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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
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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 |
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(Exact name of registrant as specified in charter) |
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601 Congress Street, Boston, Massachusetts 02210 |
(Address of principal executive offices) (Zip code) |
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Salvatore Schiavone |
Treasurer |
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601 Congress Street |
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Boston, Massachusetts 02210 |
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(Name and address of agent for service) |
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Registrant's telephone number, including area code: 617-663-4497 |
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Date of fiscal year end: | February 28 |
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Date of reporting period: | August 31, 2010 |
ITEM 1. SCHEDULE OF INVESTMENTS
A look at performance
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For the period ended August 31, 2010 | | | | | | | |
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| Average annual total returns (%) | | Cumulative total returns (%) | |
| with maximum sales charge (POP) | | with maximum sales charge (POP) | |
|
| | | | Since | | | | | | Since |
| 1-year | 5-year | 10-year | inception1 | | 6-months | 1-year | 5-year | 10-year | inception1 |
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Class A | 3.13 | — | — | –7.38 | | –9.61 | 3.13 | — | — | –27.68 |
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Class B | 2.83 | — | — | –7.33 | | –9.92 | 2.83 | — | — | –27.52 |
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Class C | 6.82 | — | — | –6.90 | | –6.13 | 6.82 | — | — | –26.08 |
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Class I2 | 9.04 | — | — | –5.85 | | –4.61 | 9.04 | — | — | –22.51 |
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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 shares 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 charges are not applicable for Class I 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 6-30-11. The net expenses are as follows: Class A — 1.37%, Class B — 2.07%, Class C — 2.07% and Class I — 0.91%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 2.31%, Class B — 9.39%, Class C — 5.28% and Class I — 10.50%.
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.
1 From 6-12-06.
2 For certain types of investors, as described in the Fund’s Class I share prospectus.
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6 | Value Opportunities Fund | Semiannual report |
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in John Hancock Value Opportunities Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in the Russell 2500 Value Index.
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| Period | Without | With maximum | |
| beginning | sales charge | sales charge | Index |
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Class B | 6-12-06 | $7,387 | $7,248 | $9,166 |
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Class C2 | 6-12-06 | 7,392 | 7,392 | 9,166 |
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Class I3 | 6-12-06 | 7,749 | 7,749 | 9,166 |
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Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund’s Class B, Class C and Class I shares, respectively, as of 8-31-10. 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 The contingent deferred sales charge, if any, is not applicable.
3 For certain types of investors, as described in the Fund’s Class I share prospectus.
| |
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, 2010 with the same investment held until August 31, 2010.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-10 | on 8-31-10 | period ended 8-31-101 |
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Class A | $1,000.00 | $951.80 | $6.79 |
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Class B | 1,000.00 | 948.20 | 10.21 |
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Class C | 1,000.00 | 948.20 | 10.21 |
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Class I | 1,000.00 | 953.90 | 4.48 |
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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, 2010, by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
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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, 2010, with the same investment held until August 31, 2010. 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 3-1-10 | on 8-31-10 | period ended 8-31-101 |
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Class A | $1,000.00 | $1,018.20 | $7.02 |
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Class B | 1,000.00 | 1,014.70 | 10.56 |
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Class C | 1,000.00 | 1,014.70 | 10.56 |
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Class I | 1,000.00 | 1,020.60 | 4.63 |
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Remember, these examples do not include any transaction costs, 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 1.38%, 2.08%, 2.08% and 0.91% for Class A, Class B, Class C and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
| |
Semiannual report | Value Opportunities Fund | 9 |
Portfolio summary
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Top 10 Holdings1 | | | | |
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Hasbro, Inc. | 1.3% | | PetSmart, Inc. | 1.1% |
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Wyndham Worldwide Corp. | 1.2% | | Genworth Financial, Inc., Class A | 1.1% |
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Lubrizol Corp. | 1.2% | | Torchmark Corp. | 1.0% |
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Autoliv, Inc. | 1.1% | | TRW Automotive Holdings Corp. | 1.0% |
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Herbalife, Ltd. | 1.1% | | Fossil, Inc. | 1.0% |
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Sector Composition2,3 | | | | |
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Consumer Discretionary | 35% | | Consumer Staples | 7% |
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Health Care | 17% | | Materials | 6% |
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Financials | 12% | | Energy | 3% |
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Industrials | 11% | | Utilities | 1% |
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Information Technology | 7% | | Short-Term Investments & Other | 1% |
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1 As a percentage of net assets on 8-31-10. Excludes cash and cash equivalents.
2 As a percentage of net assets on 8-31-10.
3 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 |
Fund’s investments
As of 8-31-10 (unaudited)
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| Shares | Value |
Common Stocks 99.32% | | $10,443,707 |
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(Cost $9,562,303) | | |
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Consumer Discretionary 34.66% | | 3,644,857 |
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Auto Components 2.53% | | |
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Autoliv, Inc. | 2,200 | 119,108 |
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Dorman Products, Inc. (I) | 400 | 9,380 |
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Tenneco, Inc. (I) | 1,200 | 29,664 |
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TRW Automotive Holdings Corp. (I) | 3,100 | 107,756 |
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Distributors 0.05% | | |
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Core-Mark Holding Company, Inc. (I) | 200 | 5,178 |
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Diversified Consumer Services 1.36% | | |
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Career Education Corp. (I)(L) | 2,100 | 36,813 |
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DeVry, Inc. | 600 | 22,866 |
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Hillenbrand, Inc. | 1,100 | 20,933 |
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Regis Corp. | 800 | 13,416 |
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Steiner Leisure, Ltd. (I) | 400 | 14,244 |
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Weight Watchers International, Inc. | 1,200 | 34,224 |
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Hotels, Restaurants & Leisure 3.14% | | |
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Bluegreen Corp. (I) | 900 | 2,304 |
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Brinker International, Inc. | 1,400 | 22,050 |
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CEC Entertainment, Inc. (I) | 400 | 12,548 |
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Cracker Barrel Old Country Store, Inc. | 900 | 40,149 |
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DineEquity, Inc. (I) | 500 | 15,960 |
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Domino’s Pizza, Inc. (I) | 1,800 | 23,076 |
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Papa John’s International, Inc. (I) | 400 | 9,524 |
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Royal Caribbean Cruises, Ltd. (I) | 1,400 | 34,384 |
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Ruby Tuesday, Inc. (I) | 1,500 | 13,815 |
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Speedway Motorsports, Inc. | 500 | 6,660 |
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The Cheesecake Factory, Inc. (I) | 900 | 20,151 |
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Wyndham Worldwide Corp. | 5,600 | 129,864 |
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Household Durables 3.34% | | |
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American Greetings Corp., Class A | 1,300 | 25,090 |
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Blyth, Inc. | 200 | 7,624 |
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Furniture Brands International, Inc. (I) | 1,100 | 5,115 |
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Helen of Troy, Ltd. (I) | 400 | 8,902 |
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Jarden Corp. | 1,300 | 35,022 |
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La-Z-Boy, Inc. (I) | 700 | 4,690 |
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Newell Rubbermaid, Inc. (L) | 4,000 | 60,080 |
| | |
See notes to financial statements | Semiannual report | Value Opportunities Fund | 11 |
| | |
| Shares | Value |
Household Durables (continued) | | |
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Sealy Corp. (I) | 3,100 | $7,347 |
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Stanley Black & Decker, Inc. | 1,800 | 96,552 |
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Tempur-Pedic International, Inc. (I) | 600 | 16,080 |
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Tupperware Brands Corp. | 1,200 | 47,208 |
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Whirlpool Corp. | 500 | 37,080 |
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Internet & Catalog Retail 0.55% | | |
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HSN, Inc. (I) | 1,600 | 42,064 |
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NutriSystem, Inc. (L) | 900 | 15,804 |
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Leisure Equipment & Products 2.21% | | |
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Arctic Cat, Inc. (I) | 500 | 3,495 |
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Eastman Kodak Company (I)(L) | 4,400 | 15,356 |
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Hasbro, Inc. | 3,500 | 141,260 |
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Jakks Pacific, Inc. (I) | 600 | 8,940 |
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Polaris Industries, Inc. (L) | 900 | 47,997 |
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RC2 Corp. (I) | 600 | 11,046 |
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Steinway Musical Instruments, Inc. (I) | 300 | 4,641 |
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Media 3.52% | | |
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Arbitron, Inc. | 200 | 5,088 |
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Belo Corp., Class A (I) | 1,800 | 9,414 |
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Entercom Communications Corp., Class A (I) | 1,200 | 6,600 |
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EW Scripps Company (I) | 1,300 | 8,827 |
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Gannett Company, Inc. | 8,500 | 102,765 |
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John Wiley & Sons, Inc., Class A | 800 | 28,472 |
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Journal Communications, Inc., Class A (I) | 1,700 | 6,732 |
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Lee Enterprises, Inc. (I)(L) | 2,800 | 6,216 |
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LIN TV Corp., Class A (I) | 1,800 | 7,182 |
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Media General, Inc., Class A (I) | 900 | 6,921 |
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Meredith Corp. (L) | 1,300 | 38,038 |
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Scholastic Corp. | 800 | 18,744 |
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Sinclair Broadcast Group, Inc., Class A (I) | 2,800 | 16,744 |
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The McClatchy Company, Class A (I)(L) | 2,600 | 6,968 |
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The New York Times Company, Class A (I) | 3,700 | 26,566 |
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The Washington Post Company, Class B (L) | 61 | 21,974 |
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Valassis Communications, Inc. (I) | 1,800 | 52,758 |
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Multiline Retail 1.99% | | |
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Big Lots, Inc. (I)(L) | 2,400 | 75,024 |
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Dillard’s, Inc., Class A (L) | 2,500 | 54,675 |
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Family Dollar Stores, Inc. | 1,400 | 59,906 |
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Retail Ventures, Inc. (I) | 1,500 | 12,660 |
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The Bon-Ton Stores, Inc. (L) | 300 | 1,905 |
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Tuesday Morning Corp. (I) | 1,400 | 5,194 |
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Specialty Retail 10.18% | | |
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Aaron, Inc., Class B (L) | 1,300 | 21,177 |
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Abercrombie & Fitch Company, Class A | 2,100 | 72,660 |
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Advance Auto Parts, Inc. | 900 | 49,023 |
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Aeropostale, Inc. (I) | 1,300 | 27,690 |
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Americas Car-Mart, Inc. (I) | 500 | 12,500 |
| | |
12 | Value Opportunities Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Specialty Retail (continued) | | |
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AnnTaylor Stores Corp. (I) | 1,500 | $22,995 |
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Asbury Automotive Group, Inc. (I) | 700 | 8,351 |
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Big 5 Sporting Goods Corp. | 500 | 5,933 |
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Brown Shoe Company, Inc. | 1,300 | 13,676 |
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Cabela’s, Inc. (I)(L) | 1,100 | 17,138 |
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Collective Brands, Inc. (I)(L) | 1,500 | 19,395 |
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Foot Locker, Inc. | 2,900 | 34,046 |
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Genesco, Inc. (I) | 700 | 17,668 |
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Gymboree Corp. (I) | 500 | 18,815 |
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Hibbett Sports, Inc. (I)(L) | 300 | 6,954 |
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Jo-Ann Stores, Inc. (I) | 800 | 32,528 |
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Jos. A. Bank Clothiers, Inc. (I)(L) | 900 | 32,877 |
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Limited Brands, Inc. | 600 | 14,160 |
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Office Depot, Inc. (I) | 4,800 | 16,368 |
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OfficeMax, Inc. (I) | 2,800 | 27,272 |
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PetSmart, Inc. | 3,600 | 114,804 |
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RadioShack Corp. | 4,000 | 73,920 |
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Rent-A–Center, Inc. | 1,800 | 36,144 |
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Shoe Carnival, Inc. (I) | 400 | 6,612 |
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Systemax, Inc. | 1,000 | 11,770 |
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Talbots, Inc. (I)(L) | 1,100 | 10,978 |
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The Cato Corp., Class A | 800 | 18,360 |
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The Children’s Place Retail Stores, Inc. (I) | 700 | 30,562 |
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The Dress Barn, Inc. (I) | 2,000 | 41,700 |
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The Finish Line, Inc., Class A | 1,200 | 15,840 |
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Tiffany & Company (L) | 2,200 | 87,186 |
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Tractor Supply Company | 1,100 | 74,778 |
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West Marine, Inc. (I) | 500 | 4,210 |
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Williams-Sonoma, Inc. (L) | 2,800 | 72,688 |
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Textiles, Apparel & Luxury Goods 5.79% | | |
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Carter’s, Inc. (I) | 1,100 | 24,574 |
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Columbia Sportswear Company (L) | 1,100 | 51,271 |
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Deckers Outdoor Corp. (I) | 1,300 | 56,511 |
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Fossil, Inc. (I) | 2,200 | 104,478 |
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G-III Apparel Group, Ltd. (I) | 600 | 14,472 |
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Hanesbrands, Inc. (I) | 700 | 16,758 |
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Jones Apparel Group, Inc. | 2,700 | 41,526 |
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Kenneth Cole Productions, Inc., Class A (I) | 400 | 4,832 |
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Liz Claiborne, Inc. (I)(L) | 3,000 | 12,600 |
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Maidenform Brands, Inc. (I) | 500 | 13,335 |
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Oxford Industries, Inc. | 600 | 11,832 |
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Perry Ellis International, Inc. (I) | 600 | 11,016 |
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Phillips-Van Heusen Corp. | 2,000 | 91,360 |
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Quiksilver, Inc. (I) | 3,600 | 12,924 |
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Skechers U.S.A., Inc., Class A (I) | 1,300 | 33,111 |
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Steven Madden, Ltd. (I) | 600 | 20,658 |
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The Timberland Company, Class A (I) | 1,300 | 20,891 |
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True Religion Apparel, Inc. (I) | 700 | 12,306 |
| | |
See notes to financial statements | Semiannual report | Value Opportunities Fund | 13 |
| | |
| Shares | Value |
Textiles, Apparel & Luxury Goods (continued) | | |
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Unifirst Corp. | 400 | $15,704 |
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Volcom, Inc. (I) | 400 | 6,236 |
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Wolverine World Wide, Inc. | 1,300 | 32,851 |
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Consumer Staples 6.87% | | 722,242 |
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Beverages 0.60% | | |
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Constellation Brands, Inc., Class A (I) | 3,300 | 54,978 |
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National Beverage Corp. | 600 | 8,604 |
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Food & Staples Retailing 1.41% | | |
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BJ’s Wholesale Club, Inc. (I)(L) | 700 | 29,372 |
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Nash Finch Company | 400 | 15,708 |
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Ruddick Corp. | 1,300 | 42,081 |
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Spartan Stores, Inc. | 400 | 5,228 |
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United Natural Foods, Inc. (I) | 1,200 | 41,688 |
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Weis Markets, Inc. | 400 | 14,064 |
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Food Products 1.47% | | |
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Cal-Maine Foods, Inc. | 300 | 8,904 |
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Del Monte Foods Company | 6,800 | 88,672 |
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McCormick & Company, Inc. | 400 | 15,948 |
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The J.M. Smucker Company | 700 | 40,936 |
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Household Products 0.14% | | |
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Spectrum Brands Holdings, Inc. (I) | 300 | 7,653 |
|
WD-40 Company | 200 | 7,034 |
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Personal Products 3.08% | | |
|
Elizabeth Arden, Inc. (I) | 800 | 13,096 |
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Herbalife, Ltd. | 2,100 | 116,718 |
|
Inter Parfums, Inc. | 1,100 | 18,062 |
|
NBTY, Inc. (I) | 1,900 | 103,531 |
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Nu Skin Enterprises, Inc., Class A | 1,000 | 25,570 |
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Nutraceutical International Corp. (I) | 400 | 5,428 |
|
Prestige Brands Holdings, Inc. (I) | 700 | 5,180 |
|
Revlon, Inc. (I) | 800 | 8,680 |
|
Schiff Nutrition International, Inc. | 700 | 6,027 |
|
USANA Health Sciences, Inc. (I) | 500 | 21,250 |
| | |
Tobacco 0.17% | | |
|
Universal Corp. | 500 | 17,830 |
| | |
Energy 3.20% | | 336,349 |
| | |
Energy Equipment & Services 1.56% | | |
|
Complete Production Services, Inc. (I) | 2,100 | 37,044 |
|
Lufkin Industries, Inc. | 400 | 15,464 |
|
Oil States International, Inc. (I) | 1,600 | 65,968 |
|
Rowan Companies, Inc. (I) | 1,500 | 38,565 |
|
T-3 Energy Services, Inc. (I) | 300 | 6,624 |
| | |
Oil, Gas & Consumable Fuels 1.64% | | |
|
Crosstex Energy, Inc. (I) | 700 | 5,201 |
|
Energy Partners, Ltd. (I) | 500 | 5,465 |
|
Frontline, Ltd. (L) | 1,100 | 29,150 |
| | |
14 | Value Opportunities Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Oil, Gas & Consumable Fuels (continued) | | |
|
Petroleum Development Corp. (I) | 300 | $8,070 |
|
Ship Finance International, Ltd. | 2,200 | 38,522 |
|
Sunoco, Inc. | 1,500 | 50,520 |
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World Fuel Services Corp. (L) | 1,400 | 35,756 |
| | |
Financials 12.18% | | 1,280,424 |
| | |
Capital Markets 1.43% | | |
|
American Capital, Ltd. (I)(L) | 11,400 | 57,798 |
|
Ares Capital Corp. | 3,900 | 58,266 |
|
BlackRock Kelso Capital Corp. | 1,900 | 20,520 |
|
MCG Capital Corp. | 2,600 | 13,728 |
| | |
Commercial Banks 0.37% | | |
|
Community Bank Systems, Inc. (L) | 500 | 11,290 |
|
International Bancshares Corp. (L) | 1,800 | 28,080 |
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Consumer Finance 1.34% | | |
|
Cash America International, Inc. | 1,000 | 30,630 |
|
EZCORP, Inc., Class A (I) | 1,700 | 30,566 |
|
Nelnet, Inc., Class A | 1,400 | 30,674 |
|
SLM Corp. (I) | 2,600 | 28,730 |
|
World Acceptance Corp. (I) | 500 | 20,375 |
| | |
Diversified Financial Services 0.15% | | |
|
Encore Capital Group, Inc. (I) | 600 | 11,886 |
|
Primus Guaranty, Ltd. (I) | 900 | 3,447 |
| | |
Insurance 7.32% | | |
|
American Equity Investment Life Holding Company | 1,900 | 18,031 |
|
American Financial Group, Inc. | 2,400 | 69,048 |
|
Assurant, Inc. | 2,800 | 102,368 |
|
CNA Surety Corp. (I) | 700 | 11,732 |
|
CNO Financial Group, Inc. (I) | 6,800 | 32,164 |
|
Endurance Specialty Holdings, Ltd. | 1,300 | 47,892 |
|
FBL Financial Group, Inc., Class A | 1,000 | 23,000 |
|
Genworth Financial, Inc., Class A (I) | 10,600 | 114,798 |
|
Horace Mann Educators Corp. | 1,000 | 16,400 |
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Mercury General Corp. | 800 | 31,376 |
|
National Financial Partners Corp. (I) | 1,200 | 12,768 |
|
Protective Life Corp. | 1,500 | 28,020 |
|
Reinsurance Group of America, Inc. | 1,200 | 52,488 |
|
Safety Insurance Group, Inc. | 400 | 16,300 |
|
StanCorp Financial Group, Inc. | 1,100 | 39,193 |
|
Torchmark Corp. | 2,200 | 108,570 |
|
Unitrin, Inc. | 1,900 | 45,220 |
| | |
Real Estate Investment Trusts 1.57% | | |
|
Agree Realty Corp. | 300 | 7,125 |
|
American Capital Agency Corp. | 700 | 19,068 |
|
Ashford Hospitality Trust, Inc. (I)(L) | 2,200 | 17,666 |
|
CBL & Associates Properties, Inc. | 1,800 | 21,960 |
|
CommonWealth REIT | 1,000 | 24,120 |
|
General Growth Properties, Inc. | 800 | 11,256 |
| | |
See notes to financial statements | Semiannual report | Value Opportunities Fund | 15 |
| | |
| Shares | Value |
Real Estate Investment Trusts (continued) | | |
|
Glimcher Realty Trust | 1,200 | $7,128 |
|
iStar Financial, Inc. (I)(L) | 2,700 | 9,423 |
|
Pennsylvania Real Estate Investment Trust | 1,000 | 10,460 |
|
Resource Capital Corp. | 1,200 | 7,104 |
|
Strategic Hotels & Resorts, Inc. (I) | 4,600 | 16,422 |
|
Walter Investment Management Corp. | 400 | 6,484 |
|
Winthrop Realty Trust, REIT | 500 | 6,850 |
| | |
Health Care 17.25% | | 1,813,683 |
| | |
Health Care Equipment & Supplies 3.96% | | |
|
American Medical Systems Holdings, Inc. (I)(L) | 1,100 | 20,042 |
|
ArthroCare Corp. (I) | 400 | 10,384 |
|
CONMED Corp. (I) | 800 | 14,808 |
|
Hill-Rom Holdings, Inc. (L) | 2,200 | 70,620 |
|
Integra LifeSciences Holdings Corp. (I) | 700 | 24,339 |
|
Invacare Corp. (L) | 1,000 | 22,900 |
|
Kinetic Concepts, Inc. (I) | 2,300 | 73,416 |
|
Orthofix International NV (I) | 400 | 10,680 |
|
STERIS Corp. | 1,400 | 40,278 |
|
Teleflex, Inc. | 1,200 | 57,672 |
|
The Cooper Companies, Inc. | 1,500 | 60,510 |
|
Young Innovations, Inc. | 100 | 2,623 |
|
Zoll Medical Corp. (I) | 300 | 7,926 |
| | |
Health Care Providers & Services 8.78% | | |
|
Almost Family, Inc. (I) | 200 | 5,054 |
|
Amedisys, Inc. (I) | 900 | 20,808 |
|
AMERIGROUP Corp. (I) | 1,600 | 59,040 |
|
Centene Corp. (I) | 1,400 | 28,308 |
|
Chemed Corp. | 500 | 24,950 |
|
Community Health Systems, Inc. (I) | 2,000 | 52,140 |
|
Continucare Corp. (I) | 1,600 | 5,200 |
|
Coventry Health Care, Inc. (I) | 4,000 | 77,400 |
|
Gentiva Health Services, Inc. (I) | 1,000 | 20,550 |
|
Health Management Associates, Inc., Class A (I) | 6,200 | 38,750 |
|
Health Net, Inc. (I) | 3,500 | 83,580 |
|
Healthspring, Inc. (I) | 1,900 | 39,444 |
|
Henry Schein, Inc. (I)(L) | 300 | 15,840 |
|
LHC Group, Inc. (I) | 200 | 4,002 |
|
LifePoint Hospitals, Inc. (I) | 1,500 | 45,630 |
|
Lincare Holdings, Inc. (L) | 3,449 | 79,396 |
|
Magellan Health Services, Inc. (I) | 900 | 39,429 |
|
MEDNAX, Inc. (I) | 800 | 37,072 |
|
Molina Healthcare, Inc. (I) | 600 | 15,216 |
|
Omnicare, Inc. | 2,400 | 46,080 |
|
Owens & Minor, Inc. | 1,400 | 37,324 |
|
Patterson Companies, Inc. | 2,900 | 73,341 |
|
Sunrise Senior Living, Inc. (I) | 1,500 | 3,315 |
|
The Providence Service Corp. (I) | 600 | 8,112 |
|
Universal American Financial Corp. | 2,600 | 35,906 |
|
WellCare Health Plans, Inc. (I) | 1,100 | 27,291 |
| | |
16 | Value Opportunities Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Health Care Technology 0.05% | | |
|
MedQuist, Inc. (I) | 700 | $5,145 |
| | |
Life Sciences Tools & Services 1.40% | | |
|
Kendle International, Inc. (I) | 300 | 2,349 |
|
Mettler-Toledo International, Inc. (I) | 80 | 8,847 |
|
Parexel International Corp. (I) | 1,400 | 27,846 |
|
PerkinElmer, Inc. | 3,100 | 65,131 |
|
Pharmaceutical Product Development, Inc. | 1,900 | 43,643 |
| | |
Pharmaceuticals 3.06% | | |
|
Endo Pharmaceuticals Holdings, Inc. (I) | 3,200 | 86,944 |
|
Hi-Tech Pharmacal Company, Inc. (I)(L) | 200 | 3,470 |
|
K-V Pharmaceutical Company, Class A (I) | 1,900 | 2,793 |
|
Medicis Pharmaceutical Corp., Class A (L) | 1,500 | 41,250 |
|
Mylan, Inc. (I)(L) | 2,200 | 37,752 |
|
Par Pharmaceutical Companies, Inc. (I) | 800 | 21,096 |
|
Perrigo Company | 100 | 5,699 |
|
Viropharma, Inc. (I) | 2,200 | 27,588 |
|
Watson Pharmaceuticals, Inc. (I) | 2,200 | 94,754 |
| | |
Industrials 11.06% | | 1,162,729 |
| | |
Aerospace & Defense 1.81% | | |
|
BE Aerospace, Inc. (I) | 1,600 | 43,120 |
|
Ceradyne, Inc. (I) | 400 | 8,736 |
|
Esterline Technologies Corp. (I) | 800 | 36,800 |
|
LMI Aerospace, Inc. (I) | 300 | 4,539 |
|
Moog, Inc., Class A (I) | 900 | 28,080 |
|
Teledyne Technologies, Inc. (I) | 800 | 28,944 |
|
Triumph Group, Inc. | 600 | 39,828 |
| | |
Air Freight & Logistics 0.10% | | |
|
Air Transport Services Group, Inc. (I) | 1,200 | 5,532 |
|
Pacer International, Inc. (I) | 1,000 | 5,120 |
| | |
Airlines 0.25% | | |
|
US Airways Group, Inc. (I) | 2,900 | 26,216 |
| | |
Building Products 0.29% | | |
|
A.O. Smith Corp. | 600 | 30,810 |
| | |
Commercial Services & Supplies 2.29% | | |
|
ACCO Brands Corp. (I) | 1,500 | 8,715 |
|
American Reprographics Company (I) | 900 | 5,940 |
|
Avery Dennison Corp. | 1,600 | 52,032 |
|
Consolidated Graphics, Inc. (I) | 300 | 11,913 |
|
Deluxe Corp. | 1,600 | 26,768 |
|
Ennis, Inc. | 800 | 12,312 |
|
HNI Corp. (L) | 700 | 16,359 |
|
Knoll, Inc. | 900 | 12,078 |
|
M&F Worldwide Corp. (I) | 500 | 11,600 |
|
R.R. Donnelley & Sons Company | 2,400 | 36,348 |
|
Schawk, Inc., Class A | 700 | 10,640 |
|
United Stationers, Inc. (I) | 800 | 35,912 |
| | |
See notes to financial statements | Semiannual report | Value Opportunities Fund | 17 |
| | |
| Shares | Value |
Electrical Equipment 0.76% | | |
|
Acuity Brands, Inc. | 900 | $34,866 |
|
Hubbell, Inc., Class B | 1,000 | 44,980 |
| | |
Industrial Conglomerates 0.33% | | |
|
Carlisle Companies, Inc. | 1,000 | 28,050 |
|
Standex International Corp. | 300 | 7,059 |
| | |
Machinery 2.62% | | |
|
Alamo Group, Inc. | 200 | 3,900 |
|
Crane Company | 1,700 | 57,630 |
|
EnPro Industries, Inc. (I) | 600 | 16,386 |
|
Gardner Denver, Inc. | 1,000 | 47,740 |
|
Joy Global, Inc. | 200 | 11,348 |
|
NACCO Industries, Inc., Class A | 280 | 21,711 |
|
Oshkosh Corp. (I) | 1,400 | 34,832 |
|
The Manitowoc Company, Inc. (L) | 2,900 | 26,564 |
|
The Toro Company | 800 | 39,920 |
|
TriMas Corp. (I) | 1,200 | 15,468 |
| | |
Professional Services 0.82% | | |
|
Kelly Services, Inc., Class A (I) | 1,100 | 11,484 |
|
Kforce, Inc. (I) | 1,000 | 10,570 |
|
Manpower, Inc. | 600 | 25,500 |
|
SFN Group, Inc. (I) | 1,500 | 8,160 |
|
The Corporate Executive Board Company | 900 | 25,236 |
|
Volt Information Sciences, Inc. (I) | 400 | 2,528 |
|
VSE Corp. | 100 | 2,808 |
| | |
Road & Rail 0.44% | | |
|
Avis Budget Group, Inc. (I)(L) | 1,400 | 12,768 |
|
Dollar Thrifty Automotive Group, Inc. (I) | 700 | 32,928 |
| | |
Trading Companies & Distributors 1.26% | | |
|
Aircastle, Ltd. | 2,200 | 17,182 |
|
Applied Industrial Technologies, Inc. | 1,100 | 29,480 |
|
CAI International, Inc. (I) | 500 | 6,835 |
|
DXP Enterprises, Inc. (I) | 400 | 7,260 |
|
TAL International Group, Inc. | 800 | 17,056 |
|
Textainer Group Holdings, Ltd. | 700 | 19,110 |
|
WESCO International, Inc. (I) | 1,100 | 35,508 |
| | |
Transportation Infrastructure 0.09% | | |
|
Macquarie Infrastructure Company LLC (I) | 700 | 9,520 |
| | |
Information Technology 7.37% | | 774,832 |
| | |
Communications Equipment 0.40% | | |
|
Black Box Corp. | 400 | 11,280 |
|
Polycom, Inc. (I) | 1,100 | 31,328 |
| | |
Computers & Peripherals 1.33% | | |
|
Imation Corp. (I) | 500 | 4,280 |
|
Lexmark International, Inc., Class A (I) | 2,800 | 97,972 |
|
QLogic Corp. (I) | 1,600 | 23,832 |
|
Quantum Corp. (I) | 2,300 | 3,312 |
|
Seagate Technology PLC (I) | 600 | 6,078 |
|
Super Micro Computer, Inc. (I) | 500 | 4,518 |
| | |
18 | Value Opportunities Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Electronic Equipment, Instruments & Components 1.27% | | |
|
Ingram Micro, Inc., Class A (I) | 3,300 | $49,698 |
|
Insight Enterprises, Inc. (I) | 1,500 | 19,710 |
|
Measurement Specialties, Inc. (I) | 400 | 5,928 |
|
Smart Modular Technologies (WWH), Inc. (I) | 1,500 | 7,035 |
|
Tech Data Corp. (I)(L) | 1,400 | 50,680 |
| | |
Internet Software & Services 0.23% | | |
|
Earthlink, Inc. | 1,800 | 15,408 |
|
United Online, Inc. | 1,700 | 8,381 |
| | |
IT Services 1.35% | | |
|
CACI International, Inc., Class A (I) | 600 | 24,486 |
|
China Information Technology, Inc. (I)(L) | 1,200 | 6,072 |
|
Convergys Corp. (I) | 1,700 | 17,221 |
|
CSG Systems International, Inc. (I) | 1,000 | 18,300 |
|
Heartland Payment Systems, Inc. | 800 | 11,320 |
|
MAXIMUS, Inc. | 400 | 21,484 |
|
MoneyGram International, Inc. (I)(L) | 900 | 1,818 |
|
Ness Technologies, Inc. (I) | 1,000 | 4,270 |
|
SRA International, Inc., Class A (I) | 1,100 | 21,175 |
|
Unisys Corp. (I) | 700 | 15,652 |
| | |
Office Electronics 0.22% | | |
|
Zebra Technologies Corp., Class A (I) | 800 | 22,896 |
| | |
Semiconductors & Semiconductor Equipment 0.05% | | |
|
Silicon Image, Inc. (I) | 1,500 | 5,430 |
| | |
Software 2.52% | | |
|
Epicor Software Corp. (I) | 1,500 | 10,185 |
|
Fair Isaac Corp. | 1,100 | 24,629 |
|
JDA Software Group, Inc. (I) | 800 | 18,376 |
|
Manhattan Associates, Inc. (I) | 300 | 7,814 |
|
MicroStrategy, Inc., Class A (I) | 200 | 15,586 |
|
Parametric Technology Corp. (I) | 2,100 | 35,805 |
|
Progress Software Corp. (I) | 1,400 | 37,394 |
|
Quest Software, Inc. (I) | 1,900 | 40,716 |
|
Radiant Systems, Inc. (I) | 1,100 | 19,701 |
|
TIBCO Software, Inc. (I) | 3,800 | 55,062 |
| | |
Materials 5.90% | | 620,546 |
| | |
Chemicals 4.51% | | |
|
Ashland, Inc. | 1,500 | 69,690 |
|
Cytec Industries, Inc. | 1,200 | 56,916 |
|
Hawkins, Inc. | 200 | 6,094 |
|
Innophos Holdings, Inc. | 600 | 17,502 |
|
Innospec, Inc. (I) | 500 | 6,205 |
|
International Flavors & Fragrances, Inc. | 1,700 | 77,673 |
|
Lubrizol Corp. | 1,300 | 121,303 |
|
Quaker Chemical Corp. | 200 | 5,922 |
|
RPM International, Inc. | 3,500 | 59,150 |
|
Valspar Corp. | 1,800 | 54,216 |
| | |
See notes to financial statements | Semiannual report | Value Opportunities Fund | 19 |
| | | |
| | Shares | Value |
Containers & Packaging 0.90% | | | |
|
Boise, Inc. (I) | | 2,000 | $13,760 |
|
Silgan Holdings, Inc. | | 900 | 26,901 |
|
Sonoco Products Company | | 1,700 | 53,465 |
| | | |
Metals & Mining 0.32% | | | |
|
Reliance Steel & Aluminum Company | | 900 | 33,525 |
| | | |
Paper & Forest Products 0.17% | | | |
|
KapStone Paper and Packaging Corp. (I) | | 1,600 | 18,224 |
| | | |
Telecommunication Services 0.05% | | | 5,800 |
| | | |
Diversified Telecommunication Services 0.05% | | | |
|
IDT Corp., Class B (I) | | 400 | 5,800 |
| | | |
Utilities 0.78% | | | 82,245 |
| | | |
Gas Utilities 0.37% | | | |
|
UGI Corp. | | 1,400 | 38,640 |
| | | |
Multi-Utilities 0.41% | | | |
|
Integrys Energy Group, Inc. | | 900 | 43,605 |
| | | |
Short-Term Investments 9.39% | | | $987,456 |
|
(Cost $987,332) | | | |
| Yield | Par value | Value |
Short-Term Securities 0.78% | | | 81,545 |
State Street Institutional Investment Treasury | | | |
Money Market Fund | 0.0344% (Y) | $81,545 | 81,545 |
| | Shares | Value |
Securities Lending Collateral 8.61% | | | 905,911 |
John Hancock Collateral Investment Trust (W) | 0.3330% (Y) | 90,500 | 905,911 |
|
Total investments (Cost $10,549,635)† 108.71% | | $11,431,163 |
|
|
Other assets and liabilities, net (8.71%) | | | ($915,773) |
|
|
Total net assets 100.00% | | | $10,515,390 |
|
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
(I) Non-income producing security.
(L) All or a portion of this security is on loan as of 8-31-10.
(W) Investment is an affiliate of the Fund, the adviser and/or subadviser. Also, it represents the investment of securities lending collateral received.
(Y) The rate shown is the annualized seven-day yield as of 8-31-10.
† At 8-31-10, the aggregate cost of investment securities for federal income tax purposes was $10,693,223. Net unrealized appreciation aggregated $737,940, of which $1,478,577 related to appreciated investment securities and $740,637 related to depreciated investment securities.
| | |
20 | Value Opportunities Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T SFinancial statements
Statement of assets and liabilities 8-31-10 (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 $9,643,848) including | |
$878,863 of securities loaned (Note 2) | $10,525,252 |
Investments in affiliated issuers, at value (Cost $905,787) (Note 2) | 905,911 |
| |
Total investments, at value (Cost $10,549,635) | 11,431,163 |
Receivable for fund shares sold | 68 |
Dividends and interest receivable | 10,205 |
Receivable for securities lending income | 249 |
Receivable due from adviser | 6,815 |
Other receivables and prepaid assets | 20,931 |
Total assets | 11,469,431 |
|
Liabilities | |
|
Payable for fund shares repurchased | 11,299 |
Payable upon return of securities loaned (Note 2) | 905,444 |
Payable to affiliates | |
Accounting and legal services fees | 130 |
Transfer agent fees | 1,976 |
Trustees’ fees | 533 |
Other liabilities and accrued expenses | 34,659 |
Total liabilities | 954,041 |
|
Net assets | |
|
Capital paid-in | $17,502,917 |
Accumulated net investment loss | (9,848) |
Accumulated net realized loss on investments and futures contracts | (7,859,207) |
Net unrealized appreciation (depreciation) on investments | 881,528 |
Net assets | $10,515,390 |
|
Net asset value per share | |
|
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($9,557,014 ÷ 681,439 shares) | $14.02 |
Class B ($258,685 ÷ 18,594 shares)1 | $13.91 |
Class C ($560,093 ÷ 40,233 shares)1 | $13.92 |
Class I ($139,598 ÷ 9,930 shares) | $14.06 |
|
Maximum offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $14.76 |
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 | Value Opportunities Fund | 21 |
F I N A N C I A L S T A T E M E N T SStatement of operations For the six-month period ended 8-31-10 (unaudited)
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 | $72,382 |
Securities lending | 2,281 |
Interest | 179 |
Total investment income | 74,842 |
|
Expenses | |
|
Investment management fees (Note 5) | 46,195 |
Distribution and service fees (Note 5) | 20,240 |
Accounting and legal services fees (Note 5) | 1,035 |
Transfer agent fees (Note 5) | 10,173 |
Trustees’ fees (Note 5) | 658 |
State registration fees (Note 5) | 15,916 |
Printing and postage fees (Note 5) | 4,681 |
Professional fees | 21,614 |
Custodian fees | 6,267 |
Registration and filing fees | 6,806 |
Other | 4,176 |
| |
Total expenses | 137,761 |
Less expense reductions (Note 5) | (55,079) |
| |
Net expenses | 82,682 |
| |
Net investment loss | (7,840) |
|
Realized and unrealized gain (loss) | |
|
Net realized gain on | |
Investments in unaffiliated issuers | 655,324 |
Investments in affiliated issuers | 226 |
Futures contracts (Note 3) | 20,896 |
| 676,446 |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (1,298,764) |
Investments in affiliated issuers | (319) |
Futures contracts (Note 3) | 1,700 |
| (1,297,383) |
Net realized and unrealized loss | (620,937) |
| |
Decrease in net assets from operations | ($628,777) |
| | |
22 | Value Opportunities Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T SStatements 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.
| | |
| For the | |
| six-month period | Year |
| ended 8-31-10 | ended |
| (Unaudited) | 2-28-10 |
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income (loss) | ($7,840) | $36,459 |
Net realized gain (loss) | 676,446 | (3,475,209) |
Change in net unrealized appreciation (depreciation) | (1,297,383) | 8,094,137 |
| | |
Increase (decrease) in net assets resulting from operations | (628,777) | 4,655,387 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | — | (57,822) |
Class I | — | (933) |
| | |
Total distributions | — | (58,755) |
| | |
From Fund share transactions (Note 6) | 900,101 | (4,922,172) |
| | |
Total increase (decrease) | 271,324 | (325,540) |
|
Net assets | | |
|
Beginning of period | 10,244,066 | 10,569,606 |
| | |
End of period | $10,515,390 | $10,244,066 |
| | |
Accumulated net investment loss | ($9,848) | ($2,008) |
| | |
See notes to financial statements | Semiannual report | Value Opportunities Fund | 23 |
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 | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $14.73 | $10.14 | $17.00 | $22.36 | $20.00 |
Net investment income (loss)3 | (0.01) | 0.04 | 0.10 | 0.12 | 0.074 |
Net realized and unrealized gain (loss) on investments | (0.70) | 4.61 | (6.84) | (4.41) | 2.53 |
Total from investment operations | (0.71) | 4.65 | (6.74) | (4.29) | 2.60 |
Less distributions | | | | | |
From net investment income | — | (0.06) | (0.12) | (0.11) | (0.08) |
From net realized gain | — | — | — | (0.96) | (0.16) |
Total distributions | — | (0.06) | (0.12) | (1.07) | (0.24) |
Net asset value, end of period | $14.02 | $14.73 | $10.14 | $17.00 | $22.36 |
Total return (%)5,6,7 | (4.82)8 | 45.86 | (39.79) | (19.45) | 13.068 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $10 | $10 | $10 | $16 | $20 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 2.109 | 2.1810 | 2.03 | 2.04 | 2.139 |
Expenses net of fee waivers | 1.389 | 1.3910 | 1.39 | 1.39 | 1.389 |
Expenses net of fee waivers and credits | 1.389 | 1.3910 | 1.39 | 1.39 | 1.389 |
Net investment income (loss) | (0.09)9 | 0.33 | 0.69 | 0.56 | 0.474,9 |
Portfolio turnover (%) | 45 | 178 | 80 | 68 | 30 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class A shares is 6-12-06.
3 Based on the average daily 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 Assumes dividend reinvestment (if applicable).
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Does not reflect the effect of sales charges, if any.
8 Not annualized.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
| | |
24 | Value Opportunities Fund | Semiannual report | See notes to financial statements |
| | | | | |
CLASS B SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $14.67 | $10.13 | $16.94 | $22.33 | $20.00 |
Net investment loss3 | (0.06) | (0.05) | (0.01) | (0.03) | (0.01)4 |
Net realized and unrealized gain (loss) | | | | | |
on investments | (0.70) | 4.59 | (6.80) | (4.40) | 2.51 |
Total from investment operations | (0.76) | 4.54 | (6.81) | (4.43) | 2.50 |
Less distributions | | | | | |
From net investment income | — | — | —5 | — | (0.01) |
From net realized gain | — | — | — | (0.96) | (0.16) |
Total distributions | — | — | —5 | (0.96) | (0.17) |
Net asset value, end of period | $13.91 | $14.67 | $10.13 | $16.94 | $22.33 |
Total return (%)6,7,8 | (5.18)9 | 44.82 | (40.19) | (20.08) | 12.549 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | —10 | —10 | —10 | —10 | —10 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 6.1611 | 10.3712 | 9.95 | 6.82 | 11.3111 |
Expenses net of fee waivers | 2.0811 | 2.1812 | 2.63 | 2.10 | 2.0811 |
Expenses net of fee waivers and credits | 2.0811 | 2.0912 | 2.09 | 2.09 | 2.0811 |
Net investment loss | (0.79)11 | (0.43) | (0.02) | (0.14) | (0.07)4,11 |
Portfolio turnover (%) | 45 | 178 | 80 | 68 | 30 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class B shares is 6-12-06.
3 Based on the average daily 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 ($0.005) per share.
6 Assumes dividend reinvestment (if applicable).
7 Total returns would have been lower had certain expenses not been reduced during the periods shown.
8 Does not reflect the effect of sales charges, if any.
9 Not annualized.
10 Less than $500,000.
11 Annualized.
12 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
| | |
See notes to financial statements | Semiannual report | Value Opportunities Fund | 25 |
| | | | | |
CLASS C SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $14.68 | $10.14 | $16.95 | $22.33 | $20.00 |
Net investment loss3 | (0.06) | (0.05) | (0.01) | (0.03) | (0.01)4 |
Net realized and unrealized gain (loss) | | | | | |
on investments | (0.70) | 4.59 | (6.80) | (4.39) | 2.51 |
Total from investment operations | (0.76) | 4.54 | (6.81) | (4.42) | 2.50 |
From net investment income | — | — | —5 | — | (0.01) |
From net realized gain | — | — | — | (0.96) | (0.16) |
Total distributions | — | — | —5 | (0.96) | (0.17) |
Net asset value, end of period | $13.92 | $14.68 | $10.14 | $16.95 | $22.33 |
Total return (%)6,7,8 | (5.18)9 | 44.77 | (40.17) | (20.03) | 12.549 |
| | | | | |
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $1 | —10 | —10 | $1 | $1 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 4.2411 | 5.7912 | 5.12 | 3.88 | 5.0911 |
Expenses net of fee waivers | 2.0811 | 2.2112 | 2.40 | 2.10 | 2.0811 |
Expenses net of fee waivers and credits | 2.0811 | 2.0912 | 2.09 | 2.09 | 2.0811 |
Net investment loss | (0.79)11 | (0.41) | (0.03) | (0.14) | (0.07)4,11 |
Portfolio turnover (%) | 45 | 178 | 80 | 68 | 30 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class C shares is 6-12-06.
3 Based on the average daily 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 ($0.005) per share.
6 Assumes dividend reinvestment (if applicable).
7 Total returns would have been lower had certain expenses not been reduced during the periods shown.
8 Does not reflect the effect of sales charges, if any.
9 Not annualized.
10 Less than $500,000.
11 Annualized.
12 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
| | |
26 | Value Opportunities Fund | Semiannual report | See notes to financial statements |
| | | | | |
CLASS I SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
Per share operating performance | | | | | |
Net asset value, beginning of period | $14.74 | $10.15 | $17.02 | $22.39 | $20.00 |
Net investment income3 | 0.03 | 0.09 | 0.17 | 0.18 | 0.154 |
Net realized and unrealized gain (loss) on investments | (0.71) | 4.62 | (6.86) | (4.41) | 2.53 |
Total from investment operations | (0.68) | 4.71 | (6.69) | (4.23) | 2.68 |
Less distributions | | | | | |
From net investment income | — | (0.12) | (0.18) | (0.18) | (0.13) |
From net realized gain | — | — | — | (0.96) | (0.16) |
Total distributions | — | (0.12) | (0.18) | (1.14) | (0.29) |
Net asset value, end of period | $14.06 | $14.74 | $10.15 | $17.02 | $22.39 |
Total return (%)5,6 | (4.61)7 | 46.41 | (39.48) | (19.16) | 13.427 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | —8 | —8 | —8 | —8 | —8 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 7.849 | 11.3910 | 21.05 | 8.80 | 12.639 |
Expenses net of fee waivers | 0.919 | 0.9410 | 0.99 | 0.99 | 0.999 |
Expenses net of fee waivers and credits | 0.919 | 0.9410 | 0.99 | 0.99 | 0.999 |
Net investment income | 0.379 | 0.74 | 1.11 | 0.86 | 0.964,9 |
Portfolio turnover (%) | 45 | 178 | 80 | 68 | 30 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class I shares is 6-12-06.
3 Based on the average daily 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 Assumes dividend reinvestment (if applicable).
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.01% of average net assets.
| | |
See notes to financial statements | Semiannual report | Value Opportunities Fund | 27 |
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), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek long-term capital appreciation.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, print and postage, registration and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase. Class R1 shares converted into Class A shares on August 21, 2009.
Affiliates of the Fund owned 65% of shares of beneficial interest of Class A on August 31, 2010.
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. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these techniques are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes significant unobservable inputs wh en market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of August 31, 2010, all investments are categorized as Level 1 under the hierarchy described above.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain 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. Certain short-term securities are valued at amortized cost. John Hancock Collateral Investment Trust (JHCIT), an affiliate of the Fund, is valued at its closing net asset value
| |
28 | Value Opportunities Fund | Semiannual report |
(NAV). JHCIT has a floating NAV and invests in short-term investments as part of a securities lending program.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by 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. Significant market events that affect the values of non-U.S. securities may occur after the time when the valuation of the securities is generally determined and the close of the NYSE. During significant market events, these securities will be valued at fair value, as determined in good faith, following procedures established by the Board of Trustees. The Fund may use a fair valuation model to value non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date.
Securities lending. The Fund may lend its securities to earn additional income. It receives and maintains cash collateral received from the borrower in an amount not less than the market value of the loaned securities. The Fund will invest its collateral in JHCIT, as a result, the Fund will receive the benefit of any gains and bear any losses generated by JHCIT. Although risk of the loss of the securities lent is mitigated by holding the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. The Fund may receive compensation for lending its securities by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Income received from JHCIT is a component of securities lending income as re corded on the Statement of Operations.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage fees, for all classes are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to a Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with the custodian which enables them to participate in a $100 million unsecured committed line of credit. Prior to
| |
Semiannual report | Value Opportunities Fund | 29 |
March 31, 2010, the amount of the line of credit was $150 million. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis based on their relative average net assets. For the six months ended August 31, 2010, the Fund had no significant borrowings under the line of credit.
Federal income taxes. The Fund intends to qualify 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 a capital loss carryforward of $8,395,553 available to offset future net realized capital gains as of February 28, 2010. The loss carryforward expires as follows: February 28, 2017 — $2,899,971 and February 28, 2018 — $5,495,582.
As of February 28, 2010, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure. The Fund’s federal tax return is subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares and pays dividends and capital gain distributions, if any, annually.
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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a tax return of capital.
Capital accounts within financial statements are adjusted for permanent book/tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book/tax differences, if any, will reverse in a subsequent period. Permanent book/tax differences are primarily attributable to foreign currency transactions, net operating losses, pay-downs, defaulted bonds, derivative transactions, partnerships, amortization and accretion on debt securities, tender fees and investments in passive foreign investment companies.
Note 3 — Derivative Instruments
The Fund may invest in derivatives, including futures contracts and forward foreign currency contracts in order to meet its investment objectives. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, derivatives expose the Fund to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
For more information regarding the Fund’s use of derivatives, please refer to the Fund’s Prospectuses and Statement of Additional Information.
| |
30 | Value Opportunities Fund | Semiannual report |
Futures. A futures contract is a contractual agreement to buy or sell a particular commodity, currency, or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates and potential losses in excess of the Fund’s initial investment.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value (variation margin) is recorded by the Fund.
During the six months ended August 31, 2010, the Fund used futures contracts to maintain diversity and liquidity of the portfolio. The range of futures contracts notional amounts held by the Fund during six months ended August 31, 2010 was $0 to $284,660. There were no open futures contracts as of August 31, 2010.
Effect of derivative instruments on the Statement of Operations
The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended August 31, 2010:
| | | |
RISK | STATEMENT OF OPERATIONS LOCATION | FUTURES | |
| |
Equity contracts | Net realized gain | $20,896 | |
The table below summarizes the net change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended August 31, 2010:
| | | |
RISK | STATEMENT OF OPERATIONS LOCATION | FUTURES | |
| |
Equity contracts | Change in unrealized | $1,700 | |
| appreciation (depreciation) | | |
Note 4 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Trust. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management contract with the Adviser under which the Fund pays a daily 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 average daily net assets; (b) 0.78%
| |
Semiannual report | Value Opportunities Fund | 31 |
of the next $500,000,000; (c) 0.77% of the next $1,500,000,000; and (d) 0.76% of the Fund’s average daily net assets in excess of $2,500,000,000. 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 six months ended August 31, 2010 were equivalent to an annual effective rate of 0.80% of the Fund’s average daily net assets.
Effective July 1, 2010, the Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.37%, 2.07%, 2.07% and 0.91% for Class A, Class B, Class C and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until June 30, 2011.
Prior to July 1, 2010, the Adviser had contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excluded taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements were such that these expenses would not exceed 1.39%, 2.09%, 2.09% and 0.91% for Class A, Class B, Class C and Class I shares, respectively.
Effective May 1, 2010, the Adviser has voluntarily agreed to waive fees and/or reimburse certain other fund level expenses. This agreement excludes advisory, interest, overdraft, litigation, class specific and other extraordinary expenses not incurred in the ordinary course of business. The fee waivers and/or reimbursement are such that these expenses will not exceed 0.04% of average daily net assets.
Accordingly, these expense reductions, described above, amounted to $37,815, $5,380, $6,824 and $5,060 for Class A, Class B, Class C and Class I shares, respectively, for the six months ended August 31, 2010.
Accounting and legal services. Pursuant to the service 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, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended August 31, 2010 amounted to an annual rate of 0.02% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
| | | | | |
CLASS | 12b–1 FEES | | | | |
| | | | |
Class A | 0.30% | | | | |
Class B | 1.00% | | | | |
Class C | 1.00% | | | | |
| |
32 | Value Opportunities Fund | Semiannual report |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $10,961 for the six months ended August 31, 2010. Of this amount, $1,828 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $9,119 was paid as sales commissions to broker-dealers and $14 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
Class B and Class C shares are subject to contingent deferred sales charges (CDSC). Class B shares that are redeemed within six years of purchase are subject to 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 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended August 31, 2010, CDSCs received by the Distributor amounted to $201 and $0 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. Prior to July 1, 2010, the transfer agent fees were made up of three components:
• The Fund paid a monthly transfer agent fee at an annual rate of 0.05% for Class A, Class B and Class C shares and 0.04% for Class I shares, based on each class’s average daily net assets.
• The Fund paid a monthly fee based on an annual rate of $16.50 per shareholder account.
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Effective July 1, 2010, the transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain revenues that Signature Services received in connection with the service they provide to the funds. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. With in each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the six months ended August 31, 2010 were:
| | | | |
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE FEES |
|
Class A | $15,761 | $7,626 | $4,021 | $4,199 |
|
Class B | 1,320 | 818 | 3,884 | 109 |
|
Class C | 3,159 | 1,347 | 3,884 | 272 |
|
Class I | — | 382 | 4,127 | 101 |
Total | $20,240 | $10,173 | $15,916 | $4,681 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance
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Semiannual report | Value Opportunities Fund | 33 |
with the Plan. The investment of deferred amounts and the offsetting liability are included within other receivables and prepaid assets and Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
Note 6 — Fund share transactions
Transactions in Fund shares for the six months ended August 31, 2010 and for the year ended February 28, 2010 were as follows:
| | | | |
| For the six-month period | | |
| | ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 65,113 | $1,026,858 | 73,160 | $937,482 |
Exchanged for Class R1 | — | — | 7,868 | 102,336 |
Distributions reinvested | — | — | 3,994 | 56,634 |
Repurchased | (31,346) | (471,971) | (414,003) | (5,800,952) |
Net increase (decrease) | 33,767 | $554,887 | (328,981) | ($4,704,500) |
|
Class B shares | | | | |
|
Sold | 10,707 | $174,295 | 4,486 | $59,328 |
Repurchased | (4,540) | (68,486) | (3,177) | (41,268) |
Net increase | 6,167 | $105,809 | 1,309 | $18,060 |
|
Class C shares | | | | |
|
Sold | 28,953 | $452,469 | 10,793 | $135,316 |
Repurchased | (19,334) | (297,373) | (18,252) | (216,646) |
Net increase (decrease) | 9,619 | $155,096 | (7,459) | ($81,330) |
|
Class I shares | | | | |
|
Sold | 10,980 | $181,162 | 1,414 | $16,320 |
Distributions reinvested | — | — | 66 | 932 |
Repurchased | (5,781) | (96,853) | (5,858) | (79,378) |
Net increase (decrease) | 5,199 | $84,309 | (4,378) | ($62,126) |
|
Class R1 shares | | | | |
|
Sold | — | — | 982 | $10,978 |
Exchanged for Class A | — | — | (7,892) | (102,336) |
Repurchased | — | — | (88) | (918) |
Net decrease | — | — | (6,998) | ($92,276) |
|
Net increase (decrease) | 54,752 | $900,101 | (346,507) | ($4,922,172) |
|
Note 7 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $5,884,953 and $4,833,701, respectively, for the six months ended August 31, 2010.
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34 | Value Opportunities Fund | Semiannual report |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock Value Opportunities Fund (the Fund), a series of John Hancock Funds III, met in-person on May 2–4 and June 6–8, 2010 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) between the Adviser and Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.
Activities and composition of the Board
The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are unaffiliated with the Fund, the Adviser and the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform the various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have retained independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committees A and B are standing committees of the Board that are each composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee B oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as Chairman of the Board’s Nominating, Governance and Administration Committee. The Board also designates working groups or ad hoc committees as it deems appropriate.
The approval process
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. 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. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.
Prior to the May 2–4, 2010 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information independently compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) as determined by Morningstar, and its benchmark index. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser and its affiliates that result from being the Adviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other cli ents, such as institutional clients and other investment companies, under similar investment mandates, as well as the performance of such other clients; (c) the impact of economies of scale;
| |
Semiannual report | Value Opportunities Fund | 35 |
(d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.
At an in-person meeting held on May 2–4, 2010, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May 2–4, 2010 meeting, the Board presented the Adviser and Subadviser with questions and requests for additional information and the Adviser and Subadviser responded to these requests with additional written information in advance of the June 6–8, 2010 Board meeting. The Board also reviewed these additional materials relating to its consideration of the Agreements.
At an in-person meeting held on June 6–8, 2010, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement between the Adviser and the Subadviser with respect to the Fund, each for an additional one-year term. The Board considered all factors it believed relevant with respect to the Fund, including, among other factors: (a) the nature, extent and quality of the services provided by the Adviser and the Subadviser; (b) the investment performance of the Fund and portfolio management of the Subadviser; (c) the advisory fees and the cost of the services and profits to be realized by the Adviser and certain affiliates from their relationship with the Fund; (d) economies of scale; and (e) other factors.
The Board also considered other matters important to the approval process, such as payments made to the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser, and their affiliates from their relationship with the Fund, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Trustee may have attributed different weights to the various items considered.
The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board, including the Independent Trustees, reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund. The Board reviewed the Adviser’s and Subadviser’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.
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. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.
The Board considered the Subadviser’s history and 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, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.
| |
36 | Value Opportunities Fund | Semiannual report |
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund.
The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and considered the Adviser’s policies and procedures for assuring compliance with applicable laws and regulations.
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 reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to such other clients under similar investment mandates, the services provided to such other clients as compared to the services provided to the Fund, the performance of such other clients, and other factors relating to such other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and those services they provide to other clients which, to the extent the other client is not a mutual fund, may generally be attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover o f mutual fund assets, the more burdensome regulatory and legal obligations of mutual funds, and the higher marketing costs for mutual funds.
Fund performance
The Board, including the Independent Trustees, reviewed and considered the performance history of the Fund. The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category and Peer Group as well as its benchmark index (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board also considered updated performance information provided by the Adviser at its May and June 2010 meetings. The Board regularly reviews the performance of the Fund throughout the year and atta ches more importance to performance over relatively longer periods of time, typically three to five years.
| | | | |
| 1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR |
|
Value Opportunities Fund | 12.11% | –11.28% | N/A | N/A |
|
Russell 2500 Value Index | 27.68% | –6.97% | N/A | N/A |
|
Mid-Cap Value Category Median | 35.29% | –4.86% | N/A | N/A |
|
Morningstar 15(c) Peer Group Median | 31.86% | –6.19% | N/A | N/A |
The Board noted that the Subadviser remained consistent with its investment style and adhered to its investment mandates.
The Board considered a presentation on the investment management style of the Subadviser and noted that the Subadviser manages with a quantitative bias towards quality stocks and a momentum style of investing. The Board noted that the Subadviser had historically managed these quantitative factors separately. The Board noted that these investment styles have struggled recently, and that the Subadviser has a history of staying consistent in its management style regardless of the market environment, and that such consistency can be rewarded in the right environment.
The Board noted that the Adviser and the Subadviser anticipated an improvement in performance once the markets begin to favor these investment styles again, and that the Subadviser has revised
| |
Semiannual report | Value Opportunities Fund | 37 |
its process to consider its quantitative investment characteristics as a single discipline. It was finally noted that the Adviser will be closely monitoring the Subadviser’s performance. The Board concluded that the Fund’s underperformance was being responsibly addressed by the Adviser and Subadviser.
Expenses and fees
The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Category and Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other types of clients with similar investment mandates, including separately managed institutional accounts.
In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration 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 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 considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Fund. The Board considered expenses and fee rates to be higher or lower if they were over or under 10 basis points, respectively; slightly higher or slightly lower if they were above or below 6-10 basis points, respectively; and inline if they were above or below by 5 basis points.
The Board noted that the investment advisory rate was inline with the Category median and slightly higher than the Peer Group median. The Board viewed favorably the Adviser’s contractual agreement to waive all or a portion of its Advisory Agreement rate and reimburse or pay operating expenses to the extent necessary to maintain the Fund’s Net Expense Ratio at 1.37 for Class A shares, excluding certain expenses such as taxes, brokerage commissions, interest, litigation and extraordinary expenses, until June 30, 2011.
The Board reviewed the Fund’s Gross Expense Ratio of 2.42% for the Fund’s Class A shares. 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 Peer Group and Category medians. The Board favorably considered the impact of fee waivers towards ultimately lowering the Fund’s Gross Expense Ratio. The Board also received and considered information relating to the Fund’s Gross Expense Ratio and Net Expense Ratio that reflected a proposed change in the methodology for calculating transfer agent fees.
The Board received and reviewed statements relating to the Adviser’s financial condition and profitability with respect to the services it provides the Fund. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services provided to the Fund. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2009 compared to available aggregate profitability data provided for the year ended December 31, 2008.
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board
| |
38 | Value Opportunities Fund | Semiannual report |
reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparability of profitability is somewhat limited.
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 fee under the Subadvisory Agreement had been negotiated by the Adviser and the Subadviser 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 Subadvisory Agreement.
Economies of scale
The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the assets of the Fund. The Board also considered the Adviser’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations.
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 ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Agreement fee rate.
Other benefits to the Adviser and the Subadviser
The Board understands that the Adviser, the Subadviser, or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community, and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.
