UNITED STATES | |
SECURITIES AND EXCHANGE COMMISSION | |
Washington, D.C. 20549 | |
FORM N-CSR | |
CERTIFIED SHAREHOLDER REPORT OF REGISTERED | |
MANAGEMENT INVESTMENT COMPANIES | |
Investment Company Act file number 811-21777 | |
John Hancock Funds III | |
(Exact name of registrant as specified in charter) | |
601 Congress Street, Boston, Massachusetts 02210 | |
(Address of principal executive offices) (Zip code) | |
Salvatore Schiavone | |
Treasurer | |
601 Congress Street | |
Boston, Massachusetts 02210 | |
(Name and address of agent for service) | |
Registrant's telephone number, including area code: 617-663-4497 | |
Date of fiscal year end: | March 31 |
Date of reporting period: | September 30, 2013 |
ITEM 1. REPORTS TO STOCKHOLDERS.
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/rainiergrowthx1x1.jpg)
A look at performance
Total returns for the period ended September 30, 2013
Average annual total returns (%) | Cumulative total returns (%) | |||||||
with maximum sales charge | with maximum sales charge | |||||||
1-year | 5-year | 10-year | 6-months | 1-year | 5-year | 10-year | ||
Class A1 | 13.46 | 7.66 | 6.80 | 6.05 | 13.46 | 44.65 | 93.10 | |
Class B1 | 13.43 | 7.63 | 6.25 | 6.21 | 13.43 | 44.41 | 83.33 | |
Class C1 | 17.44 | 7.91 | 6.24 | 10.22 | 17.44 | 46.35 | 83.26 | |
Class I1,2 | 19.84 | 9.20 | 7.71 | 11.85 | 19.84 | 55.25 | 110.26 | |
Class R11,2 | 18.89 | 8.31 | 6.66 | 11.38 | 18.89 | 49.05 | 90.49 | |
Class R21,2 | 19.19 | 7.58 | 5.91 | 11.57 | 19.19 | 44.12 | 77.49 | |
Class R31,2 | 19.02 | 8.43 | 6.77 | 11.44 | 19.02 | 49.86 | 92.51 | |
Class R41,2 | 19.47 | 8.78 | 7.10 | 11.68 | 19.47 | 52.32 | 98.58 | |
Class R51,2 | 19.73 | 9.09 | 7.41 | 11.78 | 19.73 | 54.47 | 104.38 | |
Class R61,2 | 19.86 | 9.23 | 7.76 | 11.88 | 19.86 | 55.48 | 111.15 | |
Class T1,2 | 13.38 | 7.38 | 6.28 | 6.06 | 13.38 | 42.74 | 83.93 | |
Class ADV1,2 | 19.51 | 8.92 | 7.44 | 11.68 | 19.51 | 53.30 | 105.03 | |
Class NAV1,2 | 19.98 | 9.28 | 7.81 | 11.91 | 19.98 | 55.87 | 112.06 | |
Index 1† | 19.27 | 12.07 | 7.82 | 10.34 | 19.27 | 76.80 | 112.41 | |
Index 2† | 19.34 | 10.02 | 7.57 | 8.31 | 19.34 | 61.18 | 107.37 | |
Performance figures assume all distributions have been reinvested. Figures reflect maximum sales charge on Class A and Class T shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1 to 6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charges are not applicable to Class I, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, Class ADV, 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 those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least until 6-30-14 for Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, and Class ADV shares. Had the fee waivers and expense limitations not been in place, gross expenses would apply. For all other classes, the net expenses equal the gross expenses. The expense ratios are as follows:
Class A | Class B | Class C | Class I | Class R1 | Class R2 | Class R3 | Class R4* | Class R5 | Class R6 | Class T | Class ADV | Class NAV | |
Net (%) | 1.25 | 2.06 | 2.07 | 0.91 | 1.70 | 1.45 | 1.60 | 1.20 | 1.00 | 1.33 | 1.33 | 1.14 | 0.79 |
Gross (%) | 1.25 | 2.06 | 2.07 | 0.91 | 5.97 | 20.66 | 15.17 | 14.65 | 14.21 | 0.86 | 1.33 | 1.33 | 0.79 |
* The fund’s distributor has contractually agreed to waive 0.10% of Rule 12b-1 fees for Class R4 shares. The current waiver agreement will remain in effect through 6-30-14.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month end, please call 800-225-5291 or visit the fund’s website at jhinvestments.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 fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index 1 is the Russell 1000 Growth Index; Index 2 is the S&P 500 Index.
See the following page for footnotes.
6 | Rainier Growth Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/rainiergrowthx3x1.jpg)
With maximum | Without | ||||
Start date | sales charge | sales charge | Index 1 | Index 2 | |
Class B3 | 9-30-03 | $18,333 | $18,333 | $21,241 | $20,737 |
Class C3 | 9-30-03 | 18,326 | 18,326 | 21,241 | 20,737 |
Class I2 | 9-30-03 | 21,026 | 21,026 | 21,241 | 20,737 |
Class R12 | 9-30-03 | 19,049 | 19,049 | 21,241 | 20,737 |
Class R22 | 9-30-03 | 17,749 | 17,749 | 21,241 | 20,737 |
Class R32 | 9-30-03 | 19,251 | 19,251 | 21,241 | 20,737 |
Class R42 | 9-30-03 | 19,858 | 19,858 | 21,241 | 20,737 |
Class R52 | 9-30-03 | 20,438 | 20,438 | 21,241 | 20,737 |
Class R62 | 9-30-03 | 21,115 | 21,115 | 21,241 | 20,737 |
Class T2 | 9-30-03 | 18,393 | 19,356 | 21,241 | 20,737 |
Class ADV2 | 9-30-03 | 20,503 | 20,503 | 21,241 | 20,737 |
Class NAV2 | 9-30-03 | 21,206 | 21,206 | 21,241 | 20,737 |
Russell 1000 Growth Index is an unmanaged index containing those securities in the Russell 1000 Index with a greater-than-average growth orientation.
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 expenses or sales charges, which would have resulted in lower values.
Footnotes related to performance pages
1 On 4-25-08, through a reorganization, the fund acquired all of the assets of Rainier Large Cap Growth Equity Portfolio (the predecessor fund). On that date, the predecessor fund’s original class shares and institutional class shares were exchanged for Class A and Class I shares, respectively, of John Hancock Rainier Growth Fund. Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4, Class R5, Class ADV, and Class NAV shares of John Hancock Rainier Growth Fund were first offered on 4-28-08; Class R2 shares were first offered on 3-1-12. The returns prior to these dates are those of the predecessor fund’s original shares that have been recalculated to reflect the gross fees and expenses of Class A, Class B, Class C, Class I, Class R1, Class R3, Class R4, Class R5, Class ADV, Class NAV, and Class R2 shares, as applicable. Class T shares were first offered on 10-6-08. 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 T shares. Class R6 shares were first offered on 9-1-11. The returns prior to this date are those of the predecessor fund’s original class shares, first offered on 6-15-00, and the returns of the fund’s Class A shares (from inception, 4-28-08), which have been recalculated to apply the estimated fees and expenses of Class R6 shares.
2 For certain types of investors, as described in the fund’s prospectuses.
3 The contingent deferred sales charge is not applicable.
Semiannual report | Rainier Growth Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
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 the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,116.40 | $6.37 |
Class B | 1,000.00 | 1,112.10 | 10.64 |
Class C | 1,000.00 | 1,112.20 | 10.85 |
Class I | 1,000.00 | 1,118.50 | 4.78 |
Class R1 | 1,000.00 | 1,113.80 | 9.01 |
Class R2 | 1,000.00 | 1,115.70 | 7.69 |
Class R3 | 1,000.00 | 1,114.40 | 8.48 |
Class R4 | 1,000.00 | 1,116.80 | 6.37 |
Class R5 | 1,000.00 | 1,117.80 | 5.31 |
Class R6 | 1,000.00 | 1,118.80 | 4.57 |
Class T | 1,000.00 | 1,116.50 | 6.74 |
Class ADV | 1,000.00 | 1,116.80 | 6.05 |
Class NAV | 1,000.00 | 1,119.10 | 4.14 |
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 September 30, 2013, by $1,000.00, then multiply it by the “expenses paid” for your
8 | Rainier Growth Fund | Semiannual report |
share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/rainiergrowthx5x1.jpg)
Hypothetical example for comparison purposes
This table allows you to compare the 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 the fund’s actual return). It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,019.10 | $6.07 |
Class B | 1,000.00 | 1,015.00 | 10.15 |
Class C | 1,000.00 | 1,014.80 | 10.35 |
Class I | 1,000.00 | 1,020.60 | 4.56 |
Class R1 | 1,000.00 | 1,016.50 | 8.59 |
Class R2 | 1,000.00 | 1,017.80 | 7.33 |
Class R3 | 1,000.00 | 1,017.00 | 8.09 |
Class R4 | 1,000.00 | 1,019.10 | 6.07 |
Class R5 | 1,000.00 | 1,020.10 | 5.06 |
Class R6 | 1,000.00 | 1,020.80 | 4.36 |
Class T | 1,000.00 | 1,018.70 | 6.43 |
Class ADV | 1,000.00 | 1,019.40 | 5.77 |
Class NAV | 1,000.00 | 1,021.20 | 3.95 |
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 prospectuses for details regarding transaction costs.
1 Expenses are equal to the fund’s annualized expense ratio of 1.20%, 2.01%, 2.05%, 0.90%, 1.70%, 1.45%, 1.60%, 1.20%, 1.00%, 0.86%, 1.27%, 1.14% and 0.78% for Class A, Class B, Class C, Class I, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, Class T, Class ADV and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
Semiannual report | Rainier Growth Fund | 9 |
Portfolio summary
Top 10 Holdings (27.9% of Total Investments on 9-30-13)1,2 | ||||
Google, Inc., Class A | 3.8% | Facebook, Inc., Class A | 2.5% | |
Amazon.com, Inc. | 3.5% | Salesforce.com, Inc. | 2.5% | |
Gilead Sciences, Inc. | 3.0% | Las Vegas Sands Corp. | 2.4% | |
Visa, Inc., Class A | 3.0% | Liberty Global PLC, Class A | 2.3% | |
EOG Resources, Inc. | 2.6% | Michael Kors Holdings, Ltd. | 2.3% | |
Sector Composition1,3 | ||||
Information Technology | 29.7% | Consumer Staples | 4.7% | |
Consumer Discretionary | 22.0% | Energy | 4.5% | |
Health Care | 13.6% | Materials | 3.6% | |
Industrials | 10.2% | Short-Term Investments & Other | 4.9% | |
Financials | 6.8% | |||
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/rainiergrowthx6x1.jpg)
1 As a percentage of total investments on 9-30-13.
2 Cash and cash equivalents not included.
3 Growth stocks may be subject to greater price fluctuations because their prices tend to place more emphasis on earnings expectations. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. Large company stocks as a group could fall out of favor with the market, causing the fund to underperform. Hedging and other strategic transactions may increase volatility of a fund and, if the transaction is no successful, could result in a significant loss. 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 and investments focused in one sector may fluctuate more widely than investments diversified across sectors. For additional information on these and other risk considerations, please see the fund’s prospectuses.
10 | Rainier Growth Fund | Semiannual report |
Fund’s investments
As of 9-30-13 (unaudited)
Shares | Value | |
Common Stocks 101.1% | $1,060,855,573 | |
(Cost $851,487,766) | ||
Consumer Discretionary 23.4% | 245,572,736 | |
Hotels, Restaurants & Leisure 2.5% | ||
Las Vegas Sands Corp. | 400,500 | 26,601,210 |
Internet & Catalog Retail 7.7% | ||
Amazon.com, Inc. (I) | 123,670 | 38,664,189 |
Expedia, Inc. | 424,910 | 22,006,089 |
priceline.com, Inc. (I) | 19,460 | 19,673,087 |
Media 7.8% | ||
Discovery Communications, Inc., Class A (I)(L) | 178,730 | 15,088,387 |
Liberty Global PLC, Class A (I) | 326,610 | 25,916,501 |
Sirius XM Radio, Inc. (L) | 4,785,230 | 18,518,840 |
The Walt Disney Company | 347,210 | 22,391,573 |
Textiles, Apparel & Luxury Goods 5.4% | ||
Michael Kors Holdings, Ltd. (I) | 339,510 | 25,300,285 |
Ralph Lauren Corp. | 86,610 | 14,267,265 |
Under Armour, Inc., Class A (I)(L) | 215,800 | 17,145,310 |
Consumer Staples 5.0% | 52,321,190 | |
Beverages 1.3% | ||
Monster Beverage Corp. (I) | 261,620 | 13,669,645 |
Food & Staples Retailing 1.1% | ||
Costco Wholesale Corp. | 96,970 | 11,163,186 |
Household Products 0.9% | ||
Church & Dwight Company, Inc. | 162,490 | 9,757,525 |
Personal Products 1.7% | ||
The Estee Lauder Companies, Inc., Class A | 253,660 | 17,730,834 |
Energy 4.8% | 50,582,888 | |
Energy Equipment & Services 0.6% | ||
Cameron International Corp. (I) | 108,370 | 6,325,557 |
Oil, Gas & Consumable Fuels 4.2% | ||
Anadarko Petroleum Corp. | 165,520 | 15,391,705 |
EOG Resources, Inc. | 170,520 | 28,865,626 |
See notes to financial statements | Semiannual report | Rainier Growth Fund | 11 |
Shares | Value | |
Financials 7.3% | $76,262,045 | |
Capital Markets 3.5% | ||
Affiliated Managers Group, Inc. (I) | 94,690 | 17,294,182 |
The Goldman Sachs Group, Inc. | 121,780 | 19,266,814 |
Consumer Finance 2.0% | ||
Discover Financial Services | 405,790 | 20,508,627 |
Diversified Financial Services 1.8% | ||
IntercontinentalExchange, Inc. (I)(L) | 105,790 | 19,192,422 |
Health Care 14.4% | 151,215,732 | |
Biotechnology 10.2% | ||
Biogen Idec, Inc. (I) | 76,400 | 18,394,064 |
BioMarin Pharmaceutical, Inc. (I) | 220,540 | 15,927,399 |
Celgene Corp. (I) | 139,110 | 21,413,202 |
Gilead Sciences, Inc. (I) | 540,510 | 33,965,648 |
Regeneron Pharmaceuticals, Inc. (I) | 56,260 | 17,602,066 |
Health Care Providers & Services 1.0% | ||
Catamaran Corp. (I) | 234,580 | 10,778,951 |
Pharmaceuticals 3.2% | ||
Actavis, Inc. (I) | 113,140 | 16,292,160 |
Allergan, Inc. | 186,205 | 16,842,242 |
Industrials 10.8% | 113,633,346 | |
Aerospace & Defense 5.3% | ||
B/E Aerospace, Inc. (I) | 239,500 | 17,679,890 |
Honeywell International, Inc. | 176,430 | 14,650,747 |
Precision Castparts Corp. | 100,280 | 22,787,627 |
Building Products 1.5% | ||
Fortune Brands Home & Security, Inc. | 382,770 | 15,934,715 |
Electrical Equipment 1.5% | ||
Eaton Corp. PLC | 228,070 | 15,700,339 |
Professional Services 1.0% | ||
Verisk Analytics, Inc., Class A (I) | 167,380 | 10,873,005 |
Road & Rail 1.5% | ||
Kansas City Southern | 146,370 | 16,007,023 |
Information Technology 31.5% | 330,779,482 | |
Communications Equipment 1.4% | ||
BancTec, Inc. (I)(S) | 197,026 | 197,026 |
F5 Networks, Inc. (I) | 167,290 | 14,346,790 |
Internet Software & Services 15.7% | ||
eBay, Inc. (I) | 351,850 | 19,629,712 |
Equinix, Inc. (I) | 76,830 | 14,109,830 |
Facebook, Inc., Class A (I) | 564,080 | 28,339,379 |
Google, Inc., Class A (I) | 47,990 | 42,034,921 |
LinkedIn Corp., Class A (I) | 94,630 | 23,284,658 |
Yahoo!, Inc. (I) | 754,660 | 25,024,526 |
Yandex NV, Class A (I) | 345,310 | 12,576,190 |
12 | Rainier Growth Fund | Semiannual report | See notes to financial statements |
Shares | Value | ||
IT Services 6.9% | |||
Mastercard, Inc., Class A | 34,450 | $23,177,271 | |
Teradata Corp. (I) | 292,960 | 16,241,702 | |
Visa, Inc., Class A | 175,575 | 33,552,383 | |
Software 7.5% | |||
Citrix Systems, Inc. (I) | 260,350 | 18,383,314 | |
Red Hat, Inc. (I) | 111,850 | 5,160,759 | |
Salesforce.com, Inc. (I)(L) | 544,400 | 28,259,804 | |
ServiceNow, Inc. (I)(L) | 217,730 | 11,311,074 | |
VMware, Inc., Class A (I) | 187,270 | 15,150,143 | |
Materials 3.9% | 40,488,154 | ||
Chemicals 3.9% | |||
Ecolab, Inc. | 154,570 | 15,265,333 | |
The Sherwin-Williams Company | 138,450 | 25,222,821 | |
Yield (%) | Shares | Value | |
Securities Lending Collateral 4.2% | $44,668,150 | ||
(Cost $44,661,807) | |||
John Hancock Collateral Investment Trust (W) | 0.1739 (Y) | 4,463,155 | 44,668,150 |
Short-Term Investments 0.9% | $9,525,311 | ||
(Cost $9,525,311) | |||
Money Market Funds 0.9% | 9,525,311 | ||
State Street Institutional US Government | |||
Money Market Fund | 0.0000 (Y) | $9,525,311 | 9,525,311 |
Total investments (Cost $905,674,884)† 106.2% | $1,115,049,034 | ||
Other assets and liabilities, net (6.2%) | ($65,572,781) | ||
Total net assets 100.0% | $1,049,476,253 | ||
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) A portion of this security is on loan as of 9-30-13.
(S) This security is exempt from registration under Rule 144A of the Securities Act of 1933. Such a security may be resold, normally to qualified institutional buyers, in transactions exempt from registration.
(W) Investment is an affiliate of the fund, the advisor and/or subadvisor. This investment represents collateral received for securities lending.
(Y) The rate shown is the annualized seven-day yield as of 9-30-13.
† At 9-30-13, the aggregate cost of investment securities for federal income tax purposes was $910,716,588. Net unrealized appreciation aggregated $204,332,446, of which $216,876,932 related to appreciated investment securities and $12,544,486 related to depreciated investment securities.
See notes to financial statements | Semiannual report | Rainier Growth Fund | 13 |
FINANCIAL STATEMENTS
Financial statements
Statement of assets and liabilities 9-30-13 (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 $861,013,077) including | |
$43,754,100 of securities loaned | $1,070,380,884 |
Investments in affiliated issuers, at value (Cost $44,661,807) | 44,668,150 |
Total investments, at value (Cost $905,674,884) | 1,115,049,034 |
Receivable for fund shares sold | 690,318 |
Dividends and interest receivable | 231,535 |
Receivable for securities lending income | 7,415 |
Receivable due from advisor | 490 |
Other receivables and prepaid expenses | 219,821 |
Total assets | 1,116,198,613 |
Liabilities | |
Payable for fund shares repurchased | 21,708,019 |
Payable upon return of securities loaned | 44,675,967 |
Payable to affiliates | |
Accounting and legal services fees | 57,706 |
Transfer agent fees | 70,558 |
Distribution and service fees | 105 |
Trustees’ fees | 109,046 |
Other liabilities and accrued expenses | 100,959 |
Total liabilities | 66,722,360 |
Net assets | $1,049,476,253 |
Net assets consist of | |
Paid-in capital | $769,316,194 |
Accumulated net investment loss | (922,653) |
Accumulated net realized gain (loss) on investments | 71,708,562 |
Net unrealized appreciation (depreciation) on investments | 209,374,150 |
Net assets | $1,049,476,253 |
14 | Rainier Growth Fund | Semiannual report | See notes to financial statements |
FINANCIAL STATEMENTS
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 ($367,781,718 ÷ 13,544,300 shares)1 | $27.15 |
Class B ($19,716,027 ÷ 755,625 shares)1 | $26.09 |
Class C ($18,136,702 ÷ 695,554 shares)1 | $26.08 |
Class I ($112,094,887 ÷ 4,041,336 shares) | $27.74 |
Class R1 ($540,125 ÷ 20,289 shares) | $26.62 |
Class R2 ($122,836 ÷ 4,454 shares) | $27.58 |
Class R3 ($121,574 ÷ 4,540 shares) | $26.78 |
Class R4 ($158,787 ÷ 5,826 shares) | $27.25 |
Class R5 ($123,172 ÷ 4,460 shares) | $27.62 |
Class R6 ($4,374,114 ÷ 157,391 shares) | $27.79 |
Class T ($76,951,102 ÷ 2,856,352 shares) | $26.94 |
Class ADV ($19,344,731 ÷ 704,939 shares) | $27.44 |
Class NAV ($430,010,478 ÷ 15,454,700 shares) | $27.82 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95%)2 | $28.58 |
Class T (net asset value per share ÷ 95%)2 | $26.36 |
1 Redemption price per share is equal to the net asset value less any applicable contingent deferred sales charge.
2 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements | Semiannual report | Rainier Growth Fund | 15 |
Statement of operations For the six-month period ended 9-30-13
(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 | $3,933,914 |
Securities lending | 139,043 |
Interest | 145 |
Less foreign taxes withheld | (99,091) |
Total investment income | 3,974,011 |
Expenses | |
Investment management fees | 3,895,712 |
Distribution and service fees | 774,190 |
Accounting and legal services fees | 109,968 |
Transfer agent fees | 434,497 |
Trustees’ fees | 25,146 |
State registration fees | 90,912 |
Printing and postage | 42,624 |
Professional fees | 28,471 |
Custodian fees | 62,181 |
Registration and filing fees | 32,550 |
Other | 10,403 |
Total expenses | 5,506,654 |
Less expense reductions | (69,590) |
Net expenses | 5,437,064 |
Net investment loss | (1,463,053) |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments in unaffiliated issuers | 105,770,868 |
Investments in affiliated issuers | (8,933) |
105,761,935 | |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 14,111,395 |
Investments in affiliated issuers | (6,173) |
14,105,222 | |
Net realized and unrealized gain | 119,867,157 |
Increase in net assets from operations | $118,404,104 |
16 | Rainier Growth Fund | Semiannual report | See notes to financial statements |
FINANCIAL STATEMENTS
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.
Six months | ||
ended | Year | |
9-30-13 | ended | |
(Unaudited) | 3-31-13 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income (loss) | ($1,463,053) | $1,704,098 |
Net realized gain | 105,761,935 | 157,789,629 |
Change in net unrealized appreciation (depreciation) | 14,105,222 | (99,638,952) |
Increase in net assets resulting from operations | 118,404,104 | 59,854,775 |
Distributions to shareholders | ||
From net investment income | ||
Class I | — | (133,627) |
Class R5 | — | (50) |
Class R6 | — | (4,078) |
Class NAV | — | (612,300) |
Total distributions | — | (750,055) |
From fund share transactions | (136,388,374) | (250,750,666) |
Total decrease | (17,984,270) | (191,645,946) |
Net assets | ||
Beginning of period | 1,067,460,523 | 1,259,106,469 |
End of period | $1,049,476,253 | $1,067,460,523 |
Undistributed (accumulated net investment loss) net | ||
investment income | ($922,653) | $540,400 |
See notes to financial statements | Semiannual report | Rainier Growth Fund | 17 |
Financial highlights
The Financial highlights show how the fund’s net asset value for a share has changed during the period.
CLASS A SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $24.32 | $22.84 | $21.32 | $18.31 | $12.84 | $20.91 |
Net investment loss3 | (0.06) | (0.01) | (0.09) | (0.06) | (0.03) | (0.01) |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.89 | 1.49 | 1.61 | 3.07 | 5.50 | (8.06) |
Total from investment operations | 2.83 | 1.48 | 1.52 | 3.01 | 5.47 | (8.07) |
Net asset value, end of period | $27.15 | $24.32 | $22.84 | $21.32 | $18.31 | $12.84 |
Total return (%)4,5 | 11.646 | 6.48 | 7.13 | 16.44 | 42.60 | (38.59) |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $368 | $356 | $369 | $413 | $384 | $193 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.217 | 1.25 | 1.27 | 1.30 | 1.45 | 1.47 |
Expenses net of fee waivers | 1.207 | 1.25 | 1.27 | 1.30 | 1.38 | 1.18 |
Expenses net of fee waivers and credits | 1.207 | 1.25 | 1.27 | 1.30 | 1.34 | 1.18 |
Net investment loss | (0.46)7 | (0.04) | (0.45) | (0.33) | (0.18) | (0.04) |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 101 |
1 Six months ended 9-30-13. Unaudited.
2 After the close of business on 4-25-08, holders of original shares of the former Rainier Large Cap Growth Equity Portfolio (the predecessor fund) became owners of an equal number of full and fractional Class A shares of the John Hancock Rainier Growth Fund. These shares were first offered on 4-28-08. Additionally, the accounting and performance history of the original shares of the predecessor fund was redesignated as that of John Hancock Rainier Growth Fund Class A.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Annualized.
