class A — 1.67%, Class B —2.37%, Class C — 2.37%, Class I — 1.22%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 2.15%, Class B — 5.06%, Class C — 3.35%, Class I — 8.21%.
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 Portfolio’s current performance may be higher or lower than the performance shown. For current to the most recent month end performance data, 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.
1 For certain types of investors as described in the Portfolio’s Class I share prospectus.
| |
6 | International Allocation Portfolio | Semiannual report |
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 in the MSCI EAFE Gross Total Return Index.
| | | | |
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B2 | 12-29-06 | $8,845 | $8,508 | $9,272 |
|
C2,3 | 12-29-06 | 8,855 | 8,855 | 9,272 |
|
I2,4 | 12-29-06 | 9,021 | 9,021 | 9,272 |
|
Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Portfolio’s Class B, Class C and Class I shares, respectively, as of August 31, 2008. 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 Gross Total Return Index is an unmanaged market capitalization weighted composite of securities in 21 developed markets outside of North America, in Europe, Australia and the Far East. The MSCI EAFE (gross) Index includes the maximum dividend reinvestment. The Composite Index figures do not reflect any deduction for fees, taxes or expenses.
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.
1 NAV represents net asset value and POP represents public offering price.
2 Index figure as of closest month end to fund inception date.
3 No contingent deferred sales charge applicable.
4 For certain types of investors as described in the Portfolio’s Class I share prospectus.
| |
Semiannual report | International Allocation Portfolio | 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 March 1, 2008 with the same investment held until August 31, 2008.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $893.50 | $2.91 |
|
Class B | 1,000.00 | 890.10 | 6.34 |
|
Class C | 1,000.00 | 891.10 | 6.34 |
|
Class I | 1,000.00 | 895.70 | 0.86 |
|
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 August 31, 2008, 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:
| |
8 | International Allocation Portfolio | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. 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 |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,022.10 | $3.11 |
|
Class B | 1,000.00 | 1,018.50 | 6.77 |
|
Class C | 1,000.00 | 1,018.50 | 6.77 |
|
Class I | 1,000.00 | 1,024.30 | 0.92 |
|
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 0.61%, 1.33%, 1.33% and 0.18% for Class A, Class B, Class C and Class I respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year/365 (to reflect the one-half year period).
| |
Semiannual report | International Allocation Portfolio | 9 |
Portfolio summary
| |
Asset allocation1 | % of Total |
|
International Large Cap | 77% |
|
International Small Cap | 14% |
|
Emerging Markets | 7% |
|
China | 2% |
|
As a percentage of net assets on August 31, 2008.
1 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.
| |
10 | International Allocation Portfolio | Semiannual report |
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 8-31-08 (unaudited)
Portfolio investments, showing all affiliated underlying funds.
| | |
Issuer | Shares | Value |
|
Investment companies 100.11% | | $37,415,026 |
|
(Cost $45,481,144) | | |
| | |
John Hancock Funds 17.17% | | 6,416,456 |
|
Greater China Opportunities | | |
(MFC Global Investment Management (U.S.A.) Ltd.) (c)(f) | 40,932 | 730,221 |
|
International Classic Value | | |
(Pzena Investment Management, LLC) (f) | 717,054 | 5,686,235 |
| | |
John Hancock Funds II 64.72% | | 24,187,625 |
|
Emerging Markets Value | | |
(Dimensional Fund Advisors, Inc.) (f) | 277,716 | 2,629,967 |
|
International Opportunities | | |
(Marsico Capital Management, LLC) (f) | 546,753 | 8,310,646 |
|
International Small Company | | |
(Dimensional Fund Advisors, Inc.) (f) | 625,597 | 5,311,319 |
|
International Value | | |
(Franklin® Templeton®) (f) | 507,397 | 7,935,693 |
| | |
John Hancock Funds III 18.22% | | 6,810,945 |
|
International Growth | | |
(Grantham, Mayo, Van Otterloo & Company) (f) | 323,868 | 6,810,945 |
|
Total investments (Cost $45,481,144)† 100.11% | | $37,415,026 |
|
Liabilities in excess of other assets (0.11%) | | ($42,943) |
|
Total net assets 100.00% | | $37,372,083 |
|
Percentages are stated as a percent of net assets.
(c) The investment is an affiliate of the Fund’s subadviser.
(f) The underlying fund’s subadviser.
† At August 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $46,004,528. Net unrealized depreciation aggregated $8,589,502, of which $0 related to appreciated investment securities and $8,589,502 related to depreciated investment securities.
See notes to financial statements
| |
Semiannual report | International Allocation Portfolio | 11 |
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 8-31-08 (unaudited)
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 public offering price per share.
| |
Assets | |
|
Investments in affiliated funds, at value (Cost $45,481,144) | $37,415,026 |
Cash | 31,962 |
Receivable for investments sold | 141,294 |
Receivable for fund shares sold | 7,159 |
Receivable due from adviser | 34,209 |
Other assets | 5,700 |
| |
Total assets | 37,635,350 |
|
Liabilities | |
|
Payable for fund shares repurchased | 172,540 |
Payable to affiliates | |
Fund administration fees | 778 |
Transfer agent fees | 8,331 |
Trustees’ fee | 831 |
Other payables and accrued expenses | 80,787 |
| |
Total liabilities | 263,267 |
|
Net assets | |
|
Capital paid-in | $46,275,650 |
Accumulated net investment loss | (160,828) |
Accumulated undistributed net realized loss on investments | (676,621) |
Net unrealized depreciation on investments | (8,066,118) |
| |
Net assets | $37,372,083 |
|
See notes to financial statements
| |
12 | International Allocation Portfolio | Semiannual report |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
| |
Net asset value per share | |
|
The Portfolio has an unlimited number of shares authorized with no par | |
value. Net asset value is calculated by dividing the net assets of each class | |
of shares by the number of outstanding shares in the class. | |
| |
Class A | |
Net assets | $27,359,942 |
Shares outstanding | 3,228,623 |
Net asset value and redemption price per share | $8.47 |
| |
Class B1 | |
Net assets | $1,373,025 |
Shares outstanding | 163,076 |
Net asset value and offering price per share | $8.42 |
| |
Class C1 | |
Net assets | $7,962,162 |
Shares outstanding | 944,652 |
Net asset value and offering price per share | $8.43 |
| |
Class I | |
Net assets | $676,954 |
Shares outstanding | 79,627 |
Net asset value, offering price and redemption price per share | $8.50 |
|
Maximum public offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $8.92 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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
| |
Semiannual report | International Allocation Portfolio | 13 |
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 8-31-08 (unaudited)1
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) | 27,020 |
Distribution and service fees (Note 3) | 96,522 |
Transfer agent fees (Note 3) | 24,173 |
Fund administration fees (Note 3) | 2,596 |
Blue sky fees (Note 3) | 29,382 |
Audit and legal fees | 22,004 |
Registration and filing fees | 9,516 |
Custodian fees | 8,567 |
Printing and postage fees (Note 3) | 6,221 |
Trustees’ fees (Note 4) | 1,677 |
Miscellaneous | 666 |
| |
Total expenses | 228,344 |
Less expense reductions (Note 3) | (67,380) |
Less transfer agency credits (Note 3) | (136) |
| |
Net expenses | 160,828 |
| |
Net investment loss | (160,828) |
|
Realized and unrealized loss | |
|
Net realized loss on investments in affiliated underlying funds | (1,169,747) |
| |
Change in net unrealized appreciation (depreciation) of | |
Investments in affiliated underlying funds | (3,222,385) |
| |
Net realized and unrealized loss | (4,392,132) |
| |
Decrease in net assets from operations | ($4,552,960) |
1 Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements
| |
14 | International Allocation Portfolio | Semiannual report |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of Changes in Net Assets show how the value of the Portfolio’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 Portfolio share transactions.
| | |
| Year | Period |
| ended | ended |
| 2-29-08 | 8-31-081 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income (loss) | $371,921 | ($160,828) |
Net realized gain (loss) | 2,327,066 | (1,169,747) |
Change in net unrealized appreciation (depreciation) | (4,761,706) | (3,222,385) |
| | |
Decrease in net assets resulting from operations | (2,062,719) | (4,552,960) |
| | |
Distributions to shareholders | | |
| | |
From net investment income | | |
Class A | (368,791) | — |
Class B | (8,046) | — |
Class C | (36,417) | — |
Class I | (11,786) | — |
| | |
From net realized gain | | |
Class A | (1,337,953) | — |
Class B | (74,015) | — |
Class C | (335,022) | — |
Class I | (33,949) | — |
| | |
Total distributions | (2,205,979) | — |
| | |
From Fund share transactions (Note 5) | 40,724,564 | 902,255 |
| | |
Total increase (decrease) | 36,455,866 | (3,650,705) |
|
Net assets | | |
|
Beginning of period | 4,566,922 | 41,022,788 |
| | |
End of period | $41,022,788 | $37,372,083 |
| | |
Accumulated net investment loss | — | 160,828 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements
| |
Semiannual report | International Allocation Portfolio | 15 |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $10.00 | $9.96 | $9.48 |
Net investment income (loss)3,4 | (0.01) | 0.13 | (0.03) |
Net realized and unrealized | | | |
loss on investments | (0.03) | (0.03) | (0.98) |
Total from investment operations | (0.04) | 0.10 | (1.01) |
Less distributions | | | |
From net investment income | — | (0.13) | — |
From net realized gain | — | (0.45) | — |
Total distributions | — | (0.58) | — |
Net asset value, end of period | $9.96 | $9.48 | $8.47 |
Total return (%)5,6 | (0.40)7 | 0.70 | (10.65)7 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $3 | $30 | $27 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 8.538 | 1.119 | 0.838,9 |
Expenses net of fee waivers | 0.608 | 0.589 | 0.618,9 |
Expenses net of all fee waivers and credits | 0.608 | 0.589 | 0.618,9 |
Net investment income (loss)4 | (0.60)8 | 1.21 | (0.61)8 |
Portfolio turnover (%) | 3 | 23 | 13 |
1 Class A shares began operations on 12-29-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Recognition of net investment income by the Portfolio is affected by the timing of the declaration of dividends by the underlying funds in which the Portfolio invests.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment and does not reflect the effect of sales charges.
7 Not annualized.
8 Annualized.
9 Ratios do not include expenses incurred from underlying funds whose annualized weighted average was 1.02% and 0.92% to 1.12%, for the year ended 2-29-08 and the period ended 8-31-08, respectively, based on the mix of underlying funds held by the Portfolio.
See notes to financial statements
| |
16 | International Allocation Portfolio | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $10.00 | $9.95 | $9.46 |
Net investment income (loss)3,4 | (0.02) | 0.07 | (0.06) |
Net realized and unrealized | | | |
loss on investments | (0.03) | (0.06) | (0.98) |
Total from investment operations | (0.05) | 0.01 | (1.04) |
Less distributions | | | |
From net investment income | — | (0.05) | — |
From net realized gain | — | (0.45) | — |
Total distributions | — | (0.50) | — |
Net asset value, end of period | $9.95 | $9.46 | $8.42 |
Total return (%)5,6 | (0.50)7 | (0.13) | (10.99)7 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 8 | $2 | $1 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 28.589 | 4.0210 | 2.609,10 |
Expenses net of fee waivers | 1.269 | 1.3410 | 1.339,10 |
Expenses net of all fee waivers and credits | 1.269 | 1.3310 | 1.339,10 |
Net investment income (loss)4 | (1.26)9 | 0.70 | (1.33)9 |
Portfolio turnover (%) | 3 | 23 | 13 |
1 Class B shares began operations on 12-29-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Recognition of net investment income by the Portfolio is affected by the timing of the declaration of dividends by the underlying funds in which the Portfolio invests.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Ratios do not include expenses incurred from underlying funds whose annualized weighted average was 1.02% and 0.92% to 1.12%, for the year ended 2-29-08 and the period ended 8-31-08, respectively, based on the mix of underlying funds held by the Portfolio.
See notes to financial statements
| |
Semiannual report | International Allocation Portfolio | 17 |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $10.00 | $9.95 | $9.46 |
Net investment income (loss)3,4 | (0.02) | 0.08 | (0.06) |
Net realized and unrealized | | | |
loss on investments | (0.03) | (0.07) | (0.97) |
Total from investment operations | (0.05) | 0.01 | (1.03) |
Less distributions | | | |
From net investment income | — | (0.05) | — |
From net realized gain | — | (0.45) | — |
Total distributions | — | (0.50) | — |
Net asset value, end of period | $9.95 | $9.46 | $8.43 |
Total return (%)5,6 | (0.50)7 | (0.13) | (10.89)7 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | $1 | $8 | $8 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 18.628 | 2.319 | 1.778,9 |
Expenses net of fee waivers | 1.278 | 1.339 | 1.338,9 |
Expenses net of all fee waivers and credits | 1.278 | 1.339 | 1.338,9 |
Net investment income (loss)4 | (1.27)8 | 0.79 | (1.33)8 |
Portfolio turnover (%) | 3 | 23 | 13 |
1 Class C shares began operations on 12-29-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Recognition of net investment income by the Portfolio is affected by the timing of the declaration of dividends by the underlying funds in which the Portfolio invests.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment.