Board determination
The Board, including the Independent Trustees, unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term and the Subadvisory Agreement between the Adviser and Subadviser with respect to the Fund for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board, including a majority of the Independent Trustees, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at a decision to approve the Agreements, the Board did not identify any single factor listed above, or any group of factors listed above, as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by the advice of independent legal counsel in maki ng this determination. The Board noted that contractual fee arrangements for the Fund reflect the
| |
Semiannual report | Value Opportunities Fund | 39 |
results of several years of review by the Board and certain predecessor Trustees, and discussions between such Trustees (and predecessor Trustees) and the Adviser. Certain aspects of the arrangements may be the subject of more attention in some years than in others, and the Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years.
| |
40 | Value Opportunities Fund | Semiannual report |
More information
| |
Trustees | Investment adviser |
Patti McGill Peterson, Chairperson | John Hancock Investment Management |
James F. Carlin | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson* | Subadviser |
Charles L. Ladner | Grantham, Mayo, Van Otterloo & Co. LLC |
Stanley Martin* | |
Hugh McHaffie†** | Principal distributor |
Dr. John A. Moore | John Hancock Funds, LLC |
Steven R. Pruchansky* | |
Gregory A. Russo | Custodian |
John G. Vrysen† | State Street Bank and Trust Company |
| |
Officers | Transfer agent |
Keith F. Hartstein | John Hancock Signature Services, Inc. |
President and Chief Executive Officer | |
| Legal counsel |
Andrew G. Arnott | K&L Gates LLP |
Senior Vice President** and Chief Operating Officer | |
| The report is certified under the Sarbanes-Oxley |
Thomas M. Kinzler | Act, which requires mutual funds and other public |
Secretary and Chief Legal Officer | companies to affirm that, to the best of their |
| knowledge, the information in their financial reports |
Francis V. Knox, Jr. | is fairly and accurately stated in all material respects. |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Salvatore Schiavone** | |
Treasurer | |
|
*Member of the Audit Committee | |
**Effective 8-31-10 | |
†Non-Independent Trustee | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| | |
You can also contact us: | | |
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations |
| Boston, MA 02205-5913 | 30 Dan Road |
| | Canton, MA 02021 |
| |
Semiannual report | Value Opportunities Fund | 41 |
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 8/10 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/10 |
A look at performance
| | | | | | | | | | |
For the period ended August 31, 2010 | | | | | | | |
|
| Average annual total returns (%) | | Cumulative total returns (%) | |
| with maximum sales charge (POP) | | with maximum sales charge (POP) | |
|
| | | | Since | | | | | | Since |
| 1-year | 5-year | 10-year | inception | | 6-months | 1-year | 5-year | 10-year | inception |
Class A | –3.31 | — | — | –4.511 | | –10.63 | –3.31 | — | — | –17.721 |
| |
|
Class B | –3.92 | — | — | –4.441 | | –10.92 | –3.92 | — | — | –17.471 |
| |
|
Class C | 0.08 | — | — | –4.021 | | –7.17 | 0.08 | — | — | –15.921 |
| |
|
Class I2 | 2.24 | — | — | –2.951 | | –5.69 | 2.24 | — | — | –11.871 |
| |
|
Class R12 | 1.29 | — | — | –3.571 | | –6.11 | 1.29 | — | — | –14.261 |
| |
|
Class R32 | 1.44 | — | — | 10.953 | | –6.09 | 1.44 | — | — | 14.223 |
| |
|
Class R42 | 1.70 | — | — | 11.283 | | –5.92 | 1.70 | — | — | 14.653 |
| |
|
Class R52 | 2.02 | — | — | 11.613 | | –5.80 | 2.02 | — | — | 15.093 |
| |
|
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 shares 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 charges are not applicable for Class I, Class R1, Class R3, Class R4 and Class R5 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 6-30-11. The net expenses are as follows: Class A — 1.35%, Class B — 2.05%, Class C — 2.05%, Class I — 0.89%, Class R1 — 1.64%. Class R3 — 1.54%, Class R4 — 1.24% and Class R5 — 0.94. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 1.91%, Class B — 7.27%, Class C — 3.86%, Class I — 1.33%, Class R1 — 19.92%, Class R3 — 7.43%, Class R4 — 7.17% and Class R5 — 6.92%.
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.
1 From 6-12-06.
2 For certain types of investors, as described in the Fund’s Class I, Class R1, Class R3, Class R4 and Class R5 share prospectuses.
3 From 5-22-09.
| |
6 | U.S. Core Fund | Semiannual report |
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in John Hancock U.S. Core Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in the S&P 500 Index.
| | | | |
| Period | Without | With maximum | |
| beginning | sales charge | sales charge | Index |
|
Class B | 6-12-06 | $8,413 | $8,253 | $9,176 |
|
Class C2 | 6-12-06 | 8,408 | 8,408 | 9,176 |
|
Class I3 | 6-12-06 | 8,813 | 8,813 | 9,176 |
|
Class R13 | 6-12-06 | 8,574 | 8,574 | 9,176 |
|
Class R33 | 5-22-09 | 11,422 | 11,422 | 12,126 |
|
Class R43 | 5-22-09 | 11,465 | 11,465 | 12,126 |
|
Class R53 | 5-22-09 | 11,509 | 11,509 | 12,126 |
|
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 R3, Class R4 and Class R5 shares, respectively, as of 8-31-10. 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 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 The contingent deferred sales charge, if any, is not applicable.
3 For certain types of investors, as described in the Fund’s Class I, Class R1, Class R3, Class R4 and Class R5 shares prospectuses.
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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, 2010 with the same investment held until August 31, 2010.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $940.80 | $6.60 |
|
Class B | 1,000.00 | 937.70 | 10.01 |
|
Class C | 1,000.00 | 937.70 | 10.01 |
|
Class I | 1,000.00 | 943.10 | 4.31 |
|
Class R1 | 1,000.00 | 938.90 | 8.41 |
|
Class R3 | 1,000.00 | 939.10 | 7.87 |
|
Class R4 | 1,000.00 | 940.80 | 6.41 |
|
Class R5 | 1,000.00 | 942.00 | 4.94 |
|
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at August 31, 2010, 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, 2010, with the same investment held until August 31, 2010. 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 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
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 | 1,020.80 | 4.48 |
|
Class R1 | 1,000.00 | 1,016.50 | 8.74 |
|
Class R3 | 1,000.00 | 1,017.10 | 8.19 |
|
Class R4 | 1,000.00 | 1,018.60 | 6.67 |
|
Class R5 | 1,000.00 | 1,020.10 | 5.14 |
|
Remember, these examples do not include any transaction costs, 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%, 0.88%, 1.71%, 1.62%, 1.32% and 1.02% for Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4 and Class R5 shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
| |
Semiannual report | U.S. Core Fund | 9 |
Portfolio summary
| | | | |
Top 10 Holdings1 | | | | |
|
Pfizer, Inc. | 4.8% | | The Procter & Gamble Company | 3.0% |
| | |
Microsoft Corp. | 4.8% | | Oracle Corp. | 2.8% |
| | |
Wal-Mart Stores, Inc. | 3.6% | | Apple, Inc. | 2.4% |
| | |
Google, Inc., Class A | 3.5% | | Johnson & Johnson | 2.4% |
| | |
Merck & Company, Inc. | 3.3% | | The Coca-Cola Company | 2.1% |
| | |
|
Sector Composition2,3 | | | | |
|
Health Care | 25% | | Financials | 5% |
| | |
Information Technology | 23% | | Energy | 4% |
| | |
Consumer Staples | 17% | | Materials | 2% |
| | |
Consumer Discretionary | 9% | | Telecommunication Services | 1% |
| | |
Industrials | 7% | | Short-Term Investments & Other | 7% |
| | |
1 As a percentage of net assets on 8-31-10. Excludes cash and cash equivalents.
2 As a percentage of net assets on 8-31-10.
3 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 |
Fund’s investments
As of 8-31-10 (unaudited)
| | |
| Shares | Value |
Common Stocks 92.87% | | $41,553,818 |
|
(Cost $42,542,589) | | |
| | |
Consumer Discretionary 9.03% | | 4,038,813 |
| | |
Auto Components 0.14% | | |
|
Autoliv, Inc. | 600 | 32,484 |
|
TRW Automotive Holdings Corp. (I) | 800 | 27,808 |
| | |
Automobiles 0.33% | | |
|
Ford Motor Company (I)(L) | 10,100 | 114,029 |
|
Harley-Davidson, Inc. | 1,400 | 34,048 |
| | |
Distributors 0.09% | | |
|
Genuine Parts Company | 1,000 | 41,930 |
| | |
Diversified Consumer Services 0.30% | | |
|
Apollo Group, Inc., Class A (I) | 1,900 | 80,712 |
|
ITT Educational Services, Inc. (I) | 300 | 15,978 |
|
Strayer Education, Inc. (L) | 100 | 14,478 |
|
Weight Watchers International, Inc. | 800 | 22,816 |
| | |
Hotels, Restaurants & Leisure 1.69% | | |
|
Las Vegas Sands Corp. (I) | 1,700 | 48,161 |
|
McDonald’s Corp. | 6,260 | 457,356 |
|
MGM Resorts International (I)(L) | 2,800 | 25,228 |
|
Royal Caribbean Cruises, Ltd. (I) | 1,600 | 39,296 |
|
Starwood Hotels & Resorts Worldwide, Inc. | 1,100 | 51,403 |
|
Wyndham Worldwide Corp. | 2,000 | 46,380 |
|
Wynn Resorts, Ltd. | 500 | 40,305 |
|
Yum! Brands, Inc. | 1,100 | 45,870 |
| | |
Household Durables 0.49% | | |
|
KB Home | 6,870 | 70,830 |
|
Mohawk Industries, Inc. (I) | 500 | 22,155 |
|
Newell Rubbermaid, Inc. (L) | 1,900 | 28,538 |
|
Stanley Black & Decker, Inc. | 900 | 48,276 |
|
Whirlpool Corp. | 650 | 48,204 |
| | |
Internet & Catalog Retail 0.17% | | |
|
Liberty Media Corp. - Interactive, Class A (Tracking Stock), (I) | 7,300 | 77,015 |
| | |
Leisure Equipment & Products 0.06% | | |
|
Hasbro, Inc. | 700 | 28,252 |
| | |
See notes to financial statements | Semiannual report | U.S. Core Fund | 11 |
| | |
| Shares | Value |
Media 2.83% | | |
|
CBS Corp., Class B | 10,124 | $139,914 |
|
Cinemark Holdings, Inc. | 600 | 8,766 |
|
Clear Channel Outdoor Holdings, Inc., Class A (I) | 2,400 | 24,120 |
|
Comcast Corp., Class A | 7,100 | 121,552 |
|
DIRECTV, Class A (I) | 1,700 | 64,464 |
|
Gannett Company, Inc. | 3,100 | 37,479 |
|
Liberty Media - Starz, Series A (Tracking Stock)(I) | 2,177 | 130,054 |
|
Liberty Media Corp - Capital, Series A (Tracking Stock)(I) | 600 | 27,048 |
|
News Corp., Class A | 6,800 | 85,476 |
|
The McGraw-Hill Companies, Inc. | 2,100 | 58,065 |
|
The Walt Disney Company | 5,900 | 192,281 |
|
The Washington Post Company, Class B (L) | 53 | 19,092 |
|
Time Warner Cable, Inc. | 1,300 | 67,093 |
|
Time Warner, Inc. | 5,800 | 173,884 |
|
Viacom, Inc., Class B | 3,700 | 116,254 |
| | |
Multiline Retail 0.57% | | |
|
Dollar Tree, Inc. (I) | 500 | 22,665 |
|
Macy’s, Inc. | 3,700 | 71,928 |
|
Nordstrom, Inc. | 900 | 26,028 |
|
Sears Holdings Corp. (I)(L) | 2,200 | 136,180 |
| | |
Specialty Retail 1.52% | | |
|
Advance Auto Parts, Inc. | 700 | 38,129 |
|
Aeropostale, Inc. (I) | 5,544 | 118,087 |
|
AutoNation, Inc. (I)(L) | 1,600 | 36,128 |
|
AutoZone, Inc. (I) | 648 | 135,937 |
|
Best Buy Company, Inc. | 2,100 | 65,919 |
|
Home Depot, Inc. | 4,900 | 136,269 |
|
Limited Brands, Inc. | 2,500 | 59,000 |
|
RadioShack Corp. | 900 | 16,632 |
|
TJX Companies, Inc. | 1,900 | 75,411 |
| | |
Textiles, Apparel & Luxury Goods 0.84% | | |
|
Coach, Inc. (L) | 2,200 | 78,848 |
|
NIKE, Inc., Class B | 3,300 | 231,000 |
|
VF Corp. | 900 | 63,558 |
| | |
Consumer Staples 17.10% | | 7,649,048 |
| | |
Beverages 4.24% | | |
|
Brown Forman Corp., Class B | 1,100 | 67,419 |
|
Coca-Cola Enterprises, Inc. | 3,400 | 96,764 |
|
Hansen Natural Corp. (I) | 1,100 | 49,544 |
|
PepsiCo, Inc. | 11,650 | 747,697 |
|
The Coca-Cola Company | 16,700 | 933,864 |
| | |
Food & Staples Retailing 5.10% | | |
|
Costco Wholesale Corp. | 1,200 | 67,860 |
|
CVS Caremark Corp. | 1,657 | 44,739 |
|
Safeway, Inc. | 2,400 | 45,120 |
|
SUPERVALU, Inc. | 2,000 | 19,440 |
|
Sysco Corp. | 5,700 | 156,693 |
| | |
12 | U.S. Core Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Food & Staples Retailing (continued) | | |
|
The Kroger Company | 3,200 | $63,136 |
|
Wal-Mart Stores, Inc. | 32,543 | 1,631,706 |
|
Walgreen Company | 9,500 | 255,360 |
| | |
Food Products 1.41% | | |
|
Campbell Soup Company | 1,700 | 63,342 |
|
General Mills, Inc. | 4,500 | 162,720 |
|
Hormel Foods Corp. | 900 | 38,835 |
|
Kellogg Company | 2,500 | 124,200 |
|
McCormick & Company, Inc. | 900 | 35,883 |
|
Mead Johnson Nutrition Company | 1,000 | 52,190 |
|
Sara Lee Corp. | 4,800 | 69,312 |
|
The Hershey Company | 1,800 | 83,646 |
| | |
Household Products 4.25% | | |
|
Church & Dwight Company, Inc. | 400 | 24,492 |
|
Clorox Company | 1,100 | 71,302 |
|
Colgate-Palmolive Company | 3,900 | 287,976 |
|
Kimberly-Clark Corp. | 2,500 | 161,000 |
|
The Procter & Gamble Company | 22,700 | 1,354,509 |
| | |
Personal Products 0.36% | | |
|
Avon Products, Inc. | 1,200 | 34,920 |
|
Herbalife, Ltd. | 400 | 22,232 |
|
Nu Skin Enterprises, Inc., Class A | 300 | 7,671 |
|
The Estee Lauder Companies, Inc., Class A | 1,700 | 95,319 |
| | |
Tobacco 1.74% | | |
|
Altria Group, Inc. | 21,600 | 482,112 |
|
Lorillard, Inc. | 1,000 | 76,010 |
|
Philip Morris International, Inc. | 2,726 | 140,225 |
|
Reynolds American, Inc. | 1,500 | 81,810 |
| | |
Energy 4.37% | | 1,956,370 |
| | |
Energy Equipment & Services 0.33% | | |
|
Atwood Oceanics, Inc. (I) | 600 | 15,048 |
|
National Oilwell Varco, Inc. | 1,400 | 52,626 |
|
Oil States International, Inc. (I) | 500 | 20,615 |
|
Rowan Companies, Inc. (I) | 1,100 | 28,281 |
|
Schlumberger, Ltd. | 410 | 21,865 |
|
Superior Energy Services, Inc. (I) | 400 | 8,600 |
| | |
Oil, Gas & Consumable Fuels 4.04% | | |
|
Anadarko Petroleum Corp. | 196 | 9,014 |
|
Chevron Corp. | 3,448 | 255,704 |
|
Cimarex Energy Company | 300 | 19,626 |
|
ConocoPhillips | 10,336 | 541,916 |
|
Exxon Mobil Corp. | 9,928 | 587,340 |
|
Marathon Oil Corp. | 2,100 | 64,029 |
|
Occidental Petroleum Corp. | 2,584 | 188,839 |
|
Pioneer Natural Resources Company | 700 | 40,474 |
|
Sunoco, Inc. | 800 | 26,944 |
|
The Williams Companies, Inc. | 1,900 | 34,447 |
|
Valero Energy Corp. | 2,600 | 41,002 |
| | |
See notes to financial statements | Semiannual report | U.S. Core Fund | 13 |
| | |
| Shares | Value |
Financials 4.99% | | $2,233,791 |
| | |
Capital Markets 0.14% | | |
|
Ameriprise Financial, Inc. | 1,400 | 61,012 |
| | |
Commercial Banks 0.68% | | |
|
CIT Group, Inc. (I) | 2,300 | 84,364 |
|
PNC Financial Services Group, Inc. | 3,100 | 157,976 |
|
Regions Financial Corp. | 8,800 | 56,584 |
|
SVB Financial Group (I) | 200 | 7,434 |
| | |
Consumer Finance 0.55% | | |
|
American Express Company | 2,500 | 99,675 |
|
AmeriCredit Corp. (I) | 1,100 | 26,620 |
|
Capital One Financial Corp. | 1,400 | 53,004 |
|
SLM Corp. (I) | 6,200 | 68,510 |
| | |
Diversified Financial Services 0.58% | | |
|
Bank of America Corp. | 20,679 | 257,454 |
| | |
Insurance 2.11% | | |
|
Aflac, Inc. | 2,200 | 103,950 |
|
Allied World Assurance Company Holdings, Ltd. | 500 | 25,185 |
|
American Financial Group, Inc. | 700 | 20,139 |
|
American International Group, Inc. (I) | 1,000 | 33,930 |
|
Arch Capital Group, Ltd. (I) | 400 | 31,920 |
|
Aspen Insurance Holdings, Ltd. | 700 | 19,880 |
|
Assurant, Inc. | 700 | 25,592 |
|
Brown & Brown, Inc. | 900 | 17,136 |
|
Endurance Specialty Holdings, Ltd. | 600 | 22,104 |
|
Genworth Financial, Inc., Class A (I) | 4,200 | 45,486 |
|
Hartford Financial Services Group, Inc. | 2,800 | 56,448 |
|
Lincoln National Corp. | 1,500 | 35,040 |
|
Platinum Underwriters Holdings, Ltd. | 200 | 8,042 |
|
Prudential Financial, Inc. | 2,400 | 121,368 |
|
RenaissanceRe Holdings, Ltd. | 400 | 22,716 |
|
StanCorp Financial Group, Inc. | 300 | 10,689 |
|
The Allstate Corp. | 2,600 | 71,760 |
|
The Travelers Companies, Inc. | 3,200 | 156,736 |
|
Torchmark Corp. | 600 | 29,610 |
|
Transatlantic Holdings, Inc. | 400 | 19,068 |
|
Unum Group | 1,400 | 28,070 |
|
Validus Holdings, Ltd. | 800 | 20,376 |
|
W.R. Berkley Corp. | 800 | 21,080 |
| | |
Real Estate Investment Trusts 0.83% | | |
|
Annaly Capital Management, Inc. | 2,500 | 43,450 |
|
CommonWealth REIT | 300 | 7,236 |
|
Equity Residential | 1,000 | 45,830 |
|
General Growth Properties, Inc. | 1,900 | 26,733 |
|
Host Hotels & Resorts, Inc. | 4,100 | 53,833 |
|
Simon Property Group, Inc. | 1,200 | 108,540 |
|
SL Green Realty Corp. | 500 | 30,140 |
|
Vornado Realty Trust | 700 | 56,742 |
| | |
14 | U.S. Core Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Real Estate Management & Development 0.04% | | |
|
Forest City Enterprises, Inc., Class A (I)(L) | 1,500 | $16,905 |
| | |
Thrifts & Mortgage Finance 0.06% | | |
|
New York Community Bancorp, Inc. | 1,600 | 25,424 |
| | |
Health Care 25.25% | | 11,298,635 |
| | |
Biotechnology 1.53% | | |
|
Amgen, Inc. (I) | 8,200 | 418,528 |
|
Biogen Idec, Inc. (I)(L) | 1,300 | 69,940 |
|
Gilead Sciences, Inc. (I) | 6,200 | 197,532 |
| | |
Health Care Equipment & Supplies 3.64% | | |
|
Baxter International, Inc. | 5,884 | 250,423 |
|
Becton, Dickinson & Company | 2,000 | 136,380 |
|
C.R. Bard, Inc. | 600 | 46,098 |
|
CareFusion Corp. (I) | 1,100 | 23,738 |
|
DENTSPLY International, Inc. | 1,000 | 27,820 |
|
Edwards Lifesciences Corp. (I) | 980 | 56,419 |
|
Hospira, Inc. (I) | 700 | 35,952 |
|
IDEXX Laboratories, Inc. (I)(L) | 700 | 38,689 |
|
Intuitive Surgical, Inc. (I) | 150 | 39,755 |
|
Kinetic Concepts, Inc. (I) | 1,100 | 35,112 |
|
Medtronic, Inc. | 12,900 | 406,092 |
|
ResMed, Inc. (I) | 1,400 | 42,196 |
|
Sirona Dental Systems, Inc. (I) | 300 | 9,456 |
|
St. Jude Medical, Inc. (I) | 2,200 | 76,054 |
|
Stryker Corp. | 4,600 | 198,674 |
|
Varian Medical Systems, Inc. (I)(L) | 1,200 | 63,888 |
|
Zimmer Holdings, Inc. (I) | 3,000 | 141,510 |
| | |
Health Care Providers & Services 4.40% | | |
|
Aetna, Inc. | 3,300 | 88,176 |
|
AmerisourceBergen Corp. | 4,400 | 120,032 |
|
Cardinal Health, Inc. | 4,500 | 134,820 |
|
Catalyst Health Solutions, Inc. (I) | 200 | 8,018 |
|
CIGNA Corp. | 1,300 | 41,886 |
|
Coventry Health Care, Inc. (I) | 1,600 | 30,960 |
|
Express Scripts, Inc. (I) | 2,300 | 97,980 |
|
Health Net, Inc. (I) | 1,400 | 33,432 |
|
Henry Schein, Inc. (I)(L) | 500 | 26,400 |
|
Humana, Inc. (I) | 2,200 | 105,138 |
|
Laboratory Corp. of America Holdings (I) | 1,000 | 72,620 |
|
Lincare Holdings, Inc. (L) | 2,716 | 62,522 |
|
McKesson Corp. | 2,000 | 116,100 |
|
MEDNAX, Inc. (I) | 400 | 18,536 |
|
Omnicare, Inc. | 700 | 13,440 |
|
Owens & Minor, Inc. | 400 | 10,664 |
|
Patterson Companies, Inc. | 1,000 | 25,290 |
|
Quest Diagnostics, Inc. | 1,100 | 47,850 |
|
UnitedHealth Group, Inc. | 19,694 | 624,694 |
|
VCA Antech, Inc. (I) | 700 | 13,839 |
|
WellPoint, Inc. (I) | 5,582 | 277,314 |
| | |
See notes to financial statements | Semiannual report | U.S. Core Fund | 15 |
| | |
| Shares | Value |
Health Care Technology 0.09% | | |
|
Cerner Corp. (I)(L) | 500 | $36,425 |
|
Quality Systems, Inc. | 100 | 5,605 |
| | |
Life Sciences Tools & Services 0.43% | | |
|
Mettler-Toledo International, Inc. (I) | 340 | 37,601 |
|
Pharmaceutical Product Development, Inc. | 1,100 | 25,267 |
|
Thermo Fisher Scientific, Inc. (I) | 2,149 | 90,516 |
|
Waters Corp. (I) | 600 | 36,312 |
| | |
Pharmaceuticals 15.16% | | |
|
Abbott Laboratories | 13,600 | 671,024 |
|
Allergan, Inc. | 2,700 | 165,834 |
|
Bristol-Myers Squibb Company | 15,600 | 406,848 |
|
Eli Lilly & Company | 17,700 | 594,012 |
|
Endo Pharmaceuticals Holdings, Inc. (I) | 2,100 | 57,057 |
|
Forest Laboratories, Inc. (I) | 5,100 | 139,179 |
|
Johnson & Johnson | 18,500 | 1,054,870 |
|
Merck & Company, Inc. | 41,711 | 1,466,559 |
|
Mylan, Inc. (I)(L) | 2,700 | 46,332 |
|
Perrigo Company | 500 | 28,495 |
|
Pfizer, Inc. | 135,137 | 2,152,732 |
| | |
Industrials 6.49% | | 2,902,143 |
| | |
Aerospace & Defense 2.12% | | |
|
General Dynamics Corp. | 3,900 | 217,893 |
|
L-3 Communications Holdings, Inc. | 700 | 46,620 |
|
Northrop Grumman Corp. | 1,700 | 92,004 |
|
Precision Castparts Corp. | 880 | 99,598 |
|
Rockwell Collins, Inc. | 1,500 | 80,895 |
|
Spirit Aerosystems Holdings, Inc., Class A (I) | 900 | 17,406 |
|
The Boeing Company | 3,200 | 195,616 |
|
United Technologies Corp. | 3,000 | 195,630 |
| | |
Air Freight & Logistics 0.16% | | |
|
C.H. Robinson Worldwide, Inc. | 1,100 | 71,489 |
| | |
Airlines 0.12% | | |
|
Delta Air Lines, Inc. (I) | 3,200 | 33,472 |
|
UAL Corp. (I)(L) | 1,000 | 21,190 |
| | |
Building Products 0.04% | | |
|
Owens Corning, Inc. (I) | 700 | 19,040 |
| | |
Commercial Services & Supplies 0.29% | | |
|
Copart, Inc. (I) | 700 | 23,135 |
|
Pitney Bowes, Inc. | 1,800 | 34,632 |
|
R.R. Donnelley & Sons Company | 2,200 | 33,319 |
|
Stericycle, Inc. (I)(L) | 600 | 39,300 |
| | |
Electrical Equipment 0.27% | | |
|
Emerson Electric Company | 2,600 | 121,290 |
| | |
Industrial Conglomerates 2.37% | | |
|
3M Company | 5,300 | 416,315 |
|
General Electric Company | 41,200 | 596,576 |
|
Textron, Inc. | 2,800 | 47,796 |
| | |
16 | U.S. Core Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Machinery 0.84% | | |
|
Caterpillar, Inc. | 2,300 | $149,868 |
|
Danaher Corp. | 2,900 | 105,357 |
|
Dover Corp. | 800 | 35,808 |
|
Eaton Corp. | 800 | 55,584 |
|
Joy Global, Inc. | 500 | 28,370 |
| | |
Professional Services 0.09% | | |
|
Dun & Bradstreet Corp. | 300 | 19,770 |
|
Towers Watson & Company, Class A | 400 | 17,960 |
| | |
Road & Rail 0.13% | | |
|
Norfolk Southern Corp. | 1,100 | 59,048 |
| | |
Trading Companies & Distributors 0.06% | | |
|
Fastenal Company (L) | 600 | 27,162 |
| | |
Information Technology 22.91% | | 10,251,185 |
| | |
Communications Equipment 2.95% | | |
|
Cisco Systems, Inc. (I) | 27,700 | 555,385 |
|
F5 Networks, Inc. (I) | 500 | 43,715 |
|
Harris Corp. | 1,200 | 50,484 |
|
QUALCOMM, Inc. | 17,471 | 669,314 |
| | |
Computers & Peripherals 3.63% | | |
|
Apple, Inc. (I) | 4,340 | 1,056,226 |
|
Dell, Inc. (I) | 10,715 | 126,116 |
|
Hewlett-Packard Company | 7,600 | 292,448 |
|
Lexmark International, Inc., Class A (I) | 800 | 27,992 |
|
NetApp, Inc. (I) | 1,000 | 40,440 |
|
Seagate Technology PLC (I) | 3,500 | 35,455 |
|
Western Digital Corp. (I) | 1,900 | 45,885 |
| | |
Electronic Equipment, Instruments & Components 0.19% | | |
|
Dolby Laboratories, Inc., Class A (I) | 900 | 49,878 |
|
Ingram Micro, Inc., Class A (I) | 1,300 | 19,578 |
|
Tech Data Corp. (I) | 500 | 18,100 |
| | |
Internet Software & Services 4.35% | | |
|
eBay, Inc. (I) | 16,200 | 376,488 |
|
Google, Inc., Class A (I) | 3,489 | 1,570,120 |
| | |
IT Services 2.55% | | |
|
Accenture PLC, Class A | 2,700 | 98,820 |
|
Amdocs, Ltd. (I) | 2,000 | 52,460 |
|
Automatic Data Processing, Inc. | 2,200 | 84,942 |
|
Cognizant Technology Solutions Corp., Class A (I) | 3,200 | 184,336 |
|
Computer Sciences Corp. | 700 | 27,867 |
|
Global Payments, Inc. | 700 | 26,341 |
|
International Business Machines Corp. | 3,212 | 395,815 |
|
ManTech International Corp., Class A (I) | 200 | 7,078 |
|
MasterCard, Inc., Class A | 748 | 148,373 |
|
NeuStar, Inc., Class A (I) | 800 | 17,712 |
|
Paychex, Inc. | 2,600 | 64,714 |
|
Syntel, Inc. | 200 | 7,699 |
|
Total Systems Services, Inc. | 1,700 | 24,140 |
| | |
See notes to financial statements | Semiannual report | U.S. Core Fund | 17 |
| | |
| Shares | Value |
Office Electronics 0.24% | | |
|
Xerox Corp. | 12,800 | $108,032 |
| | |
Software 9.00% | | |
|
Adobe Systems, Inc. (I) | 2,800 | 77,728 |
|
BMC Software, Inc. (I) | 700 | 25,242 |
|
FactSet Research Systems, Inc. | 400 | 29,420 |
|
Intuit, Inc. (I) | 2,300 | 98,440 |
|
Jack Henry & Associates, Inc. | 900 | 21,186 |
|
McAfee, Inc. (I) | 900 | 42,345 |
|
MICROS Systems, Inc. (I) | 600 | 22,860 |
|
Microsoft Corp. | 90,944 | 2,135,365 |
|
Novell, Inc. (I) | 11,209 | 62,995 |
|
Oracle Corp. | 56,747 | 1,241,624 |
|
Quest Software, Inc. (I) | 100 | 2,143 |
|
Salesforce.com, Inc. (I) | 600 | 65,928 |
|
Symantec Corp. (I) | 6,600 | 89,958 |
|
VMware, Inc., Class A (I)(L) | 1,400 | 109,998 |
| | |
Materials 1.38% | | 619,617 |
| | |
Chemicals 0.78% | | |
|
Ashland, Inc. | 400 | 18,584 |
|
Ecolab, Inc. | 1,100 | 52,140 |
|
Huntsman Corp. | 2,700 | 24,596 |
|
Lubrizol Corp. | 300 | 27,993 |
|
PPG Industries, Inc. | 600 | 39,498 |
|
Sigma-Aldrich Corp. (L) | 600 | 31,902 |
|
The Dow Chemical Company | 6,400 | 155,968 |
| | |
Metals & Mining 0.16% | | |
|
Cliffs Natural Resources, Inc. | 600 | 36,714 |
|
Commercial Metals Company | 600 | 7,818 |
|
United States Steel Corp. (L) | 610 | 25,931 |
| | |
Paper & Forest Products 0.44% | | |
|
Domtar Corp. | 700 | 42,014 |
|
Schweitzer-Mauduit International, Inc. | 2,906 | 156,459 |
| | |
Telecommunication Services 1.17% | | 523,451 |
| | |
Diversified Telecommunication Services 0.94% | | |
|
AT&T, Inc. | 8,600 | 232,458 |
|
Verizon Communications, Inc. | 6,300 | 185,912 |
| | |
Wireless Telecommunication Services 0.23% | | |
|
Crown Castle International Corp. (I) | 1,200 | 49,344 |
|
NII Holdings, Inc. (I) | 900 | 32,625 |
|
Telephone & Data Systems, Inc. | 800 | 23,112 |
| | |
18 | U.S. Core Fund | Semiannual report | See notes to financial statements |
| | | |
| | Shares | Value |
Utilities 0.18% | | | $80,765 |
| | | |
Multi-Utilities 0.18% | | | |
|
DTE Energy Company | | 1,000 | 46,850 |
|
Integrys Energy Group, Inc. | | 700 | 33,915 |
|
Short-Term Investments 8.20% | | | $3,668,016 |
|
(Cost $3,667,900) | | | |
| Yield* | Par value | Value |
U.S. Government 0.67% | | | 299,972 |
U.S. Treasury Bill | 0.2288% | $300,000 | 299,972 |
| | | |
| | Shares | Value |
Short-Term Securities 5.71% | | | 2,556,142 |
State Street Institutional Investment Treasury | | | |
Money Market Fund | 0.0344% (Y) | 2,556,142 | 2,556,142 |
| | | |
Securities Lending Collateral 1.82% | | | 811,902 |
John Hancock Collateral Investment Trust (W) | 0.3330% (Y) | 81,100 | 811,902 |
|
Total investments (Cost $46,210,489)† 101.07% | | | $45,221,834 |
|
Other assets and liabilities, net (1.07%) | | | ($477,821) |
|
Total net assets 100.00% | | | $44,744,013 |
|
The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the Fund.
(I) Non-income producing security.
(L) All or a portion of this security is on loan as of 8-31-10.
(W) Investment is an affiliate of the Fund, the adviser and/or subadviser. Also, it represents the investment of securities lending collateral received.
(Y) The rate shown is the annualized seven-day yield as of 8-31-10.
* Yield represents either the annualized yield at the date of purchase, the stated coupon rate or, for floating rate securities, the rate at period end.
† At 8-31-10, the aggregate cost of investment securities for federal income tax purposes was $46,929,875. Net unrealized depreciation aggregated $1,708,041, of which $1,539,227 related to appreciated investment securities and $3,247,268 related to depreciated investment securities.
| | |
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 SFinancial statements
Statement of assets and liabilities 8-31-10 (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 $45,398,703) including | |
$790,255 of securities loaned (Note 2) | $44,409,932 |
Investments in affiliated issuers, at value (Cost $811,786) (Note 2) | 811,902 |
| |
Total investments, at value (Cost $46,210,489) | 45,221,834 |
Cash held at broker for futures contracts | 160,000 |
Receivable for fund shares sold | 158,069 |
Dividends and interest receivable | 111,008 |
Receivable for securities lending income | 460 |
Receivable for futures variation margin | 5,600 |
Receivable due from adviser | 2,246 |
Other receivables and prepaid assets | 28,443 |
| |
Total assets | 45,687,660 |
|
Liabilities | |
|
Payable for investments purchased | 742 |
Payable for fund shares repurchased | 88,787 |
Payable upon return of securities loaned (Note 2) | 812,548 |
Payable to affiliates | |
Accounting and legal services fees | 252 |
Transfer agent fees | 5,562 |
Distribution and service fees | 193 |
Trustees’ fees | 470 |
Other liabilities and accrued expenses | 35,093 |
Total liabilities | 943,647 |
|
Net assets | |
|
Capital paid-in | $49,542,808 |
Undistributed net investment income | 193,210 |
Accumulated net realized loss on investments and futures contracts | (3,935,321) |
Net unrealized appreciation (depreciation) on investments, futures | |
contracts and translation of assets and liabilities in foreign currencies | (1,056,684) |
| |
Net assets | $44,744,013 |
| | |
20 | U.S. Core Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T SStatement of assets and liabilities (continued)
| |
Net asset value per share | |
|
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($23,840,242 ÷ 1,485,745 shares) | $16.05 |
Class B ($479,026 ÷ 30,023 shares)1 | $15.96 |
Class C ($1,984,650 ÷ 124,466 shares)1 | $15.95 |
Class I ($18,263,812 ÷ 1,135,240 shares) | $16.09 |
Class R1 ($90,585 ÷ 5,664 shares) | $15.99 |
Class R3 ($28,530 ÷ 1,779.359 shares) | $16.03 |
Class R4 ($28,566 ÷ 1,779.359 shares) | $16.05 |
Class R5 ($28,602 ÷ 1,779.359 shares) | $16.07 |
|
Maximum offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $16.89 |
1 Redemption price is equal to 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 | U.S. Core Fund | 21 |
F I N A N C I A L S T A T E M E N T SStatement of operations For the six-month period ended 8-31-10 (unaudited)
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 | $429,547 |
Securities lending | 1,699 |
Interest | 597 |
Less foreign taxes withheld | (18) |
Total investment income | 431,825 |
|
Expenses | |
|
Investment management fees (Note 5) | 173,439 |
Distribution and service fees (Note 5) | 49,144 |
Accounting and legal services fees (Note 5) | 3,114 |
Transfer agent fees (Note 5) | 28,747 |
Trustees’ fees (Note 5) | 1,915 |
State registration fees (Note 5) | 24,935 |
Printing and postage fees (Note 5) | 5,997 |
Professional fees | 27,558 |
Custodian fees | 6,238 |
Registration and filing fees | 7,562 |
Other | 5,693 |
| |
Total expenses | 334,342 |
Less expense reductions (Note 5) | (66,656) |
| |
Net expenses | 267,686 |
| |
Net investment income | 164,139 |
|
Realized and unrealized gain (loss) | |
|
Net realized gain (loss) on | |
Investments in unaffiliated issuers | 338,348 |
Investments in affiliated issuers | (604) |
Futures contracts (Note 3) | 45,344 |
| 383,088 |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (3,233,765) |
Investments in affiliated issuers | (95) |
Futures contracts (Note 3) | (85,959) |
Translation of assets and liabilities in foreign currencies | (2) |
| (3,319,821) |
Net realized and unrealized loss | (2,936,733) |
| |
Decrease in net assets from operations | ($2,772,594) |
| | |
22 | U.S. Core Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T SStatements 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.
| | |
| Six months | |
| ended | Year |
| 8-31-10 | ended |
| (unaudited) | 2-28-10 |
|
Increase (decrease) in net assets | | |
|
|
From operations | | |
Net investment income | $164,139 | $197,722 |
Net realized gain (loss) | 383,088 | (1,312,068) |
Change in net unrealized appreciation (depreciation) | (3,319,821) | 7,710,519 |
| | |
Increase (decrease) in net assets resulting from operations | (2,772,594) | 6,596,173 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | — | (77,787) |
Class I | — | (124,896) |
Class R1 | — | (22) |
Class R3 | — | (34) |
Class R4 | — | (113) |
Class R5 | — | (193) |
| | |
Total distributions | — | (203,045) |
| | |
From Fund share transactions (Note 6) | 6,462,180 | 22,212,754 |
| | |
Total increase | 3,689,586 | 28,605,882 |
|
Net assets | | |
|
Beginning of period | 41,054,427 | 12,448,545 |
| | |
End of period | $44,744,013 | $41,054,427 |
| | |
Undistributed net investment income | $193,210 | $29,071 |
| | |
See notes to financial statements | Semiannual report | U.S. Core Fund | 23 |
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 | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
| | | | | |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $17.06 | $12.25 | $19.42 | $22.24 | $20.00 |
Net investment income3 | 0.05 | 0.11 | 0.15 | 0.16 | 0.12 |
Net realized and unrealized gain (loss) on investments | (1.06) | 4.76 | (7.19) | (1.88) | 2.41 |
Total from investment operations | (1.01) | 4.87 | (7.04) | (1.72) | 2.53 |
Less distributions | | | | | |
From net investment income | — | (0.06) | (0.13) | (0.17) | (0.09) |
From net realized gain | — | — | — | (0.93) | (0.20) |
Total distributions | — | (0.06) | (0.13) | (1.10) | (0.29) |
Net asset value, end of period | $16.05 | $17.06 | $12.25 | $19.42 | $22.24 |
Total return (%)4,5,9 | (5.92)6 | 39.78 | (36.34) | (8.16) | 12.646 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $24 | $22 | $11 | $18 | $19 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 1.517 | 1.768 | 1.75 | 1.86 | 1.937 |
Expenses net of fee waivers | 1.357 | 1.358 | 1.35 | 1.34 | 1.347 |
Expenses net of fee waivers and credits | 1.357 | 1.358 | 1.35 | 1.34 | 1.347 |
Net investment income | 0.597 | 0.72 | 0.86 | 0.70 | 0.767 |
Portfolio turnover (%) | 51 | 44 | 61 | 81 | 36 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class A shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
9 Does not reflect the effect of sales charges, if any.
| | |
24 | U.S. Core Fund | Semiannual report | See notes to financial statements |
| | | | | |
CLASS B SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
| | | | | |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $17.02 | $12.26 | $19.38 | $22.20 | $20.00 |
Net investment income (loss)3 | (0.01) | 0.01 | 0.04 | —4 | 0.02 |
Net realized and unrealized gain (loss) on investments | (1.05) | 4.75 | (7.16) | (1.88) | 2.40 |
Total from investment operations | (1.06) | 4.76 | (7.12) | (1.88) | 2.42 |
From net investment income | — | — | — | (0.01) | (0.02) |
From net realized gain | — | — | — | (0.93) | (0.20) |
Total distributions | — | — | — | (0.94) | (0.22) |
Net asset value, end of period | $15.96 | $17.02 | $12.26 | $19.38 | $22.20 |
Total return (%)5,6,12 | (6.23)7 | 38.83 | (36.74) | (8.84) | 12.077 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | —8 | —8 | —8 | —8 | —8 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 4.039 | 7.6710 | 8.79 | 6.98 | 13.589 |
Expenses net of fee waivers | 2.059 | 2.0810 | 2.40 | 2.05 | 2.049 |
Expenses net of fee waivers and credits | 2.059 | 2.0510 | 2.05 | 2.05 | 2.049 |
Net investment income (loss) | (0.09)9 | 0.03 | 0.24 | —11 | 0.129 |
Portfolio turnover (%) | 51 | 44 | 61 | 81 | 36 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class B shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Less than $0.005 per share.
5 Assumes dividend reinvestment (if applicable).
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
11 Less than 0.005%.
12 Does not reflect the effect of sales charges, if any.
| | | | | |
CLASS C SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
| | | | | |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $17.01 | $12.26 | $19.39 | $22.21 | $20.00 |
Net investment income (loss)3 | (0.01) | —4 | 0.01 | —5 | 0.03 |
Net realized and unrealized gain (loss) on investments | (1.05) | 4.75 | (7.14) | (1.88) | 2.40 |
Total from investment operations | (1.06) | 4.75 | (7.13) | (1.88) | 2.43 |
From net investment income | — | — | — | (0.01) | (0.02) |
From net realized gain | — | — | — | (0.93) | (0.20) |
Total distributions | — | — | — | (0.94) | (0.22) |
Net asset value, end of period | $15.95 | $17.01 | $12.26 | $19.39 | $22.21 |
Total return (%)6,7,12 | (6.23)8 | 38.74 | (36.77) | (8.84) | 12.128 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $2 | $2 | $1 | $3 | $3 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 2.599 | 3.9210 | 3.43 | 2.94 | 3.829 |
Expenses net of fee waivers | 2.059 | 2.0610 | 2.07 | 2.05 | 2.049 |
Expenses net of fee waivers and credits | 2.059 | 2.0510 | 2.05 | 2.05 | 2.049 |
Net investment income (loss) | (0.09)9 | —11 | 0.06 | (0.01) | 0.169 |
Portfolio turnover (%) | 51 | 44 | 61 | 81 | 36 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class C shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Less than ($0.005) per share.
5 Less than $0.005 per share.
6 Assumes dividend reinvestment (if applicable).
7 Total returns would have been lower had certain expenses not been reduced during the periods shown.
8 Not annualized.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
11 Less than (0.005%).
12 Does not reflect the effect of sales charges, if any.
| | |
See notes to financial statements | Semiannual report | U.S. Core Fund | 25 |
| | | | | |
CLASS I SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
| | | | | |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $17.06 | $12.25 | $19.43 | $22.26 | $20.00 |
Net investment income3 | 0.09 | 0.16 | 0.21 | 0.25 | 0.18 |
Net realized and unrealized gain (loss) on investments | (1.06) | 4.79 | (7.19) | (1.89) | 2.41 |
Total from investment operations | (0.97) | 4.95 | (6.98) | (1.64) | 2.59 |
Less distributions | | | | | |
From net investment income | — | (0.14) | (0.20) | (0.26) | (0.13) |
From net realized gain | — | — | — | (0.93) | (0.20) |
Total distributions | — | (0.14) | (0.20) | (1.19) | (0.33) |
Net asset value, end of period | $16.09 | $17.06 | $12.25 | $19.43 | $22.26 |
Total return (%)4,5 | (5.69)6 | 40.35 | (36.06) | (7.82) | 12.956 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $18 | $16 | —7 | —7 | —7 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 1.158 | 1.399 | 10.44 | 12.79 | 17.838 |
Expenses net of fee waivers | 0.888 | 0.879 | 0.95 | 0.95 | 0.958 |
Expenses net of fee waivers and credits | 0.888 | 0.879 | 0.95 | 0.95 | 0.958 |
Net investment income | 1.078 | 0.94 | 1.19 | 1.10 | 1.168 |
Portfolio turnover (%) | 51 | 44 | 61 | 81 | 36 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class I shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
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.
9 Includes the impact of proxy expenses, which amounted to less than 0.005% of average net assets.
| | | | | |
CLASS R1 SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
| | | | | |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $17.03 | $12.23 | $19.37 | $22.20 | $20.00 |
Net investment income3 | 0.02 | 0.07 | 0.13 | 0.13 | 0.06 |
Net realized and unrealized gain (loss) on investments | (1.06) | 4.73 | (7.16) | (1.88) | 2.42 |
Total from investment operations | (1.04) | 4.80 | (7.03) | (1.75) | 2.48 |
Less distributions | | | | | |
From net investment income | — | —4 | (0.11) | (0.15) | (0.08) |
From net realized gain | — | — | — | (0.93) | (0.20) |
Total distributions | — | —4 | (0.11) | (1.08) | (0.28) |
Net asset value, end of period | $15.99 | $17.03 | $12.23 | $19.37 | $22.20 |
Total return (%)5,6 | (6.11)7 | 39.28 | (36.37) | (8.32) | 12.387 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | —8 | —8 | —8 | —8 | —8 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 7.999 | 20.8010 | 19.51 | 15.98 | 21.129 |
Expenses net of fee waivers | 1.719 | 1.6610 | 1.95 | 1.45 | 1.699 |
Expenses net of fee waivers and credits | 1.719 | 1.6610 | 1.45 | 1.45 | 1.699 |
Net investment income | 0.239 | 0.43 | 0.76 | 0.59 | 0.419 |
Portfolio turnover (%) | 51 | 44 | 61 | 81 | 36 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class R1 shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Less than ($0.005) per share.
5 Assumes dividend reinvestment (if applicable).
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
| | |
26 | U.S. Core Fund | Semiannual report | See notes to financial statements |
| | |
CLASS R3 SHARES Period ended | 8-31-101 | 2-28-102 |
| | |
Per share operating performance | | |
|
Net asset value, end of period | $17.07 | $14.05 |
Net investment income3 | 0.03 | 0.03 |
Net realized and unrealized gain (loss) on investments | (1.07) | 3.01 |
Total from investment operations | (1.04) | 3.04 |
Less distributions | | |
From net investment income | — | (0.02) |
Total distributions | — | (0.02) |
Net asset value, end of period | $16.03 | $17.07 |
Total return (%)4,5 | (6.09)6 | 21.636 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | —7 | —7 |
Ratios (as a percentage of average net assets): | | |
Expenses before reductions | 24.858 | 9.878 |
Expenses net of fee waivers | 1.628 | 1.668 |
Expenses net of fee waivers and credits | 1.628 | 1.668 |
Net investment income | 0.338 | 0.218 |
Portfolio turnover (%) | 51 | 44 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class R3 shares is 5-22-09.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
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.
| | |
CLASS R4 SHARES Period ended | 8-31-101 | 2-28-102 |
|
Per share operating performance | | |
|
Net asset value, beginning of period | $17.06 | $14.05 |
Net investment income3 | 0.05 | 0.06 |
Net realized and unrealized gain (loss) on investments | (1.06) | 3.01 |
Total from investment operations | (1.01) | 3.07 |
Less distributions | | |
From net investment income | — | (0.06) |
Total distributions | — | (0.06) |
Net asset value, end of period | $16.05 | $17.06 |
Total return (%)4,5 | (5.92)6 | 21.876 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | —7 | —7 |
Ratios (as a percentage of average net assets): | | |
Expenses before reductions | 24.588 | 9.618 |
Expenses net of fee waivers | 1.328 | 1.368 |
Expenses net of fee waivers and credits | 1.328 | 1.368 |
Net investment loss | 0.638 | 0.508 |
Portfolio turnover (%) | 51 | 44 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class R4 shares is 5-22-09.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
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 | U.S. Core Fund | 27 |
| | |
CLASS R5 SHARES Period ended | 8-31-101 | 2-28-102 |
| | |
Per share operating performance | | |
|
Net asset value, beginning of period | $17.06 | $14.05 |
Net investment income3 | 0.08 | 0.10 |
Net realized and unrealized gain (loss) on investments | (1.07) | 3.02 |
Total from investment operations | (0.99) | 3.12 |
Less distributions | | |
From net investment income | — | (0.11) |
Total distributions | — | (0.11) |
Net asset value, end of period | $16.07 | $17.06 |
Total return (%)4,5 | (5.80)6 | 22.186 |
|
Ratios and supplemental data | | |
|
Net assets, end of period (in millions) | —7 | —7 |
Ratios (as a percentage of average net assets): | | |
Expenses before reductions | 24.358 | 9.368 |
Expenses net of fee waivers | 1.028 | 1.068 |
Expenses net of fee waivers and credits | 1.028 | 1.068 |
Net investment income | 0.938 | 0.81 |
Portfolio turnover (%) | 51 | 44 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class R5 shares is 5-22-09.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
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.
| | |
28 | U.S. Core Fund | Semiannual report | See notes to financial statements |
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), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek a high total return.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class R1, Class R3, Class R4 and Class R5 shares are available only to certain retirement plans. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, print and postage, registration and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.
Affiliates of the Fund owned 53%, 95%, 100%, 100% and 100% of shares of beneficial interest of Class A, Class R1, Class R3, Class R4 and Class R5, respectively, on August 31, 2010.
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. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these techniques are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes significant unobservable inputs wh en market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| |
Semiannual report | U.S. Core Fund | 29 |
The following is a summary of the values by input classification of the Fund’s investments as of August 31, 2010, by major security category or type:
| | | | |
| | | | LEVEL 3 |
| | | LEVEL 2 | SIGNIFICANT |
| TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE |
| VALUE AT 8-31-10 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS |
|
Common Stocks | | | | |
Consumer Discretionary | $4,038,813 | $4,038,813 | — | — |
|
Consumer Staples | 7,649,048 | 7,649,048 | — | — |
|
Energy | 1,956,370 | 1,956,370 | — | — |
|
Financials | 2,233,791 | 2,233,791 | — | — |
|
Health Care | 11,298,635 | 11,298,635 | — | — |
|
Industrials | 2,902,143 | 2,902,143 | — | — |
|
Information Technology | 10,251,185 | 10,251,185 | — | — |
|
Materials | 619,617 | 619,617 | — | — |
Telecommunication | | | | |
Services | 523,451 | 523,451 | — | — |
|
Utilities | 80,765 | 80,765 | — | — |
|
Short-Term Investments | 3,668,016 | 3,368,044 | $299,972 | — |
|
|
Total Investments in | | | | |
Securities | $45,221,834 | $44,921,862 | $299,972 | — |
Other Financial | | | | |
Instruments | | | | |
|
Futures | (67,812) | (67,812) | — | — |
|
Totals | $45,154,022 | $44,854,050 | $299,972 | — |
During the six months ended August 31, 2010, there were no significant transfers in or out of Level 1 or Level 2 assets.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Certain 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. Certain short-term securities are valued at amortized cost. John Hancock Collateral Investment Trust (JHCIT), an affiliate of the Fund, is valued at its closing net asset value (NAV). JHCIT has a floating NAV and invests in short-term investments as part of a securities lending program.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by 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. Significant market events that affect the values of non-U.S. securities may occur after the time when the valuation of the securities is generally determined and the close of the NYSE. During significant market events, these securities will be valued at fair value, as determined in good faith, following procedures established by the Board of Trustees. The Fund may use a fair valuation model to value non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is
| |
30 | U.S. Core Fund | Semiannual report |
accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date.
Securities lending. The Fund may lend its securities to earn additional income. It receives and maintains cash collateral received from the borrower in an amount not less than the market value of the loaned securities. The Fund will invest its collateral in JHCIT, as a result, the Fund will receive the benefit of any gains and bear any losses generated by JHCIT. Although risk of the loss of the securities lent is mitigated by holding the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. The Fund may receive compensation for lending its securities by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Income received from JHCIT is a component of securities lending income as re corded on the Statement of Operations.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to a Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with the custodian which enables them to participate in a $100 million unsecured committed line of credit. Prior to March 31, 2010, the amount of the line of credit was $150 million. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis based on their relative average net assets. For the six months ended August 31, 2010, the Fund had no significant borrowings under the line of credit.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage fees, for all classes are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Federal income taxes. The Fund intends to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has a capital loss carryforward of $3,548,509 available to offset future net realized capital gains as of February 28, 2010. The loss carryforward expires as follows: February 28, 2017 — $1,129,413 and February 28, 2018 — $2,419,096.
As of February 28, 2010, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure. The Fund’s federal tax return is subject to examination by the Internal Revenue Service for a period of three years.
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Semiannual report | U.S. Core Fund | 31 |
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares and pays dividends and capital gain distributions, if any, at least annually.
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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a tax return of capital.
Capital accounts within financial statements are adjusted for permanent book/tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book/tax differences, if any, will reverse in a subsequent period.
Note 3 — Derivative instruments
The Fund may invest in derivatives, including futures contracts in order to meet its investment objectives. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, derivatives expose the Fund to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
For more information regarding the Fund’s use of derivatives, please refer to the Fund’s Prospectuses and Statement of Additional Information.
Futures. A futures contract is a contractual agreement to buy or sell a particular commodity, currency, or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates and potential losses in excess of the Fund’s initial investment.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (variation margin) is recorded by the Fund.
During the six months ended August 31, 2010, the Fund used futures contracts to maintain diversity and liquidity of the portfolio. The following table summarizes the contracts held at August 31, 2010. The range of futures contracts absolute notional amounts held by the Fund during the six months ended August 31, 2010 was $1.3 million to $1.9 million.
| | | | | |
OPEN | NUMBER OF | | | | UNREALIZED |
CONTRACTS | CONTRACTS | POSITION | EXPIRATION DATE | NOTIONAL VALUE | DEPRECIATION |
|
S&P 500 E-Mini Index | 35 | Long | Sept 2010 | $1,902,334 | ($67,812) |
Futures | | | | | |
| |
32 | U.S. Core Fund | Semiannual report |
Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the Fund at August 31, 2010 by risk category:
| | | | |
| | FINANCIAL | ASSET | LIABILITY |
| STATEMENT OF ASSETS AND | INSTRUMENTS | DERIVATIVES | DERIVATIVES |
RISK | LIABILITIES LOCATION | LOCATION | FAIR VALUE | FAIR VALUE |
|
Equity Contracts | Receivable for futures | Futures† | — | ($67,812) |
† Reflects cumulative appreciation/depreciation of future as disclosed in Note 3. Only the period end variation margin is separately disclosed on the Statement of Assets and Liabilities.
Effect of derivative instruments on the Statement of Operations
The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended August 31, 2010:
| | | | |
| STATEMENT OF | | | |
| OPERATIONS | FUTURES | | |
RISK | LOCATION | CONTRACTS | | |
| | |
Equity Contracts | Net realized gain | $45,344 | | |
| (loss) on | | | |
The table below summarizes the net change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended August 31, 2010:
| | | | |
| STATEMENT OF | | | |
| OPERATIONS | FUTURES | | |
RISK | LOCATION | CONTRACTS | | |
| | |
Equity Contracts | Change in | ($85,959) | | |
| unrealized | | | |
| appreciation | | | |
| (depreciation) of | | | |
| | |
Note 4 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Trust. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management contract with the Adviser under which the Fund pays a daily 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 average daily net assets; (b) 0.76% of the next $500,000,000; (c) 0.75% of the next $1,000,000,000; (d) 0.74% of the next $1,000,000,000; and (e) 0.72% of the Fund’s average daily net assets in excess of $3,000,000,000. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
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Semiannual report | U.S. Core Fund | 33 |
The investment management fees incurred for the six months ended August 31, 2010 were equivalent to an annual effective rate of 0.78% of the Fund’s average daily net assets.
Effective July 1, 2010, the Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.35%, 2.05%, 2.05%, 0.89%, 1.64%, 1.54%, 1.24% and 0.94% for Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4 and Class R5 shares, respectively. The fee waivers and/or reimbursements will continue in effect until June 30, 2011.
Prior to July 1, 2010, the Adviser had contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excluded taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements were such that these expenses will not exceed 1.35%, 2.05%, 2.05%, 0.87%, 1.75%, 1.65%, 1.35% and 1.05% for Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4 and Class R5 shares, respectively.
Effective June 26, 2010, the Adviser has voluntarily agreed to waive fees and/or reimburse certain other fund level expenses. This agreement excludes advisory, interest, overdraft, litigation, Rule 12b-1, class specific and other extraordinary expenses not incurred in the ordinary course of business. The fee waivers and/or reimbursement are such that these expenses will not exceed 0.04% of average daily net assets. During the period from May 1, 2010 to June 26, 2010, the fee waiver and/or reimbursement was such that these expenses did not exceed 0.09% of average daily net assets.
Accordingly, these expense reductions amounted to $20,181, $4,025, $5,338, $23,436, $2,982, $3,556, $3,563 and $3,575 for Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4 and Class R5 shares, respectively, for the six months ended August 31, 2010.
Accounting and legal services. Pursuant to the service 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, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended August 31, 2010 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B, Class C, Class R1, Class R3 and Class R4 shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. In addition, under a service plan for Class R1, Class R3, Class R4 and Class R5 shares, the Fund pays for certain other services.
The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
| | | | |
CLASS | 12b-1 FEES | SERVICE FEES | | |
| | |
Class A | 0.30% | — | | |
| | |
Class B | 1.00% | — | | |
| | |
Class C | 1.00% | — | | |
| | |
Class R1 | 0.50% | 0.25% | | |
| | |
Class R3 | 0.50% | 0.15% | | |
| | |
Class R4 | 0.25% | 0.10% | | |
Class R5 | — | 0.05% | | |
| |
34 | U.S. Core Fund | Semiannual report |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $8,316 for the six months ended August 31, 2010. Of this amount, $1,340 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $6,590 was paid as sales commissions to broker-dealers and $386 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
Class B and Class C shares are subject to contingent deferred sales charges (CDSC). Class B shares that are redeemed within six years of purchase are subject to 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 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended August 31, 2010, CDSCs received by the Distributor amounted to $261 and $0 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. Prior to July 1, 2010, the transfer agent fees were made up of three components:
• The Fund paid a monthly transfer agent fee at an annual rate of 0.05% for Class A, Class B, Class C, Class R1, Class R3, Class R4 and Class R5 shares and 0.04% for Class I shares, based on each class’s average daily net assets.
• The Fund paid a monthly fee based on an annual rate of $16.50 per shareholder account.
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Effective July 1, 2010, the transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain revenues that Signature Services received in connection with the service they provide to the funds. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. With in each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the six months ended August 31, 2010 were:
| | | | |
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE FEES |
|
Class A | $36,814 | $18,013 | $3,161 | $3,651 |
|
Class B | 2,032 | 843 | 3,101 | 131 |
|
Class C | 9,945 | 2,243 | 3,097 | 348 |
|
Class I | — | 6,368 | 3,209 | 1,710 |
|
Class R1 | 238 | 332 | 2,677 | 70 |
|
Class R3 | 77 | 315 | 3,230 | 29 |
|
Class R4 | 38 | 315 | 3,230 | 29 |
|
Class R5 | — | 318 | 3,230 | 29 |
Total | $49,144 | $28,747 | $24,935 | $5,997 |
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Semiannual report | U.S. Core Fund | 35 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within other receivables and prepaid assets and Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
Note 6 — Fund share transactions
Transactions in Fund shares for the six months ended August 31, 2010 and for the year ended February 28, 2010 were as follows:
| | | | |
| Six months ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 241,528 | $4,207,307 | 455,553 | $7,151,566 |
Distributions reinvested | — | — | 4,368 | 75,873 |
Repurchased | (72,897) | (1,287,965) | (72,964) | (1,132,654) |
Net increase | 168,631 | $2,919,342 | 386,957 | $6,094,785 |
| | | | |
Class B shares | | | | |
|
Sold | 9,845 | $165,584 | 11,993 | $182,687 |
Repurchased | (2,427) | (41,128) | (5,610) | (86,556) |
Net increase | 7,418 | $124,456 | 6,383 | $96,131 |
| | | | |
Class C shares | | | | |
|
Sold | 29,262 | $501,496 | 68,921 | $1,077,457 |
Repurchased | (4,010) | (66,318) | (21,998) | (334,545) |
Net increase | 25,252 | $435,178 | 46,923 | $742,912 |
| | | | |
Class I shares | | | | |
|
Sold | 292,108 | $4,948,540 | 1,020,503 | $16,466,223 |
Distributions reinvested | — | — | 6,074 | 105,386 |
Repurchased | (114,494) | (1,970,662) | (80,937) | (1,367,705) |
Net increase | 177,614 | $2,977,878 | 945,640 | $15,203,904 |
| | | | |
Class R1 shares | | | | |
|
Sold | 302 | $5,326 | — | — |
Distributions reinvested | — | — | 1 | $22 |
Net increase | 302 | $5,326 | 1 | $22 |
| | | | |
Class R3 shares1 | | | | |
|
Sold | — | — | 1,779 | $25,000 |
Net increase | — | — | 1,779 | $25,000 |
| | | | |
Class R4 shares1 | | | | |
|
Sold | — | — | 1,779 | $25,000 |
Net increase | — | — | 1,779 | $25,000 |
| | | | |
Class R5 shares1 | | | | |
|
Sold | — | — | 1,779 | $25,000 |
Net increase | — | — | 1,779 | $25,000 |
| | | | |
Net increase | 379,217 | $6,462,180 | 1,391,241 | $22,212,754 |
|
|
1 The inception date for Class R3, Class R4 and Class R5 shares is 5-22-09. | | |
| |
36 | U.S. Core Fund | Semiannual report |
Note 7 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $26,804,196 and $21,281,490 respectively, for the six months ended August 31, 2010.