18 | Rainier Growth Fund | Semiannual report | See notes to financial statements |
CLASS B SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $23.46 | $22.22 | $20.90 | $18.10 | $12.79 | $22.46 |
Net investment loss3 | (0.15) | (0.19) | (0.25) | (0.21) | (0.15) | (0.09) |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.78 | 1.43 | 1.57 | 3.01 | 5.46 | (9.58) |
Total from investment operations | 2.63 | 1.24 | 1.32 | 2.80 | 5.31 | (9.67) |
Net asset value, end of period | $26.09 | $23.46 | $22.22 | $20.90 | $18.10 | $12.79 |
Total return (%)4,5 | 11.216 | 5.58 | 6.32 | 15.47 | 41.52 | (43.05)6 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $20 | $20 | $25 | $31 | $37 | $27 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 2.017 | 2.06 | 2.07 | 2.13 | 2.45 | 2.827 |
Expenses net of fee waivers | 2.017 | 2.06 | 2.07 | 2.10 | 2.11 | 2.057 |
Expenses net of fee waivers and credits | 2.017 | 2.06 | 2.07 | 2.10 | 2.09 | 2.047 |
Net investment loss | (1.26)7 | (0.86) | (1.24) | (1.13) | (0.94) | (0.75)7 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1018 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class B shares is 4-28-08.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
CLASS C SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $23.45 | $22.21 | $20.90 | $18.10 | $12.79 | $22.46 |
Net investment loss3 | (0.16) | (0.19) | (0.26) | (0.21) | (0.15) | (0.09) |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.79 | 1.43 | 1.57 | 3.01 | 5.46 | (9.58) |
Total from investment operations | 2.63 | 1.24 | 1.31 | 2.80 | 5.31 | (9.67) |
Net asset value, end of period | $26.08 | $23.45 | $22.21 | $20.90 | $18.10 | $12.79 |
Total return (%)4,5 | 11.226 | 5.58 | 6.27 | 15.47 | 41.52 | (43.05)6 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $18 | $17 | $20 | $22 | $24 | $15 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 2.067 | 2.07 | 2.11 | 2.16 | 2.34 | 2.827 |
Expenses net of fee waivers | 2.057 | 2.07 | 2.10 | 2.10 | 2.21 | 2.057 |
Expenses net of fee waivers and credits | 2.057 | 2.07 | 2.10 | 2.10 | 2.09 | 2.047 |
Net investment loss | (1.31)7 | (0.88) | (1.27) | (1.13) | (0.93) | (0.77)7 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1018 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class C shares is 4-28-08.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
See notes to financial statements | Semiannual report | Rainier Growth Fund | 19 |
CLASS I SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $24.80 | $23.24 | $21.61 | $18.50 | $12.92 | $20.98 |
Net investment income (loss)3 | (0.02) | 0.06 | (0.02) | 0.02 | 0.04 | 0.04 |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.96 | 1.52 | 1.65 | 3.11 | 5.54 | (8.09) |
Total from investment operations | 2.94 | 1.58 | 1.63 | 3.13 | 5.58 | (8.05) |
Less distributions | ||||||
From net investment income | — | (0.02) | — | (0.02) | —4 | (0.01) |
Net asset value, end of period | $27.74 | $24.80 | $23.24 | $21.61 | $18.50 | $12.92 |
Total return (%)5 | 11.856 | 6.81 | 7.54 | 16.93 | 43.20 | (38.36) |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $112 | $113 | $256 | $237 | $208 | $133 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 0.907 | 0.91 | 0.91 | 0.86 | 0.90 | 0.86 |
Expenses net of fee waivers and credits | 0.907 | 0.91 | 0.91 | 0.86 | 0.90 | 0.86 |
Net investment income (loss) | (0.16)7 | 0.25 | (0.08) | 0.10 | 0.26 | 0.22 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 101 |
1 Six months ended 9-30-13. Unaudited.
2 After the close of business on 4-25-08, holders of institutional shares of the former Rainier Large Cap Growth Equity Portfolio (the predecessor fund) became owners of an equal number of full and fractional Class I shares of the John Hancock Rainier Growth Fund. These shares were first offered on 4-28-08. Additionally, the accounting and performance history of the institutional shares of the predecessor fund was redesignated as that of John Hancock Rainier Growth Fund Class I.
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 applicable periods shown.
6 Not annualized.
7 Annualized.
CLASS R1 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $23.90 | $22.55 | $21.14 | $18.23 | $12.84 | $22.46 |
Net investment loss3 | (0.12) | (0.11) | (0.17) | (0.14) | (0.11) | (0.08) |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.84 | 1.46 | 1.58 | 3.05 | 5.50 | (9.54) |
Total from investment operations | 2.72 | 1.35 | 1.41 | 2.91 | 5.39 | (9.62) |
Net asset value, end of period | $26.62 | $23.90 | $22.55 | $21.14 | $18.23 | $12.84 |
Total return (%)4 | 11.385 | 5.99 | 6.67 | 15.96 | 41.98 | (42.83)5 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $1 | —6 | —6 | —6 | —6 | —6 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 4.337 | 5.79 | 7.03 | 8.39 | 13.91 | 8.707 |
Expenses net of fee waivers and credits | 1.707 | 1.70 | 1.70 | 1.72 | 1.78 | 1.647 |
Net investment loss | (0.99)7 | (0.49) | (0.86) | (0.75) | (0.65) | (0.50)7 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1018 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R1 shares is 4-28-08.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
20 | Rainier Growth Fund | Semiannual report | See notes to financial statements |
CLASS R2 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | |||
Per share operating performance | ||||||
Net asset value, beginning of period | $24.72 | $23.27 | $22.45 | |||
Net investment loss3 | (0.09) | (0.06) | —4 | |||
Net realized and unrealized gain on investments | 2.95 | 1.51 | 0.82 | |||
Total from investment operations | 2.86 | 1.45 | 0.82 | |||
Net asset value, end of period | $27.58 | $24.72 | $23.27 | |||
Total return (%)5 | 11.576 | 6.23 | 3.656 | |||
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | —7 | —7 | —7 | |||
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 13.158 | 20.41 | 15.968 | |||
Expenses net of fee waivers and credits | 1.458 | 1.45 | 1.458 | |||
Net investment loss | (0.71)8 | (0.24) | (0.12)8 | |||
Portfolio turnover (%) | 50 | 92 | 909 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R2 shares is 3-1-12.
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 applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
CLASS R3 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $24.03 | $22.65 | $21.21 | $18.27 | $12.85 | $22.46 |
Net investment loss3 | (0.11) | (0.09) | (0.16) | (0.12) | (0.07) | (0.06) |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.86 | 1.47 | 1.60 | 3.06 | 5.49 | (9.55) |
Total from investment operations | 2.75 | 1.38 | 1.44 | 2.94 | 5.42 | (9.61) |
Net asset value, end of period | $26.78 | $24.03 | $22.65 | $21.21 | $18.27 | $12.85 |
Total return (%)4 | 11.445 | 6.09 | 6.79 | 16.09 | 42.18 | (42.79)5 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | —6 | —6 | —6 | —6 | —6 | —6 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 13.267 | 15.02 | 15.86 | 16.72 | 13.68 | 8.577 |
Expenses net of fee waivers and credits | 1.607 | 1.60 | 1.59 | 1.61 | 1.62 | 1.547 |
Net investment loss | (0.87)7 | (0.39) | (0.76) | (0.64) | (0.46) | (0.40)7 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1018 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R3 shares is 4-28-08.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
See notes to financial statements | Semiannual report | Rainier Growth Fund | 21 |
CLASS R4 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $24.40 | $22.91 | $21.40 | $18.38 | $12.88 | $22.46 |
Net investment income (loss)3 | (0.06) | —4 | (0.10) | (0.06) | (0.03) | (0.02) |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.91 | 1.49 | 1.61 | 3.08 | 5.53 | (9.56) |
Total from investment operations | 2.85 | 1.49 | 1.51 | 3.02 | 5.50 | (9.58) |
Net asset value, end of period | $27.25 | $24.40 | $22.91 | $21.40 | $18.38 | $12.88 |
Total return (%)5 | 11.686 | 6.50 | 7.06 | 16.43 | 42.70 | (42.65)6 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | —7 | —7 | —7 | —7 | —7 | —7 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 12.478 | 14.55 | 15.46 | 16.45 | 13.33 | 8.268 |
Expenses net of fee waivers and credits | 1.208 | 1.22 | 1.29 | 1.31 | 1.32 | 1.248 |
Net investment income (loss) | (0.47)8 | 0.01 | (0.46) | (0.34) | (0.16) | (0.10)8 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1019 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R4 shares is 4-28-08.
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 applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
CLASS R5 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $24.71 | $23.16 | $21.56 | $18.47 | $12.91 | $22.46 |
Net investment income (loss)3 | (0.03) | 0.05 | (0.03) | (0.02) | 0.02 | 0.03 |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.94 | 1.51 | 1.63 | 3.12 | 5.54 | (9.57) |
Total from investment operations | 2.91 | 1.56 | 1.60 | 3.10 | 5.56 | (9.54) |
Less distributions | ||||||
From net investment income | — | (0.01) | — | (0.01) | —4 | (0.01) |
Net asset value, end of period | $27.62 | $24.71 | $23.16 | $21.56 | $18.47 | $12.91 |
Total return (%)5 | 11.786 | 6.74 | 7.42 | 16.78 | 43.07 | (42.48)6 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | —7 | —7 | —7 | —7 | —7 | —7 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 12.488 | 14.16 | 15.07 | 16.17 | 12.97 | 7.958 |
Expenses net of fee waivers and credits | 1.008 | 1.00 | 0.99 | 1.01 | 1.02 | 0.948 |
Net investment income (loss) | (0.27)8 | 0.21 | (0.16) | (0.03) | 0.14 | 0.208 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1019 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R5 shares is 4-28-08.
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 applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
22 | Rainier Growth Fund | Semiannual report | See notes to financial statements |
CLASS R6 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | |||
Per share operating performance | ||||||
Net asset value, beginning of period | $24.84 | $23.27 | $20.01 | |||
Net investment income (loss)3 | (0.02) | 0.08 | 0.03 | |||
Net realized and unrealized gain on investments | 2.97 | 1.51 | 3.23 | |||
Total from investment operations | 2.95 | 1.59 | 3.26 | |||
Less distributions | ||||||
From net investment income | — | (0.02) | — | |||
Net asset value, end of period | $27.79 | $24.84 | $23.27 | |||
Total return (%)4 | 11.885 | 6.86 | 16.295 | |||
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $4 | $4 | $4 | |||
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.136 | 1.33 | 1.586 | |||
Expenses net of fee waivers and credits | 0.866 | 0.86 | 0.866 | |||
Net investment income (loss) | (0.12)6 | 0.34 | 0.206 | |||
Portfolio turnover (%) | 50 | 92 | 907 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R6 shares is 9-1-11.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Annualized.
7 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
CLASS T SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $24.13 | $22.69 | $21.20 | $18.24 | $12.86 | $16.59 |
Net investment loss3 | (0.07) | (0.03) | (0.11) | (0.09) | (0.11) | (0.05) |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.88 | 1.47 | 1.60 | 3.05 | 5.49 | (3.68) |
Total from investment operations | 2.81 | 1.44 | 1.49 | 2.96 | 5.38 | (3.73) |
Net asset value, end of period | $26.94 | $24.13 | $22.69 | $21.20 | $18.24 | $12.86 |
Total return (%)4,5 | 11.656 | 6.35 | 7.03 | 16.23 | 41.84 | (22.48)6 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $77 | $73 | $77 | $83 | $83 | $72 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.287 | 1.33 | 1.37 | 1.47 | 1.84 | 2.077 |
Expenses net of fee waivers | 1.277 | 1.33 | 1.37 | 1.47 | 1.84 | 1.997 |
Expenses net of fee waivers and credits | 1.277 | 1.33 | 1.37 | 1.47 | 1.84 | 1.987 |
Net investment loss | (0.53)7 | (0.13) | (0.54) | (0.50) | (0.69) | (0.74)7 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1018 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class T shares is 10-6-08.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
See notes to financial statements | Semiannual report | Rainier Growth Fund | 23 |
CLASS ADV SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $24.57 | $23.05 | $21.49 | $18.43 | $12.90 | $22.46 |
Net investment income (loss)3 | (0.05) | 0.02 | (0.06) | (0.03) | —4 | (0.01) |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.92 | 1.50 | 1.62 | 3.09 | 5.53 | (9.55) |
Total from investment operations | 2.87 | 1.52 | 1.56 | 3.06 | 5.53 | (9.56) |
Net asset value, end of period | $27.44 | $24.57 | $23.05 | $21.49 | $18.43 | $12.90 |
Total return (%)5 | 11.686 | 6.59 | 7.26 | 16.60 | 42.87 | (42.56)6 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $19 | $20 | $20 | $22 | $18 | $17 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 1.267 | 1.33 | 1.35 | 1.37 | 1.25 | 1.147 |
Expenses net of fee waivers and credits | 1.147 | 1.14 | 1.14 | 1.14 | 1.14 | 1.147 |
Net investment income (loss) | (0.39)7 | 0.08 | (0.31) | (0.17) | 0.01 | (0.04)7 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1018 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class ADV shares is 4-28-08.
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 applicable periods shown.
6 Not annualized.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
CLASS NAV SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 |
Per share operating performance | ||||||
Net asset value, beginning of period | $24.86 | $23.28 | $21.63 | $18.51 | $12.91 | $22.46 |
Net investment income (loss)3 | —4 | 0.09 | 0.01 | 0.03 | 0.05 | 0.04 |
Net realized and unrealized gain (loss) | ||||||
on investments | 2.96 | 1.52 | 1.64 | 3.11 | 5.55 | (9.57) |
Total from investment operations | 2.96 | 1.61 | 1.65 | 3.14 | 5.60 | (9.53) |
Less distributions | ||||||
From net investment income | — | (0.03) | — | (0.02) | —4 | (0.02) |
Net asset value, end of period | $27.82 | $24.86 | $23.28 | $21.63 | $18.51 | $12.91 |
Total return (%)5 | 11.916 | 6.94 | 7.63 | 17.00 | 43.38 | (42.44)6 |
Ratios and supplemental data | ||||||
Net assets, end of period (in millions) | $430 | $463 | $487 | $813 | $708 | $400 |
Ratios (as a percentage of average net assets): | ||||||
Expenses before reductions | 0.787 | 0.79 | 0.80 | 0.80 | 0.82 | 0.837 |
Expenses net of fee waivers and credits | 0.787 | 0.79 | 0.80 | 0.80 | 0.82 | 0.837 |
Net investment income (loss) | (0.03)7 | 0.39 | 0.05 | 0.16 | 0.33 | 0.267 |
Portfolio turnover (%) | 50 | 92 | 90 | 90 | 102 | 1018 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class NAV shares is 4-28-08.
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 applicable periods shown.
6 Not annualized.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-08 to 3-31-09.
24 | Rainier Growth Fund | Semiannual report | See notes to financial statements |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Rainier Growth Fund (the fund) is a 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 to maximize 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 and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class R1, Class R2, Class R3, Class R4 and Class R5 shares are available only to certain retirement plans. Class R6 shares are available only to certain retirement plans, institutions and other investors. Class B, Class T and Class ADV shares are closed to new investors. Class NAV shares are offered to John Hancock affiliated funds of funds and certain 529 plans. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, transfer agent fees, printing and postage and state registration fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.
Note 2 — Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. 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. 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, the securities are valued using the last quoted bid or evaluated price. Investments by the fund in open-end mutual funds, including John Hancock Collateral Investment Trust (JHCIT), are valued at their respective net asset values each business day. 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. Other portfolio securities and assets, for which reliable 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. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
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 securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other 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 inputs are received from
Semiannual report | Rainier Growth Fund | 25 |
independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using 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. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
The following is a summary of the values by input classification of the fund’s investments as of September 30, 2013, by major security category or type:
LEVEL 3 | |||||
LEVEL 2 | SIGNIFICANT | ||||
TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE | ||
VALUE AT 9-30-13 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS | ||
Common Stocks | |||||
Consumer Discretionary | $245,572,736 | $245,572,736 | — | — | |
Consumer Staples | 52,321,190 | 52,321,190 | — | — | |
Energy | 50,582,888 | 50,582,888 | — | — | |
Financials | 76,262,045 | 76,262,045 | — | — | |
Health Care | 151,215,732 | 151,215,732 | — | — | |
Industrials | 113,633,346 | 113,633,346 | — | — | |
Information Technology | 330,779,482 | 330,582,456 | $197,026 | — | |
Materials | 40,488,154 | 40,488,154 | — | — | |
Securities Lending Collateral | 44,668,150 | 44,668,150 | — | — | |
Short-Term Investments | 9,525,311 | 9,525,311 | — | — | |
Total Investments in | |||||
Securities | $1,115,049,034 | $1,114,852,008 | $197,026 | — |
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-date, except for dividends of foreign securities where the dividend may not be known until after the ex-date. In those cases, dividend income, net of withholding taxes, is recorded when the fund becomes aware of the dividends. Foreign taxes are provided for based on the fund’s understanding of the tax rules and rates that exist in the foreign markets in which it invests. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Securities lending. The fund may lend its securities to earn additional income. The fund receives cash collateral from the borrower in an amount not less than the market value of the loaned securities. The fund will invest its collateral in JHCIT, an affiliate of the fund, which has a floating net asset value (NAV) and is registered with the Securities and Exchange Commission as an investment company. JHCIT invests cash received as collateral as part of the securities lending program in short-term money market investments. The fund will receive the benefit of any gains and bear any losses generated by JHCIT with respect to the cash collateral.
If a borrower fails to return loaned securities when due, then the lending agent is responsible to and indemnifies the fund for the lent securities. The lending agent uses the collateral received from the borrower to purchase replacement securities of the same issue, type, class and series of the loaned securities. If the value of the collateral is less than the purchase cost of replacement securities, the lending agent is responsible for satisfying the shortfall but only to the extent that the shortfall is not due to any decrease in the value of JHCIT.
26 | Rainier Growth Fund | Semiannual report |
Although the risk of the loss of the securities lent is mitigated by receiving collateral from the borrower and through lending agent indemnification, the fund could experience a delay in recovering its securities or could experience a lower than expected return if the borrower fails to return the securities on a timely basis. 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. Net income received from JHCIT is a component of securities lending income as recorded on the Statement of operations.
Collateral received by the fund is shown on the Statements of assets and liabilities as Payable upon return of securities loaned.
Foreign taxes. The fund may be subject to withholding tax on income and/or capital gains or repatriation taxes imposed by certain countries in which the fund invests. Taxes are accrued based upon investment income, realized gains or unrealized appreciation.
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 fund’s custodian agreement, the custodian may loan money to the 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 may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
In addition, the fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. 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 and is reflected in other expenses on the Statement of operations. Commitment fees for the six months ended September 30, 2013 were $470. For the six months ended September 30, 2013 the fund had no borrowings under the line of credit.
Expenses. Within the John Hancock funds complex, expenses that are directly attributable to an individual fund are allocated to such 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 net 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 assets of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage expenses, for all classes, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
Federal income taxes. The fund intends to continue 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.
Under the Regulated Investment Company Modernization Act of 2010, the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Any losses incurred during those taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule,
Semiannual report | Rainier Growth Fund | 27 |
pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
For federal income tax purposes, the fund has a capital loss carryforward of $34,031,547 available to offset future net realized capital gains as of March 31, 2013. The following details the capital loss carryforward available as of March 31, 2013:
CAPITAL LOSS CARRYFORWARD EXPIRING AT MARCH 31 | ||||
2016 | 2017 | 2018 | ||
$10,450,734 | $8,874,309 | $14,706,504 |
Availability of a certain amount of the loss carryforward, which was acquired in a merger, may be limited in a given year.
As of March 31, 2013, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund’s federal tax returns are 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 in the same amount, except for the effect of class level 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.
Capital accounts within the 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. Book-tax differences are primarily attributable to wash sale loss deferrals and litigation proceeds.
Note 3 — Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including 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 Advisor) serves as investment advisor for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Trust. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The fund has an investment management contract with the Advisor under which the fund pays a daily management fee to the Advisor equivalent, on an annual basis, to the sum of: (a) 0.730% of the first $3,000,000,000 of the fund’s average daily net assets; (b) 0.725% of the next $3,000,000,000 of the fund’s average daily net assets; and (c) 0.700% of the fund’s average daily net assets in excess of $6,000,000,000. The Advisor has a subadvisory agreement with Rainier Investment Management, Inc. The fund is not responsible for payment of the subadvisory fees.
28 | Rainier Growth Fund | Semiannual report |
The Advisor has contractually agreed to reduce its management fee or, if necessary, make payment to the fund to the extent necessary to maintain the fund’s total operating expenses at 1.70%, 1.45%, 1.60% 1.20%, 1.00%, 0.86% and 1.14% for Class R1, Class R2, Class R3, Class R4, Class R5, Class R6 and Class ADV shares, respectively. This agreement excludes certain expenses such as taxes, brokerage commissions, interest expense, litigation and indemnification expenses, and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense. For all the classes indicated, this expense limitation shall remain in effect through June 30, 2014, unless renewed by mutual agreement of the fund and the Advisor based upon a determination that is appropriate under the circumstances at that time.
Prior to July 1, 2013, the Advisor contractually agreed to reduce its management fee or, if necessary, make payment to the fund to the extent necessary to maintain the fund’s total operating expenses at 1.35%, 2.10%, 2.10% and 1.40% for Class A, Class B, Class C, and Class T shares, respectively. This agreement excluded certain expenses such as taxes, brokerage commissions, interest expense, litigation and indemnification expenses, and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense.
Effective June 1, 2013, the Advisor has contractually agreed to waive a portion of its management fee for certain portfolios (the participating portfolios) of the Trust, John Hancock Funds, John Hancock Funds II, and John Hancock Variable Insurance Trust. The waiver equals, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the participating portfolios that exceeds $75 billion but is less than or equal to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds $125 billion but is less than or equal to $150 billion; and 0.015% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.
Accordingly, for the six months ended September 30, 2013 these expense reductions amounted to the following:
EXPENSE | |||||
CLASS | REDUCTION | ||||
Class A | 6,548 | ||||
Class B | 356 | ||||
Class C | 320 | ||||
Class I | 2,074 | ||||
Class R1 | 6,167 | ||||
Class R2 | 6,730 | ||||
Class R3 | 6,554 | ||||
Class R4 | 6,589 | ||||
Class R5 | 6,620 | ||||
Class R6 | 5,753 | ||||
Class T | 1,355 | ||||
Class ADV | 12,270 | ||||
Class NAV | 8,194 | ||||
Total | 69,530 |
The investment management fees, including the impact of the waivers and expense reimbursements described above, incurred for the six months ended September 30, 2013 were equivalent to a net annual effective rate of 0.72% of the fund’s average daily net assets.
Semiannual report | Rainier Growth Fund | 29 |
Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to 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. These accounting and legal services fees incurred for the six months ended September 30, 2013, 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, Class C, Class R1, Class R2, Class R3, Class R4, Class T and Class ADV 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 R2, Class R3, Class R4 and Class R5, the fund pays for certain other services. The fund pays 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. Currently, only 0.25% is charged to Class A shares for Rule 12b-1 fees.
CLASS | RULE 12b–1 FEE | SERVICE FEE | ||||
Class A | 0.30% | — | ||||
Class B | 1.00% | — | ||||
Class C | 1.00% | — | ||||
Class R1 | 0.50% | 0.25% | ||||
Class R2 | 0.25% | 0.25% | ||||
Class R3 | 0.50% | 0.15% | ||||
Class R4 | 0.25% | 0.10% | ||||
Class R5 | — | 0.05% | ||||
Class T | 0.30% | — | ||||
Class ADV | 0.25% | — |
The fund’s distributor has contractually agreed to waive 0.10% of Rule 12b-1 fees of Class R4 shares. This waiver agreement will remain in effect through June 30, 2014, unless renewed by mutual agreement of the fund and the distributor based upon a determination that this is appropriate under the circumstances at the time. Reimbursements related to this contractual waiver amounted to $60 for the six months ended September 30, 2013.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $244,268 for the six months ended September 30, 2013. Of this amount, $41,284 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $192,614 was paid as sales commissions to broker-dealers and $10,370 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Class A, Class B, Class C and Class T shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. Class B shares that are redeemed within six years of purchase are subject to CDSCs, at declining rates, beginning at 5.00%. Class C shares that are redeemed within one year of purchase are subject to a 1.00% CDSC. CDSCs are applied to 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 September 30, 2013, CDSCs received by the Distributor amounted to $16,923, $418 and $122 for Class B, Class C and Class T shares, respectively.
30 | Rainier Growth Fund | Semiannual report |
Transfer agent fees. The fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. 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 fees that Signature Services receives in connection with retirement and small accounts. 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 September 30, 2013 were:
DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
SHARE CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
Class A | $449,527 | $274,707 | $12,770 | $27,615 |
Class B | 98,876 | 15,110 | 7,114 | 667 |
Class C | 87,744 | 13,405 | 7,059 | 3,822 |
Class I | — | 58,888 | 8,563 | 1,303 |
Class R1 | 1,479 | 54 | 6,693 | 98 |
Class R2 | 144 | 13 | 6,922 | 38 |
Class R3 | 281 | 13 | 6,693 | 28�� |
Class R4 | 148 | 14 | 6,693 | 41 |
Class R5 | — | 13 | 6,693 | 41 |
Class R6 | — | 487 | 6,887 | 54 |
Class T | 111,099 | 56,569 | 7,227 | 8,543 |
Class ADV | 24,892 | 15,224 | 7,598 | 374 |
Total | $774,190 | $434,497 | $90,912 | $42,624 |
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. The costs of pay Trustee compensation and expense are allocated to the fund based on its net assets relative to other funds within the John Hancock funds complex.