7 Not annualized.
8 Annualized.
9 Ratios do not include expenses incurred from underlying funds whose annualized weighted average was 1.02% and 0.92% to 1.12%, for the year ended 2-29-08 and the period ended 8-31-08, respectively, based on the mix of underlying funds held by the Portfolio.
See notes to financial statements
| |
18 | International Allocation Portfolio | Semiannual report |
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 | 2-28-071 | 2-29-08 | 8-31-082 |
|
Per share operating performance | | | |
|
Net asset value, beginning of period | $10.00 | $9.97 | $9.49 |
Net investment income (loss)3,4 | — 5 | 0.16 | (0.01) |
Net realized and unrealized | | | |
loss on investments | (0.03) | (0.03) | (0.98) |
Total from investment operations | (0.03) | 0.13 | (0.99) |
Less distributions | | | |
From net investment income | — | (0.16) | — |
From net realized gain | — | (0.45) | — |
Total distributions | — | (0.61) | — |
Net asset value, end of period | $9.97 | $9.49 | $8.50 |
Total return (%)6.7 | (0.30)8 | 1.02 | (10.43)8 |
|
Ratios and supplemental data | | | |
|
Net assets, end of period (in millions) | — 9 | $1 | $1 |
Ratios (as a percentage of average net assets): | | | |
Expenses before reductions | 25.0110 | 7.1711 | 1.5010,11 |
Expenses net of fee waivers | 0.1710 | 0.1811 | 0.1810,11 |
Expenses net of all fee waivers and credits | 0.1710 | 0.1811 | 0.1810,11 |
Net investment income (loss)4 | (0.17)10 | 1.55 | (0.18)10 |
Portfolio turnover (%) | 3 | 23 | 13 |
1 Class I shares began operations on 12-29-06.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Recognition of net investment income by the Portfolio is affected by the timing of the declaration of dividends by the underlying funds in which the Portfolio invests.
5 Less than ($0.01) per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment.
8 Not annualized.
9 Less than $500,000.
10 Annualized.
11 Ratios do not include expenses incurred from underlying funds whose annualized weighted average was 1.02% and 0.92% to 1.12%, for the year ended 2-29-08 and the period ended 8-31-08, respectively, based on the mix of underlying funds held by the Portfolio.
See notes to financial statements
| |
Semiannual report | International Allocation Portfolio | 19 |
Notes to financial statements (unaudited)
Note 1
Organization
John Hancock International Allocation Portfolio (the Portfolio) is a 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 and John Hancock Funds II (JHF II) and also in other affiliated funds of the John Hancock funds complex. The Portfolio may also invest in unaffiliated underlying funds and other permitted investments.
The accounting policies of the affiliated underlying funds are outlined in the shareholder reports for such funds, available without charge by calling 1-800-225-5291 or on the Securities and Exchange Commission (SEC) Web site at www.sec.gov, File #811-21779, CIK 0001331971 for JHF II, File #811-21777, CIK 0001329954 for JHF III, File #811-01677, CIK 0000045291 for JH International Classic Value Fund and File #811-04630, CIK 0000791271 for JH Greater China Opportunities Fund. The affiliated underlying funds are not covered by this report.
John Hancock Investment Management Services, LLC (JHIMS or the Adviser), a Delaware limited liability company controlled by John Hancock Life Insurance Company (U.S.A.) (John Hancock USA) serves as investment adviser for the Trust and John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter. John Hancock Life Insurance Company of New York (John Hancock New York) is a wholly owned subsidiary of John Hancock USA. John Hancock USA and John Hancock New York are indirect wholly owned subsidiaries of the Manufactures 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.”
The JHF II funds are retail mutual funds advised by JHIMS and distributed by the Distributor.
The Board of Trustees have authorized the issuance of multiple classes of shares of the Portfolio, including classes designated as Class A, Class B, Class C and Class I shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. 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. Class B shares will convert to Class A shares eight years after purcha se.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following
| |
20 | International Allocation Portfolio | Semiannual report |
summarizes the significant accounting policies of the Portfolio:
Security valuation
The net asset value of Class A, Class B, Class C and Class I shares of the Portfolio is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. Investments by the Portfolio in underlying affiliated funds are valued at their respective net asset values each business day and securities in the underlying funds are valued in accordance with their respective valuation policies, as outlined in the underlying funds’ financial statements. Securities held by the Portfolio and by the underlying affiliated funds 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 the principal securities exchange (domestic or foreign) on which they trade or, lacking any sales, at the closing bid price.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 — Quoted prices in active markets for identical securities.
Level 2 — Prices determined using other sig-nificant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 — Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| INVESTMENTS IN | OTHER FINANCIAL |
VALUATION INPUTS | SECURITIES | INSTRUMENTS* |
|
Level 1 — Quoted Prices | $37,415,026 | — |
|
Level 2 — Other Significant Observable Inputs | — | — |
|
Level 3 — Significant Unobservable Inputs | — | — |
| | |
Total | $37,415,026 | — |
*Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/ depreciation on the instrument.
| |
Semiannual report | International Allocation Portfolio | 21 |
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the Portfolio level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C and Class I shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
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.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Line of credit
The Portfolio has entered into an agreement which enables it to participate in a $150 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 0.05% 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 August 31, 2008, there were no borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
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 that is distributed to shareholders. Therefore, no federal income tax provision is required.
The Portfolio has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Portfolio’s fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Portfolio’s financial statements. Each of the Portfolio’s federal tax returns for the prior two years remain subject to examination by the Internal Revenue Service.
New accounting pronouncements
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133),
| |
22 | International Allocation Portfolio | Semiannual report |
was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company, and any credit risk-related contingent features of the agreements. Management is currently evaluating the adoption of FAS 161 on the Portfolio’s financial statement disclosures.
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. The Portfolio declares income dividend and capital gains dividends, if any, annually. During the year ended February 29, 2008, the tax character of distributions paid was as follows: ordinary income $2,153,570 and long-term capital gain $52,409. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Portfolio’s financial statements as a return of capital.
Note 3
Investment advisory and
other agreements
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 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 funds of the Trust or JHF II (Fund Assets) and (b) a fee on assets invested in investments other than the Trust or JHF II (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 Fund Assets, (b) 0.04% of the Fund Assets in excess of $500,000,000, (c) 0.50% of the first $500,000,000 of the Other Assets and (d) 0.49% of the Other Assets in excess of $500,000,000. The Portfolio is not responsible for payment of the subadvisory fees.
MFC Global Investment Management (U.S.A.) Limited acts as subadviser to the Portfolio. Deutsche Investment Management Americas, Inc. serves as subadviser consultant.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.05% of the Fund Assets and 0.08% of the Other Assets for an aggregate effective rate of 0.13%.
The Adviser has contractually agreed to reimburse or limit certain Portfolio level expenses to 0.09% of the Portfolio’s average annual net assets which are allocated pro rata to all share classes. This agreement excludes taxes, portfolio brokerage commissions, interest, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Portfolio’s business. In addition, fees incurred under any agreement or plans of the Portfolio dealing with services for the shareholders and others with beneficial interest in shares of the Portfolio, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses
| |
Semiannual report | International Allocation Portfolio | 23 |
and other extraordinary expenses not incurred in the ordinary course of the Portfolio’s business. In addition, fees incurred under any agreement or plans of the Portfolio dealing with services for the shareholders and others with beneficial interest in shares of the Portfolio, are excluded. The reimbursements and limits are such that these expenses will not exceed 0.50% for Class A shares, 1.20% for Class B, 1.20% for Class C and 0.05% for Class I. Accordingly, the expense reductions or reimbursements related to this agreement were $32,779, $10,056, $19,175 and $5,370 for Class A, Class B, Class C and Class I, respectively for the period ended August 31, 2008. The expense reimbursements and limits will continue in effect until June 30, 2009 and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Portfolio reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 the class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $2,596 with an annual effective rate of 0.01% of the Portfolio’s average daily net assets.
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 pay the Distributor for the services it provides as distributor of shares of the Portfolios. Accordingly, the Portfolio makes monthly payments to the Distributor at an annual rate not to exceed 0.30%, 1.00% and 1.00% of the average daily net assets 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 Financial Industry Regulatory Authority (formerly, 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.
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 August 31, 2008 the Distributor received net up-front sales charges of $43,222 with regard to sales of Class A shares. Of this amount, $7,134 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $34,921 was paid as sales commissions to unrelated broker-dealers and $1,167 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 Portfolio in connection with the sale of Class B and Class C shares. During the period ended August 31, 2008, CDSCs received by the Distributor amounted to $2,306 for Class B shares and $1,963 for Class C shares.
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’s 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. The Portfolio pays a monthly
| |
24 | International Allocation Portfolio | Semiannual report |
fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C and Class I shareholder account.
Signature Services has agreed to limit the transfer agent fees so that such fees do not exceed 0.30% annually of Class A, Class B, Class C and Class I share average daily net assets. This agreement is effective until December 31, 2008. Signature Services reserves the right to terminate this limitation in the future. There were no transfer agent fee reductions for Class A, Class B, Class C and Class I shares, respectively, during the period ended August 31, 2008.
The Portfolio receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Portfolio’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Portfolio’s transfer agent fees and out-of-pocket expenses were reduced by $136 for transfer agent credits earned.
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent fees | Blue sky fees | postage fees |
|
|
Class A | $45,290 | $13,664 | $8,488 | $4,558 |
Class B | 7,907 | 1,596 | 8,023 | 312 |
Class C | 43,325 | 8,707 | 8,720 | 1,052 |
Class I | — | 206 | 4,151 | 309 |
Total | $96,522 | $24,173 | $29,382 | $6,221 |
The Adviser and other affiliates of John Hancock USA owned 1,545,196 shares of beneficial interest of Class A, respectively, on August 31, 2008.
Note 4
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.
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Semiannual report | International Allocation Portfolio | 25 |
Note 5
Fund share transactions
This listing illustrates the number of Portfolio shares sold, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value.
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 3,069,699 | $32,165,731 | 408,641 | $3,855,180 |
Distributions reinvested | 161,717 | 1,625,253 | — | — |
Repurchased | (371,009) | (3,794,178) | (367,044) | (3,451,305) |
Net increase | 2,860,407 | $29,996,806 | 41,597 | $403,875 |
|
Class B shares | | | | |
|
Sold | 181,757 | $1,935,091 | 25,956 | $245,683 |
Distributions reinvested | 6,812 | 68,388 | — | — |
Repurchased | (26,915) | (281,028) | (44,263) | (407,352) |
Net increase (decrease) | 161,654 | $1,722,451 | (18,307) | ($161,669) |
|
Class C shares | | | | |
|
Sold | 814,878 | $8,637,166 | 186,626 | $1,780,692 |
Distributions reinvested | 34,010 | 341,797 | — | — |
Repurchased | (69,886) | (711,703) | (112,809) | (1,030,025) |
Net increase | 779,002 | $8,267,260 | 73,817 | $750,667 |
|
Class I shares | | | | |
|
Sold | 94,013 | $985,183 | 172,110 | $1,569,460 |
Distributions reinvested | 4,530 | 45,522 | — | — |
Repurchased | (29,904) | (292,658) | (181,582) | (1,660,078) |
Net increase (decrease) | 68,639 | $738,047 | (9,472) | ($90,618) |
|
Net increase | 3,869,702 | $40,724,564 | 87,635 | $902,255 |
|
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
Note 6
Purchases and sales of securities
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 August 31, 2008, aggregated $6,095,832 and $5,363,084, respectively.
Note 7
Investment in affiliated underlying funds
The Portfolio invests primarily in affiliated underlying funds that are managed by affiliates of the Adviser. The Portfolio does not invest in affiliated underlying funds for the purpose of exercising management or control; however, the Portfolio’s investments may represent a significant portion of each underlying fund’s net assets. A summary of the Portfolio’s investments in affiliated funds during the period ended August 31, 2008, is set forth below:
| | | |
| Percent of | | |
Affiliate — | underlying fund’s | | |
Class NAV | net assets | | |
| | |
International Classic | | | |
Value Fund | 27.51% | | |
| | | |
International Growth | | | |
Fund | 13.92% | | |
| |
26 | International Allocation Portfolio | Semiannual report |
Board Consideration of and
Continuation of Investment
Advisory Agreement: John Hancock
International Allocation Portfolio
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Funds III (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), (ii) the investment subadvisory agreement (the Subadvisory Agreement) with MFC Global Investment Management (U.S.A.) Limited (MFC Global USA) and (iii) the investment subadvisory consultant agreement (the Consultant Agreement) with Deutsche Asset Management, Inc. (DeAM) for the John Hancock International Allocation Portfolio (the Fund). MFC Global USA and DeAM are each referred to as a Subadviser, and collectively, the S ubadvisers. The Advisory Agreement, the Subadvisory Agreement and the Consultant Agreement are collectively referred to as the Advisory Agreements. The Fund invests in a combination of certain John Hancock mutual funds (the Underlying Funds).
The Fund may at any time allocate any percentage of its assets among any of the Underlying Funds. MFC Global USA may from time to time adjust the percentage of assets allocated to each Underlying Fund. The considerations made in approving the investment advisory and subadvisory agreements of each Underlying Fund are disclosed in each Underlying Fund’s shareholder report.