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Semiannual report | U.S. Core Fund | 37 |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock U.S. Core Fund (the Fund), a series of John Hancock Funds III, met in-person on May 2–4 and June 6–8, 2010 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) between the Adviser and Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.
Activities and composition of the Board
The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are unaffiliated with the Fund, the Adviser and the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform the various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have retained independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committees A and B are standing committees of the Board that are each composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee B oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as Chairman of the Board’s Nominating, Governance and Administration Committee. The Board also designates working groups or ad hoc committees as it deems appropriate.
The approval process
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. 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. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.
Prior to the May 2–4, 2010 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information independently compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) as determined by Morningstar, and its benchmark index. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser and its affiliates that result from being the Adviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, under similar investment mandates, as well as the performance of such other clients; (c) the impact of
| |
38 | U.S. Core Fund | Semiannual report |
economies of scale; (d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.
At an in-person meeting held on May 2–4, 2010, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May 2–4, 2010 meeting, the Board presented the Adviser and Subadviser with questions and requests for additional information and the Adviser and Subadviser responded to these requests with additional written information in advance of the June 6–8, 2010 Board meeting. The Board also reviewed these additional materials relating to its consideration of the Agreements.
At an in-person meeting held on June 6–8, 2010, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement between the Adviser and the Subadviser with respect to the Fund, each for an additional one-year term. The Board considered all factors it believed relevant with respect to the Fund, including, among other factors: (a) the nature, extent and quality of the services provided by the Adviser and the Subadviser; (b) the investment performance of the Fund and portfolio management of the Subadviser; (c) the advisory fees and the cost of the services and profits to be realized by the Adviser and certain affiliates from their relationship with the Fund; (d) economies of scale; and (e) other factors.
The Board also considered other matters important to the approval process, such as payments made to the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser, and their affiliates from their relationship with the Fund, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Trustee may have attributed different weights to the various items considered.
The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board, including the Independent Trustees, reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund. The Board reviewed the Adviser’s and Subadviser’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.
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. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.
The Board considered the Subadviser’s history and 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, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.
| |
Semiannual report | U.S. Core Fund | 39 |
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and considered the Adviser’s policies and procedures for assuring compliance with applicable laws and regulations.
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 reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to such other clients under similar investment mandates, the services provided to such other clients as compared to the services provided to the Fund, the performance of such other clients, and other factors relating to such other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and those services they provide to other clients which, to the extent the other client is not a mutual fund, may generally be attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover o f mutual fund assets, the more burdensome regulatory and legal obligations of mutual funds, and the higher marketing costs for mutual funds.
Fund performance
The Board, including the Independent Trustees, reviewed and considered the performance history of the Fund. The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category and Peer Group as well as its benchmark index (see chart below).The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board also considered updated performance information provided by the Adviser at its May and June 2010 meetings. The Board regularly reviews the performance of the Fund throughout the year and attac hes more importance to performance over relatively longer periods of time, typically three to five years.
| | | | |
| 1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR |
|
U.S. Core Fund | 20.18% | –5.95% | N/A | N/A |
|
S&P 500 Index | 26.46% | –5.63% | N/A | N/A |
|
Large Blend Category Median | 27.61% | –5.24% | N/A | N/A |
|
Morningstar 15(c) Peer Group Median | 25.32% | –4.80% | N/A | N/A |
The Board noted that the Subadviser remained consistent with its investment style and adhered to its investment mandates.
The Board considered a presentation on the investment management style of the Subadviser and noted that the Subadviser manages with a quantitative bias towards quality stocks and a momentum style of investing. The Board noted that the Subadviser had historically managed these quantitative factors separately. The Board noted that these investment styles have struggled recently, and that the Subadviser has a history of staying consistent in its management style regardless of the market environment, and that such consistency can be rewarded in the right environment. The Board noted that the Adviser and the Subadviser anticipated an improvement in performance
| |
40 | U.S. Core Fund | Semiannual report |
once the markets begin to favor these investment styles again, and that the Subadviser has revised its process to consider its quantitative investment characteristics as a single discipline. It was finally noted that the Adviser will be closely monitoring the Subadviser’s performance. The Board concluded that the Fund’s underperformance was being responsibly addressed by the Adviser and Subadviser.
Expenses and fees
The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Category and Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other types of clients with similar investment mandates, including separately managed institutional accounts.
In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration 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 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 considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Fund. The Board considered expenses and fee rates to be higher or lower if they were over or under 10 basis points, respectively; slightly higher or slightly lower if they were above or below 6-10 basis points, respectively; and inline if they were above or below by 5 basis points.
The Board noted that the investment advisory rate was inline with the Category median and slightly higher than the Peer Group median. The Board viewed favorably the Adviser’s contractual agreement to waive all or a portion of its Advisory Agreement rate and reimburse or pay operating expenses to the extent necessary to maintain the Fund’s Net Expense Ratio at 1.35% for Class A shares, excluding certain expenses such as taxes, brokerage commissions, interest, litigation and extraordinary expenses, until June 30, 2011.
The Board reviewed the Fund’s Gross Expense Ratio of 1.97% for the Fund’s Class A shares. The Board noted that the Fund’s Gross Expense Ratio was inline with the Peer Group median and higher than the Category median. The Board also noted that the Fund’s Net Expense Ratio was inline with the Peer Group median and higher than the Category median. The Board favorably considered the impact of fee waivers towards ultimately lowering the Fund’s Gross Expense Ratio. The Board also received and considered information relating to the Fund’s Gross Expense Ratio and Net Expense Ratio that reflected a proposed change in the methodology for calculating transfer agent fees.
The Board received and reviewed statements relating to the Adviser’s financial condition and profitability with respect to the services it provides the Fund. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services provided to the Fund. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2009 compared to available aggregate profitability data provided for the year ended December 31, 2008.
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its
| |
Semiannual report | U.S. Core Fund | 41 |
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 reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparability of profitability is somewhat limited.
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 fee under the Subadvisory Agreement had been negotiated by the Adviser and the Subadviser 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 Subadvisory Agreement.
Economies of scale
The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the assets of the Fund. The Board also considered the Adviser’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations.
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 ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Agreement fee rate.
Other benefits to the Adviser and the Subadviser
The Board understands that the Adviser, the Subadviser, or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community, and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.
Board determination
The Board, including the Independent Trustees, unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term and the Subadvisory Agreement between the Adviser and Subadviser with respect to the Fund for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board, including a majority of the Independent Trustees, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at a decision to approve the Agreements, the Board did not identify any single factor listed above, or any group of factors listed above, as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered.
| |
42 | U.S. Core Fund | Semiannual report |
The Independent Trustees were also assisted by the advice of independent legal counsel in making this determination. The Board noted that contractual fee arrangements for the Fund reflect the results of several years of review by the Board and certain predecessor Trustees, and discussions between such Trustees (and predecessor Trustees) and the Adviser. Certain aspects of the arrangements may be the subject of more attention in some years than in others, and the Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years.
| |
Semiannual report | U.S. Core Fund | 43 |
More information
| |
Trustees | Investment adviser |
Patti McGill Peterson, Chairperson | John Hancock Investment Management |
James F. Carlin | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson* | Subadviser |
Charles L. Ladner | Grantham, Mayo, Van Otterloo & Co. LLC |
Stanley Martin* | |
Hugh McHaffie†** | Principal distributor |
Dr. John A. Moore | John Hancock Funds, LLC |
Steven R. Pruchansky* | |
Gregory A. Russo | Custodian |
John G. Vrysen† | State Street Bank and Trust Company |
| |
Officers | Transfer agent |
Keith F. Hartstein | John Hancock Signature Services, Inc. |
President and Chief Executive Officer | |
| Legal counsel |
Andrew G. Arnott | K&L Gates LLP |
Senior Vice President** and Chief Operating Officer | |
| The report is certified under the Sarbanes-Oxley |
Thomas M. Kinzler | Act, which requires mutual funds and other public |
Secretary and Chief Legal Officer | companies to affirm that, to the best of their |
| knowledge, the information in their financial reports |
Francis V. Knox, Jr. | is fairly and accurately stated in all material respects. |
Chief Compliance Officer | |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Salvatore Schiavone** | |
Treasurer | |
|
*Member of the Audit Committee | |
**Effective 8-31-10 | |
†Non-Independent Trustee | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| | |
You can also contact us: | | |
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations |
| Boston, MA 02205-5913 | 30 Dan Road |
| | Canton, MA 02021 |
| |
44 | U.S. 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 U.S. Core Fund. | 650SA 8/10 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/10 |
A look at performance
For the period ended August 31, 2010
| | | | | | | | | | | |
| Average annual total returns (%) | | Cumulative total returns (%) | | |
| with maximum sales charge (POP) | | with maximum sales charge (POP) | | |
|
| | | | Since | | | | | | | Since |
| 1-year | 5-year | 10-year | inception | | 6-months | 1-year | 5-year | 10-year | | inception |
|
Class A1 | –9.86 | — | — | –2.022 | | –8.16 | –9.86 | — | — | | –9.622 |
|
Class B | –10.42 | — | — | –4.103 | | –8.49 | –10.42 | — | — | | –16.203 |
|
Class C | –6.70 | — | — | –3.733 | | –4.63 | –6.70 | — | — | | –14.833 |
|
Class I4 | –4.58 | — | — | –2.583 | | –3.06 | –4.58 | — | — | | –10.463 |
|
Class R14 | –5.46 | — | — | –3.223 | | –3.51 | –5.46 | — | — | | –12.923 |
|
Class R34 | –5.39 | — | — | 6.605 | | –3.45 | –5.39 | — | — | | 8.525 |
|
Class R44 | –5.10 | — | — | 6.925 | | –3.33 | –5.10 | — | — | | 8.945 |
|
Class R54 | –4.84 | — | — | 7.245 | | –3.18 | –4.84 | — | — | | 9.355 |
|
Class 14 | –4.59 | — | — | –5.836 | | –3.10 | –4.59 | — | — | | –20.486 |
|
Class NAV4 | –4.55 | — | — | –4.707 | | –3.02 | –4.55 | — | — | | –17.527 |
|
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 shares 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 charges are not applicable for Class I, Class R1, Class R3, Class R4, Class R5, 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 6-30-11. The net expenses are as follows: Class A — 1.60%, Class B — 2.30%, Class C — 2.30%, Class R1 — 1.89%, Class R3 — 1.79%, Class R4 — 1.49% and Class R5 — 1.19%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 1.62%, Class B — 2.62%, Class C — 2.51%, Class R1 — 8.19%, Class R3 — 8.46%, Class R4 — 8.20% and Class R5 — 7.95%. For the other classes, the net expenses equal the gross expenses and are as follows: Cl ass I — 1.05%, Class NAV — 1.01% and Class 1 — 1.05%.
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.
1 On 6-9-06, through a reorganization, the Fund acquired all of the assets of the GMO International Disciplined Equity Fund (the predecessor fund). The predecessor fund offered its Class III shares, inception date 9-16-05, in exchange for Class A shares, which were first offered on 6-12-06. The predecessor fund’s Class III shares returns have been recalculated to reflect the gross fees and expenses of Class A shares.
2 From 9-16-05.
3 From 6-12-06.
4 For certain types of investors, as described in the Fund’s Class I, Class R1, Class R3, Class R4, Class R5, Class 1 and Class NAV share prospectuses.
5 From 5-22-09.
6 From 11-6-06.
7 From 8-29-06.
| |
6 | International Core Fund | Semiannual report |
| | | | |
| Period | Without | With maximum | |
| beginning | sales charge | sales charge | Index |
|
Class B | 6-12-06 | $8,517 | $8,380 | $9,324 |
|
Class C3 | 6-12-06 | 8,517 | 8,517 | 9,324 |
|
Class I4 | 6-12-06 | 8,954 | 8,954 | 9,324 |
|
Class R14 | 6-12-06 | 8,708 | 8,708 | 9,324 |
|
Class R34 | 5-22-09 | 10,852 | 10,852 | 11,555 |
|
Class R44 | 5-22-09 | 10,894 | 10,894 | 11,555 |
|
Class R54 | 5-22-09 | 10,935 | 10,935 | 11,555 |
|
Class 14 | 11-6-06 | 7,952 | 7,952 | 8,282 |
|
Class NAV4 | 8-29-06 | 8,248 | 8,248 | 8,669 |
|
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 R3, Class R4, Class R5, Class 1 and Class NAV shares, respectively, as of 8-31-10. 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 Index (gross of foreign withholding tax on dividends) (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. The index consists of 21 developed market country indexes. 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 On 6-9-06, through a reorganization, the Fund acquired all of the assets of the GMO International Disciplined Equity Fund (the predecessor fund). The predecessor fund offered its Class III shares, inception date 9-16-05, in exchange for Class A shares, which were first offered on 6-12-06. The predecessor fund’s Class III shares returns have been recalculated to reflect the gross fees and expenses of Class A shares.
2 NAV represents net asset value and POP represents public offering price.
3 The contingent deferred sales charge, if any, is not applicable.
4 For certain types of investors, as described in the Fund’s Class I, Class R1, Class R3, Class R4, Class R5, 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, 2010 with the same investment held until August 31, 2010.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $966.60 | $7.78 |
|
Class B | 1,000.00 | 963.30 | 11.38 |
|
Class C | 1,000.00 | 963.30 | 11.38 |
|
Class I | 1,000.00 | 969.40 | 5.36 |
|
Class R1 | 1,000.00 | 964.90 | 9.71 |
|
Class R3 | 1,000.00 | 965.50 | 9.26 |
|
Class R4 | 1,000.00 | 966.70 | 7.78 |
|
Class R5 | 1,000.00 | 968.20 | 6.30 |
|
Class 1 | 1,000.00 | 969.00 | 5.26 |
|
Class NAV | 1,000.00 | 969.80 | 5.06 |
|
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, 2010, 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, 2010, with the same investment held until August 31, 2010. 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 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $1,017.30 | $7.98 |
|
Class B | 1,000.00 | 1,013.60 | 11.67 |
|
Class C | 1,000.00 | 1,013.60 | 11.67 |
|
Class I | 1,000.00 | 1,019.80 | 5.50 |
|
Class R1 | 1,000.00 | 1,015.30 | 9.96 |
|
Class R3 | 1,000.00 | 1,015.80 | 9.50 |
|
Class R4 | 1,000.00 | 1,017.30 | 7.98 |
|
Class R5 | 1,000.00 | 1,018.80 | 6.46 |
|
Class 1 | 1,000.00 | 1,019.90 | 5.40 |
|
Class NAV | 1,000.00 | 1,020.10 | 5.19 |
|
Remember, these examples do not include any transaction costs, 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 1.57%, 2.30%, 2.30%, 1.08%, 1.96%, 1.87%, 1.57%, 1.27%, 1.06% and 1.02% for Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4, Class R5, Class 1 and Class NAV, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
| |
Semiannual report | International Core Fund | 9 |
Portfolio summary
| | | | |
Top 10 Holdings1 | | | | |
|
GlaxoSmithKline PLC | 3.2% | | Nestle SA | 1.8% |
| |
|
AstraZeneca PLC | 2.5% | | Royal Dutch Shell PLC, A Shares | 1.6% |
| |
|
Novartis AG | 2.4% | | Takeda Pharmaceutical Company, Ltd. | 1.3% |
| |
|
Sanofi-Aventis SA | 2.0% | | Vodafone Group PLC | 1.2% |
| |
|
Eni SpA | 1.8% | | Total SA | 1.2% |
| |
|
|
Sector Composition2,3 | | | | |
|
Financials | 16% | | Materials | 8% |
| |
|
Health Care | 15% | | Telecommunication Services | 6% |
| |
|
Consumer Discretionary | 14% | | Information Technology | 5% |
| |
|
Industrials | 11% | | Utilities | 4% |
| |
|
Energy | 10% | | Short-Term Investments & Other | 3% |
| |
|
Consumer Staples | 8% | | | |
| | |
1 As a percentage of net assets on 8-31-10. Excludes cash and cash equivalents.
2 International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. 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.
3 As a percentage of net assets on 8-31-10.
| |
10 | International Core Fund | Semiannual report |
Fund’s investments
As of 8-31-10 (unaudited)
| | |
| Shares | Value |
Common Stocks 96.48% | $1,201,421,912 |
|
(Cost $1,335,577,405) | | |
| | |
Australia 4.22% | | 52,530,181 |
|
Australia & New Zealand Banking Group, Ltd. | 30,691 | 620,856 |
|
BlueScope Steel, Ltd. (I) | 1,094,561 | 2,092,582 |
|
Commonwealth Bank of Australia | 296,827 | 13,325,064 |
|
Dexus Property Group | 1,170,131 | 866,031 |
|
General Property Trust, Ltd. | 781,431 | 2,075,651 |
|
Goodman Fielder, Ltd. | 711,113 | 847,025 |
|
Goodman Group | 3,608,277 | 2,049,257 |
|
ING Office Fund | 2,625,676 | 1,405,117 |
|
Macquarie Infrastructure Group (I) | 614,454 | 805,644 |
|
Macquarie Office Trust (I) | 4,928,280 | 1,076,994 |
|
Mirvac Group, Ltd. | 1,274,507 | 1,527,297 |
|
National Australia Bank, Ltd. | 111,248 | 2,311,435 |
|
Pacific Brands, Ltd. (I) | 970,438 | 905,098 |
|
Qantas Airways, Ltd. (I) | 504,911 | 1,130,795 |
|
Rio Tinto, Ltd. | 60,897 | 3,812,391 |
|
Stockland | 907,935 | 3,189,039 |
|
Suncorp-Metway, Ltd. | 283,317 | 2,110,097 |
|
TABCORP Holdings, Ltd. | 233,158 | 1,327,110 |
|
Telstra Corp., Ltd. | 1,680,706 | 4,120,367 |
|
Woodside Petroleum, Ltd. | 116,752 | 4,361,203 |
|
Woolworths, Ltd. | 104,183 | 2,571,128 |
| | |
Austria 0.59% | | 7,341,419 |
|
Erste Group Bank AG | 38,944 | 1,404,599 |
|
Immofinanz AG (I)(L) | 395,708 | 1,293,740 |
|
OMV AG | 104,201 | 3,344,992 |
|
Raiffeisen International Bank Holding AG (L) | 31,763 | 1,298,088 |
| | |
Belgium 1.23% | | 15,329,684 |
|
Ageas | 740,603 | 1,876,074 |
|
Anheuser-Busch InBev NV | 41,858 | 2,174,510 |
|
Belgacom SA | 80,430 | 2,859,368 |
|
Colruyt SA | 9,049 | 2,237,724 |
|
Delhaize Group SA | 25,808 | 1,729,262 |
|
Dexia SA (I)(L) | 315,923 | 1,316,736 |
|
Mobistar SA | 19,088 | 1,068,675 |
|
Nyrstar | 106,444 | 1,137,649 |
|
Umicore | 26,854 | 929,686 |
| | |
See notes to financial statements | Semiannual report | International Core Fund | 11 |
| | |
| Shares | Value |
Bermuda 0.11% | | $1,401,755 |
|
Golden Ocean Group, Ltd. (L) | 509,800 | 652,783 |
|
Lancashire Holdings, Ltd. | 91,502 | 748,972 |
| | |
Canada 1.84% | | 22,890,855 |
|
Bank of Montreal | 56,600 | 3,126,309 |
|
BCE, Inc. | 26,900 | 841,800 |
|
Canadian Pacific Railway, Ltd. (L) | 12,400 | 730,383 |
|
EnCana Corp. | 153,700 | 4,215,994 |
|
IGM Financial, Inc. | 38,700 | 1,453,496 |
|
Magna International, Inc. (L) | 43,500 | 3,387,481 |
|
Methanex Corp. | 44,600 | 951,935 |
|
Metro, Inc. | 33,900 | 1,435,032 |
|
National Bank of Canada | 23,065 | 1,331,967 |
|
RONA, Inc. (I) | 50,200 | 595,517 |
|
Sun Life Financial, Inc. | 69,300 | 1,627,301 |
|
Teck Resources, Ltd., Class B | 81,400 | 2,722,875 |
|
Western Coal Corp. | 125,500 | 470,765 |
| | |
Denmark 1.14% | | 14,209,178 |
|
D.S. Norden A/S | 13,905 | 522,532 |
|
Danisco A/S | 12,626 | 907,463 |
|
Danske Bank A/S (I) | 58,605 | 1,299,417 |
|
Novo Nordisk A/S | 133,951 | 11,479,766 |
| | |
Finland 0.80% | | 9,892,310 |
|
Metso Oyj | 58,864 | 2,139,446 |
|
Neste Oil Oyj (L) | 83,552 | 1,121,808 |
|
Nokia AB Oyj | 258,369 | 2,209,030 |
|
Outokumpu Oyj | 25,927 | 421,755 |
|
Rautaruukki Oyj (L) | 28,499 | 498,570 |
|
Sampo Oyj, A Shares | 39,726 | 955,578 |
|
Stora Enso Oyj, Series R | 200,901 | 1,546,750 |
|
YIT Oyj | 48,411 | 999,373 |
| | |
France 9.29% | | 115,671,435 |
|
Air Liquide SA | 16,692 | 1,729,650 |
|
BNP Paribas | 240,356 | 14,950,872 |
|
Carrefour SA | 23,805 | 1,077,575 |
|
Casino Guichard Perrachon SA | 14,172 | 1,144,706 |
|
Cie Generale de Geophysique-Veritas (I) | 52,050 | 876,042 |
|
Dassault Systemes SA | 24,048 | 1,447,064 |
|
Essilor International SA | 47,992 | 2,908,425 |
|
Eutelsat Communications | 16,060 | 576,206 |
|
France Telecom SA (L) | 135,542 | 2,747,925 |
|
Hermes International SA | 15,810 | 2,859,695 |
|
L’Oreal SA | 28,066 | 2,784,480 |
|
Lagardere S.C.A | 65,191 | 2,341,182 |
|
LVMH Moet Hennessy Louis Vuitton SA | 47,964 | 5,552,130 |
| | |
12 | International Core Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
France (continued) | | |
|
Natixis (I) | 222,011 | $1,202,428 |
|
Nexans SA | 17,310 | 1,032,868 |
|
PagesJaunes Groupe SA (L) | 69,370 | 658,242 |
|
Peugeot SA (I) | 40,568 | 1,061,147 |
|
PPR | 17,043 | 2,211,306 |
|
Renault SA (I) | 86,700 | 3,506,012 |
|
Rhodia SA | 137,543 | 2,568,972 |
|
Sanofi-Aventis SA | 430,776 | 24,627,287 |
|
Schneider Electric SA | 22,415 | 2,366,837 |
|
Societe Generale | 140,396 | 7,099,911 |
|
SOITEC (I)(L) | 74,598 | 629,606 |
|
Technip SA | 43,799 | 2,855,866 |
|
Total SA | 331,243 | 15,424,203 |
|
Valeo SA (I) | 39,937 | 1,387,208 |
|
Vallourec SA | 13,170 | 1,126,142 |
|
Vivendi SA | 240,160 | 5,582,434 |
|
Wendel | 26,070 | 1,335,014 |
| | |
Germany 4.31% | | 53,684,969 |
|
Adidas AG | 15,142 | 768,530 |
|
Aixtron AG (L) | 72,301 | 1,787,033 |
|
BASF SE | 103,773 | 5,432,435 |
|
Bayerische Motoren Werke (BMW) AG | 40,851 | 2,140,861 |
|
Beiersdorf AG | 11,358 | 604,611 |
|
Bilfinger Berger AG | 10,759 | 639,447 |
|
Daimler AG (I) | 97,865 | 4,743,291 |
|
Deutsche Post AG | 42,756 | 694,345 |
|
Deutsche Telekom AG | 86,982 | 1,140,532 |
|
E.ON AG | 129,255 | 3,619,319 |
|
Heidelberger Druckmaschinen AG (I)(L) | 41,808 | 321,420 |
|
Hochtief AG | 12,087 | 797,138 |
|
Infineon Technologies AG (I) | 755,344 | 4,167,846 |
|
Kloeckner & Company SE (I) | 67,574 | 1,310,625 |
|
Lanxess AG | 64,802 | 2,829,143 |
|
MAN AG | 10,204 | 876,062 |
|
Metro AG | 13,507 | 686,109 |
|
MTU Aero Engines Holding AG | 36,539 | 2,028,787 |
|
Muenchener Rueckversicherungs - Gesellschaft AG | 6,258 | 795,338 |
|
Norddeutsche Affinerie AG | 44,282 | 1,754,261 |
|
Puma AG | 4,537 | 1,219,887 |
|
RWE AG | 19,638 | 1,279,048 |
|
Salzgitter AG | 31,388 | 1,902,724 |
|
SAP AG | 164,777 | 7,168,488 |
|
Siemens AG | 17,080 | 1,549,140 |
|
Software AG | 17,094 | 1,781,436 |
|
Suedzucker AG | 62,829 | 1,141,454 |
|
Symrise AG | 20,518 | 505,659 |
| | |
See notes to financial statements | Semiannual report | International Core Fund | 13 |
| | |
| Shares | Value |
Greece 0.49% | | $6,139,134 |
|
Alpha Bank A.E. (I) | 164,087 | 1,056,929 |
|
National Bank of Greece SA (I) | 199,476 | 2,530,594 |
|
OPAP SA | 135,035 | 2,042,366 |
|
Public Power Corp. SA | 35,716 | 509,245 |
| | |
Hong Kong 1.49% | | 18,581,105 |
|
CLP Holdings, Ltd. | 705,199 | 5,385,092 |
|
Esprit Holdings, Ltd. | 184,795 | 1,044,346 |
|
Hong Kong & China Gas Company, Ltd. | 713,130 | 1,723,597 |
|
Hong Kong Electric Holdings, Ltd. | 607,854 | 3,699,548 |
|
Li & Fung, Ltd. | 124,000 | 624,658 |
|
Noble Group, Ltd. | 1,503,727 | 1,748,421 |
|
Pacific Basin Shipping, Ltd. | 2,371,000 | 1,619,450 |
|
Swire Pacific, Ltd., Class A | 83,500 | 1,009,217 |
|
Yue Yuen Industrial Holdings, Ltd. | 526,718 | 1,726,776 |
| | |
Ireland 0.88% | | 10,966,198 |
|
C&C Group PLC | 294,438 | 1,146,602 |
|
CRH PLC | 159,414 | 2,463,358 |
|
DCC PLC | 60,236 | 1,506,638 |
|
Experian PLC | 136,088 | 1,298,100 |
|
Kerry Group PLC | 66,229 | 2,172,638 |
|
Paddy Power PLC | 23,715 | 822,400 |
|
Shire PLC | 72,130 | 1,556,462 |
| | |
Israel 0.25% | | 3,150,893 |
|
Bezek Israeli Telecommunications Corp., Ltd. | 647,541 | 1,431,229 |
|
Israel Chemicals, Ltd. | 68,518 | 869,213 |
|
Partner Communications Company, Ltd. | 51,011 | 850,451 |
| | |
Italy 5.48% | | 68,227,162 |
|
Azimut Holding SpA | 92,596 | 791,495 |
|
Bulgari SpA (L) | 223,744 | 1,645,796 |
|
Enel SpA | 2,816,706 | 13,364,442 |
|
Eni SpA | 1,139,958 | 22,529,639 |
|
Finmeccanica SpA | 41,892 | 419,531 |
|
Fondiaria-Sai SpA | 76,894 | 729,846 |
|
Italcementi SpA - RSP | 38,152 | 154,698 |
|
Luxottica Group SpA | 32,639 | 751,294 |
|
Mediaset SpA | 205,570 | 1,270,390 |
|
Milano Assicurazioni SpA | 129,493 | 224,650 |
|
Parmalat SpA | 772,825 | 1,853,449 |
|
Recordati SpA | 105,623 | 828,913 |
|
Saipem SpA | 80,675 | 2,809,313 |
|
Snam Rete Gas SpA | 485,884 | 2,245,971 |
|
Telecom Italia SpA | 2,035,184 | 2,743,350 |
|
Telecom Italia SpA, RSP | 3,983,387 | 4,366,274 |
|
Terna Rete Elettrica Nazionale SpA | 419,339 | 1,683,535 |
|
UniCredit Italiano SpA | 4,211,722 | 9,814,576 |
| | |
14 | International Core Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Japan 23.73% | | $295,557,641 |
|
Advance Residence Investment Corp. | 247 | 385,041 |
|
Advantest Corp. | 26,200 | 494,849 |
|
AEON Credit Service Company, Ltd. | 115,200 | 1,214,010 |
|
Aiful Corp. (I)(L) | 418,000 | 520,809 |
|
Aisin Seiki Company, Ltd. | 36,300 | 940,756 |
|
Alps Electric Company, Ltd. (I) | 298,946 | 2,069,684 |
|
Asahi Glass Company, Ltd. | 386,000 | 3,755,617 |
|
Asahi Kasei Corp. | 244,000 | 1,202,312 |
|
Astellas Pharma, Inc. | 170,900 | 5,895,734 |
|
Bank of Yokohama, Ltd. | 182,000 | 789,215 |
|
Canon, Inc. | 75,700 | 3,093,438 |
|
Circle K Sunkus Company, Ltd. | 32,600 | 446,791 |
|
Cosmo Oil Company, Ltd. | 434,000 | 1,041,581 |
|
CyberAgent, Inc. (L) | 994 | 1,590,185 |
|
Daiei, Inc. (I)(L) | 88,450 | 359,021 |
|
Daikyo, Inc. (I)(L) | 607,000 | 856,821 |
|
Dainippon Ink & Chemicals, Inc. | 298,000 | 488,242 |
|
Dainippon Screen Manufacturing Company, Ltd. (I)(L) | 446,000 | 1,947,188 |
|
Daito Trust Construction Company, Ltd. | 88,400 | 5,070,300 |
|
Dena Company, Ltd. | 87,400 | 2,614,394 |
|
Denki Kagaku Kogyo Kabushiki Kaisha | 246,000 | 987,105 |
|
Don Quijote Company, Ltd. (L) | 56,800 | 1,386,338 |
|
Dowa Holdings Company, Ltd. | 355,000 | 1,841,159 |
|
Ebara Corp. (I) | 267,000 | 1,062,648 |
|
Eisai Company, Ltd. (L) | 61,780 | 2,225,041 |
|
Electric Power Development Company, Ltd. | 36,200 | 1,165,075 |
|
Elpida Memory, Inc. (I)(L) | 158,000 | 1,908,572 |
|
Fanuc, Ltd. | 56,200 | 6,058,674 |
|
Fast Retailing Company, Ltd. | 21,300 | 2,947,763 |
|
Fuji Electric Holdings Company, Ltd. | 167,000 | 411,993 |
|
Fuji Heavy Industries, Ltd. (I) | 425,116 | 2,382,076 |
|
Fuji Oil Company, Ltd. | 48,500 | 747,022 |
|
Fujikura, Ltd. | 211,000 | 914,318 |
|
Fujitsu, Ltd. | 141,000 | 976,337 |
|
Gree, Inc. (L) | 10,500 | 772,163 |
|
Hanwa Company, Ltd. | 243,000 | 877,591 |
|
Haseko Corp. (I) | 1,737,000 | 1,453,354 |
|
Hikari Tsushin, Inc. | 34,500 | 608,174 |
|
Hitachi Construction Machinery Company, Ltd. (L) | 80,300 | 1,602,009 |
|
Hitachi, Ltd. (I) | 1,039,000 | 4,207,272 |
|
Honda Motor Company, Ltd. | 282,712 | 9,319,126 |
|
Inpex Corp. | 219 | 991,084 |
|
Isuzu Motors, Ltd. | 864,000 | 2,859,049 |
|
Itochu Corp. | 387,000 | 3,150,798 |
|
JFE Holdings, Inc. | 47,800 | 1,407,753 |
|
JX Holdings, Inc. (I) | 1,794,300 | 9,086,664 |
|
K’s Holding Corp. | 71,500 | 1,548,904 |
|
Kajima Corp. | 558,000 | 1,313,060 |
| | |
See notes to financial statements | Semiannual report | International Core Fund | 15 |
| | |
| Shares | Value |
Japan (continued) | | |
|
Kakaku.com, Inc. | 85 | $414,880 |
|
Kao Corp. | 207,850 | 4,822,993 |
|
Kawasaki Kisen Kaisha, Ltd. (I) | 684,000 | 2,560,610 |
|
KDDI Corp. | 782 | 3,763,703 |
|
Komatsu, Ltd. | 159,500 | 3,250,516 |
|
Konami Corp. | 52,923 | 849,383 |
|
Kyocera Corp. | 14,000 | 1,186,160 |
|
Lawson, Inc. | 25,100 | 1,143,416 |
|
Leopalace21 Corp. (I)(L) | 313,700 | 674,983 |
|
Marubeni Corp. | 701,824 | 3,607,632 |
|
Mazda Motor Corp. | 1,151,000 | 2,566,445 |
|
Mitsubishi Chemical Holdings Corp. | 295,000 | 1,394,033 |
|
Mitsubishi Corp. | 260,695 | 5,606,592 |
|
Mitsubishi Electric Corp. | 320,000 | 2,562,306 |
|
Mitsubishi UFJ Financial Group | 490,800 | 2,338,291 |
|
Mitsubishi UFJ Lease & Finance Company, Ltd. | 44,510 | 1,588,512 |
|
Mitsui & Company, Ltd. | 139,000 | 1,816,449 |
|
Mitsui Mining & Smelting Company, Ltd. | 507,000 | 1,363,018 |
|
Mitsui O.S.K. Lines, Ltd. | 469,000 | 2,958,688 |
|
Mizuho Financial Group, Inc. | 4,081,200 | 6,251,558 |
|
Net One Systems Company, Ltd. | 375 | 431,891 |
|
Nidec Corp. | 38,600 | 3,405,571 |
|
Nintendo Company, Ltd. | 8,700 | 2,414,239 |
|
Nippon Electric Glass Company, Ltd. | 208,000 | 2,321,719 |
|
Nippon Sheet Glass Company, Ltd. (L) | 182,000 | 397,399 |
|
Nippon Telegraph & Telephone Corp. | 143,700 | 6,179,513 |
|
Nippon Yakin Kogyo Company, Ltd. (I) | 217,500 | 629,406 |
|
Nippon Yusen Kabushiki Kaisha | 826,000 | 3,177,115 |
|
Nissan Motor Company, Ltd. (I) | 1,260,600 | 9,603,007 |
|
Nisshin Seifun Group, Inc. | 34,500 | 442,919 |
|
Nisshinbo Holdings, Inc. | 88,000 | 830,577 |
|
Nitori Company, Ltd. | 24,250 | 2,112,646 |
|
Nitto Denko Corp. | 81,400 | 2,621,029 |
|
NSK, Ltd. | 160,000 | 956,655 |
|
NTT Data Corp. | 347 | 1,082,651 |
|
NTT DoCoMo, Inc. | 4,927 | 8,316,889 |
|
Obayashi Corp. | 298,000 | 1,132,046 |
|
Okuma Holdings, Inc. (I) | 78,000 | 376,610 |
|
Oriental Land Company, Ltd. | 4,300 | 381,074 |
|
ORIX Corp. | 79,400 | 5,958,010 |
|
Osaka Gas Company, Ltd. | 895,120 | 3,375,462 |
|
Pacific Metals Company, Ltd. (L) | 301,000 | 2,156,980 |
|
Pioneer Corp. (I)(L) | 512,200 | 1,513,467 |
|
Point, Inc. | 22,960 | 1,072,399 |
|
Resona Holdings, Inc. (L) | 346,200 | 3,422,068 |
|
Ricoh Company, Ltd. | 144,000 | 1,839,493 |
|
Round One Corp. | 170,800 | 744,005 |
|
Ryohin Keikaku Company, Ltd. | 30,200 | 1,058,262 |
| | |
16 | International Core Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Japan (continued) | | |
|
SANKYO Company, Ltd. | 50,000 | $2,526,496 |
|
Secom Company, Ltd. | 42,000 | 1,831,783 |
|
SEGA SAMMMY HOLDINGS, Inc. | 107,600 | 1,601,521 |
|
Seven & I Holdings Company, Ltd. | 255,300 | 5,823,555 |
|
Shimamura Company, Ltd. | 11,700 | 1,067,172 |
|
Showa Shell Sekiyu KK | 119,300 | 862,998 |
|
Softbank Corp. | 53,000 | 1,517,868 |
|
Sojitz Holdings Corp. | 1,416,100 | 2,283,075 |
|
Sony Corp. | 63,600 | 1,780,095 |
|
Sumco Corp. (I) | 28,200 | 478,184 |
|
Sumitomo Corp. | 323,200 | 3,694,602 |
|
Sumitomo Electric Industries, Ltd. | 56,700 | 607,759 |
|
Sumitomo Heavy Industries, Ltd. | 184,000 | 849,198 |
|
Sumitomo Metal Mining Company, Ltd. | 33,000 | 422,010 |
|
Taisei Corp. | 713,000 | 1,405,335 |
|
Taisho Pharmaceuticals Company, Ltd. | 46,790 | 932,699 |
|
Taiyo Yuden Company, Ltd. (L) | 147,000 | 1,614,508 |
|
Takeda Pharmaceutical Company, Ltd. | 358,389 | 16,447,025 |
|
Takefuji Corp. (L) | 83,020 | 199,150 |
|
TDK Corp. | 23,300 | 1,220,187 |
|
The Sumitomo Trust & Banking Company, Ltd. | 603,841 | 3,205,235 |
|
Toho Zinc Company, Ltd. | 154,000 | 540,404 |
|
Tokyo Gas Company, Ltd. | 304,397 | 1,420,318 |
|
Tokyo Steel Manufacturing Company, Ltd. | 133,300 | 1,452,900 |
|
Tokyo Tatemono Company, Ltd. | 462,000 | 1,611,755 |
|
TonenGeneral Sekiyu KK | 124,133 | 1,120,018 |
|
Tosoh Corp. | 370,000 | 928,378 |
|
Toyota Motor Corp. | 248,500 | 8,433,127 |
|
Toyota Tsusho Corp. | 164,200 | 2,347,819 |
|
Unicharm Corp. | 10,900 | 1,328,132 |
|
UNY Company, Ltd. | 181,200 | 1,327,699 |
|
USS Company, Ltd. | 17,330 | 1,281,640 |
|
Yahoo! Japan Corp. | 1,855 | 666,756 |
|
Yamada Denki Company, Ltd. | 35,020 | 2,179,147 |
|
Yamaha Motor Company, Ltd. (I) | 98,200 | 1,322,649 |
|
Zeon Corp. | 233,000 | 1,566,064 |
| | |
Luxembourg 0.27% | | 3,307,054 |
|
ArcelorMittal | 59,930 | 1,739,996 |
|
Tenaris SA | 93,010 | 1,567,058 |
| | |
Netherlands 3.36% | | 41,806,296 |
|
ASML Holding NV | 62,831 | 1,561,178 |
|
CSM | 40,017 | 1,038,963 |
|
Heineken NV (L) | 104,660 | 4,674,996 |
|
ING Groep NV (I) | 1,629,685 | 14,408,542 |
|
Koninklijke Ahold NV | 79,416 | 975,623 |
|
Koninklijke BAM Groep NV | 310,529 | 1,545,298 |
| | |
See notes to financial statements | Semiannual report | International Core Fund | 17 |
| | |
| Shares | Value |
Netherlands (continued) | | |
|
Koninklijke Boskalis Westinster NV | 44,498 | $1,652,649 |
|
Koninklijke DSM NV | 56,141 | 2,326,221 |
|
Koninklijke Philips Electronics NV | 311,356 | 8,690,852 |
|
Koninklijke Vopak NV | 16,044 | 642,577 |
|
Reed Elsevier NV | 100,104 | 1,196,796 |
|
TomTom NV (I)(L) | 115,014 | 612,171 |
|
Unilever NV (L) | 60,402 | 1,613,757 |
|
Wereldhave NV | 10,529 | 866,673 |
| | |
New Zealand 0.32% | | 3,966,624 |
|
Fletcher Building, Ltd. | 309,172 | 1,622,853 |
|
Telecom Corp. of New Zealand, Ltd. | 1,646,874 | 2,343,771 |
| | |
Norway 0.29% | | 3,615,114 |
|
DnB NOR ASA | 238,446 | 2,622,859 |
|
Yara International ASA | 24,800 | 992,255 |
| | |
Portugal 0.01% | | 178,332 |
|
Jeronimo Martins SGPS SA | 16,167 | 178,332 |
| | |
Singapore 2.62% | | 32,634,850 |
|
CapitaCommercial Trust | 1,794,000 | 1,857,029 |
|
Cosco Corp. Singapore, Ltd. | 522,000 | 607,437 |
|
Ezra Holdings, Ltd. | 590,000 | 759,779 |
|
Genting Singapore PLC (I) | 910,000 | 1,137,847 |
|
Golden Agri-Resources, Ltd. | 8,913,000 | 3,693,053 |
|
Indofood Agri Resources, Ltd. (I) | 345,000 | 588,669 |
|
Jaya Holdings, Ltd. (I) | 930,000 | 464,836 |
|
Keppel Land, Ltd. | 204,000 | 585,497 |
|
Midas Holdings, Ltd. | 590,000 | 376,103 |
|
Neptune Orient Lines, Ltd. (I) | 1,444,854 | 2,044,272 |
|
Oversea-Chinese Banking Corp., Ltd. | 367,000 | 2,345,329 |
|
SembCorp Marine, Ltd. | 912,573 | 2,572,069 |
|
Singapore Exchange, Ltd. | 419,000 | 2,329,673 |
|
Singapore Press Holdings, Ltd. | 875,000 | 2,637,915 |
|
Singapore Telecommunications, Ltd. | 2,104,350 | 4,791,070 |
|
Suntec Real Estate Investment Trust | 1,586,000 | 1,660,737 |
|
Swiber Holdings, Ltd. (I) | 531,000 | 377,428 |
|
United Overseas Bank, Ltd. | 182,000 | 2,523,253 |
|
Venture Corp., Ltd. | 200,000 | 1,282,854 |
| | |
Spain 1.64% | | 20,414,927 |
|
Banco Bilbao Vizcaya Argentaria SA | 373,770 | 4,505,151 |
|
Banco Popular Espanol SA | 239,919 | 1,430,774 |
|
Banco Santander SA | 453,216 | 5,296,958 |
|
Inditex SA | 44,771 | 2,980,290 |
|
Repsol YPF SA | 273,172 | 6,201,754 |
| | |
Sweden 3.77% | | 46,977,237 |
|
Alfa Laval AB | 94,273 | 1,371,898 |
|
Assa Abloy AB, Series B | 59,188 | 1,176,090 |
|
Atlas Copco AB, Series A | 195,190 | 2,956,182 |
|
Boliden AB | 279,078 | 3,140,027 |
| | |
18 | International Core Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Sweden (continued) | | |
|
Electrolux AB, Series B | 105,761 | $2,032,774 |
|
Ericsson (LM), Series B | 110,531 | 1,069,465 |
|
Hennes & Mauritz AB, B Shares | 303,338 | 9,873,113 |
|
Modern Times Group AB, B Shares | 47,775 | 2,739,405 |
|
NCC AB | 90,165 | 1,478,738 |
|
Nordea Bank AB | 272,505 | 2,431,442 |
|
Sandvik AB | 243,614 | 2,875,920 |
|
Skandinaviska Enskilda Banken AB, Series A | 201,250 | 1,248,216 |
|
SKF AB, B Shares | 83,026 | 1,486,074 |
|
Svenska Handelsbanken AB, Series A | 164,091 | 4,270,638 |
|
Swedbank AB, Class A (I) | 454,864 | 5,104,511 |
|
Trelleborg AB, Series B | 236,195 | 1,557,946 |
|
Volvo AB, Series B (I) | 187,520 | 2,164,798 |
| | |
Switzerland 6.84% | | 85,103,247 |
|
Actelion, Ltd. (I) | 14,277 | 611,508 |
|
Clariant AG (I) | 137,661 | 1,764,065 |
|
Compagnie Financiere Richemont SA, BR Shares | 176,638 | 6,844,127 |
|
Nestle SA | 426,878 | 22,077,028 |
|
Novartis AG | 573,730 | 30,093,133 |
|
Roche Holdings AG | 102,096 | 13,868,636 |
|
Swisscom AG | 4,022 | 1,562,187 |
|
Synthes AG | 32,618 | 3,596,200 |
|
The Swatch Group AG, BR Shares | 14,619 | 4,686,363 |
| | |
United Kingdom 21.51% | | 267,844,312 |
|
3i Group PLC | 335,850 | 1,336,099 |
|
Acergy SA | 86,216 | 1,313,270 |
|
Aggreko PLC | 56,011 | 1,220,056 |
|
Amlin PLC | 226,458 | 1,407,063 |
|
Anglo American PLC | 191,060 | 6,830,802 |
|
ARM Holdings PLC | 438,802 | 2,443,886 |
|
Associated British Foods PLC | 60,947 | 986,734 |
|
AstraZeneca PLC | 625,224 | 30,895,940 |
|
Barclays PLC | 1,861,726 | 8,556,589 |
|
BG Group PLC | 446,966 | 7,200,545 |
|
BHP Billiton PLC | 197,304 | 5,520,792 |
|
BP PLC | 456,840 | 2,653,473 |
|
British American Tobacco PLC | 88,822 | 3,020,446 |
|
BT Group PLC | 1,883,157 | 3,835,314 |
|
Burberry Group PLC | 297,824 | 3,872,437 |
|
Capita Group PLC | 210,135 | 2,266,984 |
|
Carnival PLC | 22,822 | 738,832 |
|
Centrica PLC | 358,590 | 1,790,268 |
|
Cobham PLC | 507,987 | 1,629,547 |
|
Compass Group PLC | 312,069 | 2,547,611 |
|
Cookson Group PLC (I) | 86,692 | 555,657 |
|
Daily Mail & General Trust | 63,676 | 440,275 |
|
Diageo PLC | 342,771 | 5,570,930 |
|
Drax Group PLC | 364,522 | 2,211,664 |
| | |
See notes to financial statements | Semiannual report | International Core Fund | 19 |
| | |
| Shares | Value |
United Kingdom (continued) | | |
|
DSG International PLC (I) | 2,155,076 | $793,708 |
|
Eurasian Natural Resources Corp. | 91,329 | 1,183,036 |
|
GlaxoSmithKline PLC | 2,120,664 | 39,735,864 |
|
Home Retail Group PLC | 563,329 | 1,882,193 |
|
HSBC Holdings PLC | 671,399 | 6,614,820 |
|
IMI PLC | 66,831 | 697,915 |
|
Imperial Tobacco Group PLC | 44,898 | 1,239,984 |
|
Kazakhmys PLC | 154,703 | 2,720,574 |
|
Ladbrokes PLC | 146,556 | 293,672 |
|
Lloyds Banking Group PLC (I) | 3,356,881 | 3,584,435 |
|
National Express Group PLC (I) | 93,384 | 320,861 |
|
Next PLC | 128,364�� | 3,887,078 |
|
Old Mutual PLC (I) | 369,428 | 718,988 |
|
Pearson PLC | 120,271 | 1,789,640 |
|
Petrofac, Ltd. | 67,161 | 1,438,308 |
|
Punch Taverns PLC (I) | 688,629 | 845,734 |
|
Reckitt Benckiser Group PLC | 125,636 | 6,291,996 |
|
Reed Elsevier PLC | 152,307 | 1,224,841 |
|
Rentokil Initial PLC (I) | 369,663 | 530,393 |
|
Rio Tinto PLC | 290,052 | 14,633,500 |
|
Royal Dutch Shell PLC, A Shares | 757,086 | 20,072,013 |
|
Royal Dutch Shell PLC, B Shares | 345,131 | 8,796,279 |
|
SABMiller PLC | 138,893 | 3,959,823 |
|
Sage Group PLC | 374,218 | 1,406,620 |
|
Scottish & Southern Energy PLC | 100,927 | 1,773,285 |
|
Smith & Nephew PLC | 216,744 | 1,802,636 |
|
Standard Chartered PLC | 233,674 | 6,234,736 |
|
Taylor Woodrow PLC (I) | 1,835,317 | 723,995 |
|
Tesco PLC | 403,706 | 2,521,080 |
|
Travis Perkins PLC | 138,518 | 1,612,545 |
|
Trinity Mirror PLC (I) | 140,795 | 236,503 |
|
Unilever PLC | 60,718 | 1,604,668 |
|
United Utilities Group PLC | 101,648 | 889,797 |
|
Vedanta Resources PLC | 55,275 | 1,592,997 |
|
Vodafone Group PLC | 6,422,556 | 15,511,308 |
|
William Hill PLC | 423,222 | 1,083,869 |
|
Wolseley PLC (I) | 164,064 | 3,150,864 |
|
WPP PLC | 168,025 | 1,660,371 |
|
Xstrata PLC | 227,800 | 3,555,392 |
|
Yell Group PLC (I) | 1,730,193 | 382,777 |
| | |
20 | International Core Fund | Semiannual report | See notes to financial statements |
| | | | |
| | | Shares | Value |
Preferred Stocks 0.49% | | | | $6,118,059 |
|
(Cost $5,698,994) | | | | |
| | | | |
Germany 0.49% | | | | 6,118,059 |
|
Bayerische Motoren Werke (BMW) AG (N) | | | 11,115 | 410,355 |
|
Fresenius SE (N) | | | 8,411 | 597,484 |
|
Henkel AG & Company KGaA (N) | | | 60,174 | 2,815,042 |
|
Porsche Automobil Holding SE (I) | | | 32,555 | 1,511,071 |
|
ProSiebenSat.1 Media AG (N) | | | 43,828 | 784,107 |
|
| | Maturity | | |
| Yield* | date | Par value | Value |
Short-Term Investments 5.61% | | | | $69,906,753 |
|
(Cost $69,888,525) | | | | |
| | | | |
U.S. Government 1.41% | | | | 17,545,859 |
|
U.S. Treasury Bills | 0.2283% | 09-16-10 | $17,547,000 | 17,545,859 |
|
| | | Shares | Value |
Short-Term Securities 0.65% | | | | 8,162,056 |
|
State Street Institutional Investment Treasury | | | | |
Money Market Fund | 0.0344% | | 7,088,647 | 7,088,647 |
|
State Street Institutional Liquid | | | | |
Reserves Fund | 0.2807% | | 1,073,409 | 1,073,409 |
| | | | |
Securities Lending Collateral 3.55% | | | | 44,198,838 |
|
John Hancock Collateral Investment Trust (W) | | 0.3330% (Y) | 4,415,424 | 44,198,838 |
|
Total investments (Cost $1,411,164,924)† 102.58% | $1,277,446,724 |
|
Other assets and liabilities, net (2.58%) | | | ($32,112,277) |
|
Total net assets 100.00% | | | $1,245,334,447 |
|
The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the Fund.
(I) Non-income producing security.
(L) All or a portion of this security is on loan as of 8-31-10.
(N) Variable rate preferred stock.
(W) Investment is an affiliate of the Fund, the adviser and/or subadviser. Also, it represents the investment of securities lending collateral received.
(Y) The rate shown is the annualized seven-day yield as of 8-31-10.
* Yield represents either the annualized yield at the date of purchase, the stated coupon rate or, for floating rate securities, the rate at period end.
† At 8-31-10, the aggregate cost of investment securities for federal income tax purposes was $1,427,927,372. Net unrealized depreciation aggregated $150,480,648, of which $50,813,224 related to appreciated investment securities and $201,293,872 related to depreciated investment securities.
| | |
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 8-31-10 (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 $1,366,965,605) | |
including $41,933,312 of securities loaned (Note 2) | $1,233,247,886 |
Investments in affiliated issuers, at value (Cost $44,199,319) (Note 2) | 44,198,838 |
| |
Total investments, at value (Cost $1,411,164,924) | 1,277,446,724 |
Foreign currency, at value (Cost $817,098) | 816,597 |
Cash held at broker for futures contracts | 7,185,405 |
Receivable for forward foreign currency exchange contracts (Note 3) | 628,478 |
Receivable for fund shares sold | 2,942,060 |
Dividends and interest receivable | 4,226,548 |
Receivable for securities lending income | 46,093 |
Receivable for futures variation margin | 6,155 |
Receivable due from adviser | 9,411 |
Other receivables and prepaid assets | 100,402 |
| |
Total assets | 1,293,407,873 |
|
Liabilities | |
|
Payable for forward foreign currency exchange contracts (Note 3) | 667,963 |
Payable for fund shares repurchased | 2,744,498 |
Payable upon return of securities loaned (Note 2) | 44,148,552 |
Payable to affiliates | |
Accounting and legal services fees | 17,215 |
Transfer agent fees | 54,236 |
Distribution and service fees | 13 |
Trustees’ fees | 26,835 |
Other liabilities and accrued expenses | 414,114 |
| |
Total liabilities | 48,073,426 |
|
Net assets | |
|
Capital paid-in | $1,599,831,676 |
Undistributed net investment income | 12,699,722 |
Accumulated net realized gain (loss) on investments, futures contracts and | |
foreign currency transactions | (232,334,117) |
Net unrealized appreciation (depreciation) on investments, futures | |
contracts and translation of assets and liabilities in foreign currencies | (134,862,834) |
| |
Net assets | $1,245,334,447 |
| | |
22 | International Core Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
| |
Net asset value per share | |
|
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($242,468,944 ÷ 9,744,742 shares) | $24.88 |
Class B ($5,154,201 ÷ 208,841 shares)1 | $24.68 |
Class C ($4,649,898 ÷ 188,381 shares)1 | $24.68 |
Class I ($173,041,558 ÷ 6,919,903 shares) | $25.01 |
Class R1 ($178,693 ÷ 7,215 shares) | $24.77 |
Class R3 ($26,693 ÷ 1,071.582 shares) | $24.91 |
Class R4 ($26,725 ÷ 1,071.582 shares) | $24.94 |
Class R5 ($32,459 ÷ 1,300 shares) | $24.97 |
Class 1 ($40,150,878 ÷ 1,603,263 shares) | $25.04 |
Class NAV ($779,604,398 ÷ 31,140,296 shares) | $25.04 |
|
Maximum offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $26.19 |
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 six-month period ended 8-31-10
(unaudited)
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 | $24,645,498 |
Securities lending | 1,068,859 |
Interest | 2,309 |
Less foreign taxes withheld | (2,379,471) |
| |
Total investment income | 23,337,195 |
|
Expenses | |
|
Investment management fees (Note 5) | 5,714,174 |
Distribution and service fees (Note 5) | 429,140 |
Accounting and legal services fees (Note 5) | 79,087 |
Transfer agent fees (Note 5) | 347,062 |
Trustees’ fees (Note 5) | 30,957 |
State registration fees (Note 5) | 29,980 |
Printing and postage fees (Note 5) | 24,079 |
Professional fees | 105,025 |
Custodian fees | 584,916 |
Registration and filing fees | 11,393 |
Other | 20,571 |
| |
Total expenses | 7,376,384 |
Less expense reductions (Note 5) | (32,636) |
| |
Net expenses | 7,343,748 |
| |
Net investment income | 15,993,447 |
|
Realized and unrealized gain (loss) | |
|
Net realized loss on | |
Investments in unaffiliated issuers | (6,236,746) |
Investments in affiliated issuers | (4,008) |
Futures contracts (Note 3) | (916,780) |
Foreign currency transactions | (2,811,786) |
| (9,969,320) |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (47,627,046) |
Investments in affiliated issuers | (1,095) |
Futures contracts (Note 3) | 759,882 |
Translation of assets and liabilities in foreign currencies | 140,073 |
| (46,728,186) |
Net realized and unrealized loss | (56,697,506) |
| |
Decrease in net assets from operations | ($40,704,059) |
| | |
24 | International Core Fund | Semiannual report | See notes to financial statements |
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.
| | |
| For the | |
| six-month period | Year |
| ended 8-31-10 | ended |
| (Unaudited) | 2-28-10 |
|
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $15,993,447 | $17,429,122 |
Net realized loss | (9,969,320) | (138,521,721) |
Change in net unrealized appreciation (depreciation) | (46,728,186) | 420,053,420 |
| | |
Increase (decrease) in net assets resulting from operations | (40,704,059) | 298,960,821 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | — | (3,861,204) |
Class B | — | (95,282) |
Class C | — | (73,557) |
Class I | — | (1,997,302) |
Class R1 | — | (2,466) |
Class R3 | — | (477) |
Class R4 | — | (554) |
Class R5 | — | (631) |
Class 1 | — | (1,080,309) |
Class NAV | — | (18,258,674) |
| | |
Total distributions | — | (25,370,456) |
| | |
From Fund share transactions (Note 6) | 121,278,997 | 188,583,389 |
| | |
Total increase | 80,574,938 | 462,173,754 |
|
Net assets | | |
|
Beginning of period | 1,164,759,509 | 702,585,755 |
| | |
End of period | $1,245,334,447 | $1,164,759,509 |
| | |
Undistributed net investment income (loss) | $12,699,722 | ($3,293,725) |
| | |
See notes to financial statements | Semiannual report | International Core Fund | 25 |
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 | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 | 2-28-063 |
|
Per share operating performance | | | | | | |
|
Net asset value, beginning of period | $25.74 | $18.43 | $39.06 | $43.30 | $36.26 | $32.60 |
Net investment income4 | 0.26 | 0.24 | 0.76 | 0.35 | 0.63 | 0.19 |
Net realized and unrealized gain (loss) | | | | | | |
on investments | (1.12) | 7.59 | (18.65) | (0.35) | 6.79 | 3.47 |
Total from investment operations | (0.86) | 7.83 | (17.89) | — | 7.42 | 3.66 |
Less distributions | | | | | | |
From net investment income | — | (0.52) | (1.56) | (0.45) | — | — |
From net realized gain | — | — | (1.18) | (3.79) | (0.38) | — |
Total distributions | — | (0.52) | (2.74) | (4.24) | (0.38) | — |
Net asset value, end of period | $24.88 | $25.74 | $18.43 | $39.06 | $43.30 | $36.26 |
Total return (%)5,6 | (3.34)7 | 42.338 | (47.16)8 | (0.76)8 | 20.488 | 11.237,8 |
|
Ratios and supplemental data | | | | | | |
|
Net assets, end of period (in millions) | $242 | $225 | $54 | $130 | $12 | $17 |
Ratios (as a percentage of average | | | | | | |
net assets): | | | | | | |
Expenses before reductions | 1.579 | 1.9510 | 1.75 | 1.68 | 2.23 | 2.229 |
Expenses net of fee waivers | 1.579 | 1.6610 | 1.75 | 1.65 | 1.40 | 0.559 |
Expenses net of fee waivers and credits | 1.579 | 1.6210 | 1.70 | 1.65 | 1.40 | 0.559 |
Net investment income | 2.039 | 0.94 | 2.33 | 0.78 | 1.58 | 1.239 |
Portfolio turnover (%) | 19 | 44 | 54 | 5011 | 37 | 22 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 Effective 6-12-06, 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 The inception date for Class A shares is 9-16-05.
4 Based on the average daily shares outstanding.
5 Assumes dividend reinvestment (if applicable).
6 Does not reflect the effect of sales charges, if any.
7 Not annualized.
8 Total returns would have been lower had certain expenses not been reduced during the periods shown.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
11 Excludes merger activity.
| | |
26 | International Core Fund | Semiannual report | See notes to financial statements |
| | | | | |
CLASS B SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $25.62 | $18.36 | $38.80 | $43.08 | $35.92 |
Net investment income (loss)3 | 0.18 | 0.17 | 0.53 | —4 | (0.25) |
Net realized and unrealized gain (loss) on investments | (1.12) | 7.44 | (18.49) | (0.33) | 7.79 |
Total from investment operations | (0.94) | 7.61 | (17.96) | (0.33) | 7.54 |
Less distributions | | | | | |
From net investment income | — | (0.35) | (1.30) | (0.16) | — |
From net realized gain | — | — | (1.18) | (3.79) | (0.38) |
Total distributions | — | (0.35) | (2.48) | (3.95) | (0.38) |
Net asset value, end of period | $24.68 | $25.62 | $18.36 | $38.80 | $43.08 |
Total return (%)5,6,7 | (3.67)8 | 41.35 | (47.53) | (1.48) | 21.018 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $5 | $6 | $7 | $20 | $1 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 2.679 | 3.0710 | 2.75 | 2.48 | 6.839 |
Expenses net of fee waivers | 2.309 | 2.3610 | 2.63 | 2.41 | 2.399 |
Expenses net of fee waivers and credits | 2.309 | 2.3310 | 2.40 | 2.40 | 2.399 |
Net investment income (loss) | 1.409 | 0.69 | 1.64 | —11 | (0.84)9 |
Portfolio turnover (%) | 19 | 44 | 54 | 5012 | 37 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class B shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Less than $0.005 per share.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Assumes dividend reinvestment (if applicable).
7 Does not reflect the effect of sales charges, if any.
8 Not annualized.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
11 Less than 0.005%.
12 Excludes merger activity.
| | | | | |
CLASS C SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $25.62 | $18.36 | $38.81 | $43.09 | $35.92 |
Net investment income (loss)3 | 0.18 | 0.15 | 0.55 | 0.13 | (0.24) |
Net realized and unrealized gain (loss) on investments | (1.12) | 7.46 | (18.52) | (0.46) | 7.79 |
Total from investment operations | (0.94) | 7.61 | (17.97) | (0.33) | 7.55 |
Less distributions | | | | | |
From net investment income | — | (0.35) | (1.30) | (0.16) | — |
From net realized gain | — | — | (1.18) | (3.79) | (0.38) |
Total distributions | — | (0.35) | (2.48) | (3.95) | (0.38) |
Net asset value, end of period | $24.68 | $25.62 | $18.36 | $38.81 | $43.09 |
Total return (%)4,5,6 | (3.67)7 | 41.35 | (47.55) | (1.48) | 21.047 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $5 | $5 | $4 | $15 | $4 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 2.558 | 2.699 | 2.59 | 2.49 | 3.728 |
Expenses net of fee waivers | 2.308 | 2.369 | 2.43 | 2.40 | 2.398 |
Expenses net of fee waivers and credits | 2.308 | 2.339 | 2.40 | 2.40 | 2.398 |
Net investment income (loss) | 1.388 | 0.60 | 1.69 | 0.28 | (0.79)8 |
Portfolio turnover (%) | 19 | 44 | 54 | 5010 | 37 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class C shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment (if applicable).