Note 5 — Fund share transactions
Transactions in fund shares for the six months ended September 30, 2013, and for the year ended March 31, 2013 were as follows:
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 1,045,305 | $26,402,993 | 2,459,590 | $55,505,262 |
Repurchased | (2,136,676) | (54,381,272) | (3,962,238) | (89,534,415) |
Net decrease | (1,091,371) | ($27,978,279) | (1,502,648) | ($34,029,153) |
Class B shares | ||||
Sold | 23,418 | $563,757 | 100,853 | $2,195,177 |
Repurchased | (131,177) | (3,189,070) | (368,746) | (8,048,812) |
Net decrease | (107,759) | ($2,625,313) | (267,893) | ($5,853,635) |
Semiannual report | Rainier Growth Fund | 31 |
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Class C shares | ||||
Sold | 21,834 | $538,049 | 34,781 | $764,812 |
Repurchased | (67,129) | (1,641,349) | (181,088) | (3,932,366) |
Net decrease | (45,295) | ($1,103,300) | (146,307) | ($3,167,554) |
Class I shares | ||||
Sold | 223,329 | $5,724,877 | 1,284,922 | $29,260,470 |
Distributions reinvested | — | — | 5,669 | 130,574 |
Repurchased | (724,357) | (19,251,783) | (7,763,269) | (179,262,056) |
Net decrease | (501,028) | ($13,526,906) | (6,472,678) | ($149,871,012) |
Class R1 shares | ||||
Sold | 4,211 | $100,701 | 4,312 | $97,671 |
Repurchased | (171) | (4,447) | (479) | (11,060) |
Net increase | 4,040 | $96,254 | 3,833 | $86,611 |
Class R3 shares | ||||
Sold | 88 | $2,240 | — | — |
Net increase | 88 | $2,240 | — | — |
Class R4 shares | ||||
Sold | 1,348 | $36,442 | 26 | $577 |
Repurchased | — | — | — | — |
Net increase | 1,348 | $36,442 | 26 | $577 |
Class R5 shares | ||||
Distributions reinvested | — | — | 2 | $50 |
Net increase | — | — | 2 | $50 |
Class R6 shares | ||||
Sold | 519 | $13,000 | 5,445 | $124,800 |
Distributions reinvested | — | — | 177 | 4,078 |
Repurchased | (9,055) | (237,000) | (19,869) | (459,000) |
Net decrease | (8,536) | ($224,000) | (14,247) | ($330,122) |
Class T shares | ||||
Sold | 21,796 | $551,724 | 46,822 | $1,041,302 |
Repurchased | (187,311) | (4,711,457) | (424,692) | (9,484,303) |
Net decrease | (165,515) | ($4,159,733) | (377,870) | ($8,443,001) |
Class ADV shares | ||||
Sold | 30,986 | $791,480 | 200,655 | $4,623,049 |
Repurchased | (155,429) | (4,028,023) | (258,405) | (5,908,494) |
Net decrease | (124,443) | ($3,236,543) | (57,750) | ($1,285,445) |
Class NAV shares | ||||
Sold | 43,420 | $1,074,228 | 4,043,108 | $92,780,115 |
Distributions reinvested | — | — | 26,529 | 612,300 |
Repurchased | (3,213,814) | (84,743,464) | (6,377,748) | (141,250,397) |
Net decrease | (3,170,394) | ($83,669,236) | (2,308,111) | ($47,857,982) |
Total net decrease | (5,208,865) | ($136,388,374) | (11,143,643) | ($250,750,666) |
There were no fund share transactions for the six months ended September 30, 2013 and the year ended March 31, 2013 for Class R2 shares.
32 | Rainier Growth Fund | Semiannual report |
Affiliates of the fund owned 44%, 100%, 98%, 76%, 100% and 100% of shares of beneficial interest of Class R1, Class R2, Class R3, Class R4, Class R5 and Class NAV, respectively, on September 30, 2013.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, amounted to $523,301,048 and $645,879,308, respectively, for the six months ended September 30, 2013.
Note 7 — Investment by affiliated funds
Certain investors in the fund are affiliated funds that are managed by the Advisor and its affiliates. The affiliated funds do not invest in the fund for the purpose of exercising management or control; however, this investment may represent a significant portion of the fund’s net assets. At September 30, 2013, funds within the John Hancock funds complex held 41.0% of the fund. The following funds had an affiliate ownership of 5% or more of the fund’s net assets:
AFFILIATE | |||
FUND | CONCENTRATION | ||
John Hancock Lifestyle Growth Portfolio | 17.3% | ||
John Hancock Lifestyle Balanced Portfolio | 13.7% | ||
John Hancock Lifestyle Aggressive Portfolio | 6.5% |
Semiannual report | Rainier Growth Fund | 33 |
Continuation of Investment Advisory and Subadvisory Agreements
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Funds III (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with Rainier Investment Management, Inc. (the Subadvisor) for John Hancock Rainier Growth Fund (the fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16–17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the fund, the Advisor, and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for the fund’s benchmark index; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts, as applicable; and other information provided by the Advisor and the Subadvisor regarding the nature, extent, and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor’s revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and does not treat any single factor as determinative and each Trustee may attribute different weights to different factors. The Board’s conclusions may be
34 | Rainier Growth Fund | Semiannual report |
based in part on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of fund performance and operations throughout the year.
Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and other third-party service providers.
In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties through Board meetings, discussions, and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationship, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objective; review of brokerage matters, including with respect to trade allocation and best execution; and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund; and
(f) the Advisor’s reputation and experience in serving as an investment adviser to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.
Investment performance. In considering the fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
Semiannual report | Rainier Growth Fund | 35 |
(a) reviewed information prepared by management regarding the fund’s performance;
(b) considered the comparative performance of the fund’s benchmark;
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the fund’s ranking within a smaller group of peer funds and the fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted that the fund outperformed its benchmark index for the one-year period and underperformed the index for the three-year period ended December 31, 2012. The Board also noted that the fund outperformed its peer group average for the one- and three-year periods ended December 31, 2012.
The Board noted that the fund’s performance is being closely monitored. The Board also noted that the fund recently changed portfolio managers. The Board further noted the fund’s favorable performance relative to the benchmark index for the one-year period and relative to the peer group for the one- and three-year periods.
The Board concluded that the fund’s performance is being monitored and reasonably addressed.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data, including, among other data, the fund’s contractual and net management fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund. The Board considered the fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund’s ranking within a broader group of funds. In comparing the fund’s contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.
The Board noted that net management fees for this fund are higher than the peer group median and that total expenses for the fund are lower than the peer group median. The Board took into account management’s discussion of the fund’s expenses. The Board also noted that the fund’s distributor, an affiliate of the Advisor, waived a portion of its Rule 12b-1 fee for a share class of the fund.
The Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the fund, which is discussed further below. The Board also noted that the Advisor has agreed to fee waivers and/or expense reimbursements with respect to the total operating expenses of certain share classes of the fund. The Board also noted that the Advisor pays the subadvisory fees of the fund, and that such fees are negotiated at arm’s length with respect to the Subadvisor. The Board also noted management’s discussion of the fund’s expenses, as well as certain actions taken over the past several years to reduce the fund’s operating expenses. The Board reviewed information provided by the Advisor concerning investment advisory fees charged to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable.
Profitability/indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates from the Advisor’s relationship with the Trust, the Board:
36 | Rainier Growth Fund | Semiannual report |
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
(e) considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;
(f) noted that affiliates of the Advisor provide transfer agency services and distribution services to the fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the fund;
(g) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;
(h) noted that the subadvisory fees for the fund are paid by the Advisor and are negotiated at arm’s length; and
(i) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates from their relationship with the fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders, the Board:
(a) considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the fund and each of the other open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement):
The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The funds that are not Participating Portfolios as of the date of this semiannual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the fund’s fee structure contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the fund to benefit from economies of scale if the fund grows. The Board also took into account management’s discussion of the fund’s advisory fee structure; and
Semiannual report | Rainier Growth Fund | 37 |
(c) the Board also considered the effect of the fund’s growth in size on its performance and fees. The Board also noted that if the fund’s assets increase over time, the fund may realize other economies of scale.
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the fund, and comparative performance information relating to the fund’s benchmark and comparable funds;
(3) the subadvisory fee for the fund, including breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data; and
(4) information relating to the nature and scope of any material relationships and their significance to the Trust’s Advisor and Subadvisor.
Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background, and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the Trust’s CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by it to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the fund, that is consistent with the fund’s investment objective, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund.
38 | Rainier Growth Fund | Semiannual report |
The Board also relied on the ability of the Advisor to negotiate the Subadvisory Agreement with the Subadvisor, which is not affiliated with the Advisor, and the fees thereunder at arm’s length. As a result, the costs of the services to be provided and the profits to be realized by the Subadvisor from its relationship with the Trust were not a material factor in the Board’s consideration of the Subadvisory Agreement.
The Board also received information regarding the nature and scope (including their significance to the Advisor and its affiliates and to the Subadvisor) of any material relationships with respect to the Subadvisor, which includes arrangements in which the Subadvisor or its affiliates provide advisory, distribution, or management services in connection with financial products sponsored by the Trust’s Advisor or its affiliates, and may include other registered investment companies, a 529 education savings plan, managed separate account, and exempt group annuity contracts sold to qualified plans. The Board also received information and took into account any other potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement.
In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock fund complex and reputational benefits.
Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fees paid by the Advisor to the Subadvisor with respect to the fund to fees charged by the fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the fund’s performance as compared to the fund’s peer group and benchmark and noted that the Board reviews information about the fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the fund is being monitored and reasonably addressed;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the fund in order to permit shareholders to benefit from economies of scale if the fund grows.
* * * |
Based on the Board’s evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
Semiannual report | Rainier Growth Fund | 39 |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Investment Management |
Steven R. Pruchansky, Vice Chairman | Services, LLC |
Charles L. Bardelis* | |
James R. Boyle† | Subadvisor |
Craig Bromley† | Rainier Investment Management, Inc. |
Peter S. Burgess* | |
William H. Cunningham | Principal distributor |
Grace K. Fey | John Hancock Funds, LLC |
Theron S. Hoffman* | |
Deborah C. Jackson | Custodian |
Hassell H. McClellan | State Street Bank and Trust Company |
Gregory A. Russo | |
Warren A. Thomson† | Transfer agent |
John Hancock Signature Services, Inc. | |
Officers | |
Hugh McHaffie | Legal counsel |
President | K&L Gates LLP |
Andrew G. Arnott | |
Executive Vice President | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†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) website at sec.gov or on our website.
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 website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 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 website at jhinvestments.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhinvestments.com | Investment Operations | Investment Operations |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. | |
P.O. Box 55913 | 30 Dan Road | |
Boston, MA 02205-5913 | Canton, MA 02021 |
40 | Rainier Growth Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/rainiergrowthx37x1.jpg)
800-225-5291
800-338-8080 EASI-Line
jhinvestments.com
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/rainiergrowthx37x2.jpg)
This report is for the information of the shareholders of John Hancock Rainier Growth Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 334SA 9/13 |
MF159999 | 11/13 |
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A look at performance
Total returns for the period ended September 30, 2013
Average annual total returns (%) | Cumulative total returns (%) | |||||||||
with maximum sales charge | with maximum sales charge | |||||||||
Since | Since | |||||||||
1-year | 5-year | 10-year | inception1 | 6-months | 1-year | 5-year | 10-year | inception1 | ||
Class A1 | 17.96 | 9.47 | 8.93 | — | 5.13 | 17.96 | 57.21 | 135.13 | — | |
Class B1 | 18.04 | 9.62 | 8.44 | — | 5.17 | 18.04 | 56.26 | 124.76 | — | |
Class C1 | 22.20 | 9.66 | 8.46 | — | 9.22 | 22.20 | 58.58 | 125.22 | — | |
Class I1,2 | 24.53 | 10.94 | 9.87 | — | 10.81 | 24.53 | 68.02 | 156.22 | — | |
Class I21,2 | 24.55 | 10.95 | 9.72 | — | 10.80 | 24.55 | 68.13 | 152.84 | — | |
Class R11,2 | 23.62 | 10.17 | 9.08 | — | 10.42 | 23.62 | 62.28 | 138.42 | — | |
Class R21,2 | 23.96 | 10.33 | 9.25 | — | 10.55 | 23.96 | 63.45 | 142.18 | — | |
Class R31,2 | 23.74 | 10.27 | 9.18 | — | 10.42 | 23.74 | 63.04 | 140.73 | — | |
Class R41,2 | 24.32 | 10.65 | 9.53 | — | 10.75 | 24.32 | 65.87 | 148.60 | — | |
Class R51,2 | 24.66 | 10.98 | 9.86 | — | 10.85 | 24.66 | 68.36 | 156.13 | — | |
Class R61,2 | 24.56 | 10.96 | 9.90 | — | 10.79 | 24.56 | 68.19 | 157.12 | — | |
Class NAV2,3 | 24.69 | — | — | 18.40 | 10.85 | 24.69 | — | — | 108.25 | |
Index 1† | 22.30 | 8.86 | 7.99 | — | 7.27 | 22.30 | 52.90 | 115.62 | — | |
Index 2† | 19.34 | 10.02 | 7.57 | — | 8.31 | 19.34 | 61.18 | 107.37 | — | |
Performance figures assume all distributions have been reinvested. Figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1 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 to Class I, Class I2, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, 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 those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least until 6-30-14 for Class B, Class I2, Class R1, Class R2, Class R3, and Class R4 shares. Had the fee waivers and expense limitations not been in place, gross expenses would apply. For all other classes, the net expenses equal the gross expenses. The expense ratios are as follows:
Class A | Class B | Class C | Class I | Class I2 | Class R1 | Class R2 | Class R3 | Class R4* | Class R5 | Class R6 | Class NAV | |
Net (%) | 1.20 | 2.05 | 1.98 | 0.87 | 0.85 | 1.57 | 1.32 | 1.47 | 1.07 | 0.83 | 0.82 | 0.74 |
Gross (%) | 1.20 | 2.08 | 1.98 | 0.87 | 0.92 | 1.86 | 3.27 | 2.39 | 1.65 | 0.83 | 0.82 | 0.74 |
* The fund’s distributor has contractually agreed to waive 0.10% of Rule 12b-1 fees for Class R4 shares. The current waiver agreement will remain in effect through 6-30-14.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month end, please call 800-225-5291 or visit the fund’s website at jhinvestments.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 fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index 1 is the Russell 1000 Value Index; Index 2 is the S&P 500 Index.
See the following page for footnotes.
6 | Disciplined Value Fund | Semiannual report |
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With maximum | Without | ||||
Start date | sales charge | sales charge | Index 1 | Index 2 | |
Class B4 | 9-30-03 | $22,476 | $22,476 | $21,562 | $20,737 |
Class C4 | 9-30-03 | 22,522 | 22,522 | 21,562 | 20,737 |
Class I2 | 9-30-03 | 25,622 | 25,622 | 21,562 | 20,737 |
Class I22 | 9-30-03 | 25,284 | 25,284 | 21,562 | 20,737 |
Class R12 | 9-30-03 | 23,842 | 23,842 | 21,562 | 20,737 |
Class R22 | 9-30-03 | 24,218 | 24,218 | 21,562 | 20,737 |
Class R32 | 9-30-03 | 24,073 | 24,073 | 21,562 | 20,737 |
Class R42 | 9-30-03 | 24,860 | 24,860 | 21,562 | 20,737 |
Class R52 | 9-30-03 | 25,613 | 25,613 | 21,562 | 20,737 |
Class R62 | 9-30-03 | 25,712 | 25,712 | 21,562 | 20,737 |
Class NAV2 | 5-29-09 | 20,825 | 20,825 | 20,334 | 20,327 |
Russell 1000 Value Index is an unmanaged index containing those securities in the Russell 1000 Index with a lower price-to-book ratio and less-than-average growth orientation.
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 expenses or sales charges, which would have resulted in lower values.
Footnotes related to performance pages
1 On 12-19-08, through a reorganization, the Fund acquired all of the assets of Robeco Boston Partners Large Cap Value Fund (the predecessor fund). On that date, the predecessor fund’s Investor share class shares were exchanged for Class A shares and its Institutional class shares were exchanged for Class I shares. Class A, Class B and Class C shares were first offered on 12-22-08. The returns prior to this date are those of the predecessor fund’s Investor shares that have been recalculated to reflect the gross fees and expenses of Class A, Class B and Class C shares, as applicable. Class R3, Class R4 and Class R5 shares were first offered on 5-22-09; Class R1 shares were first offered on 7-13-09; Class R6 shares were first offered on 9-1-11; Class R2 shares were first offered on 3-1-12. The returns prior to these dates are those of Class A shares that have been recalculated to apply the gross fees and expenses of Class R3, Class R4, Class R5, Class R1, Class R6 and Class R2 shares, as applicable. The predecessor fund’s Institutional share class returns have been recalculated to reflect the gross fees and expenses of Class I shares. Class I2 shares were first offered on 12-22-08; returns prior to that date are those of Class I shares recalculated to apply the gross fees and expenses of Class I2 shares.
2 For certain types of investors, as described in the fund’s prospectuses.
3 From 5-29-09.
4 No contingent deferred sales charge is applicable.
Semiannual report | Disciplined Value Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
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 the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,106.60 | $5.97 |
Class B | 1,000.00 | 1,101.70 | 10.38 |
Class C | 1,000.00 | 1,102.20 | 10.01 |
Class I | 1,000.00 | 1,108.10 | 4.33 |
Class I2 | 1,000.00 | 1,108.00 | 4.49 |
Class R1 | 1,000.00 | 1,104.20 | 8.28 |
Class R2 | 1,000.00 | 1,105.50 | 6.97 |
Class R3 | 1,000.00 | 1,104.20 | 7.75 |
Class R4 | 1,000.00 | 1,107.50 | 5.55 |
Class R5 | 1,000.00 | 1,108.50 | 4.12 |
Class R6 | 1,000.00 | 1,108.00 | 3.96 |
Class NAV | 1,000.00 | 1,108.50 | 3.75 |
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 September 30, 2013, 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 | Disciplined Value Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/disciplinedvaluex5x1.jpg)
Hypothetical example for comparison purposes
This table allows you to compare the 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 the fund’s actual return). It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,019.40 | $5.72 |
Class B | 1,000.00 | 1,015.20 | 9.95 |
Class C | 1,000.00 | 1,015.50 | 9.60 |
Class I | 1,000.00 | 1,021.00 | 4.15 |
Class I2 | 1,000.00 | 1,020.80 | 4.31 |
Class R1 | 1,000.00 | 1,017.20 | 7.94 |
Class R2 | 1,000.00 | 1,018.50 | 6.68 |
Class R3 | 1,000.00 | 1,017.70 | 7.44 |
Class R4 | 1,000.00 | 1,019.80 | 5.32 |
Class R5 | 1,000.00 | 1,021.20 | 3.95 |
Class R6 | 1,000.00 | 1,021.30 | 3.80 |
Class NAV | 1,000.00 | 1,021.50 | 3.60 |
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 prospectuses for details regarding transaction costs.
1 Expenses are equal to the fund’s annualized expense ratio of 1.13%, 1.97%, 1.90%, 0.82%, 0.85%, 1.57%, 1.32%, 1.47%, 1.05%, 0.78%, 0.75% and 0.71% for Class A, Class B, Class C, Class I, Class I2, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6 and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
Semiannual report | Disciplined Value Fund | 9 |
Portfolio summary
Top 10 Holdings (30.0% of Net Assets on 9-30-13)1,2 | ||||
Berkshire Hathaway, Inc., Class B | 3.9% | JPMorgan Chase & Company | 3.0% | |
Wells Fargo & Company | 3.6% | Occidental Petroleum Corp. | 2.6% | |
Exxon Mobil Corp. | 3.6% | Johnson & Johnson | 2.6% | |
Pfizer, Inc. | 3.2% | Cisco Systems, Inc. | 2.3% | |
Citigroup, Inc. | 3.2% | Comcast Corp., Class A | 2.0% | |
Sector Composition1,3 | ||||
Financials | 28.5% | Industrials | 7.9% | |
Health Care | 18.8% | Materials | 2.3% | |
Consumer Discretionary | 12.6% | Consumer Staples | 2.1% | |
Energy | 12.1% | Utilities | 1.5% | |
Information Technology | 11.4% | Short-Term Investments & Other | 2.8% | |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/disciplinedvaluex6x1.jpg)
1 As a percentage of net assets on 9-30-13.
2 Cash and cash equivalents not included.
3 Value stocks may decline in price. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. Large company stocks could fall out of favor, and illiquid securities may be difficult to sell at a price approximating their value. 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 and investments focused in one sector may fluctuate more widely than investments diversified across sectors. Please see the fund’s prospectuses for additional risks.