At meetings held on May 5–6 and June 9–10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadvisers and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/ Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the investment performance of the Fund relative to a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group). The funds within each Category and Peer Group were selected by Morningstar Inc. (Morningstar), an independent provider of investment company data. Data covered the period since the Fund’s inception through December 31, 2007,
(ii) fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group,
(iii) the Adviser’s financial results and condition, including its profitability from services performed for the Fund complex as a whole,
(iv) the Adviser’s and each Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and each Subadviser’s compliance department,
(v) the background and experience of senior management and investment professionals, and
(vi) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by each Subadviser.
The Independent Trustees considered the legal advice of their counsel and relied on their own business judgment in determining the material factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor.
| |
Semiannual report | International Allocation Portfolio | 27 |
The Board principally considered data on performance and other information provided by Morningstar as of December 31, 2007. The Board also considered updated performance information provided to it by the Adviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the narrow scope of services for which the Adviser is engaged, which consists of determining and adjusting investment allocations among the Underlying Funds. The Board considered the ability of the Adviser and each Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and each Subadviser. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and each Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and each Subadviser supported renewal of the Advisory Agreements.
Fund performance
The Board noted that the Fund had less than two full years of operational history, and considered the performance results for the Fund since its inception through December 31, 2007. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark indices. The Board reviewed with representatives of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group.
The Board noted that the Fund’s performance was lower than the performance of the Category and Peer Group medians, and its benchmark indices, the MSCI World Ex US NR Index and the MSCI EAFE GR Index, for the 1-year period. The Adviser discussed factors that contributed to the Fund’s performance results. The Board recognized the short operational history of the Fund and indicated its intent to continue to monitor the Fund’s performance trends.
Investment advisory fee rate and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was equal to the median rate of the Peer Group and the Category.
The Board received and considered expense information regarding the Fund’s various components, including distribution and fees other than distribution fees, including transfer agent fees, custodian fees, and other miscellaneous fees (e.g., fees for accounting and legal services). The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the advisory fee waiver arrangement into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross and Net Expense Ratios were higher than the median of the Peer Group and Category. The Board g ave limited consideration to the expense analysis because it did not distinguish between Fund-level and Underlying Fund-level expenses, and thus presented a
| |
28 | International Allocation Portfolio | Semiannual report |
comparison of the expenses information that was of limited utility.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board supported the re-approval of the Advisory Agreement.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to MFC Global USA for investment subadvisory services. The Board concluded that the Subadvisory Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the various relationships between the Fund and the Fund complex, on the one hand, and the Adviser and its affiliates on the other. The Board also considered publicly available industry information comparing the Adviser’s profitability to that of other similar investment advisers. The Board concluded that, in light of the absence of any advisory fees and in light of the costs of providing other services to the Fund and the Fund complex as a whole, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board observed that the Advisory Agreement did not provide for the payment of any fees and so did not determine that it needed to impose breakpoints.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadvisers as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadvisers with the Fund and benefits potentially derived from an increase in business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadvisers’ and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreement for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreement.
| |
Semiannual report | International Allocation Portfolio | 29 |
More information
| |
Trustees | Investment adviser |
James F. Carlin, Chairman | John Hancock Investment Management |
James R. Boyle† | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson | Subadviser |
Charles L. Ladner* | MFC Global Investment Management |
Stanley Martin* | (U.S.A.) Limited |
Dr. John A. Moore* | |
Patti McGill Peterson* | Principal distributor |
Steven R. Pruchansky | John Hancock Funds, LLC |
Gregory A. Russo* | Custodian |
* Members of the Audit Committee | State Street Bank & Trust Company |
† Non-Independent Trustee | |
| Transfer agent |
Officers | John Hancock Signature Services, Inc. |
Keith F. Hartstein | |
President and Chief Executive Officer | Legal counsel |
| K&L Gates LLP |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
| |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Gordon M. Shone | |
Treasurer | |
| |
John G. Vrysen | |
Chief Operating Officer | |
Additional information about your fund is available without charge in several ways. As required by the SEC, you can access proxy voting information and quarterly portfolio information on your fund. The proxy voting information includes a description of proxy voting policies, procedures and information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30. The quarterly portfolio information that includes a complete list of the fund’s holdings for the first and third quarters of the fund’s fiscal period is filed on Form N-Q. You have access to this information:
| | |
By phone | On the fund’s Website | At the SEC |
1-800-225-5291 | www.jhfunds.com | www.sec.gov |
| | 1-800-SEC-0330 |
| | SEC Public Reference Room |
|
| |
You can also contact us: | |
Regular mail | Express mail |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 9510 | Mutual Fund Image Operations |
Portsmouth, NH 03802-9510 | 164 Corporate Drive |
| Portsmouth, NH 03801 |
| |
Month-end portfolio holdings are available at www.jhfunds.com.
| |
30 | International Allocation Portfolio | Semiannual report |
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. | 318SA 8/08 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/08 |
A look at performance
For the periods ended August 31, 2008
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Average annual returns (%) | | | Cumulative total returns (%) | |
| | | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| | |
| |
| | SEC 30- day yield |
| Inception | | | | | Since | | Six | | | | Since | | (%) as of |
Class | date | | 1-year | 5-year | 10-year | inception | | months | 1-year | 5-year | 10-year | inception | | 8-31-08 |
|
A | 3-1-07 | | –16.10 | — | — | –7.81 | | –9.81 | –16.10 | — | — | –11.51 | 2.80 |
|
B | 3-1-07 | | –16.64 | — | — | –7.74 | | –10.14 | –16.64 | — | — | –11.42 | 2.27 |
|
C | 3-1-07 | | –13.21 | — | — | –5.28 | | –6.37 | –13.21 | — | — | –7.83 | 2.28 |
|
I1 | 3-1-07 | | –11.38 | — | — | –4.18 | | –4.86 | –11.38 | — | — | –6.22 | 3.42 |
|
R11 | 3-1-07 | | –11.78 | — | — | –4.72 | | –5.10 | –11.78 | — | — | –7.01 | 2.92 |
|
NAV1 | 4-28-08 | | — | — | — | — | | — | — | — | — | –6.85 | 3.47 |
|
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 to 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 NAV shares.
The expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The waivers and expense limitations are contractual at least until June 30, 2009. The net expenses are as follows: Class A — 1.55%, Class B — 2.25%, Class C — 2.25%, Class I — 1.10%, Class R1 — 1.75%, Class NAV — 1.05%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 1.79%, Class B — 3.89%, Class C — 3.00%, Class I — 2.16%, Class R1 — 16.23%, Class NAV — 1.30%.
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 current to the most recent month end performance data, 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.
1 For certain types of investors as described in the Fund’s Class I, Class R1 and Class NAV share prospectuses.
| |
6 | Global Shareholder Yield Fund | Semiannual report |
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Global Shareholder Yield Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in the S&P 500/Citigroup BMI World Index.
| | | | |
| | | With maximum | |
Class | Period beginning | Without sales charge | sales charge | Index |
|
B | 3-1-07 | $9,217 | $8,858 | $9,349 |
|
C2 | 3-1-07 | 9,217 | 9,217 | 9,349 |
|
I3 | 3-1-07 | 9,378 | 9,378 | 9,349 |
|
R13 | 3-1-07 | 9,299 | 9,299 | 9,349 |
|
NAV3 | 4-28-08 | 9,315 | 9,315 | 8,956 |
|
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 NAV shares, respectively, as of August 31, 2008. 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 500/Citigroup BMI World is an unmanaged subset of the BMI Global Index that reflects the stock markets of over 30 countries and over 9,000 securities with values expressed in U.S. dollars. The BMI World Index represents the developed market portion of the broader index.
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.
1 NAV represents net asset value and POP represents public offering price.
2 No contingent deferred sales charge applicable.
3 For certain types of investors as described in the Fund’s Class I, Class R1 and Class NAV share prospectuses.
| |
Semiannual report | Global Shareholder Yield 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 March 1, 2008 with the same investment held until August 31, 2008.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $949.20 | $7.57 |
|
Class B | 1,000.00 | 945.70 | 11.03 |
|
Class C | 1,000.00 | 945.70 | 11.03 |
|
Class I | 1,000.00 | 951.40 | 5.41 |
|
Class R1 | 1,000.00 | 949.00 | 7.86 |
|
Class NAV | 1,000.00 | 931.50 | 3.47 |
|
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 August 31, 2008, 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:
| |
8 | Global Shareholder Yield Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. 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 |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,017.40 | $7.83 |
|
Class B | 1,000.00 | 1,013.90 | 11.42 |
|
Class C | 1,000.00 | 1,013.90 | 11.42 |
|
Class I | 1,000.00 | 1,019.70 | 5.60 |
|
Class R1 | 1,000.00 | 1,017.10 | 8.13 |
|
Class NAV | 1,000.00 | 1,020.00 | 5.30 |
|
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.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.54%, 2.25%, 2.25%, 1.10%, 1.60% and 1.04% for Class A, Class B, Class C, Class I, Class R1 and Class NAV respectively, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year/365 (to reflect the one-half year period).
| |
Semiannual report | Global Shareholder Yield Fund | 9 |
Portfolio summary
| | | | |
Top 10 holdings1 | | | | |
|
Reynolds American, Inc. | 2.1% | | France Telecom SA | 1.8% |
| |
|
Verizon Communications, Inc. | 2.0% | | E.I. Du Pont de Nemours & Company | 1.8% |
| |
|
Astra Zeneca PLC | 2.0% | | AT&T, Inc. | 1.8% |
| |
|
UST, Inc. | 2.0% | | Diageo PLC | 1.7% |
| |
|
Duke Energy Corp. | 1.9% | | Nestle SA | 1.7% |
| |
|
|
Sector distribution1,2 | | | | |
|
Communications | 24% | | Industrial | 3% |
| |
|
Consumer Non-cyclical | 19% | | Technology | 3% |
| |
|
Utilities | 16% | | Consumer, Cyclical | 2% |
| |
|
|
Energy | 12% | | Diversified | 1% |
| |
|
Basic Materials | 7% | | Short-term Investments | 9% |
| |
|
Financial | 4% | | | |
| | | |
1 As a percentage of net assets on August 31, 2008.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| |
10 | Global Shareholder Yield Fund | Semiannual report |
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 8-31-08 (unaudited)
This schedule is divided into two main categories: common stocks and repurchase agreements. Common stocks are further broken down by country. Repurchase agreements, which represent the Fund’s cash position, are listed last.