6 Does not reflect the effect of sales charges, if any.
7 Not annualized.
8 Annualized.
9 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
10 Excludes merger activity.
| | |
See notes to financial statements | Semiannual report | International Core Fund | 27 |
| | | | | |
CLASS I SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $25.80 | $18.45 | $39.20 | $43.43 | $35.92 |
Net investment income3 | 0.32 | 0.35 | 0.94 | 0.55 | 0.16 |
Net realized and unrealized gain (loss) on investments | (1.11) | 7.63 | (18.77) | (0.35) | 7.73 |
Total from investment operations | (0.79) | 7.98 | (17.83) | 0.20 | 7.89 |
Less distributions | | | | | |
From net investment income | — | (0.63) | (1.74) | (0.64) | — |
From net realized gain | — | — | (1.18) | (3.79) | (0.38) |
Total distributions | — | (0.63) | (2.92) | (4.43) | (0.38) |
Net asset value, end of period | $25.01 | $25.80 | $18.45 | $39.20 | $43.43 |
Total return (%)4 | (3.06)6 | 43.105 | (46.91)5 | (0.33)5 | 21.995,6 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $173 | $84 | $1 | $3 | —7 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 1.088 | 1.06 | 2.37 | 2.34 | 12.528 |
Expenses net of fee waivers | 1.088 | 1.06 | 1.18 | 1.18 | 1.208 |
Expenses net of fee waivers and credits | 1.088 | 1.06 | 1.18 | 1.18 | 1.208 |
Net investment income | 2.508 | 1.34 | 2.87 | 1.24 | 0.568 |
Portfolio turnover (%) | 19 | 44 | 54 | 509 | 37 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class I shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment (if applicable).
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Excludes merger activity.
| | | | | |
CLASS R1 SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $25.67 | $18.36 | $38.94 | $43.19 | $35.92 |
Net investment income (loss)3 | 0.21 | 0.23 | 0.69 | 0.66 | (0.03) |
Net realized and unrealized gain (loss) on investments | (1.11) | 7.50 | (18.54) | (0.69) | 7.68 |
Total from investment operations | (0.90) | 7.73 | (17.85) | (0.03) | 7.65 |
Less distributions | | | | | |
From net investment income | — | (0.42) | (1.55) | (0.43) | — |
From net realized gain | — | — | (1.18) | (3.79) | (0.38) |
Total distributions | — | (0.42) | (2.73) | (4.22) | (0.38) |
Net asset value, end of period | $24.77 | $25.67 | $18.36 | $38.94 | $43.19 |
Total return (%)4,5 | (3.51)6 | 42.00 | (47.16) | (0.82) | 21.326 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | —7 | —7 | —7 | —7 | —7 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 6.948 | 8.859 | 15.16 | 13.85 | 20.408 |
Expenses net of fee waivers | 1.968 | 1.929 | 2.10 | 1.70 | 1.948 |
Expenses net of fee waivers and credits | 1.968 | 1.929 | 1.70 | 1.70 | 1.948 |
Net investment income (loss) | 1.648 | 0.92 | 2.21 | 1.48 | (0.10)8 |
Portfolio turnover (%) | 19 | 44 | 54 | 5010 | 37 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class R1 shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment (if applicable).
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
10 Excludes merger activity.
| | |
28 | International Core Fund | Semiannual report | See notes to financial statements |
| | | | | |
CLASS R3 SHARES Period ended | | | | 8-31-101 | 2-28-102 |
|
Per share operating performance | | | | | |
|
Net asset value, end of period | | | | $25.80 | $23.33 |
Net investment income3 | | | | 0.23 | 0.02 |
Net realized and unrealized gain (loss) on investments | | | | (1.12) | 2.90 |
Total from investment operations | | | | (0.89) | 2.92 |
Less distributions | | | | | |
From net investment income | | | | — | (0.45) |
Total distributions | | | | — | (0.45) |
Net asset value, end of period | | | | $24.91 | $25.80 |
Total return (%)4,5 | | | | (3.45)6 | 12.406 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | | | | —7 | —7 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | | | 27.668 | 10.978 |
Expenses net of fee waivers | | | | 1.878 | 1.918 |
Expenses net of fee waivers and credits | | | | 1.878 | 1.918 |
Net investment income | | | | 1.798 | 0.108 |
Portfolio turnover (%) | | | | 19 | 44 |
| | | | |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class R3 shares is 5-22-09.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment (if applicable).
6 Not annualized.
7 Less than $500,000.
8 Annualized.
| | | | | | |
CLASS R4 SHARES Period ended | | | | | 8-31-101 | 2-28-102 |
|
Per share operating performance | | | | | | |
|
Net asset value, beginning of period | | | | | $25.80 | $23.33 |
Net investment income3 | | | | | 0.27 | 0.08 |
Net realized and unrealized gain (loss) on investments | | | | | (1.13) | 2.91 |
Total from investment operations | | | | | (0.86) | 2.99 |
Less distributions | | | | | | |
From net investment income | | | | | — | (0.52) |
Total distributions | | | | | — | (0.52) |
Net asset value, end of period | | | | | $24.94 | $25.80 |
Total return (%)4,5 | | | | | (3.33)6 | 12.696 |
|
Ratios and supplemental data | | | | | | |
|
Net assets, end of period (in millions) | | | | | —7 | —7 |
Ratios (as a percentage of average net assets): | | | | | | |
Expenses before reductions | | | | | 27.408 | 10.718 |
Expenses net of fee waivers | | | | | 1.578 | 1.618 |
Expenses net of fee waivers and credits | | | | | 1.578 | 1.618 |
Net investment loss | | | | | 2.098 | 0.408 |
Portfolio turnover (%) | | | | | 19 | 44 |
| | | | | |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class R4 shares is 5-22-09.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment (if applicable).
6 Not annualized.
7 Less than $500,000.
8 Annualized.
| | |
See notes to financial statements | Semiannual report | International Core Fund | 29 |
| | | | | |
CLASS R5 SHARES Period ended | | | | 8-31-101 | 2-28-102 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | | | | $25.79 | $23.33 |
Net investment income3 | | | | 0.31 | 0.14 |
Net realized and unrealized gain (loss) on investments | | | | (1.13) | 2.91 |
Total from investment operations | | | | (0.82) | 3.05 |
Less distributions | | | | | |
From net investment income | | | | — | (0.59) |
Total distributions | | | | — | (0.59) |
Net asset value, end of period | | | | $24.97 | $25.79 |
Total return (%)4,5,6 | | | | (3.18) | 12.95 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | | | | —7 | —7 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | | | 23.098 | 10.508 |
Expenses net of fee waivers | | | | 1.278 | 1.318 |
Expenses net of fee waivers and credits | | | | 1.278 | 1.318 |
Net investment income | | | | 2.378 | 0.708 |
Portfolio turnover (%) | | | | 19 | 44 |
| | | | |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class R5 shares is 5-22-09.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment (if applicable).
6 Not annualized.
7 Less than $500,000.
8 Annualized.
| | | | | |
CLASS 1 SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $25.84 | $18.48 | $39.22 | $43.43 | $40.56 |
Net investment income3 | 0.34 | 0.46 | 0.93 | 0.95 | 0.02 |
Net realized and unrealized gain (loss) on investments | (1.14) | 7.54 | (18.74) | (0.72) | 3.26 |
Total from investment operations | (0.80) | 8.00 | (17.81) | 0.23 | 3.28 |
Less distributions | | | | | |
From net investment income | — | (0.64) | (1.75) | (0.65) | (0.03) |
From net realized gain | — | — | (1.18) | (3.79) | (0.38) |
Total distributions | — | (0.64) | (2.93) | (4.44) | (0.41) |
Net asset value, end of period | $25.04 | $25.84 | $18.48 | $39.22 | $43.43 |
Total return (%)5 | (3.10)6 | 43.114 | (46.83)4 | (0.25)4 | 8.114,6 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $40 | $44 | $34 | $74 | $82 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 1.067 | 1.088 | 1.10 | 1.16 | 1.237 |
Expenses net of fee waivers | 1.067 | 1.078 | 1.10 | 1.14 | 1.177 |
Expenses net of all fee waivers and credits | 1.067 | 1.078 | 1.10 | 1.14 | 1.177 |
Net investment income | 2.617 | 1.83 | 2.88 | 2.09 | 0.167 |
Portfolio turnover (%) | 19 | 44 | 54 | 509 | 37 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class 1 shares is 11-6-06.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Assumes dividend reinvestment (if applicable).
6 Not annualized.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
9 Excludes merger activity.
| | |
30 | International Core Fund | Semiannual report | See notes to financial statements |
| | | | | |
CLASS NAV SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $25.82 | $18.47 | $39.21 | $43.42 | $39.18 |
Net investment income3 | 0.34 | 0.49 | 0.99 | 0.95 | 0.08 |
Net realized and unrealized gain (loss) on investments | (1.12) | 7.51 | (18.78) | (0.70) | 4.58 |
Total from investment operations | (0.78) | 8.00 | (17.79) | 0.25 | 4.66 |
Less distributions | | | | | |
From net investment income | — | (0.65) | (1.77) | (0.67) | (0.04) |
From net realized gain | — | — | (1.18) | (3.79) | (0.38) |
Total distributions | — | (0.65) | (2.95) | (4.46) | (0.42) |
Net asset value, end of period | $25.04 | $25.82 | $18.47 | $39.21 | $43.42 |
Total return (%)4 | (3.02)6 | 43.145 | (46.80)5 | (0.20)5 | 11.905,6 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $780 | $800 | $603 | $1,415 | $1,244 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 1.027 | 1.048 | 1.04 | 1.11 | 1.087 |
Expenses net of fee waivers | 1.027 | 1.028 | 1.04 | 1.08 | 1.087 |
Expenses net of fee waivers and credits | 1.027 | 1.028 | 1.04 | 1.08 | 1.087 |
Net investment income | 2.627 | 1.99 | 3.06 | 2.09 | 0.387 |
Portfolio turnover (%) | 19 | 44 | 54 | 509 | 37 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class NAV shares is 8-29-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
9 Excludes merger activity.
| | |
See notes to financial statements | Semiannual report | International Core Fund | 31 |
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), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek high total return.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class R1, Class R3, Class R4 and Class R5 shares are available only to certain retirement plans. Class 1 shares are sold only to certain affiliates of Manulife Financial Corporation (MFC). Class NAV shares are sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, printing and postage, registration and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.
Affiliates of the Fund owned 48%, 100%, 100%, 82% and 100% of shares of beneficial interest of Class R1, Class R3, Class R4, Class R5 and Class NAV, respectively, on August 31, 2010.
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. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these techniques are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes significant unobservable inpu ts when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| |
32 | International Core Fund | Semiannual report |
The following is a summary of the values by input classification of the Fund’s investments as of August 31, 2010, by major security category or type:
| | | | |
| | | | LEVEL 3 |
| | | LEVEL 2 | SIGNIFICANT |
| TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE |
| VALUE AT 8-31-10 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS |
|
Common Stocks | | | | |
Australia | $52,530,181 | — | $52,530,181 | — |
Austria | 7,341,419 | — | 7,341,419 | — |
Belgium | 15,329,684 | — | 15,329,684 | — |
Bermuda | 1,401,755 | — | 1,401,755 | — |
Canada | 22,890,855 | $22,890,855 | — | — |
Denmark | 14,209,178 | — | 14,209,178 | — |
Finland | 9,892,310 | — | 9,892,310 | — |
France | 115,671,435 | — | 115,671,435 | — |
Germany | 53,684,969 | — | 53,684,969 | — |
Greece | 6,139,134 | — | 6,139,134 | — |
Hong Kong | 18,581,105 | — | 18,581,105 | — |
Ireland | 10,966,198 | — | 10,966,198 | — |
Israel | 3,150,893 | — | 3,150,893 | — |
Italy | 68,227,162 | — | 68,227,162 | — |
Japan | 295,557,641 | — | 295,557,641 | — |
Luxembourg | 3,307,054 | — | 3,307,054 | — |
Netherlands | 41,806,296 | — | 41,806,296 | — |
New Zealand | 3,966,624 | — | 3,966,624 | — |
Norway | 3,615,114 | — | 3,615,114 | — |
Portugal | 178,332 | — | 178,332 | — |
Singapore | 32,634,850 | — | 32,634,850 | — |
Spain | 20,414,927 | — | 20,414,927 | — |
Sweden | 46,977,237 | — | 46,977,237 | — |
Switzerland | 85,103,247 | — | 85,103,247 | — |
United Kingdom | 267,844,312 | — | 267,844,312 | — |
Preferred Stocks | | | | |
Germany | 6,118,059 | — | 6,118,059 | — |
Short-Term Investments | 69,906,753 | 52,360,894 | 17,545,859 | — |
|
|
Total Investments in | | | | |
Securities | $1,277,446,724 | $75,251,749 | $1,202,194,975 | — |
Other Financial | | | | |
Instruments | | | | |
|
Futures | ($1,058,058) | ($1,058,058) | — | — |
Forward Foreign | | | | |
Currency Contracts | ($39,485) | — | ($39,485) | — |
|
Totals | $1,276,349,181 | $74,193,691 | $1,202,155,490 | |
During the six months ended August 31, 2010, there were no significant transfers in or out of Level 1 or Level 2 assets.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain securities traded only in the over-the-counter
| |
Semiannual report | International Core Fund | 33 |
market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost. John Hancock Collateral Investment Trust (JHCIT), an affiliate of the Fund, is valued at its closing net asset value (NAV). JHCIT has a floating NAV and invests in short-term investments as part of a securities lending program.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by 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. Significant market events that affect the values of non-U.S. securities may occur after the time when the valuation of the securities is generally determined and the close of the NYSE. During significant market events, these securities will be valued at fair value, as determined in good faith, following procedures established by the Board of Trustees. The Fund may use a fair valuation model to value non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date except for certain foreign dividends where the ex-date may have passed, which are recorded when the Fund becomes aware of the dividends.
Real estate investment trusts. From time to time, the Fund may invest in real estate investment trusts (REITs) and, as a result, will estimate the components of distributions from these securities. Distributions from REITs received in excess of income are recorded as a reduction of cost of investments and/or as a realized gain.
Securities lending. The Fund may lend its securities to earn additional income. It receives and maintains cash collateral received from the borrower in an amount not less than the market value of the loaned securities. The Fund will invest its collateral in JHCIT, as a result, the Fund will receive the benefit of any gains and bear any losses generated by JHCIT. Although risk of the loss of the securities lent is mitigated by holding the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. The Fund may receive compensation for lending its securities by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Income received from JHCIT is a component of securities lending income as re corded on the Statement of Operations.
Foreign currency translation. Assets, including investments and liabilities denominated in foreign currencies, are translated into U.S. dollar values each day at the prevailing exchange rate. Purchases and sales of securities, income and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on securities is reflected as a component of the realized and unrealized gains (losses) on investments.
| |
34 | International Core Fund | Semiannual report |
Funds that invest internationally generally carry more risk than funds that invest strictly in U.S. securities. Funds investing in a single country or in a limited geographic region tend to be riskier than funds that invest more broadly. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to a Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with the custodian which enables them to participate in a $100 million unsecured committed line of credit. Prior to March 31, 2010, the amount of the line of credit was $150 million. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis based on their relative average net assets. For the six months ended August 31, 2010, the Fund had no significant borrowings under the line of credit.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage fees, for all classes are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Federal income taxes. The Fund intends to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has a capital loss carryforward of $201,183,192 available to offset future net realized capital gains as of February 28, 2010. The loss carryforward expires as follows: February 28, 2017 — $18,555,069 and February 28, 2018 — $182,628,123.
As of February 28, 2010, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure. The Fund’s federal tax return is subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares and pays dividends and capital gain distributions, if any, at least annually.
| |
Semiannual report | International Core Fund | 35 |
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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a tax return of capital.
Capital accounts within financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Permanent book-tax differences are primarily attributable to foreign currency translations, investments in passive foreign investment companies, expiration of capital loss carryforward and differing treatment of capital gain/loss transactions.
Note 3 — Derivative instruments
The Fund may invest in derivatives, including futures contracts and forward foreign currency contracts in order to meet its investment objectives. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, derivatives expose the Fund to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
For more information regarding the Fund’s use of derivatives, please refer to the Fund’s Prospectuses and Statement of Additional Information.
Futures. A futures contract is a contractual agreement to buy or sell a particular commodity, currency, or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates and potential losses in excess of the Fund’s initial investment.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (variation margin) is recorded by the Fund.
During the six months ended August 31, 2010, the Fund used futures contracts to gain exposure to certain securities markets and substitute for securities purchased or to be purchased. The following table summarizes the contracts held at August 31, 2010. The range of futures contracts absolute notional amounts held by the Fund during six months ended August 31, 2010 was $92.0 million to $129.8 million.
| |
36 | International Core Fund | Semiannual report |
| | | | | | |
| | | | | | UNREALIZED |
OPEN | NUMBER OF | | | | NOTIONAL | APPRECIATION |
CONTRACTS | CONTRACTS | | POSITION | EXPIRATION DATE | VALUE (USD) | (DEPRECIATION) |
|
SGX MSCI Singapore | 245 | | Long | Sep 2010 | $12,579,860 | $226,429 |
Index Futures | | | | | | |
CAC 40 Index Futures | 80 | | Long | Sep 2010 | 3,533,601 | (146,598) |
FTSE MIB Index | 131 | | Long | Sep 2010 | 16,374,377 | (587,801) |
Futures | | | | | | |
Topix Index Futures | 37 | | Long | Sep 2010 | 3,525,592 | (272,758) |
DAX Index Futures | 64 | | Long | Sep 2010 | 11,982,106 | (378,568) |
FTSE 100 Index | 105 | | Long | Sep 2010 | 8,376,148 | (111,248) |
Futures | | | | | | |
OMX 30 Index | 78 | | Short | Sep 2010 | (1,068,977) | 41,838 |
Futures | | | | | | |
IBEX 35 Index Futures | 7 | | Short | Sep 2010 | (902,732) | 15,606 |
AEX Index Futures | 11 | | Short | Sep 2010 | (881,271) | 27,764 |
ASX SPI 200 Index | 140 | | Short | Sep 2010 | (13,660,903) | 488,340 |
Futures | | | | | | |
S&P TSE 60 Index | 147 | | Short | Sep 2010 | (19,114,756) | (361,062) |
Futures | | | | | | |
| | | | | | ($1,058,058) |
Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a specific currency at a price that is set on the date of the contract. The forward contract calls for delivery of the currency on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the failure of the counterparties to timely post collateral, the risk that currency movements will not occur thereby reducing the Fund’s total return, and the potential for losses in excess of the Fund’s initial investment.
The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked-to-market daily and the change in value is recorded by a Fund as an unrealized gain or loss. Realized gains or losses, equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed, are recorded upon delivery or receipt of the currency.
During the six months ended August 31, 2010, the Fund used forward foreign currency contracts to enhance potential gain, manage against anticipated currency exchange rates and maintain diversification and liquidity. The following table summarizes the contracts held at August 31, 2010. The range of forward foreign currency contracts absolute notional amounts held by the Fund during six months ended August 31, 2010 was $115.2 million to $263.7 million.
| |
Semiannual report | International Core Fund | 37 |
| | | | | | |
| PRINCIPAL | PRINCIPAL | | | | |
| AMOUNT | AMOUNT | | | | UNREALIZED |
| COVERED BY | COVERED BY | | | SETTLEMENT | APPRECIATION |
CURRENCY | CONTRACT | CONTRACT (USD) | | COUNTERPARTY | DATE | (DEPRECIATION) |
|
Buys | | | | | | |
CHF | 7,893,290 | $7,613,200 | | Deutsche Bank AG | 10-22-10 | $165,155 |
| | | | London | | |
GBP | 5,075,062 | 7,951,607 | | Bank of America, N.A. | 10-22-10 | (170,906) |
GBP | 3,260,002 | 5,104,445 | | Brown Brothers | 10-22-10 | (106,457) |
| | | | Harriman & Company | | |
GBP | 2,921,724 | 4,577,874 | | Mellon Bank N.A. | 10-22-10 | (98,508) |
GBP | 4,824,342 | 7,561,027 | | Morgan Stanley | 10-22-10 | (164,711) |
| | | | Capital Services | | |
SEK | 106,592,373 | 14,440,085 | | Brown Brothers | 10-22-10 | (30,589) |
| | | | Harriman & Company | | |
SEK | 188,690,576 | 25,567,136 | | Deutsche Bank AG | 10-22-10 | (59,343) |
| | | | London | | |
| | $72,815,374 | | | | ($465,359) |
Sells | | | | | | |
CAD | 7,552,751 | $7,218,022 | | Bank of America, N.A. | 10-22-10 | $140,718 |
CAD | 5,475,675 | 5,233,835 | | Mellon Bank N.A. | 10-22-10 | 102,855 |
EUR | 10,666,523 | 13,691,346 | | Royal Bank of Scotland | 10-22-10 | 175,227 |
| | | | PLC | | |
HKD | 35,758,435 | 4,602,885 | | Mellon Bank N.A. | 10-22-10 | 4,134 |
NZD | 3,623,763 | 2,556,989 | | Royal Bank of Scotland | 10-22-10 | 40,389 |
| | | | PLC | | |
SGD | 12,403,425 | 9,113,036 | | Royal Bank of Scotland | 10-22-10 | (37,449) |
| | | | PLC | | |
| | $42,416,113 | | | | $425,874 |
| | | |
Currency Abbreviations | | |
CAD | Canadian Dollar | | |
CHF | Swiss Franc | | |
EUR | Euro | | |
GBP | Pound Sterling | | |
HKD | Hong Kong Dollar | | |
NZD | New Zealand Dollar | | |
SEK | Swedish Krona | | |
SGD | Singapore Dollar | | |
Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the Fund at August 31, 2010 by risk category:
| | | | | | | |
| | | | FINANCIAL | ASSET | | LIABILITY |
| | STATEMENT OF ASSETS AND | | INSTRUMENTS | DERIVATIVES | | DERIVATIVES |
RISK | | LIABILITIES LOCATION | | LOCATION | FAIR VALUE | | FAIR VALUE |
|
Foreign exchange | | Receivable/payable for | | Forward for- | $628,478 | | ($667,963) |
contracts | | forward foreign currency | | eign currency | | | |
| | contracts | | contracts | | | |
Equity contracts | | Receivable/payable | | Futures† | 799,977 | | (1,858,035) |
| | for futures | | | | | |
Total | | | | | $1,428,455 | | ($2,525,998) |
† Reflects cumulative appreciation/deprecation of futures as disclosed in Note 3. Only the period end variation margin is separately disclosed on the Statement of Assets and Liabilities.
| |
38 | International Core Fund | Semiannual report |
Effect of derivative instruments on the Statement of Operations
The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended August 31, 2010:
| | | | |
| | | FOREIGN | |
| STATEMENT OF | FUTURES | CURRENCY | |
RISK | OPERATIONS LOCATION | CONTRACTS | TRANSACTIONS* | TOTAL |
|
Foreign exchange | Net realized loss on | — | ($2,625,511) | ($2,625,511) |
contracts | | | | |
Equity contracts | Net realized loss on | ($916,780) | — | (916,780) |
Total | | ($916,780) | ($2,625,511) | ($3,542,291) |
* Realized gain/loss associated with forward foreign currency contracts is included in this caption on the Statement of Operations.
The table below summarizes the net change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended August 31, 2010:
| | | | |
| | | TRANSLATION OF ASSETS | |
| STATEMENT OF OPERATIONS | FUTURES | AND LIABILITIES IN | |
RISK | LOCATION | CONTRACTS | FOREIGN CURRENCIES* | TOTAL |
|
Foreign exchange | Change in unrealized | — | $172,304 | $172,304 |
contracts | appreciation | | | |
| (depreciation) of | | | |
Equity contracts | Change in unrealized | $759,882 | — | 759,882 |
| appreciation | | | |
| (depreciation) of | | | |
Total | | $759,882 | $172,304 | $932,186 |
* Change in unrealized appreciation/depreciation associated with forward foreign currency contracts is included in this caption on the Statement of Operations.
Note 4 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Trust. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management contract with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.920% of the first $100,000,000 of the Fund’s average daily aggregate net assets; (b) 0.895% of the next $900,000,000; (c) 0.880% of the next $1,000,000,000; (d) 0.850% of the next $1,000,000,000; (e) 0.825% of the next $1,000,000,000; and (f) 0.800% of the Fund’s average daily aggregate net assets in excess of $4,000,000,000. The Adviser has a subadvisory agreement with Grantham, Mayo, Van Otterloo & Co. LLC. The Fund is not responsible for payment of the subadvisory fees.
| |
Semiannual report | International Core Fund | 39 |
The investment management fees incurred for the six months ended August 31, 2010 were equivalent to an annual effective rate of 0.89% of the Fund’s average daily net assets.
Effective July 1, 2010, the Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.60%, 2.30%, 2.30%, 1.14%, 1.89%, 1.79%, 1.49%, 1.19%, and 1.10% for Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4, Class R5 and Class 1 shares, respectively. The fee waivers and/or reimbursements will continue in effect until June 30, 2011.
Prior to July 1, 2010, the Adviser had contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excluded taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements were such that these expenses will not exceed 1.60%, 2.30%, 2.30%, 1.12%, 2.00%, 1.90%, 1.60%, 1.30%, 1.10% and 1.05% for Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4, Class R5, Class 1 and Class NAV shares, respectively.
Accordingly, these expense reductions amounted to $11,012, $6,457, $4,365, $3,589, $3,596 and $3,617 for Class B, Class C, Class R1, Class R3, Class R4 and Class R5 shares, respectively, for the six months ended August 31, 2010.
Accounting and legal services. Pursuant to the Service 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, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended August 31, 2010 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B, Class C, Class R1, Class R3, Class R4 and Class 1 shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. In addition, under a service plan for Class R1, Class R3, Class R4 and Class R5 shares, the Fund pays for certain other services. The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
| | | | |
CLASS | 12b–1 FEES | SERVICE FEE | | |
| | |
Class A | 0.30% | — | | |
Class B | 1.00% | — | | |
Class C | 1.00% | — | | |
Class R1 | 0.50% | 0.25% | | |
Class R3 | 0.50% | 0.15% | | |
Class R4 | 0.25% | 0.10% | | |
Class R5 | — | 0.05% | | |
Class 1 | 0.05% | — | | |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $18,936 for the six months ended August 31, 2010. Of this amount, $2,807 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $12,754 was paid as sales commissions to broker-dealers and $3,375 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
| |
40 | International Core Fund | Semiannual report |
Class B and Class C shares are subject to contingent deferred sales charges (CDSC). Class B shares that are redeemed within six years of purchase are subject to 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 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended August 31, 2010, CDSCs received by the Distributor amounted to $6,431 and $216 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. Class 1 and Class NAV shares do not pay transfer agent fees. Prior to July 1, 2010, the transfer agent fees were made up of three components:
• The Fund paid a monthly transfer agent fee at an annual rate of 0.05% for Class A, Class B Class C, Class R1, Class R3, Class R4 and Class R5 shares and 0.04% for Class I shares, based on each class’s average daily net assets.
• The Fund paid a monthly fee based on an annual rate of $16.50 per shareholder account.
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Effective July 1, 2010, the transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Funds and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain revenues that Signature Services received in connection with the service they provide to the funds. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. Wit hin each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the six months ended August 31, 2010 were:
| | | | |
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE FEES |
|
Class A | $362,790 | $288,719 | $4,133 | $15,985 |
Class B | 29,588 | 14,196 | 3,882 | 1,411 |
Class C | 25,397 | 8,854 | 3,930 | 927 |
Class I | — | 33,889 | 4,195 | 6,475 |
Class R1 | 515 | 441 | 4,096 | 140 |
Class R3 | 70 | 315 | 3,248 | 78 |
Class R4 | 35 | 315 | 3,248 | 78 |
Class R5 | — | 333 | 3,248 | 80 |
Class 1 | 10,745 | — | — | (1,095) |
Total | $429,140 | $347,062 | $29,980 | $24,079 |
| |
Semiannual report | International Core Fund | 41 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within other receivables and prepaid assets and Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
Note 6 — Fund share transactions
Transactions in Fund shares for the six months ended August 31, 2010 and for the year ended February 28, 2010 were as follows:
| | | | |
| Six months ended 8-31-10 | Year ended 2-28-101 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 2,885,224 | $74,180,112 | 6,631,074 | $175,433,435 |
Distributions reinvested | (63) | (1,480) | 127,968 | 3,461,527 |
Repurchased | (1,897,692) | (49,514,179) | (937,289) | (23,342,208) |
| | | | |
Net increase | 987,469 | $24,664,453 | 5,821,753 | $155,552,754 |
|
Class B shares | | | | |
|
Sold | 8,207 | $210,703 | 34,238 | $822,466 |
Distributions reinvested | (7) | (194) | 3,234 | 87,218 |
Repurchased | (49,460) | (1,262,787) | (157,836) | (3,860,326) |
| | | | |
Net decrease | (41,260) | ($1,052,278) | (120,364) | ($2,950,642) |
|
Class C shares | | | | |
|
Sold | 20,571 | $519,708 | 33,391 | $831,273 |
Distributions reinvested | — | — | 2,024 | 54,586 |
Repurchased | (37,211) | (942,302) | (70,882) | (1,706,967) |
| | | | |
Net decrease | (16,640) | ($422,594) | (35,467) | ($821,108) |
|
Class I shares | | | | |
|
Sold | 4,214,074 | $111,444,267 | 3,684,749 | $84,068,147 |
Distributions reinvested | — | — | 69,850 | 1,892,236 |
Repurchased | (530,893) | (13,703,447) | (566,742) | (14,806,818) |
| | | | |
Net increase | 3,683,181 | $97,740,820 | 3,187,857 | $71,153,565 |
|
Class R1 shares | | | | |
|
Sold | 1,089 | $27,407 | 2,549 | $60,268 |
Distributions reinvested | — | — | 91 | 2,466 |
Repurchased | (226) | (5,902) | (897) | (22,016) |
| | | | |
Net increase | 863 | $21,505 | 1,743 | $40,718 |
|
Class R3 shares | | | | |
|
Sold | — | — | 1,072 | $25,000 |
| | | | |
Net increase | — | — | 1,072 | $25,000 |
|
Class R4 shares | | | | |
|
Sold | — | — | 1,072 | $25,000 |
| | | | |
Net increase | — | — | 1,072 | $25,000 |
|
Class R5 shares | | | | |
|
Sold | 49 | $1,230 | 1,425 | $34,030 |
Repurchased | — | — | (174) | (4,500) |
| | | | |
Net increase | 49 | $1,230 | 1,251 | $29,530 |
| |
42 | International Core Fund | Semiannual report |
| | | | |
| Six months ended 8-31-10 | Year ended 2-28-101 |
| Shares | Amount | Shares | Amount |
Class 1 shares | | | | |
|
Sold | 71,120 | $1,838,217 | 125,633 | $3,081,025 |
Distributions reinvested | — | — | 39,820 | 1,080,309 |
Repurchased | (151,776) | (3,898,407) | (306,337) | (7,335,607) |
| | | | |
Net increase | (80,656) | ($2,060,190) | (140,884) | ($3,174,273) |
|
Class NAV shares | | | | |
|
Sold | 2,869,125 | $71,636,670 | 4,768,948 | $118,536,541 |
Distributions reinvested | — | — | 673,503 | 18,258,674 |
Repurchased | (2,726,028) | (69,250,619) | (7,076,676) | (168,092,370) |
| | | | |
Net increase (decrease) | 143,097 | $2,386,051 | (1,634,225) | ($31,297,155) |
|
Net increase | 4,676,103 | $121,278,997 | 7,083,808 | $188,583,389 |
|
1 The inception date for Class R3, Class R4 and Class R5 shares is 5-22-09.
Note 7 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $415,923,497 and $221,699,398, respectively, for the six months ended August 31, 2010.
| |
Semiannual report | International Core Fund | 43 |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock International Core Fund (the Fund), a series of John Hancock Funds III, met in-person on May 2–4 and June 6–8, 2010 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) between the Adviser and Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.
Activities and composition of the Board
The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are unaffiliated with the Fund, the Adviser and the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform the various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have retained independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committees A and B are standing committees of the Board that are each composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee B oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as Chairman of the Board’s Nominating, Governance and Administration Committee. The Board also designates working groups or ad hoc committees as it deems appropriate.
The approval process
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. 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. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.
Prior to the May 2–4, 2010 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information independently compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) as determined by Morningstar, and its benchmark index. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser and its affiliates that result from being the Adviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, under similar investment mandates, as well as the performance of such other clients; (c) the impact of
| |
44 | International Core Fund | Semiannual report |
economies of scale; (d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.
At an in-person meeting held on May 2–4, 2010, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May 2–4, 2010 meeting, the Board presented the Adviser and Subadviser with questions and requests for additional information and the Adviser and Subadviser responded to these requests with additional written information in advance of the June 6–8, 2010 Board meeting. The Board also reviewed these additional materials relating to its consideration of the Agreements.
At an in-person meeting held on June 6–8, 2010, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement between the Adviser and the Subadviser with respect to the Fund, each for an additional one-year term. The Board considered all factors it believed relevant with respect to the Fund, including, among other factors: (a) the nature, extent and quality of the services provided by the Adviser and the Subadviser; (b) the investment performance of the Fund and portfolio management of the Subadviser; (c) the advisory fees and the cost of the services and profits to be realized by the Adviser and certain affiliates from their relationship with the Fund; (d) economies of scale; and (e) other factors.
The Board also considered other matters important to the approval process, such as payments made to the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser, and their affiliates from their relationship with the Fund, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Trustee may have attributed different weights to the various items considered.
The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board, including the Independent Trustees, reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund. The Board reviewed the Adviser’s and Subadviser’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.
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. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.
The Board considered the Subadviser’s history and 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, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.
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Semiannual report | International Core Fund | 45 |
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and considered the Adviser’s policies and procedures for assuring compliance with applicable laws and regulations.
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 reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to such other clients under similar investment mandates, the services provided to such other clients as compared to the services provided to the Fund, the performance of such other clients, and other factors relating to such other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and those services they provide to other clients which, to the extent the other client is not a mutual fund, may generally be attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover o f mutual fund assets, the more burdensome regulatory and legal obligations of mutual funds, and the higher marketing costs for mutual funds.
Fund performance
The Board, including the Independent Trustees, reviewed and considered the performance history of the Fund. The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category and Peer Group as well as its benchmark index (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board also considered updated performance information provided by the Adviser at its May and June 2010 meetings. The Board regularly reviews the performance of the Fund throughout the year and atta ches more importance to performance over relatively longer periods of time, typically three to five years.
| | | | |
| 1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR |
|
International Core Fund | 18.20% | –7.27% | N/A | N/A |
MSCI EAFE Index (net of dividends) | 31.78% | –6.04% | N/A | N/A |
Foreign Large Value Category Median | 30.06% | –5.94% | N/A | N/A |
Morningstar 15(c) Peer Group Median | 28.81% | –7.32% | N/A | N/A |
The Board noted that the Subadviser remained consistent with its investment style and adhered to its investment mandates.
The Board considered a presentation on the investment management style of the Subadviser and noted that the Subadviser manages with a quantitative bias towards quality stocks and a momentum style of investing. The Board noted that the Subadviser had historically managed these quantitative factors separately. The Board noted that these investment styles have struggled recently, and that the Subadviser has a history of staying consistent in its management style regardless of the market environment, and that such consistency can be rewarded in the right environment. The Board noted that the Adviser and the Subadviser anticipated an improvement in performance
| |
46 | International Core Fund | Semiannual report |
once the markets begin to favor these investment styles again, and that the Subadviser has revised its process to consider its quantitative investment characteristics as a single discipline. It was finally noted that the Adviser will be closely monitoring the Subadviser’s performance. The Board concluded that the Fund’s underperformance was being responsibly addressed by the Adviser and Subadviser.
Expenses and fees
The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Category and Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other types of clients with similar investment mandates, including separately managed institutional accounts.
In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration 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 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 considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Fund. The Board considered expenses and fee rates to be higher or lower if they were over or under 10 basis points, respectively; slightly higher or slightly lower if they were above or below 6-10 basis points, respectively; and inline if they were above or below by 5 basis points.
The Board noted that the investment advisory rate was inline with the Category median and slightly higher than the Peer Group median. The Board viewed favorably the Adviser’s contractual agreement to waive all or a portion of its Advisory Agreement rate and reimburse or pay operating expenses to the extent necessary to maintain the Fund’s Net Expense Ratio at 1.60% for Class A shares, excluding certain expenses such as taxes, brokerage commissions, interest, litigation and extraordinary expenses, until June 30, 2011.
The Board reviewed the Fund’s Gross Expense Ratio of 1.98% for the Fund’s Class A shares. 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 inline with the Peer Group median and higher than the Category median. The Board favorably considered the impact of fee waivers towards ultimately lowering the Fund’s Gross Expense Ratio. The Board also received and considered information relating to the Fund’s Gross Expense Ratio and Net Expense Ratio that reflected a proposed change in the methodology for calculating transfer agent fees.
The Board received and reviewed statements relating to the Adviser’s financial condition and profitability with respect to the services it provides the Fund. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services provided to the Fund. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2009 compared to available aggregate profitability data provided for the year ended December 31, 2008.
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its
| |
Semiannual report | International Core Fund | 47 |
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 reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparability of profitability is somewhat limited.
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 fee under the Subadvisory Agreement had been negotiated by the Adviser and the Subadviser 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 Subadvisory Agreement.
Economies of scale
The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the assets of the Fund. The Board also considered the Adviser’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations.
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 ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Agreement fee rate.
Other benefits to the Adviser and the Subadviser
The Board understands that the Adviser, the Subadviser, or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community, and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.
Board determination
The Board, including the Independent Trustees, unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term and the Subadvisory Agreement between the Adviser and Subadviser with respect to the Fund for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board, including a majority of the Independent Trustees, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at a decision to approve the Agreements, the Board did not identify any single factor listed above, or any group of factors listed above, as all-important or controlling, but considered all factors together, and
| |
48 | International Core Fund | Semiannual report |
different Board Members may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by the advice of independent legal counsel in making this determination. The Board noted that contractual fee arrangements for the Fund reflect the results of several years of review by the Board and certain predecessor Trustees, and discussions between such Trustees (and predecessor Trustees) and the Adviser. Certain aspects of the arrangements may be the subject of more attention in some years than in others, and the Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years.
| |
Semiannual report | International Core Fund | 49 |
More information
| | |
Trustees | Investment adviser | |
Patti McGill Peterson, Chairperson | John Hancock Investment Management | |
James F. Carlin | Services, LLC | |
William H. Cunningham | | |
Deborah C. Jackson* | Subadviser | |
Charles L. Ladner | Grantham, Mayo, Van Otterloo & Co. LLC | |
Stanley Martin* | | |
Hugh McHaffie†** | Principal distributor | |
Dr. John A. Moore | John Hancock Funds, LLC | |
Steven R. Pruchansky* | | |
Gregory A. Russo | Custodian | |
John G. Vrysen† | State Street Bank and Trust Company | |
| | |
Officers | Transfer agent | |
Keith F. Hartstein | John Hancock Signature Services, Inc. | |
President and Chief Executive Officer | | |
| Legal counsel | |
Andrew G. Arnott | K&L Gates LLP | |
Senior Vice President** and Chief Operating Officer |
| |
| The report is certified under the Sarbanes-Oxley | |
Thomas M. Kinzler | Act, which requires mutual funds and other public | |
Secretary and Chief Legal Officer | companies to affirm that, to the best of their | |
| knowledge, the information in their financial reports | |
Francis V. Knox, Jr. | is fairly and accurately stated in all material respects. | |
Chief Compliance Officer |
| |
| | |
Charles A. Rizzo | | |
Chief Financial Officer | | |
| | |
Salvatore Schiavone** | | |
Treasurer | | |
| |
*Member of the Audit Committee | | |
**Effective 8-31-10 | | |
†Non-Independent Trustee | | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| | |
You can also contact us: | | |
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations |
| Boston, MA 02205-5913 | 30 Dan Road |
| | Canton, MA 02021 |
| |
50 | 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 8/10 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/10 |
A look at performance
For the period ended August 31, 2010
| | | | | | | | | | |
| Average annual total returns (%) | | Cumulative total returns (%) | | |
| with maximum sales charge (POP) | | with maximum sales charge (POP) | |
|
| |
|
| | | | Since | | | | | | Since |
| 1-year | 5-year | 10-year | inception1 | | 6-months | 1-year | 5-year | 10-year | inception1 |
|
Class A2 | 6.91 | — | — | –5.86 | | –6.07 | 6.91 | — | — | –25.88 |
|
Class B2 | 6.69 | — | — | –5.88 | | –6.44 | 6.69 | — | — | –25.95 |
|
Class C2 | 10.69 | — | — | –5.49 | | –2.50 | 10.69 | — | — | –24.43 |
|
Class I2,3 | 13.01 | — | — | –4.43 | | –0.93 | 13.01 | — | — | –20.13 |
|
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 shares 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 charges are not applicable for Class I 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 6-30-11. The net expenses are as follows: Class A — 1.50%, Class B — 2.20%, Class C — 2.20% and Class I — 1.04%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 1.81%, Class B — 2.52%, Class C — 2.98% and Class I — 25.10%.
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.
1 From 9-16-05.
2 On 6-9-06, through a reorganization the Fund acquired all of the assets of the GMO Small/Mid Cap Growth Fund (the predecessor fund). The predecessor fund offered its Class III shares, inception date 9-16-05, in exchange for Class A shares, which were first offered on 6-12-06. The predecessor fund’s Class III shares returns have been recalculated to reflect the gross fees and expenses of Class A shares. The inception date for Class B, Class C and Class I shares is 6-12-06; the returns prior to this date are those of Class A shares that have been recalculated to apply the gross fees and expenses of Class B, Class C and Class I shares, respectively.
3 For certain types of investors, as described in the Fund’s Class I share prospectus.
| |
6 | Growth Opportunities Fund | Semiannual report |
| | | | |
| Period | Without | With maximum | |
| beginning | sales charge | sales charge | Index |
|
Class B1 | 9-16-05 | $7,557 | $7,405 | $10,285 |
|
Class C1,3 | 9-16-05 | 7,557 | 7,557 | 10,285 |
|
Class I1,4 | 9-16-05 | 7,987 | 7,987 | 10,285 |
|
Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund’s Class B, Class C and Class I shares, respectively, as of 8-31-10. 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 On 6-9-06, through a reorganization the Fund acquired all of the assets of the GMO Small/Mid Cap Growth Fund (the predecessor fund). The predecessor fund offered its Class III shares, inception date 9-16-05, in exchange for Class A shares, which were first offered on 6-12-06. The predecessor fund’s Class III shares returns have been recalculated to reflect the gross fees and expenses of Class A shares. The inception date for Class B, Class C and Class I shares is 6-12-06; the returns prior to this date are those of Class A shares that have been recalculated to apply the gross fees and expenses of Class B, Class C and Class I shares, respectively.
2 NAV represents net asset value and POP represents public offering price.
3 The contingent deferred sales charge, if any, is not applicable.
4 For certain types of investors, as described in the Fund’s Class I share prospectus.
| |
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, 2010 with the same investment held until August 31, 2010.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $988.80 | $7.52 |
|
Class B | 1,000.00 | 984.80 | 11.01 |
|
Class C | 1,000.00 | 984.80 | 11.01 |
|
Class I | 1,000.00 | 990.70 | 5.22 |
|
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, 2010, 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, 2010, with the same investment held until August 31, 2010. 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 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $1,017.60 | $7.63 |
|
Class B | 1,000.00 | 1,014.10 | 11.17 |
|
Class C | 1,000.00 | 1,014.10 | 11.17 |
|
Class I | 1,000.00 | 1,020.00 | 5.30 |
|
Remember, these examples do not include any transaction costs, 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 1.50%, 2.20%, 2.20% and 1.04% for Class A, Class B, Class C and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
| |
Semiannual report | Growth Opportunities Fund | 9 |
Portfolio summary
| | | | |
Top 10 Holdings1 | | | | |
|
UAL Corp. | 2.6% | | Chipotle Mexican Grill, Inc. | 1.5% |
| |
|
Mettler-Toledo International, Inc. | 1.7% | | Tempur-Pedic International, Inc. | 1.5% |
| |
|
Perrigo Company | 1.5% | | Lincare Holdings, Inc. | 1.4% |
| |
|
F5 Networks, Inc. | 1.5% | | TransDigm Group, Inc. | 1.3% |
| |
|
Valassis Communications, Inc. | 1.5% | | Erie Indemnity Company, Class A | 1.2% |
| |
|
|
Sector Composition2,3 | | | | |
| |
|
Information Technology | 22% | | Materials | 6% |
| |
|
Consumer Discretionary | 21% | | Consumer Staples | 4% |
| |
|
Health Care | 16% | | Energy | 4% |
| |
|
Industrials | 16% | | Short-Term Investments & Other | 4% |
| |
|
Financials | 7% | | | |
| | |
1 As a percentage of net assets on 8-31-10. Excludes cash and cash equivalents.
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.
3 As a percentage of net assets on 8-31-10.
| |
10 | Growth Opportunities Fund | Semiannual report |
Fund’s investments
As of 8-31-10 (unaudited)
| | |
| Shares | Value |
|
Common Stocks 96.47% | | $49,467,137 |
|
(Cost $47,696,930) | | |
| | |
Consumer Discretionary 20.85% | | 10,689,532 |
| | |
Auto Components 0.78% | | |
|
Cooper Tire & Rubber Company (L) | 7,100 | 114,946 |
|
Hawk Corp., Class A (I) | 400 | 14,656 |
|
Standard Motor Products, Inc. | 1,300 | 11,180 |
|
TRW Automotive Holdings Corp. (I) | 7,400 | 257,224 |
| | |
Automobiles 0.15% | | |
|
Thor Industries, Inc. | 3,300 | 77,022 |
| | |
Diversified Consumer Services 0.65% | | |
|
CPI Corp. | 400 | 8,724 |
|
Pre-Paid Legal Services, Inc. (I)(L) | 1,800 | 98,370 |
|
Sotheby’s | 8,000 | 212,880 |
|
Universal Technical Institute, Inc. | 800 | 12,360 |
| | |
Hotels, Restaurants & Leisure 4.29% | | |
|
California Pizza Kitchen, Inc. (I) | 2,000 | 30,720 |
|
Carrols Restaurant Group, Inc. (I) | 1,400 | 6,132 |
|
CEC Entertainment, Inc. (I) | 3,900 | 122,343 |
|
Chipotle Mexican Grill, Inc. (I) | 5,100 | 769,233 |
|
Cracker Barrel Old Country Store, Inc. (L) | 8,000 | 356,880 |
|
Domino’s Pizza, Inc. (I) | 2,700 | 34,614 |
|
Interval Leisure Group, Inc. (I) | 4,400 | 55,044 |
|
P.F. Chang’s China Bistro, Inc. (L) | 1,400 | 59,934 |
|
Panera Bread Company (I) | 4,100 | 327,754 |
|
The Cheesecake Factory, Inc. (I) | 7,100 | 158,969 |
|
Wyndham Worldwide Corp. | 12,000 | 278,280 |
| | |
Household Durables 2.54% | | |
|
Harman International Industries, Inc. (I) | 7,300 | 227,541 |
|
Leggett & Platt, Inc. | 1,600 | 30,672 |
|
National Presto Industries, Inc. | 1,700 | 170,034 |
|
Tempur-Pedic International, Inc. (I) | 28,200 | 755,760 |
|
Tupperware Brands Corp. | 3,000 | 118,020 |
| | |
Internet & Catalog Retail 0.22% | | |
|
1-800-Flowers.com, Inc., Class A (I) | 5,900 | 9,381 |
|
HSN, Inc. (I) | 4,000 | 105,160 |
| | |
See notes to financial statements | Semiannual report | Growth Opportunities Fund | 11 |
| | |
| Shares | Value |
Leisure Equipment & Products 0.54% | | |
|
Hasbro, Inc. | 4,200 | $169,512 |
|
Polaris Industries, Inc. (L) | 2,000 | 106,660 |
| | |
Media 1.84% | | |
|
Arbitron, Inc. | 1,000 | 25,440 |
|
Cinemark Holdings, Inc. | 9,800 | 143,178 |
|
Valassis Communications, Inc. (I) | 26,400 | 773,784 |
| | |
Multiline Retail 0.86% | | |
|
Big Lots, Inc. (I) | 14,100 | 440,766 |
| | |
Specialty Retail 5.50% | | |
|
Abercrombie & Fitch Company, Class A | 3,600 | 124,560 |
|
Aeropostale, Inc. (I) | 6,650 | 141,645 |
|
Big 5 Sporting Goods Corp. | 1,900 | 22,544 |
|
DSW, Inc., Class A (I) | 2,400 | 57,000 |
|
Foot Locker, Inc. | 2,200 | 25,828 |
|
Guess?, Inc. | 3,700 | 119,547 |
|
Hibbett Sports, Inc. (I)(L) | 6,400 | 148,352 |
|
Jo-Ann Stores, Inc. (I) | 2,400 | 97,584 |
|
Jos. A. Bank Clothiers, Inc. (I) | 2,050 | 74,887 |
|
Kirklands, Inc. (I) | 7,100 | 81,011 |
|
Monro Muffler Brake, Inc. | 300 | 12,564 |
|
OfficeMax, Inc. (I) | 12,300 | 119,802 |
|
PetSmart, Inc. | 15,500 | 494,295 |
|
RadioShack Corp. | 1,300 | 24,024 |
|
Sonic Automotive, Inc. (I) | 2,500 | 22,025 |
|
Systemax, Inc. | 700 | 8,239 |
|
Talbots, Inc. (I)(L) | 7,900 | 78,842 |
|
The Cato Corp., Class A | 300 | 6,885 |
|
The Children’s Place Retail Stores, Inc. (I) | 4,100 | 179,006 |
|
The Dress Barn, Inc. (I) | 8,700 | 181,395 |
|
The Finish Line, Inc., Class A | 6,200 | 81,840 |
|
Tractor Supply Company | 7,600 | 516,648 |
|
Williams-Sonoma, Inc. (L) | 7,800 | 202,488 |
| | |
Textiles, Apparel & Luxury Goods 3.48% | | |
|
Carter’s, Inc. (I) | 1,100 | 24,574 |
|
Crocs, Inc. (I)(L) | 7,700 | 96,250 |
|
Deckers Outdoor Corp. (I) | 12,300 | 534,681 |
|
Fossil, Inc. (I) | 12,000 | 569,880 |
|
G-III Apparel Group, Ltd. (I) | 700 | 16,884 |
|
Liz Claiborne, Inc. (I)(L) | 5,400 | 22,680 |
|
Oxford Industries, Inc. | 2,200 | 43,384 |
|
Phillips-Van Heusen Corp. | 6,500 | 296,920 |
|
Steven Madden, Ltd. (I) | 4,350 | 149,771 |
|
Wolverine World Wide, Inc. | 1,200 | 30,324 |
| | |
Consumer Staples 4.40% | | 2,256,754 |
| | |
Beverages 1.03% | | |
|
Boston Beer Company, Inc. (I)(L) | 4,600 | 302,266 |
|
Hansen Natural Corp. (I) | 5,000 | 225,200 |
| | |
12 | Growth Opportunities Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Food & Staples Retailing 0.13% | | |
|
Pricesmart, Inc. | 2,600 | $67,106 |
| | |
Food Products 0.62% | | |
|
B&G Foods, Inc. | 1,700 | 18,156 |
|
Cal-Maine Foods, Inc. | 2,400 | 71,232 |
|
Darling International, Inc. (I) | 7,300 | 54,896 |
|
Diamond Foods, Inc. | 600 | 25,338 |
|
John B. Sanfilippo & Son, Inc. (I) | 200 | 2,560 |
|
Sanderson Farms, Inc. | 3,400 | 146,234 |
| | |
Household Products 0.11% | | |
|
WD-40 Company | 1,600 | 56,272 |
| | |
Personal Products 2.49% | | |
|
Herbalife, Ltd. | 10,200 | 566,916 |
|
Inter Parfums, Inc. | 1,100 | 18,062 |
|
Medifast, Inc. (I)(L) | 7,300 | 195,056 |
|
NBTY, Inc. (I) | 2,500 | 136,225 |
|
Nu Skin Enterprises, Inc., Class A | 14,100 | 360,537 |
| | |
Tobacco 0.02% | | |
|
Universal Corp. | 300 | 10,698 |
| | |
Energy 3.74% | | 1,920,402 |
| | |
Energy Equipment & Services 1.64% | | |
|
CARBO Ceramics, Inc. | 3,200 | 242,336 |
|
Dril-Quip, Inc. (I) | 6,200 | 327,794 |
|
Hercules Offshore, Inc. (I)(L) | 2,000 | 4,280 |
|
Lufkin Industries, Inc. | 6,200 | 239,692 |
|
PHI, Inc. (I) | 1,600 | 23,200 |
|
Rowan Companies, Inc. (I) | 100 | 2,571 |
| | |
Oil, Gas & Consumable Fuels 2.10% | | |
|
Atlas Energy, Inc. (I) | 5,400 | 146,880 |
|
Brigham Exploration Company (I)(L) | 20,500 | 314,060 |
|
Enbridge Energy Management LLC (I) | 102 | 5,413 |
|
Forest Oil Corp. (I) | 9,700 | 253,364 |
|
Holly Corp. | 3,300 | 85,833 |
|
International Coal Group, Inc. (I) | 100 | 457 |
|
Massey Energy Company | 6,500 | 186,875 |
|
Rex Energy Corp. (I) | 1,000 | 11,310 |
|
Ship Finance International, Ltd. | 3,700 | 64,787 |
|
Teekay Tankers, Ltd., Class A | 1,000 | 11,550 |
| | |
Financials 6.90% | | 3,535,741 |
| | |
Capital Markets 0.02% | | |
|
International Assets Holding Corp. (I) | 500 | 8,185 |
|
Teton Advisors, Inc., Class A (I) | 20 | 140 |
| | |
Commercial Banks 0.17% | | |
|
Bank of the Ozarks, Inc. (L) | 900 | 33,066 |
|
Comerica, Inc. | 100 | 3,441 |
|
Commerce Bancshares, Inc. | 800 | 28,584 |
|
First Interstate Bancsystem, Inc. | 300 | 3,426 |
| | |
See notes to financial statements | Semiannual report | Growth Opportunities Fund | 13 |
| | |
| Shares | Value |
Commercial Banks (continued) | | |
|
Nara Bancorp, Inc. (I) | 1,100 | $6,567 |
|
OmniAmerican Bancorp, Inc. (I) | 400 | 4,448 |
|
SunTrust Banks, Inc. | 100 | 2,249 |
|
SVB Financial Group (I) | 100 | 3,717 |
| | |
Consumer Finance 2.50% | | |
|
Advance America Cash Advance Centers, Inc. | 10,800 | 36,180 |
|
AmeriCredit Corp. (I)(L) | 4,000 | 96,800 |
|
Cardtronics, Inc. (I) | 8,600 | 119,110 |
|
Credit Acceptance Corp. (I)(L) | 6,200 | 351,230 |
|
Dollar Financial Corp. (I) | 6,000 | 116,040 |
|
EZCORP, Inc., Class A (I) | 24,100 | 433,318 |
|
First Cash Financial Services, Inc. (I) | 4,300 | 102,598 |
|
World Acceptance Corp. (I) | 700 | 28,525 |
| | |
Diversified Financial Services 0.07% | | |
|
Interactive Brokers Group, Inc., Class A (I) | 100 | 1,619 |
|
Life Partners Holdings, Inc. | 1,300 | 19,201 |
|
NewStar Financial, Inc. (I) | 2,200 | 14,762 |
| | |
Insurance 2.18% | | |
|
Axis Capital Holdings, Ltd. | 3,800 | 117,344 |
|
Endurance Specialty Holdings, Ltd. | 1,100 | 40,524 |
|
Erie Indemnity Company, Class A | 11,800 | 619,500 |
|
Genworth Financial, Inc., Class A (I) | 29,900 | 323,817 |
|
Reinsurance Group of America, Inc. | 200 | 8,748 |
|
Universal Insurance Holdings, Inc. | 2,300 | 9,568 |
| | |
Real Estate Investment Trusts 0.78% | | |
|
Anworth Mortgage Asset Corp. | 100 | 680 |
|
Apollo Commercial Real Estate Finance, Inc. | 300 | 5,109 |
|
Associated Estates Realty Corp. | 5,900 | 80,004 |
|
Chesapeake Lodging Trust (I) | 300 | 4,914 |
|
Colony Financial, Inc. | 200 | 3,544 |
|
CreXus Investment Corp. | 300 | 3,579 |
|
DuPont Fabros Technology, Inc. | 8,700 | 214,977 |
|
MFA Financial, Inc. | 100 | 737 |
|
Pennymac Mortgage Investment Trust | 200 | 3,494 |
|
Saul Centers, Inc., REIT | 1,700 | 70,278 |
|
Terreno Realty Corp. (I) | 200 | 3,466 |
|
Walter Investment Management Corp. | 392 | 6,354 |
| | |
Real Estate Management & Development 1.18% | | |
|
CB Richard Ellis Group, Inc., Class A (I) | 36,900 | 605,898 |
| | |
Health Care 16.34% | | 8,379,967 |
| | |
Biotechnology 0.59% | | |
|
Immunogen, Inc. (I) | 100 | 536 |
|
Incyte Corp. (I) | 16,300 | 204,076 |
|
Mannkind Corp. (I)(L) | 10,800 | 59,994 |
|
NPS Pharmaceuticals, Inc. (I) | 100 | 651 |
|
Rigel Pharmaceuticals, Inc. (I) | 5,100 | 39,933 |
| | |
14 | Growth Opportunities Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Health Care Equipment & Supplies 3.60% | | |
|
American Medical Systems Holdings, Inc. (I)(L) | 4,600 | $83,812 |
|
ArthroCare Corp. (I) | 200 | 5,192 |
|
Exactech, Inc. (I) | 1,900 | 27,569 |
|
Hill-Rom Holdings, Inc. (L) | 10,500 | 337,050 |
|
Integra LifeSciences Holdings Corp. (I) | 2,100 | 73,017 |
|
Invacare Corp. | 1,900 | 43,510 |
|
Kinetic Concepts, Inc. (I)(L) | 4,800 | 153,216 |
|
Merit Medical Systems, Inc. (I) | 4,800 | 75,744 |
|
NxStage Medical, Inc. (I) | 9,300 | 146,661 |
|
Orthofix International NV (I) | 6,600 | 176,220 |
|
ResMed, Inc. (I)(L) | 8,800 | 265,232 |
|
Sirona Dental Systems, Inc. (I) | 13,600 | 428,672 |
|
Teleflex, Inc. | 600 | 28,836 |
| | |
Health Care Providers & Services 5.72% | | |
|
Almost Family, Inc. (I) | 900 | 22,743 |
|
American Dental Partners, Inc. (I) | 800 | 8,544 |
|
AMERIGROUP Corp. (I) | 2,500 | 92,250 |
|
AMN Healthcare Services, Inc. (I) | 1,200 | 5,340 |
|
Bio-Reference Labs, Inc. (I) | 3,700 | 73,334 |
|
BioScrip, Inc. (I) | 10,800 | 52,488 |
|
Catalyst Health Solutions, Inc. (I) | 5,800 | 232,522 |
|
Chemed Corp. | 2,300 | 114,770 |
|
Community Health Systems, Inc. (I)(L) | 3,400 | 88,638 |
|
Corvel Corp. (I) | 5,300 | 194,934 |
|
Emergency Medical Services Corp., Class A (I) | 2,100 | 100,905 |
|
Gentiva Health Services, Inc. (I) | 1,500 | 30,825 |
|
Health Management Associates, Inc., Class A (I) | 71,300 | 445,625 |
|
Healthways, Inc. (I) | 400 | 5,000 |
|
HMS Holdings Corp. (I) | 1,400 | 73,052 |
|
Lincare Holdings, Inc. (L) | 31,650 | 728,583 |
|
Omnicare, Inc. | 3,600 | 69,120 |
|
Patterson Companies, Inc. | 16,700 | 422,343 |
|
Tenet Healthcare Corp. (I) | 32,800 | 128,576 |
|
The Providence Service Corp. (I) | 2,600 | 35,152 |
|
US Physical Therapy, Inc. (I) | 500 | 8,015 |
| | |
Health Care Technology 0.06% | | |
|
Computer Programs & Systems, Inc. | 800 | 32,688 |
| | |
Life Sciences Tools & Services 3.11% | | |
|
Affymetrix, Inc. (I) | 4,500 | 18,495 |
|
Albany Molecular Research, Inc. (I) | 100 | 607 |
|
Charles River Laboratories International, Inc. (I) | 1,300 | 36,725 |
|
Dionex Corp. (I) | 2,400 | 174,000 |
|
eResearch Technology, Inc. (I) | 10,900 | 80,715 |
|
Kendle International, Inc. (I) | 1,200 | 9,396 |
|
Mettler-Toledo International, Inc. (I) | 7,900 | 873,661 |
|
Parexel International Corp. (I) | 4,900 | 97,461 |
|
PerkinElmer, Inc. | 6,800 | 142,868 |
|
Pharmaceutical Product Development, Inc. | 6,900 | 158,493 |
| | |
See notes to financial statements | Semiannual report | Growth Opportunities Fund | 15 |
| | |
| Shares | Value |
Pharmaceuticals 3.26% | | |
|
Hi-Tech Pharmacal Company, Inc. (I)(L) | 800 | $13,880 |
|
Impax Laboratories, Inc. (I) | 20,600 | 322,802 |
|
Perrigo Company | 13,700 | 780,763 |
|
Salix Pharmaceuticals, Ltd. (I)(L) | 11,300 | 427,818 |
|
Valeant Pharmaceuticals International (I) | 1,700 | 98,073 |
|
Viropharma, Inc. (I) | 2,300 | 28,842 |
| | |
Industrials 16.20% | | 8,305,495 |
| | |
Aerospace & Defense 1.91% | | |
|
American Science & Engineering, Inc. | 500 | 35,485 |
|
BE Aerospace, Inc. (I) | 7,400 | 199,430 |
|
DigitalGlobe, Inc. (I) | 19 | 583 |
|
Esterline Technologies Corp. (I) | 1,200 | 55,200 |
|
Spirit Aerosystems Holdings, Inc., Class A (I) | 1,600 | 30,944 |
|
TransDigm Group, Inc. | 11,400 | 659,946 |
| | |
Airlines 3.38% | | |
|
Alaska Air Group, Inc. (I) | 700 | 30,961 |
|
Continental Airlines, Inc., Class B (I)(L) | 4,800 | 107,232 |
|
Copa Holdings SA, Class A | 5,700 | 278,046 |
|
Hawaiian Holdings, Inc. (I) | 500 | 2,450 |
|
Skywest, Inc. | 100 | 1,274 |
|
UAL Corp. (I)(L) | 62,000 | 1,313,780 |
| | |
Building Products 0.43% | | |
|
Lennox International, Inc. | 3,400 | 144,126 |
|
Masco Corp. | 100 | 1,049 |
|
Quanex Building Products Corp. | 3,800 | 60,040 |
|
Trex Company, Inc. (I)(L) | 800 | 16,040 |
| | |
Commercial Services & Supplies 0.98% | | |
|
ATC Technology Corp. (I) | 600 | 14,478 |
|
Cenveo, Inc. (I) | 4,800 | 26,352 |
|
Consolidated Graphics, Inc. (I) | 600 | 23,826 |
|
Deluxe Corp. | 4,100 | 68,593 |
|
Herman Miller, Inc. | 1,900 | 31,198 |
|
HNI Corp. (L) | 11,000 | 257,070 |
|
Knoll, Inc. | 4,100 | 55,022 |
|
Standard Parking Corp. (I) | 300 | 4,695 |
|
Team, Inc. (I) | 1,400 | 20,482 |
| | |
Construction & Engineering 0.07% | | |
|
Michael Baker Corp. (I) | 1,100 | 36,267 |
| | |
Electrical Equipment 1.50% | | |
|
Acuity Brands, Inc. | 2,800 | 108,472 |
|
AMETEK, Inc. | 10,300 | 442,797 |
|
Hubbell, Inc., Class B | 1,300 | 58,474 |
|
Polypore International, Inc. (I) | 5,000 | 135,100 |
|
Thomas & Betts Corp. (I) | 700 | 25,865 |
| | |
16 | Growth Opportunities Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
Industrial Conglomerates 0.13% | | |
|
Carlisle Companies, Inc. | 2,300 | $64,515 |
| | |
Machinery 5.30% | | |
|
Actuant Corp., Class A | 4,100 | 81,262 |
|
Altra Holdings, Inc. (I) | 600 | 7,722 |
|
ArvinMeritor, Inc. (I)(L) | 16,200 | 211,734 |
|
Bucyrus International, Inc. | 6,700 | 385,183 |
|
Chart Industries, Inc. (I) | 2,100 | 33,432 |
|
Colfax Corp. (I) | 1,800 | 22,482 |
|
Crane Company | 4,500 | 152,550 |
|
Dynamic Materials Corp. | 2,900 | 39,672 |
|
EnPro Industries, Inc. (I) | 500 | 13,655 |
|
Force Protection, Inc. (I) | 100 | 388 |
|
FreightCar America, Inc. | 200 | 4,658 |
|
Gardner Denver, Inc. | 700 | 33,418 |
|
Graco, Inc. | 900 | 25,119 |
|
Nordson Corp. | 500 | 32,085 |
|
Pall Corp. | 16,300 | 557,297 |
|
Pentair, Inc. | 1,100 | 33,110 |
|
Sauer-Danfoss, Inc. (I) | 3,400 | 55,284 |
|
Snap-On, Inc. | 1,000 | 41,230 |
|
The Toro Company | 7,700 | 384,230 |
|
TriMas Corp. (I) | 2,100 | 27,069 |
|
WABCO Holdings, Inc. (I) | 16,300 | 574,738 |
| | |
Professional Services 0.91% | | |
|
Diamond Management & Technology Consultants, Inc. | 5,700 | 71,193 |
|
Equifax, Inc. | 6,800 | 200,396 |
|
Exponent, Inc. (I) | 2,500 | 77,100 |
|
The Advisory Board Company (I) | 2,500 | 101,350 |
|
VSE Corp. | 600 | 16,848 |
Road & Rail 0.85% | | |
|
Avis Budget Group, Inc. (I) | 11,800 | 107,616 |
|
Kansas City Southern (I)(L) | 9,700 | 325,629 |
Trading Companies & Distributors 0.74% | | |
|
MSC Industrial Direct Company, Inc., Class A | 4,900 | 218,393 |
|
TAL International Group, Inc. | 2,700 | 57,564 |
|
WESCO International, Inc. (I) | 3,200 | 103,296 |
| | |
Information Technology 21.64% | | 11,097,392 |
| | |
Communications Equipment 3.98% | | |
|
Acme Packet, Inc. (I) | 13,100 | 440,160 |
|
Blue Coat Systems, Inc. (I) | 6,100 | 114,863 |
|
F5 Networks, Inc. (I) | 8,900 | 778,127 |
|
Ixia (I) | 5,500 | 62,095 |
|
JDS Uniphase Corp. (I) | 28,000 | 257,320 |
|
NETGEAR, Inc. (I) | 1,100 | 23,232 |
|
Plantronics, Inc. | 3,300 | 90,123 |
|
Polycom, Inc. (I) | 9,500 | 270,560 |
|
Tellabs, Inc. | 300 | 2,130 |
| | |
See notes to financial statements | Semiannual report | Growth Opportunities Fund | 17 |
| | |
| Shares | Value |
Computers & Peripherals 0.95% | | |
|
Isilon Systems, Inc. (I) | 800 | $15,960 |
|
NCR Corp. (I) | 8,200 | 105,370 |
|
QLogic Corp. (I) | 11,900 | 177,251 |
|
Silicon Graphics International Corp. (I) | 200 | 1,187 |
|
Stratasys, Inc. (I) | 5,300 | 120,363 |
|
Super Micro Computer, Inc. (I) | 7,500 | 67,763 |
| | |
Electronic Equipment, Instruments & Components 1.84% | | |
|
AVX Corp. | 2,300 | 28,589 |
|
Benchmark Electronics, Inc. (I) | 700 | 9,821 |
|
Comverge, Inc. (I)(L) | 1,100 | 7,293 |
|
FARO Technologies, Inc. (I) | 3,100 | 56,854 |
|
FLIR Systems, Inc. (I) | 3,700 | 92,944 |
|
Insight Enterprises, Inc. (I) | 1,100 | 14,454 |
|
Jabil Circuit, Inc. | 30,200 | 309,550 |
|
MTS Systems Corp. | 300 | 7,995 |
|
Multi-Fineline Electronix, Inc. (I) | 2,000 | 41,680 |
|
National Instruments Corp. | 6,500 | 187,395 |
|
Plexus Corp. (I) | 2,600 | 59,852 |
|
Power-One, Inc. (I)(L) | 12,400 | 126,232 |
| | |
Internet Software & Services 0.98% | | |
|
Akamai Technologies, Inc. (I)(L) | 9,600 | 442,272 |
|
Earthlink, Inc. | 100 | 856 |
|
IAC/InterActiveCorp (I) | 1,600 | 39,664 |
|
ModusLink Global Solutions, Inc. (I) | 500 | 2,905 |
|
Travelzoo, Inc. (I) | 800 | 14,608 |
|
ValueClick, Inc. (I) | 100 | 1,090 |
| | |
IT Services 4.02% | | |
|
Acxiom Corp. (I) | 22,700 | 281,367 |
|
CSG Systems International, Inc. (I) | 7,200 | 131,760 |
|
Exlservice Holdings, Inc. (I) | 3,800 | 63,118 |
|
Gartner, Inc. (I) | 4,700 | 134,796 |
|
Genpact, Ltd. (I) | 5,300 | 74,147 |
|
Global Cash Access Holdings, Inc. (I) | 14,700 | 53,214 |
|
Heartland Payment Systems, Inc. (L) | 4,600 | 65,090 |
|
Hewitt Associates, Inc. (I) | 10,700 | 516,489 |
|
iGate Corp. | 2,100 | 32,949 |
|
MAXIMUS, Inc. | 4,000 | 214,840 |
|
Sapient Corp. | 13,800 | 143,934 |
|
Unisys Corp. (I) | 1,400 | 31,304 |
|
VeriFone Holdings, Inc. (I) | 12,400 | 299,832 |
|
Virtusa Corp. (I) | 2,300 | 20,286 |
| | |
Office Electronics 0.13% | | |
|
Zebra Technologies Corp., Class A (I) | 2,400 | 68,688 |
| | |
Semiconductors & Semiconductor Equipment 4.43% | | |
|
Atheros Communications, Inc. (I)(L) | 7,000 | 172,620 |
|
Cirrus Logic, Inc. (I) | 36,700 | 554,904 |
|
Cree, Inc. (I)(L) | 9,500 | 508,630 |
| | |
18 | Growth Opportunities Fund | Semiannual report | See notes to financial statements |
| | |
Semiconductors & Semiconductor Equipment (continued) | | |
|
Diodes, Inc. (I)(L) | 6,500 | $95,875 |
|
Entropic Communications, Inc. (I) | 3,600 | 27,396 |
|
Lattice Semiconductor Corp. (I) | 8,100 | 33,615 |
|
Micrel, Inc. | 3,160 | 27,950 |
|
MKS Instruments, Inc. (I) | 100 | 1,726 |
|
Novellus Systems, Inc. (I) | 1,900 | 44,270 |
|
NVE Corp. (I) | 1,100 | 42,240 |
|
Power Integrations, Inc. | 3,000 | 82,170 |
|
Skyworks Solutions, Inc. (I) | 4,800 | 85,728 |
|
Supertex, Inc. (I) | 1,500 | 33,015 |
|
Teradyne, Inc. (I)(L) | 4,200 | 37,716 |
|
Veeco Instruments, Inc. (I)(L) | 9,900 | 328,977 |
|
Virage Logic Corp. (I) | 6,100 | 73,200 |
|
Volterra Semiconductor Corp. (I) | 6,000 | 120,300 |
| | |
Software 5.31% | | |
|
Actuate Corp. (I) | 4,500 | 17,955 |
|
Blackbaud, Inc. | 6,500 | 135,330 |
|
Bottomline Technologies, Inc. (I) | 2,200 | 30,822 |
|
FactSet Research Systems, Inc. (L) | 4,700 | 345,685 |
|
Informatica Corp. (I) | 13,000 | 418,080 |
|
JDA Software Group, Inc. (I) | 3,300 | 75,801 |
|
Manhattan Associates, Inc. (I) | 3,800 | 98,971 |
|
MICROS Systems, Inc. (I) | 9,800 | 373,380 |
|
MicroStrategy, Inc., Class A (I) | 3,500 | 272,755 |
|
Opnet Technologies, Inc. | 2,100 | 33,075 |
|
Parametric Technology Corp. (I) | 10,200 | 173,910 |
|
Progress Software Corp. (I) | 9,200 | 245,732 |
|
Radiant Systems, Inc. (I) | 5,000 | 89,550 |
|
Renaissance Learning, Inc. | 5,700 | 45,600 |
|
Smith Micro Software, Inc. (I) | 9,100 | 69,615 |
|
Synchronoss Technologies, Inc. (I) | 7,400 | 114,404 |
|
TIBCO Software, Inc. (I) | 12,700 | 184,023 |
| | |
Materials 5.61% | | 2,875,666 |
| | |
Chemicals 3.78% | | |
|
Albemarle Corp. | 7,800 | 312,702 |
|
Ashland, Inc. | 2,100 | 97,566 |
|
Balchem Corp. | 3,100 | 75,795 |
|
International Flavors & Fragrances, Inc. | 11,800 | 539,142 |
|
Lubrizol Corp. | 4,100 | 382,571 |
|
NewMarket Corp. | 3,700 | 371,961 |
|
Omnova Solutions, Inc. (I) | 4,200 | 25,620 |
|
PolyOne Corp. (I) | 11,100 | 108,225 |
|
Stepan Company | 400 | 22,180 |
|
W.R. Grace & Company (I) | 100 | 2,530 |
| | |
Metals & Mining 1.83% | | |
|
Carpenter Technology Corp. | 5,800 | 179,858 |
|
Compass Minerals International, Inc. | 2,000 | 143,500 |
|
Stillwater Mining Company (I) | 3,000 | 41,100 |
| | |
See notes to financial statements | Semiannual report | Growth Opportunities Fund | 19 |
| | | |
| | Shares | Value |
Metals & Mining (continued) | | | |
|
Titanium Metals Corp. (I) | | 1,800 | $32,616 |
|
Walter Energy, Inc. | | 7,500 | 540,300 |
| | | |
Telecommunication Services 0.38% | | | 194,004 |
| | | |
Diversified Telecommunication Services 0.36% | | | |
|
Cogent Communications Group, Inc. (I) | | 2,100 | 18,312 |
|
Consolidated Communications Holdings, Inc. | | 4,300 | 74,562 |
|
Global Crossing, Ltd. (I) | | 4,100 | 50,430 |
|
TW Telecom, Inc. (I) | | 2,400 | 42,084 |
| | | |
Wireless Telecommunication Services 0.02% | | | |
|
USA Mobility, Inc. | | 600 | 8,616 |
| | | |
Utilities 0.41% | | | 212,184 |
| | | |
Multi-Utilities 0.38% | | | |
|
CenterPoint Energy, Inc. | | 8,900 | 131,631 |
|
Integrys Energy Group, Inc. (L) | | 1,300 | 62,985 |
| | | |
Water Utilities 0.03% | | | |
|
Southwest Water Company | | 1,600 | 17,568 |
|
Short-Term Investments 14.42% | | | $7,395,760 |
(Cost $7,394,546) | | | |
|
| Yield | Shares | Value |
Short-Term Securities 3.36% | | | 1,722,876 |
|
State Street Institutional Investment Treasury | | | |
Money Market Fund, | 0.034% (Y) | 1,722,876 | 1,722,876 |
| | | |
Securities Lending Collateral 11.06% | | | 5,672,884 |
John Hancock Collateral Investment Trust (W) | 0.3330% (Y) | 566,716 | 5,672,884 |
|
Total investments (Cost $55,091,476)† 110.89% | | | $56,862,897 |
|
Other assets and liabilities, net (10.89%) | | | ($5,583,068) |
|
Total net assets 100.00% | | | $51,279,829 |
|
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
(I) Non-income producing security.