10 | Disciplined Value Fund | Semiannual report |
Fund’s investments
As of 9-30-13 (unaudited)
Shares | Value | |
Common Stocks 97.2% | $6,532,576,431 | |
(Cost $5,524,734,118) | ||
Consumer Discretionary 12.6% | 847,805,367 | |
Auto Components 1.2% | ||
Lear Corp. | 1,125,311 | 80,538,503 |
Media 9.9% | ||
CBS Corp., Class B | 1,028,422 | 56,727,758 |
Comcast Corp., Class A | 3,007,823 | 135,803,208 |
Gannett Company, Inc. (L) | 1,729,035 | 46,320,848 |
Liberty Global PLC, Series C (I) | 1,011,090 | 76,266,519 |
Liberty Media Corp., Series A (I) | 638,531 | 93,959,837 |
News Corp., Class A (I) | 1,917,460 | 30,794,408 |
Omnicom Group, Inc. (L) | 900,074 | 57,100,695 |
Time Warner Cable, Inc. | 439,199 | 49,014,608 |
Time Warner, Inc. | 1,822,361 | 119,929,577 |
Multiline Retail 0.7% | ||
Macy’s, Inc. | 1,081,075 | 46,778,115 |
Specialty Retail 0.8% | ||
Bed Bath & Beyond, Inc. (I)(L) | 705,420 | 54,571,291 |
Consumer Staples 2.1% | 142,404,569 | |
Food & Staples Retailing 1.5% | ||
CVS Caremark Corp. | 1,754,734 | 99,581,155 |
Food Products 0.6% | ||
Tyson Foods, Inc., Class A | 1,514,265 | 42,823,414 |
Energy 12.1% | 812,275,784 | |
Energy Equipment & Services 2.1% | ||
Halliburton Company | 1,285,140 | 61,879,491 |
Schlumberger, Ltd. | 866,675 | 76,579,403 |
Oil, Gas & Consumable Fuels 10.0% | ||
EOG Resources, Inc. | 276,568 | 46,817,431 |
Exxon Mobil Corp. | 2,802,536 | 241,130,197 |
Marathon Oil Corp. | 1,270,274 | 44,307,157 |
Occidental Petroleum Corp. | 1,899,266 | 177,657,342 |
Phillips 66 | 1,360,805 | 78,681,745 |
Royal Dutch Shell PLC, ADR | 1,297,549 | 85,223,018 |
See notes to financial statements | Semiannual report | Disciplined Value Fund | 11 |
Shares | Value | |
Financials 28.5% | $1,915,405,234 | |
Capital Markets 2.0% | ||
State Street Corp. | 1,164,325 | 76,554,369 |
The Goldman Sachs Group, Inc. | 388,785 | 61,509,675 |
Commercial Banks 6.2% | ||
BB&T Corp. | 1,618,620 | 54,628,425 |
Fifth Third Bancorp | 4,496,955 | 81,125,068 |
SunTrust Banks, Inc. | 1,064,473 | 34,510,215 |
Wells Fargo & Company | 5,918,959 | 244,571,386 |
Consumer Finance 2.8% | ||
Capital One Financial Corp. | 1,813,710 | 124,674,425 |
Discover Financial Services | 1,254,224 | 63,388,481 |
Diversified Financial Services 12.1% | ||
Bank of America Corp. | 9,387,325 | 129,545,085 |
Berkshire Hathaway, Inc., Class B (I) | 2,318,312 | 263,151,595 |
Citigroup, Inc. | 4,425,112 | 214,662,183 |
JPMorgan Chase & Company | 3,944,626 | 203,897,718 |
Insurance 4.2% | ||
ACE, Ltd. | 892,000 | 83,455,520 |
Axis Capital Holdings, Ltd. | 605,460 | 26,222,473 |
MetLife, Inc. | 904,120 | 42,448,434 |
Reinsurance Group of America, Inc. | 432,125 | 28,948,054 |
The Allstate Corp. | 851,265 | 43,031,446 |
The Travelers Companies, Inc. | 371,215 | 31,467,896 |
Validus Holdings, Ltd. | 685,210 | 25,339,066 |
Real Estate Investment Trusts 1.2% | ||
American Homes 4 Rent (I) | 2,061,805 | 33,298,151 |
Equity Residential | 914,235 | 48,975,569 |
Health Care 18.8% | 1,265,436,709 | |
Biotechnology 1.2% | ||
Amgen, Inc. | 716,303 | 80,182,958 |
Health Care Equipment & Supplies 0.9% | ||
Covidien PLC | 1,007,309 | 61,385,410 |
Health Care Providers & Services 8.7% | ||
Cigna Corp. | 1,499,264 | 115,233,431 |
Express Scripts Holding Company (I) | 1,314,900 | 81,234,522 |
Humana, Inc. | 2,917 | 272,244 |
McKesson Corp. | 1,051,000 | 134,843,300 |
Omnicare, Inc. (L) | 1,432,285 | 79,491,818 |
Quest Diagnostics, Inc. (L) | 667,835 | 41,265,525 |
UnitedHealth Group, Inc. | 1,838,518 | 131,656,274 |
Life Sciences Tools & Services 0.2% | ||
Agilent Technologies, Inc. | 261,735 | 13,413,919 |
12 | Disciplined Value Fund | Semiannual report | See notes to financial statements |
Shares | Value | |
Pharmaceuticals 7.8% | ||
AbbVie, Inc. | 865,140 | $38,697,712 |
Johnson & Johnson | 2,000,006 | 173,380,520 |
Pfizer, Inc. | 7,595,071 | 218,054,488 |
Sanofi, ADR | 1,902,520 | 96,324,588 |
Industrials 7.9% | 531,459,178 | |
Aerospace & Defense 2.5% | ||
Honeywell International, Inc. | 451,415 | 37,485,502 |
Lockheed Martin Corp. | 448,470 | 57,202,349 |
Raytheon Company (L) | 919,706 | 70,881,741 |
Air Freight & Logistics 0.7% | ||
United Parcel Service, Inc., Class B | 522,018 | 47,696,785 |
Commercial Services & Supplies 0.5% | ||
Tyco International, Ltd. | 964,088 | 33,723,798 |
Industrial Conglomerates 0.7% | ||
Siemens AG, ADR, (L) | 413,545 | 49,836,308 |
Machinery 2.5% | ||
AGCO Corp. | 893,185 | 53,966,238 |
Dover Corp. (L) | 729,800 | 65,557,934 |
Parker Hannifin Corp. | 464,883 | 50,542,080 |
Road & Rail 1.0% | ||
Norfolk Southern Corp. | 834,731 | 64,566,443 |
Information Technology 11.4% | 763,340,187 | |
Communications Equipment 3.7% | ||
Brocade Communications Systems, Inc. (I) | 5,935,660 | 47,782,063 |
Cisco Systems, Inc. | 6,492,575 | 152,056,107 |
QUALCOMM, Inc. | 759,670 | 51,171,371 |
Computers & Peripherals 2.1% | ||
NetApp, Inc. (L) | 1,830,960 | 78,035,515 |
Seagate Technology PLC | 905,258 | 39,595,985 |
Western Digital Corp. | 302,780 | 19,196,252 |
Electronic Equipment, Instruments & Components 0.7% | ||
TE Connectivity, Ltd. | 864,658 | 44,771,991 |
Internet Software & Services 1.3% | ||
IAC/InterActiveCorp | 1,637,147 | 89,502,826 |
Semiconductors & Semiconductor Equipment 1.5% | ||
LSI Corp. | 3,140,770 | 24,560,821 |
NVIDIA Corp. | 2,153,085 | 33,502,003 |
ON Semiconductor Corp. (I) | 6,061,935 | 44,252,126 |
Software 2.1% | ||
Microsoft Corp. | 3,005,629 | 100,117,502 |
Symantec Corp. | 1,567,500 | 38,795,625 |
Materials 2.3% | 152,037,467 | |
Containers & Packaging 1.7% | ||
Crown Holdings, Inc. (I) | 1,356,287 | 57,343,814 |
Rock-Tenn Company, Class A | 536,347 | 54,315,861 |
See notes to financial statements | Semiannual report | Disciplined Value Fund | 13 |
Shares | Value | ||
Paper & Forest Products 0.6% | |||
International Paper Company | 901,290 | $40,377,792 | |
Utilities 1.5% | 102,411,936 | ||
Electric Utilities 0.7% | |||
FirstEnergy Corp. | 1,242,415 | 45,286,027 | |
Independent Power Producers & Energy Traders 0.8% | |||
AES Corp. | 4,298,413 | 57,125,909 | |
Yield (%) | Shares | Value | |
Securities Lending Collateral 1.8% | $122,958,823 | ||
(Cost $122,941,358) | |||
John Hancock Collateral Investment Trust (W) | 0.1739 (Y) | 12,285,808 | 122,958,823 |
Short-Term Investments 2.3% | $154,788,905 | ||
(Cost $154,788,905) | |||
Money Market Funds 2.3% | 154,788,905 | ||
State Street Institutional US Government | |||
Money Market Fund | 0.0000 (Y) | 154,788,905 | 154,788,905 |
Total investments (Cost $5,802,464,381)† 101.3% | $6,810,324,159 | ||
Other assets and liabilities, net (1.3%) | ($90,650,563) | ||
Total net assets 100.0% | $6,719,673,596 | ||
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
(I) Non-income producing security.
(L) A portion of this security is on loan as of 9-30-13.
(W) Investment is an affiliate of the fund, the advisor and/or subadvisor. This investment represents collateral received for securities lending.
(Y) The rate shown is the annualized seven-day yield as of 9-30-13.
† At 9-30-13, the aggregate cost of investment securities for federal income tax purposes was $5,808,482,120. Net unrealized appreciation aggregated $1,001,842,039, of which $1,021,296,880 related to appreciated investment securities and $19,454,841 related to depreciated investment securities.
14 | Disciplined Value Fund | Semiannual report | See notes to financial statements |
FINANCIAL STATEMENTS
Financial statements
Statement of assets and liabilities 9-30-13 (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 offering price per share.
Assets | |
Investments in unaffiliated issuers, at value (Cost $5,679,523,023) | |
including $120,413,632 of securities loaned | $6,687,365,336 |
Investments in affiliated issuers, at value (Cost $122,941,358) | 122,958,823 |
Total investments, at value (Cost $5,802,464,381) | 6,810,324,159 |
Receivable for investments sold | 27,470,426 |
Receivable for fund shares sold | 18,835,136 |
Dividends and interest receivable | 6,852,416 |
Receivable for securities lending income | 22,385 |
Receivable due from advisor | 164 |
Other receivables and prepaid expenses | 200,407 |
Total assets | 6,863,705,093 |
Liabilities | |
Payable for investments purchased | 13,170,737 |
Payable for fund shares repurchased | 6,573,862 |
Payable upon return of securities loaned | 122,962,095 |
Payable to affiliates | |
Accounting and legal services fees | 388,479 |
Transfer agent fees | 536,548 |
Distribution and service fees | 56,283 |
Trustees’ fees | 3,895 |
Other liabilities and accrued expenses | 339,598 |
Total liabilities | 144,031,497 |
Net assets | $6,719,673,596 |
Net assets consist of | |
Paid-in capital | $5,476,529,806 |
Undistributed net investment income | 33,808,159 |
Accumulated net realized gain (loss) on investments | 201,475,853 |
Net unrealized appreciation (depreciation) on investments | 1,007,859,778 |
Net assets | $6,719,673,596 |
See notes to financial statements | Semiannual report | Disciplined Value Fund | 15 |
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 ($2,062,750,142 ÷ 116,953,781 shares)1 | $17.64 |
Class B ($16,364,885 ÷ 974,466 shares)1 | $16.79 |
Class C ($96,467,282 ÷ 5,736,858 shares)1 | $16.82 |
Class I ($3,231,604,049 ÷ 187,638,504 shares) | $17.22 |
Class I2 ($56,516,880 ÷ 3,280,158 shares) | $17.23 |
Class R1 ($8,146,468 ÷ 474,833 shares) | $17.16 |
Class R2 ($9,032,107 ÷ 525,572 shares) | $17.19 |
Class R3 ($6,454,235 ÷ 376,020 shares) | $17.16 |
Class R4 ($49,580,283 ÷ 2,881,694 shares) | $17.21 |
Class R5 ($503,327,794 ÷ 29,164,432 shares) | $17.26 |
Class R6 ($182,973,831 ÷ 10,604,528 shares) | $17.25 |
Class NAV ($496,455,640 ÷ 28,769,303 shares) | $17.26 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95%)2 | $18.57 |
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.
16 | Disciplined Value Fund | Semiannual report | See notes to financial statements |
FINANCIAL STATEMENTS
Statement of operations For the six-month period ended 9-30-13
(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 | $53,296,538 |
Securities lending | 400,090 |
Interest | 2,893 |
Less foreign taxes withheld | (582,506) |
Total investment income | 53,117,015 |
Expenses | |
Investment management fees | 19,276,552 |
Distribution and service fees | 2,850,866 |
Accounting and legal services fees | 565,342 |
Transfer agent fees | 2,866,880 |
Trustees’ fees | 99,521 |
State registration fees | 127,127 |
Printing and postage | 110,108 |
Professional fees | 87,215 |
Custodian fees | 291,364 |
Registration and filing fees | 170,660 |
Other | 36,176 |
Total expenses | 26,481,811 |
Less expense reductions | (139,281) |
Net expenses | 26,342,530 |
Net investment income | 26,774,485 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments in unaffiliated issuers | 170,697,343 |
Investments in affiliated issuers | 3,016 |
170,700,359 | |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 337,218,760 |
Investments in affiliated issuers | (11,968) |
337,206,792 | |
Net realized and unrealized gain | 507,907,151 |
Increase in net assets from operations | $534,681,636 |
See notes to financial statements | Semiannual report | Disciplined Value Fund | 17 |
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.
Six months | ||
ended | Year | |
9-30-13 | ended | |
(unaudited) | 3-31-13 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $26,774,485 | $35,173,080 |
Net realized gain | 170,700,359 | 171,631,695 |
Change in net unrealized appreciation (depreciation) | 337,206,792 | 335,340,438 |
Increase in net assets resulting from operations | 534,681,636 | 542,145,213 |
Distributions to shareholders | ||
From net investment income | ||
Class A | — | (9,945,154) |
Class B | — | (5,328) |
Class C | — | (35,133) |
Class I | — | (10,989,962) |
Class I2 | — | (294,140) |
Class R1 | — | (26,428) |
Class R2 | — | (9,561) |
Class R3 | — | (9,738) |
Class R4 | — | (32,076) |
Class R5 | — | (4,180,836) |
Class R6 | — | (1,063,428) |
Class NAV | — | (6,229,386) |
From net realized gain | ||
Class A | — | (41,946,165) |
Class B | — | (405,720) |
Class C | — | (1,659,469) |
Class I | — | (32,645,943) |
Class I2 | — | (852,754) |
Class R1 | — | (181,195) |
Class R2 | — | (44,472) |
Class R3 | — | (56,128) |
Class R4 | — | (112,906) |
Class R5 | — | (12,317,929) |
Class R6 | — | (3,010,506) |
Class NAV | — | (16,971,618) |
Total distributions | — | (143,025,975) |
From Fund share transactions | 1,840,517,226 | 1,715,423,426 |
Total increase | 2,375,198,862 | 2,115,542,664 |
Net assets | ||
Beginning of period | 4,344,474,734 | 2,229,932,070 |
End of period | $6,719,673,596 | $4,344,474,734 |
Undistributed net investment income | $33,808,159 | $7,033,674 |
18 | Disciplined Value 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 during the period.
CLASS A SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092,3 | 8-31-084 |
Per share operating performance | |||||||
Net asset value, beginning | |||||||
of period | $15.94 | $14.33 | $13.83 | $12.31 | $8.09 | $12.32 | $15.62 |
Net investment income5 | 0.06 | 0.14 | 0.11 | 0.05 | 0.08 | 0.08 | 0.15 |
Net realized and unrealized gain | |||||||
(loss) on investments | 1.64 | 2.09 | 0.77 | 1.57 | 4.18 | (4.18) | (1.90) |
Total from investment operations | 1.70 | 2.23 | 0.88 | 1.62 | 4.26 | (4.10) | (1.75) |
Less distributions | |||||||
From net investment income | — | (0.12) | (0.07) | (0.03) | (0.04) | (0.13) | (0.15) |
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | — | (1.40) |
Total distributions | — | (0.62) | (0.38) | (0.10) | (0.04) | (0.13) | (1.55) |
Net asset value, end of period | $17.64 | $15.94 | $14.33 | $13.83 | $12.31 | $8.09 | $12.32 |
Total return (%)6,7 | 10.668 | 16.04 | 6.91 | 13.20 | 52.68 | (33.33)8 | (12.29) |
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $2,063 | $1,481 | $1,068 | $601 | $162 | $10 | $16 |
Ratios (as a percentage of average | |||||||
net assets): | |||||||
Expenses before reductions | 1.139 | 1.20 | 1.24 | 1.24 | 1.26 | 1.769 | 1.39 |
Expenses net of fee waivers | 1.139 | 1.20 | 1.24 | 1.24 | 1.06 | 1.009 | 1.00 |
Expenses net of fee waivers | |||||||
and credits | 1.139 | 1.20 | 1.24 | 1.24 | 1.05 | 1.009 | 1.00 |
Net investment income | 0.749 | 0.95 | 0.82 | 0.38 | 0.74 | 1.459 | 1.10 |
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 59 | 5210 | 78 |
1 Six months ended 9-30-13. Unaudited.
2 For the seven-month period ended 3-31-09. The fund changed its fiscal year end from August 31 to March 31.
3 After the close of business on 12-19-08, holders of Investor share class of the former Robeco Large Cap Value Fund (the predecessor fund) became owners of an equal number of full and fractional Class A shares of John Hancock Disciplined Value Fund. These shares were first offered on 12-22-08. Additionally, the accounting and performance history of the Investor share class of the predecessor fund was redesignated as that of John Hancock Disciplined Value Fund Class A.
4 Audited by previous independent registered public accounting firm.
5 Based on the average daily shares outstanding.
6 Does not reflect the effect of sales charges, if any.
7 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
8 Not annualized.
9 Annualized.
10 Portfolio turnover is shown for the period from 9-1-08 to 3-31-09.
See notes to financial statements | Semiannual report | Disciplined Value Fund | 19 |
CLASS B SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 | |
Per share operating performance | |||||||
Net asset value, beginning of period | $15.24 | $13.73 | $13.30 | $11.91 | $7.88 | $8.82 | |
Net investment income (loss)3 | (0.01) | 0.01 | —4 | (0.05) | (0.03) | 0.02 | |
Net realized and unrealized gain (loss) | |||||||
on investments | 1.56 | 2.01 | 0.74 | 1.51 | 4.06 | (0.96) | |
Total from investment operations | 1.55 | 2.02 | 0.74 | 1.46 | 4.03 | (0.94) | |
Less distributions | |||||||
From net investment income | — | (0.01) | — | — | — | — | |
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | — | |
Total distributions | — | (0.51) | (0.31) | (0.07) | — | — | |
Net asset value, end of period | $16.79 | $15.24 | $13.73 | $13.30 | $11.91 | $7.88 | |
Total return (%)5,6 | 10.177 | 15.09 | 5.99 | 12.28 | 51.14 | (10.66)7 | |
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $16 | $14 | $10 | $8 | $5 | —8 | |
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.979 | 2.08 | 2.14 | 2.27 | 2.58 | 4.249 | |
Expenses net of fee waivers | 1.979 | 2.05 | 2.05 | 2.05 | 2.12 | 2.079 | |
Expenses net of fee waivers and credits | 1.979 | 2.05 | 2.05 | 2.05 | 2.05 | 2.059 | |
Net investment income (loss) | (0.11)9 | 0.10 | 0.01 | (0.45) | (0.25) | 1.189 | |
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 59 | 5210 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class B shares is 12-22-08.
3 Based on the average daily shares outstanding.
4 Less than $0.005 per share.
5 Does not reflect the effect of sales charges, if any.
6 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Portfolio turnover is shown for the period from 9-1-08 to 3-31-09.
CLASS C SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 | |
Per share operating performance | |||||||
Net asset value, beginning of period | $15.26 | $13.74 | $13.30 | $11.91 | $7.87 | $8.82 | |
Net investment income (loss)3 | —4 | 0.02 | 0.01 | (0.05) | (0.03) | 0.02 | |
Net realized and unrealized gain (loss) | |||||||
on investments | 1.56 | 2.01 | 0.74 | 1.51 | 4.07 | (0.97) | |
Total from investment operations | 1.56 | 2.03 | 0.75 | 1.46 | 4.04 | (0.95) | |
Less distributions | |||||||
From net investment income | — | (0.01) | — | — | — | — | |
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | — | |
Total distributions | — | (0.51) | (0.31) | (0.07) | — | — | |
Net asset value, end of period | $16.82 | $15.26 | $13.74 | $13.30 | $11.91 | $7.87 | |
Total return (%)5,6 | 10.227 | 15.19 | 6.07 | 12.28 | 51.33 | (10.77)7 | |
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $96 | $59 | $40 | $30 | $19 | —8 | |
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.909 | 1.98 | 2.02 | 2.07 | 2.24 | 4.419 | |
Expenses net of fee waivers | 1.909 | 1.98 | 2.02 | 2.05 | 2.08 | 2.069 | |
Expenses net of fee waivers and credits | 1.909 | 1.98 | 2.02 | 2.05 | 2.05 | 2.059 | |
Net investment income (loss) | (0.04)9 | 0.17 | 0.04 | (0.45) | (0.27) | 1.269 | |
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 59 | 5210 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class C shares is 12-22-08.
3 Based on the average daily shares outstanding.
4 Less than $0.005 per share.
5 Does not reflect the effect of sales charges, if any.
6 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Portfolio turnover is shown for the period from 9-1-08 to 3-31-09.
20 | Disciplined Value Fund | Semiannual report | See notes to financial statements |
CLASS I SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092,3 | 8-31-084 |
Per share operating performance | |||||||
Net asset value, beginning | |||||||
of period | $15.54 | $13.99 | $13.52 | $12.03 | $7.90 | $12.08 | $15.34 |
Net investment income5 | 0.09 | 0.18 | 0.15 | 0.09 | 0.11 | 0.09 | 0.18 |
Net realized and unrealized gain | |||||||
(loss) on investments | 1.59 | 2.04 | 0.75 | 1.54 | 4.08 | (4.10) | (1.84) |
Total from investment operations | 1.68 | 2.22 | 0.90 | 1.63 | 4.19 | (4.01) | (1.66) |
Less distributions | |||||||
From net investment income | — | (0.17) | (0.12) | (0.07) | (0.06) | (0.17) | (0.20) |
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | — | (1.40) |
Total distributions | — | (0.67) | (0.43) | (0.14) | (0.06) | (0.17) | (1.60) |
Net asset value, end of period | $17.22 | $15.54 | $13.99 | $13.52 | $12.03 | $7.90 | $12.08 |
Total return (%)6 | 10.817 | 16.40 | 7.27 | 13.66 | 53.14 | (33.33)7 | (11.99) |
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $3,232 | $1,680 | $711 | $399 | $158 | $33 | $44 |
Ratios (as a percentage of average | |||||||
net assets): | |||||||
Expenses before reductions | 0.838 | 0.87 | 0.88 | 0.86 | 0.88 | 1.378 | 1.14 |
Expenses net of fee waivers | |||||||
and credits | 0.828 | 0.87 | 0.88 | 0.86 | 0.80 | 0.758 | 0.75 |
Net investment income | 1.038 | 1.26 | 1.18 | 0.75 | 1.01 | 1.728 | 1.37 |
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 59 | 529 | 78 |
1 Six months ended 9-30-13. Unaudited.
2 For the seven-month period ended 3-31-09. The fund changed its fiscal year end from August 31 to March 31.
3 After the close of business on 12-19-08, holders of Institutional share class of the former Robeco Large Cap Value Fund (the predecessor fund) became owners of an equal number of full and fractional Class I shares of John Hancock Disciplined Value Fund. These shares were first offered on 12-22-08. Additionally, the accounting and performance history of the Institutional share class of the predecessor fund was redesignated as that of John Hancock Disciplined Value Fund Class I.
4 Audited by previous independent registered public accounting firm.
5 Based on the average daily shares outstanding.
6 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
7 Not annualized.
8 Annualized.
9 Portfolio turnover is shown for the period from 9-1-08 to 3-31-09.
See notes to financial statements | Semiannual report | Disciplined Value Fund | 21 |
CLASS I2 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-10 | 3-31-092 | |
Per share operating performance | |||||||
Net asset value, beginning of period | $15.55 | $13.99 | $13.53 | $12.04 | $7.90 | $8.82 | |
Net investment income3 | 0.08 | 0.18 | 0.15 | 0.09 | 0.11 | 0.05 | |
Net realized and unrealized gain (loss) | |||||||
on investments | 1.60 | 2.05 | 0.75 | 1.54 | 4.09 | (0.97) | |
Total from investment operations | 1.68 | 2.23 | 0.90 | 1.63 | 4.20 | (0.92) | |
Less distributions | |||||||
From net investment income | — | (0.17) | (0.13) | (0.07) | (0.06) | — | |
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | — | |
Total distributions | — | (0.67) | (0.44) | (0.14) | (0.06) | — | |
Net asset value, end of period | $17.23 | $15.55 | $13.99 | $13.53 | $12.04 | $7.90 | |
Total return (%)4 | 10.805 | 16.51 | 7.24 | 13.65 | 53.27 | (10.43)5 | |
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $57 | $34 | $25 | $23 | $19 | —6 | |
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 0.867 | 0.92 | 0.93 | 0.92 | 1.13 | 5.087 | |
Expenses net of fee waivers and credits | 0.857 | 0.85 | 0.85 | 0.85 | 0.75 | 0.757 | |
Net investment income | 1.017 | 1.29 | 1.21 | 0.74 | 0.99 | 2.237 | |
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 59 | 528 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class I2 shares is 12-22-08.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 9-1-08 to 3-31-09.
CLASS R1 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102 | ||
Per share operating performance | |||||||
Net asset value, beginning of period | $15.54 | $13.99 | $13.52 | $12.05 | $9.01 | ||
Net investment income3 | 0.03 | 0.08 | 0.06 | —4 | 0.02 | ||
Net realized and unrealized gain on investments | 1.59 | 2.04 | 0.74 | 1.54 | 3.02 | ||
Total from investment operations | 1.62 | 2.12 | 0.80 | 1.54 | 3.04 | ||
Less distributions | |||||||
From net investment income | — | (0.07) | (0.02) | — | — | ||
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | ||
Total distributions | — | (0.57) | (0.33) | (0.07) | — | ||
Net asset value, end of period | $17.16 | $15.54 | $13.99 | $13.52 | $12.05 | ||
Total return (%)5 | 10.426 | 15.63 | 6.41 | 12.80 | 33.746 | ||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $8 | $6 | $3 | $1 | —7 | ||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.688 | 1.85 | 2.16 | 3.21 | 2.968 | ||
Expenses net of fee waivers and credits | 1.578 | 1.58 | 1.65 | 1.61 | 1.508 | ||
Net investment income | 0.308 | 0.56 | 0.45 | 0.01 | 0.298 | ||
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 599 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R1 shares is 7-13-09.
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 applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Portfolio turnover is shown for the period from 4-1-09 to 3-31-10.
22 | Disciplined Value Fund | Semiannual report | See notes to financial statements |
CLASS R2 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | ||||
Per share operating performance | |||||||
Net asset value, beginning of period | $15.55 | $14.00 | $13.49 | ||||
Net investment income3 | 0.05 | 0.12 | —4 | ||||
Net realized and unrealized gain on investments | 1.59 | 2.04 | 0.51 | ||||
Total from investment operations | 1.64 | 2.16 | 0.51 | ||||
Less distributions | |||||||
From net investment income | — | (0.11) | — | ||||
From net realized gain | — | (0.50) | — | ||||
Total distributions | — | (0.61) | — | ||||
Net asset value, end of period | $17.19 | $15.55 | $14.00 | ||||
Total return (%)5 | 10.556 | 15.90 | 3.786 | ||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $9 | $4 | —7 | ||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.418 | 3.02 | 15.968 | ||||
Expenses net of fee waivers and credits | 1.328 | 1.32 | 1.408 | ||||
Net investment income | 0.548 | 0.80 | 0.418 | ||||
Portfolio turnover (%) | 20 | 44 | 449 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R2 shares is 3-1-12.
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 applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
CLASS R3 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102 | ||
Per share operating performance | |||||||
Net asset value, beginning of period | $15.54 | $13.99 | $13.52 | $12.04 | $8.98 | ||
Net investment income3 | 0.03 | 0.10 | 0.07 | 0.01 | 0.04 | ||
Net realized and unrealized gain on investments | 1.59 | 2.04 | 0.75 | 1.54 | 3.02 | ||
Total from investment operations | 1.62 | 2.14 | 0.82 | 1.55 | 3.06 | ||
Less distributions | |||||||
From net investment income | — | (0.09) | (0.04) | —4 | — | ||
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | ||
Total distributions | — | (0.59) | (0.35) | (0.07) | — | ||
Net asset value, end of period | $17.16 | $15.54 | $13.99 | $13.52 | $12.04 | ||
Total return (%)5 | 10.426 | 15.75 | 6.52 | 12.93 | 34.086 | ||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $6 | $4 | —7 | —7 | —7 | ||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.628 | 2.33 | 11.16 | 20.34 | 10.238 | ||
Expenses net of fee waivers and credits | 1.478 | 1.48 | 1.55 | 1.52 | 1.408 | ||
Net investment income | 0.388 | 0.67 | 0.54 | 0.10 | 0.438 | ||
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 599 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R3 shares is 5-22-09.