| | |
Issuer | Shares | Value |
|
Common stocks 90.61% | | $163,299,364 |
(Cost $175,754,135) | | |
| | |
Australia 2.92% | | 5,260,891 |
|
APN News & Media, Ltd. | 31,290 | 88,561 |
|
Australia and New Zealand Banking Group, Ltd. | 58,400 | 822,366 |
|
John Fairfax Holdings, Ltd. | 446,217 | 1,072,989 |
|
Lion Nathan, Ltd. | 142,300 | 1,088,326 |
|
St. George Bank, Ltd. | 51,700 | 1,333,303 |
|
Westpac Banking Corp., Ltd. | 42,800 | 855,346 |
| | |
Austria 1.09% | | 1,956,006 |
|
Telekom Austria AG | 91,000 | 1,956,006 |
| | |
Belgium 2.53% | | 4,554,644 |
|
Belgacom SA | 44,920 | 1,788,674 |
|
Inbev NV | 39,900 | 2,765,970 |
| | |
Canada 1.54% | | 2,779,996 |
|
Manitoba Telecom Services, Inc. | 46,300 | 1,818,337 |
|
Yellow Pages Income Fund | 101,500 | 961,659 |
| | |
Finland 1.93% | | 3,480,084 |
|
Fortum Corp. Oyj | 53,450 | 2,193,897 |
|
Nokia Oyj, SADR | 51,100 | 1,286,187 |
| | |
France 4.06% | | 7,325,673 |
|
France Telecom SA | 112,600 | 3,320,007 |
|
Total SA | 30,700 | 2,205,369 |
|
Vivendi SA | 46,600 | 1,800,297 |
| | |
Germany 2.97% | | 5,361,545 |
|
BASF AG | 46,000 | 2,653,928 |
|
RWE AG | 25,100 | 2,707,617 |
| | |
Ireland 0.40% | | 718,732 |
|
Independent News & Media PLC | 330,900 | 718,732 |
| | |
Italy 4.77% | | 8,589,837 |
|
Enel SpA | 293,500 | 2,694,849 |
|
Eni SpA, SADR | 32,200 | 2,094,610 |
|
Intesa Sanpaolo SpA | 153,200 | 822,355 |
|
Mondadori (Arnoldo) Editore SpA | 154,600 | 846,081 |
|
Terna SpA | 530,600 | 2,131,942 |
See notes to financial statements
| |
Semiannual report | Global Shareholder Yield Fund | 11 |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
|
Malaysia 0.04% | | $69,670 |
|
British American Tobacco Malaysia BHD | 6,000 | 69,670 |
| | |
Norway 1.52% | | 2,730,403 |
|
Den Norske Bank ASA | 72,500 | 840,532 |
|
StatoilHydro ASA, SADR | 61,700 | 1,889,871 |
| | |
Philippines 0.99% | | 1,781,724 |
|
Philippine Long Distance Telephone Company, SADR | 30,051 | 1,781,724 |
| | |
Singapore 0.69% | | 1,252,522 |
|
Singapore Press Holdings, Ltd. | 433,000 | 1,252,522 |
| | |
South Korea 0.84% | | 1,506,640 |
|
KT Corp., SADR | 74,000 | 1,506,640 |
| | |
Spain 1.04% | | 1,877,847 |
|
Telefonica SA | 76,000 | 1,877,847 |
| | |
Sweden 0.72% | | 1,291,594 |
|
Swedish Match AB | 65,500 | 1,291,594 |
| | |
Switzerland 2.92% | | 5,259,917 |
|
Nestle SA | 69,200 | 3,048,923 |
|
Swisscom AG | 6,900 | 2,210,994 |
| | |
Taiwan 2.61% | | 4,706,901 |
|
Chunghwa Telecom Company, Ltd., ADR * | 73,800 | 1,825,812 |
|
Far EasTone Telecommunications Company, Ltd. | 826,981 | 1,202,628 |
|
Taiwan Semiconductor Manufacturing Company, Ltd., SADR | 172,859 | 1,678,461 |
| | |
United Kingdom 10.41% | | 18,768,390 |
|
AstraZeneca PLC, SADR | 72,900 | 3,550,230 |
|
Diageo PLC, SADR | 42,300 | 3,147,120 |
|
GKN PLC | 390,200 | 1,740,397 |
|
Imperial Tobacco Group PLC | 81,200 | 2,677,235 |
|
National Grid PLC | 196,800 | 2,561,711 |
|
Tomkins PLC | 635,300 | 1,716,173 |
|
United Utilities Group PLC * | 157,963 | 2,055,330 |
|
Vodafone Group PLC | 516,600 | 1,320,194 |
| | |
United States 46.62% | | 84,026,348 |
|
Altria Group, Inc. | 130,700 | 2,748,621 |
|
AT&T, Inc. | 100,600 | 3,218,194 |
|
Automatic Data Processing, Inc. | 39,700 | 1,761,886 |
|
Ball Corp. | 49,200 | 2,259,264 |
|
Bristol-Myers Squibb Company | 41,500 | 885,610 |
|
CBS Corp., Class B | 64,000 | 1,035,520 |
|
CenturyTel, Inc. | 70,800 | 2,735,004 |
|
Chevron Corp. | 10,600 | 914,992 |
|
ConocoPhillips | 30,900 | 2,549,559 |
|
DaVita, Inc. * | 17,100 | 981,369 |
|
Diamond Offshore Drilling, Inc. | 16,300 | 1,791,533 |
|
Dow Chemical Company | 52,100 | 1,778,173 |
See notes to financial statements
| |
12 | Global Shareholder Yield Fund | Semiannual report |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
United States (continued) | | |
|
Duke Energy Corp. | 200,800 | $3,501,952 |
|
E.I. Du Pont de Nemours & Company | 74,000 | 3,288,560 |
|
Exxon Mobil Corp. | 11,200 | 896,112 |
|
Frontier Communications Corp. * | 146,500 | 1,841,505 |
|
General Electric Company | 46,100 | 1,295,410 |
|
Genuine Parts Company | 31,500 | 1,336,230 |
|
Great Plains Energy, Inc. | 75,000 | 1,758,750 |
|
International Flavors & Fragrances, Inc. | 22,300 | 896,683 |
|
Kinder Morgan Energy Partners LP | 37,200 | 2,136,768 |
|
Lorillard, Inc. | 37,200 | 2,687,328 |
|
Magellan Midstream Partners LP | 35,300 | 1,312,454 |
|
Microchip Technology, Inc. | 43,400 | 1,389,234 |
|
NSTAR | 53,000 | 1,793,520 |
|
Nucor Corp. | 31,200 | 1,638,000 |
|
ONEOK Partners LP | 22,900 | 1,375,145 |
|
Packaging Corp. of America | 115,700 | 2,979,275 |
|
Philip Morris International, Inc. | 43,600 | 2,341,320 |
|
Progress Energy, Inc. | 40,100 | 1,751,568 |
|
Reynolds American, Inc. | 69,800 | 3,698,004 |
|
Royal Dutch Shell PLC, ADR | 12,300 | 855,096 |
|
SCANA Corp. | 50,300 | 1,971,760 |
|
Southern Copper Corp. | 68,100 | 1,738,593 |
|
Teco Energy, Inc. | 90,900 | 1,621,656 |
|
The Laclede Group, Inc. | 13,300 | 597,569 |
|
The Southern Company | 63,900 | 2,396,889 |
|
U.S. Bancorp | 57,000 | 1,816,020 |
|
UST, Inc. | 66,200 | 3,547,658 |
|
Ventas, Inc., REIT | 40,000 | 1,816,800 |
|
Verizon Communications, Inc. | 101,500 | 3,564,680 |
|
Westar Energy, Inc. | 77,800 | 1,762,170 |
|
Windstream Corp. | 141,700 | 1,759,914 |
|
| Principal | |
Issuer, description, maturity date | amount | Value |
|
Repurchase agreements 8.54% | | $15,388,000 |
(Cost $15,388,000) | | |
|
Repurchase Agreement with State Street Corp. dated 08/29/2008 at | | |
1.70% to be repurchased at $15,390,907 on 09/02/2008, | | |
collateralized by $15,775,000 Federal Home Loan Bank, 5.00% | | |
due 06/11/2018 (valued at $15,696,125, including interest) | $15,388,000 | 15,388,000 |
|
Total investments (cost $191,142,135)† 99.15% | | 178,687,364 |
|
|
Other assets in excess of liabilities 0.85% | | 1,531,740 |
|
|
Total net assets 100.00% | | $180,219,104 |
See notes to financial statements
| |
Semiannual report | Global Shareholder Yield Fund | 13 |
F I N A N C I A L S T A T E M E N T S
Notes to Schedule of Investments
The portfolio had the following five top industry concentrations as of August 31, 2008 (as a percentage of total net assets):
| | | |
Telecommunications | | | |
equipment & services | 12.15% | | |
Tobacco | 10.58% | | |
Electrical utilities | 9.28% | | |
Telephone | 7.28% | | |
Energy | 6.27% | | |
Percentages are stated as a percent of net assets.
ADR American Depository Receipts
PLC Public Limited Company
REIT Real Estate Investment Trust
SADR Sponsored American Depository Receipts
* Non-Income Producing
† At August 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $191,260,510. Net unrealized depreciation aggregated $12,573,146, of which $1,883,463 related to appreciated investment securities and $14,456,609 related to depreciated investment securities.
See notes to financial statements
| |
14 | Global Shareholder Yield Fund | Semiannual report |
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 8-31-08 (unaudited)
This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum public offering price per share.
| |
Assets | |
|
Investments, at value (Cost $191,142,135) | $178,687,364 |
Cash | 371 |
Foreign currency, at value (Cost $618,720) | 617,530 |
Receivable for investments sold | 164,431 |
Receivable for fund shares sold | 292,325 |
Dividends and interest receivable | 591,132 |
Receivable due from adviser | 3,696 |
Other assets | 12,242 |
| |
Total assets | 180,369,091 |
|
Liabilities | |
|
Payable for fund shares repurchased | 66,446 |
Payable to affiliates | |
Fund administration fees | 851 |
Transfer agent fees | 12,829 |
Distribution and service fees | 288 |
Trustees’ fees | 797 |
Other payables and accrued expenses | 68,776 |
| |
Total liabilities | 149,987 |
|
Net assets | |
|
Capital paid-in | $197,302,960 |
Undistributed net investment income | 1,778,164 |
Accumulated undistributed net realized loss on investments | |
and foreign currency transactions | (6,400,671) |
Net unrealized depreciation on investments and translation | |
of assets and liabilities in foreign currencies | (12,461,349) |
| |
Net assets | $180,219,104 |
|
See notes to financial statements
| |
Semiannual report | Global Shareholder Yield Fund | 15 |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
| |
Net asset value per share | |
|
The Funds have an unlimited number of shares authorized with no par | |
value. Net asset value is calculated by dividing the net assets of each class | |
of shares by the number of outstanding shares in the class. | |
| |
Class A | |
Net assets | $16,407,592 |
Shares outstanding | 1,829,514 |
Net asset value and redemption price per share | $8.97 |
| |
Class B1 | |
Net assets | $976,664 |
Shares outstanding | 108,969 |
Net asset value, offering price and redemption price per share | $8.96 |
| |
Class C1 | |
Net assets | $4,473,702 |
Shares outstanding | 499,024 |
Net asset value, offering price and redemption price per share | $8.96 |
| |
Class I | |
Net assets | $70,500,473 |
Shares outstanding | 7,848,583 |
Net asset value, offering price and redemption price per share | $8.98 |
| |
Class R1 | |
Net assets | $92,950 |
Shares outstanding | 10,367 |
Net asset value, offering price and redemption price per share | $8.97 |
| |
Class NAV | |
Net assets | $87,767,723 |
Shares outstanding | 9,765,510 |
Net asset value, offering price and redemption price per share | $8.99 |
|
Maximum public offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $9.44 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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
| |
16 | Global Shareholder Yield Fund | Semiannual report |
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 8-31-08 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
| |
Investment income | |
|
Dividends | $3,608,055 |
Interest | 126,607 |
Less foreign taxes withheld | (207,409) |
| |
Total investment income | 3,527,253 |
|
Expenses | |
|
Investment management fees (Note 3) | 549,983 |
Distribution and service fees (Note 3) | 59,778 |
Transfer agent fees (Note 3) | 23,403 |
Fund administration fees (Note 3) | 5,613 |
Blue sky fees (Note 3) | 33,812 |
Audit and legal fees | 20,759 |
Custodian fees | 15,378 |
Registration and filing fees | 7,358 |
Printing and postage fees (Note 3) | 5,033 |
Trustees’ fees (Note 4) | 1,755 |
Miscellaneous | 240 |
| |
Total expenses | 723,112 |
Less: expense reductions (Note 3) | (30,628) |
Less: transfer agency credits (Note 3) | (104) |
| |
Net expenses | 692,380 |
| |
Net investment income | 2,834,873 |
|
Realized and unrealized loss | |
|
Net realized loss on | |
Investments in unaffiliated issuers | (5,587,491) |
Foreign currency transactions | (154,403) |
| (5,741,894) |
Changes in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (9,797,671) |
Translation of assets and liabilities in foreign currencies | (8,861) |
| (9,806,532) |
Net realized and unrealized loss | (15,548,426) |
| |
Decrease in net assets from operations | ($12,713,553) |
1 Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements
| |
Semiannual report | Global Shareholder Yield Fund | 17 |
F I N A N C I A L S T A T E M E N T S
Statements 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 | Period |
| ended | ended |
| 2-29-08 | 8-31-081 |
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $972,292 | $2,834,873 |
Net realized loss | (544,011) | (5,741,894) |
Change in net unrealized appreciation (depreciation) | (2,654,817) | (9,806,532) |
| | |
Decrease in net assets resulting from operations | (2,226,536) | (12,713,553) |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | (758,310) | (153,162) |
Class B | (25,168) | (4,145) |
Class C | (74,029) | (17,776) |
Class I | (83,716) | (427,499) |
Class R1 | (2,790) | (691) |
Class NAV | — | (509,320) |
From net realized gain | | |
Class A | (76,015) | — |
Class B | (3,843) | — |
Class C | (12,123) | — |
Class I | (9,685) | — |
Class R1 | (288) | — |
| | |
Total distributions | (1,045,967) | (1,112,593) |
| | |
From Fund share transactions (Note 5) | 39,626,173 | 157,691,580 |
| | |
Total increase | 36,353,670 | 143,865,434 |
|
Net assets | | |
|
Beginning of period | — | 36,353,670 |
| | |
End of period | $36,353,670 | $180,219,104 |
| | |
Undistributed net investment income | $55,884 | $1,778,164 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements
| |
18 | Global Shareholder Yield Fund | Semiannual report |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
Net asset value, beginning of period | $10.00 | $9.52 |
Net investment income3 | 0.35 | 0.24 |
Net realized and unrealized loss | | |
on investments | (0.51) | (0.50) |
Total from investment operations | (0.16) | (0.26) |
Less distributions | | |
From net investment income | (0.29) | (0.26) |
From net realized gain | (0.03) | (0.03) |
Total distributions | (0.32) | (0.29) |
Net asset value, end of period | $9.52 | $8.97 |
Total return (%) 4,5 | (1.84) | (5.08)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | $27 | $16 |
Ratios (as a percentage of average net assets) | | |
Expenses before reductions | 1.79 | 1.597 |
Expenses net of fee waiver | 1.45 | 1.547 |
Expenses net of all fee waivers | | |
and credits | 1.45 | 1.547 |
Net investment income | 3.31 | 5.027 |
Portfolio turnover (%) | 24 | 23 |
1 Class A shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and does not reflect the effect of sales charges.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
Semiannual report | Global Shareholder Yield Fund | 19 |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $9.51 |
Net investment income3 | 0.22 | 0.21 |
Net realized and unrealized loss | | |
on investments | (0.45) | (0.54) |
Total from investment operations | (0.23) | (0.33) |
Less distributions | | |
From net investment income | (0.23) | (0.19) |
From net realized gain | (0.03) | (0.03) |
Total distributions | (0.26) | (0.22) |
Net asset value, end of period | $9.51 | $8.96 |
Total return (%) 4,5 | (2.54) | (5.43)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | $1 | $1 |
Ratios (as a percentage of average net assets) | | |
Expenses before reductions | 3.89 | 3.467 |
Expenses net of fee waiver | 2.23 | 2.257 |
Expenses net of all fee waivers and credits | 2.23 | 2.257 |
Net investment income | 2.11 | 4.327 |
Portfolio turnover (%) | 24 | 23 |
1 Class B shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
20 | Global Shareholder Yield Fund | Semiannual report |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $9.51 |
Net investment income3 | 0.22 | 0.20 |
Net realized and unrealized loss | | |
on investments | (0.45) | (0.53) |
Total from investment operations | (0.23) | (0.33) |
Less distributions | | |
From net investment income | (0.23) | (0.19) |
From net realized gain | (0.03) | (0.03) |
Total distributions | (0.26) | (0.22) |
Net asset value, end of period | $9.51 | $8.96 |
Total return (%) 4,5 | (2.54) | (5.43)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | $5 | $4 |
Ratios (as a percentage of average net assets) | | |
Expenses before reductions | 3.00 | 2.587 |
Expenses net of fee waiver | 2.23 | 2.257 |
Expenses net of all fee waivers and credits | 2.22 | 2.257 |
Net investment income | 2.08 | 4.307 |
Portfolio turnover (%) | 24 | 23 |
1 Class C shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
Semiannual report | Global Shareholder Yield Fund | 21 |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $9.53 |
Net investment income3 | 0.33 | 0.20 |
Net realized and unrealized loss | | |
on investments | (0.44) | (0.41) |
Total from investment operations | (0.11) | (0.21) |
Less distributions | | |
From net investment income | (0.33) | (0.31) |
From net realized gain | (0.03) | (0.03) |
Total distributions | (0.36) | (0.34) |
Net asset value, end of period | $9.53 | $8.98 |
Total return (%) 4,5 | (1.43) | (4.86)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | $3 | $71 |
Ratios (as a percentage of average net assets) | | |
Expenses before reductions | 2.16 | 1.127 |
Expenses net of fee waiver | 1.09 | 1.107 |
Expenses net of all fee waivers and credits | 1.09 | 1.107 |
Net investment income | 3.14 | 4.387 |
Portfolio turnover (%) | 24 | 23 |
1 Class I shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
22 | Global Shareholder Yield Fund | Semiannual report |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $9.52 |
Net investment income3 | 0.35 | 0.23 |
Net realized and unrealized loss | | |
on investments | (0.52) | (0.50) |
Total from investment operations | (0.17) | (0.27) |
Less distributions | | |
From net investment income | (0.28) | (0.25) |
From net realized gain | (0.03) | (0.03) |
Total distributions | (0.31) | (0.28) |
Net asset value, end of period | $9.52 | $8.97 |
Total return (%) 4,5 | (2.01) | (5.10)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | —7 | —7 |