(L) All or a portion of this security is on loan as of 8-31-10.
(W) Investment is an affiliate of the Fund, the adviser and/or subadviser. Also, it represents the investment of securities lending collateral received.
(Y) The rate shown is the annualized seven-day yield as of 8-31-10.
† At 8-31-10, the aggregate cost of investment securities for federal income tax purposes was $55,192,004. Net unrealized appreciation aggregated $1,670,893, of which $5,399,053 related to appreciated investment securities and $3,728,160 related to depreciated investment securities.
| | |
20 | Growth Opportunities Fund | Semiannual report | See notes to financial statements |
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 8-31-10 (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 $49,419,806) including | |
$5,507,321 of securities loaned (Note 2) | $51,190,013 |
Investments in affiliated issuers, at value (Cost $5,671,670) (Note 2) | 5,672,884 |
| |
Total investments, at value (Cost $55,091,476) | 56,862,897 |
Receivable for investments sold | 1,096,965 |
Receivable for fund shares sold | 18,265 |
Dividends and interest receivable | 33,898 |
Receivable for securities lending income | 2,236 |
Receivable due from adviser | 12,935 |
Other receivables and prepaid assets | 20,039 |
| |
Total assets | 58,047,235 |
|
Liabilities | |
|
Payable for investments purchased | 980,158 |
Payable for fund shares repurchased | 49,939 |
Payable upon return of securities loaned (Note 2) | 5,670,078 |
Payable to affiliates | |
Accounting and legal services fees | 978 |
Transfer agent fees | 9,609 |
Trustees’ fees | 1,455 |
Other liabilities and accrued expenses | 55,189 |
Total liabilities | 6,767,406 |
|
Net assets | |
|
Capital paid-in | $87,700,374 |
Accumulated net investment loss | (233,472) |
Accumulated net realized loss on investments and futures contracts | (37,958,494) |
Net unrealized appreciation (depreciation) on investments | 1,771,421 |
| |
Net assets | $51,279,829 |
|
Net asset value per share | |
|
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($44,537,099 ÷ 2,665,272 shares) | $16.71 |
Class B ($3,847,681 ÷ 236,896 shares)1 | $16.24 |
Class C ($2,149,934 ÷ 132,400 shares)1 | $16.24 |
Class I ($745,115 ÷ 43,770 shares) | $17.02 |
|
Maximum offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $17.59 |
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 | Growth Opportunities 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 six-month period ended 8-31-10 (unaudited)
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 | $193,752 |
Securities lending | 19,184 |
Interest | 668 |
|
Total investment income | 213,604 |
|
Expenses | |
|
Investment management fees (Note 5) | 225,109 |
Distribution and service fees (Note 5) | 108,604 |
Accounting and legal services fees (Note 5) | 6,514 |
Transfer agent fees (Note 5) | 113,785 |
Trustees’ fees (Note 5) | 1,930 |
State registration fees (Note 5) | 16,678 |
Printing and postage fees (Note 5) | 14,756 |
Professional fees | 30,612 |
Custodian fees | 6,373 |
Registration and filing fees | 6,806 |
Other | 4,845 |
| |
Total expenses | 536,012 |
Less expense reductions (Note 5) | (89,878) |
| |
Net expenses | 446,134 |
| |
Net investment loss | (232,530) |
|
Realized and unrealized gain (loss) | |
|
Net realized gain on | |
Investments in unaffiliated issuers | 2,851,883 |
Investments in affiliated issuers | 1,874 |
Futures contracts (Note 3) | 305,186 |
| 3,158,943 |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (3,344,958) |
Investments in affiliated issuers | (1,761) |
Futures contracts (Note 3) | (112,098) |
| (3,458,817) |
Net realized and unrealized loss | (299,874) |
| |
Decrease in net assets from operations | ($532,404) |
| | |
22 | Growth Opportunities Fund | Semiannual report | See notes to financial statements |
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.
| | |
| For the | |
| six-month | |
| period ended | Year |
| 8-31-10 | ended |
| (unaudited) | 2-28-10 |
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment loss | ($232,530) | ($389,560) |
Net realized gain (loss) | 3,158,943 | (8,764,202) |
Change in net unrealized appreciation (depreciation) | (3,458,817) | 27,627,086 |
| | |
Increase (decrease) in net assets resulting from operations | (532,404) | 18,473,324 |
| | |
From Fund share transactions (Note 6) | (1,782,597) | (7,035,680) |
| | |
Total increase (decrease) | (2,315,001) | 11,437,644 |
|
Net assets | | |
|
Beginning of period | 53,594,830 | 42,157,186 |
| | |
End of period | $51,279,829 | $53,594,830 |
| | |
Accumulated net investment loss | ($233,472) | ($942) |
| | |
See notes to financial statements | Semiannual report | Growth Opportunities Fund | 23 |
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 | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 | 2-28-063 |
|
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | $16.90 | $11.53 | $20.76 | $24.34 | $23.29 | $21.31 |
Net investment income (loss)4 | | (0.07) | (0.10) | (0.10) | (0.15) | (0.07)5 | 0.04 |
Net realized and unrealized gain (loss) | | | | | | | |
on investments | | (0.12) | 5.47 | (9.13) | (3.43) | 1.36 | 1.94 |
Total from investment operations | | (0.19) | 5.37 | (9.23) | (3.58) | 1.29 | 1.98 |
Less distributions | | | | | | | |
From net realized gain | | — | — | — | —6 | (0.24) | — |
Net asset value, end of period | | $16.71 | $16.90 | $11.53 | $20.76 | $24.34 | $23.29 |
Total return (%)7,8,13 | | (1.12)9 | 46.57 | (44.46) | (14.69) | 5.57 | 9.299 |
|
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | $45 | $47 | $36 | $72 | $5 | $2 |
Ratios (as a percentage of average | | | | | | | |
net assets): | | | | | | | |
Expenses before reductions | | 1.7710 | 2.1211 | 2.01 | 1.81 | 5.59 | 5.4510 |
Expenses net of fee waivers | | 1.5010 | 1.6411 | 1.81 | 1.55 | 1.32 | 0.4810 |
Expenses net of fee waivers and credits | | 1.5010 | 1.5111 | 1.54 | 1.54 | 1.32 | 0.4810 |
Net investment income (loss) | | (0.74)10 | (0.68) | (0.52) | (0.64) | (0.34)5 | 0.4110 |
Portfolio turnover (%) | | 59 | 125 | 140 | 26212 | 96 | 43 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 Effective 6-12-06, 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 The inception date for Class A shares is 9-16-05.
4 Based on the average daily 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 ($0.005) per share.
7 Assumes dividend reinvestment (if applicable).
8 Total returns would have been lower had certain expenses not been reduced during the periods shown.
9 Not annualized.
10 Annualized.
11 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
12 Excludes merger activity.
13 Does not reflect the effect of sales charges, if any.
| | |
24 | Growth Opportunities Fund | Semiannual report | See notes to financial statements |
| | | | | | | |
CLASS B SHARES Period ended | | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | | $16.49 | $11.33 | $20.52 | $24.23 | $22.17 |
Net investment loss3 | | | (0.13) | (0.20) | (0.23) | (0.31) | (0.20)4 |
Net realized and unrealized gain (loss) | | | | | | | |
on investments | | | (0.12) | 5.36 | (8.96) | (3.40) | 2.50 |
Total from investment operations | | | (0.25) | 5.16 | (9.19) | (3.71) | 2.30 |
Less distributions | | | | | | | |
From net realized gain | | | — | — | — | —5 | (0.24) |
Net asset value, end of period | | | $16.24 | $16.49 | $11.33 | $20.52 | $24.23 |
Total return (%)6,7,13 | | | (1.52)8 | 45.54 | (44.79) | (15.29) | 10.408 |
|
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | | $4 | $5 | $5 | $13 | —9 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | | 2.7410 | 3.1911 | 3.07 | 2.61 | 14.6210 |
Expenses net of fee waivers | | | 2.2010 | 2.2411 | 2.72 | 2.25 | 2.2210 |
Expenses net of fee waivers and credits | | | 2.2010 | 2.2111 | 2.24 | 2.24 | 2.2210 |
Net investment loss | | | (1.44)10 | (1.38) | (1.24) | (1.34) | (1.21)4,10 |
Portfolio turnover (%) | | | 59 | 125 | 140 | 26212 | 96 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class B shares is 6-12-06.
3 Based on the average daily 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 ($0.005) per share.
6 Assumes dividend reinvestment (if applicable).
7 Total returns would have been lower had certain expenses not been reduced during the periods shown.
8 Not annualized.
9 Less than $500,000.
10 Annualized.
11 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
12 Excludes merger activity.
13 Does not reflect the effect of sales charges, if any.
| | |
See notes to financial statements | Semiannual report | Growth Opportunities Fund | 25 |
| | | | | | | |
CLASS C SHARES Period ended | | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | | $16.49 | $11.32 | $20.53 | $24.23 | $22.17 |
Net investment loss3 | | | (0.13) | (0.20) | (0.21) | (0.32) | (0.19)4 |
Net realized and unrealized gain (loss) | | | | | | | |
on investments | | | (0.12) | 5.37 | (9.00) | (3.38) | 2.49 |
Total from investment operations | | | (0.25) | 5.17 | (9.21) | (3.70) | 2.30 |
Less distributions | | | | | | | |
From net realized gain | | | — | — | — | —5 | (0.24) |
Net asset value, end of period | | | $16.24 | $16.49 | $11.32 | $20.53 | $24.23 |
Total return (%)6,7,12 | | | (1.52)8 | 45.67 | (44.86) | (15.25) | 10.408 |
|
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | | $2 | $2 | $2 | $3 | $1 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | | 2.769 | 3.2710 | 3.45 | 3.14 | 10.439 |
Expenses net of fee waivers | | | 2.209 | 2.2810 | 2.55 | 2.25 | 2.229 |
Expenses net of fee waivers and credits | | | 2.209 | 2.2110 | 2.24 | 2.24 | 2.229 |
Net investment loss | | | (1.45)9 | (1.39) | (1.21) | (1.35) | (1.15)4,9 |
Portfolio turnover (%) | | | 59 | 125 | 140 | 26211 | 96 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class C shares is 6-12-06.
3 Based on the average daily 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 ($0.005) per share.
6 Assumes dividend reinvestment (if applicable).
7 Total returns would have been lower had certain expenses not been reduced during the periods shown.
8 Not annualized.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
11 Excludes merger activity.
12 Does not reflect the effect of sales charges, if any.
| | |
26 | Growth Opportunities Fund | Semiannual report | See notes to financial statements |
| | | | | | | |
CLASS I SHARES Period ended | | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | | |
|
Net asset value, beginning of period | | | $17.18 | $11.66 | $20.90 | $24.41 | $22.17 |
Net investment loss3 | | | (0.01) | (0.04) | (0.01) | (0.07) | (0.02)4 |
Net realized and unrealized gain (loss) | | | | | | | |
on investments | | | (0.15) | 5.56 | (9.23) | (3.44) | 2.50 |
Total from investment operations | | | (0.16) | 5.52 | (9.24) | (3.51) | 2.48 |
Less distributions | | | | | | | |
From net realized gain | | | — | — | — | —5 | (0.24) |
Net asset value, end of period | | | $17.02 | $17.18 | $11.66 | $20.90 | $24.41 |
Total return (%)6,7 | | | (0.93)8 | 47.34 | (44.21) | (14.36) | 11.228 |
|
Ratios and supplemental data | | | | | | | |
|
Net assets, end of period (in millions) | | | $1 | —9 | —9 | —9 | —9 |
Ratios (as a percentage of average net assets): | | | | | | | |
Expenses before reductions | | | 6.6810 | 26.9911 | 121.96 | 12.17 | 16.2610 |
Expenses net of fee waivers | | | 1.0410 | 1.0711 | 1.09 | 1.04 | 1.1310 |
Expenses net of fee waivers and credits | | | 1.0410 | 1.0711 | 1.09 | 1.04 | 1.1310 |
Net investment loss | | | (0.09)10 | (0.27) | (0.04) | (0.30) | (0.10)4,10 |
Portfolio turnover (%) | | | 59 | 125 | 140 | 26212 | 96 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class I shares is 6-12-06.
3 Based on the average daily 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 ($0.005) per share.
6 Assumes dividend reinvestment (if applicable).
7 Total returns would have been lower had certain expenses not been reduced during the periods shown.
8 Not annualized.
9 Less than $500,000.
10 Annualized.
11 Includes the impact of proxy expenses, which amounted to 0.01% of average net assets.
12 Excludes merger activity.
| | |
See notes to financial statements | Semiannual report | Growth Opportunities Fund | 27 |
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), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek long-term capital growth.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase. Class R1 shares converted into Class A shares on August 21, 2009.
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. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of the regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these techniques are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes significant unobservable inputs when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of August 31, 2010, all investments are categorized as Level 1 under the hierarchy described above.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain 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. Certain short-term securities are valued at amortized cost. John Hancock Collateral Investment Trust (JHCIT), an affiliate of the Fund, is valued at its closing net asset value (NAV). JHCIT is a floating NAV fund investing in short-term investments as part o f a securities lending program.
| |
28 | Growth Opportunities Fund | Semiannual report |
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by 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. Significant market events that affect the values of non-U.S. securities may occur after the time when the valuation of the securities is generally determined and the close of the NYSE. During significant market events, these securities will be valued at fair value, as determined in good faith, following procedures established by the Board of Trustees. The Fund may use a fair valuation model to value non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date except for certain foreign dividends where the ex-date may have passed, which are recorded when the Fund becomes aware of the dividends. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities.
Securities lending. The Fund may lend its securities to earn additional income. It receives and maintains cash collateral received from the borrower in an amount not less than the market value of the loaned securities. The Fund will invest its collateral in JHCIT, as a result, the Fund will receive the benefit of any gains and bear any losses generated by JHCIT. Although risk of the loss of the securities lent is mitigated by holding the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. The Fund may receive compensation for lending its securities by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Income received from JHCIT is a component of securities lending income as re corded on the Statement of Operations.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the funds’ relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage fees for all classes are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to a Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with the custodian which enables them to participate in a $100 million unsecured committed line of credit. Prior to March 31, 2010, the amount of the line of credit was $150 million. A commitment fee, payable at
| |
Semiannual report | Growth Opportunities Fund | 29 |
the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis based on their relative average net assets. For the six months ended August 31, 2010, the Fund had no significant borrowings under the line of credit.
Federal income taxes. The Fund intends to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has a capital loss carryforward of $40,904,812 available to offset future net realized capital gains as of February 28, 2010. The loss carryforward expires as follows: February 28, 2017 — $21,165,220 and February 28, 2018 — $19,739,592. Availability of a certain amount of the loss carryforward, which was acquired in a merger, may be limited in a given year.
As of February 28, 2010, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure. The Fund’s federal tax return is subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares and pays dividends and capital gains distributions, if any, annually.
Distributions paid by the Fund with respect to each series of shares are calculated in the same manner, at the same time and 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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Capital accounts within financial statements are adjusted for permanent book/tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book/tax differences, if any, will reverse in a subsequent period. Permanent book/tax differences are primarily attributable to net operating losses and expiration of capital loss carryforward.
Note 3 — Derivative instruments
The Fund may invest in derivatives, including futures contracts, in order to meet its investment objectives. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, derivatives expose the Fund to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
For more information regarding the Fund’s use of derivatives, please refer to the Fund’s Prospectuses and Statement of Additional Information.
Futures. A futures contract is a contractual agreement to buy or sell a particular commodity, currency, or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be
| |
30 | Growth Opportunities Fund | Semiannual report |
highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates and potential losses in excess of the Fund’s initial investment.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures contracts are marked to market daily and an appropriate payable or receivable for the change in value (variation margin) is recorded by the Fund.
During the six months ended August 31, 2010 the Fund used futures contracts to gain exposure to certain securities markets and to enhance potential gain. The range of futures contracts notional amounts held by the Fund during the six months ended August 31, 2010 was $0 to $2,200,000. There were no open futures contracts at August 31, 2010.
Effect of derivative instruments on the Statement of Operations.
The table below summarizes the realized gain (loss) recognized in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category for the six months ended August 31, 2010:
| | | | |
RISK | STATEMENT OF OPERATIONS LOCATION | FUTURES | | |
| | |
Equity contracts | Net realized gain | $305,186 | | |
The table below summarizes the change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category for the six months ended August 31, 2010:
| | | | |
RISK | STATEMENT OF OPERATIONS LOCATION | FUTURES | | |
| | |
Equity contracts | Change in unrealized | ($112,098) | | |
| appreciation (depreciation) | | | |
Note 4 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Trust. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation.
Management fee. The Fund has an investment management contract with the Adviser under which the Fund pays a daily 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 average daily net assets; (b) 0.78% of the next $500,000,000; (c) 0.77% of the next $1,500,000,000; and (d) 0.76% of the Fund’s average daily net assets in excess of $2,500,000,000. 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 six months ended August 31, 2010 were equivalent to an annual effective rate of 0.80% of the Fund’s average daily net assets.
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Semiannual report | Growth Opportunities Fund | 31 |
Effective July 1, 2010, 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 1.50% for Class A, 2.20% for Class B, 2.20% for Class C and 1.04% for Class I shares. The expense reimbursements and limits will continue in effect until June 30, 2011 and thereafter until terminated by the Adviser on notice to the Trust.
Prior to July 1, 2010, 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 were such that these expenses would not exceed 1.50% for Class A, 2.20% for Class B, 2.20% for Class C and 1.04% for Class I shares.
Accordingly, the expense reductions or reimbursements related to these agreements were $65,757, $12,330, $6,850 and $4,941 for Class A, Class B, Class C and Class I shares, respectively, for the six months ended August 31, 2010.
Accounting and legal services. Pursuant to the service 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, periodic reports to shareholders and regulatory reports amongst other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended August 31, 2010 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution plans. The Fund has a distribution agreement with the Distributor. The Fund 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 services provided as the distributor of shares of the Fund. The Fund may up to the following contractual rates of distribution and services fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
| | | | | |
CLASS | 12b-1 FEES | | | | |
| | | | |
Class A | 0.30% | | | | |
Class B | 1.00% | | | | |
Class C | 1.00% | | | | |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $20,477 for the six months ended August 31, 2010. Of this amount, $3,303 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $4,585 was paid as sales commissions to broker-dealers and $12,589 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
Class B and Class C shares are subject to contingent deferred sales charges (CDSC). Class B shares that are redeemed within six years of purchase are subject to 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 1.00% CDSC on the lesser of the current market value at the time of redemption
| |
32 | Growth Opportunities Fund | Semiannual report |
or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended August 31, 2010, CDSCs received by the Distributor amounted to $6,147 and $34 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. Prior to July 1, 2010, the transfer agent fees were made up of three components:
• The Fund paid a monthly transfer agent fee at an annual rate of 0.05% for Class A, Class B, Class C and 0.04% for Class I, based on each class’s average daily net assets.
• The Fund paid a monthly fee based on an annual rate of $16.50 per shareholder account.
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Effective July 1, 2010, the transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain revenues that Signature Services received in connection with the service they provide to the funds. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. With in each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the six months ended August 31, 2010 were:
| | | | |
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE FEES |
|
Class A | $73,674 | $97,212 | $4,049 | $12,986 |
Class B | 22,724 | 11,979 | 3,914 | 1,023 |
Class C | 12,206 | 4,227 | 4,558 | 484 |
Class I | — | 367 | 4,157 | 263 |
Total | $108,604 | $113,785 | $16,678 | $14,756 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within other receivables and prepaid assets and Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
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Semiannual report | Growth Opportunities Fund | 33 |
Note 6 — Fund share transactions
Transactions in Fund shares for the six months ended August 31, 2010 and the year ended February 28, 2010 were as follows:
| | | | |
| For the six-month period | | |
| | ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 119,458 | $2,139,284 | 239,627 | $3,485,927 |
Exchanged for Class R1 | — | — | 6,731 | 100,417 |
Repurchased | (224,730) | (4,000,241) | (581,309) | (8,514,817) |
| | | | |
Net decrease | (105,272) | ($1,860,957) | (334,951) | ($4,928,473) |
|
Class B shares | | | | |
|
Sold | 13,117 | $230,786 | 33,636 | $477,682 |
Repurchased | (59,183) | (1,036,146) | (152,890) | (2,199,177) |
| | | | |
Net decrease | (46,066) | ($805,360) | (119,254) | ($1,721,495) |
|
Class C shares | | | | |
|
Sold | 40,687 | $719,593 | 20,040 | $295,286 |
Repurchased | (33,643) | (592,594) | (45,542) | (585,976) |
| | | | |
Net increase (decrease) | 7,044 | $126,999 | (25,502) | ($290,690) |
|
Class I shares | | | | |
|
Sold | 42,095 | $760,325 | 5,869 | $76,363 |
Repurchased | (199) | (3,604) | (5,195) | (76,017) |
| | | | |
Net increase | 41,896 | $756,721 | 674 | $346 |
|
Class R1 shares | | | | |
|
Sold | — | — | 381 | $5,049 |
Exchanged for Class A | — | — | (6,769) | (100,417) |
| | | | |
Net decrease | — | — | (6,388) | ($95,368) |
|
Net decrease | (102,398) | ($1,782,597) | (485,421) | ($7,035,680) |
|
Note 7 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $31,055,078 and $32,329,121, respectively, for the six months ended August 31, 2010.
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34 | Growth Opportunities Fund | Semiannual report |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock Growth Opportunities Fund (the Fund), a series of John Hancock Funds III, met in-person on May 2–4 and June 6–8, 2010 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) between the Adviser and Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.
Activities and composition of the Board
The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are unaffiliated with the Fund, the Adviser and the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform the various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have retained independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committees A and B are standing committees of the Board that are each composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee B oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as Chairman of the Board’s Nominating, Governance and Administration Committee. The Board also designates working groups or ad hoc committees as it deems appropriate.
The approval process
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. 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. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.
Prior to the May 2–4, 2010 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information independently compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) as determined by Morningstar, and its benchmark index. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser and its affiliates that result from being the Adviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, under similar investment mandates, as well as the performance of such other clients; (c) the impact of economies of scale; (d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.
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Semiannual report | Growth Opportunities Fund | 35 |
At an in-person meeting held on May 2–4, 2010, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May 2–4, 2010 meeting, the Board presented the Adviser and Subadviser with questions and requests for additional information and the Adviser and Subadviser responded to these requests with additional written information in advance of the June 6–8, 2010 Board meeting. The Board also reviewed these additional materials relating to its consideration of the Agreements.
At an in-person meeting held on June 6–8, 2010, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement between the Adviser and the Subadviser with respect to the Fund, each for an additional one-year term. The Board considered all factors it believed relevant with respect to the Fund, including, among other factors: (a) the nature, extent and quality of the services provided by the Adviser and the Subadviser; (b) the investment performance of the Fund and portfolio management of the Subadviser; (c) the advisory fees and the cost of the services and profits to be realized by the Adviser and certain affiliates from their relationship with the Fund; (d) economies of scale; and (e) other factors.
The Board also considered other matters important to the approval process, such as payments made to the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser, and their affiliates from their relationship with the Fund, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Trustee may have attributed different weights to the various items considered.
The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board, including the Independent Trustees, reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund. The Board reviewed the Adviser’s and Subadviser’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.
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. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.
The Board considered the Subadviser’s history and 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, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer
| |
36 | Growth Opportunities Fund | Semiannual report |
agency, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund. The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and considered the Adviser’s policies and procedures for assuring compliance with applicable laws and regulations.
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 reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to such other clients under similar investment mandates, the services provided to such other clients as compared to the services provided to the Fund, the performance of such other clients, and other factors relating to such other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and those services they provide to other clients which, to the extent the other client is not a mutual fund, may generally be attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover o f mutual fund assets, the more burdensome regulatory and legal obligations of mutual funds, and the higher marketing costs for mutual funds.
Fund performance
The Board, including the Independent Trustees, reviewed and considered the performance history of the Fund. The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category and Peer Group as well as its benchmark index. The Board noted that the Fund materially underperformed its Peer Group median, Category median and the Russell 2500 Growth Index (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board also considered updated performance information provided by t he Adviser at its May and June 2010 meetings. The Board regularly reviews the performance of the Fund throughout the year and attaches more importance to performance over relatively longer periods of time, typically three to five years.
| | | | |
| 1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR |
|
Growth Opportunities Fund | 21.51% | –11.21% | N/A | N/A |
Russell 2500 Growth Index | 41.66% | –3.13% | N/A | N/A |
Small Growth Category Median | 34.24% | –4.68% | N/A | N/A |
Morningstar 15(c) Peer Group Median | 34.38% | –6.61% | N/A | N/A |
The Board noted that the Subadviser remained consistent with its investment style and adhered to its investment mandates.
The Board considered a presentation on the investment management style of the Subadviser and noted that the Subadviser manages with a quantitative bias towards quality stocks and a momentum style of investing. The Board noted that the Subadviser had historically managed these quantitative factors separately. The Board noted that these investment styles have struggled recently, and that the Subadviser has a history of staying consistent in its management style regardless of the market environment, and that such consistency can be rewarded in the right environment.
The Board noted that the Adviser and the Subadviser anticipated an improvement in performance once the markets begin to favor these investment styles again, and that the Subadviser has revised its process to consider its quantitative investment characteristics as a single discipline. It was finally noted that the Adviser will be closely monitoring the Subadviser’s performance. The Board concluded that the Fund’s underperformance was being responsibly addressed by the Adviser
| |
Semiannual report | Growth Opportunities Fund | 37 |
and Subadviser. The Board concluded that the Fund’s underperformance was being responsibly addressed by the Adviser and Subadviser.
Expenses and fees
The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Category and Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other types of clients with similar investment mandates, including separately managed institutional accounts.
In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration 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 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 considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Fund. The Board considered expenses and fee rates to be higher or lower if they were over or under 10 basis points, respectively; slightly higher or slightly lower if they were above or below 6–10 basis points, respectively; and inline if they were above or below by 5 basis points.
The Board noted that the investment advisory rate was lower than the Category median and slightly lower than the Peer Group median. The Board viewed favorably the Adviser’s contractual agreement to waive all or a portion of its Advisory Agreement rate and reimburse or pay operating expenses to the extent necessary to maintain the Fund’s Net Expense Ratio at 1.50% for Class A shares, excluding certain expenses such as taxes, brokerage commissions, interest, litigation and extraordinary expenses, until June 30, 2011.
The Board reviewed the Fund’s Gross Expense Ratio of 2.42% for the Fund’s Class A shares. 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 lower than the Peer Group median and higher than the Category median. The Board favorably considered the impact of fee waivers towards ultimately lowering the Fund’s Gross Expense Ratio. The Board also received and considered information relating to the Fund’s Gross Expense Ratio and Net Expense Ratio that reflected a proposed change in the methodology for calculating transfer agent fees.
The Board received and reviewed statements relating to the Adviser’s financial condition and profitability with respect to the services it provides the Fund. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services provided to the Fund. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2009 compared to available aggregate profitability data provided for the year ended December 31, 2008.
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among
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38 | Growth Opportunities Fund | Semiannual report |
various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparability of profitability is somewhat limited.
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 fee under the Subadvisory Agreement had been negotiated by the Adviser and the Subadviser 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 Subadvisory Agreement.
Economies of scale
The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the assets of the Fund. The Board also considered the Adviser’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations.
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 ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Agreement fee rate.
Other benefits to the Adviser and the Subadviser
The Board understands that the Adviser, the Subadviser, or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community, and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.
Board determination
The Board, including the Independent Trustees, unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term and the Subadvisory Agreement between the Adviser and Subadviser with respect to the Fund for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board, including a majority of the Independent Trustees, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at a decision to approve the Agreements, the Board did not identify any single factor listed above, or any group of factors listed above, as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by the advice of independent legal counsel in making this determination. The Board noted that contractual fee arrangements for the Fund reflect the results of several years of review by the Board and certain predecessor Trustees, and discussions between such Trustees (and predecessor Trustees) and the Adviser. Certain aspects of the arrangements may be the subject of more attention in some years than in others, and the Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years.
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Semiannual report | Growth Opportunities Fund | 39 |
More information
| | |
Trustees | Investment adviser | |
Patti McGill Peterson, Chairperson | John Hancock Investment Management | |
James F. Carlin | Services, LLC | |
William H. Cunningham | | |
Deborah C. Jackson* | Subadviser | |
Charles L. Ladner | Grantham, Mayo, Van Otterloo & Co. LLC | |
Stanley Martin* | | |
Hugh McHaffie†** | Principal distributor | |
Dr. John A. Moore | John Hancock Funds, LLC | |
Steven R. Pruchansky* | | |
Gregory A. Russo | Custodian | |
John G. Vrysen† | State Street Bank and Trust Company | |
| | |
Officers | Transfer agent | |
Keith F. Hartstein | John Hancock Signature Services, Inc. | |
President and Chief Executive Officer | | |
| Legal counsel | |
Andrew G. Arnott | K&L Gates LLP | |
Senior Vice President** and Chief Operating Officer | | |
|
| |
Thomas M. Kinzler | The report is certified under the Sarbanes-Oxley | |
Secretary and Chief Legal Officer | Act, which requires mutual funds and other public | |
| companies to affirm that, to the best of their | |
Francis V. Knox, Jr. | knowledge, the information in their financial reports | |
Chief Compliance Officer | is fairly and accurately stated in all material respects. | |
|
| |
Charles A. Rizzo | | |
Chief Financial Officer | | |
| | |
Salvatore Schiavone** | | |
Treasurer | | |
| |
*Member of the Audit Committee | | |
**Effective 8-31-10 | | |
†Non-Independent Trustee | | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| | |
You can also contact us: | | |
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations |
| Boston, MA 02205-5913 | 30 Dan Road |
| | Canton, MA 02021 |
| |
40 | 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 8/10 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/10 |
A look at performance
For the period ended August 31, 2010
| | | | | | | | | | |
| Average annual total returns (%) | | Cumulative total returns (%) | | |
| with maximum sales charge (POP) | | with maximum sales charge (POP) | |
|
| | | | Since | | | | | | Since |
| 1-year | 5-year | 10-year | inception | | 6-months | 1-year | 5-year | 10-year | inception |
|
Class A | –2.81 | — | — | –1.851 | | –6.24 | –2.81 | — | — | –7.601 |
|
Class B | –3.45 | — | — | –1.811 | | –6.64 | –3.45 | — | — | –7.431 |
|
Class C | 0.49 | — | — | –1.411 | | –2.71 | 0.49 | — | — | –5.831 |
|
Class I2 | 2.81 | — | — | –0.201 | | –1.09 | 2.81 | — | — | –0.831 |
|
Class 12 | 2.77 | — | — | –0.181 | | –1.09 | 2.77 | — | — | –0.781 |
|
Class NAV2 | 2.76 | — | — | –5.353 | | –1.10 | 2.76 | — | — | –18.313 |
|
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 shares 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 charges are not applicable for Class I, 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 6-30-11. The net expenses are as follows: Class A — 1.70%, Class B — 2.40%, Class C — 2.40 and Class 1 — 1.20%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 1.79%, Class B — 4.17%, Class C — 3.67% and Class 1 — 1.22%. For the other classes, the net expenses equal the gross expenses and are as follows: Class I — 1.23% and Class NAV — 1.15%.
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.
1 From 6-12-06.
2 For certain types of investors, as described in the Fund’s Class I, Class 1 and Class NAV shares prospectuses.
3 From 12-27-06.
| |
6 | International Growth Fund | Semiannual report |
| | | | | |
| Period | Without | With maximum | | |
| beginning | sales charge | sales charge | Index 1 | Index 2 |
|
Class B | 6-12-06 | $9,428 | $9,257 | $9,707 | $9,324 |
|
Class C2 | 6-12-06 | 9,417 | 9,417 | 9,707 | 9,324 |
|
Class I3 | 6-12-06 | 9,917 | 9,917 | 9,707 | 9,324 |
|
Class 13 | 6-12-06 | 9,922 | 9,922 | 9,707 | 9,324 |
|
Class NAV3 | 12-27-06 | 8,169 | 8,169 | 8,262 | 7,795 |
|
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 1 and Class NAV shares, respectively, as of 8-31-10. 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 Growth Index (gross of foreign withholding tax on dividends) — Index 1 — is a free float-adjusted market capitalization index that is designed to measure the performance of growth-oriented developed market stocks within Europe, Australasia and the Far East. The Index consists of 21 developed market country indexes.
MSCI EAFE Index (gross of foreign withholding tax on dividends) — 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. The index consists of 21 developed market country indexes.
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 The contingent deferred sales charge, if any, is not applicable.
3 For certain types of investors, as described in the Fund’s Class I, Class 1 and Class NAV shares 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, 2010 with the same investment held until August 31, 2010.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $986.80 | $7.96 |
|
Class B | 1,000.00 | 982.70 | 11.99 |
|
Class C | 1,000.00 | 982.70 | 11.99 |
|
Class I | 1,000.00 | 989.10 | 5.72 |
|
Class 1 | 1,000.00 | 989.10 | 5.67 |
|
Class NAV | 1,000.00 | 989.00 | 5.41 |
|
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, 2010, 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, 2010, with the same investment held until August 31, 2010. 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 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $1,017.20 | $8.08 |
|
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 | 1,019.50 | 5.80 |
|
Class 1 | 1,000.00 | 1,019.50 | 5.75 |
|
Class NAV | 1,000.00 | 1,019.80 | 5.50 |
|
Remember, these examples do not include any transaction costs, 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 1.59%, 2.40%, 2.40%, 1.14%, 1.13% and 1.08% for Class A, Class B, Class C, Class I, Class 1 and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