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 applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Portfolio turnover is shown for the period from 4-1-09 to 3-31-10.
See notes to financial statements | Semiannual report | Disciplined Value Fund | 23 |
CLASS R4 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102 | ||
Per share operating performance | |||||||
Net asset value, beginning of period | $15.54 | $13.99 | $13.52 | $12.04 | $8.98 | ||
Net investment income3 | 0.06 | 0.16 | 0.11 | 0.05 | 0.07 | ||
Net realized and unrealized gain on investments | 1.61 | 2.03 | 0.75 | 1.54 | 3.02 | ||
Total from investment operations | 1.67 | 2.19 | 0.86 | 1.59 | 3.09 | ||
Less distributions | |||||||
From net investment income | — | (0.14) | (0.08) | (0.04) | (0.03) | ||
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | ||
Total distributions | — | (0.64) | (0.39) | (0.11) | (0.03) | ||
Net asset value, end of period | $17.21 | $15.54 | $13.99 | $13.52 | $12.04 | ||
Total return (%)4 | 10.755 | 16.19 | 6.86 | 13.25 | 34.425 | ||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $50 | $5 | $1 | $1 | $1 | ||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.156 | 1.63 | 2.35 | 2.81 | 2.886 | ||
Expenses net of fee waivers and credits | 1.056 | 1.09 | 1.25 | 1.20 | 1.106 | ||
Net investment income | 0.746 | 1.09 | 0.85 | 0.40 | 0.756 | ||
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 597 |
1 Six months ended 9-30-13. 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 applicable periods shown.
5 Not annualized.
6 Annualized.
7 Portfolio turnover is shown for the period from 4-1-09 to 3-31-10.
CLASS R5 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102 | ||
Per share operating performance | |||||||
Net asset value, beginning of period | $15.57 | $14.00 | $13.53 | $12.04 | $8.98 | ||
Net investment income3 | 0.09 | 0.20 | 0.15 | 0.08 | 0.10 | ||
Net realized and unrealized gain on investments | 1.60 | 2.04 | 0.74 | 1.55 | 3.02 | ||
Total from investment operations | 1.69 | 2.24 | 0.89 | 1.63 | 3.12 | ||
Less distributions | |||||||
From net investment income | — | (0.17) | (0.11) | (0.07) | (0.06) | ||
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | ||
Total distributions | — | (0.67) | (0.42) | (0.14) | (0.06) | ||
Net asset value, end of period | $17.26 | $15.57 | $14.00 | $13.53 | $12.04 | ||
Total return (%)4 | 10.855 | 16.55 | 7.20 | 13.61 | 34.775 | ||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $503 | $415 | $33 | $15 | —6 | ||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 0.797 | 0.78 | 0.90 | 1.23 | 9.547 | ||
Expenses net of fee waivers and credits | 0.787 | 0.78 | 0.90 | 0.94 | 0.807 | ||
Net investment income | 1.087 | 1.42 | 1.19 | 0.59 | 1.037 | ||
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 598 |
1 Six months ended 9-30-13. 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 applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-09 to 3-31-10.
24 | Disciplined Value Fund | Semiannual report | See notes to financial statements |
CLASS R6 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | ||||
Per share operating performance | |||||||
Net asset value, beginning of period | $15.57 | $14.00 | $12.19 | ||||
Net investment income3 | 0.09 | 0.19 | 0.10 | ||||
Net realized and unrealized gain on investments | 1.59 | 2.06 | 2.15 | ||||
Total from investment operations | 1.68 | 2.25 | 2.25 | ||||
Less distributions | |||||||
From net investment income | — | (0.18) | (0.13) | ||||
From net realized gain | — | (0.50) | (0.31) | ||||
Total distributions | — | (0.68) | (0.44) | ||||
Net asset value, end of period | $17.25 | $15.57 | $14.00 | ||||
Total return (%)4 | 10.795 | 16.60 | 19.095 | ||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $183 | $118 | $1 | ||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 0.756 | 0.82 | 2.326 | ||||
Expenses net of fee waivers and credits | 0.756 | 0.82 | 0.866 | ||||
Net investment income | 1.116 | 1.28 | 1.316 | ||||
Portfolio turnover (%) | 20 | 44 | 447 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R6 shares is 9-1-11.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the period shown.
5 Not annualized.
6 Annualized.
7 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
CLASS NAV SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102 | ||
Per share operating performance | |||||||
Net asset value, beginning of period | $15.57 | $14.00 | $13.53 | $12.04 | $9.18 | ||
Net investment income3 | 0.10 | 0.20 | 0.16 | 0.10 | 0.10 | ||
Net realized and unrealized gain on investments | 1.59 | 2.05 | 0.75 | 1.54 | 2.82 | ||
Total from investment operations | 1.69 | 2.25 | 0.91 | 1.64 | 2.92 | ||
Less distributions | |||||||
From net investment income | — | (0.18) | (0.13) | (0.08) | (0.06) | ||
From net realized gain | — | (0.50) | (0.31) | (0.07) | — | ||
Total distributions | — | (0.68) | (0.44) | (0.15) | (0.06) | ||
Net asset value, end of period | $17.26 | $15.57 | $14.00 | $13.53 | $12.04 | ||
Total return (%)4 | 10.855 | 16.66 | 7.38 | 13.71 | 31.895 | ||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $496 | $524 | $338 | $405 | $228 | ||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 0.726 | 0.74 | 0.77 | 0.79 | 0.836 | ||
Expenses net of fee waivers | 0.716 | 0.74 | 0.77 | 0.79 | 0.756 | ||
Expenses including reductions and amounts recaptured | 0.716 | 0.74 | 0.77 | 0.79 | 0.756 | ||
Net investment income | 1.156 | 1.40 | 1.28 | 0.82 | 1.056 | ||
Portfolio turnover (%) | 20 | 44 | 44 | 50 | 597 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class NAV shares is 5-29-09.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Annualized.
7 Portfolio turnover is shown for the period from 4-1-09 to 3-31-10.
See notes to financial statements | Semiannual report | Disciplined Value Fund | 25 |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Disciplined Value Fund (the fund) is a 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 provide long-term growth of capital primarily through investment in equity securities. Current income 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 and Class C shares are offered to all investors. Effective April 12, 2013, Class B shares are closed to new investors. Class I shares are offered to institutions and certain investors. Class I2 shares are closed to new investors. Class R1, Class R2, Class R3, Class R4 and Class R5 shares are available only to certain retirement plans. Class R6 shares are available only to certain retirement plans, institutions and other investors. Class NAV shares are offered to John Hancock affiliated funds of funds and certain 529 plans. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, transfer agent fees, printing and postage and state registration fees for each class may differ. Class B shares convert to Class A shares eight years after purchase.
Note 2 — Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. 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. 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, the securities are valued using the last quoted bid or evaluated price. Investments by the fund in open-end mutual funds, including John Hancock Collateral Investment Trust (JHCIT), are valued at their respective net asset values each business day. 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 (OTC) 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, for which reliable 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. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
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 securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other significant
26 | Disciplined Value Fund | Semiannual report |
observable inputs. Observable inputs may include quoted prices for similar securities, interest rates, prepayment speeds and credit risk. Prices for securities valued using these inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using 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. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
As of September 30, 2013, all investments are categorized as Level 1 under the hierarchy described above.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-date, except for dividends of foreign securities where the dividend may not be known until after the ex-date. In those cases, dividend income, net of withholding taxes, is recorded when the fund becomes aware of the dividends. Foreign taxes are provided for based on the fund’s understanding of the tax rules and rates that exist in the foreign markets in which it invests. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Securities lending. The fund may lend its securities to earn additional income. The fund receives cash collateral from the borrower in an amount not less than the market value of the loaned securities. The fund will invest its collateral in JHCIT, an affiliate of the portfolio, which has a floating net asset value (NAV) and is registered with the Securities and Exchange Commission as an investment company. JHCIT invests cash received as collateral as part of the securities lending program in short-term money market investments. The fund will receive the benefit of any gains and bear any losses generated by JHCIT with respect to the cash collateral.
If a borrower fails to return loaned securities when due, then the lending agent is responsible to and indemnifies the fund for the lent securities. The lending agent uses the collateral received from the borrower to purchase replacement securities of the same issue, type, class and series of the loaned securities. If the value of the collateral is less than the purchase cost of replacement securities, the lending agent is responsible for satisfying the shortfall but only to the extent that the shortfall is not due to any decrease in the value of JHCIT.
Although the risk of the loss of the securities lent is mitigated by receiving collateral from the borrower and through lending agent indemnification, the fund could experience a delay in recovering its securities or could experience a lower than expected return if the borrower fails to return the securities on a timely basis. 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. Net income received from JHCIT is a component of securities lending income as recorded on the Statement of operations.
Obligations to repay collateral received by the fund is shown on the Statements of assets and liabilities as Payable upon return of securities loaned.
Foreign taxes. The fund may be subject to withholding tax on income and/or capital gains or repatriation taxes imposed by certain countries in which the fund invests. Taxes are accrued based upon investment income, realized gains or unrealized appreciation.
Semiannual report | Disciplined Value Fund | 27 |
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 fund’s custodian agreement, the custodian may loan money to the 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 may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
In addition, the fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. 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 and is reflected in other expenses on the Statement of operations. Commitment fees for the six months ended September 30, 2013 were $1,721. For the six months ended September 30, 2013 the fund had no borrowings under the line of credit.
Expenses. Within the John Hancock funds complex, expenses that are directly attributable to an individual fund are allocated to such 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 net 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 assets of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage expenses, for all classes, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
Federal income taxes. The fund intends to continue 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.
Under the Regulated Investment Company Modernization Act of 2010, the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Any losses incurred during those taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
For federal income tax purposes, as of March 31, 2013, the fund had a capital loss carryforward of $56,032,717 available to offset future net realized capital gains. The following table details the capital loss carryforward available as of March 31, 2013:
CAPITAL LOSS CARRYFORWARD EXPIRING AT MARCH 31 | |||||
2016 | 2017 | ||||
$13,419,042 | $42,613,675 |
It is estimated that $50,300,349 of the loss carryforward, which was acquired on July 10, 2009, in a merger with John Hancock Classic Value Fund II will likely expire unused because of limitations.
28 | Disciplined Value Fund | Semiannual report |
As of March 31, 2013, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund’s federal tax returns are 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 in the same amount, except for the effect of class level 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.
Capital accounts within the 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. Book-tax differences are primarily attributable to wash sale loss deferrals and in-kind 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 Trust, including 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 Advisor) serves as investment advisor for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Trust. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The fund has an investment management contract with the Advisor under which the fund pays a daily management fee to the Advisor equivalent, on an annual basis, to the sum of: (a) 0.750% of the first $500,000,000 of the fund’s average daily net assets; (b) 0.725% of the next $500,000,000 of the fund’s average daily net assets; (c) 0.700% of the next $500,000,000 of the fund’s average daily net assets; (d) 0.675% of the next $1,000,000,000 of the fund’s average daily net assets; and (e) 0.650% of the fund’s average daily net assets in excess of $2,500,000,000. The Advisor has a subadvisory agreement with Robeco Investment Management, Inc. The fund is not responsible for payment of the subadvisory fees.
The Advisor has contractually agreed to reimburse or limit certain expenses for certain share classes of the fund. This agreement excludes certain expenses such as taxes, portfolio brokerage commissions, interest expense, litigation and indemnification expenses, and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense. The reimbursements and limits are such that these expenses will not exceed 2.05%, 0.85%, 1.57%, 1.32%, 1.47%, 1.07% and 0.82% for Class B, Class I2, Class R1, Class R2, Class R3, Class R4 and Class R6 shares, respectively. The fee waivers and/or expense reimbursements will continue in effect until June 30, 2014 for all classes, unless renewed by mutual agreement of the fund and the Advisor based upon a determination that this is appropriate under the circumstances at the time. Prior to July 1, 2013, the fee waivers and/or
Semiannual report | Disciplined Value Fund | 29 |
reimbursements were such that these expenses will not exceed 2.05% and 0.87% for Class C and Class R5 shares, respectively.
Effective June 1, 2013, the Advisor has contractually agreed to waive a portion of its management fee for certain portfolios (the participating portfolios) of the Trust, John Hancock Funds, John Hancock Funds II, and John Hancock Variable Insurance Trust. The waiver equals, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the participating portfolios that exceeds $75 billion but less than or equal to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds $125 billion but is less than or equal to $150 billion; and 0.015% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each portfolio. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.
Accordingly, for the six months ended September 30, 2013 these expense reductions amounted to the following:
EXPENSE | |||||
CLASS | REDUCTION | ||||
Class A | $33,583 | ||||
Class B | 288 | ||||
Class C | 1,466 | ||||
Class I | 53,320 | ||||
Class I2 | 1,367 | ||||
Class R1 | 4,164 | ||||
Class R2 | 3,214 | ||||
Class R3 | 4,016 | ||||
Class R4 | 680 | ||||
Class R5 | 8,821 | ||||
Class R6 | 3,122 | ||||
Class NAV | 9,518 | ||||
Total | $123,559 |
The investment management fees, including the impact of the waivers and reimbursements as described above, incurred for the six months ended September 30, 2013 were equivalent to a net annual effective rate of 0.67% of the fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to 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. These accounting and legal services fees incurred for the six months ended September 30, 2013, 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, Class C, Class R1, Class R2, Class R3 and Class R4 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 R2, Class R3, Class R4 and Class R5, the fund pays for certain other services. The fund pays 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.
30 | Disciplined Value Fund | Semiannual report |
CLASS | RULE 12b–1 FEE | SERVICE FEE | ||||
Class A | 0.30% | — | ||||
Class B | 1.00% | — | ||||
Class C | 1.00% | — | ||||
Class R1 | 0.50% | 0.25% | ||||
Class R2 | 0.25% | 0.25% | ||||
Class R3 | 0.50% | 0.15% | ||||
Class R4 | 0.25% | 0.10% | ||||
Class R5 | — | 0.05% |
Currently, only 0.25% is charged to Class A shares for Rule 12b-1 fees.
The fund’s distributor has contractually agreed to waive 0.10% of Rule 12b-1 fees of Class R4 shares. This limitation agreement will remain in effect through June 30, 2014, unless renewed by mutual agreement of the fund and the Distributor based upon a determination that this is appropriate under the circumstances at the time. Reimbursements related to this contractual waiver amounted to $15,722 for the six months ended September 30, 2013.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $2,264,796 for the six months ended September 30, 2013. Of this amount, $365,114 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $1,893,030 was paid as sales commissions to broker-dealers and $6,652 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Class A, Class B and Class C shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. Class B shares that are redeemed within six years of purchase are subject to CDSCs, at declining rates, beginning at 5.00%. Class C shares that are redeemed within one year of purchase are subject to a 1.00% CDSC. CDSCs are applied to 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 September 30, 2013, CDSCs received by the Distributor amounted to $1,139, $7,280 and $5,269 for Class A, 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), an affiliate of the Advisor. 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 fees that Signature Services receives in connection with retirement and small accounts. 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.
Semiannual report | Disciplined Value Fund | 31 |
Class level expenses. Class level expenses for the six months ended September 30, 2013 were:
DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
SHARE CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
Class A | $2,181,988 | $1,330,829 | $16,604 | $70,352 |
Class B | 76,521 | 11,680 | 7,163 | 659 |
Class C | 373,631 | 56,953 | 8,210 | 2,635 |
Class I | — | 1,362,987 | 45,182 | 31,584 |
Class I2 | — | 25,712 | 7,959 | 400 |
Class R1 | 27,896 | 869 | 7,080 | 220 |
Class R2 | 17,142 | 820 | 6,351 | 31 |
Class R3 | 16,034 | 611 | 6,952 | 106 |
Class R4 | 55,503 | 3,705 | 6,979 | 975 |
Class R5 | 102,151 | 54,228 | 7,471 | 2,383 |
Class R6 | — | 18,486 | 7,176 | 763 |
Total | $2,850,866 | $2,866,880 | $127,127 | $110,108 |
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the fund based on its net assets relative to other funds within the John Hancock funds complex.
Interfund Lending Program: Pursuant to an Exemptive Order issued by the SEC, the fund(s), along with other funds advised by the Advisor, may be allowed to participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from, or lend money to, other participating affiliated funds. At period end, no interfund loans were outstanding. The fund’s activity in this program during the period for which loans were outstanding was as follows:
AVERAGE LOAN | DAYS | WEIGHTED AVERAGE | ||
BORROWER OR LENDER | BALANCE | OUTSTANDING | INTEREST RATE | INTEREST |
Lender | $16,836,877 | 3 | 0.44% | $618 |
Note 5 — Fund share transactions
Transactions in fund shares for the six months ended September 30, 2013, and for the year ended March 31, 2013, were as follows:
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 35,208,663 | $611,274,756 | 36,888,832 | $540,482,322 |
Distributions reinvested | — | — | 3,578,949 | 51,429,497 |
Repurchased | (11,177,718) | (190,841,299) | (22,072,197) | (320,089,687) |
Net increase | 24,030,945 | $420,433,457 | 18,395,584 | $271,822,132 |
Class B shares | ||||
Sold | 166,892 | $2,726,683 | 313,325 | $4,378,530 |
Distributions reinvested | — | — | 26,894 | 370,603 |
Repurchased | (95,999) | (1,556,095) | (156,060) | (2,175,999) |
Net increase | 70,893 | $1,170,588 | 184,159 | $2,573,134 |
Class C shares | ||||
Sold | 2,207,324 | $36,408,475 | 1,551,485 | $21,743,882 |
Distributions reinvested | — | — | 106,836 | 1,473,263 |
Repurchased | (319,911) | (5,231,211) | (704,556) | (9,662,876) |
Net increase | 1,887,413 | $31,177,264 | 953,765 | $13,554,269 |
32 | Disciplined Value Fund | Semiannual report |
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Class I shares | ||||
Sold | 93,126,012 | $1,538,357,937 | 77,544,716 | $1,126,556,218 |
Distributions reinvested | — | — | 2,833,011 | 39,662,157 |
Repurchased | (13,539,213) | (226,207,553) | (23,137,782) | (322,706,743) |
Net increase | 79,586,799 | $1,312,150,384 | 57,239,945 | $843,511,632 |
Class I2 shares | ||||
Sold | 1,413,316 | $23,191,695 | 514,968 | $7,873,719 |
Distributions reinvested | — | — | 81,680 | 1,144,331 |
Repurchased | (327,442) | (5,525,601) | (169,614) | (2,416,300) |
Net increase | 1,085,874 | $17,666,094 | 427,034 | $6,601,750 |
Class R1 shares | ||||
Sold | 244,402 | $4,038,404 | 311,505 | $4,411,938 |
Distributions reinvested | — | — | 13,567 | 190,349 |
Repurchased | (131,455) | (2,190,724) | (191,762) | (2,802,951) |
Net increase | 112,947 | $1,847,680 | 133,310 | $1,799,336 |
Class R2 shares | ||||
Sold | 286,336 | $4,746,423 | 275,831 | $4,062,117 |
Distributions reinvested | — | — | 3,532 | 49,513 |
Repurchased | (43,952) | (744,270) | (3,588) | (54,248) |
Net increase | 242,384 | $4,002,153 | 275,775 | $4,057,382 |
Class R3 shares | ||||
Sold | 133,001 | $2,230,232 | 282,399 | $4,111,488 |
Distributions reinvested | — | — | 4,698 | 65,866 |
Repurchased | (35,995) | (587,654) | (26,086) | (369,596) |
Net increase | 97,006 | $1,642,578 | 261,011 | $3,807,758 |
Class R4 shares | ||||
Sold | 2,718,380 | $44,541,239 | 291,031 | $4,211,461 |
Distributions reinvested | — | — | 10,348 | 144,982 |
Repurchased | (177,672) | (2,984,340) | (61,859) | (895,035) |
Net increase | 2,540,708 | $41,556,899 | 239,520 | $3,461,408 |
Class R5 shares | ||||
Sold | 3,356,451 | $56,235,546 | 25,502,790 | $352,551,353 |
Distributions reinvested | — | — | 1,176,802 | 16,498,765 |
Repurchased | (861,339) | (14,294,101) | (2,356,806) | (33,390,435) |
Net increase | 2,495,112 | $41,941,445 | 24,322,786 | $335,659,683 |
Class R6 shares | ||||
Sold | 3,763,406 | $62,124,372 | 7,992,583 | $112,118,701 |
Distributions reinvested | — | — | 290,580 | 4,073,934 |
Repurchased | (744,781) | (12,434,764) | (793,339) | (11,647,888) |
Net increase | 3,018,625 | $49,689,608 | 7,489,824 | $104,544,747 |
Class NAV shares | ||||
Sold | 26,237 | $427,008 | 11,947,301 | $160,226,538 |
Distributions reinvested | — | — | 1,654,850 | 23,201,004 |
Repurchased | (4,897,685) | (83,187,932) | (4,099,746) | (59,397,347) |
Net increase (decrease) | (4,871,448) | ($82,760,924) | 9,502,405 | $124,030,195 |
Total net increase | 110,297,258 | $1,840,517,226 | 119,425,118 | $1,715,423,426 |
Semiannual report | Disciplined Value Fund | 33 |
Affiliates of the fund owned 1% and 100% of shares of beneficial interest of Class R2 and Class NAV, respectively, on September 30, 2013.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, amounted to $2,881,850,002 and $1,069,065,733, respectively, for the six months ended September 30, 2013.
Note 7 — Investment by affiliated funds
Certain investors in the fund are affiliated funds that are managed by the Advisor and its affiliates. The affiliated funds do not invest in the fund for the purpose of exercising management or control; however, this investment may represent a significant portion of the fund’s net assets. At September 30, 2013, funds within the John Hancock funds complex held 7.4% of the fund.
34 | Disciplined Value Fund | Semiannual report |
Continuation of Investment Advisory and Subadvisory Agreements
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Funds III (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with Robeco Investment Management, Inc. (the Subadvisor) for John Hancock Disciplined Value Fund (the fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16–17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the fund, the Advisor, and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for the fund’s benchmark index; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts, as applicable; and other information provided by the Advisor and the Subadvisor regarding the nature, extent, and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor’s revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and does not treat any single factor as determinative and each Trustee may attribute different weights to different factors. The Board’s conclusions may be based in part
Semiannual report | Disciplined Value Fund | 35 |
on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of fund performance and operations throughout the year.
Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and other third-party service providers.
In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties through Board meetings, discussions, and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationship, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objectives; review of brokerage matters, including with respect to trade allocation and best execution; and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund; and
(f) the Advisor’s reputation and experience in serving as an investment adviser to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.
Investment performance. In considering the fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
(a) reviewed information prepared by management regarding the fund’s performance;
(b) considered the comparative performance of the fund’s benchmark;
36 | Disciplined Value Fund | Semiannual report |
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the fund’s ranking within a smaller group of peer funds and the fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted that the fund outperformed its benchmark index and peer group average for the one- and three-year periods ended December 31, 2012.
The Board noted the fund’s favorable performance relative to the benchmark index and peer group for the one- and three-year periods.
The Board concluded that the performance of the fund has generally been in line with or outperformed the historical performance of comparable funds and the fund’s benchmark.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data, including, among other data, the fund’s contractual and net management fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund. The Board considered the fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund’s ranking within a broader group of funds. In comparing the fund’s contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.
The Board noted that net management fees for this fund are higher than the peer group median and that total expenses for this fund are lower than the peer group median. The Board also that the subadvisory fees for the fund are lower than the per group median. The Board took into account management’s discussion of the fund’s expenses. The Board also noted that the fund’s distributor, an affiliate of the Advisor, waived a portion of its Rule 12b-1 fee for a share class of the fund.
The Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the sub-advisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the fund, which is discussed further below. The Board also noted that the Advisor has agreed to fee waivers and/or expense reimbursements with respect to the total operating expenses of certain share classes of the fund. The Board also noted that the Advisor pays the subadvisory fees of the fund, and that such fees are negotiated at arm’s length with respect to the Subadvisor. The Board also noted management’s discussion of the fund’s expenses, as well as certain actions taken over the past several years to reduce the fund’s operating expenses. The Board reviewed information provided by the Advisor concerning investment advisory fees charged to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable.
Profitability/indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates from the Advisor’s relationship with the Trust, the Board:
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;
Semiannual report | Disciplined Value Fund | 37 |
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
(e) considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;
(f) noted that affiliates of the Advisor provide transfer agency services and distribution services to the fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the fund;
(g) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;
(h) noted that the subadvisory fees for the fund are paid by the Advisor and are negotiated at arm’s length; and
(i) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates from their relationship with the fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders, the Board:
(a) considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the fund and each of the other open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement):
The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The funds that are not Participating Portfolios as of the date of this semiannual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the fund’s fee structure contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the fund to benefit from economies of scale if the fund grows. The Board also took into account management’s discussion of the fund’s advisory fee structure; and
(c) the Board also considered the effect of the fund’s growth in size on its performance and fees. The Board also noted that if the fund’s assets increase over time, the fund may realize other economies of scale.