Ratios (as a percentage of average net assets) | | |
Expenses before reductions | 16.23 | 15.828 |
Expenses net of fee waiver | 1.64 | 1.608 |
Expenses net of all fee waivers and credits | 1.64 | 1.608 |
Net investment income | 3.37 | 4.968 |
Portfolio turnover (%) | 24 | 23 |
1 Class R1 shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
Semiannual report | Global Shareholder Yield Fund | 23 |
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 | 8-31-081,2 |
|
Per share operating performance | |
|
Net asset value, beginning of period | $9.71 |
Net investment income3 | 0.17 |
Net realized and unrealized loss | |
on investments | (0.83) |
Total from investment operations | (0.66) |
Less distributions | |
From net investment income | (0.06) |
Total distributions | (0.06) |
Net asset value, end of period | $8.99 |
Total return (%) 4,5 | (6.85)6 |
|
Ratios and supplemental data | |
|
Net assets, end of period (in millions) | $88 |
Ratios (as a percentage of average net assets) | |
Expenses before reductions | 1.047 |
Expenses net of fee waiver | 1.047 |
Expenses net of all fee waivers and credits | 1.047 |
Net investment income | 5.307 |
Portfolio turnover (%) | 23 |
1 Class NAV shares began operations on 4-28-08.
2 Semiannual period from 4-28-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
24 | Global Shareholder Yield Fund | Semiannual report |
Notes to financial statements (unaudited)
Note 1
Organization
John Hancock Global Shareholder Yield Fund (the Fund) is a 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 provide a high level of income. Capital appreciation is a secondary investment objective.
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 and Class NAV shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. 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 (SEC) and the Internal Revenue Service. Shareholders of a class that bear distribution and service expenses under the terms of a di stribution plan have exclusive voting rights to that distribution plan. Class B shares will convert to Class A shares eight years after purchase.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B, Class C, Class I, Class R1 and Class NAV shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. Short-term debt investments that have a remaining maturity 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 the 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. Securities for which there are no such quotations, principally debt securities,
| |
Semiannual report | Global Shareholder Yield Fund | 25 |
are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 — Quoted prices in active markets for identical securities.
Level 2 — Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 — Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
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26 | Global Shareholder Yield Fund | Semiannual report |
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| INVESTMENTS IN | OTHER FINANCIAL |
VALUATION INPUTS | SECURITIES | INSTRUMENTS* |
|
Level 1 — Quoted Prices | $105,566,999 | — |
Level 2 — Other Significant Observable Inputs | 73,120,365 | — |
Level 3 — Significant Unobservable Inputs | — | — |
Total | $178,687,364 | — |
*Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/ depreciation on the instrument.
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 translation
The books and records of the Fund are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the prevailing exchange rates at period end. Purchases and sales of investment securities, income and expenses are translated into U.S. dollars at the prevailing exchange rates on the respective dates of the transactions.
Net realized and unrealized gains and losses on foreign currency transactions represent net gains and losses between trade and settlement dates on securities transactions, the disposition of forward foreign currency exchange contracts and foreign currencies, and the difference between the amount of net investment income accrued and the U.S. dollar amount actually received. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net realized and unrealized gain/appreciation and loss/depreciation on investments.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Discounts/premiums are accreted/amortized for financial reporting purposes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Broker commission rebates
The Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund. Commission rebates are reflected as a realized gain on securities in the Statement of Operations and amounted to $6,235.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C,
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Semiannual report | Global Shareholder Yield Fund | 27 |
Class I, Class R1 and Class NAV shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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 August 31, 2008, there were no borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. Net capital losses of $540,402 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on March 1, 2008, the first day of the Fund’s next taxable year.
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund’s fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund’s financial statements. Each of the Fund’s federal tax returns for the prior year remain subject to examination by the Internal Revenue Service.
New accounting pronouncements
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company, and any credit risk-related contingent features of the agreements. Management is currently evaluati ng the adoption of FAS 161 on the Fund’s financial statement disclosures.
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28 | Global Shareholder Yield Fund | Semiannual report |
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. The Fund declares income dividends and capital gains dividends, if any, annually. During the year ended February 29, 2008, the tax character of distributions paid was as follows: ordinary income $1,045,967. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Note 3
Investment advisory and
other agreements
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. Under the Advisory Agreement, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.950% of the first $500,000,000 of the Fund’s daily net assets; (b) 0.925% of the next $500,000,000 of the Fund’s daily net assets; and (c) 0.900% of the Fund’s daily net assets in excess of $1,000,000,000. The Adviser has a subadvisory agreement with Epoch Investment Partners, Inc. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.95% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.10% of the Fund’s average annual net assets which are allocated pro rata to all share classes. This agreement excludes taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
Finally, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest and litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded. The reimbursements and limits are such that these expenses will not exceed 1.55% for Class A shares, 2.25% for Class B, 2.25% for Class C, 1.10% for Class I, 1.60% for Class R1 and 1.05% for Class NAV. Accordingly, the expense reductions or reimbursements related to this agreement were $5,185, $6,698, $7,676, $4,107, $6,925 and $0 for Class A, Class B, Class C, Class I, Class R1 and Class NAV, respectively for the period ended August 31, 2008. The expense reimbursements and limits will co ntinue in effect until June 30, 2009 and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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
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Semiannual report | Global Shareholder Yield Fund | 29 |
share of net assets of each class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $5,613 with an annual effective rate of 0.01% of the Fund’s average daily net assets.
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 pay 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 Financial Industry Regulatory Authority (formerly 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, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 average daily net asset value for certain other services. The Service Plan fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.15% of the Class R1 average daily net assets.
Class A shares are assessed up-front sales charges. During the period ended August 31, 2008 the Distributor received net up-front sales charges of $24,113 with regard to sales of Class A shares. Of this amount, $3,553 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $20,319 was paid as sales commissions to unrelated broker-dealers and $241 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 August 31, 2008, CDSCs received by the Distributor amounted to $1,837 for Class B shares and $2,158 for Class C shares.
The Fund has a transfer agent 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’s average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses, aggregated and allocated to each class on the basis of its relative net asset value. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C, Class I and Class R1 shareholder account. Signature Services had agreed to limit Class A, Class B, Class C, Class I and Class R1 transfer agent fee to 0.20% of each respective class’s average daily net asset value until December 31, 2008. Signature Services reserves the right to terminate this limitation in the future. There were no transfer agent fee reducti ons during the period ended August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $37.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash
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30 | Global Shareholder Yield Fund | Semiannual report |
balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $104 for transfer agent credits earned.
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution and | Transfer | | Printing and |
Share class | service fees | agent fees | Blue sky fees | postage fees |
|
|
Class A | $30,389 | $9,179 | $6,925 | $3,991 |
Class B | 5,541 | 1,118 | 6,402 | 142 |
Class C | 23,603 | 4,744 | 6,722 | 396 |
Class I | — | 8,300 | 6,901 | 453 |
Class R1 | 245 | 62 | 6,862 | 51 |
Total | $59,778 | $23,403 | $33,812 | $5,033 |
The Adviser and other affiliates of John Hancock USA owned 10,367 shares of beneficial interest of Class R1 respectively, on August 31, 2008.
Note 4
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.
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Semiannual report | Global Shareholder Yield Fund | 31 |
Note 5
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value.
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
| Shares | Amount | Shares | Amount |
|
Class A shares | | | | |
Sold | 3,579,005 | $36,990,887 | 329,580 | $3,094,457 |
Distributions reinvested | 74,870 | 786,460 | 14,187 | 133,348 |
Repurchased | (778,581) | (8,201,185) | (1,389,547) | (13,378,688) |
Net increase (decrease) | 2,875,294 | $29,576,162 | (1,045,780) | ($10,150,883) |
| | | | |
Class B shares | | | | |
Sold | 152,636 | $1,617,383 | 4,075 | $38,991 |
Distributions reinvested | 2,550 | 26,721 | 402 | 3,774 |
Repurchased | (22,055) | (222,085) | (28,639) | (271,436) |
Net increase (decrease) | 133,131 | $1,422,019 | (24,162) | ($228,671) |
| | | | |
Class C shares | | | | |
Sold | 545,185 | $5,766,651 | 104,509 | $993,507 |
Distributions reinvested | 7,254 | 75,951 | 1,227 | 11,521 |
Repurchased | (70,535) | (720,096) | (88,616) | (838,410) |
Net increase | 481,904 | $5,122,506 | 17,120 | $166,618 |
| | | | |
Class I shares | | | | |
Sold | 373,901 | $3,986,954 | 8,063,282 | $77,972,838 |
Distributions reinvested | 2,569 | 26,908 | 44,200 | 414,191 |
Repurchased | (58,546) | (611,454) | (576,823) | (5,307,994) |
Net increase | 317,924 | $3,402,408 | 7,530,659 | $73,079,035 |
| | | | |
Class R1 shares | | | | |
Sold | 10,000 | $100,000 | — | — |
Distributions reinvested | 293 | 3,078 | 74 | 691 |
Net increase | 10,293 | $103,078 | 74 | $691 |
| | | | |
Class NAV shares | | | | |
Sold | — | — | 9,712,256 | $94,326,410 |
Distributions reinvested | — | — | 54,356 | 509,320 |
Repurchased | — | — | (1,102) | (10,940) |
Net increase | — | — | 9,765,510 | $94,824,790 |
| | | | |
Net increase | 3,818,546 | $39,626,173 | 16,243,421 | $157,691,580 |
1Semiannual period from 3-1-08 to 8-31-08. Unaudited.
Note 6
Purchases and sales of securities
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 August 31, 2008, aggregated $168,370,659 and $23,032,272, respectively.
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32 | Global Shareholder Yield Fund | Semiannual report |
Board Consideration of and
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock Global
Shareholder Yield Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Capital Series (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with Epoch Investment Partners, Inc. (the Subadviser) for the John Hancock Global Shareholder Yield Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements.
At meetings held on May 5–6 and June 9–10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/ Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund;
(ii) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department;
(iii) the background and experience of senior management and investment professionals; and
(iv) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Board noted that the Fund had less than one year of operations. Due to the Fund’s short operational history, the Board did not obtain an analysis comparing the Fund’s investment performance, advisory and other fees and expense ratios to a peer group or category of comparative funds from Morningstar, Inc. (Morningstar), an independent provider of investment company data.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board considered performance information provided to it by the Adviser or Subadviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholder’s report. The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser, Subadviser and representatives of the Subadviser that are responsible for the daily investment activities of the Fund. The Board considered the representatives’ history and
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Semiannual report | Global Shareholder Yield Fund | 33 |
experience with the Fund. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser supported renewal of the Advisory Agreements.