| |
Semiannual report | International Growth Fund | 9 |
Portfolio summary
| | | | |
Top 10 Holdings1 | | | | |
|
GlaxoSmithKline PLC | 4.3% | | Rio Tinto PLC | 2.4% |
| |
|
Nestle SA | 3.5% | | Koninklijke Philips Electronics NV | 1.6% |
| |
|
Novo Nordisk A/S | 2.8% | | British American Tobacco PLC | 1.5% |
| |
|
Roche Holdings AG | 2.6% | | SAP AG | 1.4% |
| |
|
Novartis AG | 2.6% | | Hennes & Mauritz AB, B Shares | 1.2% |
| |
|
|
Sector Composition2,3 | | | | |
|
Health Care | 19% | | Financials | 5% |
| |
|
Industrials | 14% | | Telecommunication Services | 5% |
| |
|
Consumer Staples | 14% | | Energy | 4% |
| |
|
Consumer Discretionary | 12% | | Utilities | 1% |
| |
|
Materials | 11% | | Short-Term Investments & Other | 7% |
| |
|
Information Technology | 8% | | | |
| | |
1 As a percentage of net assets on 8-31-10. Excludes cash and cash equivalents.
2 As a percentage of net assets on 8-31-10.
3 International investing invovles special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. 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 | International Growth Fund | Semiannual report |
Fund’s investments
As of 8-31-10 (unaudited)
| | |
| Shares | Value |
|
Common Stocks 93.51% | | $179,771,586 |
|
(Cost $177,372,077) | | |
| | |
Australia 4.50% | | 8,644,236 |
|
BHP Billiton, Ltd. | 26,619 | 884,432 |
|
Cochlear, Ltd. | 3,748 | 231,057 |
|
Commonwealth Bank of Australia | 40,391 | 1,813,220 |
|
CSL, Ltd. | 5,813 | 170,759 |
|
JB Hi-Fi, Ltd. | 7,072 | 131,312 |
|
Newcrest Mining, Ltd. | 8,118 | 269,373 |
|
Rio Tinto, Ltd. | 33,439 | 2,093,412 |
|
Telstra Corp., Ltd. | 193,663 | 474,778 |
|
Westpac Banking Corp. | 4,564 | 88,444 |
|
Woodside Petroleum, Ltd. | 16,953 | 633,269 |
|
Woolworths, Ltd. | 75,132 | 1,854,180 |
| | |
Austria 0.23% | | 433,850 |
|
Andritz AG | 2,881 | 174,775 |
|
Immofinanz AG (I)(L) | 39,303 | 128,498 |
|
Immofinanz AG - Escrow Shares (I) | 49,581 | 0 |
|
Raiffeisen International Bank Holding AG | 1,557 | 63,631 |
|
Voestalpine AG | 2,267 | 66,946 |
| | |
Belgium 1.26% | | 2,419,114 |
|
Anheuser-Busch InBev NV | 5,495 | 285,464 |
|
Bekaert SA | 882 | 178,265 |
|
Belgacom SA | 11,130 | 395,683 |
|
Colruyt SA | 1,857 | 459,217 |
|
Delhaize Group SA | 2,611 | 174,950 |
|
Groupe Bruxelles Lambert SA | 1,029 | 75,681 |
|
Mobistar SA (L) | 3,863 | 216,277 |
|
Nyrstar | 14,829 | 158,489 |
|
Telenet Group Holding NV | 5,111 | 152,325 |
|
Umicore | 9,323 | 322,763 |
| | |
Bermuda 0.39% | | 749,675 |
|
Alliance Oil Company, Ltd., SADR (I) | 12,075 | 139,843 |
|
Frontline, Ltd. | 3,858 | 102,178 |
|
Golden Ocean Group, Ltd. (L) | 63,400 | 81,182 |
|
Seadrill, Ltd. | 18,373 | 426,472 |
| | |
See notes to financial statements | Semiannual report | International Growth Fund | 11 |
| | |
| Shares | Value |
| | |
Canada 2.63% | | $5,061,418 |
|
Barrick Gold Corp. | 4,700 | 220,158 |
|
Canadian National Railway Company | 19,100 | 1,165,506 |
|
Imperial Oil, Ltd. | 3,900 | 143,806 |
|
Pacific Rubiales Energy Corp. (I) | 11,400 | 268,870 |
|
Petrobank Energy & Resources, Ltd. | 2,900 | 100,569 |
|
Red Back Mining, Inc. (I) | 10,300 | 307,450 |
|
Research In Motion, Ltd. (I) | 12,700 | 544,277 |
|
Rogers Communications, Inc., Class B | 10,100 | 350,543 |
|
Royal Bank of Canada | 7,600 | 363,483 |
|
Shaw Communications, Inc., Class B | 6,000 | 123,055 |
|
Shoppers Drug Mart Corp. | 8,700 | 296,241 |
|
Teck Resources, Ltd., Class B | 35,200 | 1,177,460 |
| | |
Denmark 3.24% | | 6,232,632 |
|
A P Moller Maersk A/S, Series A | 21 | 157,643 |
|
Danske Bank A/S (I) | 6,749 | 149,642 |
|
FLS Industries A/S, B Shares | 2,244 | 132,092 |
|
Novo Nordisk A/S | 63,639 | 5,453,941 |
|
Novozymes A/S, B Shares | 2,896 | 339,314 |
| | |
Finland 0.44% | | 853,190 |
|
Kone Oyj | 3,575 | 164,060 |
|
Metso Oyj | 9,734 | 353,788 |
|
Nokia AB Oyj | 20,710 | 177,068 |
|
UPM-Kymmene Oyj | 11,576 | 158,274 |
| | |
France 4.36% | | 8,387,706 |
|
Air Liquide SA | 2,323 | 240,713 |
|
BNP Paribas | 9,207 | 572,703 |
|
Bureau Veritas SA | 2,025 | 122,868 |
|
Cie Generale de Geophysique-Veritas (I) | 4,420 | 74,392 |
|
Danone SA | 9,579 | 513,488 |
|
Dassault Systemes SA | 3,681 | 221,500 |
|
Essilor International SA | 4,567 | 276,771 |
|
Eutelsat Communications | 3,328 | 119,403 |
|
Hermes International SA | 4,618 | 835,299 |
|
L’Oreal SA | 7,961 | 789,826 |
|
Legrand SA, ADR | 5,581 | 169,130 |
|
LVMH Moet Hennessy Louis Vuitton SA | 8,572 | 992,262 |
|
Neopost SA | 2,001 | 141,193 |
|
Renault SA (I) | 5,752 | 232,602 |
|
Safran SA | 4,549 | 111,464 |
|
Sanofi-Aventis SA | 20,030 | 1,145,107 |
|
Schneider Electric SA | 3,596 | 379,708 |
|
Societe Generale | 5,037 | 254,724 |
|
Technip SA | 5,559 | 362,469 |
|
Total SA | 11,654 | 542,664 |
|
Vallourec SA | 1,832 | 156,651 |
|
Zodiac SA | 2,216 | 132,769 |
| | |
12 | International Growth Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
| | |
Germany 4.15% | | $7,976,302 |
|
Aixtron AG (L) | 11,754 | 290,519 |
|
BASF SE | 14,406 | 754,143 |
|
Bayerische Motoren Werke (BMW) AG | 14,329 | 750,934 |
|
Beiersdorf AG | 4,055 | 215,857 |
|
Daimler AG (I) | 22,505 | 1,090,765 |
|
HeidelbergCement AG | 4,572 | 182,830 |
|
Henkel AG & Company, KGaA | 3,535 | 141,896 |
|
Infineon Technologies AG (I) | 114,324 | 630,818 |
|
Lanxess AG | 11,207 | 489,278 |
|
MAN AG | 2,209 | 189,653 |
|
SAP AG | 60,156 | 2,617,037 |
|
Software AG | 1,774 | 184,876 |
|
Stada Arzneimittel AG | 7,447 | 226,818 |
|
Suedzucker AG | 3,083 | 56,011 |
|
Symrise AG | 6,284 | 154,867 |
| | |
Greece 0.43% | | 827,561 |
|
Alpha Bank A.E. (I) | 26,068 | 167,911 |
|
EFG Eurobank Ergasias SA (I) | 14,671 | 95,196 |
|
National Bank of Greece SA (I) | 19,017 | 241,254 |
|
OPAP SA | 21,369 | 323,200 |
| | |
Hong Kong 1.73% | | 3,326,660 |
|
BOC Hong Kong Holdings, Ltd. | 43,500 | 114,768 |
|
CLP Holdings, Ltd. | 110,500 | 843,808 |
|
Esprit Holdings, Ltd. | 56,563 | 319,659 |
|
Hang Seng Bank, Ltd. | 31,700 | 435,694 |
|
Hong Kong & China Gas Company, Ltd. | 253,550 | 612,817 |
|
Hong Kong Electric Holdings, Ltd. | 85,500 | 520,374 |
|
Hong Kong Exchanges & Clearing, Ltd. | 16,000 | 252,045 |
|
Sun Hung Kai Properties, Ltd. | 8,000 | 112,674 |
|
Swire Pacific, Ltd., Class A | 9,500 | 114,821 |
| | |
Ireland 0.64% | | 1,233,653 |
|
CRH PLC | 5,909 | 91,309 |
|
Experian PLC | 12,892 | 122,973 |
|
Shire PLC | 47,240 | 1,019,371 |
| | |
Italy 0.26% | | 507,180 |
|
Eni SpA | 6,161 | 121,763 |
|
Saipem SpA | 11,068 | 385,417 |
| | |
Japan 19.38% | | 37,257,929 |
|
Asahi Glass Company, Ltd. | 52,000 | 505,938 |
|
Astellas Pharma, Inc. | 20,900 | 721,011 |
|
Canon, Inc. | 43,100 | 1,761,257 |
|
Central Japan Railway Company, Ltd. | 23 | 185,971 |
|
Chugai Pharmaceutical Company, Ltd. | 18,300 | 311,738 |
|
CyberAgent, Inc. | 82 | 131,182 |
|
Daiichi Sankyo Company, Ltd. | 11,100 | 221,305 |
|
Daito Trust Construction Company, Ltd. | 9,600 | 550,621 |
|
Dena Company, Ltd. | 11,900 | 355,964 |
| | |
See notes to financial statements | Semiannual report | International Growth Fund | 13 |
| | |
| Shares | Value |
Japan (continued) | | |
|
Disco Corp. | 2,500 | $124,471 |
|
Eisai Company, Ltd. | 13,000 | 468,202 |
|
Elpida Memory, Inc. (I)(L) | 18,900 | 228,304 |
|
FamilyMart Company, Ltd. | 3,800 | 137,349 |
|
Fanuc, Ltd. | 20,500 | 2,210,015 |
|
Fast Retailing Company, Ltd. | 6,100 | 844,195 |
|
Fuji Heavy Industries, Ltd. (I) | 44,000 | 246,548 |
|
Fujitsu, Ltd. | 24,000 | 166,185 |
|
Gree, Inc. (L) | 1,700 | 125,017 |
|
Hirose Electric Company, Ltd. | 2,700 | 261,580 |
|
Hisamitsu Pharmaceutical Company, Inc. | 7,900 | 325,964 |
|
Hitachi Construction Machinery Company, Ltd. | 9,200 | 183,543 |
|
Hitachi, Ltd. (I) | 63,000 | 255,109 |
|
Honda Motor Company, Ltd. | 44,900 | 1,480,053 |
|
Hoya Corp. | 25,900 | 570,547 |
|
Inpex Corp. | 42 | 190,071 |
|
Itochu Corp. | 29,800 | 242,620 |
|
Japan Tobacco, Inc. | 36 | 111,660 |
|
Kao Corp. | 46,000 | 1,067,393 |
|
KDDI Corp. | 64 | 308,027 |
|
Keyence Corp. | 3,200 | 662,752 |
|
Kintetsu Corp. (L) | 51,000 | 170,430 |
|
Koito Manufacturing Company, Ltd. | 8,000 | 110,131 |
|
Komatsu, Ltd. | 40,100 | 817,214 |
|
Kurita Water Industries, Ltd. | 5,300 | 139,558 |
|
Lawson, Inc. | 6,100 | 277,882 |
|
Makita Corp. | 7,500 | 212,785 |
|
Marubeni Corp. | 43,000 | 221,036 |
|
Mitsubishi Chemical Holdings Corp. | 52,500 | 248,091 |
|
Mitsubishi Corp. | 35,100 | 754,872 |
|
Mitsubishi Electric Corp. | 74,000 | 592,533 |
|
Mitsui & Company, Ltd. | 9,000 | 117,612 |
|
Mitsui O.S.K. Lines, Ltd. | 61,000 | 384,819 |
|
Mizuho Financial Group, Inc. | 150,200 | 230,075 |
|
Murata Manufacturing Company, Ltd. | 10,100 | 479,370 |
|
NHK Spring Company, Ltd. | 19,000 | 157,280 |
|
Nidec Corp. | 11,900 | 1,049,904 |
|
Nikon Corp. | 9,000 | 150,483 |
|
Nintendo Company, Ltd. | 4,400 | 1,220,994 |
|
Nippon Electric Glass Company, Ltd. | 34,000 | 379,512 |
|
Nippon Yusen Kabushiki Kaisha | 39,000 | 150,009 |
|
Nissan Motor Company, Ltd. (I) | 82,100 | 625,422 |
|
Nitori Company, Ltd. | 5,800 | 505,293 |
|
Nitto Denko Corp. | 13,500 | 434,692 |
|
Nomura Research Institute, Ltd. | 8,300 | 160,999 |
|
NSK, Ltd. | 42,000 | 251,122 |
|
NTT Data Corp. | 37 | 115,441 |
|
NTT DoCoMo, Inc. | 554 | 935,165 |
| | |
14 | International Growth Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
| | |
Japan (continued) | | |
|
Odakyu Electric Railway Company, Ltd. | 42,000 | $387,523 |
|
Olympus Corp. | 9,000 | 214,251 |
|
Ono Pharmaceutical Company, Ltd. | 2,200 | 96,564 |
|
Oriental Land Company, Ltd. | 2,500 | 221,554 |
|
ORIX Corp. | 2,390 | 179,341 |
|
Rakuten, Inc. | 259 | 196,297 |
|
Resona Holdings, Inc. (L) | 12,700 | 125,535 |
|
Ricoh Company, Ltd. | 11,000 | 140,517 |
|
SANKYO Company, Ltd. | 2,600 | 131,378 |
|
Santen Pharmaceutical Company, Ltd. | 6,500 | 232,750 |
|
Secom Company, Ltd. | 8,200 | 357,634 |
|
Seven & I Holdings Company, Ltd. | 13,600 | 310,225 |
|
Shimamura Company, Ltd. | 1,600 | 145,938 |
|
Shin-Etsu Chemical Company, Ltd. | 13,300 | 614,042 |
|
Shionogi & Company, Ltd. | 12,600 | 219,436 |
|
Shiseido Company, Ltd. | 18,000 | 403,742 |
|
SMC Corp. | 3,400 | 418,155 |
|
Softbank Corp. | 23,900 | 684,472 |
|
Sony Corp. | 10,600 | 296,682 |
|
Stanley Electric Company, Ltd. | 12,400 | 190,827 |
|
Sumitomo Heavy Industries, Ltd. | 22,000 | 101,535 |
|
Sysmex Corp. | 3,200 | 202,690 |
|
Taiyo Nippon Sanso Corp. | 5,000 | 39,492 |
|
Takeda Pharmaceutical Company, Ltd. | 37,200 | 1,707,165 |
|
TDK Corp. | 2,100 | 109,974 |
|
Terumo Corp. | 18,300 | 903,784 |
|
THK Company, Ltd. | 6,700 | 110,068 |
|
Tokyo Electron, Ltd. | 5,600 | 264,005 |
|
Toshiba Corp. (I) | 134,000 | 632,471 |
|
Toyota Boshoku Corp. | 7,900 | 114,632 |
|
Trend Micro, Inc. | 7,300 | 197,496 |
|
Tsumura & Company, Ltd. | 6,200 | 193,179 |
|
Unicharm Corp. | 4,800 | 584,866 |
|
Yahoo! Japan Corp. | 1,116 | 401,132 |
|
Yamada Denki Company, Ltd. | 4,520 | 281,261 |
| | |
Luxembourg 0.45% | | 873,647 |
|
Millicom International Cellular SA | 3,948 | 360,817 |
|
Oriflame Cosmetics SA | 3,026 | 158,077 |
|
SES SA | 8,103 | 185,714 |
|
Tenaris SA | 10,033 | 169,039 |
| | |
Netherlands 4.23% | | 8,124,578 |
|
ASML Holding NV | 27,792 | 690,555 |
|
Fugro NV | 4,794 | 269,045 |
|
Heineken NV (L) | 7,027 | 313,885 |
|
Koninklijke (Royal) KPN NV | 61,895 | 895,804 |
|
Koninklijke Boskalis Westinster NV | 5,049 | 187,519 |
|
Koninklijke Philips Electronics NV | 107,085 | 2,989,054 |
|
Koninklijke Vopak NV | 4,877 | 195,328 |
| | |
See notes to financial statements | Semiannual report | International Growth Fund | 15 |
| | |
| Shares | Value |
| | |
Netherlands (continued) | | |
|
Randstad Holdings NV (I) | 6,865 | $254,300 |
|
Reed Elsevier NV | 36,234 | 433,197 |
|
TNT NV | 14,235 | 359,800 |
|
Unilever NV (L) | 57,495 | 1,536,091 |
| | |
Norway 1.20% | | 2,298,999 |
|
Aker Solutions ASA | 10,400 | 114,074 |
|
Marine Harvest (I)(L) | 249,988 | 189,859 |
|
Norsk Hydro ASA (I) | 45,200 | 214,426 |
|
Petroleum Geo-Services ASA (I) | 23,400 | 209,234 |
|
Schibsted ASA | 11,830 | 269,475 |
|
Statoil ASA | 5,134 | 96,109 |
|
Telenor ASA | 30,314 | 442,732 |
|
TGS Nopec Geophysical Company ASA | 16,800 | 224,952 |
|
Yara International ASA | 13,450 | 538,138 |
| | |
Portugal 0.14% | | 274,113 |
|
Jeronimo Martins SGPS SA | 9,077 | 100,125 |
|
Portugal Telecom SGPS SA | 14,867 | 173,988 |
| | |
Singapore 2.66% | | 5,111,249 |
|
Ezra Holdings, Ltd. | 103,000 | 132,639 |
|
Genting Singapore PLC (I) | 405,000 | 506,404 |
|
Golden Agri-Resources, Ltd. | 664,000 | 275,125 |
|
Hyflux, Ltd. | 55,000 | 122,314 |
|
Keppel Corp., Ltd. | 53,000 | 349,589 |
|
Keppel Land, Ltd. | 40,000 | 114,803 |
|
Midas Holdings, Ltd. | 131,000 | 83,508 |
|
Olam International, Ltd. | 62,000 | 121,993 |
|
Oversea-Chinese Banking Corp., Ltd. | 17,000 | 108,639 |
|
SembCorp Marine, Ltd. | 86,000 | 242,389 |
|
Singapore Airport Terminal Services, Ltd. | 36,000 | 74,181 |
|
Singapore Exchange, Ltd. | 79,000 | 439,246 |
|
Singapore Post, Ltd. | 129,000 | 108,582 |
|
Singapore Press Holdings, Ltd. | 176,000 | 530,598 |
|
Singapore Technologies Engineering, Ltd. | 218,000 | 515,763 |
|
Singapore Telecommunications, Ltd. | 407,000 | 926,636 |
|
SMRT Corp., Ltd. | 59,000 | 89,627 |
|
StarHub, Ltd. | 58,000 | 105,183 |
|
Wilmar International, Ltd. | 57,000 | 264,030 |
| | |
Spain 1.31% | | 2,513,973 |
|
Banco Santander SA | 27,248 | 318,461 |
|
Inditex SA | 14,339 | 954,510 |
|
Telefonica SA | 56,256 | 1,241,002 |
| | |
Sweden 5.25% | | 10,086,376 |
|
Alfa Laval AB | 24,884 | 362,122 |
|
Assa Abloy AB, Series B | 24,111 | 479,096 |
|
Atlas Copco AB, Series A | 59,482 | 900,864 |
|
Atlas Copco AB, Series B | 31,481 | 430,416 |
|
Boliden AB | 33,199 | 373,536 |
| | |
16 | International Growth Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
| | |
Sweden (continued) | | |
|
Electrolux AB, Series B | 20,554 | $395,057 |
|
Elekta AB, Series B, Series B | 12,312 | 353,763 |
|
Ericsson (LM), Series B | 18,103 | 175,159 |
|
Getinge AB, Series B | 11,029 | 221,071 |
|
Hennes & Mauritz AB, B Shares | 70,899 | 2,307,636 |
|
Hexagon AB | 15,807 | 257,198 |
|
Investor AB, B Shares | 4,304 | 74,299 |
|
Kinnevik Investment AB | 13,798 | 250,697 |
|
Lundin Petroleum AB | 22,874 | 126,681 |
|
Modern Times Group AB, B Shares | 7,299 | 418,523 |
|
Sandvik AB | 36,827 | 434,751 |
|
Scania AB, Series B | 41,961 | 772,247 |
|
Skandinaviska Enskilda Banken AB, Series A | 13,945 | 86,491 |
|
SKF AB, B Shares | 33,974 | 608,097 |
|
Swedish Match AB | 19,019 | 437,509 |
|
Tele2 AB, Series B | 19,071 | 342,424 |
|
Volvo AB, Series B (I) | 24,145 | 278,739 |
| | |
Switzerland 11.84% | | 22,767,843 |
|
Actelion, Ltd. (I) | 5,176 | 221,697 |
|
Clariant AG (I) | 23,762 | 304,500 |
|
Compagnie Financiere Richemont SA, BR Shares | 33,881 | 1,312,775 |
|
Geberit AG | 2,802 | 450,585 |
|
Holcim, Ltd. | 3,813 | 228,464 |
|
Kuehne & Nagel International AG | 2,062 | 214,768 |
|
Nestle SA | 128,895 | 6,666,117 |
|
Nobel Biocare Holding AG | 7,730 | 121,078 |
|
Novartis AG | 94,404 | 4,951,653 |
|
Roche Holdings AG | 36,935 | 5,017,220 |
|
Schindler Holding AG | 3,094 | 307,677 |
|
SGS SA | 386 | 557,770 |
|
Sika AG | 168 | 294,594 |
|
Sonova Holding AG | 4,982 | 636,742 |
|
Swisscom AG | 674 | 261,789 |
|
Synthes AG | 4,504 | 496,575 |
|
The Swatch Group AG, BR Shares | 2,258 | 723,839 |
| | |
United Kingdom 22.79% | | 43,809,702 |
|
Acergy SA | 21,800 | 332,065 |
|
Admiral Group PLC | 22,904 | 534,623 |
|
Aggreko PLC | 33,337 | 726,161 |
|
Anglo American PLC (I) | 44,753 | 1,600,015 |
|
ARM Holdings PLC | 77,698 | 432,735 |
|
Associated British Foods PLC (I) | 15,547 | 251,706 |
|
AstraZeneca PLC | 39,880 | 1,970,702 |
|
Babcock International Group PLC | 17,470 | 135,050 |
|
Barclays PLC | 18,694 | 85,919 |
|
BG Group PLC | 32,326 | 520,766 |
|
BHP Billiton PLC | 33,351 | 933,199 |
|
British American Tobacco PLC | 84,436 | 2,871,298 |
| | |
See notes to financial statements | Semiannual report | International Growth Fund | 17 |
| | |
| Shares | Value |
| | |
United Kingdom (continued) | | |
|
British Sky Broadcasting Group PLC | 57,360 | $621,449 |
|
BT Group PLC | 61,565 | 125,386 |
|
Bunzl PLC | 16,073 | 174,887 |
|
Burberry Group PLC | 61,927 | 805,202 |
|
Capita Group PLC | 40,873 | 440,947 |
|
Carnival PLC | 10,291 | 333,158 |
|
Centrica PLC | 45,919 | 229,252 |
|
Cobham PLC | 85,258 | 273,495 |
|
Compass Group PLC (I) | 16,263 | 132,765 |
|
Croda International PLC | 11,136 | 217,786 |
|
Diageo PLC | 129,045 | 2,097,321 |
|
Drax Group PLC | 13,172 | 79,918 |
|
Eurasian Natural Resources Corp. | 32,151 | 416,470 |
|
GlaxoSmithKline PLC | 441,760 | 8,277,462 |
|
HSBC Holdings PLC | 53,403 | 526,142 |
|
IG Group Holdings PLC | 26,411 | 211,434 |
|
Informa PLC | 16,888 | 99,089 |
|
Inmarsat PLC | 27,790 | 284,546 |
|
Intertek Group PLC | 15,146 | 390,215 |
|
ITV PLC (I) | 166,557 | 142,638 |
|
Kazakhmys PLC | 21,123 | 371,465 |
|
Lloyds Banking Group PLC (I) | 153,534 | 163,942 |
|
Man Group PLC | 38,615 | 122,712 |
|
Next PLC | 14,547 | 440,508 |
|
Petrofac, Ltd. | 18,340 | 392,766 |
|
Petropavlovsk PLC | 9,294 | 151,090 |
|
Randgold Resources, Ltd. | 2,713 | 251,488 |
|
Reckitt Benckiser Group PLC | 41,927 | 2,099,752 |
|
Reed Elsevier PLC | 71,603 | 575,826 |
|
Rio Tinto PLC | 92,991 | 4,691,517 |
|
Rolls-Royce Group PLC (I) | 47,868 | 405,752 |
|
Royal Dutch Shell PLC, A Shares | 12,777 | 338,746 |
|
Royal Dutch Shell PLC, B Shares | 12,244 | 312,060 |
|
SABMiller PLC | 46,237 | 1,318,211 |
|
Sage Group PLC | 31,053 | 116,723 |
|
Serco Group PLC | 24,578 | 219,509 |
|
Smith & Nephew PLC | 62,908 | 523,199 |
|
Smiths Group PLC | 18,782 | 330,077 |
|
Standard Chartered PLC | 51,516 | 1,374,516 |
|
Subsea 7, Inc. (I) | 12,600 | 199,037 |
|
Tesco PLC | 32,136 | 200,684 |
|
The Weir Group PLC | 18,653 | 343,731 |
|
Tullow Oil PLC | 10,433 | 194,274 |
|
Unilever PLC | 10,481 | 276,994 |
|
Vedanta Resources PLC | 10,057 | 289,838 |
|
Vodafone Group PLC | 354,167 | 855,359 |
|
Wolseley PLC (I) | 3,332 | 63,991 |
|
Xstrata PLC | 58,442 | 912,134 |
| | |
18 | International Growth Fund | Semiannual report | See notes to financial statements |
| | | | | |
| | | | Shares | Value |
|
Preferred Stocks 0.34% | | | | | $653,467 |
|
(Cost $665,953) | | | | | |
| | | | | |
Germany 0.34% | | | | | 653,467 |
|
Henkel AG & Company KGaA (N) | | | | 5,684 | 265,907 |
|
ProSiebenSat.1 Media AG (N) | | | | 10,663 | 190,767 |
|
Volkswagen AG (N) | | | | 1,983 | 196,793 |
| | | Maturity | | |
| Yield* | | date | Par value | Value |
|
Short-Term Investments 5.61% | | | | | $10,782,826 |
|
(Cost $10,778,335) | | | | | |
| | | | | |
U.S. Government 1.88% | | | | | 3,615,765 |
|
U.S. Treasury Bills | 0.2288% | | 09-16-10 | $3,616,000 | 3,615,765 |
| | | | | |
| | | | Shares | Value |
| | | | | |
Short-Term Securities 2.86% | | | | | 5,504,371 |
|
State Street Institutional Investment | | | | | |
Treasury Money Market Fund | 0.0344% (Y) | | | 5,504,371 | 5,504,371 |
| | | | | |
Securities Lending Collateral 0.87% | | | | | 1,662,690 |
|
John Hancock Collateral Investment Trust (W) | 0.3330% (Y) | | | 166,101 | 1,662,690 |
|
Total investments (Cost $188,816,365)† 99.46% | | | | $191,207,879 |
|
Other assets and liabilities, net 0.54% | | | | $1,030,948 |
|
Total net assets 100.00% | | | | | $192,238,827 |
|
The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the Fund.
SADR Sponsored American Depositary Receipts
(I) Non-income producing security.
(L) All or a portion of this security is on loan as of 8-31-10.
(N) Variable rate preferred stock.
(W) Investment is an affiliate of the Fund, the adviser and/or subadviser. Also, it represents the investment of securities lending collateral received.
(Y) The rate shown is the annualized seven-day yield as of 8-31-10.
* Yield represents either the annualized yield at the date of purchase, the stated coupon rate or, for floating rate securities, the rate at period end.
† At 8-31-10, the aggregate cost of investment securities for federal income tax purposes was $189,715,964. Net unrealized appreciation aggregated $1,491,915, of which $11,868,106 related to appreciated investment securities and $10,376,191 related to depreciated investment securities.
| | |
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 8-31-10 (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 $187,154,310) including | |
$1,574,702 of securities loaned (Note 2) | $189,545,189 |
Investments in affiliated issuers, at value (Cost $1,662,055) (Note 2) | 1,662,690 |
| |
Total investments, at value (Cost $188,816,365) | 191,207,879 |
Foreign currency, at value (Cost $157,822) | 157,680 |
Cash held at broker for futures contracts | 1,121,640 |
Receivable for forward foreign currency exchange contracts (Note 3) | 219,701 |
Receivable for fund shares sold | 873,183 |
Dividends and interest receivable | 607,386 |
Receivable for securities lending income | 3,134 |
Receivable for futures variation margin | 18,417 |
Other receivables and prepaid assets | 27,553 |
| |
Total assets | 194,236,573 |
|
Liabilities | |
|
Payable for forward foreign currency exchange contracts (Note 3) | 164,486 |
Payable for fund shares repurchased | 61,352 |
Payable upon return of securities loaned (Note 2) | 1,664,044 |
Payable to affiliates | |
Accounting and legal services fees | 3,310 |
Transfer agent fees | 11,191 |
Trustees’ fees | 1,783 |
Other liabilities and accrued expenses | 91,580 |
| |
Total liabilities | 1,997,746 |
|
Net assets | |
|
Capital paid-in | $200,378,111 |
Undistributed net investment income | 1,521,020 |
Accumulated net realized gain (loss) on investments, futures contracts and | |
foreign currency transactions | (12,069,860) |
Net unrealized appreciation (depreciation) on investments, futures | |
contracts and translation of assets and liabilities in foreign currencies | 2,409,556 |
| |
Net assets | $192,238,827 |
| | |
20 | International Growth Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
| |
Net asset value per share | |
|
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($27,772,752 ÷ 1,621,362 shares) | $17.13 |
Class B ($483,669 ÷ 28,358 shares)1 | $17.06 |
Class C ($864,715 ÷ 50,754 shares)1 | $17.04 |
Class I ($153,555,872 ÷ 8,924,950 shares) | $17.21 |
Class 1 ($5,428,116 ÷ 315,786 shares) | $17.19 |
Class NAV ($4,133,703 ÷ 240,988 shares) | $17.15 |
|
Maximum offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $18.03 |
1 Redemption price is equal to 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 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 six-month period ended 8-31-10 (unaudited)
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 | $3,252,272 |
Securities lending | 86,490 |
Interest | 252 |
Less foreign taxes withheld | (289,945) |
|
Total investment income | 3,049,069 |
|
Expenses | |
|
Investment management fees (Note 5) | 830,283 |
Distribution and service fees (Note 5) | 46,787 |
Accounting and legal services fees (Note 5) | 11,440 |
Transfer agent fees (Note 5) | 53,568 |
Trustees’ fees (Note 5) | 7,696 |
State registration fees (Note 5) | 16,104 |
Printing and postage fees (Note 5) | 3,741 |
Professional fees | 35,489 |
Custodian fees | 91,959 |
Registration and filing fees | 10,333 |
Other | 5,857 |
| |
Total expenses | 1,113,257 |
Less expense reductions (Note 5) | (8,584) |
| |
Net expenses | 1,104,673 |
| |
Net investment income | 1,944,396 |
|
Realized and unrealized gain (loss) | |
|
Net realized gain (loss) on | |
Investments in unaffiliated issuers | (1,196,230) |
Investments in affiliated issuers | (2,265) |
Futures contracts (Note 3) | 316,100 |
Foreign currency transactions | (42,070) |
| (924,465) |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (3,530,382) |
Investments in affiliated issuers | 425 |
Futures contracts (Note 3) | (54,838) |
Translation of assets and liabilities in foreign currencies | 2,466 |
| (3,582,329) |
Net realized and unrealized loss | (4,506,794) |
| |
Decrease in net assets from operations | ($2,562,398) |
| | |
22 | International Growth Fund | Semiannual report | See notes to financial statements |
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.
| | |
| For the | |
| six-month period | Year |
| ended 8-31-10 | ended |
| (unaudited) | 2-28-10 |
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $1,944,396 | $935,458 |
Net realized loss | (924,465) | (3,844,492) |
Change in net unrealized appreciation (depreciation) | (3,582,329) | 25,186,082 |
| | |
Increase (decrease) in net assets resulting from operations | (2,562,398) | 22,277,048 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | — | (118,341) |
Class I | — | (1,187,527) |
Class 1 | — | (48,594) |
Class NAV | — | (45,290) |
| | |
Total distributions | — | (1,399,752) |
| | |
From Fund share transactions (Note 6) | 27,800,347 | 103,903,777 |
| | |
Total increase | 25,237,949 | 124,781,073 |
|
Net assets | | |
|
Beginning of period | 167,000,878 | 42,219,805 |
| | |
End of period | $192,238,827 | $167,000,878 |
| | |
Undistributed (distributions in excess of) net investment income | $1,521,020 | ($423,376) |
| | |
See notes to financial statements | Semiannual report | International Growth Fund | 23 |
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 | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | |
|
Net asset value, beginning of period | | $17.36 | $12.46 | $22.86 | $23.94 | $20.00 |
Net investment income (loss)3 | | 0.15 | 0.14 | 0.31 | 0.26 | (0.01) |
Net realized and unrealized gain (loss) on investments | | (0.38) | 4.86 | (10.31) | 0.53 | 4.44 |
Total from investment operations | | (0.23) | 5.00 | (10.00) | 0.79 | 4.43 |
Less distributions | | | | | | |
From net investment income | | — | (0.10) | (0.40) | (0.18) | (0.09) |
From net realized gain | | — | — | — | (1.69) | (0.40) |
Total distributions | | — | (0.10) | (0.40) | (1.87) | (0.49) |
Net asset value, end of period | | $17.13 | $17.36 | $12.46 | $22.86 | $23.94 |
Total return (%)4,9 | | (1.32)6 | 40.075 | (44.00)5 | 2.855 | 22.185,6 |
|
Ratios and supplemental data | | | | | | |
|
Net assets, end of period (in millions) | | $28 | $23 | $13 | $26 | $20 |
Ratios (as a percentage of average net assets): | | | | | | |
Expenses before reductions | | 1.597 | 1.688 | 1.94 | 2.21 | 2.287 |
Expenses net of fee waivers | | 1.597 | 1.648 | 1.62 | 1.56 | 1.667 |
Expenses net of fee waivers and credits | | 1.597 | 1.638 | 1.62 | 1.56 | 1.667 |
Net investment income (loss) | | 1.717 | 0.86 | 1.59 | 1.02 | (0.06)7 |
Portfolio turnover (%) | | 20 | 37 | 59 | 97 | 41 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class A shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
9 Does not reflect the effect of sales charges, if any.
| | |
24 | International Growth Fund | Semiannual report | See notes to financial statements |
| | | | | | |
CLASS B SHARES Period ended | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | |
|
Net asset value, beginning of period | | $17.36 | $12.48 | $22.81 | $23.91 | $20.00 |
Net investment income (loss)3 | | 0.09 | 0.05 | 0.15 | (0.01) | (0.16) |
Net realized and unrealized gain (loss) on investments | | (0.39) | 4.83 | (10.25) | 0.60 | 4.48 |
Total from investment operations | | (0.30) | 4.88 | (10.10) | 0.59 | 4.32 |
Less distributions | | | | | | |
From net investment income | | — | — | (0.23) | — | (0.01) |
From net realized gain | | — | — | — | (1.69) | (0.40) |
Total distributions | | — | — | (0.23) | (1.69) | (0.41) |
Net asset value, end of period | | $17.06 | $17.36 | $12.48 | $22.81 | $23.91 |
Total return (%)4,5,10 | | (1.73)6 | 39.10 | (44.43) | 2.03 | 21.646 |
|
Ratios and supplemental data | | | | | | |
|
Net assets, end of period (in millions) | | —7 | $1 | $1 | $1 | $1 |
Ratios (as a percentage of average net assets): | | | | | | |
Expenses before reductions | | 4.088 | 4.839 | 4.68 | 4.62 | 10.948 |
Expenses net of fee waivers | | 2.408 | 2.449 | 2.65 | 2.41 | 2.398 |
Expenses net of fee waivers and credits | | 2.408 | 2.409 | 2.40 | 2.40 | 2.398 |
Net investment income (loss) | | 1.068 | 0.29 | 0.80 | (0.03) | (0.94)8 |
Portfolio turnover (%) | | 20 | 37 | 59 | 97 | 41 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class B shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
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.
9 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
10 Does not reflect the effect of sales charges, if any.
| | | | | | |
CLASS C SHARES Period ended | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | |
|
Net asset value, beginning of period | | $17.34 | $12.47 | $22.79 | $23.90 | $20.00 |
Net investment income (loss)3 | | 0.08 | (0.01) | 0.20 | 0.05 | (0.16) |
Net realized and unrealized gain (loss) on investments | | (0.38) | 4.88 | (10.29) | 0.53 | 4.47 |
Total from investment operations | | (0.30) | 4.87 | (10.09) | 0.58 | 4.31 |
Less distributions | | | | | | |
From net investment income | | — | — | (0.23) | — | (0.01) |
From net realized gain | | — | — | — | (1.69) | (0.40) |
Total distributions | | — | — | (0.23) | (1.69) | (0.41) |
Net asset value, end of period | | $17.04 | $17.34 | $12.47 | $22.79 | $23.90 |
Total return (%)4,5,9 | | (1.73)6 | 39.05 | (44.43) | 1.99 | 21.596 |
|
Ratios and supplemental data | | | | | | |
|
Net assets, end of period (in millions) | | $1 | $1 | $1 | $2 | $2 |
Ratios (as a percentage of average net assets): | | | | | | |
Expenses before reductions | | 3.257 | 3.958 | 3.81 | 3.73 | 6.717 |
Expenses net of fee waivers | | 2.407 | 2.418 | 2.42 | 2.40 | 2.397 |
Expenses net of fee waivers and credits | | 2.407 | 2.408 | 2.40 | 2.40 | 2.397 |
Net investment income (loss) | | 0.967 | (0.06) | 1.03 | 0.21 | (0.98)7 |
Portfolio turnover (%) | | 20 | 37 | 59 | 97 | 41 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class C shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
9 Does not reflect the effect of sales charges, if any.
| | |
See notes to financial statements | Semiannual report | International Growth Fund | 25 |
| | | | | | |
CLASS I SHARES Period ended | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | |
|
Net asset value, beginning of period | | $17.40 | $12.48 | $22.90 | $23.97 | $20.00 |
Net investment income3 | | 0.19 | 0.14 | 0.18 | 0.36 | 0.07 |
Net realized and unrealized gain (loss) on investments | | (0.38) | 4.95 | (10.12) | 0.54 | 4.45 |
Total from investment operations | | (0.19) | 5.09 | (9.94) | 0.90 | 4.52 |
Less distributions | | | | | | |
From net investment income | | — | (0.17) | (0.48) | (0.28) | (0.15) |
From net realized gain | | — | — | — | (1.69) | (0.40) |
Total distributions | | — | (0.17) | (0.48) | (1.97) | (0.55) |
Net asset value, end of period | | $17.21 | $17.40 | $12.48 | $22.90 | $23.97 |
Total return (%)4 | | (1.09)6 | 40.765 | (43.74)5 | 3.275 | 22.605,6 |
|
Ratios and supplemental data | | | | | | |
|
Net assets, end of period (in millions) | | $154 | $134 | $23 | $1 | —7 |
Ratios (as a percentage of average net assets): | | | | | | |
Expenses before reductions | | 1.148 | 1.239 | 1.67 | 5.07 | 17.208 |
Expenses net of fee waivers | | 1.148 | 1.219 | 1.20 | 1.20 | 1.198 |
Expenses net of fee waivers and credits | | 1.148 | 1.219 | 1.20 | 1.20 | 1.198 |
Net investment income | | 2.208 | 0.84 | 1.16 | 1.43 | 0.428 |
Portfolio turnover (%) | | 20 | 37 | 59 | 97 | 41 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class I shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
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.
9 Includes the impact of proxy expenses, which amounted to 0.01% of average net assets.
| | | | | | |
CLASS 1 SHARES Period ended | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | |
|
Net asset value, beginning of period | | $17.38 | $12.47 | $22.89 | $23.97 | $20.00 |
Net investment income3 | | 0.19 | 0.20 | 0.36 | 0.29 | 0.07 |
Net realized and unrealized gain (loss) on investments | | (0.38) | 4.89 | (10.29) | 0.61 | 4.45 |
Total from investment operations | | (0.19) | 5.09 | (9.93) | 0.90 | 4.52 |
Less distributions | | | | | | |
From net investment income | | — | (0.18) | (0.49) | (0.29) | (0.15) |
From net realized gain | | — | — | — | (1.69) | (0.40) |
Total distributions | | — | (0.18) | (0.49) | (1.98) | (0.55) |
Net asset value, end of period | | $17.19 | $17.38 | $12.47 | $22.89 | $23.97 |
Total return (%)4 | | (1.09)6 | 40.735 | (43.72)5 | 3.285 | 22.635,6 |
|
Ratios and supplemental data | | | | | | |
|
Net assets, end of period (in millions) | | $5 | $5 | $3 | $3 | $1 |
Ratios (as a percentage of average net assets): | | | | | | |
Expenses before reductions | | 1.137 | 1.248 | 1.51 | 1.83 | 2.007 |
Expenses net of fee waivers | | 1.137 | 1.198 | 1.15 | 1.15 | 1.157 |
Expenses net of all fee waivers and credits | | 1.137 | 1.198 | 1.15 | 1.15 | 1.157 |
Net investment income | | 2.207 | 1.23 | 1.94 | 1.14 | 0.417 |
Portfolio turnover (%) | | 20 | 37 | 59 | 97 | 41 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class 1 shares is 6-12-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
| | |
26 | International Growth Fund | Semiannual report | See notes to financial statements |
| | | | | | |
CLASS NAV SHARES Period ended | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
|
Per share operating performance | | | | | | |
|
Net asset value, beginning of period | | $17.34 | $12.44 | $22.84 | $23.92 | $23.73 |
Net investment income3 | | 0.21 | 0.22 | 0.41 | 0.33 | 0.01 |
Net realized and unrealized gain (loss) on investments | | (0.40) | 4.87 | (10.31) | 0.59 | 0.18 |
Total from investment operations | | (0.19) | 5.09 | (9.90) | 0.92 | 0.19 |
Less distributions | | | | | | |
From net investment income | | — | (0.19) | (0.50) | (0.31) | — |
From net realized gain | | — | — | — | (1.69) | — |
Total distributions | | — | (0.19) | (0.50) | (2.00) | — |
Net asset value, end of period | | $17.15 | $17.34 | $12.44 | $22.84 | $23.92 |
Total return (%)4 | | (1.10)6 | 40.815 | (43.69)5 | 3.345 | 0.805,6 |
|
Ratios and supplemental data | | | | | | |
|
Net assets, end of period (in millions) | | $4 | $5 | $3 | $8 | $1 |
Ratios (as a percentage of average net assets): | | | | | | |
Expenses before reductions | | 1.087 | 1.178 | 1.41 | 1.77 | 2.757 |
Expenses net of fee waivers | | 1.087 | 1.138 | 1.10 | 1.10 | 1.137 |
Expenses net of fee waivers and credits | | 1.087 | 1.138 | 1.10 | 1.10 | 1.137 |
Net investment income | | 2.337 | 1.38 | 2.11 | 1.33 | 0.147 |
Portfolio turnover (%) | | 20 | 37 | 59 | 97 | 41 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class NAV shares is 12-27-06.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
| | |
See notes to financial statements | Semiannual report | International Growth Fund | 27 |
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), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek high total return primarily through capital appreciation.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class 1 shares are offered only to certain affiliates of Manulife Financial Corporation (MFC). Class NAV shares are sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, print and postage, registration and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase. Class R1 shares converted to Class A shares on August 21, 2009.
Affiliates of the Fund owned 51% of shares of beneficial interest of Class A and Class NAV on August 31, 2010.
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. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these techniques are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes significant unobservable inpu ts when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| |
28 | International Growth Fund | Semiannual report |
The following is a summary of the values by input classification of the Fund’s investments as of August 31, 2010, by major security category or type:
| | | | | |
| | | | | LEVEL 3 |
| | | | LEVEL 2 | SIGNIFICANT |
| | TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE |
| | VALUE AT 8-31-10 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS |
|
Common Stocks | | | | | |
Australia | | $8,644,236 | — | $8,644,236 | — |
Austria | | 433,850 | — | 433,850 | — |
Belgium | | 2,419,114 | — | 2,419,114 | — |
Bermuda | | 749,675 | — | 749,675 | — |
Canada | | 5,061,418 | $5,061,418 | — | — |
Denmark | | 6,232,632 | — | 6,232,632 | — |
Finland | | 853,190 | — | 853,190 | — |
France | | 8,387,706 | — | 8,387,706 | — |
Germany | | 7,976,302 | — | 7,976,302 | — |
Greece | | 827,561 | — | 827,561 | — |
Hong Kong | | 3,326,660 | — | 3,326,660 | — |
Ireland | | 1,233,653 | — | 1,233,653 | — |
Italy | | 507,180 | — | 507,180 | — |
Japan | | 37,257,929 | — | 37,257,929 | — |
Luxembourg | | 873,647 | — | 873,647 | — |
Netherlands | | 8,124,578 | — | 8,124,578 | — |
Norway | | 2,298,999 | — | 2,298,999 | — |
Portugal | | 274,113 | — | 274,113 | — |
Singapore | | 5,111,249 | — | 5,111,249 | — |
Spain | | 2,513,973 | — | 2,513,973 | — |
Sweden | | 10,086,376 | — | 10,086,376 | — |
Switzerland | | 22,767,843 | — | 22,767,843 | — |
United Kingdom | | 43,809,702 | — | 43,809,702 | — |
Preferred Stocks | | | | | |
Germany | | 653,467 | — | 653,467 | — |
Short-Term Investments | | 10,782,826 | 7,167,061 | 3,615,765 | — |
| |
|
Total Investments in | | | | | |
Securities | | $191,207,879 | $12,228,479 | $178,979,400 | — |
Other Financial | | | | | |
Instruments | | | | | |
Futures | | (40,166) | (40,166) | — | — |
Forward Foreign Currency | | | | | |
Contracts | | 55,215 | — | 55,215 | — |
Totals | | $191,22,928 | $12,188,313 | $179,034,615 | — |
During the six months ended August 31, 2010, there were no significant transfers in or out of Level 1 or Level 2 assets.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain 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. Certain short-term securities are valued at amortized cost. John Hancock
| |
Semiannual report | International Growth Fund | 29 |
Collateral Investment Trust (JHCIT), an affiliate of the Fund, is valued at its closing net asset value (NAV). JHCIT has a floating NAV and invests in short-term investments as part of a securities lending program.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by 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. Significant market events that affect the values of non-U.S. securities may occur after the time when the valuation of the securities is generally determined and the close of the NYSE. During significant market events, these securities will be valued at fair value, as determined in good faith, following procedures established by the Board of Trustees. The Fund may use a fair valuation model to value non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date except for certain foreign dividends where the ex-date may have passed, which are recorded when the Fund becomes aware of the dividends.
Securities lending. The Fund may lend its securities to earn additional income. It receives and maintains cash collateral received from the borrower in an amount not less than the market value of the loaned securities. The Fund will invest its collateral in JHCIT, as a result, the Fund will receive the benefit of any gains and bear any losses generated by JHCIT. Although risk of the loss of the securities lent is mitigated by holding the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. The Fund may receive compensation for lending its securities by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Income received from JHCIT is a component of securities lending income as re corded on the Statement of Operations.
Foreign currency translation. Assets, including investments and liabilities denominated in foreign currencies, are translated into U.S. dollar values each day at the prevailing exchange rate. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on securities is reflected as a component of the realized and unrealized gains (losses) on investments.
Funds that invest internationally generally carry more risk than funds that invest strictly in U.S. securities. Funds investing in a single country or in a limited geographic region tend to be riskier than funds that invest more broadly. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to a Fund to make properly authorized
| |
30 | International Growth Fund | Semiannual report |
payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with the custodian which enables them to participate in a $100 million unsecured committed line of credit. Prior to March 31, 2010, the amount of the line of credit was $150 million. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis based on their relative average net assets. For the six months ended August 31, 2010, the Fund had no significant borrowings under the line of credit.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage fees, for all classes are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Federal income taxes. The Fund intends to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has a capital loss carryforward of $10,274,841 available to offset future net realized capital gains as of February 28, 2010. The loss carryforward expires as follows: February 28, 2017 — $4,155,616 and February 28, 2018 — $6,119,225.
As of February 28, 2010, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure. The Fund’s federal tax return is subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares and pays dividends and capital gain distributions, if any, at least annually.
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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a tax return of capital.
Capital accounts within financial statements are adjusted for permanent book/tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book/tax differences, if any, will reverse in a subsequent period. Permanent book/tax differences are primarily attributable to foreign currency transactions.
| |
Semiannual report | International Growth Fund | 31 |
Note 3 — Derivative instruments
The Fund may invest in derivatives, including futures contracts and forward foreign currency contracts in order to meet its investment objectives. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, derivatives expose the Fund to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
For more information regarding the Fund’s use of derivatives, please refer to the Fund’s Prospectuses and Statement of Additional Information.
Futures. A futures contract is a contractual agreement to buy or sell a particular commodity, currency, or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates and potential losses in excess of the Fund’s initial investment.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (variation margin) is recorded by the Fund.
During the six months ended August 31, 2010, the Fund used futures contracts to enhance potential gain, maintain diversification and liquidity, and adjust exposure to foreign currencies. The following table summarizes the contracts held at August 31, 2010. The range of futures contracts absolute notional amounts held by the Fund during six months ended August 31, 2010 was $12.3 million to $15.7 million.
| | | | | |
| | | | | UNREALIZED |
OPEN | NUMBER OF | | | | APPRECIATION |
CONTRACTS | CONTRACTS | POSITION | EXPIRATION DATE | NOTIONAL VALUE | (DEPRECIATION) |
|
FTSE 100 Index | 65 | Long | Sept 2010 | $4,997,794 | $47,596 |
Futures | | | | | |
DAX Index Futures | 10 | Long | Sept 2010 | 1,926,663 | (57,335) |
OMX 30 Index | 9 | Long | Sept 2010 | 128,804 | (4,240) |
Futures | | | | | |
MSCI EAFE E-Mini | 21 | Long | Sept 2010 | 1,523,277 | (30,177) |
Index Futures | | | | | |
CAC 40 Index Futures | 10 | Long | Sept 2010 | 467,539 | (18,325) |
SGX MSCI Singapore | 37 | Long | Sept 2010 | 1,858,764 | 34,195 |
Index Futures | | | | | |
ASX SPI 200 Index | 14 | Short | Sept 2010 | 1,381,291 | 57,112 |
Futures | | | | | |
S&P TSE 60 Index | 26 | Short | Sept 2010 | 3,415,652 | (68,992) |
Futures | | | | | |
Total | | | | | ($40,166) |
| |
32 | International Growth Fund | Semiannual report |
Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a specific currency at a price that is set on the date of the contract. The forward contract calls for delivery of the currency on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the failure of the counterparties to timely post collateral, the risk that currency movements will not occur thereby reducing the Fund’s total return, and the potential for losses in excess of the Fund’s initial investment.
The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked-to-market daily and the change in value is recorded by a Fund as an unrealized gain or loss. Realized gains or losses, equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed, are recorded upon delivery or receipt of the currency.
During the six months ended August 31, 2010, the Fund used forward foreign currency contracts to enhance potential gain, manage against anticipated currency exchange rates, maintain diversification and liquidity, and adjust exposure to foreign currencies. The following table summarizes the contracts held at August 31, 2010. The range of forward foreign currency contracts absolute notional amounts held by the Fund during six months ended August 31, 2010 was $24.2 million to $27.2 million.
| | | | | | |
| PRINCIPAL | PRINCIPAL | | | | |
| AMOUNT | AMOUNT | | | | UNREALIZED |
| COVERED BY | COVERED BY | | | SETTLEMENT | APPRECIATION |
CURRENCY | CONTRACT | CONTRACT (USD) | | COUNTERPARTY | DATE | (DEPRECIATION) |
|
Buys | | | | | | |
EUR | 540,433 | $694,056 | | Bank of America N.A. | 10-22-10 | ($9,245) |
EUR | 945,132 | 1,215,137 | | Deutsche Bank AG | 10-22-10 | (17,510) |
EUR | 664,614 | 853,086 | | Royal Bank of Scotland | 10-22-10 | (10,918) |
| | | | PLC | | |
GBP | 881,417 | 1,381,004 | | Bank of America N.A. | 10-22-10 | (29,682) |
GBP | 672,268 | 1,052,624 | | Brown Brothers | 10-22-10 | (21,953) |
| | | | Harriman & Company | | |
GBP | 1,553,874 | 2,429,263 | | JPMorgan Chase Bank | 10-22-10 | (46,981) |
JPY | 322,142,600 | 3,775,079 | | Deutsche Bank AG | 10-22-10 | 61,619 |
JPY | 73,531,690 | 862,067 | | JPMorgan Chase Bank | 10-22-10 | 13,691 |
SEK | 6,901,911 | 935,193 | | Deutsche Bank AG | 10-22-10 | (2,171) |
SEK | 8,715,007 | 1,177,649 | | JPMorgan Chase Bank | 10-22-10 | 473 |
Total | | $14,375,158 | | | | ($62,677) |
|
Sells | | | | | | |
AUD | 563,826 | $501,324 | | Mellon Bank NA | 10-22-10 | $2,662 |
AUD | 575,439 | 511,865 | | Barclays Bank PLC | 10-22-10 | 2,932 |
CAD | 4,246,070 | 4,057,889 | | Bank of America N.A. | 10-22-10 | 79,110 |
CHF | 76,771 | 73,870 | | Bank of America N.A. | 10-22-10 | (1,783) |
CHF | 76,771 | 74,083 | | JPMorgan Chase Bank | 10-22-10 | (1,571) |
CHF | 153,541 | 147,877 | | Barclays Bank PLC | 10-22-10 | (3,428) |
CHF | 617,573 | 595,366 | | Brown Brothers | 10-22-10 | (13,215) |
| | | | Harriman & Company | | |
HKD | 3,116,000 | 401,097 | | Mellon Bank NA | 10-22-10 | 360 |
NOK | 3,159,277 | 511,767 | | Royal Bank of Scotland | 10-22-10 | 12,200 |
| | | | PLC | | |
NOK | 3,159,277 | 512,429 | | Barclays Bank PLC | 10-22-10 | 12,862 |
NOK | 9,556,145 | 1,544,877 | | Brown Brothers | 10-22-10 | 33,792 |
| | | | Harriman & Company | | |
SGD | 1,868,078 | 1,372,124 | | Brown Brothers | 10-22-10 | (6,029) |
| | | | Harriman & Company | | |
Total | | $10,304,568 | | | | $117,892 |
| |
Semiannual report | International Growth Fund | 33 |
| |
Currency Abbreviations |
AUD | Australian Dollar |
CAD | Canadian Dollar |
CHF | Swiss Franc |
EUR | Euro |
GBP | Pound Sterling |
HKD | Hong Kong Dollar |
JPY | Japanese Yen |
NOK | Norwegian Krone |
SEK | Swedish Krona |
SGD | Singapore Dollar |
Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the Fund at August 31, 2010 by risk category:
| | | | |
| | FINANCIAL | ASSET | LIABILITY |
| STATEMENT OF ASSETS | INSTRUMENTS | DERIVATIVES | DERIVATIVES FAIR |
RISK | AND LIABILITIES LOCATION | LOCATION | FAIR VALUE | VALUE |
|
Equity Contracts | Receivable for | Futures† | $138,903 | ($179,069) |
| futures | | | |
Foreign Exchange | Receivable/Payable | Forward foreign | 219,701 | (164,486) |
Contracts | for forward foreign | currency | | |
| currency exchange | contracts | | |
| contracts | | | |
Total | | | $358,604 | ($343,555) |
† Reflects cumulative appreciation/depreciation of futures as disclosed in Note 3. Only the period end variation margin is separately disclosed on the Statement of Assets and Liabilities.
Effect of derivative instruments on the Statement of Operations
The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended August 31, 2010:
| | | | |
| | | FOREIGN | |
| STATEMENT OF | FUTURES | CURRENCY | |
RISK | OPERATIONS LOCATION | CONTRACTS | TRANSACTIONS* | TOTAL |
|
Equity Contracts | Net realized gain | $316,100 | — | $316,100 |
| (loss) on | | | |
Foreign Exchange | Net realized gain | — | ($9,815) | (9,815) |
Contracts | (loss on) | | | |
Total | | $316,100 | ($9,815) | $306,285 |
* Realized gain/loss associated with forward foreign currency contracts is included in this caption on the Statement of Operations.
The table below summarizes the net change in unrealized appreciation (depreciation) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended August 31, 2010:
| |
34 | International Growth Fund | Semiannual report |
| | | | |
| | | TRANSLATION | |
| | | OF ASSETS | |
| | | AND LIABILITIES | |
| STATEMENT OF | FUTURES | IN FOREIGN | |
RISK | OPERATIONS LOCATION | CONTRACTS | CURRENCIES* | TOTAL |
|
Equity Contracts | Change in | ($54,838) | — | ($54,838) |
| unrealized | | | |
| appreciation | | | |
| (depreciation) of | | | |
Foreign Exchange | Change in | — | ($249,238) | (249,238) |
Contracts | unrealized | | | |
| appreciation | | | |
| (depreciation) of | | | |
Totals | | ($54,838) | ($249,238) | ($304,076) |
* Change in unrealized appreciation/depreciation associated with forward foreign currency contracts is included in this caption on the Statement of Operations.
Note 4 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Trust. The Adviser and the Distributor are indirect wholly owned subsidiaries of MFC.
Management fee. The Fund has an investment management contract with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.920% of the first $100,000,000 of the Fund’s average daily net assets; (b) 0.895% of the next $900,000,000; (c) 0.880% of the next $1,000,000,000; (d) 0.850% of the next $1,000,000,000; (e) 0.825% of the next $1,000,000,000; and (f) 0.800% of the Fund’s average daily net asset in excess of $4,000,000,000. 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 six months ended August 31, 2010 were equivalent to an annual effective rate of 0.91% of the Fund’s average daily net assets.
Effective July 1, 2010, the Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.70%, 2.40%, 2.40%, 1.24 and 1.20% for Class A, Class B, Class C, Class I and Class 1 shares, respectively. The fee waivers and/or reimbursements will continue in effect until June 30, 2011.
Prior to July 1, 2010, the Adviser had contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excluded taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary
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Semiannual report | International Growth Fund | 35 |
course of the Fund’s business. The fee waivers and/or reimbursements were such that these expenses will not exceed 1.70%, 2.40%, 2.40%, 1.22%, 1.20% and 1.15% for Class A, Class B, Class C, Class I, Class 1 and Class NAV shares, respectively.
Accordingly, these expense reductions amounted to $4,609 and $3,975 for Class B and Class C shares, respectively, for the six months ended August 31, 2010.
Accounting and legal services. Pursuant to the service 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, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended August 31, 2010 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B, Class C and Class 1 shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
| | | | | |
CLASS | 12b–1 FEES | | | | |
| | | | |
Class A | 0.30% | | | | |
Class B | 1.00% | | | | |
Class C | 1.00% | | | | |
Class 1 | 0.05% | | | | |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $9,556 for the six months ended August 31, 2010. Of this amount, $1,533 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $8,004 was paid as sales commissions to broker-dealers and $19 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
Class B and Class C shares are subject to contingent deferred sales charges (CDSC). Class B shares that are redeemed within six years of purchase are subject to 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 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended August 31, 2010, CDSCs received by the Distributor amounted to $786 and $2 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. Class 1 and Class NAV shares do not pay transfer agent fees. Prior to July 1, 2010, the transfer agent fees were made up of three components:
• The Fund paid a monthly transfer agent fee at an annual rate of 0.05% for Class A, Class B and Class C shares and 0.04% for Class I shares, based on each class’s average daily net assets.
• The Fund paid a monthly fee based on an annual rate of $16.50 per shareholder account.
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36 | International Growth Fund | Semiannual report |
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Effective July 1, 2010, the transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Fund and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain revenues that Signature Services received in connection with the service they provide to the funds. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. With in each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the six months ended August 31, 2010 were:
| | | | |
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE FEES |
|
Class A | $38,087 | $20,450 | $4,120 | $1,067 |
Class B | 2,747 | 1,469 | 3,914 | 101 |
Class C | 4,661 | 1,397 | 3,914 | 140 |
Class I | — | 30,252 | 4,156 | 2,572 |
Class 1 | 1,292 | — | — | (139) |
Total | $46,787 | $53,568 | $16,104 | $3,741 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within other receivables and prepaid assets and Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
Note 6 — Fund share transactions
Transactions in Fund shares for the six months ended August 31, 2010 and for the year ended February 28, 2010 were as follows:
| | | | |
| Six months ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 423,940 | $7,382,101 | 368,180 | $6,341,223 |
Exchanged from Class R1 | — | — | 7,263 | 121,989 |
Distributions reinvested | — | — | 6,431 | 116,714 |
Repurchased | (104,505) | (1,882,827) | (105,391) | (1,656,573) |
| | | | |
Net increase | 319,435 | $5,499,274 | 276,483 | $4,923,353 |
|
Class B shares | | | | |
|
Sold | 6,482 | $113,197 | 11,882 | $200,465 |
Repurchased | (10,685) | (184,955) | (20,091) | (318,226) |
| | | | |
Net decrease | (4,203) | ($71,758) | (8,209) | ($117,761) |
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Semiannual report | International Growth Fund | 37 |
| | | | |
| Six months ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class C shares | | | | |
|
Sold | 7,429 | $131,722 | 43,030 | $684,156 |
Repurchased | (7,723) | (133,707) | (40,666) | (591,385) |
| | | | |
Net increase (decrease) | (294) | ($1,985) | 2,364 | $92,771 |
|
Class I shares | | | | |
|
Sold | 1,930,790 | $33,921,938 | 6,511,940 | $108,774,330 |
Distributions reinvested | — | — | 499 | 9,073 |
Repurchased | (687,502) | (11,929,118) | (638,236) | (10,431,836) |
| | | | |
Net increase | 1,243,288 | $21,992,820 | 5,874,203 | $98,351,567 |
|
Class R1 shares | | | | |
|
Sold | — | — | 1,969 | $26,066 |
Exchanged from Class A | — | — | (7,270) | (121,989) |
Repurchased | — | — | (897) | (12,532) |
| | | | |
Net decrease | — | — | (6,198) | ($108,455) |
|
Class 1 shares | | | | |
|
Sold | 88,698 | $1,570,059 | 155,089 | $2,534,636 |
Distributions reinvested | — | — | 2,674 | 48,594 |
Repurchased | (49,222) | (870,402) | (84,600) | (1,398,184) |
| | | | |
Net increase | 39,476 | $699,657 | 73,163 | $1,185,046 |
|
Class NAV shares | | | | |
|
Sold | 20,697 | $363,844 | 194,492 | $2,950,895 |
Distributions reinvested | — | — | 2,499 | 45,290 |
Repurchased | (40,066) | (681,505) | (191,058) | (3,418,929) |
| | | | |
Net increase (decrease) | (19,369) | ($317,661) | 5,933 | ($422,744) |
|
Net increase | 1,578,333 | $27,800,347 | 6,217,739 | $103,903,777 |
|
Note 7 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $61,471,520 and $34,002,287, respectively, for the six months ended August 31, 2010.
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38 | International Growth Fund | Semiannual report |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock International Growth Fund (the Fund), a series of John Hancock Funds III, met in-person on May 2–4 and June 6–8, 2010 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) between the Adviser and Grantham, Mayo, Van Otterloo & Co. LLC (the Subadviser) on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.
Activities and composition of the Board
The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are unaffiliated with the Fund, the Adviser and the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform the various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have retained independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committees A and B are standing committees of the Board that are each composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee B oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as Chairman of the Board’s Nominating, Governance and Administration Committee. The Board also designates working groups or ad hoc committees as it deems appropriate.
The approval process
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. 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. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.
Prior to the May 2–4, 2010 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information independently compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) as determined by Morningstar, and its benchmark index. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser and its affiliates that result from being the Adviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, under similar investment mandates, as well as the performance of such other clients; (c) the impact of economies of scale; (d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.
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Semiannual report | International Growth Fund | 39 |
At an in-person meeting held on May 2–4, 2010, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May 2–4, 2010 meeting, the Board presented the Adviser and Subadviser with questions and requests for additional information and the Adviser and Subadviser responded to these requests with additional written information in advance of the June 6–8, 2010 Board meeting. The Board also reviewed these additional materials relating to its consideration of the Agreements.
At an in-person meeting held on June 6–8, 2010, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement between the Adviser and the Subadviser with respect to the Fund, each for an additional one-year term. The Board considered all factors it believed relevant with respect to the Fund, including, among other factors: (a) the nature, extent and quality of the services provided by the Adviser and the Subadviser; (b) the investment performance of the Fund and portfolio management of the Subadviser; (c) the advisory fees and the cost of the services and profits to be realized by the Adviser and certain affiliates from their relationship with the Fund; (d) economies of scale; and (e) other factors.
The Board also considered other matters important to the approval process, such as payments made to the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser, and their affiliates from their relationship with the Fund, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Trustee may have attributed different weights to the various items considered.
The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board, including the Independent Trustees, reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund. The Board reviewed the Adviser’s and Subadviser’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.
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. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.
The Board considered the Subadviser’s history and 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, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Fund by
| |
40 | International Growth Fund | Semiannual report |
third parties) and officers and other personnel as are necessary for the operations of the Fund. The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and considered the Adviser’s policies and procedures for assuring compliance with applicable laws and regulations.
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 reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to such other clients under similar investment mandates, the services provided to such other clients as compared to the services provided to the Fund, the performance of such other clients, and other factors relating to such other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and those services they provide to other clients which, to the extent the other client is not a mutual fund, may generally be attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover o f mutual fund assets, the more burdensome regulatory and legal obligations of mutual funds, and the higher marketing costs for mutual funds.
Fund performance
The Board, including the Independent Trustees, reviewed and considered the performance history of the Fund. The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category and Peer Group as well as its benchmark index. The Board noted that the Fund underperformed its Peer Group median, Category median and the MSCI EAFE Growth Index (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board also considered updated performance information provided by the Adviser at its May and June 2010 meetings. The Board regularly reviews the performance of the Fund throughout the year and attaches more importance to performance over relatively longer periods of time, typically three to five years.
| | | | |
| 1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR |
|
International Growth Fund | 21.08% | –5.40% | N/A | N/A |
MSCI EAFE Growth Index | 29.36% | –4.78% | N/A | N/A |
Foreign Large Blend Category Median | 30.85% | –5.61% | N/A | N/A |
Morningstar 15(c) Peer Group Median | 35.72% | –5.61% | N/A | N/A |
The Board noted that the Subadviser remained consistent with its investment style and adhered to its investment mandates.
The Board considered a presentation on the investment management style of the Subadviser and noted that the Subadviser manages with a quantitative bias towards quality stocks and a momentum style of investing. The Board noted that the Subadviser had historically managed these quantitative factors separately. The Board noted that these investment styles have struggled recently, and that the Subadviser has a history of staying consistent in its management style regardless of the market environment, and that such consistency can be rewarded in the right environment.
The Board noted that the Adviser and the Subadviser anticipated an improvement in performance once the markets begin to favor these investment styles again, and that the Subadviser has revised its process to consider its quantitative investment characteristics as a single discipline. It was finally noted that the Adviser will be closely monitoring the Subadviser’s performance. The Board concluded that the Fund’s underperformance was being responsibly addressed by the Adviser and Subadviser. The Board concluded that the Fund’s underperformance was being responsibly addressed by the Adviser and Subadviser.
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Semiannual report | International Growth Fund | 41 |
Expenses and fees
The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Category and Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other types of clients with similar investment mandates, including separately managed institutional accounts.
In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration 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 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 considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. As part of its analysis, the Board r eviewed the Adviser’s methodology in allocating its costs to the management of the Fund. The Board considered expenses and fee rates to be higher or lower if they were over or under 10 basis points, respectively; slightly higher or slightly lower if they were above or below 6–10 basis points, respectively; and inline if they were above or below by 5 basis points.
The Board noted that the investment advisory rate was inline with the Category and Peer Group medians. The Board viewed favorably the Adviser’s contractual agreement to waive all or a portion of its Advisory Agreement rate and reimburse or pay operating expenses to the extent necessary to maintain the Fund’s Net Expense Ratio at 1.70% for Class A shares, excluding certain expenses such as taxes, brokerage commissions, interest, litigation and extraordinary expenses, until June 30, 2011.
The Board reviewed the Fund’s Gross Expense Ratio of 1.87% for the Fund’s Class A shares. The Board noted that the Fund’s Gross Expense Ratio was lower than the Peer Group median and higher than the Category median. The Board also noted that the Fund’s Net Expense Ratio was slightly higher than the Peer Group median and higher than the Category median. The Board favorably considered the impact of fee waivers towards ultimately lowering the Fund’s Gross Expense Ratio. The Board also received and considered information relating to the Fund’s Gross Expense Ratio and Net Expense Ratio that reflected a proposed change in the methodology for calculating transfer agent fees.
The Board received and reviewed statements relating to the Adviser’s financial condition and profitability with respect to the services it provides the Fund. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services provided to the Fund. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2009 compared to available aggregate profitability data provided for the year ended December 31, 2008.
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparabili ty of profitability is somewhat limited.
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42 | International Growth Fund | Semiannual report |
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 fee under the Subadvisory Agreement had been negotiated by the Adviser and the Subadviser 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 Subadvisory Agreement.
Economies of scale
The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the assets of the Fund. The Board also considered the Adviser’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations.
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 ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Agreement fee rate.
Other benefits to the Adviser and the Subadviser
The Board understands that the Adviser, the Subadviser, or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community, and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.
Board determination
The Board, including the Independent Trustees, unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term and the Subadvisory Agreement between the Adviser and Subadviser with respect to the Fund for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board, including a majority of the Independent Trustees, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at a decision to approve the Agreements, the Board did not identify any single factor listed above, or any group of factors listed above, as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by the advice of independent legal counsel in making this determination. The Board noted that contractual fee arrangements for the Fund reflect the results of several years of review by the Board and certain predecessor Trustees, and discussions between such Trustees (and predecessor Trustees) and the Adviser. Certain aspects of the arrangements may be the subject of more attention in some years than in others, and the Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years.
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Semiannual report | International Growth Fund | 43 |
More information
| | |
Trustees | Investment adviser | |
Patti McGill Peterson, Chairperson | John Hancock Investment Management | |
James F. Carlin | Services, LLC | |
William H. Cunningham | | |
Deborah C. Jackson* | Subadviser | |
Charles L. Ladner | Grantham, Mayo, Van Otterloo & Co. LLC | |
Stanley Martin* | | |
Hugh McHaffie†** | Principal distributor | |
Dr. John A. Moore | John Hancock Funds, LLC | |
Steven R. Pruchansky* | | |
Gregory A. Russo | Custodian | |
John G. Vrysen† | State Street Bank and Trust Company | |
| | |
Officers | Transfer agent | |
Keith F. Hartstein | John Hancock Signature Services, Inc. | |
President and Chief Executive Officer | | |
| Legal counsel | |
Andrew G. Arnott | K&L Gates LLP | |
Senior Vice President** and Chief Operating Officer | | |
|
| |
Thomas M. Kinzler | The report is certified under the Sarbanes-Oxley | |
Secretary and Chief Legal Officer | Act, which requires mutual funds and other public | |
| companies to affirm that, to the best of their | |
Francis V. Knox, Jr. | knowledge, the information in their financial reports | |
Chief Compliance Officer | is fairly and accurately stated in all material respects. | |
|
| |
Charles A. Rizzo | | |
Chief Financial Officer | | |
| | |
Salvatore Schiavone** | | |
Treasurer | | |
| |
*Member of the Audit Committee | | |
**Effective 8-31-10 | | |
†Non-Independent Trustee | | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| | |
You can also contact us: | | |
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations |
| Boston, MA 02205-5913 | 30 Dan Road |
| | Canton, MA 02021 |
| |
44 | International Growth 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 Growth Fund. | 870SA 8/10 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/10 |
A look at performance
| | | | | | | | | | |
For the period ended August 31, 2010 | | | | | | | |
|
| Average annual total returns (%) | | Cumulative total returns (%) | |
| with maximum sales charge (POP) | | with maximum sales charge (POP) | |
|
| 1-year | 5-year | 10-year | inception Since 1 | | 6-months | 1-year | 5-year | 10-year | inception Since 1 |
| |
|
Class A | –2.60 | — | — | –7.76 | | –5.85 | –2.60 | — | — | –25.67 |
| |
|
Class B | –3.24 | — | — | –7.79 | | –6.25 | –3.24 | — | — | –25.76 |
| |
|
Class C | 0.76 | — | — | –7.11 | | –2.30 | 0.76 | — | — | –23.74 |
| |
|
Class I2 | 2.94 | — | — | –6.05 | | –0.73 | 2.94 | — | — | –20.48 |
| |
|
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 shares 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 charges are 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 6-30-11. The following expense ratios include expenses of the underlying affiliated funds in which the Portfolio invests. The net expenses are as follows: Class A — 1.68%, Class B — 2.38%, Class C — 2.38% and Class I — 1.22%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 2.16%, Class B — 3.78%, Class C — 3.06% and Class I — 5.32%.
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 portfolio distributions or the redemption of portfolio shares.
The Portfolio’s performance results reflect any applicable expense reductions, without which the expenses increase and results would have been less favorable.
1 From 12-29-06.
2 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 John Hancock International Allocation Portfolio Class A shares for the period indicated. For comparison, we’ve shown the same investment in the MSCI EAFE Index.
| | | | |
| Period | Without | With maximum | |
| beginning | sales charge | sales charge | Index |
|
Class B | 12-29-06 | $7,626 | $7,424 | $7,782 |
|
Class C2 | 12-29-06 | 7,626 | 7,626 | 7,782 |
|
Class I3 | 12-29-06 | 7,952 | 7,952 | 7,782 |
|
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 8-31-10. 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 Index (gross of foreign withholding tax on dividends) (Europe, Australasia, Far East) 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.
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 The contingent deferred sales charge, if any, is not applicable.