38 | Disciplined Value Fund | Semiannual report |
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the fund, and comparative performance information relating to the fund’s benchmark and comparable funds;
(3) the subadvisory fee for the fund, including breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data; and
(4) information relating to the nature and scope of any material relationships and their significance to the Trust’s Advisor and Subadvisor.
Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background, and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the Trust’s CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by it to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the fund, that is consistent with the fund’s investment objectives, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund.
The Board also relied on the ability of the Advisor to negotiate the Subadvisory Agreement with the Subadvisor, which is not affiliated with the Advisor, and the fees thereunder at arm’s length. As a result, the costs of the services to be provided and the profits to be realized by the Subadvisor from its relationship with the Trust were not a material factor in the Board’s consideration of the Subadvisory Agreement.
Semiannual report | Disciplined Value Fund | 39 |
The Board also received information regarding the nature and scope (including their significance to the Advisor and its affiliates and to the Subadvisor) of any material relationships with respect to the Subadvisor, which includes arrangements in which the Subadvisor or its affiliates provide advisory, distribution, or management services in connection with financial products sponsored by the Trust’s Advisor or its affiliates, and may include other registered investment companies, a 529 education savings plan, managed separate account, and exempt group annuity contracts sold to qualified plans. The Board also received information and took into account any other potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement.
In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock fund complex and reputational benefits.
Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. As noted above, the Board also considered the fund’s subadvisory fees as compared to similarly situated investment companies deemed to be comparable to the fund as included in the report prepared by the independent third-party provider of mutual fund data. The Board also took into account the subadvisory fees paid by the Advisor to the Subadvisor with respect to the fund to fees charged by the fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the fund’s performance as compared to the fund’s peer group and benchmark and noted that the Board reviews information about the fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the fund generally has been in line with or outperformed the historical performance of comparable funds and the fund’s benchmark and the fund’s overall performance is satisfactory;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the fund in order to permit shareholders to benefit from economies of scale if the fund grows.
* * * |
Based on the Board’s evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
40 | Disciplined Value Fund | Semiannual report |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Investment Management |
Steven R. Pruchansky, Vice Chairman | Services, LLC |
Charles L. Bardelis* | |
James R. Boyle† | Subadvisor |
Craig Bromley† | Robeco Investment Management, Inc. |
Peter S. Burgess* | |
William H. Cunningham | Principal distributor |
Grace K. Fey | John Hancock Funds, LLC |
Theron S. Hoffman* | |
Deborah C. Jackson | Custodian |
Hassell H. McClellan | State Street Bank and Trust Company |
Gregory A. Russo | |
Warren A. Thomson† | Transfer agent |
John Hancock Signature Services, Inc. | |
Officers | |
Hugh McHaffie | Legal counsel |
President | K&L Gates LLP |
Andrew G. Arnott | |
Executive Vice President | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†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) website at sec.gov or on our website.
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 website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 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 website at jhinvestments.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhinvestments.com | Investment Operations | Investment Operations |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. | |
P.O. Box 55913 | 30 Dan Road | |
Boston, MA 02205-5913 | Canton, MA 02021 |
Semiannual report | Disciplined Value Fund | 41 |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/disciplinedvaluex38x1.jpg)
800-225-5291
800-338-8080 EASI-Line
jhinvestments.com
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/disciplinedvaluex38x2.jpg)
This report is for the information of the shareholders of John Hancock Disciplined Value Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 340SA 9/13 |
MF160074 | 11/13 |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/corehighyieldx1x1.jpg)
A look at performance
Total returns for the period ended September 30, 2013
SEC 30-day | SEC 30-day | |||||||||||||
Average annual total returns (%) | Cumulative total returns (%) | yield (%) | yield (%) | |||||||||||
with maximum sales charge | with maximum sales charge | subsidized | unsubsidized1 | |||||||||||
Since | Since | as of | as of | |||||||||||
1-year | 5-year | 10-year | inception2 | 6-months | 1-year | 5-year | 10-year | inception2 | 9-30-13 | 9-30-13 | ||||
Class A | 2.98 | — | — | 15.39 | –3.10 | 2.98 | — | — | 88.33 | 6.18 | 6.17 | |||
Class C3 | 5.72 | — | — | 15.14 | 0.06 | 5.72 | — | — | 86.56 | 5.71 | 5.10 | |||
Class I4 | 8.31 | — | — | 16.98 | 1.72 | 8.31 | — | — | 100.06 | 6.78 | 6.75 | |||
Index† | 7.14 | — | — | 16.58 | 0.91 | 7.14 | — | — | 97.04 | — | — | |||
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charge on Class A shares of 4.5% and the applicable contingent deferred sales charge (CDSC) on Class C shares. Class C shares held for less than one year are subject to a 1% CDSC. Sales charges are not applicable to 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 those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least until 6-30-14 for Class A, Class C, and Class I shares. Had the fee waivers and expense limitations not been in place, gross expenses would apply. The expense ratios are as follows:
Class A | Class C* | Class I | ||||||
Net (%) | 1.18 | 1.93 | 0.87 | |||||
Gross (%) | 1.30 | 2.12 | 1.07 |
* Expenses have been estimated for the class’s full year of operations.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month end, please call 800-225-5291 or visit the fund’s website at jhinvestments.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 fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index is the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index.
See the following page for footnotes.
6 | Core High Yield Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/corehighyieldx3x1.jpg)
With maximum | Without | |||
Start date | sales charge | sales charge | Index | |
Class C5 | 4-30-09 | $18,656 | $18,656 | $19,704 |
Class I4 | 4-30-09 | 20,006 | 20,006 | 19,704 |
Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index is an unmanaged index consisting of U.S. currency high-yield bonds issued by U.S. and non-U.S. issuers.
It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would have resulted in lower values.
Footnotes related to performance pages
1 Unsubsidized yields reflect what the yield would have been without the effect of reimbursements and waivers.
2 From 4-30-09.
3 Class C shares were first offered on 3-27-13. The returns prior to this date are those of Class A shares that have been recalculated to reflect the gross fees and expenses of Class C shares.
4 For certain types of investors, as described in the fund’s prospectus.
5 The contingent deferred sales charge is not applicable.
Semiannual report | Core High Yield Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
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 the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,014.80 | $5.86 |
Class C | 1,000.00 | 1,010.50 | 9.73 |
Class I | 1,000.00 | 1,017.20 | 4.40 |
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 September 30, 2013, 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:
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/corehighyieldx4x1.jpg)
8 | Core High Yield Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare the 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 the fund’s actual return). It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,019.30 | $5.87 |
Class C | 1,000.00 | 1,015.40 | 9.75 |
Class I | 1,000.00 | 1,020.70 | 4.41 |
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 prospectuses for details regarding transaction costs.
1 Expenses are equal to the fund’s annualized expense ratio of 1.16%, 1.93%, and 0.87% for Class A, Class C, and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
Semiannual report | Core High Yield Fund | 9 |
Portfolio summary
Top 10 Issuers (19.6% of Net Assets on 9-30-13)1,2 | ||||
Centric Health Corp. | 2.8% | Vantage Oncology LLC | 1.9% | |
National Mentor Holdings, Inc. | 2.3% | CHC Helicopter SA | 1.9% | |
Southern States Cooperative, Inc. | 2.1% | HD Supply, Inc. | 1.6% | |
Midstates Petroleum Company, Inc. | 2.0% | Blue Coat Systems, Inc. | 1.6% | |
Thompson Creek Metals Company, Inc. | 1.9% | Cash America International, Inc. | 1.5% | |
Sector Composition1,3 | ||||
Energy | 15.6% | Consumer Staples | 9.0% | |
Consumer Discretionary | 13.8% | Telecommunication Services | 3.1% | |
Industrials | 13.4% | Information Technology | 2.2% | |
Materials | 12.4% | Utilities | 0.9% | |
Financials | 10.8% | Short-Term Investments & Other | 9.5% | |
Health Care | 9.3% | |||
Quality Composition1,4 | ||||
BBB | 0.5% | CCC | 29.2% | |
BB | 2.6% | Not Rated | 16.7% | |
B | 41.5% | Short-Term Investments & Other | 9.5% | |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/corehighyieldx6x1.jpg)
1 As a percentage of net assets on 9-30-13.
2 Cash and cash equivalents not included.
3 Investments in higher-yielding, lower-rated securities involve additional risks as these securities include a higher risk of default and loss of principal. Fixed-income investments are subject to interest rate and credit risk; their value will normally decline as interest rates rise or if the creditor is unable or unwilling to make principal or interest payments. The issuer or guarantor of a security, or counterparty to a transaction, may be unable or unwilling to make principal, interest or settlement payments. Frequently trading securities may increase transaction costs (thus lowering performance) and taxable distributions. The use of hedging and derivatives transactions could produce disproportionate gains or losses and may increase volatility and costs. Foreign investing, especially in emerging markets, has additional risks such as currency and market volatility and political and social instability. 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, and investments focused in one sector may fluctuate more widely than investments diversified across sectors. For additional information on these and other risk considerations, please see the fund’s prospectuses.
4 Ratings are from Moody’s Investors Service, Inc. If not available, we have used ratings from Standard & Poor’s Ratings Services. In the absence of ratings from these agencies, we have used Fitch Ratings, Inc. “Not Rated” securities are those with no ratings available from these agencies. All are as of 9-30-13 and do not reflect subsequent downgrades or upgrades, if any.
10 | Core High Yield Fund | Semiannual report |
Fund’s investments
As of 9-30-13 (unaudited)
Maturity | |||||
Rate (%) | date | Par value^ | Value | ||
Corporate Bonds 76.8% | $246,619,748 | ||||
(Cost $246,115,727) | |||||
Consumer Discretionary 8.1% | 25,943,302 | ||||
Auto Components 0.1% | |||||
UCI International, Inc. | 8.625 | 02-15-19 | 250,000 | 255,000 | |
Diversified Consumer Services 0.4% | |||||
Monitronics International, Inc. | 9.125 | 04-01-20 | 250,000 | 261,875 | |
Speedy Cash Intermediate Holdings Corp. (S) | 10.750 | 05-15-18 | 1,000,000 | 1,052,500 | |
Hotels, Restaurants & Leisure 0.9% | |||||
Caesars Entertainment Operating | |||||
Company, Inc. | 11.250 | 06-01-17 | 250,000 | 253,750 | |
Great Canadian Gaming Corp. | 6.625 | 07-25-22 | CAD 2,000,000 | 1,979,318 | |
Landry’s, Inc. (S) | 9.375 | 05-01-20 | 485,000 | 511,675 | |
Marina District Finance Company, Inc. | 9.875 | 08-15-18 | 100,000 | 108,500 | |
Household Durables 2.6% | |||||
Beazer Homes USA, Inc. | 7.250 | 02-01-23 | 200,000 | 192,000 | |
Beazer Homes USA, Inc. | 9.125 | 05-15-19 | 3,000,000 | 3,165,000 | |
Norcraft Companies LP | 10.500 | 12-15-15 | 4,000,000 | 4,135,000 | |
The Ryland Group, Inc. | 5.375 | 10-01-22 | 1,000,000 | 935,000 | |
Media 2.0% | |||||
American Media, Inc. | 11.500 | 12-15-17 | 94,000 | 97,760 | |
Columbus International, Inc. (S) | 11.500 | 11-20-14 | 750,000 | 806,250 | |
Gibson Brands, Inc. (S) | 8.875 | 08-01-18 | 490,000 | 497,350 | |
Postmedia Network, Inc. | 12.500 | 07-15-18 | 2,000,000 | 2,190,000 | |
Quebecor Media, Inc. (S) | 6.625 | 01-15-23 | CAD 3,000,000 | 2,876,074 | |
Specialty Retail 2.1% | |||||
Empire Today LLC (S) | 11.375 | 02-01-17 | 3,000,000 | 2,433,750 | |
GRD Holdings III Corp. (S) | 10.750 | 06-01-19 | 3,000,000 | 3,180,000 | |
Michaels FinCo Holdings LLC (S) | 7.500 | 08-01-18 | 1,000,000 | 1,012,500 | |
Consumer Staples 7.8% | 25,103,338 | ||||
Beverages 0.2% | |||||
Pinnacle Operating Corp. (S) | 9.000 | 11-15-20 | 675,000 | 691,031 | |
Food Products 3.9% | |||||
Alliance Grain Traders, Inc. (S) | 9.000 | 02-14-18 | CAD 2,000,000 | 1,975,632 | |
Del Monte Corp. | 7.625 | 02-15-19 | 1,250,000 | 1,296,875 | |
Post Holdings, Inc. (S) | 7.375 | 02-15-22 | 1,100,000 | 1,156,375 |
See notes to financial statements | Semiannual report | Core High Yield Fund | 11 |
Maturity | |||||
Rate (%) | date | Par value^ | Value | ||
Food Products (continued) | |||||
Simmons Foods, Inc. (S) | 10.500 | 11-01-17 | 1,250,000 | $1,309,375 | |
Southern States Cooperative, Inc. (S) | 10.000 | 08-15-21 | 7,000,000 | 6,790,000 | |
Household Products 3.5% | |||||
Harbinger Group, Inc. (S) | 7.875 | 07-15-19 | 2,830,000 | 2,929,050 | |
Reynolds Group Issuer, Inc. | 9.000 | 04-15-19 | 3,000,000 | 3,150,000 | |
The Sun Products Corp. (S) | 7.750 | 03-15-21 | 4,000,000 | 3,680,000 | |
YCC Holdings LLC, PIK | 10.250 | 02-15-16 | 1,550,000 | 1,588,750 | |
Tobacco 0.2% | |||||
North Atlantic Trading Company, Inc. (S) | 11.500 | 07-15-16 | 500,000 | 536,250 | |
Energy 15.6% | 50,019,406 | ||||
Energy Equipment & Services 4.1% | |||||
Bristow Group, Inc. | 6.250 | 10-15-22 | 250,000 | 260,000 | |
Forbes Energy Services, Ltd. | 9.000 | 06-15-19 | 3,750,000 | 3,768,750 | |
Nuverra Environmental Solutions, Inc. | 9.875 | 04-15-18 | 4,000,000 | 4,060,000 | |
Permian Holdings, Inc. (S) | 10.500 | 01-15-18 | 4,770,000 | 4,650,750 | |
Pioneer Energy Services Corp. | 9.875 | 03-15-18 | 250,000 | 270,000 | |
Oil, Gas & Consumable Fuels 11.5% | |||||
Arch Coal, Inc. | 8.750 | 08-01-16 | 2,000,000 | 2,000,000 | |
Bill Barrett Corp. | 7.625 | 10-01-19 | 1,000,000 | 1,020,000 | |
BreitBurn Energy Partners LP | 7.875 | 04-15-22 | 3,000,000 | 2,992,500 | |
Carrizo Oil & Gas, Inc. | 7.500 | 09-15-20 | 2,750,000 | 2,915,000 | |
EPL Oil & Gas, Inc. | 8.250 | 02-15-18 | 1,500,000 | 1,582,500 | |
Forest Oil Corp. | 7.250 | 06-15-19 | 3,000,000 | 3,000,000 | |
Green Field Energy Services, Inc. (H)(S) | 13.000 | 11-15-16 | 256,000 | 230,400 | |
Halcon Resources Corp. | 8.875 | 05-15-21 | 400,000 | 410,000 | |
Halcon Resources Corp. (S) | 9.250 | 02-15-22 | 3,500,000 | 3,640,000 | |
Legacy Reserves LP (S) | 8.000 | 12-01-20 | 4,000,000 | 4,040,000 | |
Midstates Petroleum Company, Inc. (S) | 10.750 | 10-01-20 | 6,000,000 | 6,300,000 | |
Penn Virginia Corp. | 8.500 | 05-01-20 | 550,000 | 558,250 | |
Rex Energy Corp. (S) | 8.875 | 12-01-20 | 340,000 | 357,000 | |
Sidewinder Drilling, Inc. (S) | 9.750 | 11-15-19 | 2,500,000 | 2,425,000 | |
Southern Pacific Resource Corp. (S) | 8.750 | 01-25-18 | CAD 2,000,000 | 1,616,426 | |
Stone Energy Corp. | 8.625 | 02-01-17 | 400,000 | 423,000 | |
Trilogy Energy Corp. (S) | 7.250 | 12-13-19 | CAD 3,500,000 | 3,499,830 | |
Financials 9.9% | 31,671,673 | ||||
Capital Markets 1.2% | |||||
GFI Group, Inc. | 10.375 | 07-19-18 | 2,000,000 | 2,005,000 | |
KCG Holdings, Inc. (S) | 8.250 | 06-15-18 | 2,000,000 | 1,970,000 | |
Commercial Banks 0.3% | |||||
CIT Group, Inc. | 5.000 | 05-15-17 | 750,000 | 788,438 | |
Consumer Finance 1.5% | |||||
Cash America International, Inc. (S) | 5.750 | 05-15-18 | 5,000,000 | 4,850,000 | |
Diversified Financial Services 3.8% | |||||
General Electric Capital Corp. (6.250% | |||||
to 12-15-22, then 3 month LIBOR + | |||||
4.704%) (Q) | 6.250 | 12-15-22 | 1,500,000 | 1,515,000 | |
iPayment, Inc. | 10.250 | 05-15-18 | 5,000,000 | 3,550,000 |
12 | Core High Yield Fund | Semiannual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value^ | Value | ||
Diversified Financial Services (continued) | |||||
Milestone Aviation Group LLC (S) | 8.625 | 12-15-17 | 4,000,000 | $4,200,000 | |
MPH Intermediate Holding Company 2, PIK (S) | 8.375 | 08-01-18 | 670,000 | 686,331 | |
Reliance Intermediate Holdings LP (S) | 9.500 | 12-15-19 | 500,000 | 543,750 | |
TMX Finance LLC (S) | 8.500 | 09-15-18 | 1,615,000 | 1,687,675 | |
Real Estate Investment Trusts 0.6% | |||||
CNL Lifestyle Properties, Inc. | 7.250 | 04-15-19 | 750,000 | 768,750 | |
DuPont Fabros Technology LP (S) | 5.875 | 09-15-21 | 1,100,000 | 1,100,000 | |
Real Estate Management & Development 2.5% | |||||
Brookfield Residential Properties, Inc. (S) | 6.500 | 12-15-20 | 1,340,000 | 1,346,700 | |
Crescent Resources LLC (S) | 10.250 | 08-15-17 | 3,000,000 | 3,225,000 | |
Kennedy-Wilson, Inc. | 8.750 | 04-01-19 | 500,000 | 540,000 | |
Mattamy Group Corp. (S) | 6.500 | 11-15-20 | 1,000,000 | 982,500 | |
Mattamy Group Corp. (S) | 6.875 | 11-15-20 | CAD 2,000,000 | 1,912,529 | |
Health Care 9.0% | 28,887,010 | ||||
Health Care Equipment & Supplies 3.8% | |||||
Alere, Inc. | 7.250 | 07-01-18 | 2,500,000 | 2,700,000 | |
Apria Healthcare Group, Inc. | 12.375 | 11-01-14 | 496,000 | 499,100 | |
Centric Health Corp. | 8.625 | 04-18-18 | CAD 10,000,000 | 8,980,147 | |
Health Care Providers & Services 4.9% | |||||
National Mentor Holdings, Inc. (S) | 12.500 | 02-15-18 | 7,000,000 | 7,490,000 | |
OnCure Holdings, Inc. (H) | 11.750 | 05-15-17 | 175,000 | 84,438 | |
Radiation Therapy Services, Inc. | 9.875 | 04-15-17 | 150,000 | 107,250 | |
Radnet Management, Inc. | 10.375 | 04-01-18 | 2,050,000 | 2,167,875 | |
Vantage Oncology LLC (S) | 9.500 | 06-15-17 | 6,000,000 | 6,045,000 | |
Pharmaceuticals 0.3% | |||||
VPII Escrow Corp. (S) | 6.750 | 08-15-18 | 760,000 | 813,200 | |
Industrials 9.7% | 31,270,826 | ||||
Aerospace & Defense 0.5% | |||||
GenCorp, Inc. (S) | 7.125 | 03-15-21 | 175,000 | 183,313 | |
Kratos Defense & Security Solutions, Inc. | 10.000 | 06-01-17 | 1,350,000 | 1,468,125 | |
Airlines 0.1% | |||||
United Continental Holdings, Inc. | 6.375 | 06-01-18 | 250,000 | 254,375 | |
Building Products 0.6% | |||||
Gibraltar Industries, Inc. | 6.250 | 02-01-21 | 175,000 | 176,750 | |
Nortek, Inc. | 8.500 | 04-15-21 | 1,000,000 | 1,087,500 | |
Ply Gem Industries, Inc. | 9.375 | 04-15-17 | 300,000 | 316,500 | |
Summit Materials LLC | 10.500 | 01-31-20 | 250,000 | 263,750 | |
Commercial Services & Supplies 2.5% | |||||
Ahern Rentals, Inc. (S) | 9.500 | 06-15-18 | 650,000 | 684,125 | |
Casella Waste Systems, Inc. | 7.750 | 02-15-19 | 2,600,000 | 2,587,000 | |
EnergySolutions, Inc. | 10.750 | 08-15-18 | 1,935,000 | 2,055,938 | |
Garda World Security Corp. (S) | 9.750 | 03-15-17 | 380,000 | 402,800 | |
RR Donnelley & Sons Company | 8.250 | 03-15-19 | 1,250,000 | 1,387,500 | |
Safway Group Holding LLC (S) | 7.000 | 05-15-18 | 480,000 | 487,200 | |
The Sheridan Group, Inc. | 12.500 | 04-15-14 | 486,312 | 486,312 |
See notes to financial statements | Semiannual report | Core High Yield Fund | 13 |
Maturity | |||||
Rate (%) | date | Par value^ | Value | ||
Electrical Equipment 0.7% | |||||
Artesyn Escrow, Inc. (S) | 9.750 | 10-15-20 | 2,250,000 | $2,261,250 | |
Machinery 0.2% | |||||
BC Mountain LLC (S) | 7.000 | 02-01-21 | 200,000 | 198,500 | |
Milacron LLC (S) | 7.750 | 02-15-21 | 460,000 | 474,950 | |
Professional Services 1.0% | |||||
Mustang Merger Corp. (S) | 8.500 | 08-15-21 | 3,000,000 | 2,970,000 | |
TransUnion LLC | 11.375 | 06-15-18 | 250,000 | 277,813 | |
Road & Rail 0.6% | |||||
The Hertz Corp. | 5.875 | 10-15-20 | 2,000,000 | 2,060,000 | |
Trading Companies & Distributors 1.6% | |||||
HD Supply, Inc. (S) | 7.500 | 07-15-20 | 5,000,000 | 5,181,250 | |
Transportation Infrastructure 1.9% | |||||
CHC Helicopter SA | 9.250 | 10-15-20 | 3,000,000 | 3,195,000 | |
CHC Helicopter SA | 9.375 | 06-01-21 | 2,825,000 | 2,810,875 | |
Information Technology 0.3% | 890,000 | ||||
Electronic Equipment, Instruments & Components 0.3% | |||||
Kemet Corp. | 10.500 | 05-01-18 | 1,000,000 | 890,000 | |
Materials 12.4% | 39,731,605 | ||||
Chemicals 3.0% | |||||
Ferro Corp. | 7.875 | 08-15-18 | 4,000,000 | 4,200,000 | |
Momentive Performance Materials, Inc. | 8.875 | 10-15-20 | 2,000,000 | 2,100,000 | |
Rain CII Carbon LLC (S) | 8.250 | 01-15-21 | 3,375,000 | 3,391,875 | |
Construction Materials 0.1% | |||||
Weekley Homes LLC (S) | 6.000 | 02-01-23 | 205,000 | 196,800 | |
Containers & Packaging 1.2% | |||||
Ardagh Packaging Finance PLC (S) | 7.000 | 11-15-20 | 770,000 | 739,200 | |
Pretium Packaging LLC | 11.500 | 04-01-16 | 2,890,000 | 3,099,525 | |
Metals & Mining 6.9% | |||||
AM Castle & Company | 12.750 | 12-15-16 | 75,000 | 86,063 | |
Edgen Murray Corp. (S) | 8.750 | 11-01-20 | 3,000,000 | 3,045,000 | |
Essar Steel Algoma, Inc. (S) | 9.375 | 03-15-15 | 2,000,000 | 1,890,000 | |
First Quantum Minerals, Ltd. (S) | 7.250 | 10-15-19 | 2,000,000 | 1,880,000 | |
Hecla Mining Company (S) | 6.875 | 05-01-21 | 1,800,000 | 1,701,000 | |
HudBay Minerals, Inc. (S) | 9.500 | 10-01-20 | 4,000,000 | 4,010,000 | |
Novelis, Inc. | 8.750 | 12-15-20 | 100,000 | 109,750 | |
Optima Specialty Steel, Inc. (S) | 12.500 | 12-15-16 | 250,000 | 270,625 | |
Sherritt International Corp. | 7.500 | 09-24-20 | CAD 2,250,000 | 2,075,142 | |
Taseko Mines, Ltd. | 7.750 | 04-15-19 | 750,000 | 738,750 | |
Thompson Creek Metals Company, Inc. | 9.750 | 12-01-17 | 1,000,000 | 1,085,000 | |
Thompson Creek Metals Company, Inc. | 12.500 | 05-01-19 | 5,000,000 | 5,125,000 | |
Paper & Forest Products 1.2% | |||||
Mercer International, Inc. | 9.500 | 12-01-17 | 1,670,000 | 1,782,725 | |
Tembec Industries, Inc. | 11.250 | 12-15-18 | 1,476,000 | 1,605,150 | |
UPM-Kymmene OYJ (S) | 7.450 | 11-26-27 | 600,000 | 600,000 |
14 | Core High Yield Fund | Semiannual report | See notes to financial statements |
Maturity | |||||
Rate (%) | date | Par value^ | Value | ||
Telecommunication Services 3.1% | $10,127,375 | ||||
Diversified Telecommunication Services 1.6% | |||||
Cincinnati Bell, Inc. | 8.375 | 10-15-20 | 1,000,000 | 1,057,500 | |
Frontier Communications Corp. | 7.125 | 01-15-23 | 1,500,000 | 1,496,250 | |
Frontier Communications Corp. | 8.500 | 04-15-20 | 1,000,000 | 1,105,000 | |
Satelites Mexicanos SA de CV | 9.500 | 05-15-17 | 1,250,000 | 1,362,500 | |
Wind Acquisition Finance SA (S) | 11.750 | 07-15-17 | 250,000 | 265,625 | |
Wireless Telecommunication Services 1.5% | |||||
Goodman Networks, Inc. (S) | 12.125 | 07-01-18 | 3,600,000 | 3,813,000 | |
Sprint Capital Corp. | 6.900 | 05-01-19 | 1,000,000 | 1,027,500 | |
Utilities 0.9% | 2,975,213 | ||||
Gas Utilities 0.1% | |||||
LBC Tank Terminals Holding Netherlands BV (S) | 6.875 | 05-15-23 | 280,000 | 281,400 | |
Independent Power Producers & Energy Traders 0.8% | |||||
Dynegy, Inc. (S) | 5.875 | 06-01-23 | 585,000 | 533,813 | |
GenOn Energy, Inc. | 7.875 | 06-15-17 | 2,000,000 | 2,160,000 | |
Convertible Bonds 0.4% | $1,434,375 | ||||
(Cost $1,250,000) | |||||
Consumer Discretionary 0.4% | 1,434,375 | ||||
Household Durables 0.4% | |||||
M/I Homes, Inc. | 3.250 | 09-15-17 | 1,250,000 | 1,434,375 | |
Term Loans (M) 13.3% | $42,663,737 | ||||
(Cost $42,337,640) | |||||
Consumer Discretionary 5.3% | 17,095,731 | ||||
Diversified Consumer Services 0.9% | |||||
Orchard Acquisition Company | 9.000 | 02-07-19 | 2,994,457 | 3,005,686 | |
Internet & Catalog Retail 0.4% | |||||
Orbitz Worldwide, Inc. | 4.500 | 09-25-17 | 1,300,000 | 1,306,500 | |
Media 0.8% | |||||
ASP NEP | 9.500 | 07-22-20 | 22,857 | 23,352 | |
SESAC, Inc. | 6.000 | 02-08-19 | 1,985,000 | 1,994,925 | |
SESAC, Inc. | 10.000 | 07-12-19 | 500,000 | 510,000 | |
Multiline Retail 0.9% | |||||
Collective Brands, Inc. | 7.250 | 10-09-19 | 2,980,025 | 2,965,125 | |
Specialty Retail 1.1% | |||||
Toys R Us Property Company I LLC | 6.000 | 08-21-19 | 3,450,000 | 3,396,811 | |
Textiles, Apparel & Luxury Goods 1.2% | |||||
Charlotte Russe Holding, Inc. | 6.750 | 05-21-19 | 4,000,000 | 3,893,332 | |
Consumer Staples 1.2% | 3,932,675 | ||||
Food & Staples Retailing 1.2% | |||||
Reddy Ice Corp. | 6.750 | 05-01-19 | 3,482,500 | 3,447,675 | |
Reddy Ice Corp. | 10.750 | 11-01-19 | 500,000 | 485,000 |
See notes to financial statements | Semiannual report | Core High Yield Fund | 15 |
Maturity | |||||
Rate (%) | date | Par value^ | Value | ||
Financials 0.9% | $2,956,172 | ||||
Capital Markets 0.9% | |||||
Knight Capital Group, Inc. | 5.750 | 12-05-17 | 2,000,000 | 1,998,750 | |
Walter Investment Management Corp. | 5.750 | 11-28-17 | 950,000 | 957,422 | |
Health Care 0.3% | 997,488 | ||||
Health Care Providers & Services 0.3% | |||||
Premier Dental | 8.250 | 11-01-18 | 995,000 | 997,488 | |
Industrials 3.7% | 11,665,838 | ||||
Airlines 0.8% | |||||
Air Canada (T) | TBD | 09-20-19 | 2,675,000 | 2,668,313 | |
Machinery 1.0% | |||||
CPM Holdings, Inc. | 10.250 | 03-01-18 | 3,000,000 | 3,007,500 | |
Road & Rail 1.3% | |||||
Livingston International, Inc. | 5.000 | 04-16-19 | 1,995,000 | 1,985,025 | |
Livingston International, Inc. | 9.000 | 04-20-20 | 2,000,000 | 2,005,000 | |
Transportation Infrastructure 0.6% | |||||
Riverboat Corporation of Mississippi | 10.000 | 11-29-16 | 2,000,000 | 2,000,000 | |
Information Technology 1.9% | 6,015,833 | ||||
Electronic Equipment, Instruments & Components 1.6% | |||||
Blue Coat Systems, Inc. | 9.500 | 06-26-20 | 5,000,000 | 5,012,500 | |
IT Services 0.3% | |||||
Deltek, Inc. | 10.000 | 10-10-19 | 1,000,000 | 1,003,333 | |
Shares | Value | ||||
Common Stocks 0.0% | $118,934 | ||||
(Cost $209,046) | |||||
Utilities 0.0% | 118,934 | ||||
Independent Power Producers & Energy Traders 0.0% | |||||
Dynegy, Inc. (I) | 6,156 | 118,934 | |||
Warrants 0.0% | $7,500 | ||||
(Cost $17,500) | |||||
Green Field Energy Services, Inc. ( Expiration Date: 11-15-21; | |||||
Strike Price: $0.01) (I)(S) | 250 | 7,500 |
16 | Core High Yield Fund | Semiannual report | See notes to financial statements |
Par value^ | Value | |
Short-Term Investments 1.3% | $4,021,000 | |
(Cost $4,021,000) | ||
Repurchase Agreement 1.3% | 4,021,000 | |
Repurchase Agreement with State Street Corp. dated 9-30-13 | ||
at 0.000% to be repurchased at $4,021,000 on 10-1-13, | ||
collateralized by $4,110,000 U.S. Treasury Note, 1.375% due | ||
12-31-18 (valued at $4,104,863, including interest) | 4,021,000 | 4,021,000 |
Total investments (Cost $293,950,913)† 91.8% | $294,865,294 | |
Other assets and liabilities, net 8.2% | $26,259,561 | |
Total net assets 100.0% | $321,124,855 | |
^ The percentage shown for each investment category is the total value of the category as a percentage of the net assets of the fund. All par values are denominated in U.S. dollars unless otherwise indicated.