Fund performance
The Board noted that the Fund had less than one full year of operational history, and considered the performance results for the Fund presented by the Adviser as of April 30 and May 31, 2008. The Board also considered these results in comparison to the performance of several benchmark indexes. The Board noted that the Fund’s performance was lower than the performance of all of the benchmark indexes except the MS World Stock Index for the periods under review. The Board recognized the short operational history of the Fund and indicated its intent to continue to monitor the Fund’s performance trends.
Investment advisory fee and subadvisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board did not obtain information comparing the Advisory Agreement Rate, other fees or expense ratios with other comparative fees and expenses of a peer group or category of funds at its May and June 2008 meetings. However, the Board obtained and considered comparative fee data based on funds in a respective Morningstar category prior to the initial approval of the Advisory Agreement. The Board concluded that the Advisory Agreement Rate was not unreasonable.
The Board also obtained information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory Agreement Rate was not unreasonable.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Subadviser, which is not affiliated with the Adviser. The Board considered that the Subadvisory Agreement Rate paid to the Subadviser had been negotiated by the Adviser on an arm’s length basis and that the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser
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34 | Global Shareholder Yield Fund | Semiannual report |
and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadviser with the Fund and benefits potentially derived from an increase in business of the Adviser and Subadviser as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
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Semiannual report | Global Shareholder Yield Fund | 35 |
More information
| |
Trustees | Investment adviser |
James F. Carlin, Chairman | John Hancock Investment Management |
James R. Boyle† | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson | Subadviser |
Charles L. Ladner* | Epoch Investment Partners, Inc. |
Stanley Martin* | Principal distributor |
Dr. John A. Moore* | John Hancock Funds, LLC |
Patti McGill Peterson* | |
Steven R. Pruchansky | Custodian |
Gregory A. Russo* | State Street Bank & Trust Company |
* Members of the Audit Committee | |
† Non-Independent Trustee | Transfer agent |
| John Hancock Signature Services, Inc. |
Officers | |
Keith F. Hartstein | Legal counsel |
President and Chief Executive Officer | K&L Gates LLP |
| |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
| |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Gordon M. Shone | |
Treasurer | |
| |
John G. Vrysen | |
Chief Operating Officer | |
Additional information about your fund is available without charge in several ways. As required by the SEC, you can access proxy voting information and quarterly portfolio information on your fund. The proxy voting information includes a description of proxy voting policies, procedures and information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30. The quarterly portfolio information that includes a complete list of the fund’s holdings for the first and third quarters of the fund’s fiscal period is filed on Form N-Q. You have access to this information:
| | |
By phone | On the fund’s Website | At the SEC |
1-800-225-5291 | www.jhfunds.com | www.sec.gov |
| | 1-800-SEC-0330 |
| | SEC Public Reference Room |
|
| |
You can also contact us: | |
| |
Regular mail | Express mail |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 9510 | Mutual Fund Image Operations |
Portsmouth, NH 03802-9510 | 164 Corporate Drive |
| Portsmouth, NH 03801 |
| |
Month-end portfolio holdings are available at www.jhfunds.com.
| |
36 | Global Shareholder Yield Fund | Semiannual report |
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 Global Shareholder Yield Fund. | 320SA 8/08 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/08 |
A look at performance
| | | | | | | | | | | | |
For the periods ended August 31, 2008 | | | | | | | |
|
| | | Average annual returns (%) | | | | Cumulative total returns (%) | | |
| | | with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
| | |
| |
|
| Inception | | One | Five | Ten | Since | | Six | One | Five | Ten | Since |
Class | date | | year | years | years | inception | | months | year | years | years | inception |
|
A | 3-1-07 | | –31.81 | — | — | –23.01 | | –14.25 | –31.81 | — | — | –32.52 |
|
B | 3-1-07 | | –32.31 | — | — | –23.00 | | –14.63 | –32.31 | — | — | –32.50 |
|
C | 3-1-07 | | –29.51 | — | — | –20.86 | | –11.02 | –29.51 | — | — | –29.67 |
|
I1 | 3-1-07 | | –27.96 | — | — | –19.96 | | –9.59 | –27.96 | — | — | –28.46 |
|
R11 | 3-1-07 | | –28.33 | — | — | –20.45 | | –9.75 | –28.33 | — | — | –29.12 |
|
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charges 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 to 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 expense ratios of the Fund, both net (including any fee waivers or expense limitations) and gross (excluding any fee waivers or expense limitations), are set forth according to the most recent publicly available prospectuses for the Fund and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. The waivers and expense limitations are contractual at least until June 30, 2009. The net expenses are as follows: Class A — 1.37%, Class B — 2.12%, Class C — 2.12%, Class I — 0.97%, Class R1 — 1.64%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 2.52%, Class B — 11.98%, Class C — 6.38%, Class I — 13.02%, Class R1 — 13.76%.
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 current to the most recent month end performance data, 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.
1 For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
| |
6 | Classic Value Mega Cap Fund | Semiannual report |
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Classic Value Mega Cap 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 | 3-1-07 | $7,023 | $6,750 | $8,769 | $8,750 |
|
C2 | 3-1-07 | 7,033 | 7,033 | 8,769 | 8,750 |
|
I3 | 3-1-07 | 7,154 | 7,154 | 8,769 | 8,750 |
|
R13 | 3-1-07 | 7,088 | 7,088 | 8,769 | 8,750 |
|
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 August 31, 2008. 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 1 — is an unmanaged index containing those securities in the Russell 1000 Index with a less-than-average growth orientation.
Russell Top 200 Value — Index 2 — is an unmanaged index which measures the performance of the largest 200 companies within the Russell 3000 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.
1 NAV represents net asset value and POP represents public offering price.
2 No contingent deferred sales charge applicable.
3 For certain types of investors as described in the Fund’s Class I and Class R1 share prospectuses.
| |
Semiannual report | Classic Value Mega Cap 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 March 1, 2008 with the same investment held until August 31, 2008.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $902.60 | $6.57 |
|
Class B | 1,000.00 | $898.70 | 10.15 |
|
Class C | 1,000.00 | $898.80 | 10.15 |
|
Class I | 1,000.00 | $904.10 | 4.66 |
|
Class R1 | 1,000.00 | $902.50 | 7.43 |
|
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 August 31, 2008, 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:
| |
8 | Classic Value Mega Cap Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on March 1, 2008, with the same investment held until August 31, 2008. 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 |
| on 3-1-08 | on 8-31-08 | period ended 8-31-081 |
|
Class A | $1,000.00 | $1,018.30 | $6.97 |
|
Class B | 1,000.00 | 1,014.50 | 10.76 |
|
Class C | 1,000.00 | 1,014.50 | 10.76 |
|
Class I | 1,000.00 | 1,020.30 | 4.94 |
|
Class R1 | 1,000.00 | 1,017.40 | 7.88 |
|
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.37%, 2.12%, 2.12%, 0.97% and 1.47% 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 most recent fiscal half-year/365 (to reflect the one-half year period).
| |
Semiannual report | Classic Value Mega Cap Fund | 9 |
Portfolio summary
| | | | |
Top 10 holdings1 | | | | |
|
Northrop Grumman Corp. | 4.9% | | Microsoft Corp. | 4.2% |
| |
|
Citigroup, Inc. | 4.9% | | Motorola, Inc. | 3.8% |
| |
|
Capital One Financial Corp. | 4.7% | | Kohl’s Corp. | 3.8% |
| |
|
Alcatel-Lucent | 4.6% | | Kimberly-Clark Corp. | 3.5% |
| |
|
Allstate Corp. | 4.5% | | Bank of America Corp. | 3.4% |
| |
|
|
Sector distribution1,2 | | | | |
|
Financial | 34% | | Technology | 5% |
| |
|
Consumer, Non-cyclical | 21% | | Energy | 3% |
| |
|
Communications | 10% | | Utilities | 3% |
| |
|
Consumer Cyclical | 9% | | Short-term Investments | 10% |
| |
|
Industrial | 6% | | | |
| | |
1 As a percentage of net assets on August 31, 2008.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| |
10 | Classic Value Mega Cap Fund | Semiannual report |
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 8-31-08 (unaudited)
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 97.89% | | $9,090,677 |
|
(Cost $10,786,738) | | |
| | |
Aerospace 4.89% | | 454,410 |
|
Northrop Grumman Corp. | 6,600 | 454,410 |
| | |
Banking 6.81% | | 632,250 |
|
Bank of America Corp. | 10,200 | 317,628 |
|
Wachovia Corp. | 19,800 | 314,622 |
| | |
Biotechnology 2.42% | | 224,689 |
|
Amgen, Inc. * | 3,575 | 224,689 |
| | |
Cable & Television 2.53% | | 235,103 |
|
Viacom, Inc., Class B * | 7,975 | 235,103 |
| | |
Cellular Communications 3.76% | | 349,011 |
|
Motorola, Inc. | 37,050 | 349,011 |
| | |
Cosmetics & Toiletries 3.49% | | 323,820 |
|
Kimberly-Clark Corp. | 5,250 | 323,820 |
| | |
Electronics 1.52% | | 141,085 |
|
Tyco Electronics, Ltd. | 4,287 | 141,085 |
| | |
Energy 2.96% | | 275,120 |
|
Sempra Energy | 4,750 | 275,120 |
| | |
Financial Services 19.02% | | 1,766,164 |
|
Capital One Financial Corp. | 9,800 | 432,572 |
|
Citigroup, Inc. | 23,825 | 452,437 |
|
Federal Home Loan Mortgage Corp. | 20,575 | 92,793 |
|
Federal National Mortgage Association | 11,625 | 79,515 |
|
JP Morgan Chase & Company | 6,900 | 265,581 |
|
Lehman Brothers Holdings, Inc. | 9,400 | 151,246 |
|
Morgan Stanley | 5,875 | 239,876 |
|
Washington Mutual, Inc. | 12,875 | 52,144 |
| | |
Food & Beverages 2.91% | | 270,198 |
|
Kraft Foods, Inc., Class A | 8,575 | 270,198 |
| | |
Healthcare Products 5.92% | | 549,550 |
|
Boston Scientific Corp. * | 22,025 | 276,634 |
|
Johnson & Johnson | 3,875 | 272,916 |
See notes to financial statements
| |
Semiannual report | Classic Value Mega Cap Fund | 11 |
F I N A N C I A L S T A T E M E N T S
| | |
Issuer | Shares | Value |
| | |
Healthcare Services 2.96% | | $274,900 |
|
Cardinal Health, Inc. | 5,000 | 274,900 |
| | |
Insurance 11.08% | | 1,029,110 |
|
ACE, Ltd. * | 4,550 | 239,375 |
|
Allstate Corp. | 9,200 | 415,196 |
|
Chubb Corp. | 3,850 | 184,839 |
|
MetLife, Inc. | 3,500 | 189,700 |
| | |
International Oil 2.99% | | 277,546 |
|
BP PLC, SADR | 3,150 | 181,534 |
|
Exxon Mobil Corp. | 1,200 | 96,012 |
| | |
Manufacturing 0.56% | | 51,971 |
|
Tyco International, Ltd. | 1,212 | 51,971 |
| | |
Pharmaceuticals 4.69% | | 435,946 |
|
Bristol-Myers Squibb Company | 8,525 | 181,923 |
|
Pfizer, Inc. | 3,750 | 71,663 |
|
Schering-Plough Corp. | 9,400 | 182,360 |
| | |
Retail Trade 9.87% | | 916,245 |
|
Home Depot, Inc. | 10,075 | 273,234 |
|
Kohl’s Corp. * | 6,700 | 329,439 |
|
Lowe’s Companies, Inc. | 9,250 | 227,920 |
|
Wal-Mart Stores, Inc. | 1,450 | 85,652 |
| | |
Software 4.91% | | 455,903 |
|
Microsoft Corp. | 14,275 | 389,565 |
|
Oracle Corp. * | 3,025 | 66,338 |
| | |
Telecommunications Equipment & Services 4.60% | | 427,656 |
|
Alcatel-Lucent, SADR * | 69,200 | 427,656 |
|
| Principal | |
Issuer, description, maturity date | amount | Value |
| | |
Repurchase agreements 10.81% | | $1,004,000 |
|
(Cost $1,004,000) | | |
|
Repurchase Agreement with State Street Corp. dated 08/29/2008 at | | |
1.70% to be repurchased at $1,004,190 on 09/02/2008, collateralized | | |
by $1,010,000 Federal Farm Credit Bank, 5.38% due 03/11/2019 | | |
(valued at $1,025,150, including interest) | $1,004,000 | 1,004,000 |
|
Total investments (Cost $11,790,738)† 108.70% | | $10,094,677 |
|
|
Liabilities in excess of other assets (8.70%) | | (808,338) |
|
|
Total net assets 100.00% | | $9,286,339 |
|
Percentages are stated as a percent of net assets.
SADR Sponsored American Depositary Receipts
* Non-Income Producing
† At July 31, 2008, the aggregate cost of investment securities for federal income tax purposes was $11,796,371. Net unrealized depreciation aggregated $1,701,694, of which $267,872 related to appreciated investment securities and $1,969,566 related to depreciated investment securities.