3 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 portfolio expenses
As a shareholder of the Portfolio, you incur two types of costs:
■ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other portfolio 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 portfolio’s actual ongoing operating expenses, and is based on your portfolio’s actual return. It assumes an account value of $1,000.00 on March 1, 2010 with the same investment held until August 31, 2010.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-10 | on 8-31-10 | period ended 8-31-101,2 |
|
Class A | $1,000.00 | $991.20 | $3.31 |
|
Class B | 1,000.00 | 986.80 | 6.81 |
|
Class C | 1,000.00 | 986.80 | 6.81 |
|
Class I | 1,000.00 | 992.70 | 0.95 |
|
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, 2010, by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
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8 | International Allocation Portfolio | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare your portfolio’s ongoing operating expenses with those of any other portfolio. It provides an example of the Portfolio’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 portfolio’s actual return). It assumes an account value of $1,000.00 on March 1, 2010, with the same investment held until August 31, 2010. Look in any other portfolio shareholder report to find its hypothetical example and you will be able to compare these expenses.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-10 | on 8-31-10 | period ended 8-31-101,2 |
|
Class A | $1,000.00 | $1,021.90 | $3.36 |
|
Class B | 1,000.00 | 1,018.30 | 6.92 |
|
Class C | 1,000.00 | 1,018.30 | 6.92 |
|
Class I | 1,000.00 | 1,024.20 | 0.97 |
|
Remember, these examples do not include any transaction costs, 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 Portfolio’s annualized expense ratio of 0.66%, 1.36%, 1.36% and 0.19% for Class A, Class B, Class C and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
2 The Portfolio’s expense ratios do not include fees and expenses indirectly incurred by the underlying funds, whose ratios can vary based on the mix of underlying funds. The range of expense ratios of the underlying funds held were 0.93% to 1.12%.
| |
Semiannual report | International Allocation Portfolio | 9 |
Portfolio summary
1 As a percentage of net assets on 8-31-10.
| |
10 | International Allocation Portfolio | Semiannual report |
Portfolio’s investments
| |
Investment companies | |
Underlying Funds’ Investment Manager | |
| |
Dimensional Fund Advisors, Inc. | (DFA) |
Templeton Investment Counsel, LLC | (Templeton) |
Grantham, Mayo, Van Otterloo & Co. LLC | (GMO) |
Marsico Capital Management, LLC | (Marsico) |
MFC Global Investment Management (U.S.A.) Limited | (MFC Global U.S.A.) |
| | |
As of 8-31-10 (unaudited) | | |
| Shares | Value |
Affiliated Funds 100.12% | | $16,586,991 |
|
(Cost $16,144,983) | | |
EQUITY (G) 100.12% | | 16,586,991 |
International Large Cap 74.63% | | |
|
John Hancock Funds III | | |
International Growth, Class NAV (GMO) | 240,988 | 4,132,945 |
|
John Hancock Funds II | | |
International Opportunities, Class NAV (Marsico) | 344,624 | 4,121,708 |
|
International Value, Class NAV (Templeton) | 326,435 | 4,109,811 |
Emerging Markets 12.99% | | |
|
John Hancock Funds II | | |
Emerging Markets Value, Class NAV (DFA) | 198,866 | 2,151,734 |
International Small Cap 7.50% | | |
|
John Hancock Funds II | | |
International Small Company, Class NAV (DFA) | 175,594 | 1,243,203 |
Other 5.00% | | |
|
John Hancock Investment Trust III | | |
Greater China Opportunities, Class NAV (MFC Global U.S.A.) (A) | 46,338 | 827,590 |
|
Total investments (Cost $16,144,983)† 100.12% | | $16,586,991 |
|
Other assets and liabilities, net (0.12%) | | ($20,156) |
|
Total net assets 100.00% | | $16,566,835 |
|
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the portfolio.
(A) The subadviser is an affiliate of the adviser.
(G) The underlying fund’s subadviser is shown parenthetically.
† At 8-31-10, the aggregate cost of investment securities for federal income tax purposes was $19,339,276. Net unrealized depreciation aggregated $2,752,285, of which $699,785 related to appreciated investment securities and $3,452,070 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 SFinancial statements
Statement of assets and liabilities 8-31-10 (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 | $16,586,991 |
| |
Total investments, at value (Cost $16,144,983) | 16,586,991 |
Cash | 25,148 |
Receivable for fund shares sold | 25,297 |
Receivable due from adviser | 1,142 |
Other receivables and prepaid assets | 22,850 |
| |
Total assets | 16,661,428 |
|
Liabilities | |
|
Payable for investments purchased | 14,337 |
Payable for fund shares repurchased | 36,970 |
Payable to affiliates | |
Accounting and legal services fees | 88 |
Transfer agent fees | 3,068 |
Trustees’ fees | 815 |
Other liabilities and accrued expenses | 39,315 |
| |
Total liabilities | 94,593 |
|
Net assets | |
|
Capital paid-in | $33,008,786 |
Accumulated net investment loss | (81,096) |
Accumulated net realized loss on investments | (16,802,863) |
Net unrealized appreciation on investments | 442,008 |
| |
Net assets | $16,566,835 |
|
Net asset value per share | |
|
Based on net asset values and shares outstanding — the Portfolio has an | |
unlimited number of shares authorized with no par value | |
Class A ($9,579,688 ÷ 1,417,480 shares) | $6.76 |
Class B ($1,660,329 ÷ 246,130 shares)1 | $6.75 |
Class C ($5,069,417 ÷ 750,950 shares)1 | $6.75 |
Class I ($257,401 ÷ 38,013 shares) | $6.77 |
|
Maximum offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $7.12 |
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.
| | |
12 | International Allocation Portfolio | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T SStatement of operations For the six-month period ended 8-31-10 (unaudited)
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 4) | $6,320 |
Distribution and service fees (Note 4) | 49,292 |
Accounting and legal services fees (Note 4) | 1,405 |
Transfer agent fees (Note 4) | 23,108 |
Trustees’ fees (Note 4) | 1,028 |
State registration fees (Note 4) | 5,892 |
Printing and postage fees (Note 4) | 5,936 |
Professional fees | 21,625 |
Custodian fees | 6,217 |
Registration and filing fees | 5,294 |
Other | 2,957 |
| |
Total expenses | 129,074 |
Less expense reductions (Note 4) | (48,386) |
| |
Net expenses | 80,688 |
| |
Net investment loss | (80,688) |
|
Realized and unrealized gain (loss) | |
|
Net realized loss on | |
Investments in affiliated underlying funds | (1,125,203) |
| (1,125,203) |
Change in net unrealized appreciation (depreciation) of | |
Investments in affiliated underlying funds | 1,000,717 |
| 1,000,717 |
Net realized and unrealized loss | (124,486) |
Decrease in net assets from operations | ($205,174) |
| | |
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 SStatements 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.
| | |
| For the | |
| six-month period | Year |
| ended 8-31-10 | ended |
| (unaudited) | 2-28-10 |
|
Increase (decrease) in net assets | | |
|
|
From operations | | |
Net investment income (loss) | ($80,688) | $75,504 |
Net realized loss | (1,125,203) | (10,066,907) |
Change in net unrealized appreciation (depreciation) | 1,000,717 | 20,230,923 |
| | |
Increase (decrease) in net assets resulting from operations | (205,174) | 10,239,520 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | — | (83,517) |
Class B | — | (2,809) |
Class C | — | (12,136) |
Class I | — | (3,728) |
From net realized gain | | |
Class A | — | (2,419) |
Class B | — | (300) |
Class C | — | (1,298) |
Class I | — | (72) |
| | |
Total distributions | — | (106,279) |
| | |
From Portfolio share transactions (Note 5) | (310,653) | (10,301,661) |
| | |
Total decrease | (515,827) | (168,420) |
|
Net assets | | |
|
Beginning of period | 17,082,662 | 17,251,082 |
| | |
End of period | $16,566,835 | $17,082,662 |
| | |
Accumulated net investment loss | ($81,096) | ($408) |
| | |
14 | International Allocation Portfolio | Semiannual report | See notes to financial statements |
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 | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $6.82 | $4.31 | $9.48 | $9.96 | $10.00 |
Net investment income (loss)3,4 | (0.02) | 0.02 | 0.12 | 0.13 | (0.01) |
Net realized and unrealized gain (loss) | | | | | |
on investments | (0.04) | 2.55 | (4.86) | (0.03) | (0.03) |
Total from investment operations | (0.06) | 2.57 | (4.74) | 0.10 | (0.04) |
Less distributions | | | | | |
From net investment income | — | (0.06) | (0.14) | (0.13) | — |
From net realized gain | — | —5 | (0.29) | (0.45) | — |
Total distributions | — | (0.06) | (0.43) | (0.58) | — |
Net asset value, end of period | $6.76 | $6.82 | $4.31 | $9.48 | $9.96 |
Total return (%)6,7,8 | (0.88)9 | 59.59 | (50.67) | 0.70 | (0.40)9 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $10 | $10 | $13 | $30 | $3 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 1.1810,11 | 1.0611,12 | 0.9211 | 1.1111 | 8.5310 |
Expenses net of fee waivers | 0.6610,11 | 0.6711,12 | 0.6111 | 0.5811 | 0.6010 |
Expenses net of fee waivers and credits | 0.6610,11 | 0.6611,12 | 0.6111 | 0.5811 | 0.6010 |
Net investment income (loss)4 | (0.66)9 | 0.29 | 1.56 | 1.21 | (0.60)10 |
Portfolio turnover (%) | 16 | 41 | 23 | 23 | 3 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class A shares is 12-29-06.
3 Based on the average daily 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 ($0.005) per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment (if applicable).
8 Does not reflect the effect of sales charges, if any.
9 Not annualized.
10 Annualized.
11 Ratios do not include expenses incurred from underlying funds whose annualized expense ratios were 0.93% to 1.12%, 0.91% to 1.17%, 0.99% to 1.17% and 1.02% for the period ended 8-31-10 and the years ended 2-28-10, 2-28-09 and 2-29-08, respectively, based on the mix of underlying funds by the Portfolio.
12 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
| | |
See notes to financial statements | Semiannual report | International Allocation Portfolio | 15 |
| | | | | |
CLASS B SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $6.84 | $4.32 | $9.46 | $9.95 | $10.00 |
Net investment income (loss)3,4 | (0.05) | 0.03 | 0.06 | 0.07 | (0.02) |
Net realized and unrealized gain (loss) | | | | | |
on investments | (0.04) | 2.51 | (4.83) | (0.06) | (0.03) |
Total from investment operations | (0.09) | 2.54 | (4.77) | 0.01 | (0.05) |
Less distributions | | | | | |
From net investment income | — | (0.02) | (0.08) | (0.05) | — |
From net realized gain | — | —5 | (0.29) | (0.45) | — |
Total distributions | — | (0.02) | (0.37) | (0.50) | — |
Net asset value, end of period | $6.75 | $6.84 | $4.32 | $9.46 | $9.95 |
Total return (%)6,7,8 | (1.32)9 | 58.73 | (51.01) | (0.13) | (0.50)9 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $2 | $1 | $1 | $2 | —10 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 2.0911,12 | 3.0612,13 | 3.0312 | 4.0212 | 28.5811 |
Expenses net of fee waivers | 1.3611,12 | 1.4412,13 | 1.5312 | 1.3412 | 1.2611 |
Expenses net of fee waivers and credits | 1.3611,12 | 1.3712,13 | 1.3112 | 1.3312 | 1.2611 |
Net investment income (loss)4 | (1.36)11 | 0.48 | 0.80 | 0.70 | (1.26)11 |
Portfolio turnover (%) | 16 | 41 | 23 | 23 | 3 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class B shares is 12-29-06.
3 Based on the average daily 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 ($0.005) per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment (if applicable).
8 Does not reflect the effect of sales charges, if any.
9 Not annualized.
10 Less than $500,000.
11 Annualized.
12 Ratios do not include expenses incurred from underlying funds whose annualized expense ratios were 0.93% to 1.12%, 0.91% to 1.17%, 0.99% to 1.17% and 1.02% for the period ended 8-31-10 and the years ended 2-28-10, 2-28-09 and 2-29-08, respectively, based on the mix of underlying funds by the Portfolio.
13 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
| | |
16 | International Allocation Portfolio | Semiannual report | See notes to financial statements |
| | | | | |
CLASS C SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $6.84 | $4.32 | $9.46 | $9.95 | $10.00 |
Net investment income (loss)3,4 | (0.05) | 0.03 | 0.06 | 0.08 | (0.02) |
Net realized and unrealized gain (loss) | | | | | |
on investments | (0.04) | 2.51 | (4.83) | (0.07) | (0.03) |
Total from investment operations | (0.09) | 2.54 | (4.77) | 0.01 | (0.05) |
Less distributions | | | | | |
From net investment income | — | (0.02) | (0.08) | (0.05) | — |
From net realized gain | — | —5 | (0.29) | (0.45) | — |
Total distributions | — | (0.02) | (0.37) | (0.50) | — |
Net asset value, end of period | $6.75 | $6.84 | $4.32 | $9.46 | $9.95 |
Total return (%)6,7,8 | (1.32)9 | 58.73 | (51.01) | (0.13) | (0.50)9 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | $5 | $5 | $3 | $8 | $1 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 1.8810,11 | 2.1111,12 | 1.9211 | 2.3111 | 18.6210 |
Expenses net of fee waivers | 1.3610,11 | 1.4011,12 | 1.3111 | 1.3311 | 1.2710 |
Expenses net of fee waivers and credits10 | 1.3610,11 | 1.3711,12 | 1.3111 | 1.3311 | 1.2710 |
Net investment income (loss)4 | (1.36)10 | 0.44 | 0.76 | 0.79 | (1.27)10 |
Portfolio turnover (%) | 16 | 41 | 23 | 23 | 3 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class C shares is 12-29-06.
3 Based on the average daily 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 ($0.005) per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment (if applicable).
8 Does not reflect the effect of sales charges, if any.
9 Not annualized.
10 Annualized.
11 Ratios do not include expenses incurred from underlying funds whose annualized expense ratios were 0.93% to 1.12%, 0.91% to 1.17%, 0.99% to 1.17% and 1.02% for the period ended 8-31-10 and the years ended 2-28-10, 2-28-09 and 2-29-08, respectively, based on the mix of underlying funds by the Portfolio.
12 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
| | |
See notes to financial statements | Semiannual report | International Allocation Portfolio | 17 |
| | | | | |
CLASS I SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-08 | 2-28-072 |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | $6.82 | $4.30 | $9.49 | $9.97 | $10.00 |
Net investment income3,4 | (0.01) | 0.09 | 0.11 | 0.16 | —5 |
Net realized and unrealized gain (loss) | | | | | |
on investments | (0.04) | 2.52 | (4.84) | (0.03) | (0.03) |
Total from investment operations | (0.05) | 2.61 | (4.73) | 0.13 | (0.03) |
Less distributions | | | | | |
From net investment income | — | (0.09) | (0.17) | (0.16) | — |
From net realized gain | — | —5 | (0.29) | (0.45) | — |
Total distributions | — | (0.09) | (0.46) | (0.61) | — |
Net asset value, end of period | $6.77 | $6.82 | $4.30 | $9.49 | $9.97 |
Total return (%)6,7 | (0.73)8 | 60.62 | (50.48) | 1.02 | (0.30)8 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | —9 | —9 | —9 | $1 | —9 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | 2.0610,11 | 4.6811,12 | 1.3511 | 7.1711 | 25.0110 |
Expenses net of fee waivers | 0.1910,11 | 0.1911,12 | 0.1611 | 0.1811 | 0.1710 |
Expenses net of fee waivers and credits | 0.1910,11 | 0.1911,12 | 0.1611 | 0.1811 | 0.1710 |
Net investment income (loss)4 | (0.19)10 | 1.46 | 1.44 | 1.55 | (0.17)10 |
Portfolio turnover (%) | 16 | 41 | 23 | 23 | 3 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class I shares is 12-29-06.
3 Based on the average daily 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 ($0.005) per share.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Assumes dividend reinvestment (if applicable).
8 Not annualized.
9 Less than $500,000.
10 Annualized.
11 Ratios do not include expenses incurred from underlying funds whose annualized expense ratios were 0.93% to 1.12%, 0.91% to 1.17%, 0.99% to 1.17% and 1.02% for the period ended 8-31-10 and the years ended 2-28-10, 2-28-09 and 2-29-08, respectively, based on the mix of underlying funds by the Portfolio.
12 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
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18 | International Allocation Portfolio | Semiannual report | See notes to financial statements |
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), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Portfolio is to seek long-term growth of capital. The Portfolio is designed to provide diversification of investments within the international asset class.
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 other permitted investments.
The Portfolio may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.
The accounting policies of the underlying funds of the Portfolio are outlined in the underlying funds’ shareholder reports, available without charge by calling 1-800-344-1029 and jhfunds.com, on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or at the SEC’s public reference room in Washington, D.C. The underlying funds are not covered by this report.
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. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Portfolio:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Portfolio uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these techniques are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes significant unobservable inputs when market prices are not readily available or reliable, including the Portfolio’s own assumptions in determining the fair value of investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of August 31, 2010, all investments of the Portfolio are categorized as Level 1 under the hierarchy described above.
In order to value the securities, the Portfolio uses the following valuation techniques. Investments by the Portfolio in underlying affiliated funds and/or other investment companies are valued at their respective net asset values each business day. Certain securities traded only in the over-the-counter
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Semiannual report | International Allocation Portfolio | 19 |
market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date.
Line of credit. The Portfolio may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to a Portfolio to make properly authorized payments. The Portfolio is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Portfolio property that is not segregated, to the maximum extent permitted by law for any overdraft.
In addition, the Portfolio and other affiliated funds have entered into an agreement with the custodian which enables them to participate in a $100 million unsecured committed line of credit. Prior to March 31, 2010, the amount of the line of credit was $150 million. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis based on their relative average net assets. For the six months ended August 31, 2010, the Portfolio had no significant borrowings under the line of credit.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage fees, for all classes are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Federal income taxes. The Portfolio intends to qualify 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 Portfolio had a capital loss carryforward of $8,833,465 available to offset future net realized capital gains as of February 28, 2010. The loss carryforward expires as follows: February 28, 2017 — $1,965,278 and February 28, 2018 — $6,868,187.
As of February 28, 2010, the Portfolio had no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure. The Portfolio’s federal tax return is subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Portfolio generally declares and pays dividends and capital gain distributions, if any, at least annually.
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20 | International Allocation Portfolio | Semiannual report |
Distributions paid by the Portfolio with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that 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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Portfolio’s financial statements as a tax return of capital.
Capital accounts within financial statements are adjusted for permanent book/tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book/tax differences, if any, will reverse in a subsequent period.
Note 3 — Guarantees and indemnifications
Under the Portfolio’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Portfolio. Additionally, in the normal course of business, the Portfolio enters into contracts with service providers that contain general indemnification clauses. The Portfolio’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Portfolio that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 4 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Trust. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Portfolio has an investment management contract with the Adviser under which the Portfolio pays the Adviser a management fee that has two components: (a) a fee on assets invested in the funds of JHF II and JHF III (Portfolio Assets) and (b) a fee on assets invested in investments other than JHF II and JHF III (Other Assets). The Portfolio pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.05% of the first $500,000,000 of the Portfolio Assets; (b) 0.04% of the Portfolio 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 Adviser has a subadvisory agreement with MFC Global Investment Management (U.S.A.) Limited. The Portfolio is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended August 31, 2010 were equivalent to an annual effective rate of 0.073% of the Portfolio’s average daily net assets, which includes a voluntary waiver by the Adviser of 0.035% of the Portfolio’s average daily net assets.
Effective July 1, 2010, the Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Portfolio. This agreement excludes taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Portfolio’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 0.63%, 1.33%, 1.33% and 0.17% for Class A, Class B, Class C and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until June 30, 2011.
Prior to July 1, 2010, the Adviser had contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Portfolio. This agreement excluded taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Portfolio’s business. The fee waivers and/or reimbursements were such that these
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Semiannual report | International Allocation Portfolio | 21 |
expenses will not exceed 0.68%, 1.38%, 1.38% and 0.20% for Class A, Class B, Class C and Class I shares, respectively.
Effective May 1, 2010, the Adviser has voluntarily agreed to waive fees and/or reimburse certain other fund level expenses. This agreement excludes advisory, interest, overdraft, litigation, Rule 12b-1, class specific and other extraordinary expenses not incurred in the ordinary course of business. The fee waivers and/or reimbursement are such that these expenses will not exceed 0.16% of average daily net assets.
Accordingly, these expense reductions, described above, amounted to $26,706, $5,504, $13,465 and $2,711 for Class A, Class B, Class C and Class I shares, respectively, for the six months ended August 31, 2010.
Accounting and legal services. Pursuant to the service 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, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended August 31, 2010 amounted to an annual rate of 0.02% of the Portfolio’s average daily net assets.
Distribution and service plans. The Portfolio has a distribution agreement with the Distributor. The Portfolio has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Portfolio. The Portfolio may pay up to the following contractual rates of distribution under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Portfolio’s shares.
| | | |
| DISTRIBUTION FEE | | |
CLASS | (12b–1) | | |
| | |
Class A | 0.30% | | |
Class B | 1.00% | | |
Class C | 1.00% | | |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $6,464 for the six months ended August 31, 2010. Of this amount, $1,052 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $4,974 was paid as sales commissions to broker-dealers and $438 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
Class B and Class C shares are subject to contingent deferred sales charges (CDSC). Class B shares that are redeemed within six years of purchase are subject to 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 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended August 31, 2010, CDSCs received by the Distributor amounted to $1,313 and $245 for Class B and Class C shares, respectively.
Transfer agent fees. The Portfolio has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. Prior to July 1, 2010, the transfer agent fees were made up of three components:
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22 | International Allocation Portfolio | Semiannual report |
• The Portfolio paid a monthly transfer agent fee at an annual rate of 0.05% for Class A, Class B and Class C shares and 0.04% for Class I shares, based on each class’s average daily net assets.
• The Portfolio paid a monthly fee based on an annual rate of $16.50 per shareholder account.
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Effective July 1, 2010, the transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Portfolios and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain revenues that Signature Services received in connection with the service they provide to the funds. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes . Within each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the six months ended August 31, 2010 were:
| | | | |
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE FEES |
|
Class A | $15,574 | $13,317 | $1,551 | $3,982 |
|
Class B | 7,571 | 2,595 | 1,386 | 362 |
|
Class C | 26,147 | 6,766 | 1,386 | 1,350 |
|
Class I | — | 430 | 1,569 | 242 |
Total | $49,292 | $23,108 | $5,892 | $5,936 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within other receivables and prepaid assets and Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
Note 5 — Portfolio share transactions
Transactions in Portfolio shares for the six months ended August 31, 2010 and for the year ended February 28, 2010 were as follows:
| | | | |
| Six months ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 152,128 | $1,063,373 | 522,788 | $3,506,036 |
Distributions reinvested | — | — | 10,629 | 75,571 |
Repurchased | (240,615) | (1,646,733) | (2,065,514) | (14,287,346) |
Net decrease | (88,487) | ($583,360) | (1,532,097) | ($10,705,739) |
|
Class B shares | | | | |
|
Sold | 83,235 | $581,479 | 82,988 | $561,962 |
Distributions reinvested | — | — | 385 | 2,746 |
Repurchased | (26,142) | (183,784) | (49,422) | (311,321) |
Net increase | 57,093 | $397,695 | 33,951 | $253,387 |
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Semiannual report | International Allocation Portfolio | 23 |
| | | | |
| Six months ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class C shares | | | | |
|
Sold | 127,514 | $848,127 | 232,661 | $1,591,552 |
Distributions reinvested | — | — | 1,523 | 10,860 |
Repurchased | (138,233) | (934,689) | (225,150) | (1,384,944) |
Net increase (decrease) | (10,719) | ($86,562) | 9,034 | $217,468 |
|
Class I shares | | | | |
|
Sold | 8,919 | $63,965 | 23,320 | $141,232 |
Distributions reinvested | — | — | 355 | 2,524 |
Repurchased | (15,219) | (102,391) | (33,711) | (210,533) |
Net decrease | (6,300) | ($38,426) | (10,036) | ($66,777) |
|
Net decrease | (48,413) | ($310,653) | (1,499,148) | ($10,301,661) |
|
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $2,692,129 and $3,112,807, respectively, for the six months ended August 31, 2010.
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24 | International Allocation Portfolio | Semiannual report |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock International Allocation Portfolio (the Portfolio), a series of John Hancock Funds III, met in-person on May 2–4 and June 6–8, 2010 to consider the approval of the Portfolio’s investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), the Portfolio’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) between the Adviser and MFC Global Investment Management (U.S.A.), Limited (the Subadviser) on behalf of the Portfolio. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.
Activities and composition of the Board
The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are unaffiliated with the Portfolio, the Adviser and the Subadviser. The Trustees are responsible for the oversight of operations of the Portfolio and perform the various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have retained independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committees A and B are standing committees of the Board that are each composed of I ndependent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee B oversees and monitors matters relating to the investment performance of the Portfolio. The Board has also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as Chairman of the Board’s Nominating, Governance and Administration Committee. The Board also designates working groups or ad hoc committees as it deems appropriate.
The approval process
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Portfolio receives under these Agreements. 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. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Portfolio and its shareholders.
Prior to the May 2–4, 2010 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included (information independently compiled and prepared by Morningstar, Inc. (Morningstar) on fund fees and expenses, and the investment performance of the Portfolio. This Portfolio information is assembled in a format that permits comparison with similar information from a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) as determined by Morningstar, and its benchmark index. Other material provided for the Portfolio review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser and its affiliates that result from being the Adviser or Subadviser to the Portfolio; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, under similar investment mandates, as well as the performance of such other clients;
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Semiannual report | International Allocation Portfolio | 25 |
(c) the impact of economies of scale; (d) a summary of aggregate amounts paid by the Portfolio to the Adviser; and (e) sales and redemption data regarding the Portfolio’s shares.
At an in-person meeting held on May 2–4, 2010, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May 2–4, 2010 meeting, the Board presented the Adviser and Subadviser with questions and requests for additional information and the Adviser and Subadviser responded to these requests with additional written information in advance of the June 6–8, 2010 Board meeting. The Board also reviewed these additional materials relating to its consideration of the Agreements.
At an in-person meeting held on June 6–8, 2010, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Portfolio and the Subadvisory Agreement between the Adviser and the Subadviser with respect to the Portfolio, each for an additional one-year term. The Board considered all factors it believed relevant with respect to the Portfolio, including, among other factors: (a) the nature, extent and quality of the services provided by the Adviser and the Subadviser; (b) the investment performance of the Portfolio and portfolio management of the Subadviser; (c) the advisory fees and the cost of the services and profits to be realized by the Adviser and certain affiliates from their relationship with the Portfolio; (d) economies of scale; and (e) other factors.
The Board also considered other matters important to the approval process, such as payments made to the Adviser or its affiliates relating to the distribution of Portfolio shares and other services. The Board reviewed services related to the valuation and pricing of portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser, and their affiliates from their relationship with the Portfolio, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Trustee may have attributed different weights to the various items considered.
The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board, including the Independent Trustees, reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Portfolio. The Board reviewed the Adviser’s and Subadviser’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Portfolio’s portfolio management team discussing Portfolio performance and the Portfolio’s investment objective, strategies and outlook.
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. It considered the background and experience of senior management and investment professionals responsible for managing the Portfolio. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Portfolio, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.
The Board considered the Subadviser’s history and experience with the Portfolio. 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, record of compliance with applicable laws and regulation, with the Portfolio’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.
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26 | International Allocation Portfolio | Semiannual report |
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Portfolio by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Portfolio with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Portfolio. The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and considered the Adviser’s policies and procedures for assuring compliance with applicable laws and regulations.
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 reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to such other clients under similar investment mandates, the services provided to such other clients as compared to the services provided to the Portfolio, the performance of such other clients, and other factors relating to such other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Portfolio and those services they provide to other clients which, to the extent the other client is not a mutual fund, may generally be attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover of mutual fund assets, the more burdensome regulatory and legal obligations of mutual funds, and the higher marketing costs for mutual funds.
Portfolio performance
The Board, including the Independent Trustees, reviewed and considered the performance history of the Portfolio. The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Portfolio as compared to its Morningstar Category and Peer Group as well as its benchmark index. The Portfolio outperformed the Category and Peer Group median as well as its benchmark index for the recent one year period. Its three year performance continues to lag its comparison groups for a three year period (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board also considered updated performance information provided by the Adviser at its May and June 2010 meetings. The Board regularly reviews the performance of the Portfolio throughout the year and attaches more importance to performance over relatively longer periods of time, typically three to five years.
| | | | |
| 1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR |
|
International Allocation Portfolio | 37.62% | –6.13% | N/A | N/A |
|
MSCI EAFE Index (gross of dividends) | 32.46% | –5.57% | N/A | N/A |
|
Foreign Large Blend Category Median | 35.46% | –3.47% | N/A | N/A |
|
Morningstar 15(c) Peer Group Median | 34.58% | –5.61% | N/A | N/A |
The Board noted that the Subadviser remained consistent with its investment style and adhered to its investment mandates.
The Board concluded that the Portfolio’s underperformance was being responsibly addressed by the Adviser and Subadviser.
Expenses and fees
The Board, including the Independent Trustees, reviewed the Portfolio’s contractual advisory fee rate payable by the Portfolio to the Adviser as compared with the other funds in its Category and Peer Group. The Board also received information about the investment subadvisory fee rate payable
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Semiannual report | International Allocation Portfolio | 27 |
by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other types of clients with similar investment mandates, including separately managed institutional accounts.
In addition, the Board considered the cost of the services provided to the Portfolio by the Adviser. The Board received and considered expense information regarding the Portfolio’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration 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 considered expense information regarding the Portfolio’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 considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Portf olio to that of the Peer Group and Category medians. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Portfolio. The Board considered expenses and fee rates to be higher or lower if they were over or under 10 basis points, respectively; slightly higher or slightly lower if they were above or below 6–10 basis points, respectively; and inline if they were above or below by 5 basis points.
The Board noted that the investment advisory rate was inline with the Category median and lower than the Peer Group median. The Board viewed favorably the Adviser’s contractual agreement to waive all or a portion of its Advisory Agreement rate and reimburse or pay operating expenses to the extent necessary to maintain the Portfolio’s Net Expense Ratio at 0.63% for Class A shares, excluding certain expenses such as taxes, brokerage commissions, interest, acquired fees of underlying funds, litigation and extraordinary expenses, until June 30, 2011.
The Board reviewed the Portfolio’s Gross Expense Ratio of 1.11% for the Portfolio’s Class A shares. The Board noted that the Portfolio’s Gross Expense Ratio was lower than the Peer Group median and higher than the Category medians. The Board also noted that the Portfolio’s Net Expense Ratio was lower than the Peer Group median and higher than the Category median. The Board favorably considered the impact of fee waivers towards ultimately lowering the Portfolio’s Gross Expense Ratio. The Board also received and considered information relating to the Portfolio’s Gross Expense Ratio and Net Expense Ratio that reflected a proposed change in the methodology for calculating transfer agent fees.
The Board received and reviewed statements relating to the Adviser’s financial condition and profitability with respect to the services it provides the Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services provided to the Portfolio. The Board reviewed the Adviser’s profitability with respect to the Portfolio and other funds the Board currently oversees for the year ended December 31, 2009 compared to available aggregate profitability data provided for the year ended December 31, 2008.
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Portfolio 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 reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore compar ability of profitability is somewhat limited.
| |
28 | International Allocation Portfolio | Semiannual report |
The Board considered the profitability information with respect to the Subadviser, which is affiliated with the Adviser. In addition, as noted above, the Board considered the methodologies involved in allocating such profit to the Subadviser.
Economies of scale
The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Portfolio increase and whether there should be changes in the advisory fee rate or structure in order to enable the Portfolio to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the assets of the Portfolio. The Board also considered the Adviser’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations.
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 ensure that any economies are reasonably shared with the Portfolio as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Agreement fee rate.
Other benefits to the Adviser and the Subadviser
The Board understands that the Adviser, the Subadviser, or their affiliates may derive other ancillary benefits from their relationship with the Portfolio, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community, and the engagement of their affiliates and/or significant shareholders as service providers to the Portfolio, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.
Board determination
The Board, including the Independent Trustees, unanimously approved the continuation of the Advisory Agreement between the Adviser and the Portfolio for an additional one-year term and the Subadvisory Agreement between the Adviser and Subadviser with respect to the Portfolio for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board, including a majority of the Independent Trustees, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Portfolio and its shareholders. In arriving at a decision to approve the Agreements, the Board did not identify any single factor listed above, or any group of factors listed above, as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by the advice of independent legal counsel in making this determination. The Board noted that contractual fee arrangements for the Portfolio reflect the results of several years of review by the Board and certain predecessor Trustees, and discussions between such Trustees (and predecessor Trustees) and the Adviser. Certain aspects of the arrangements may be the subject of more attention in some years than in others, and the Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years.
| |
Semiannual report | International Allocation Portfolio | 29 |
More information
| |
Trustees | Investment adviser |
Patti McGill Peterson, Chairperson | John Hancock Investment Management |
James F. Carlin | Services, LLC |
William H. Cunningham | |
Deborah C. Jackson* | Subadviser |
Charles L. Ladner | MFC Global Investment |
Stanley Martin* | Management (U.S.A.) Limited |
Hugh McHaffie†** | |
Dr. John A. Moore | Principal distributor |
Steven R. Pruchansky* | John Hancock Funds, LLC |
Gregory A. Russo | |
John G. Vrysen† | Custodian |
| State Street Bank and Trust Company |
Officers | |
Keith F. Hartstein | Transfer agent |
President and Chief Executive Officer | John Hancock Signature Services, Inc. |
| |
Andrew G. Arnott | Legal counsel |
Senior Vice President** and Chief Operating Officer | K&L Gates LLP |
| |
Thomas M. Kinzler | The report is certified under the Sarbanes-Oxley |
Secretary and Chief Legal Officer | Act, which requires mutual funds and other public |
| companies to affirm that, to the best of their |
Francis V. Knox, Jr. | knowledge, the information in their financial reports |
Chief Compliance Officer | is fairly and accurately stated in all material respects. |
| |
Charles A. Rizzo | |
Chief Financial Officer | |
| |
Salvatore Schiavone** | |
Treasurer |
|
*Member of the Audit Committee | |
**Effective 8-31-10 | |
†Non-Independent Trustee | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| | |
You can also contact us: | | |
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations |
| Boston, MA 02205-5913 | 30 Dan Road |
| | Canton, MA 02021 |
| |
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 8/10 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/10 |
A look at performance
For the period ended August 31, 2010
| | | | | | | | | | | | | | |
| | | | | | | | | | | | SEC 30-day | | SEC 30-day |
| Average annual total returns (%) | | Cumulative total returns (%) | | | yield (%) | | yield (%) |
| with maximum sales charge (POP) | | with maximum sales charge (POP) | | subsidized | | unsubsidized1 |
|
| | | | Since | | | | | | Since | | as of | | as of |
| 1-year | 5-year | 10-year | inception | | 6-months | 1-year | 5-year | 10-year | inception | | 8-31-10 | | 8-31-10 |
|
Class A | 3.03 | — | — | –4.362 | | –3.48 | 3.03 | — | — | –14.472 | | 3.05 | | 3.05 |
|
Class B | 2.61 | — | — | –4.412 | | –3.85 | 2.61 | — | — | –14.612 | | 2.55 | | 2.28 |
|
Class C | 6.61 | — | — | –3.642 | | 0.14 | 6.61 | — | — | –12.182 | | 2.55 | | 2.44 |
|
Class I3 | 8.97 | — | — | –2.482 | | 1.73 | 8.97 | — | — | –8.432 | | 3.69 | | 3.69 |
|
Class NAV3 | 9.04 | — | — | –3.974 | | 1.77 | 9.04 | — | — | –9.054 | | 3.77 | | 3.77 |
|
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 shares 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 charges are not applicable for Class I 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 6-30-11. The net expenses are as follows: Class A — 1.55%, Class B — 2.25%, Class C — 2.25% and Class I — 1.09%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 1.66%, Class B — 3.33%, Class C — 2.56% and Class I — 1.12%. For Class NAV the net expenses equal the gross expenses and are as follows: Class NAV — 0.99%.
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.
1 Unsubsidized yields reflect what the yield would have been without the effect of reimbursements and waivers.
2 From 3-1-07.
3 For certain types of investors, as described in the Fund’s Class I and Class NAV shares prospectuses.
4 From 4-28-08.
| |
6 | Global Shareholder Yield Fund | Semiannual report |
| | | | |
| Period | Without | With maximum | |
| beginning | sales charge | sales charge | Index |
|
Class B | 3-1-07 | $8,782 | $8,539 | $7,996 |
|
Class C2 | 3-1-07 | 8,782 | 8,782 | 7,996 |
|
Class I3 | 3-1-07 | 9,157 | 9,157 | 7,996 |
|
Class NAV3 | 4-28-08 | 9,095 | 9,095 | 7,620 |
|
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 NAV shares, respectively, as of 8-31-10. 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 World Index (gross of foreign withholding tax on dividends) — is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
The total return for this index is calculated reinvesting net dividends.
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 The contingent deferred sales charge, if any, is not applicable.
3 For certain types of investors, as described in the Fund’s Class I and Class NAV shares 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, 2010 with the same investment held until August 31, 2010.
| | | |
| Account value | Ending value | Expenses paid during |
| on 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $1,016.50 | $7.73 |
|
Class B | 1,000.00 | 1,011.40 | 11.41 |
|
Class C | 1,000.00 | 1,011.40 | 11.41 |
|
Class I | 1,000.00 | 1,017.30 | 5.44 |
|
Class NAV | 1,000.00 | 1,017.70 | 5.03 |
|
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, 2010, 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, 2010, with the same investment held until August 31, 2010. 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 3-1-10 | on 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $1,017.50 | $7.73 |
|
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 | 1,019.80 | 5.45 |
|
Class NAV | 1,000.00 | 1,020.20 | 5.04 |
|
Remember, these examples do not include any transaction costs, 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 1.52%, 2.25%, 2.25%, 1.07% and 0.99% for Class A, Class B, Class C, Class I and Class NAV, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
| |
Semiannual report | Global Shareholder Yield Fund | 9 |
Portfolio summary
| | | | |
Top 10 Holdings1 | | | | |
|
Nestle SA | 2.0% | | Diageo PLC | 1.7% |
| |
|
Altria Group, Inc. | 2.0% | | CenturyLink, Inc. | 1.7% |
| |
|
Anheuser-Busch InBev NV | 1.9% | | Imperial Tobacco Group PLC | 1.6% |
| |
|
Philip Morris International, Inc. | 1.9% | | Lorillard, Inc. | 1.6% |
| |
|
BCE, Inc. | 1.9% | | NiSource, Inc. | 1.6% |
| |
|
|
Sector Composition2,3 | | | | |
|
Consumer Staples | 18% | | Energy | 8% |
| |
|
Utilities | 17% | | Financials | 7% |
| |
|
Telecommunication Services | 15% | | Health Care | 7% |
| |
|
Consumer Discretionary | 9% | | Information Technology | 6% |
| |
|
Industrials | 9% | | Materials | 4% |
| |
|
1 As a percentage of net assets on 8-31-10. Excludes cash and cash equivalents.
2 As a percentage of net assets on 8-31-10.
3 International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. 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 |
Fund’s investments
As of 8-31-10 (unaudited)
| | |
| Shares | Value |
Common Stocks 97.89% | | $246,207,572 |
|
(Cost $230,782,927) | | |
| | |
Australia 1.09% | | 2,733,754 |
|
BHP Billiton, Ltd., SADR | 20,800 | 1,383,824 |
|
Westpac Banking Corp. | 69,661 | 1,349,930 |
| | |
Belgium 2.55% | | 6,414,553 |
|
Anheuser-Busch InBev NV | 92,020 | 4,780,411 |
|
Mobistar SA | 29,188 | 1,634,142 |
| | |
Brazil 0.99% | | 2,491,300 |
|
CPFL Energia SA | 107,900 | 2,491,300 |
| | |
Canada 4.37% | | 10,980,955 |
|
BCE, Inc. | 151,700 | 4,747,249 |
|
Canadian Oil Sands Trust | 52,900 | 1,244,181 |
|
Rogers Communications, Inc., Class B | 70,900 | 2,460,739 |
|
Shaw Communications, Inc., Class B | 123,300 | 2,528,786 |
| | |
Finland 0.51% | | 1,281,816 |
|
Fortum OYJ | 55,800 | 1,281,816 |
| | |
France 5.77% | | 14,503,525 |
|
Air Liquide SA | 12,940 | 1,340,862 |
|
France Telecom SA | 138,100 | 2,799,785 |
|
SCOR SE | 90,600 | 1,966,973 |
|
Total SA | 39,000 | 1,816,020 |
|
Vinci SA | 70,700 | 3,088,539 |
|
Vivendi SA | 150,200 | 3,491,346 |
| | |
Germany 2.30% | | 5,788,908 |
|
BASF SE | 39,900 | 2,088,734 |
|
E.ON AG | 68,600 | 1,920,895 |
|
Muenchener Rueckversicherungs — Gesellschaft AG | 14,000 | 1,779,279 |
| | |
Hong Kong 0.50% | | 1,267,604 |
|
China Mobile, Ltd., SADR | 24,700 | 1,267,604 |
| | |
Italy 0.52% | | 1,319,242 |
|
Terna Rete Elettrica Nazionale SpA | 328,600 | 1,319,242 |
| | |
Netherlands 1.11% | | 2,779,820 |
|
Royal Dutch Shell PLC, ADR | 52,400 | 2,779,820 |
| | |
Norway 1.05% | | 2,648,601 |
|
Orkla ASA | 165,700 | 1,381,777 |
|
StatoilHydro ASA, SADR | 67,600 | 1,266,824 |
| | |
See notes to financial statements | Semiannual report | Global Shareholder Yield Fund | 11 |
| | |
| Shares | Value |
Philippines 0.52% | | $1,296,830 |
|
Philippine Long Distance Telephone Company, SADR | 24,051 | 1,296,830 |
| | |
Spain 1.20% | | 3,004,558 |
|
Telefonica SA | 136,200 | 3,004,558 |
| | |
Sweden 0.84% | | 2,114,212 |
|
Assa Abloy AB, Series B | 106,400 | 2,114,212 |
| | |
Switzerland 4.32% | | 10,871,070 |
|
Nestle SA | 96,000 | 4,964,872 |
|
Roche Holdings AG | 14,600 | 1,983,252 |
|
Swisscom AG | 10,100 | 3,922,946 |
| | |
Taiwan 2.11% | | 5,303,191 |
|
High Tech Computer Corp. | 135,650 | 2,480,841 |
|
Quanta Computer, Inc. | 1,020,000 | 1,549,177 |
|
Taiwan Semiconductor Manufacturing Company, Ltd., SADR | 135,300 | 1,273,173 |
| | |
United Kingdom 16.44% | | 41,360,777 |
|
AstraZeneca PLC, SADR | 77,300 | 3,820,939 |
|
BAE Systems PLC | 424,400 | 1,919,367 |
|
British American Tobacco PLC | 37,200 | 1,265,009 |
|
Compass Group PLC | 229,500 | 1,873,550 |
|
Diageo PLC, SADR | 67,200 | 4,401,600 |
|
FirstGroup PLC | 565,472 | 3,009,020 |
|
Imperial Tobacco Group PLC | 149,800 | 4,137,147 |
|
Meggitt PLC | 614,900 | 2,501,423 |
|
National Grid PLC | 429,860 | 3,615,973 |
|
Next PLC | 62,029 | 1,878,342 |
|
Pearson PLC | 255,600 | 3,803,343 |
|
Scottish & Southern Energy PLC | 131,100 | 2,303,424 |
|
United Utilities Group PLC | 333,363 | 2,918,163 |
|
Vodafone Group PLC | 1,620,400 | 3,913,477 |
| | |
United States 51.70% | | 130,046,856 |
|
Abbott Laboratories | 34,300 | 1,692,362 |
|
Altria Group, Inc. | 219,900 | 4,908,168 |
|
Arthur J. Gallagher & Company | 156,400 | 3,886,540 |
|
AT&T, Inc. | 117,500 | 3,176,025 |
|
Automatic Data Processing, Inc. | 35,300 | 1,362,933 |
|
Bemis Company, Inc. | 45,400 | 1,310,698 |
|
Bristol-Myers Squibb Company | 126,600 | 3,301,728 |
|
CenturyLink, Inc. | 120,000 | 4,339,200 |
|
Chevron Corp. | 23,200 | 1,720,512 |
|
CMS Energy Corp. | 112,200 | 1,963,500 |
|
Coca-Cola Enterprises, Inc. | 62,700 | 1,784,442 |
|
Comcast Corp., Special Class A | 152,700 | 2,453,889 |
|
ConocoPhillips | 24,400 | 1,279,292 |
|
Diamond Offshore Drilling, Inc. | 38,800 | 2,257,384 |
|
Duke Energy Corp. | 163,000 | 2,801,970 |
| | |
12 | Global Shareholder Yield Fund | Semiannual report | See notes to financial statements |
| | |
| Shares | Value |
United States (continued) | | |
|
E.I. Du Pont de Nemours & Company | 82,200 | $3,351,294 |
|
Emerson Electric Company | 28,100 | 1,310,865 |
|
Entergy Corp. | 16,500 | 1,300,860 |
|
Exxon Mobil Corp. | 30,400 | 1,798,464 |
|
First Niagara Financial Group, Inc. | 116,700 | 1,317,543 |
|
Genuine Parts Company | 44,400 | 1,861,692 |
|
H.J. Heinz Company | 27,300 | 1,262,352 |
|
Honeywell International, Inc. | 49,700 | 1,942,773 |
|
Hudson City Bancorp, Inc. | 119,200 | 1,373,780 |
|
Johnson & Johnson | 64,700 | 3,689,194 |
|
Kellogg Company | 35,800 | 1,778,544 |
|
Kimberly-Clark Corp. | 51,800 | 3,335,920 |
|
Kinder Morgan Energy Partners LP | 43,800 | 2,935,038 |
|
Lorillard, Inc. | 53,000 | 4,028,530 |
|
McDonald’s Corp. | 21,000 | 1,534,260 |
|
Merck & Company, Inc. | 86,500 | 3,041,340 |
|
MetLife, Inc. | 34,900 | 1,312,240 |
|
Microchip Technology, Inc. | 115,500 | 3,198,195 |
|
Microsoft Corp. | 132,300 | 3,106,404 |
|
Nicor, Inc. | 44,600 | 1,886,134 |
|
NiSource, Inc. | 230,200 | 3,991,668 |
|
NSTAR | 37,800 | 1,437,533 |
|
NYSE Euronext | 46,200 | 1,281,588 |
|
OGE Energy Corp. | 32,700 | 1,276,935 |
|
Oracle Corp. | 105,200 | 2,301,776 |
|
PepsiCo, Inc. | 19,900 | 1,277,182 |
|
Philip Morris International, Inc. | 92,500 | 4,758,200 |
|
Pitney Bowes, Inc. | 132,100 | 2,541,604 |
|
Progress Energy, Inc. | 31,200 | 1,338,792 |
|
Reynolds American, Inc. | 27,300 | 1,488,942 |
|
SCANA Corp. | 32,900 | 1,284,087 |
|
Southern Company | 74,000 | 2,715,060 |
|
Spectra Energy Corp. | 123,300 | 2,507,922 |
|
TECO Energy, Inc. | 190,500 | 3,215,640 |
|
The Coca-Cola Company | 23,200 | 1,297,344 |
|
The Travelers Companies, Inc. | 26,000 | 1,273,480 |
|
Tupperware Brands Corp. | 61,400 | 2,415,476 |
|
Vectren Corp. | 79,500 | 1,950,930 |
|
Verizon Communications, Inc. | 107,100 | 3,160,521 |
|
Waste Management, Inc. | 55,900 | 1,849,731 |
|
WGL Holdings, Inc. | 48,100 | 1,696,487 |
|
Windstream Corp. | 119,800 | 1,381,893 |
| | |
See notes to financial statements | Semiannual report | Global Shareholder Yield Fund | 13 |
| | |
| Shares | Value |
Preferred Stocks 0.81% | | $2,036,104 |
|
(Cost $1,913,653) | | |
| | |
United States 0.81% | | 2,036,104 |
|
MetLife, Inc., Series B, 6.500% | 82,400 | 2,036,104 |
|
Total investments (Cost $232,696,580)† 98.70% | | $248,243,676 |
|
Other assets and liabilities, net 1.30% | | $3,281,057 |
|
Total net assets 100.00% | | $251,524,733 |
|
The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the Fund.
ADR American Depositary Receipts
SADR Sponsored American Depositary Receipts
† At 8-31-10, the aggregate cost of investment securities for federal income tax purposes was $234,172,180. Net unrealized appreciation aggregated $14,071,496, of which $23,832,428 related to appreciated investment securities and $9,760,932 related to depreciated investment securities.
The Fund had the following sector composition as a percentage of net assets on 8-31-10:
| | | | | |
Consumer Staples | 18% | | | | |
Utilities | 17% | | | | |
Telecommunication Services | 15% | | | | |
Consumer Discretionary | 9% | | | | |
Industrials | 9% | | | | |
Energy | 8% | | | | |
Financials | 7% | | | | |
Health Care | 7% | | | | |
Information Technology | 6% | | | | |
Materials | 4% | | | | |
| | |
14 | Global Shareholder Yield Fund | Semiannual report | See notes to financial statements |
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 8-31-10 (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 $232,696,580) | $248,243,676 |
Foreign currency, at value (Cost $260,948) | 260,352 |
Receivable for investments sold | 20,901,098 |
Receivable for fund shares sold | 352,159 |
Dividends and interest receivable | 1,277,845 |
Receivable due from adviser | 678 |
Other receivables and prepaid assets | 31,644 |
| |
Total assets | 271,067,452 |
| |
Liabilities | |
|
Due to custodian | 17,339,008 |
Payable for investments purchased | 583,554 |
Payable for fund shares repurchased | 1,515,596 |
Payable to affiliates | |
Accounting and legal services fees | 1,171 |
Transfer agent fees | 8,976 |
Trustees’ fees | 3,737 |
Other liabilities and accrued expenses | 90,677 |
| |
Total liabilities | 19,542,719 |
|
Net assets | |
|
Capital paid-in | $276,236,576 |
Undistributed net investment income | 1,778,026 |
Accumulated net realized gain (loss) on investments and foreign | |
currency transactions | (42,043,581) |
Net unrealized appreciation (depreciation) on investments and translation | |
of assets and liabilities in foreign currencies | 15,553,712 |
| |
Net assets | $251,524,733 |
|
Net asset value per share | |
|
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($22,925,762 ÷ 2,831,821 shares) | $8.10 |
Class B ($1,298,558 ÷ 160,458 shares)1 | $8.09 |
Class C ($3,875,441 ÷ 478,796 shares)1 | $8.09 |
Class I ($80,254,752 ÷ 9,882,654 shares) | $8.12 |
Class NAV ($143,170,220 ÷ 17,633,539 shares) | $8.12 |
|
Maximum offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $8.53 |
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 | 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 operations For the six-month period ended 8-31-10 (unaudited)
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 | $7,717,685 |
Interest | 359 |
Less foreign taxes withheld | (517,319) |
| |
Total investment income | 7,200,725 |
|
Expenses | |
|
Investment management fees (Note 4) | 1,135,785 |
Distribution and service fees (Note 4) | 61,444 |
Accounting and legal services fees (Note 4) | 17,190 |
Transfer agent fees (Note 4) | 53,745 |
Trustees’ fees (Note 4) | 11,221 |
State registration fees (Note 4) | 6,576 |
Printing and postage fees (Note 4) | 17,796 |
Professional fees | 39,286 |
Custodian fees | 64,272 |
Registration and filing fees | 7,662 |
Other | 6,357 |
| |
Total expenses | 1,421,334 |
Less expense reductions (Note 4) | (4,109) |
| |
Net expenses | 1,417,225 |
| |
Net investment income | 5,783,500 |
|
Realized and unrealized gain (loss) | |
|
Net realized gain (loss) on | |
Investments | 1,243,443 |
Foreign currency transactions | (155,172) |
| 1,088,271 |
Change in net unrealized appreciation (depreciation) of | |
Investments | (2,496,835) |
Translation of assets and liabilities in foreign currencies | 12,620 |
| (2,484,215) |
Net realized and unrealized loss | (1,395,944) |
| |
Increase in net assets from operations | $4,387,556 |
| | |
16 | Global Shareholder Yield Fund | Semiannual report | See notes to financial statements |
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.
| | |
| For the | |
| six-month | |
| period ended | Year |
| 8-31-10 | ended |
| (unaudited) | 2-28-10 |
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $5,783,500 | $7,764,203 |
Net realized gain (loss) | 1,088,271 | (16,931,286) |
Change in net unrealized appreciation (depreciation) | (2,484,215) | 69,100,321 |
| | |
Increase in net assets resulting from operations | 4,387,556 | 59,933,238 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | (367,257) | (492,495) |
Class B | (16,551) | (22,183) |
Class C | (49,278) | (78,356) |
Class I | (1,697,190) | (2,859,421) |
Class R1 | — | (1,490) |
Class NAV | (2,584,692) | (3,900,810) |
| | |
Total distributions | (4,714,968) | (7,354,755) |
| | |
From Fund share transactions (Note 5) | 9,609,990 | 51,057,676 |
| | |
Total increase | 9,282,578 | 103,636,159 |
|
Net assets | | |
|
Beginning of period | 242,242,155 | 138,605,996 |
| | |
End of period | $251,524,733 | $242,242,155 |
| | |
Undistributed net investment income | $1,778,026 | $709,494 |
| | |
See notes to financial statements | Semiannual report | Global Shareholder Yield Fund | 17 |
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 | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-082 |
| | | | | |
Per share operating performance | | | | | |
|
Net asset value, beginning of period | | $8.10 | $6.10 | $9.52 | $10.00 |
Net investment income3 | | 0.17 | 0.25 | 0.36 | 0.35 |
Net realized and unrealized gain (loss) on investments | | (0.04) | 1.99 | (3.57) | (0.51) |
Total from investment operations | | 0.13 | 2.24 | (3.21) | (0.16) |
Less distributions | | | | | |
From net investment income | | (0.13) | (0.24) | (0.21) | (0.29) |
From net realized gain | | — | — | — | (0.03) |
Total distributions | | (0.13) | (0.24) | (0.21) | (0.32) |
Net asset value, end of period | | $8.10 | $8.10 | $6.10 | $9.52 |
Total return (%)4,5 | | 1.656 | 37.197 | (34.21)7 | (1.84)7 |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | | $23 | $22 | $11 | $27 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | 1.528 | 1.669 | 1.72 | 1.79 |
Expenses net of fee waivers | | 1.528 | 1.569 | 1.56 | 1.45 |
Expenses net of fee waivers and credits | | 1.528 | 1.559 | 1.55 | 1.45 |
Net investment income | | 4.068 | 3.34 | 4.28 | 3.31 |
Portfolio turnover (%) | | 26 | 53 | 54 | 24 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class A shares is 3-1-07.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Does not reflect the effect of sales charges, if any.
6 Not annualized.
7 Total returns would have been lower had certain expenses not been reduced during the periods shown.
8 Annualized.
9 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
| | |
18 | Global Shareholder Yield Fund | Semiannual report | See notes to financial statements |
| | | | | |
CLASS B SHARES Period ended | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-082 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | | $8.10 | $6.09 | $9.51 | $10.00 |
Net investment income3 | | 0.14 | 0.20 | 0.29 | 0.22 |
Net realized and unrealized gain (loss) on investments | | (0.05) | 2.00 | (3.56) | (0.45) |
Total from investment operations | | 0.09 | 2.20 | (3.27) | (0.23) |
Less distributions | | | | | |
From net investment income | | (0.10) | (0.19) | (0.15) | (0.23) |
From net realized gain | | — | — | — | (0.03) |
Total distributions | | (0.10) | (0.19) | (0.15) | (0.26) |
Net asset value, end of period | | $8.09 | $8.10 | $6.09 | $9.51 |
Total return (%)4,5,6 | | 1.147 | 36.49 | (34.72) | (2.54) |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | | $1 | $1 | $1 | $1 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | 2.558 | 3.549 | 3.94 | 3.89 |
Expenses net of fee waivers | | 2.258 | 2.299 | 2.43 | 2.23 |
Expenses net of fee waivers and credits | | 2.258 | 2.259 | 2.25 | 2.23 |
Net investment income | | 3.328 | 2.68 | 3.50 | 2.11 |
Portfolio turnover (%) | | 26 | 53 | 54 | 24 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class B shares is 3-1-07.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Does not reflect the effect of sales charges, if any.
7 Not annualized.
8 Annualized.
9 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
| | | | | |
CLASS C SHARES Period ended | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-082 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | | $8.10 | $6.10 | $9.51 | $10.00 |
Net investment income3 | | 0.14 | 0.20 | 0.29 | 0.22 |
Net realized and unrealized gain (loss) on investments | | (0.05) | 1.99 | (3.55) | (0.45) |
Total from investment operations | | 0.09 | 2.19 | (3.26) | (0.23) |
Less distributions | | | | | |
From net investment income | | (0.10) | (0.19) | (0.15) | (0.23) |
From net realized gain | | — | — | — | (0.03) |
Total distributions | | (0.10) | (0.19) | (0.15) | (0.26) |
Net asset value, end of period | | $8.09 | $8.10 | $6.10 | $9.51 |
Total return (%)4,5,6 | | 1.147 | 36.27 | (34.62) | (2.54) |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | | $4 | $4 | $3 | $5 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | 2.358 | 2.639 | 2.72 | 3.00 |
Expenses net of fee waivers | | 2.258 | 2.279 | 2.28 | 2.23 |
Expenses net of fee waivers and credits | | 2.258 | 2.259 | 2.25 | 2.22 |
Net investment income | | 3.338 | 2.66 | 3.50 | 2.08 |
Portfolio turnover (%) | | 26 | 53 | 54 | 24 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class C shares is 3-1-07.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Does not reflect the effect of sales charges, if any.
7 Not annualized.
8 Annualized.
9 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
| | |
See notes to financial statements | Semiannual report | Global Shareholder Yield Fund | 19 |
| | | | | |
CLASS I SHARES Period ended | | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-082 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | | $8.13 | $6.11 | $9.53 | $10.00 |
Net investment income3 | | 0.18 | 0.30 | 0.29 | 0.33 |
Net realized and unrealized gain (loss) on investments | | (0.04) | 2.00 | (3.46) | (0.44) |
Total from investment operations | | 0.14 | 2.30 | (3.17) | (0.11) |
Less distributions | | | | | |
From net investment income | | (0.15) | (0.28) | (0.25) | (0.33) |
From net realized gain | | — | — | — | (0.03) |
Total distributions | | (0.15) | (0.28) | (0.25) | (0.36) |
Net asset value, end of period | | $8.12 | $8.13 | $6.11 | $9.53 |
Total return (%)4,5 | | 1.736 | 38.08 | (33.87) | (1.43) |
|
Ratios and supplemental data | | | | | |
|
Net assets, end of period (in millions) | | $80 | $86 | $57 | $3 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | 1.078 | 1.197 | 1.21 | 2.16 |
Expenses net of fee waivers | | 1.078 | 1.087 | 1.10 | 1.09 |
Expenses net of fee waivers and credits | | 1.078 | 1.087 | 1.10 | 1.09 |
Net investment income | | 4.468 | 3.96 | 3.78 | 3.14 |
Portfolio turnover (%) | | 26 | 53 | 54 | 24 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class I shares is 3-1-07.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
8 Annualized.
| | | | | |
CLASS NAV SHARES Period ended | | | 8-31-101 | 2-28-10 | 2-28-092 |
|
Per share operating performance | | | | | |
|
Net asset value, beginning of period | | | $8.13 | $6.11 | $9.71 |
Net investment income3 | | | 0.19 | 0.29 | 0.29 |
Net realized and unrealized gain (loss) on investments | | | (0.05) | 2.01 | (3.67) |
Total from investment operations | | | 0.14 | 2.30 | (3.38) |
Less distributions | | | | | |
From net investment income | | | (0.15) | (0.28) | (0.22) |
Total distributions | | | (0.15) | (0.28) | (0.22) |
Net asset value, end of period | | | $8.12 | $8.13 | $6.11 |
Total return (%)4 | | | 1.776 | 38.165 | (35.32)5,6 |
|
Ratios and supplemental data | | | | | |
|
Net asset value, end of period (in millions) | | | $143 | $129 | $67 |
Ratios (as a percentage of average net assets): | | | | | |
Expenses before reductions | | | 0.997 | 1.058 | 1.097 |
Expenses net of fee waivers | | | 0.997 | 1.008 | 1.057 |
Expenses net of fee waivers and credits | | | 0.997 | 1.008 | 1.057 |
Net investment income | | | 4.567 | 3.84 | 4.277 |
Portfolio turnover (%) | | | 26 | 53 | 54 |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class NAV shares is 4-28-08.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Annualized.
8 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
| | |
20 | Global Shareholder Yield Fund | Semiannual report | See notes to financial statements |
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), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The primary investment objective of the Fund is to seek to provide a high level of income. Capital appreciation is a secondary objective.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class NAV shares are sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, printing and postage, registration and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase. Effective at the close of business on August 21, 2009, Class R1 shares converted into Class A shares.
Affiliates of the Fund owned 100% of shares of beneficial interest of Class NAV on August 31, 2010.