CAD Canadian Dollar
LIBOR London Interbank Offered Rate
PIK Paid-in-kind
(H) Non-income producing — Issuer is in default.
(I) Non-income producing security.
(M) Term loans are variable rate obligations. The coupon rate shown represents the rate at period end.
(Q) Perpetual bonds have no stated maturity date. Date shown as maturity date is next call date.
(S) These securities are exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be resold, normally to qualified institutional buyers, in transactions exempt from registration. Rule 144A securities amounted to $130,519,129 or 40.6% of the fund’s net assets as of 9-30-13.
(T) This position represents an unsettled loan commitment at period end. Certain details associated with this purchase are not known prior to the settlement date, including coupon rate.
† At 9-30-13, the aggregate cost of investment securities for federal income tax purposes was $294,242,195. Net unrealized appreciation aggregated $623,099, of which $6,659,089 related to appreciated investment securities and $6,035,990 related to depreciated investment securities.
The fund had the following country concentration as a percentage of net assets on 9-30-13:
United States | 80.1% | |||||||
Canada | 16.4% | |||||||
Ireland | 1.5% | |||||||
Luxembourg | 1.0% | |||||||
Mexico | 0.4% | |||||||
Barbados | 0.3% | |||||||
Finland | 0.2% | |||||||
Netherlands | 0.1% | |||||||
Total | 100.0% |
See notes to financial statements | Semiannual report | Core High Yield Fund | 17 |
Financial statements
Statement of assets and liabilities 9-30-13 (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 offering price per share.
Assets | |
Total investments, at value (Cost $293,950,913) | $294,865,294 |
Cash | 23,441,577 |
Foreign currency, at value (Cost $126,821) | 126,975 |
Receivable for investments sold | 2,161,071 |
Receivable for fund shares sold | 2,543,935 |
Receivable for forward foreign currency exchange contracts | 58,260 |
Interest receivable | 7,177,123 |
Receivable due from advisor | 509 |
Other receivables and prepaid expenses | 37,617 |
Total assets | 330,412,361 |
Liabilities | |
Payable for investments purchased | 7,864,500 |
Payable for fund shares repurchased | 1,206,460 |
Distributions payable | 78,191 |
Payable to affiliates | |
Accounting and legal services fees | 20,574 |
Transfer agent fees | 36,021 |
Other liabilities and accrued expenses | 81,760 |
Total liabilities | 9,287,506 |
Net assets | 321,124,855 |
Net assets consist of | |
Paid-in capital | $318,513,383 |
Undistributed net investment income | 52,698 |
Accumulated net realized gain (loss) on investments and foreign | |
currency transactions | 1,583,188 |
Net unrealized appreciation (depreciation) on investments and translation | |
of assets and liabilities in foreign currencies | 975,586 |
Net assets | $321,124,855 |
18 | Core High Yield Fund | Semiannual report | See notes to financial statements |
FINANCIAL STATEMENTS
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 ($249,007,901 ÷ 23,005,411 shares)1 | $10.82 |
Class C ($8,251,247 ÷ 762,552 shares)1 | $10.82 |
Class I ($63,865,707 ÷ 5,898,687 shares) | $10.83 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95.5%)2 | $11.33 |
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 $100,000. On sales of $100,000 or more and on group sales the offering price is reduced.
See notes to financial statements | Semiannual report | Core High Yield Fund | 19 |
Statement of operations For the six-month period ended 9-30-13
(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 | |
Interest | $11,057,368 |
Total investment income | 11,057,368 |
Expenses | |
Investment management fees | 933,083 |
Distribution and service fees | 313,646 |
Accounting and legal services fees | 28,451 |
Transfer agent fees | 208,058 |
Trustees’ fees | 5,189 |
State registration fees | 30,483 |
Printing and postage | 15,173 |
Professional fees | 37,264 |
Custodian fees | 35,796 |
Registration and filing fees | 28,104 |
Other | 5,870 |
Total expenses | 1,641,117 |
Less expense reductions | (19,816) |
Net expenses | 1,621,301 |
Net investment income | 9,436,067 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments | 1,052,866 |
Foreign currency transactions | 370,547 |
1,423,413 | |
Change in net unrealized appreciation (depreciation) of | |
Investments | (6,616,232) |
Translation of assets and liabilities in foreign currencies | 64,216 |
(6,552,016) | |
Net realized and unrealized loss | (5,128,603) |
Increase in net assets from operations | $4,307,464 |
20 | Core High Yield Fund | Semiannual report | See notes to financial statements |
FINANCIAL STATEMENTS
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.
Six months | ||
ended | Year | |
9-30-13 | ended | |
(Unaudited) | 3-31-13 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $9,436,067 | $8,062,308 |
Net realized gain | 1,423,413 | 325,206 |
Change in net unrealized appreciation (depreciation) | (6,552,016) | 6,913,390 |
Increase in net assets resulting from operations | 4,307,464 | 15,300,904 |
Distributions to shareholders | ||
From net investment income | ||
Class A | (7,654,746) | (6,743,134) |
Class C | (126,344) | (62) |
Class I | (1,743,241) | (1,346,182) |
From net realized gain | ||
Class A | — | (143,623) |
Class I | — | (29,611) |
Total distributions | (9,524,331) | (8,262,612) |
From Fund share transactions | 78,115,011 | 225,072,159 |
Total increase | 72,898,144 | 232,110,451 |
Net assets | ||
Beginning of period | 248,226,711 | 16,116,260 |
End of period | $321,124,855 | $248,226,711 |
Undistributed net investment income | $52,698 | $140,962 |
See notes to financial statements | Semiannual report | Core High Yield Fund | 21 |
Financial highlights
The Financial highlights show how the fund’s net asset value for a share has changed during the period.
CLASS A SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102 |
Per share operating performance | |||||
Net asset value, beginning of period | $11.02 | $10.52 | $11.35 | $11.59 | $10.00 |
Net investment income3 | 0.35 | 0.74 | 1.07 | 1.16 | 0.99 |
Net realized and unrealized gain (loss) on investments | (0.19) | 0.53 | (0.25) | 0.92 | 2.21 |
Total from investment operations | 0.16 | 1.27 | 0.82 | 2.08 | 3.20 |
Less distributions | |||||
From net investment income | (0.36) | (0.76) | (1.04) | (1.20) | (0.98) |
From net realized gain | — | (0.01) | (0.61) | (1.12) | (0.63) |
Total distributions | (0.36) | (0.77) | (1.65) | (2.32) | (1.61) |
Net asset value, end of period | $10.82 | $11.02 | $10.52 | $11.35 | $11.59 |
Total return (%)4,5 | 1.486 | 12.59 | 8.12 | 19.34 | 33.756 |
Ratios and supplemental data | |||||
Net assets, end of period (in millions) | $249 | $208 | $16 | $17 | $17 |
Ratios (as a percentage of average net assets): | |||||
Expenses before reductions | 1.177 | 1.30 | 1.68 | 1.55 | 1.367 |
Expenses net of fee waivers | 1.167 | 1.18 | 1.24 | 1.21 | 1.137 |
Net investment income | 6.427 | 6.83 | 9.82 | 9.99 | 9.827 |
Portfolio turnover (%) | 12 | 15 | 64 | 207 | 389 |
1 Six months ended 9-30-13. Unaudited.
2 Period from 4-30-09 (inception date) to 3-31-10.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Annualized.
22 | Core High Yield Fund | Semiannual report | See notes to financial statements |
CLASS C SHARES Period ended | 9-30-131 | 3-31-132 | |||
Per share operating performance | |||||
Net asset value, beginning of period | $11.02 | $11.01 | |||
Net investment income3 | 0.31 | 0.01 | |||
Net realized and unrealized gain (loss) on investments | (0.20) | —4 | |||
Total from investment operations | 0.11 | 0.01 | |||
Less distributions | |||||
From net investment income | (0.31) | — | |||
Total distributions | (0.31) | — | |||
Net asset value, end of period | $10.82 | $11.02 | |||
Total return (%)5,6 | 1.057 | 0.097 | |||
Ratios and supplemental data | |||||
Net assets, end of period (in millions) | $8 | —8 | |||
Ratios (as a percentage of average net assets): | |||||
Expenses before reductions | 2.399 | 16.989 | |||
Expenses net of fee waivers | 1.939 | 1.939 | |||
Net investment income | 5.669 | 5.549 | |||
Portfolio turnover (%) | 12 | 1510 |
1 Six months ended 9-30-13. Unaudited.
2 Period from 3-27-13 (inception date) to 3-31-13.
3 Based on the average daily shares outstanding.
4 Less than $0.005 per share.
5 Does not reflect the effect of sales charges, if any.
6 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Portfolio turnover is shown for the period from 4-1-12 to 3-31-13.
CLASS I SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102 |
Per share operating performance | |||||
Net asset value, beginning of period | $11.02 | $10.52 | $11.36 | $11.59 | $10.00 |
Net investment income3 | 0.37 | 0.77 | 1.10 | 1.21 | 1.02 |
Net realized and unrealized gain (loss) on investments | (0.18) | 0.53 | (0.26) | 0.92 | 2.20 |
Total from investment operations | 0.19 | 1.30 | 0.84 | 2.13 | 3.22 |
Less distributions | |||||
From net investment income | (0.38) | (0.79) | (1.07) | (1.24) | (1.00) |
From net realized gain | — | (0.01) | (0.61) | (1.12) | (0.63) |
Total distributions | (0.38) | (0.80) | (1.68) | (2.36) | (1.63) |
Net asset value, end of period | $10.83 | $11.02 | $10.52 | $11.36 | $11.59 |
Total return (%)4 | 1.725 | 12.90 | 8.39 | 19.87 | 34.085 |
Ratios and supplemental data | |||||
Net assets, end of period (in millions) | $64 | $40 | —6 | —6 | —6 |
Ratios (as a percentage of average net assets): | |||||
Expenses before reductions | 0.897 | 1.07 | 4.23 | 1.35 | 3.527 |
Expenses net of fee waivers | 0.877 | 0.87 | 0.90 | 0.85 | 0.857 |
Net investment income | 6.747 | 7.06 | 10.17 | 10.35 | 10.107 |
Portfolio turnover (%) | 12 | 15 | 64 | 207 | 389 |
1 Six months ended 9-30-13. Unaudited.
2 Period from 4-30-09 (inception date) to 3-31-10.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
See notes to financial statements | Semiannual report | Core High Yield Fund | 23 |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Core High Yield Fund (the fund) is a 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 total return, consisting of a high level of current income and 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 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, if any, and transfer agent fees, printing and postage and state registration fees for each class may differ.
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 as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. 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. 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, the securities are valued using the last quoted bid or evaluated price. Debt obligations are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing techniques, taking into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Foreign securities and currencies, including forward foreign currency contracts, are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Certain securities and forward foreign currency contracts traded only in the over-the-counter (OTC) 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, for which reliable 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. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
24 | Core High Yield Fund | Semiannual report |
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 securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other 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 inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using 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. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
The following is a summary of the values by input classification of the fund’s investments as of September 30, 2013, by major security category or type:
LEVEL 3 | |||||
LEVEL 2 | SIGNIFICANT | ||||
TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE | ||
VALUE AT 9-30-13 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS | ||
Corporate Bonds | |||||
Consumer Discretionary | $25,943,302 | — | $25,943,302 | — | |
Consumer Staples | 25,103,338 | — | 25,103,338 | — | |
Energy | 50,019,406 | — | 50,019,406 | — | |
Financials | 31,671,673 | — | 31,671,673 | — | |
Health Care | 28,887,010 | — | 28,887,010 | — | |
Industrials | 31,270,826 | — | 31,270,826 | — | |
Information Technology | 890,000 | — | 890,000 | — | |
Materials | 39,731,605 | — | 39,731,605 | — | |
Telecommunication | |||||
Services | 10,127,375 | — | 10,127,375 | — | |
Utilities | 2,975,213 | — | 2,975,213 | — | |
Convertible Bonds | |||||
Consumer Discretionary | 1,434,375 | — | 1,434,375 | — | |
Term Loans | |||||
Consumer Discretionary | 17,095,731 | — | 17,095,731 | — | |
Consumer Staples | 3,932,675 | — | 3,932,675 | — | |
Financials | 2,956,172 | — | 2,956,172 | — | |
Health Care | 997,488 | — | 997,488 | — | |
Industrials | 11,665,838 | — | 11,665,838 | — | |
Information Technology | 6,015,833 | — | 6,015,833 | — | |
Common Stocks | |||||
Utilities | 118,934 | $118,934 | — | — | |
Warrants | 7,500 | — | 7,500 | — | |
Short-Term Investments | 4,021,000 | — | 4,021,000 | — | |
Total Investments in | |||||
Securities | $294,865,294 | $118,934 | $294,746,360 | — | |
Other Financial | |||||
Instruments | |||||
Forward Foreign Currency | |||||
Contracts | $58,260 | — | $58,260 | — |
Semiannual report | Core High Yield Fund | 25 |
Repurchase agreements. The fund may enter into repurchase agreements. When the fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest.
Repurchase agreements are typically governed by the terms and conditions of the Master Repurchase Agreement and/or Global Master Repurchase Agreement (collectively, MRA). Upon an event of default, the non-defaulting party may close out all transactions traded under the MRA and net amounts owed. Absent an event of default, the MRA does not result in an offset of the reported amounts of assets and liabilities in the Statement of assets and liabilities. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline or the counterparty may have insufficient assets to pay back claims resulting from close-out of the transactions. Collateral received by the fund for repurchase agreements is disclosed in the Portfolio of investments as part of the caption related to the repurchase agreement.
Term loans (Floating rate loans). The fund may invest in term loans, which often include debt securities that are rated below investment grade at the time of purchase. Term loans are generally subject to legal or contractual restrictions on resale. The liquidity of term loans, including the volume and frequency of secondary market trading in such loans, varies significantly over time and among individual loans. During periods of infrequent trading, valuing a term loan can be more difficult and buying and selling a term loan at an acceptable price can be more difficult and delayed, which could result in a loss.
The fund’s ability to receive payments of principal, interest and other amounts in connection with term loans will depend primarily on the financial condition of the borrower. The fund’s failure to receive scheduled payments on a term loan due to a default, bankruptcy or other reason, would adversely affect the fund’s income and would likely reduce the value of its assets. Because many term loans are not rated by independent credit rating agencies, a decision to invest in a particular loan could depend exclusively on the subadvisor’s credit analysis of the borrower and/or term loan agents. The fund may have limited rights to enforce the terms of an underlying loan.
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. Interest income includes coupon interest and amortization/accretion of premiums/discounts on debt securities. Debt obligations may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
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 fund’s custodian agreement, the custodian may loan money to the 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 may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
26 | Core High Yield Fund | Semiannual report |
In addition, the fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. 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 and is reflected in other expenses on the Statement of operations. Commitment fees for the six months ended September 30, 2013 were $381. For the six months ended September 30, 2013 the fund had no borrowings under the line of credit.
Expenses. Within the John Hancock funds complex, expenses that are directly attributable to an individual fund are allocated to such 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 net 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 assets of the class. Class-specific expenses, such as distribution and service fees, if any, and transfer agent fees, state registration fees and printing and postage for all classes, are calculated daily at the class level based on the net asset value of each class and the specific expenses to each class.
Federal income taxes. The fund intends to continue 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.
As of March 31, 2013, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund’s federal tax returns are 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 dividends daily and pays them monthly. Capital gains distributions, if any, are paid annually.
Distributions paid by the fund with respect to each class of shares are calculated in the same manner, at the same time and in the same amount, except for the effect of class level 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.
Capital accounts within the 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. Book-tax differences are primarily attributable to amortization and accretion on debt securities.
Note 3 — Derivative Instruments
The fund may invest in derivatives in order to meet its investment objectives. Derivatives include a variety of different instruments that may be traded in the over-the-counter market, on a regulated exchange or through a clearing facility. The risks in using derivatives vary depending upon the structure of the instruments, including the use of leverage, optionality, the liquidity or lack of liquidity of the contract, the creditworthiness of the counterparty or clearing organization and the volatility of the position. Some derivatives involve risks that are potentially greater than the risks associated with investing directly in the referenced securities or other referenced underlying
Semiannual report | Core High Yield Fund | 27 |
instrument. Specifically, the fund is exposed to the risk that the counterparty to an 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.
Forward foreign currency contracts are typically traded through the OTC market. Non-deliverable forwards, currency options and cash settled currency swaps are all regulated by the Commodity Futures Trading Commission (the CFTC) as swaps. Derivative counterparty risk is managed through an ongoing evaluation of the creditworthiness of all potential counterparties and, if applicable, designated clearing organizations. The fund attempts to reduce its exposure to counterparty risk for derivatives traded in the OTC market, whenever possible, by entering into an International Swaps and Derivatives Association (ISDA) Master Agreement with each of its OTC counterparties. The ISDA gives each party to the agreement the right to terminate all transactions traded under the agreement if there is certain deterioration in the credit quality or contractual default of the other party, as defined in the ISDA. Upon an event of default or a termination of the ISDA, the non-defaulting party has the right to close out all transactions and to net amounts owed. This right to close out and net payments across all transactions traded under the ISDA could result in a reduction of the fund’s risk to a counterparty equal to any amounts payable by the fund, if any.
For financial reporting purposes, the fund does not offset OTC derivative assets or liabilities that are subject to master netting arrangements, as defined by the ISDAs, in the Statement of assets and liabilities. In the event of default by the counterparty or a termination of the agreement, the ISDA allows an offset of amounts across the various transactions between the fund and the applicable counterparty.
Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell specific currencies at a price that is set on the date of the contract. The forward contract calls for delivery of the currencies 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, if applicable, the risk that currency movements will not favor the fund thereby reducing the fund’s total return, and the potential for losses in excess of the amounts recognized on the Statement of assets and liabilities.
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 the 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 or settlement with the counterparty.
During the six months ended September 30, 2013, the fund used forward foreign currency contracts to manage against anticipated changes in currency exchange rates, gain exposure to foreign currency and maintain diversity and liquidity of the fund. During the six months ended September 30, 2013, the fund held forward foreign currency contracts with U.S. Dollar notional values ranging up to $15.6 million as measured at each quarter end. The following table summarizes the contracts held at September 30, 2013.