See notes to financial statements
| |
12 | Classic Value Mega Cap Fund | Semiannual report |
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 8-31-08 (unaudited)
This Statement of Assets and Liabilities is the Fund’s balance sheet. It shows the value of what the Fund owns, is due and owes. You’ll also find the net asset value and the maximum public offering price per share.
| |
Assets | |
|
Investments, at value (Cost $11,790,738) | $10,094,677 |
Cash | 439 |
Receivable for fund shares sold | 47 |
Dividends and interest receivable | 13,947 |
Receivable due from adviser | 3,233 |
Other assets | 11,010 |
| |
Total assets | 10,123,353 |
|
Liabilities | |
|
Payable for investments purchased | 757,180 |
Payable for fund shares repurchased | 21,538 |
Payable to affiliates | |
Fund administration fees | 304 |
Transfer agent fees | 1,460 |
Distribution and service fees | 263 |
Trustees’ fees | 87 |
Other payables and accrued expenses | 56,183 |
| |
Total liabilities | 837,014 |
|
Net assets | |
|
Capital paid-in | $11,460,457 |
Undistributed net investment income | 50,711 |
Accumulated undistributed net realized loss on investments | (528,768) |
Net unrealized depreciation on investments | (1,696,061) |
| |
Net assets | $9,286,339 |
See notes to financial statements
| |
Semiannual report | Classic Value Mega Cap Fund | 13 |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
| |
Net asset value per share | |
|
The Funds have an unlimited number of shares authorized with no par | |
value. Net asset value is calculated by dividing the net assets of each | |
class of shares by the number of outstanding shares in the class. | |
| |
Class A | |
Net assets | $8,733,232 |
Shares outstanding | 1,273,135 |
Net asset value and redemption price per share | $6.86 |
| |
Class B1 | |
Net assets | $121,688 |
Shares outstanding | 17,807 |
Net asset value and offering price per share | $6.83 |
| |
Class C1 | |
Net assets | $263,368 |
Shares outstanding | 38,520 |
Net asset value and offering price per share | $6.84 |
| |
Class I | |
Net assets | $92,532 |
Shares outstanding | 13,459 |
Net asset value and offering price per share | $6.88 |
| |
Class R1 | |
Net assets | $75,519 |
Shares outstanding | 11,032 |
Net asset value, offering price and redemption price per share | $6.85 |
|
Maximum public offering price per share | |
|
Class A (net asset value per share + 95%)2 | $7.22 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 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
| |
14 | Classic Value Mega Cap Fund | Semiannual report |
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 8-31-08 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
| |
Investment income | |
|
Dividends | $84,631 |
Interest | 2,215 |
| |
Total investment income | 86,846 |
|
Expenses | |
|
Investment management fees (Note 3) | 26,217 |
Distribution and service fees (Note 3) | 9,553 |
Blue sky fees (Note 3) | 30,599 |
Audit and legal fees | 18,062 |
Custodian fees | 7,094 |
Registration and filing fees | 5,245 |
Printing and postage fees (Note 3) | 4,750 |
Transfer agent fees (Note 3) | 2,782 |
Fund administration fees (Note 3) | 472 |
Trustees’ fees (Note 3) | 221 |
Miscellaneous | 44 |
| |
Total expenses | 105,039 |
Less expense reductions (Note 3) | (61,047) |
Less transfer agency credits (Note 3) | (42) |
| |
Net expenses | 43,950 |
| |
Net investment income | 42,896 |
|
Realized and unrealized loss | |
|
Net realized loss on investments in unaffiliated issuers | (249,396) |
Change in net unrealized appreciation (depreciation) of | |
investments in unaffiliated issuers | (248,056) |
| |
Net realized and unrealized loss | (497,452) |
| |
Decrease in net assets from operations | ($454,556) |
1 Semiannual period from 3-1-08 to 8-31-08.
See notes to financial statements
| |
Semiannual report | Classic Value Mega Cap Fund | 15 |
F I N A N C I A L S T A T E M E N T S
Statements 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.
| | |
| Year | Period |
| ended | ended |
| 2-29-08 | 8-31-081 |
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $76,690 | $42,896 |
Net realized loss | (144,795) | (249,396) |
Change in net unrealized appreciation (depreciation) | (1,448,005) | (248,056) |
| | |
Decrease in net assets resulting from operations | (1,516,110) | (454,556) |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | (65,289) | — |
Class B | (691) | — |
Class C | (2,761) | — |
Class I | (2,886) | — |
Class R1 | (1,138) | — |
From net realized gain | | |
Class A | (114,341) | — |
Class B | (2,856) | — |
Class C | (11,361) | — |
Class I | (3,867) | — |
Class R1 | (2,159) | — |
Total distributions | (207,349) | — |
| | |
From Fund share transactions (Note 5) | 7,084,760 | 4,379,594 |
| | |
Total increase | 5,361,301 | 3,925,038 |
|
Net assets | | |
|
Beginning of period | — | 5,361,301 |
| | |
End of period | $5,361,301 | $9,286,339 |
| | |
Undistributed net investment income | $7,815 | $50,711 |
1 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
See notes to financial statements
| |
16 | Classic Value Mega Cap Fund | Semiannual report |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $7.60 |
Net investment income3 | 0.13 | 0.05 |
Net realized and unrealized loss | | |
on investments | (2.23) | (0.79) |
Total from investment operations | (2.10) | (0.74) |
Less distributions | | |
From net investment income | (0.11) | — |
From net realized gain | (0.19) | — |
Total distributions | (0.30) | — |
Net asset value, end of period | $7.60 | $6.86 |
Total return (%)4,5 | (21.28) | (9.74)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | $5 | $9 |
Ratios (as a percentage of average net assets): | | |
Expenses before reductions | 2.52 | 2.557 |
Expenses net of fee waivers | 1.37 | 1.377 |
Expenses net of fee waivers and credits | 1.37 | 1.377 |
Net investment income | 1.34 | 1.447 |
Portfolio turnover (%) | 38 | 18 |
1 Class A shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment and does not reflect the effect of sales charges.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
See notes to financial statements
| |
Semiannual report | Classic Value Mega Cap Fund | 17 |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $7.60 |
Net investment income3 | 0.05 | 0.03 |
Net realized and unrealized loss | | |
on investments | (2.21) | (0.80) |
Total from investment operations | (2.16) | (0.77) |
Less distributions | | |
From net investment income | (0.05) | — |
From net realized gain | (0.19) | — |
Total distributions | (0.24) | — |
Net asset value, end of period | $7.60 | $6.83 |
Total return (%)4,5 | (21.85) | (10.13)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | —7 | —7 |
Ratios (as a percentage of average net assets): | | |
Expenses before reductions | 11.98 | 11.858 |
Expenses net of fee waivers | 2.12 | 2.128 |
Expenses net of fee waivers and credits | 2.12 | 2.128 |
Net investment income | 0.58 | 0.748 |
Portfolio turnover (%) | 38 | 18 |
1 Class B shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
18 | Classic Value Mega Cap Fund | Semiannual report |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $7.61 |
Net investment income3 | 0.06 | 0.03 |
Net realized and unrealized loss | | |
on investments | (2.21) | (0.80) |
Total from investment operations | (2.15) | (0.77) |
Less distributions | | |
From net investment income | (0.05) | — |
From net realized gain | (0.19) | — |
Total distributions | (0.24) | — |
Net asset value, end of period | $7.61 | $6.84 |
Total return (%)4,5 | (21.75) | (10.12)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | —7 | —7 |
Ratios (as a percentage of average net assets): | | |
Expenses before reductions | 6.38 | 6.408 |
Expenses net of fee waivers | 2.12 | 2.128 |
Expenses net of fee waivers and credits | 2.12 | 2.128 |
Net investment income | 0.68 | 0.748 |
Portfolio turnover (%) | 38 | 18 |
1 Class C shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
Semiannual report | Classic Value Mega Cap Fund | 19 |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $7.61 |
Net investment income3 | 0.17 | 0.07 |
Net realized and unrealized loss | | |
on investments | (2.23) | (0.80) |
Total from investment operations | (2.06) | (0.73) |
Less distributions | | |
From net investment income | (0.14) | — |
From net realized gain | (0.19) | — |
Total distributions | (0.33) | — |
Net asset value, end of period | $7.61 | $6.88 |
Total return (%)4,5 | (20.87) | (9.59)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | —7 | —7 |
Ratios (as a percentage of average net assets): | | |
Expenses before reductions | 13.02 | 13.378 |
Expenses net of fee waivers | 0.97 | 0.978 |
Expenses net of fee waivers and credits | 0.97 | 0.978 |
Net investment income | 1.80 | 1.928 |
Portfolio turnover (%) | 38 | 18 |
1 Class I shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
20 | Classic Value Mega Cap Fund | Semiannual report |
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 | 2-29-081 | 8-31-082 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $10.00 | $7.59 |
Net investment income3 | 0.11 | 0.05 |
Net realized and unrealized loss | | |
on investments | (2.23) | (0.52) |
Total from investment operations | (2.12) | (0.74) |
Less distributions | | |
From net investment income | (0.10) | — |
From net realized gain | (0.19) | — |
Total distributions | (0.29) | — |
Net asset value, end of period | $7.59 | $6.85 |
Total return (%)4,5 | (21.46) | (9.75)6 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | —7 | —7 |
Ratios (as a percentage of average net assets): | | |
Expenses before reductions | 13.59 | 19.028 |
Expenses net of fee waivers | 1.65 | 1.558 |
Expenses net of fee waivers and credits | 1.64 | 1.478 |
Net investment income | 1.08 | 1.388 |
Portfolio turnover (%) | 38 | 18 |
1 Class R1 shares began operations on 3-1-07.
2 Semiannual period from 3-1-08 to 8-31-08. Unaudited.
3 Based on the average of the shares outstanding.
4 Assumes dividend reinvestment.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| |
Semiannual report | Classic Value Mega Cap Fund | 21 |
Notes to financial statements (unaudited)
Note 1
Organization
John Hancock Classic Value Mega Cap Fund (the Fund) is a 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 and Class R1 shares. Class A, Class B and Class C shares are open to all retail investors. Class I shares are offered without any sales charge to various institutional and certain individual investors. Class R1 shares are available only to certain retirement plans. 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 (SEC) 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. Class B shares will convert to Class A shares eight years after purchase.
Note 2
Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:
Security valuation
The net asset value of Class A, Class B and Class C, Class I and Class R1 shares of the Fund is determined daily as of the close of the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. Short-term debt investments that have a remaining maturity 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 the 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. Securities for which there are no such quotations, principally debt securities, are valued based
| |
22 | Classic Value Mega Cap Fund | Semiannual report |
on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
Other assets and securities for which no such quotations are readily available are valued at 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 NYSE. The values of such securities used in computing the net asset value of the 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 NYSE. Upon such an occurrence, these securities will be valued at 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 investments in securities in foreign markets that close prior to the NYSE, 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 that tracks 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, the pricing for investments in foreign markets that have closed prior to the NYSE will promptly be reviewed and potential adjustments to the net asset value will be recommended to the Fund’s Pricing Committee where applicable.
Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer’s assets, general economic conditions, interest rates, investor perceptions and market liquidity.
The Fund adopted Statement of Financial Accounting Standards No. 157 (FAS 157), Fair Value Measurements, effective with the beginning of the Fund’s fiscal year. FAS 157 established a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
Level 1 – Quoted prices in active markets for identical securities.
Level 2 – Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.
Level 3 – Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable, such as when there is little or no market activity for an investment, unobservable inputs may be used. Unobservable inputs reflect the Fund’s own assumptions about the factors that market participants would use in pricing an investment and would be based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| |
Semiannual report | Classic Value Mega Cap Fund | 23 |
The following is a summary of the inputs used to value the Fund’s net assets as of August 31, 2008:
| | |
| INVESTMENTS IN | OTHER FINANCIAL |
VALUATION INPUTS | SECURITIES | INSTRUMENTS* |
|
Level 1 — Quoted Prices | $9,090,677 | $— |
|
Level 2 — Other Significant Observable Inputs | 1,004,000 | — |
|
Level 3 — Significant Unobservable Inputs | — | — |
Total | $10,094,677 | $— |
*Other financial instruments are derivative instruments not reflected in the Portfolio of Investments, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/ depreciation on the instrument.
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.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
Broker commission rebates
The Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund. Commission rebates are reflected as a realized gain on securities in the Statement of Operations and amounted to $1,262.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class A, Class B, Class C, Class I and Class R1 shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred.
Expenses
The majority of expenses are directly identifiable to an individual fund. Trust expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
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24 | Classic Value Mega Cap Fund | Semiannual report |
Line of credit
The Fund has entered into an agreement which enables them to participate in a $150 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 0.05% 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 August 31, 2008, there were no borrowings under the line of credit.
Pursuant to the custodian agreement, the Custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the Custodian for any overdraft, including any costs or expenses associated with the overdraft. The Custodian has a lien and security interest in any Fund property to the extent of any overdraft.
Federal income taxes
The Fund qualifies as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. Net capital losses of $273,739 that are attributable to security transactions incurred after October 31, 2007, are treated as arising on March 1, 2008, the first day of the Fund’s next taxable year.
The Fund has adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109 (FIN 48), at the beginning of the Fund’s fiscal year. FIN 48 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. The implementation of FIN 48 did not have a material impact on the Fund’s financial statements. Each of the Fund’s federal tax returns for the prior fiscal years remain subject to examination by the Internal Revenue Service.