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. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these techniques are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes significant unobservable inpu ts when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| |
Semiannual report | Global Shareholder Yield Fund | 21 |
The following is a summary of the values by input classification of the Fund’s investments as of August 31, 2010, by major security category or type:
| | | | | |
| | | | | LEVEL 3 |
| | | | LEVEL 2 | SIGNIFICANT |
| | TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE |
| | VALUE AT 8-31-10 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS |
|
Common Stocks | | | | | |
Australia | | $2,733,754 | $1,383,824 | $1,349,930 | — |
Belgium | | 6,414,553 | — | 6,414,553 | — |
Brazil | | 2,491,300 | 2,491,300 | — | — |
Canada | | 10,980,955 | 10,980,955 | — | — |
Finland | | 1,281,816 | — | 1,281,816 | — |
France | | 14,503,525 | — | 14,503,525 | — |
Germany | | 5,788,908 | — | 5,788,908 | — |
Hong Kong | | 1,267,604 | 1,267,604 | — | — |
Italy | | 1,319,242 | — | 1,319,242 | — |
Netherlands | | 2,779,820 | 2,779,820 | — | — |
Norway | | 2,648,601 | 1,266,824 | 1,381,777 | — |
Philippines | | 1,296,830 | 1,296,830 | — | — |
Spain | | 3,004,558 | — | 3,004,558 | — |
Sweden | | 2,114,212 | — | 2,114,212 | — |
Switzerland | | 10,871,070 | — | 10,871,070 | — |
Taiwan | | 5,303,191 | 1,273,173 | 4,030,018 | — |
United Kingdom | | 41,360,777 | 8,222,539 | 33,138,238 | — |
United States | | 130,046,856 | 130,046,856 | — | — |
| | | | | |
Preferred Stocks | | | | | |
United States | | 2,036,104 | 2,036,104 | — | — |
| |
|
Total Investments in | | | | | |
Securities | | $248,243,676 | $163,045,829 | $85,197,847 | — |
During the six months ended August 31, 2010, there were no significant transfers in or out of Level 1 or Level 2 assets.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain 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. Certain short-term securities are valued at amortized cost.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by 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. Significant market events that affect the values of non-U.S. securities may occur after the time when the valuation of the securities is generally determined and the close of the NYSE. During significant market events, these securities will be valued at fair value, as determined in good faith, following procedures established by the Board of Trustees. The Fund may use a fair valuation model to value non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
| |
22 | Global Shareholder Yield Fund | Semiannual report |
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date except for certain foreign dividends where the ex-date may have passed, which are recorded when the Fund becomes aware of the dividends.
The fund may be subject to foreign earnings and repatriation takes which are accrued based upon net investment income, net realized gains, or net unrealized appreciation.
Foreign currency translation. Assets, including investments and liabilities denominated in foreign currencies, are translated into U.S. dollar values each day at the prevailing exchange rate. Purchases and sales of securities, income and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on securities is reflected as a component of the realized and unrealized gains (losses) on investments.
Funds that invest internationally generally carry more risk than funds that invest strictly in U.S. securities. Funds investing in a single country or in a limited geographic region tend to be riskier than funds that invest more broadly. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to a Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with the custodian which enables them to participate in a $100 million unsecured committed line of credit. Prior to March 31, 2010, the amount of the line of credit was $150 million. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis based on their relative average net assets. For the six months ended August 31, 2010, the Fund had no significant borrowings under the line of credit.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the year to which they relate and adjustments are made when actual amounts are known.
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage fees, for all classes are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Federal income taxes. The Fund intends to qualify 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.
| |
Semiannual report | Global Shareholder Yield Fund | 23 |
For federal income tax purposes, the Fund has a capital loss carryforward of $39,855,644 available to offset future net realized capital gains. The loss carryforward expires as follows: February 28, 2017 — $10,606,127 and February 28, 2018 — $29,249,517.
As of February 28, 2010, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure. The Fund’s federal tax return is subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares and pays dividends quarterly and capital gain distributions, if any, at least annually.
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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a tax return of capital.
Capital accounts within financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book-tax differences, if any, will reverse in a subsequent period. Permanent book-tax differences are primarily attributable to foreign currency transactions.
Note 3 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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. The risk of material loss from such claims is considered remote.
Note 4 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Trust. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management contract with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.875% of the first $500,000,000 of the Fund’s average daily net assets; (b) 0.850% of the next $500,000,000; and (c) 0.800% of the Fund’s average 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 six months ended August 31, 2010 were equivalent to an annual effective rate of 0.875% of the Fund’s average daily net assets.
Effective July 1, 2010, the Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses
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24 | Global Shareholder Yield Fund | Semiannual report |
will not exceed 1.55%, 2.25%, 2.25% and 1.09% for Class A, Class B, Class C and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until June 30, 2011.
Prior to July 1, 2010, the Adviser had contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excluded taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.55%, 2.25%, 2.25%, 1.07% and 1.00% for Class A, Class B, Class C, Class I and Class NAV shares, respectively.
Accordingly, these expense reductions amounted to $1,943, $1,945 and $221 for Class B, Class C and Class I shares, respectively, for the six months ended August 31, 2010.
Accounting and legal services. Pursuant to the Service 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, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended August 31, 2010 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
| | | | | |
CLASS | 12b–1 FEES | | | | |
| | | | |
Class A | 0.30% | | | | |
Class B | 1.00% | | | | |
Class C | 1.00% | | | | |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $17,318 for the six months ended August 31, 2010. Of this amount, $2,839 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $14,385 was paid as sales commissions to broker-dealers and $94 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
Class B and Class C shares are subject to contingent deferred sales charges (CDSC). Class B shares that are redeemed within six years of purchase are subject to 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 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended August 31, 2010, CDSCs received by the Distributor amounted to $2,191 and $3,004 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. Class NAV shares do not pay transfer agent fees. Prior to July 1, 2010, the transfer agent fees were made up of three components:
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Semiannual report | Global Shareholder Yield Fund | 25 |
• The Fund paid a monthly transfer agent fee at an annual rate of 0.05% for Class A, Class B, and Class C shares and 0.04% for Class I shares, based on each class’s average daily net assets.
• The Fund paid a monthly fee based on an annual rate of $16.50 per shareholder account.
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Effective July 1, 2010, the transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Funds and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain revenues that Signature Services received in connection with the service they provide to the funds. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. Wit hin each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the six months ended August 31, 2010 were:
| | | | |
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE FEES |
|
Class A | $34,575 | $22,751 | $1,882 | $2,370 |
Class B | 6,585 | 1,954 | 1,488 | 232 |
Class C | 20,284 | 5,290 | 1,489 | 524 |
Class I | — | 23,750 | 1,717 | 14,670 |
Total | $61,444 | $53,745 | $6,576 | $17,796 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting liability are included within other receivables and prepaid assets and Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
Note 5 — Fund share transactions
Transactions in Fund shares for the six months ended August 31, 2010 and for the year ended February 28, 2010 were as follows:
| | | | |
| For the six-month period | | |
| | ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 633,370 | $5,211,161 | 1,434,058 | $10,960,022 |
Exchanged from Class R1 | — | — | 13,111 | 101,374 |
Distributions reinvested | 38,509 | 313,078 | 52,831 | 394,297 |
Repurchased | (538,599) | (4,351,738) | (554,163) | (4,116,860) |
| | | | |
Net increase | 133,280 | $1,172,501 | 945,837 | $7,338,833 |
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26 | Global Shareholder Yield Fund | Semiannual report |
| | | | |
| For the six-month period | | |
| | ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class B shares | | | | |
|
Sold | 26,411 | $218,631 | 77,695 | $606,655 |
Distributions reinvested | 1,896 | 15,381 | 2,748 | 20,403 |
Repurchased | (20,242) | (166,280) | (30,723) | (240,120) |
| | | | |
Net increase | 8,065 | $67,732 | 49,720 | $386,938 |
|
Class C shares | | | | |
|
Sold | 53,555 | $442,943 | 226,872 | $1,757,846 |
Distributions reinvested | 3,937 | 31,946 | 6,336 | 47,012 |
Repurchased | (89,708) | (723,854) | (136,551) | (975,972) |
| | | | |
Net increase (decrease) | (32,216) | ($248,965) | 96,657 | $828,886 |
|
Class I shares | | | | |
|
Sold | 4,858,368 | $39,888,335 | 7,646,302 | $56,063,766 |
Distributions reinvested | 201,223 | 1,641,569 | 360,676 | 2,669,843 |
Repurchased | (5,792,261) | (47,140,549) | (6,757,683) | (50,648,524) |
| | | | |
Net increase (decrease) | (732,670) | ($5,610,645) | 1,249,295 | $8,085,085 |
|
Class R1 shares | | | | |
|
Sold | — | — | 2,272 | $14,473 |
Exchanged for Class A | — | — | (13,113) | (101,374) |
Distributions reinvested | — | — | 215 | 1,490 |
| | | | |
Net decrease | — | — | (10,626) | ($85,411) |
|
Class NAV shares | | | | |
|
Sold | 1,662,120 | $13,208,109 | 4,816,056 | $34,847,758 |
Distributions reinvested | 316,771 | 2,584,692 | 521,545 | 3,900,810 |
Repurchased | (190,255) | (1,563,434) | (534,873) | (4,245,223) |
| | | | |
Net increase | 1,788,636 | $14,229,367 | 4,802,728 | $34,503,345 |
|
Net increase | 1,165,095 | $9,609,990 | 7,133,611 | $51,057,676 |
|
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $79,693,354 and $62,599,965, respectively, for the six months ended August 31, 2010.
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Semiannual report | Global Shareholder Yield Fund | 27 |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock Global Shareholder Yield Fund (the Fund), a series of John Hancock Funds III, met in-person on May 2–4 and June 6–8, 2010 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) between the Adviser and Epoch Investment Partners, Inc. (the Subadviser) on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.
Activities and composition of the Board
The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are unaffiliated with the Fund, the Adviser and the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform the various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have retained independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committees A and B are standing committees of the Board that are each composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee A oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as Chairman of the Board’s Nominating, Governance and Administration Committee. The Board also designates working groups or ad hoc committees as it deems appropriate.
The approval process
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. 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. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.
Prior to the May 2–4, 2010 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information independently compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) as determined by Morningstar, and its benchmark index. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser and its affiliates that result from being the Adviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, under similar investment mandates, as well as the performance of such other clients; (c) the impact of
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28 | Global Shareholder Yield Fund | Semiannual report |
economies of scale; (d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.
At an in-person meeting held on May 2–4, 2010, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May 2–4, 2010 meeting, the Board presented the Adviser and Subadviser with questions and requests for additional information and the Adviser and Subadviser responded to these requests with additional written information in advance of the June 6–8, 2010 Board meeting. The Board also reviewed these additional materials relating to its consideration of the Agreements.
At an in-person meeting held on June 6–8, 2010, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement between the Adviser and the Subadviser with respect to the Fund, each for an additional one-year term. The Board considered all factors it believed relevant with respect to the Fund, including, among other factors: (a) the nature, extent and quality of the services provided by the Adviser and the Subadviser; (b) the investment performance of the Fund and portfolio management of the Subadviser; (c) the advisory fees and the cost of the services and profits to be realized by the Adviser and certain affiliates from their relationship with the Fund; (d) economies of scale; and (e) other factors.
The Board also considered other matters important to the approval process, such as payments made to the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser, and their affiliates from their relationship with the Fund, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Trustee may have attributed different weights to the various items considered.
The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board, including the Independent Trustees, reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund. The Board reviewed the Adviser’s and Subadviser’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.
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. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.
The Board considered the Subadviser’s history and 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, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.
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Semiannual report | Global Shareholder Yield Fund | 29 |
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund.
The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and considered the Adviser’s policies and procedures for assuring compliance with applicable laws and regulations.
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 reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to such other clients under similar investment mandates, the services provided to such other clients as compared to the services provided to the Fund, the performance of such other clients, and other factors relating to such other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and those services they provide to other clients which, to the extent the other client is not a mutual fund, may generally be attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover o f mutual fund assets, the more burdensome regulatory and legal obligations of mutual funds, and the higher marketing costs for mutual funds.
Fund performance
The Board, including the Independent Trustees, reviewed and considered the performance history of the Fund. The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category and Peer Group as well as its benchmark index (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board also considered updated performance information provided by the Adviser at its May and June 2010 meetings. The Board regularly reviews the performance of the Fund throughout the year and atta ches more importance to performance over relatively longer periods of time, typically three to five years.
| | | | |
| 1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR |
|
Global Shareholder Yield Fund | 22.98% | N/A | N/A | N/A |
MSCI World Index | 29.99% | N/A | N/A | N/A |
World Stock Category Median | 33.39% | N/A | N/A | N/A |
Morningstar 15(c) Peer Group Median | 30.57% | N/A | N/A | N/A |
The Board noted that the Subadviser remained consistent with its investment style and adhered to its investment mandates.
The Fund materially underperformed its benchmark index as well as the Category and Peer Group median for the one year period. The Board concluded that the Fund’s underperformance was being responsibly addressed by the Adviser and Subadviser.
Expenses and fees
The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Category and Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the
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30 | Global Shareholder Yield Fund | Semiannual report |
services provided and the fees charged by the Adviser and the Subadviser to other types of clients with similar investment mandates, including separately managed institutional accounts.
In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration 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 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 considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Fund. The Board considered expenses and fee rates to be higher or lower if they were over or under 10 basis points, respectively; slightly higher or slightly lower if they were above or below 6–10 basis points, respectively; and inline if they were above or below by 5 basis points.
The Board noted that the investment advisory rate was inline with the Category and Peer Group medians. The Board favorably considered the impact of fee waivers towards ultimately lowering the Fund’s Gross Expense Ratio. The Board viewed favorably the Adviser’s contractual agreement to waive all or a portion of its Advisory Agreement rate and reimburse or pay operating expenses to the extent necessary to maintain the Fund’s Net Expense Ratio at 1.55% for Class A shares, excluding certain expenses such as taxes, brokerage commissions, interest, litigation and extraordinary expenses, until June 30, 2011.
The Board reviewed the Fund’s Gross Expense Ratio of 1.72% for the Fund’s Class A shares. The Board noted that the Fund’s Gross Expense Ratio was lower than the Peer Group median and higher than the Category median. The Board also noted that the Fund’s Net Expense Ratio was inline with the Peer Group median and higher than the Category median. The Board also received and considered information relating to the Fund’s Gross Expense Ratio and Net Expense Ratio that reflected a proposed change in the methodology for calculating transfer agent fees.
The Board received and reviewed statements relating to the Adviser’s financial condition and profitability with respect to the services it provides the Fund. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services provided to the Fund. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2009 compared to available aggregate profitability data provided for the year ended December 31, 2008.
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparabili ty of profitability is somewhat limited.
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 fee under the Subadvisory
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Semiannual report | Global Shareholder Yield Fund | 31 |
Agreement had been negotiated by the Adviser and the Subadviser 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 Subadvisory Agreement.
Economies of scale
The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the assets of the Fund. The Board also considered the Adviser’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations.
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 ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Agreement fee rate.
Other benefits to the Adviser and the Subadviser
The Board understands that the Adviser, the Subadviser, or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community, and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.
Board determination
The Board, including the Independent Trustees, unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term and the Subadvisory Agreement between the Adviser and Subadviser with respect to the Fund for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board, including a majority of the Independent Trustees, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at a decision to approve the Agreements, the Board did not identify any single factor listed above, or any group of factors listed above, as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by the advice of independent legal counsel in maki ng this determination. The Board noted that contractual fee arrangements for the Fund reflect the results of several years of review by the Board and certain predecessor Trustees, and discussions between such Trustees (and predecessor Trustees) and the Adviser. Certain aspects of the arrangements may be the subject of more attention in some years than in others, and the Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years.
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32 | Global Shareholder Yield Fund | Semiannual report |
More information
| | |
Trustees | Investment adviser | |
Patti McGill Peterson, Chairperson | John Hancock Investment Management | |
James F. Carlin | Services, LLC | |
William H. Cunningham | | |
Deborah C. Jackson* | Subadviser | |
Charles L. Ladner | Epoch Investment Partners, Inc. | |
Stanley Martin* | | |
Hugh McHaffie†** | Principal distributor | |
Dr. John A. Moore | John Hancock Funds, LLC | |
Steven R. Pruchansky* | | |
Gregory A. Russo | Custodian | |
John G. Vrysen† | State Street Bank and Trust Company | |
| | |
Officers | Transfer agent | |
Keith F. Hartstein | John Hancock Signature Services, Inc. | |
President and Chief Executive Officer | | |
| Legal counsel | |
Andrew G. Arnott | K&L Gates LLP | |
Senior Vice President** and Chief Operating Officer | | |
|
| |
Thomas M. Kinzler | The report is certified under the Sarbanes-Oxley | |
Secretary and Chief Legal Officer | Act, which requires mutual funds and other public | |
| companies to affirm that, to the best of their | |
Francis V. Knox, Jr. | knowledge, the information in their financial reports | |
Chief Compliance Officer | is fairly and accurately stated in all material respects. | |
|
| |
Charles A. Rizzo | | |
Chief Financial Officer | | |
| | |
Salvatore Schiavone** | | |
Treasurer | | |
| |
*Member of the Audit Committee | | |
**Effective 8-31-10 | | |
†Non-Independent Trustee | | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| | |
You can also contact us: | | |
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations |
| Boston, MA 02205-5913 | 30 Dan Road |
| | Canton, MA 02021 |
| |
Semiannual report | Global Shareholder Yield Fund | 33 |
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 8/10 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/10 |
A look at performance
For the period ended August 31, 2010
| | | | | | | | | | |
| Average annual total returns (%) | | Cumulative total returns (%) | |
| with maximum sales charge (POP) | | with maximum sales charge (POP) | |
| | | | Since | | | | | | Since |
| 1-year | 5-year | 10-year | inception1 | | 6-months | 1-year | 5-year | 10-year | inception1 |
|
Class A | –7.08 | — | — | –14.56 | | –11.75 | –7.08 | — | — | –42.38 |
|
Class B | –7.95 | — | — | –14.65 | | –12.09 | –7.95 | — | — | –42.60 |
|
Class C | –3.91 | — | — | –13.89 | | –8.38 | –3.91 | — | — | –40.78 |
|
Class I2 | –1.83 | — | — | –12.92 | | –6.99 | –1.83 | — | — | –38.42 |
|
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 shares 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 charges are not applicable for Class I 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 6-30-11. The net expenses are as follows: Class A — 1.37%, Class B — 2.12%, Class C — 2.12% and Class I — 0.96%. Had the fee waivers and expense limitations not been in place, the gross expenses would be as follows: Class A — 3.74%, Class B — 10.90%, Class C — 7.05% and Class I — 8.29%.
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.
1 From 3-1-07.
2 For certain types of investors, as described in the Fund’s Class I share prospectus.
| |
6 | Classic Value Mega Cap Fund | Semiannual report |
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in John Hancock Classic Value Mega Cap Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in two separate indexes.
| | | | | |
| Period | Without sales | With maximum | | |
| beginning | charge | sales charge | Index 1 | Index 2 |
|
Class B | 3-1-07 | $5,911 | $5,740 | $7,339 | $7,101 |
|
Class C2 | 3-1-07 | 5,922 | 5,922 | 7,339 | 7,101 |
|
Class I3 | 3-1-07 | 6,158 | 6,158 | 7,339 | 7,101 |
|
Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund’s Class B, Class C and Class I shares, respectively, as of 8-31-10. 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 The contingent deferred sales charge, if any, is not applicable.
3 For certain types of investors, as described in the Fund’s Class I share prospectus.
| |
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, 2010 with the same investment held until August 31, 2010.
| | | |
| Account value | Ending value on | Expenses paid during |
| on 3-1-10 | 8-31-10 | period ended 8-31-101 |
|
Class A | $1,000.00 | $928.50 | $6.66 |
|
Class B | 1,000.00 | 925.30 | 10.29 |
|
Class C | 1,000.00 | 925.40 | 10.29 |
|
Class I | 1,000.00 | 930.10 | 4.62 |
|
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, 2010, 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, 2010, with the same investment held until August 31, 2010. 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 on | Expenses paid during |
| on 3-1-10 | 8-31-10 | period ended 8-31-101 |
|
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 | 1,020.40 | 4.84 |
|
Remember, these examples do not include any transaction costs, 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% and 0.95% for Class A, Class B, Class C and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
| |
Semiannual report | Classic Value Mega Cap Fund | 9 |
Portfolio summary
| | | | |
Top 10 Holdings1 | | | | |
|
Exxon Mobil Corp. | 4.6% | | Omnicom Group, Inc. | 3.5% |
| |
|
Hewlett-Packard Company | 4.5% | | L-3 Communications Holdings, Inc. | 3.5% |
| |
|
CA, Inc. | 4.1% | | Tyco Electronics, Ltd. | 3.5% |
| |
|
The Allstate Corp. | 4.1% | | UBS AG | 3.2% |
| |
|
Northrop Grumman Corp. | 4.1% | | ACE, Ltd. | 3.2% |
| |
|
|
Sector Composition2,3 | | | | |
|
Financials | 34% | | Consumer Discretionary | 8% |
| |
|
Information Technology | 19% | | Materials | 3% |
| |
|
Health Care | 10% | | Utilities | 2% |
| |
|
Energy | 10% | | Consumer Staples | 2% |
| |
|
Industrials | 10% | | Short-Term Investments & Other | 2% |
| |
|
1 As a percentage of net assets on 8-31-10. Excludes cash and cash equivalents.
2 As a percentage of net assets on 8-31-10.
3 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 |
Fund’s investments
As of 8-31-10 (unaudited)
| | |
| Shares | Value |
|
Common Stocks 98.10% | | $4,383,047 |
|
(Cost $4,491,119) | | |
| | |
Consumer Discretionary 8.15% | | 364,233 |
| | |
Media 5.58% | | |
|
Omnicom Group, Inc. | 4,525 | 158,420 |
|
Viacom, Inc., Class B | 2,900 | 91,118 |
| | |
Specialty Retail 2.57% | | |
|
Lowe’s Companies, Inc. | 5,650 | 114,695 |
| | |
Consumer Staples 2.00% | | 89,483 |
| | |
Personal Products 2.00% | | |
|
Avon Products, Inc. | 3,075 | 89,483 |
| | |
Energy 9.61% | | 429,378 |
| | |
Oil, Gas & Consumable Fuels 9.61% | | |
|
Apache Corp. | 400 | 35,940 |
|
BP PLC, SADR (L) | 3,025 | 105,361 |
|
Exxon Mobil Corp. | 3,450 | 204,102 |
|
Valero Energy Corp. | 5,325 | 83,975 |
| | |
Financials 34.30% | | 1,532,354 |
| | |
Capital Markets 10.06% | | |
|
Morgan Stanley | 4,425 | 109,253 |
|
State Street Corp. | 3,025 | 106,117 |
|
The Goldman Sachs Group, Inc. | 675 | 92,434 |
|
UBS AG (I) | 8,425 | 141,794 |
| | |
Commercial Banks 4.40% | | |
|
PNC Financial Services Group, Inc. | 2,125 | 108,290 |
|
Wells Fargo & Company | 3,750 | 88,313 |
| | |
Consumer Finance 1.55% | | |
|
Capital One Financial Corp. | 1,825 | 69,095 |
| | |
Diversified Financial Services 8.15% | | |
|
Bank of America Corp. | 8,950 | 111,427 |
|
Citigroup, Inc. (I) | 31,056 | 115,528 |
|
JPMorgan Chase & Company | 3,775 | 137,259 |
| | |
Insurance 10.14% | | |
|
ACE, Ltd. | 2,650 | 141,696 |
|
Hartford Financial Services Group, Inc. | 1,925 | 38,808 |
|
MetLife, Inc. | 2,325 | 87,420 |
|
The Allstate Corp. | 6,700 | 184,920 |
| | |
See notes to financial statements | Semiannual report | Classic Value Mega Cap Fund | 11 |
| | | |
| | Shares | Value |
Health Care 10.40% | | | $464,707 |
| | | |
Health Care Equipment & Supplies 4.41% | | | |
|
Boston Scientific Corp. (I) | | 12,775 | 66,302 |
|
Zimmer Holdings, Inc. (I) | | 2,775 | 130,897 |
| | | |
Health Care Providers & Services 3.02% | | | |
|
Aetna, Inc. | | 5,050 | 134,936 |
| | | |
Pharmaceuticals 2.97% | | | |
|
Johnson & Johnson | | 2,325 | 132,572 |
| | | |
Industrials 9.51% | | | 424,785 |
| | | |
Aerospace & Defense 9.51% | | | |
|
L-3 Communications Holdings, Inc. | | 2,325 | 154,845 |
|
Northrop Grumman Corp. | | 3,350 | 181,302 |
|
The Boeing Company | | 1,450 | 88,638 |
| | | |
Information Technology 18.52% | | | 827,605 |
| | | |
Communications Equipment 1.90% | | | |
|
Alcatel-Lucent, SADR | | 33,050 | 84,939 |
| | | |
Computers & Peripherals 7.05% | | | |
|
Dell, Inc. (I) | | 9,775 | 115,052 |
|
Hewlett-Packard Company | | 5,200 | 200,096 |
| | | |
Electronic Equipment, Instruments & Components 3.45% | | | |
|
Tyco Electronics, Ltd. | | 6,287 | 154,157 |
| | | |
Software 6.12% | | | |
|
CA, Inc. | | 10,275 | 185,053 |
|
Microsoft Corp. | | 3,761 | 88,308 |
| | | |
Materials 3.06% | | | 136,596 |
| | | |
Chemicals 3.06% | | | |
|
PPG Industries, Inc. | | 2,075 | 136,596 |
| | | |
Utilities 2.55% | | | 113,906 |
| | | |
Electric Utilities 2.55% | | | |
|
Edison International | | 3,375 | 113,906 |
|
Short-Term Investments 2.37% | | | $106,018 |
|
(Cost $106,021) | | | |
| | | |
Securities Lending Collateral 2.37% | | | 106,018 |
John Hancock Collateral Investment Trust (W) | 0.3330% (Y) | 10,591 | 106,018 |
|
Total investments (Cost $4,597,140)† 100.47% | | | $4,489,065 |
|
Other assets and liabilities, net (0.47%) | | | ($20,967) |
|
Total net assets 100.00% | | | $4,468,098 |
|
The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the Fund.
| | |
12 | Classic Value Mega Cap Fund | Semiannual report | See notes to financial statements |
Notes to Schedule of Investments
SADR Sponsored American Depositary Receipts
(I) Non-income producing security.
(L) All or a portion of this security is on loan as of 8-31-10.
(W) Investment is an affiliate of the Fund, the adviser and/or subadviser. Also, it represents the investment of securities lending collateral received.
(Y) The rate shown is the annualized seven-day yield as of 8-31-10.
† At 8-31-10, the aggregate cost of investment securities for federal income tax purposes was $5,562,767. Net unrealized depreciation aggregated $1,073,702, of which $259,047 related to appreciated investment securities and $1,332,749 related to depreciated investment securities.
The Fund had the following country concentration as a percentage of net assets on 8-31-10:
| | | |
United States | 87% | | |
Switzerland | 7% | | |
France | 2% | | |
United Kingdom | 2% | | |
Short-Term Investments & Other | 2% | | |
| | |
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
Financial statements
Statement of assets and liabilities 8-31-10 (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 $4,491,119) including | |
$102,574 of securities loaned (Note 2) | $4,383,047 |
Investments in affiliated issuers, at value (Cost $106,021) (Note 2) | 106,018 |
| |
Total investments, at value (Cost $4,597,140) | 4,489,065 |
Cash | 30,618 |
Receivable for investments sold | 59,856 |
Receivable for fund shares sold | 10,515 |
Dividends and interest receivable | 11,116 |
Receivable for securities lending income | 17 |
Receivable due from adviser | 8,599 |
Other receivables and prepaid assets | 25,402 |
| |
Total assets | 4,635,188 |
|
Liabilities | |
|
Payable for fund shares repurchased | 26,307 |
Payable upon return of securities loaned (Note 2) | 106,021 |
Payable to affiliates | |
Accounting and legal services fees | 66 |
Transfer agent fees | 804 |
Trustees’ fees | 121 |
Other liabilities and accrued expenses | 33,771 |
| |
Total liabilities | 167,090 |
|
Net assets | |
|
Capital paid-in | $9,649,175 |
Undistributed net investment income | 2,932 |
Accumulated net realized loss on investments | (5,075,934) |
Net unrealized depreciation on investments | (108,075) |
| |
Net assets | $4,468,098 |
|
Net asset value per share | |
|
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($3,504,795 ÷ 613,705 shares) | $5.71 |
Class B ($188,218 ÷ 32,993 shares)1 | $5.70 |
Class C ($444,459 ÷ 77,879 shares)1 | $5.71 |
Class I ($330,626 ÷ 57,764 shares) | $5.72 |
|
Maximum offering price per share | |
|
Class A (net asset value per share ÷ 95%)2 | $6.01 |
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.
| | |
14 | Classic Value Mega Cap Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
Statement of operations For the six-month period ended 8-31-10
(unaudited)
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 | $36,529 |
Securities lending | 115 |
Interest | 2 |
| |
Total investment income | 36,646 |
|
Expenses | |
|
Investment management fees (Note 4) | 18,417 |
Distribution and service fees (Note 4) | 7,853 |
Accounting and legal services fees (Note 4) | 404 |
Transfer agent fees (Note 4) | 3,912 |
Trustees’ fees (Note 4) | 333 |
State registration fees (Note 4) | 6,295 |
Printing and postage fees (Note 4) | 3,779 |
Professional fees | 21,103 |
Custodian fees | 6,228 |
Registration and filing fees | 6,050 |
Other | 3,879 |
| |
Total expenses | 78,253 |
Less expense reductions (Note 4) | (44,612) |
| |
Net expenses | 33,641 |
| |
Net investment income | 3,005 |
|
Realized and unrealized gain (loss) | |
|
Net realized gain on | |
Investments in unaffiliated issuers | 155,340 |
Investments in affiliated issuers | 9 |
| 155,349 |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | (532,212) |
Investments in affiliated issuers | (6) |
| (532,218) |
Net realized and unrealized loss | (376,869) |
Decrease in net assets from operations | ($373,864) |
| | |
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 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.
| | |
| For the | |
| six-month | |
| period | |
| ended | Year |
| 8-31-10 | ended |
| (unaudited) | 2-28-10 |
|
|
Increase (decrease) in net assets | | |
|
From operations | | |
Net investment income | $3,005 | $19,525 |
Net realized gain (loss) | 155,349 | (173,212) |
Change in net unrealized appreciation (depreciation) | (532,218) | 2,161,309 |
| | |
Increase (decrease) in net assets resulting from operations | (373,864) | 2,007,622 |
| | |
Distributions to shareholders | | |
From net investment income | | |
Class A | — | (29,972) |
Class B | — | (192) |
Class C | — | (460) |
Class I | — | (3,794) |
| | |
Total distributions | — | (34,418) |
| | |
From Fund share transactions (Note 5) | 708,930 | (443,268) |
| | |
Total increase | 335,066 | 1,529,936 |
|
Net assets | | |
|
Beginning of period | 4,133,032 | 2,603,096 |
| | |
End of period | $4,468,098 | $4,133,032 |
| | |
Undistributed net investment (accumulated distributions in excess | | |
of) income | $2,932 | ($73) |
| | |
16 | Classic Value Mega Cap Fund | Semiannual report | See notes to financial statements |
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 | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-082 |
|
Per share operating performance | | | | |
|
Net asset value, beginning of period | $6.15 | $3.45 | $7.60 | $10.00 |
Net investment income3 | —4 | 0.03 | 0.09 | 0.13 |
Net realized and unrealized gain (loss) on investments | (0.44) | 2.72 | (4.16) | (2.23) |
Total from investment operations | (0.44) | 2.75 | (4.07) | (2.10) |
Less distributions | | | | |
From net investment income | — | (0.05) | (0.08) | (0.11) |
From net realized gain | — | — | — | (0.19) |
Total distributions | — | (0.05) | (0.08) | (0.30) |
Net asset value, end of period | $5.71 | $6.15 | $3.45 | $7.60 |
Total return (%)5,6,7 | (7.15)8 | 79.57 | (53.77) | (21.28) |
|
Ratios and supplemental data | | | | |
|
Net assets, end of period (in millions) | $4 | $3 | $2 | $5 |
Ratios (as a percentage of average net assets): | | | | |
Expenses before reductions | 3.089 | 3.7010 | 2.82 | 2.52 |
Expenses net of fee waivers | 1.379 | 1.3910 | 1.37 | 1.37 |
Expenses net of fee waivers and credits | 1.379 | 1.3910 | 1.37 | 1.37 |
Net investment income | 0.209 | 0.59 | 1.49 | 1.34 |
Portfolio turnover (%) | 28 | 76 | 114 | 38 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class A shares is 3-1-07.
3 Based on the average daily shares outstanding.
4 Less than $0.005 per share.
5 Assumes dividend reinvestment (if applicable).
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Does not reflect the effect of sales charges, if any.
8 Not annualized.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.04% of average net assets.
| | |
See notes to financial statements | Semiannual report | Classic Value Mega Cap Fund | 17 |
| | | | |
CLASS B SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-082 |
|
Per share operating performance | | | | |
|
Net asset value, beginning of period | $6.16 | $3.47 | $7.60 | $10.00 |
Net investment income (loss)3 | (0.02) | (0.01) | 0.05 | 0.05 |
Net realized and unrealized gain (loss) on investments | (0.44) | 2.71 | (4.15) | (2.21) |
Total from investment operations | (0.46) | 2.70 | (4.10) | (2.16) |
Less distributions | | | | |
From net investment income | — | (0.01) | (0.03) | (0.05) |
From net realized gain | — | — | — | (0.19) |
Total distributions | — | (0.01) | (0.03) | (0.24) |
Net asset value, end of period | $5.70 | $6.16 | $3.47 | $7.60 |
Total return (%)4,5,6 | (7.47)7 | 77.74 | (54.01) | (21.85) |
|
Ratios and supplemental data | | | | |
|
Net assets, end of period (in millions) | —8 | —8 | —8 | —8 |
Ratios (as a percentage of average net assets): | | | | |
Expenses before reductions | 4.899 | 12.0110 | 14.22 | 11.98 |
Expenses net of fee waivers | 2.129 | 2.1510 | 2.70 | 2.12 |
Expenses net of fee waivers and credits | 2.129 | 2.1310 | 2.12 | 2.12 |
Net investment income (loss) | (0.55)9 | (0.24) | 0.80 | 0.58 |
Portfolio turnover (%) | 28 | 76 | 114 | 38 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class B shares is 3-1-07.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Does not reflect the effect of sales charges, if any.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.02% of average net assets.
| | | | |
CLASS C SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-082 |
|
Per share operating performance | | | | |
|
Net asset value, beginning of period | $6.17 | $3.47 | $7.61 | $10.00 |
Net investment income (loss)3 | (0.02) | (0.01) | 0.05 | 0.06 |
Net realized and unrealized gain (loss) on investments | (0.44) | 2.72 | (4.16) | (2.21) |
Total from investment operations | (0.46) | 2.71 | (4.11) | (2.15) |
Less distributions | | | | |
From net investment income | — | (0.01) | (0.03) | (0.05) |
From net realized gain | — | — | — | (0.19) |
Total distributions | — | (0.01) | (0.03) | (0.24) |
Net asset value, end of period | $5.71 | $6.17 | $3.47 | $7.61 |
Total return (%)4,5,6 | (7.46)7 | 78.03 | (54.07) | (21.75) |
|
Ratios and supplemental data | | | | |
|
Net assets, end of period (in millions) | —8 | —8 | —8 | —8 |
Ratios (as a percentage of average net assets): | | | | |
Expenses before reductions | 4.559 | 7.4510 | 7.51 | 6.38 |
Expenses net of fee waivers | 2.129 | 2.1410 | 2.29 | 2.12 |
Expenses net of fee waivers and credits | 2.129 | 2.1310 | 2.12 | 2.12 |
Net investment income (loss) | (0.53)9 | (0.19) | 0.78 | 0.68 |
Portfolio turnover (%) | 28 | 76 | 114 | 38 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class C shares is 3-1-07.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Does not reflect the effect of sales charges, if any.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Includes the impact of proxy expenses, which amounted to 0.03% of average net assets.
| | |
18 | Classic Value Mega Cap Fund | Semiannual report | See notes to financial statements |
| | | | |
CLASS I SHARES Period ended | 8-31-101 | 2-28-10 | 2-28-09 | 2-29-082 |
|
Per share operating performance | | | | |
|
Net asset value, beginning of period | $6.15 | $3.45 | $7.61 | $10.00 |
Net investment income3 | 0.02 | 0.05 | 0.12 | 0.17 |
Net realized and unrealized gain (loss) on investments | (0.45) | 2.72 | (4.17) | (2.23) |
Total from investment operations | (0.43) | 2.77 | (4.05) | (2.06) |
Less distributions | | | | |
From net investment income | — | (0.07) | (0.11) | (0.14) |
From net realized gain | — | — | — | (0.19) |
Total distributions | — | (0.07) | (0.11) | (0.33) |
Net asset value, end of period | $5.72 | $6.15 | $3.45 | $7.61 |
Total return (%)4,5 | (6.99)6 | 80.19 | (53.56) | (20.87) |
|
Ratios and supplemental data | | | | |
|
Net assets, end of period (in millions) | —7 | —7 | —7 | —7 |
Ratios (as a percentage of average net assets): | | | | |
Expenses before reductions | 3.698 | 8.739 | 17.79 | 13.02 |
Expenses net of fee waivers | 0.958 | 0.959 | 0.97 | 0.97 |
Expenses net of fee waivers and credits | 0.958 | 0.959 | 0.97 | 0.97 |
Net investment income | 0.648 | 0.80 | 1.96 | 1.80 |
Portfolio turnover (%) | 28 | 76 | 114 | 38 |
| |
1 Semiannual period from 3-1-10 to 8-31-10. Unaudited.
2 The inception date for Class I shares is 3-1-07.
3 Based on the average daily shares outstanding.
4 Assumes dividend reinvestment (if applicable).
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.
9 Includes the impact of proxy expenses, which amounted to 0.01% of average net assets.
| | |
See notes to financial statements | Semiannual report | Classic Value Mega Cap Fund | 19 |
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), an open-end management investment company organized as a Massachusetts business trust and registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek long-term growth of capital.
The Fund may offer multiple classes of shares. The shares currently offered are detailed in the Statement of Assets and Liabilities. Class A, Class B and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, printing and postage, registration and transfer agent fees for each class may differ. Class B shares convert to Class A shares eight years after purchase. Effective at the close of business on August 21, 2009, Class R1 shares converted into Class A shares.
Affiliates of the Fund owned 55% and 31% of shares of beneficial interest of Class A and Class B shares, respectively, on August 31, 2010.
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. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes significant observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these techniques are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes significant unobservable inpu ts when market prices are not readily available or reliable, including the Fund’s own assumptions in determining the fair value of investments. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
As of August 31, 2010, all investments are categorized as Level 1 under the hierarchy described above.
During the six months ended August 31, 2010, there were no significant transfers in or out of Level 1 and Level 2 assets.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Foreign securities and currencies are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain 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
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20 | Classic Value Mega Cap Fund | Semiannual report |
the close of trading. Certain short-term securities are valued at amortized cost. John Hancock Collateral Investment Trust (JHCIT), an affiliate of the Fund, is valued at its closing net asset value (NAV). JHCIT has a floating NAV and invests in short-term investments as part of a securities lending program.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by 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. Significant market events that affect the values of non-U.S. securities may occur after the time when the valuation of the securities is generally determined and the close of the NYSE. During significant market events, these securities will be valued at fair value, as determined in good faith, following procedures established by the Board of Trustees. The Fund may use a fair valuation model to value non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date.
Securities lending. The Fund may lend its securities to earn additional income. It receives and maintains cash collateral received from the borrower in an amount not less than the market value of the loaned securities. The Fund will invest its collateral in JHCIT, as a result, the Fund will receive the benefit of any gains and bear any losses generated by JHCIT. Although risk of the loss of the securities lent is mitigated by holding the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. The Fund may receive compensation for lending its securities by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Income received from JHCIT is a component of securities lending income as re corded on the Statement of Operations.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to a Fund to make properly authorized payments. The Fund is obligated to repay the custodian for any overdraft, including any related costs or expenses. The custodian has a lien, security interest or security entitlement in any Fund property that is not segregated, to the maximum extent permitted by law for any overdraft.
In addition, the Fund and other affiliated funds have entered into an agreement with the custodian which enables them to participate in a $100 million unsecured committed line of credit. Prior to March 31, 2010, the amount of the line of credit was $150 million. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused portion of the line of credit, is charged to each participating fund on a pro rata basis based on their relative average net assets. For the six months ended August 31, 2010, the Fund had no significant borrowings under the line of credit.
Expenses. The majority of expenses are directly attributable to an individual fund. Expenses that are not readily attributable to a specific fund are allocated among all funds in an equitable manner, taking into consideration, among other things, the nature and type of expense and the fund’s relative assets. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.
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Semiannual report | Classic Value Mega Cap Fund | 21 |
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 net asset value of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage fees, for all classes are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rates applicable to each class.
Federal income taxes. The Fund intends to qualify 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 a capital loss carryforward of $4,202,970 available to offset future net realized capital gains as of February 28, 2010. The loss carryforward expires as follows: February 28, 2017 — $1,275,193 and February 28, 2018 — $2,927,777.
As of February 28, 2010, the Fund had no uncertain tax positions that would require financial statement recognition, de-recognition or disclosure. The Fund’s federal tax return is subject to examination by the Internal Revenue Service for a period of three years.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares and pays dividends and capital gain distributions, if any, at least annually.
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. Material distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a tax return of capital.
Capital accounts within financial statements are adjusted for permanent book/tax differences. These adjustments have no impact on net assets or the results of operations. Temporary book/tax differences, if any, will reverse in a subsequent period.
Note 3 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities 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. The risk of material loss from such claims is considered remote.
Note 4 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Trust. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management contract with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.79% of the first $2,500,000,000 of the Fund’s average daily net assets; (b) 0.78%
| |
22 | Classic Value Mega Cap Fund | Semiannual report |
of the next $2,500,000,000; and (c) 0.77% of the Fund’s average daily net asset in excess of $5,000,000,000. The Adviser has a subadvisory agreement with Pzena Investment Management, LLC. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended August 31, 2010 were equivalent to an annual effective rate of 0.79% of the Fund’s average daily net assets.
Effective July 1, 2010, the Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.37%, 2.12%, 2.12% and 0.96% for Class A, Class B, Class C and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until June 30, 2011.
Prior to July 1, 2010, the Adviser had contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excluded taxes, portfolio brokerage commissions, interest, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements were such that these expenses will not exceed 1.37%, 2.12%, 2.12% and 0.94% for Class A, Class B, Class C and Class I shares, respectively.
Effective May 1, 2010, the Adviser has voluntarily agreed to waive fees and/or reimburse certain other fund level expenses. This agreement excludes advisory, interest, overdraft, litigation, Rule 12b-1, class specific and other extraordinary expenses not incurred in the ordinary course of business. The fee waivers and/or reimbursement are such that these expenses will not exceed 0.16% of average daily net assets.
Accordingly, these expense reductions, described above, amounted to $31,078, $2,986, $5,447 and $5,101 for Class A, Class B, Class C and Class I shares, respectively, for the six months ended August 31, 2010.
Accounting and legal services. Pursuant to the service 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, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended August 31, 2010 amounted to an annual rate of 0.02% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A, Class B and Class C shares pursuant to Rule 12b-1 under the 1940 Act, to pay the Distributor for services provided as the distributor of shares of the Fund. The Fund may pay up to the following contractual rates of distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets for each class of the Fund’s shares.
| | | |
CLASS | 12b-1 FEES | | |
| | |
Class A | 0.30% | | |
Class B | 1.00% | | |
Class C | 1.00% | | |
Currently only 0.25% is charged to Class A for distribution fees.
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Semiannual report | Classic Value Mega Cap Fund | 23 |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $6,881 for the six months ended August 31, 2010. Of this amount, $1,185 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $5,511 was paid as sales commissions to broker-dealers and $185 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a broker-dealer affiliate of the Adviser.
Class B and Class C shares are subject to contingent deferred sales charges (CDSC). Class B shares that are redeemed within six years of purchase are subject to 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 1.00% CDSC on the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from CDSCs are used to compensate the Distributor for providing distribution-related services in connection with the sale of these shares. During the six months ended August 31, 2010, CDSCs received by the Distributor amounted to $558 and $0 for Class B and Class C shares, respectively.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services or Transfer Agent), an affiliate of the Adviser. Prior to July 1, 2010, the transfer agent fees were made up of three components:
• The Fund paid a monthly transfer agent fee at an annual rate of 0.05% for Class A, Class B and Class C shares and 0.04% for Class I shares, based on each class’s average daily net assets.
• The Fund paid a monthly fee based on an annual rate of $16.50 per shareholder account.
• In addition, Signature Services was reimbursed for certain out-of-pocket expenses.
Effective July 1, 2010, the transfer agent fees paid to Signature Services are determined based on the cost to Signature Services (Signature Services Cost) of providing recordkeeping services. The Signature Services Cost includes a component of allocated John Hancock corporate overhead for providing transfer agent services to the Funds and to all other John Hancock affiliated funds. It also includes out-of-pocket expenses that are comprised of payments made to third-parties for recordkeeping services provided to their clients who invest in one or more John Hancock funds. In addition, Signature Services Cost may be reduced by certain revenues that Signature Services received in connection with the service they provide to the funds. Signature Services Cost is calculated monthly and allocated, as applicable, to four categories of share classes: Institutional Share Classes, Retirement Share Classes, Municipal Bond Classes and all other Retail Share Classes. Wit hin each of these categories, the applicable costs are allocated to the affected John Hancock affiliated funds and/or classes, based on the relative average daily net assets.
Class level expenses. Class level expenses for the six months ended August 31, 2010 were:
| | | | |
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
|
Class A | $4,534 | $2,884 | $1,634 | $2,923 |
Class B | 1,079 | (36) | 1,472 | 171 |
Class C | 2,240 | 653 | 1,472 | 383 |
Class I | — | 411 | 1,717 | 302 |
Total | $7,853 | $3,912 | $6,295 | $3,779 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. These Trustees may, for tax purposes, elect to defer receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan (the Plan). Deferred amounts are invested in various John Hancock funds and remain in the funds until distributed in accordance
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24 | Classic Value Mega Cap Fund | Semiannual report |
with the Plan. The investment of deferred amounts and the offsetting liability are included within other receivables and prepaid assets and Trustees’ fees, respectively, in the accompanying Statement of Assets and Liabilities.
Note 5 — Fund share transactions
Transactions in Fund shares for the six months ended August 31, 2010 and for the year ended February 28, 2010 were as follows:
| | | | |
| Six months ended 8-31-10 | Year ended 2-28-10 |
| Shares | Amount | Shares | Amount |
Class A shares | | | | |
|
Sold | 147,673 | $922,540 | 109,696 | $629,324 |
Exchanged from Class R1 | — | — | 10,510 | 61,586 |
Distributions reinvested | — | — | 4,769 | 29,332 |
Repurchased | (48,338) | (289,192) | (256,886) | (1,470,756) |
| | | | |
Net increase (decrease) | 99,335 | $633,348 | (131,911) | ($750,514) |
|
Class B shares | | | | |
|
Sold | 4,530 | $28,295 | 13,088 | $77,435 |
Distributions reinvested | — | — | 31 | 192 |
Repurchased | (5,107) | (31,072) | (771) | (3,451) |
| | | | |
Net increase (decrease) | (577) | ($2,777) | 12,348 | $74,176 |
|
Class C shares | | | | |
|
Sold | 24,022 | $154,023 | 28,288 | $160,131 |
Distributions reinvested | — | — | 57 | 349 |
Repurchased | (6,359) | (39,074) | (31,198) | (162,017) |
| | | | |
Net increase (decrease) | 17,663 | $114,949 | (2,853) | ($1,537) |
|
Class I shares | | | | |
|
Sold | 20,754 | $132,683 | 58,081 | $340,017 |
Distributions reinvested | — | — | 130 | 800 |
Repurchased | (26,920) | (169,273) | (6,705) | (42,023) |
| | | | |
Net increase (decrease) | (6,166) | ($36,590) | 51,506 | $298,794 |
|
Class R1 shares | | | | |
|
Exchanged for Class A | — | — | (10,524) | ($61,586) |
Repurchased | — | — | (512) | (2,601) |
| | | | |
Net decrease | — | — | (11,036) | ($64,187) |
|
Net increase (decrease) | 110,255 | $708,930 | (81,946) | ($443,268) |
|
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $1,876,978 and $1,250,944, respectively, for the six months ended August 31, 2010.
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Semiannual report | Classic Value Mega Cap Fund | 25 |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the Board, the members of which are referred to as Trustees) of John Hancock Classic Value Mega Cap Fund (the Fund), a series of John Hancock Funds III, met in-person on May 2–4 and June 6–8, 2010 to consider the approval of the Fund’s investment advisory agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Adviser), the Fund’s investment adviser. The Board also considered the approval of the investment subadvisory agreement (the Subadvisory Agreement) between the Adviser and Pzena Investment Management, LLC (the Subadviser) on behalf of the Fund. The Advisory Agreement and the Subadvisory Agreement are referred to as the Agreements.
Activities and composition of the Board
The Board consists of eleven individuals, nine of whom are Independent Trustees. Independent Trustees are generally those individuals who are unaffiliated with the Fund, the Adviser and the Subadviser. The Trustees are responsible for the oversight of operations of the Fund and perform the various duties required of directors of investment companies by the Investment Company Act of 1940, as amended (the 1940 Act). The Independent Trustees have retained independent legal counsel to assist them in connection with their duties. The Board has appointed an Independent Trustee as Chairperson. The Board has established four standing committees that are composed entirely of Independent Trustees: the Audit Committee; the Compliance Committee; the Nominating, Governance and Administration Committee; and the Contracts/Operations Committee. Additionally, Investment Performance Committees A and B are standing committees of the Board that are each composed of Independent Trustees and one Trustee who is affiliated with the Adviser. Investment Performance Committee B oversees and monitors matters relating to the investment performance of the Fund. The Board has also designated a Vice Chairperson to serve in the absence of the Chairperson, who also serves as Chairman of the Board’s Nominating, Governance and Administration Committee. The Board also designates working groups or ad hoc committees as it deems appropriate.
The approval process
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. Throughout the year, the Board, acting directly and through its committees, regularly reviews and assesses the quality of the services that the Fund receives under these Agreements. 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. The Board considers at each of its meetings factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by the Adviser and Subadviser to the Fund and its shareholders.
Prior to the May 2–4, 2010 meeting, the Board requested and received materials specifically relating to the Agreements. The materials provided in connection with the May meeting included information independently compiled and prepared by Morningstar, Inc. (Morningstar) on Fund fees and expenses, and the investment performance of the Fund. This Fund information is assembled in a format that permits comparison with similar information from a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) as determined by Morningstar, and its benchmark index. Other material provided for the Fund review included (a) information on the profitability of the Agreements to the Adviser and a discussion of any additional benefits to the Adviser and its affiliates that result from being the Adviser to the Fund; (b) a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to other clients, such as institutional clients and other investment companies, under similar investment mandates, as well as the performance of such other clients; (c) the impact of
| |
26 | Classic Value Mega Cap Fund | Semiannual report |
economies of scale; (d) a summary of aggregate amounts paid by the Fund to the Adviser; and (e) sales and redemption data regarding the Fund’s shares.
At an in-person meeting held on May 2–4, 2010, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the May 2–4, 2010 meeting, the Board presented the Adviser and Subadviser with questions and requests for additional information and the Adviser and Subadviser responded to these requests with additional written information in advance of the June 6–8, 2010 Board meeting. The Board also reviewed these additional materials relating to its consideration of the Agreements.
At an in-person meeting held on June 6–8, 2010, the Board, including the Independent Trustees, formally considered the continuation of the Advisory Agreement between the Adviser and the Fund and the Subadvisory Agreement between the Adviser and the Subadviser with respect to the Fund, each for an additional one-year term. The Board considered all factors it believed relevant with respect to the Fund, including, among other factors: (a) the nature, extent and quality of the services provided by the Adviser and the Subadviser; (b) the investment performance of the Fund and portfolio management of the Subadviser; (c) the advisory fees and the cost of the services and profits to be realized by the Adviser and certain affiliates from their relationship with the Fund; (d) economies of scale; and (e) other factors.
The Board also considered other matters important to the approval process, such as payments made to the Adviser or its affiliates relating to the distribution of Fund shares and other services. The Board reviewed services related to the valuation and pricing of Fund portfolio holdings. Other important matters considered by the Board were the direct and indirect benefits to the Adviser, the Subadviser, and their affiliates from their relationship with the Fund, and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. Each Trustee may have attributed different weights to the various items considered.
The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board, including the Independent Trustees, reviewed the nature, extent and quality of services provided by the Adviser and the Subadviser, including the investment advisory services and the resulting performance of the Fund. The Board reviewed the Adviser’s and Subadviser’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Fund’s portfolio management team discussing Fund performance and the Fund’s investment objective, strategies and outlook.
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. It considered the background and experience of senior management and investment professionals responsible for managing the Fund. The Board considered the investment philosophy, research and investment decision-making processes of the Adviser and the Subadviser responsible for the daily investment activities of the Fund, including, among other things, portfolio trading capabilities, use of technology, commitment to compliance and approach to training and retaining portfolio managers and other research, advisory and management personnel.
The Board considered the Subadviser’s history and 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, record of compliance with applicable laws and regulation, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the responsibilities of the Adviser’s and Subadviser’s compliance departments.
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Semiannual report | Classic Value Mega Cap Fund | 27 |
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Fund by the Adviser under a separate agreement. The Board noted that the Adviser and its affiliates provide the Fund with certain administrative, transfer agency, shareholder and other services (in addition to any such services provided to the Fund by third parties) and officers and other personnel as are necessary for the operations of the Fund.
The Board reviewed the structure and duties of the Adviser’s administration, accounting, legal and compliance departments and considered the Adviser’s policies and procedures for assuring compliance with applicable laws and regulations.
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 reviewed a general analysis provided by the Adviser and the Subadviser concerning investment advisory fees charged to such other clients under similar investment mandates, the services provided to such other clients as compared to the services provided to the Fund, the performance of such other clients, and other factors relating to such other clients. The Board considered the significant differences between the Adviser’s and Subadviser’s services to the Fund and those services they provide to other clients which, to the extent the other client is not a mutual fund, may generally be attributable to the greater frequency of shareholder redemptions in a mutual fund, the higher turnover o f mutual fund assets, the more burdensome regulatory and legal obligations of mutual funds, and the higher marketing costs for mutual funds.
Fund performance
The Board, including the Independent Trustees, reviewed and considered the performance history of the Fund. The Board was provided with reports, independently prepared by Morningstar, which included a comprehensive analysis of the Fund’s performance. The Board also reviewed a narrative and statistical analysis of the Morningstar data that was prepared by the Adviser, which analyzed various factors that may affect the Morningstar rankings. The Board reviewed information regarding the investment performance of the Fund as compared to its Morningstar Category and Peer Group as well as its benchmark index. The Board noted that the Fund outperformed its benchmark index and its Category and Peer Group medians (see chart below). The Board was provided with a description of the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board also considered updated performance information provided by the Adviser at its May and June 2010 meetings. The Board regularly reviews the performance of the Fund throughout the year and attaches more importance to performance over relatively longer periods of time, typically three to five years.
| | | | |
| 1 YEAR | 3 YEAR | 5 YEAR | 10 YEAR |
|
Classic Value Mega Cap Fund | 35.56% | N/A | N/A | N/A |
Russell 1000 Value Index | 19.69% | N/A | N/A | N/A |
Large Value Category Median | 23.70% | N/A | N/A | N/A |
Morningstar 15(c) Peer Group Median | 25.45% | N/A | N/A | N/A |
The Board noted that the Subadviser remained consistent with its investment style and adhered to its investment mandates.
Expenses and fees
The Board, including the Independent Trustees, reviewed the Fund’s contractual advisory fee rate payable by the Fund to the Adviser as compared with the other funds in its Category and Peer Group. The Board also received information about the investment subadvisory fee rate payable by the Adviser to the Subadviser for investment subadvisory services. The Board considered the services provided and the fees charged by the Adviser and the Subadviser to other types of clients with similar investment mandates, including separately managed institutional accounts.
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28 | Classic Value Mega Cap Fund | Semiannual report |
In addition, the Board considered the cost of the services provided to the Fund by the Adviser. The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution fees and fees other than advisory and distribution fees, including transfer agent fees, custodian fees, administration 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 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 considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. As part of its analysis, the Board reviewed the Adviser’s methodology in allocating its costs to the management of the Fund. The Board considered expenses and fee rates to be higher or lower if they were over or under 10 basis points, respectively; slightly higher or slightly lower if they were above or below 6–10 basis points, respectively; and inline if they were above or below by 5 basis points.
The Board noted that the investment advisory rate was inline with the Category and Peer Group medians. The Board favorably considered the impact of fee waivers towards ultimately lowering the Fund’s Gross Expense Ratio. The Board viewed favorably the Adviser’s contractual agreement to waive all or a portion of its Advisory Agreement rate and reimburse or pay operating expenses to the extent necessary to maintain the Fund’s Net Expense Ratio at 1.37% for Class A, excluding certain expenses such as taxes, brokerage commissions, interest, litigation and extraordinary expenses, until June 30, 2011.
The Board reviewed the Fund’s Gross Expense Ratio of 4.25% for the Fund’s Class A shares. 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 slightly higher than the Peer Group median and higher than the Category median. The Board also received and considered information relating to the Fund’s Gross Expense Ratio and Net Expense Ratio that reflected a proposed change in the methodology for calculating transfer agent fees.
The Board received and reviewed statements relating to the Adviser’s financial condition and profitability with respect to the services it provides the Fund. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by the Adviser for services provided to the Fund. The Board reviewed the Adviser’s profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2009 compared to available aggregate profitability data provided for the year ended December 31, 2008.
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreement, as well as on other relationships between the Fund and the Adviser and its affiliates. The Board also considered a comparison of the Adviser’s profitability to that of other similar investment advisers whose profitability information is publicly available. The Board reviewed the Adviser’s profitability with respect to other fund complexes managed by the Adviser and/or its affiliates. The Board reviewed the Adviser’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Adviser, the types of funds managed, expense allocations and business mix, and therefore comparabili ty of profitability is somewhat limited.
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 fee under the Subadvisory Agreement had been negotiated by the Adviser and the Subadviser on an arm’s-length basis and that
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Semiannual report | Classic Value Mega Cap Fund | 29 |
the Subadviser’s separate profitability from its relationship with the Fund was not a material factor in determining whether to renew the Subadvisory Agreement.
Economies of scale
The Board, including the Independent Trustees, considered the extent to which economies of scale might be realized as the assets of the Fund increase and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the assets of the Fund. The Board also considered the Adviser’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations.
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 ensure that any economies are reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Agreement fee rate.
Other benefits to the Adviser and the Subadviser
The Board understands that the Adviser, the Subadviser, or their affiliates may derive other ancillary benefits from their relationship with the Fund, both tangible and intangible, such as their ability to leverage investment professionals who manage other portfolios, an increase in their profile in the investment advisory community, and the engagement of their affiliates and/or significant shareholders as service providers to the Fund, including for administrative, transfer agency and distribution services. The Board believes that certain of these benefits are difficult to quantify. The Board also was informed that the Subadviser may use third party research obtained by soft dollars generated by certain mutual fund transactions to assist itself in managing all or a number of its other client accounts.
Board determination
The Board, including the Independent Trustees, unanimously approved the continuation of the Advisory Agreement between the Adviser and the Fund for an additional one-year term and the Subadvisory Agreement between the Adviser and Subadviser with respect to the Fund for an additional one-year term. Based upon its evaluation of relevant factors in their totality, the Board, including a majority of the Independent Trustees, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at a decision to approve the Agreements, the Board did not identify any single factor listed above, or any group of factors listed above, as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Trustees were also assisted by the advice of independent legal counsel in maki ng this determination. The Board noted that contractual fee arrangements for the Fund reflect the results of several years of review by the Board and certain predecessor Trustees, and discussions between such Trustees (and predecessor Trustees) and the Adviser. Certain aspects of the arrangements may be the subject of more attention in some years than in others, and the Trustees’ conclusions may be based in part on their consideration of these arrangements in prior years.
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30 | Classic Value Mega Cap Fund | Semiannual report |
More information
| | |
Trustees | Investment adviser | |
Patti McGill Peterson, Chairperson | John Hancock Investment Management | |
James F. Carlin | Services, LLC | |
William H. Cunningham | | |
Deborah C. Jackson* | Subadviser | |
Charles L. Ladner | Pzena Investment Management, LLC | |
Stanley Martin* | | |
Hugh McHaffie†** | Principal distributor | |
Dr. John A. Moore | John Hancock Funds, LLC | |
Steven R. Pruchansky* | | |
Gregory A. Russo | Custodian | |
John G. Vrysen† | State Street Bank and Trust Company | |
| | |
Officers | Transfer agent | |
Keith F. Hartstein | John Hancock Signature Services, Inc. | |
President and Chief Executive Officer | | |
| Legal counsel | |
Andrew G. Arnott | K&L Gates LLP | |
Senior Vice President** and Chief Operating Officer |
| |
| The report is certified under the Sarbanes-Oxley | |
Thomas M. Kinzler | Act, which requires mutual funds and other public | |
Secretary and Chief Legal Officer | companies to affirm that, to the best of their | |
| knowledge, the information in their financial reports | |
Francis V. Knox, Jr. | is fairly and accurately stated in all material respects. | |
Chief Compliance Officer |
| |
| | |
Charles A. Rizzo | | |
Chief Financial Officer | | |
| | |
Salvatore Schiavone** | |
Treasurer | | |
| | |
*Member of the Audit Committee | | |
**Effective 8-31-10 | | |
†Non-Independent Trustee | | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| | |
You can also contact us: | | |
1-800-225-5291 | Regular mail: | Express mail: |
jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations |
| Boston, MA 02205-5913 | 30 Dan Road |
| | Canton, MA 02021 |
| |
Semiannual report | Classic Value Mega Cap Fund | 31 |
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 Classic Value Mega Cap Fund. | 322SA 8/10 |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 10/10 |
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.
(a) This schedule is included as part of the Report to shareholders filed under Item 1 of this form.
(b) 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.
Not applicable.
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) The certification required by Rule 30a-2(a) under the 1940 Act.
(b) The certification required by Rule 30a-2(b) under the 1940 Act.
(c) Contact person at the registrant.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Funds III
By: /s/ Keith F. Hartstein
-------------------------------------
Keith F. Hartstein
President and
Chief Executive Officer
Date: October 27, 2010
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 27, 2010
By: /s/ Charles A. Rizzo
------------------------------------
Charles A. Rizzo
Chief Financial Officer
Date: October 27, 2010