New accounting pronouncements
In March 2008, FASB No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (FAS 133), was issued and is effective for fiscal years and interim reporting periods beginning after November 15, 2008. FAS 161 amends and expands the disclosure requirements of FAS 133 in order to provide financial statement users an understanding of a company’s use of derivative instruments, how derivative instruments are accounted for under FAS 133 and related interpretations and how these instruments affect a company’s financial position, performance, and cash flows. FAS 161 requires companies to disclose information detailing the objectives and strategies for using derivative instruments, the level of derivative activity entered into by the company and any credit risk-related contingent features of the agreements. Management is currently evaluatin g the adoption of FAS 161 on the Fund’s financial statement disclosures.
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. The Fund declares and pays income dividends and capital gains dividends, if any, at least annually. During the year ended February 29, 2008, the tax character of distributions paid was as follows: ordinary income $207,349. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
| |
Semiannual report | Classic Value Mega Cap Fund | 25 |
Note 3
Investment advisory and
other agreements
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. As compensation for its services, the Adviser receives an advisory fee from the Trust. Under the Advisory Agreement, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.85% of the first $2,500,000,000 of the Fund’s aggregate daily net assets; (b) 0.825% of the next $2,500,000,000 of the Fund’s aggregate daily net assets; and (c) 0.80% of the Fund’s aggregate daily net assets in excess of $5,000,000,000. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended August 31, 2008, were equivalent to an annual effective rate of 0.85% of the Fund’s average daily net assets.
The Adviser has contractually agreed to reimburse or limit certain Fund level expenses to 0.07% of the Fund’s average annual net assets which are allocated pro rata to all share classes. This agreement excludes taxes, portfolio brokerage commissions, interest, advisory fees, Rule 12b-1 fees, transfer agency fees, blue sky fees, printing and postage, litigation and indemnification expenses, and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund, are excluded.
In addition, the Adviser has agreed to reimburse or limit certain expenses for each share class. This agreement excludes taxes, portfolio brokerage commissions, interest, and litigation and indemnification expenses, and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. In addition, fees incurred under any agreement or plans of the Fund dealing with services for the shareholders and others with beneficial interest in shares of the Fund are excluded. The reimbursements and limits are such that these expenses will not exceed 1.37% for Class A shares, 2.12% for Class B, 2.12% for Class C, 0.97% for Class I and 1.47% for Class R1. Accordingly, the expense reductions or reimbursements related to this agreement were $32,330, $6,479, $7,928, $7,215 and $7,095 for Class A, Class B, Class C, Class I and Class R1, respectively, for the period ended August 31, 2008. The expense reimbursements and limits will continue in effect until June 30, 2009, and thereafter until terminated by the Adviser on notice to the Trust.
Pursuant to the Advisory Agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, 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 class at the time the expense was incurred.
The fund administration fees incurred for the period ended August 31, 2008, were $472 with an annual effective rate of 0.02% of the Fund’s average daily net assets.
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 pay 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 Financial Industry Regulatory Authority (formerly the National Association of Securities Dealers). Under the Conduct Rules, curtailment
| |
26 | Classic Value Mega Cap Fund | Semiannual report |
of a portion of the Fund’s 12b-1 payments could occur under certain circumstances.
In addition, the Fund has also adopted a Service Plan for Class R1 shares. Under the Service Plan, the Fund may pay up to 0.25% of Class R1 average daily net asset value for certain other services. There were no Service Plan fees incurred for the period ended August 31, 2008.
Class A shares are assessed up-front sales charges. During the period ended August 31, 2008, JH Funds received net up-front sales charges of $1,460 with regard to sales of Class A shares. Of this amount, $56 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $1,404 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 period ended August 31, 2008, CDSCs received by the Distributor amounted to $35 for Class C shares.
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. The Fund pays a monthly fee which is based on an annual rate of $16.50 for each Class A, Class B, Class C and Class R1 shareholder account.
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, 2008. Signature Services reserves the right to terminate this limitation in the future. 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 August 31, 2008.
In addition, Signature Services has voluntarily agreed to further limit transfer agent fees for Class R1 shares so that such fees do not exceed 0.05% annually of each class’s average daily net assets. For the period ended August 31, 2008, the transfer agent fees reductions for Class R1 were $32.
The Fund receives earnings credits from its transfer agent as a result of uninvested cash balances. These credits are used to reduce a portion of the Fund’s transfer agent fees and out-of-pocket expenses. During the period ended August 31, 2008, the Fund’s transfer agent fees and out-of-pocket expenses were reduced by $10 for transfer agent credits earned.
Class level expenses including the allocation of the transfer agent fees for the period ended August 31, 2008, were as follows:
| | | | |
| Distribution | | | |
| and service | Transfer | Blue | Printing and |
Share class | fees | agent fees | sky fees | postage fees |
|
Class A | $6,835 | $2,194 | $5,906 | $4,174 |
Class B | 665 | 134 | 5,771 | 58 |
Class C | 1,851 | 372 | 5,771 | 325 |
Class I | — | 30 | 6,561 | 80 |
Class R1 | 202 | 52 | 6,590 | 113 |
Total | $9,553 | $2,782 | $30,599 | $4,750 |
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Semiannual report | Classic Value Mega Cap Fund | 27 |
The Adviser and other affiliates of John Hancock USA owned 476,456, 10,283, 10,398 and 10,348 shares of beneficial interest of Class A, Class B, Class I and Class R1, respectively, on February 29, 2008.
Note 4
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.
Note 5
Fund share transactions
This listing illustrates the number of Funds shares sold, reinvested and repurchased during the year ended February 29, 2008, and the period ended August 31, 2008, along with the corresponding dollar value.
| | | | |
| | Year ended 2-29-08 | Period ended 8-31-081 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 644,426 | $6,413,956 | 809,125 | $5,462,817 |
Distributions reinvested | 20,663 | 172,537 | — | — |
Repurchased | (67,807) | (594,397) | (133,272) | (896,034) |
Net increase | 597,282 | $5,992,096 | 675,853 | $4,566,783 |
| | | | |
Class B shares | | | | |
|
Sold | 20,319 | $195,176 | 52 | $371 |
Distributions reinvested | 424 | 3,547 | — | — |
Repurchased | (1,618) | (13,795) | (1,370) | (10,176) |
Net increase (decrease) | 19,125 | $184,928 | (1,318) | ($9,805) |
| | | | |
Class C shares | | | | |
|
Sold | 72,248 | $710,339 | 2,664 | $20,165 |
Distributions reinvested | 1,482 | 12,408 | — | — |
Repurchased | (13,323) | (110,704) | (24,551) | (172,647) |
Net increase (decrease) | 60,407 | $612,043 | (21,887) | ($152,482) |
| | | | |
Class I shares | | | | |
|
Sold | 20,337 | $205,270 | 671 | $5,025 |
Distributions reinvested | 809 | 6,753 | — | — |
Repurchased | (3,947) | (30,867) | (4,411) | (29,927) |
Net increase (decrease) | 17,199 | $181,156 | (3,740) | ($24,902) |
| | | | |
Class R1 shares | | | | |
|
Sold | 15,442 | $154,310 | — | — |
Distributions reinvested | 362 | 3,018 | — | — |
Repurchased | (4,772) | (42,791) | — | — |
Net increase | 11,032 | $114,537 | — | — |
Net increase | 705,045 | $7,084,760 | 648,908 | $4,379,594 |
|
1Semiannual period from 3-1-08 to 8-31-08. Unaudited.
Note 6
Purchase and sale of securities
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 August 31, 2008, aggregated $5,330,916 and $1,086,377, respectively.
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28 | Classic Value Mega Cap Fund | Semiannual report |
Board Consideration of and
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock
Classic Value Mega Cap Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Capital Series (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to meet in person to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with Pzena Investment Management, LLC (the Subadviser) for the John Hancock Classic Value Mega Cap Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements.
At meetings held on May 5–6 and June 9–10, 2008, the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and its Independent Trustees, reviewed a broad range of information requested for this purpose. This information included:
(i) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund;
(ii) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions, and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department;
(iii) the background and experience of senior management and investment professionals; and
(iv) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Board noted that the Fund had less than one year of operations. Due to the Fund’s short operational history, the Board did not obtain an analysis comparing the Fund’s investment performance, advisory and other fees and expense ratios to a peer group or category of comparative funds from Morningstar, Inc. (Morningstar), an independent provider of investment company data.
The Independent Trustees considered the legal advice of independent legal counsel and relied on their own business judgment in determining the factors to be considered in evaluating the materials that were presented to them and the weight to be given to each such factor. The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. The Board considered performance information provided to it by the Adviser or Subadviser at its May and June 2008 meetings. Performance and other information may be quite different as of the date of this shareholders’ report. The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser, Subadviser and representatives of the Subadviser that are responsible for the daily investment activities of the Fund. The Board considered the representatives’ history and
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Semiannual report | Classic Value Mega Cap Fund | 29 |
experience with the Fund. The Board considered the Adviser’s execution of its oversight responsibilities. The Board further considered the culture of compliance, resources dedicated to compliance, compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative and other non-advisory services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser supported renewal of the Advisory Agreements.
Fund performance
The Board noted that the Fund had less than one full year of operational history, and considered the performance results for the Fund presented by the Adviser as of April 30 and May 31, 2008. The Board also considered these results in comparison to the performance of the benchmark index. The Board noted that the Fund’s performance was lower than the performance of its benchmark index, the Russell 1000 Value Index, for the periods under review. The Board recognized the short operational history of the Fund and indicated its intent to continue to monitor the Fund’s performance trends.
Investment advisory fee and subadvisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board did not obtain information comparing the Advisory Agreement Rate, other fees or expense ratios with other comparative fees and expenses of a peer group or category of funds at its May and June 2008 meetings. However, the Board obtained and considered comparative fee data based on funds in a respective Morningstar category prior to the initial approval of the Advisory Agreement. The Board concluded that the Advisory Agreement Rate was not unreasonable.
The Board also obtained information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory Agreement Rate was not unreasonable.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
The Board did not consider profitability information with respect to the Subadviser, which is not affiliated with the Adviser. The Board considered that the Subadvisory Agreement Rate paid to the Subadviser had been negotiated by the Adviser on an arm’s length basis and that the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the agreement.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser
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30 | Classic Value Mega Cap Fund | Semiannual report |
and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates and the Subadviser as a result of their relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser and Subadviser with the Fund and benefits potentially derived from an increase in business of the Adviser and Subadviser as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
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Semiannual report | Classic Value Mega Cap Fund | 31 |
More information
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Trustees | Investment adviser |
James F. Carlin, Chairman | John Hancock Investment Management |
James R. Boyle† | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson | Subadviser |
Charles L. Ladner* | Pzena Investment Management, LLC |
Stanley Martin* | |
Dr. John A. Moore* | Principal distributor |
Patti McGill Peterson* | John Hancock Funds, LLC |
Steven R. Pruchansky | |
Gregory A. Russo* | Custodian |
*Members of the Audit Committee | State Street Bank & Trust Company |
†Non-Independent Trustee | |
| Transfer agent |
Officers | John Hancock Signature Services, Inc. |
Keith F. Hartstein | |
President and Chief Executive Officer | Legal counsel |
| K&L Gates LLP |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
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Francis V. Knox, Jr. | |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Gordon M. Shone | |
Treasurer | |
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John G. Vrysen | |
Chief Operating Officer | |
Additional information about your fund is available without charge in several ways. As required by the SEC, you can access proxy voting information and quarterly portfolio information on your fund. The proxy voting information includes a description of proxy voting policies, procedures and information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30. The quarterly portfolio information that includes a complete list of the fund’s holdings for the first and third quarters of the fund’s fiscal period is filed on Form N-Q. You have access to this information:
| | |
By phone | On the fund’s Website | At the SEC |
1-800-225-5291 | www.jhfunds.com | www.sec.gov |
| | 1-800-SEC-0330 |
| | SEC Public Reference Room |
|
|
You can also contact us: | | |
Regular mail | Express mail | |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
P.O. Box 9510 | Mutual Fund Image Operations |
Portsmouth, NH 03802-9510 | 164 Corporate Drive | |
| Portsmouth, NH 03801 | |
| | |
Month-end portfolio holdings are available at www.jhfunds.com.
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32 | Classic Value Mega Cap Fund | Semiannual report |
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
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This report is for the information of the shareholders of John Hancock Classic Value Mega Cap Fund. | 322SA 8/08 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/08 |
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has adopted procedures by which shareholders may recommend nominees to the registrant's Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached “John Hancock Funds – 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 time periods specified in the rules and forms of the Securities and Exchange
Commission. Such disclosure 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)(i) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER.
(a)(1)(ii) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER.
(b) CERTIFICATION PURSUANT TO Rule 30a-2(b) OF THE INVESTMENT COMPANY ACT OF 1940.
(c)(1) Submission of Matters to a Vote of Security Holders is attached. See attached “John Hancock Funds – Governance Committee Charter”.
(c)(2) Contact person at the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Funds III
By: /s/ Keith F. Hartstein
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Keith F. Hartstein
President and Chief Executive Officer
Date: October 30, 2008
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: October 30, 2008
By: /s/ Charles A. Rizzo
-------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: October 30, 2008