CONTRACTUAL | NET UNREALIZED | |||||||
CONTRACT | CONTRACT | SETTLEMENT | UNREALIZED | UNREALIZED | APPRECIATION/ | |||
TO BUY | TO SELL | COUNTERPARTY | DATE | APPRECIATION | DEPRECIATION | (DEPRECIATION) | ||
USD | 15,567,231 | CAD | 16,000,000 | State Street Bank | 12-4-13 | $58,260 | — | $58,260 |
and Trust Company |
28 | Core High Yield 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 September 30, 2013 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 | Forward foreign | $58,260 | — |
contracts | for forward foreign | currency contracts | ||
currency contracts |
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 September 30, 2013:
FOREIGN | ||
STATEMENT OF | CURRENCY | |
RISK | OPERATIONS LOCATION | TRANSACTIONS* |
Foreign exchange | Net realized gain (loss) | $477,955 |
contracts |
* 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 September 30, 2013:
TRANSLATION OF ASSETS | ||
STATEMENT OF | AND LIABILITIES IN | |
RISK | OPERATIONS LOCATION | FOREIGN CURRENCIES* |
Foreign exchange | Change in unrealized | $58,260 |
contracts | appreciation (depreciation) |
* 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 Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including 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 Advisor) serves as investment advisor for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Trust. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The fund has an investment management agreement with the Advisor under which the fund pays a daily management fee to the Advisor equivalent, on an annual basis, to the sum of: (a) 0.650% of the first $250,000,000 of the fund’s average daily net assets; (b) 0.625% of the next $250,000,000 of the fund’s average daily net assets; (c) 0.600% of the next $500,000,000 of the fund’s average daily net assets; (d) 0.550% of the next $1,500,000,000 of the fund’s average
Semiannual report | Core High Yield Fund | 29 |
daily net assets; and (e) 0.525% of the fund’s average daily net assets in excess of $2,500,000,000. The Advisor has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (North America) Limited, an indirectly owned subsidiary of MFC and an affiliate of the Advisor. The fund is not responsible for payment of the subadvisory fees.
Effective June 1, 2013, the Advisor has contractually agreed to waive a portion of its management fee for certain portfolios (the participating portfolios) of the Trust, John Hancock Funds, John Hancock Funds II and John Hancock Variable Insurance Trust. The waiver equals, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the participating portfolios that exceeds $75 billion but is less than or equal to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds $125 billion but is less than or equal to $150 billion; and 0.015% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each portfolio. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.
The Advisor has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the fund. This agreement excludes certain expenses such as taxes, brokerage commissions, interest expense, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.18% for Class A shares, 1.93% for Class C shares and 0.87% for Class I shares. The fee waivers and/or reimbursements will continue in effect until June 30, 2014, unless renewed by mutual agreement of the fund and the Advisor based upon a determination that this is appropriate under the circumstances at the time.
Accordingly, these expense reductions amounted to $4,325, $10,040, and $5,451, for Class A, Class C, and Class I shares, respectively, for the six months ended September 30, 2013.
The investment management fees incurred for the six months ended September 30, 2013, were equivalent to a net annual effective rate of 0.63% of the fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to 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. These accounting and legal services fees incurred for the six months ended September 30, 2013 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 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 an annual rate of 0.30% and 1.00% of average daily net assets for distribution and service fees of Class A and Class C shares, respectively. Currently only 0.25% is charged to Class A shares for distribution and service fees.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $843,612 for the six months ended September 30, 2013. Of this amount, $103,320 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $722,012 was paid as sales commissions to broker-dealers and $18,280 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
30 | Core High Yield Fund | Semiannual report |
Class A and Class C shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. Class C shares that are redeemed within one year of purchase are subject to a 1.00% CDSC. CDSCs are applied to 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 September 30, 2013, CDSCs received by the Distributor amounted to $19,761 for Class A shares. The fund did not pay CDSCs for Class C shares.
Transfer agent fees. The fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. 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 fees that Signature Services receives in connection with retirement and small accounts. 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 September 30, 2013 were:
DISTRIBUTION AND | TRANSFER | PRINTING AND | STATE | |
CLASS | SERVICE FEES | AGENT FEES | POSTAGE | REGISTRATION FEES |
Class A | $291,824 | $178,393 | $12,290 | $11,633 |
Class C | 21,822 | 3,308 | 655 | 10,226 |
Class I | — | 26,357 | 2,228 | 8,624 |
Total | $313,646 | $208,058 | $15,173 | $30,483 |
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the fund based on its net assets relative to other funds within the John Hancock funds complex.
Interfund Lending Program: Pursuant to an Exemptive Order issued by the SEC, the fund, along with other funds advised by the Advisor, may be allowed to participate in an interfund lending program. This program provides an alternative credit facility allowing the fund to borrow from, or lend money to, other participating affiliated funds. At period end, no interfund loans were outstanding. The fund’s activity in this program during the period for which loans were outstanding was as follows:
BORROWER OR | WEIGHTED AVERAGE | DAYS | WEIGHTED AVERAGE | INTEREST |
LENDER | LOAN BALANCE | OUTSTANDING | INTEREST RATE | INCOME |
Lender | $14,382,318 | 4 | 0.45% | $723 |
Semiannual report | Core High Yield Fund | 31 |
Note 5 — Fund share transactions
Transactions in fund shares for the six months ended September 30, 2013 and for the year ended March 31, 2013 were as follows:
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 9,950,787 | $108,747,135 | 20,038,776 | $214,735,204 |
Distributions reinvested | 665,170 | 7,240,836 | 547,564 | 5,933,105 |
Repurchased | (6,509,710) | (70,915,942) | (3,207,284) | (34,338,658) |
Net increase | 4,106,247 | $45,072,029 | 17,379,056 | $186,329,651 |
Class C shares | ||||
Sold | 784,992 | $8,588,396 | 9,083 | $100,000 |
Distributions reinvested | 11,003 | 119,180 | — | — |
Repurchased | (42,526) | (460,252) | — | — |
Net increase | 753,469 | $8,247,324 | 9,083 | $100,000 |
Class I shares | ||||
Sold | 3,117,375 | $34,018,214 | 4,193,044 | $44,904,753 |
Distributions reinvested | 159,964 | 1,740,259 | 126,950 | 1,375,050 |
Repurchased | (1,004,386) | (10,962,815) | (706,242) | (7,637,295) |
Net increase | 2,272,953 | $24,795,658 | 3,613,752 | $38,642,508 |
Total net increase | 7,132,669 | $78,115,011 | 21,001,891 | $225,072,159 |
Affiliates of the fund owned 1% of shares of beneficial interest of Class C on September 30, 2013.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, amounted to $107,540,087 and $30,823,688, respectively, for the six months ended September 30, 2013.
32 | Core High Yield Fund | Semiannual report |
Continuation of Investment Advisory and Subadvisory Agreements
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Funds III (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with John Hancock Asset Management a division of Manulife Asset Management (North America) Limited (the Subadvisor) for John Hancock Core High Yield Fund (the fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16–17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the fund, the Advisor, and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for the fund’s benchmark index; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts, as applicable; and other information provided by the Advisor and the Subadvisor regarding the nature, extent, and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor’s revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The Board noted the affiliation of the Subadvisor with the Advisor, noting any potential conflicts of interest. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and does not treat any single factor as determinative and
Semiannual report | Core High Yield Fund | 33 |
each Trustee may attribute different weights to different factors. The Board’s conclusions may be based in part on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of fund performance and operations throughout the year.
Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and third-party service providers.
In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties through Board meetings, discussions, and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationship, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objective; review of brokerage matters, including with respect to trade allocation and best execution; and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund; and
(f) the Advisor’s reputation and experience in serving as an investment adviser to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.
Investment performance. In considering the fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
34 | Core High Yield Fund | Semiannual report |
(a) reviewed information prepared by management regarding the fund’s performance;
(b) considered the comparative performance of the fund’s benchmark;
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the fund’s ranking within a smaller group of peer funds and the fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted that the fund underperformed its benchmark index for the one-year period and outperformed the index for the three-year period ended December 31, 2012. The Board also noted that the fund had outperformed its peer group average for the one- and three-year periods ended December 31, 2012.
The Board concluded that the performance of the fund has generally been in line with or outperformed the historical performance of comparable funds and the fund’s benchmark.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data, including, among other data, the fund’s contractual and net management fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund. The Board considered the fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund’s ranking within a broader group of funds. In comparing the fund’s contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.
The Board noted that net management fees and total expenses for this fund are lower than the peer group medians. The Board also noted that the fund has a contractual fee waiver and/or expense reimbursement which reduces certain expenses of the fund.
The Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the fund, which is discussed further below. The Board also noted management’s discussion of the fund’s expenses, as well as certain actions taken over the past several years to reduce the fund’s operating expenses. The Board reviewed information provided by the Advisor concerning investment advisory fees charged to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable.
Profitability/indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates (including the Subadvisor) from the Advisor’s relationship with the Trust, the Board:
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
Semiannual report | Core High Yield Fund | 35 |
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
(e) considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;
(f) noted that the fund’s Subadvisor is an affiliate of the Advisor;
(g) noted that affiliates of the Advisor provide transfer agency services and distribution services to the fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the fund;
(h) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;
(i) noted that the subadvisory fees for the fund are paid by the Advisor; and
(j) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates (including the Subadvisor) from their relationship with the fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders, the Board:
(a) considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the fund and each of the other open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement):
The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The funds that are not Participating Portfolios as of the date of this semiannual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the fund’s fee structure contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the fund to benefit from economies of scale if the fund grows. The Board also took into account management’s discussion of the fund’s advisory fee structure; and
(c) the Board also considered the effect of the fund’s growth in size on its performance and fees. The Board also noted that if the fund’s assets increase over time, the fund may realize other economies of scale.
36 | Core High Yield Fund | Semiannual report |
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the fund, and comparative performance information relating to the fund’s benchmark and comparable funds; and
(3) the subadvisory fee for the fund, including breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data.
Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background, and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the Trust’s CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by it to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the fund, that is consistent with the fund’s investment objective, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund.
The Board also received information and took into account any other potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement. In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock fund complex and reputational benefits.
Semiannual report | Core High Yield Fund | 37 |
Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fees paid by the Advisor to the Subadvisor with respect to the fund to fees charged by the fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the fund’s performance as compared to the fund’s peer group and benchmark and noted that the Board reviews information about the fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the fund generally has been in line with or outperformed the historical performance of comparable funds and the fund’s benchmark and the fund’s overall performance is satisfactory;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the fund in order to permit shareholders to benefit from economies of scale if the fund grows.
* * * |
Based on the Board’s evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
38 | Core High Yield Fund | Semiannual report |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Investment Management |
Steven R. Pruchansky, Vice Chairman | Services, LLC |
Charles L. Bardelis* | |
James R. Boyle† | Subadvisor |
Craig Bromley† | John Hancock Asset Management |
Peter S. Burgess* | a division of Manulife Asset Management |
William H. Cunningham | (North America) Limited |
Grace K. Fey | |
Theron S. Hoffman* | Principal distributor |
Deborah C. Jackson | John Hancock Funds, LLC |
Hassell H. McClellan | |
Gregory A. Russo | Custodian |
Warren A. Thomson† | State Street Bank and Trust Company |
Officers | Transfer agent |
Hugh McHaffie | John Hancock Signature Services, Inc. |
President | |
Legal counsel | |
Andrew G. Arnott | K&L Gates LLP |
Executive Vice President | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†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) website at sec.gov or on our website.
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 website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 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 website at jhinvestments.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhinvestments.com | Investment Operations | Investment Operations |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. | |
P.O. Box 55913 | 30 Dan Road | |
Boston, MA 02205-5913 | Canton, MA 02021 |
Semiannual report | Core High Yield Fund | 39 |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/corehighyieldx36x1.jpg)
800-225-5291
800-338-8080 EASI-Line
jhinvestments.com
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/corehighyieldx36x2.jpg)
This report is for the information of the shareholders of John Hancock Core High Yield Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 346SA 9/13 |
MF160075 | 11/13 |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/smallcompanyx1x1.jpg)
A look at performance
Total returns for the period ended September 30, 2013
Average annual total returns (%) | Cumulative total returns (%) | ||||||
with maximum sales charge | with maximum sales charge | ||||||
1-year | 5-year | 10-year | 6-months | 1-year | 5-year | 10-year | |
Class A1 | 20.72 | 8.90 | 8.89 | 4.73 | 20.72 | 53.12 | 134.47 |
Class I1,2 | 27.49 | 10.39 | 9.85 | 10.40 | 27.49 | 63.92 | 155.82 |
Class R11,2 | 26.66 | 9.60 | 9.02 | 10.05 | 26.66 | 58.17 | 137.10 |
Class R21,2 | 26.94 | 8.84 | 8.05 | 10.16 | 26.94 | 52.71 | 116.93 |
Class R31,2 | 26.74 | 9.71 | 9.12 | 10.07 | 26.74 | 58.90 | 139.39 |
Class R41,2 | 27.32 | 10.07 | 9.46 | 10.30 | 27.32 | 61.53 | 147.00 |
Class R51,2 | 27.55 | 10.36 | 9.78 | 10.40 | 27.55 | 63.73 | 154.14 |
Class R61,2 | 27.62 | 10.46 | 9.89 | 10.48 | 27.62 | 64.43 | 156.74 |
Class ADV1,2 | 27.26 | 10.05 | 9.36 | 10.30 | 27.26 | 61.38 | 144.70 |
Index† | 30.06 | 11.15 | 9.64 | 13.61 | 30.06 | 69.68 | 151.03 |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charge on Class A shares of 5%. Sales charges are not applicable to Class I, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, and Class ADV 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 those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least until 6-30-14 for Class A, Class I, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, and Class ADV shares. Had the fee waivers and expense limitations not been in place, gross expenses would apply. The expense ratios are as follows:
Class A | Class I | Class R1 | Class R2 | Class R3 | Class R4* | Class R5 | Class R6 | Class ADV | |
Net (%) | 1.50 | 1.14 | 1.80 | 1.55 | 1.70 | 1.30 | 1.10 | 1.04 | 1.34 |
Gross (%) | 1.54 | 1.18 | 4.45 | 20.47 | 5.15 | 18.86 | 7.81 | 18.63 | 4.91 |
* The fund’s distributor has contractually agreed to waive 0.10% of Rule 12b-1 fees for Class R4 shares. The current waiver agreement expires on 6-30-14.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month end, please call 800-225-5291 or visit the fund’s website at jhinvestments.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 fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index is the Russell 2000 Index.
See the following page for footnotes.
6 | Small Company Fund | Semiannual report |
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With maximum | Without | |||
Start date | sales charge | sales charge | Index | |
Class I2 | 9-30-03 | $25,582 | $25,582 | $25,103 |
Class R12 | 9-30-03 | 23,710 | 23,710 | 25,103 |
Class R22 | 9-30-03 | 21,693 | 21,693 | 25,103 |
Class R32 | 9-30-03 | 23,939 | 23,939 | 25,103 |
Class R42 | 9-30-03 | 24,700 | 24,700 | 25,103 |
Class R52 | 9-30-03 | 25,414 | 25,414 | 25,103 |
Class R62 | 9-30-03 | 25,674 | 25,674 | 25,103 |
Class ADV2 | 9-30-03 | 24,470 | 24,470 | 25,103 |
Russell 2000 Index is an index that measures performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of total market capitalization of the Russell 3000 Index.
It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would have resulted in lower values.
Footnotes related to performance pages
1 On 12-11-09, through a reorganization, the fund acquired all of the assets of the FMA Small Company Portfolio (the predecessor fund). On that date, the predecessor fund offered its investor share class in exchange for Class A shares and the institutional share class in exchange for Class I shares. Class A, Class I and Class ADV shares were first offered on 12-14-09. The returns of Class A and Class ADV shares prior to this date are those of the predecessor fund’s investor shares that have been recalculated to apply the gross fees and expenses of Class A and Class ADV shares, as applicable. The predecessor fund’s institutional share class returns have been recalculated to reflect the gross fees and expenses of Class I shares. The returns of Class I shares prior to 5-1-08 are those of the predecessor fund’s investor shares that have been recalculated to apply the gross fees and expenses of Class I shares. Class R1, Class R3, Class R4, and Class R5 shares were first offered on 4-30-10; Class R6 shares were first offered on 9-1-11; Class R2 shares were first offered on 3-1-12. Returns prior to these dates are those of Class A shares recalculated to apply the gross fees and expenses of Class R1, Class R3, Class R4, Class R5, Class R6, and Class R2 shares, as applicable.
2 For certain types of investors, as described in the fund’s prospectuses.
Semiannual report | Small Company Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
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 the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,102.49 | $7.80 |
Class I | 1,000.00 | 1,104.03 | 6.01 |
Class R1 | 1,000.00 | 1,100.54 | 9.48 |
Class R2 | 1,000.00 | 1,101.61 | 8.17 |
Class R3 | 1,000.00 | 1,100.67 | 8.95 |
Class R4 | 1,000.00 | 1,103.02 | 6.85 |
Class R5 | 1,000.00 | 1,104.03 | 5.80 |
Class R6 | 1,000.00 | 1,104.77 | 5.49 |
Class ADV | 1,000.00 | 1,103.02 | 7.06 |
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 September 30, 2013, 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 | Small Company Fund | Semiannual report |
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Hypothetical example for comparison purposes
This table allows you to compare the 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 the fund’s actual return). It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,017.60 | $7.49 |
Class I | 1,000.00 | 1,019.40 | 5.77 |
Class R1 | 1,000.00 | 1,016.00 | 9.10 |
Class R2 | 1,000.00 | 1,017.30 | 7.84 |
Class R3 | 1,000.00 | 1,016.50 | 8.59 |
Class R4 | 1,000.00 | 1,018.60 | 6.58 |
Class R5 | 1,000.00 | 1,019.60 | 5.57 |
Class R6 | 1,000.00 | 1,019.90 | 5.27 |
Class ADV | 1,000.00 | 1,018.40 | 6.78 |
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 prospectuses for details regarding transaction costs.
1 Expenses are equal to the fund’s annualized expense ratio of 1.48%, 1.14%, 1.80%, 1.55%, 1.70%, 1.30%, 1.10%, 1.04%, and 1.34% for Class A, Class I, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, and Class ADV shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
Semiannual report | Small Company Fund | 9 |
Portfolio summary
Top 10 Holdings (14.9% of Net Assets on 9-30-13)1,2 | ||||
DuPont Fabros Technology, Inc. | 1.6% | Endurance Specialty Holdings, Ltd. | 1.5% | |
Brandywine Realty Trust | 1.5% | ALLETE, Inc. | 1.5% | |
DiamondRock Hospitality Company | 1.5% | Curtiss-Wright Corp. | 1.5% | |
UIL Holdings Corp. | 1.5% | The Hanover Insurance Group, Inc. | 1.4% | |
Medical Properties Trust, Inc. | 1.5% | Webster Financial Corp. | 1.4% | |
Sector Composition1,3 | ||||
Financials | 27.7% | Energy | 5.1% | |
Information Technology | 17.7% | Materials | 4.8% | |
Industrials | 16.0% | Utilities | 3.0% | |
Consumer Discretionary | 12.9% | Consumer Staples | 2.1% | |
Health Care | 7.2% | Short-Term Investments & Other | 3.5% | |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/smallcompanyx6x1.jpg)
1 As a percentage of net assets on 9-30-13.
2 Excludes cash and cash equivalents.
3 The prices of small company stocks can change more frequently and dramatically than those of large company stocks. Value stocks may not increase in price as anticipated or may decline further in value. Frequently trading securities may increase transaction costs (thus lowering performance) and taxable distributions. 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 and investments focused in one sector may fluctuate more widely than investments diversified across sectors. For additional information on these and other risk considerations, please see the fund’s prospectus.
10 | Small Company Fund | Semiannual report |
Fund’s investments
As of 9-30-13 (unaudited)
Shares | Value | |
Common Stocks 95.2% | $180,608,139 | |
(Cost $149,173,308) | ||
Consumer Discretionary 12.9% | 24,394,168 | |
Auto Components 2.1% | ||
Drew Industries, Inc. | 33,850 | 1,541,525 |
Tenneco, Inc. (I) | 47,960 | 2,421,980 |
Distributors 1.3% | ||
Pool Corp. | 43,050 | 2,416,397 |
Hotels, Restaurants & Leisure 2.1% | ||
AFC Enterprises, Inc. (I) | 48,800 | 2,127,192 |
Vail Resorts, Inc. | 27,230 | 1,889,217 |
Household Durables 0.5% | ||
Meritage Homes Corp. (I) | 23,050 | 989,998 |
Leisure Equipment & Products 1.1% | ||
Arctic Cat, Inc. | 35,530 | 2,026,987 |
Media 1.3% | ||
Meredith Corp. | 51,500 | 2,452,430 |
Specialty Retail 0.9% | ||
Pier 1 Imports, Inc. | 90,750 | 1,771,440 |
Textiles, Apparel & Luxury Goods 3.6% | ||
Movado Group, Inc. | 55,780 | 2,440,375 |
Oxford Industries, Inc. | 35,950 | 2,443,881 |
Steven Madden, Ltd. (I) | 34,790 | 1,872,746 |
Consumer Staples 2.1% | 3,941,924 | |
Food Products 1.0% | ||
Snyders-Lance, Inc. | 68,210 | 1,967,859 |
Personal Products 1.1% | ||
Prestige Brands Holdings, Inc. (I) | 65,540 | 1,974,065 |
Energy 5.1% | 9,710,927 | |
Energy Equipment & Services 3.2% | ||
Forum Energy Technologies, Inc. (I) | 68,830 | 1,859,098 |
Gulfmark Offshore, Inc., Class A | 42,930 | 2,184,708 |
Helix Energy Solutions Group, Inc. (I) | 83,782 | 2,125,549 |
Oil, Gas & Consumable Fuels 1.9% | ||
Halcon Resources Corp. (I) | 279,070 | 1,236,280 |
Rosetta Resources, Inc. (I) | 42,330 | 2,305,292 |
See notes to financial statements | Semiannual report | Small Company Fund | 11 |
Shares | Value | |
Financials 26.4% | $50,161,392 | |
Capital Markets 1.0% | ||
Evercore Partners, Inc., Class A | 40,230 | 1,980,523 |
Commercial Banks 9.6% | ||
Bank of the Ozarks, Inc. | 38,430 | 1,844,256 |
BBCN Bancorp, Inc. | 73,430 | 1,010,397 |
Capital Bank Financial Corp., Class A (I) | 42,580 | 934,631 |
Columbia Banking System, Inc. | 96,760 | 2,389,972 |
Fulton Financial Corp. | 183,700 | 2,145,616 |
Iberiabank Corp. | 48,540 | 2,517,770 |
Susquehanna Bancshares, Inc. | 199,870 | 2,508,369 |
Texas Capital Bancshares, Inc. (I) | 47,162 | 2,168,037 |
Webster Financial Corp. | 104,840 | 2,676,565 |
Insurance 4.1% | ||
Amtrust Financial Services, Inc. | 59,213 | 2,312,860 |
Endurance Specialty Holdings, Ltd. | 53,190 | 2,857,367 |
The Hanover Insurance Group, Inc. | 49,060 | 2,713,999 |
Real Estate Investment Trusts 10.7% | ||
Associated Estates Realty Corp. | 125,180 | 1,866,434 |
Brandywine Realty Trust | 222,370 | 2,930,837 |
Colonial Properties Trust | 79,960 | 1,798,300 |
DiamondRock Hospitality Company | 274,460 | 2,928,488 |
DuPont Fabros Technology, Inc. | 119,850 | 3,088,535 |
Glimcher Realty Trust | 221,090 | 2,155,628 |
Medical Properties Trust, Inc. | 235,020 | 2,860,193 |
Sun Communities, Inc. | 61,740 | 2,631,359 |
Thrifts & Mortgage Finance 1.0% | ||
Capitol Federal Financial, Inc. | 148,130 | 1,841,256 |
Health Care 7.2% | 13,669,625 | |
Health Care Equipment & Supplies 2.4% | ||
Analogic Corp. | 26,530 | 2,192,439 |
Masimo Corp. | 88,950 | 2,369,628 |
Health Care Providers & Services 2.4% | ||
Amsurg Corp. (I) | 56,259 | 2,233,482 |
Team Health Holdings, Inc. (I) | 61,920 | 2,349,245 |
Life Sciences Tools & Services 1.2% | ||
Charles River Laboratories International, Inc. (I) | 48,000 | 2,220,480 |
Pharmaceuticals 1.2% | ||
Akorn, Inc. (I) | 117,091 | 2,304,351 |
Industrials 16.0% | 30,370,760 | |
Aerospace & Defense 4.2% | ||
Curtiss-Wright Corp. | 59,590 | 2,798,346 |
Esterline Technologies Corp. (I) | 33,160 | 2,649,152 |
Orbital Sciences Corp. (I) | 115,300 | 2,442,054 |
Building Products 0.6% | ||
Trex Company, Inc. (I) | 21,780 | 1,078,763 |
12 | Small Company Fund | Semiannual report | See notes to financial statements |
Shares | Value | |
Construction & Engineering 1.3% | ||
MasTec, Inc. (I) | 84,750 | $2,567,925 |
Electrical Equipment 0.2% | ||
EnerSys, Inc. | 6,750 | 409,253 |
Machinery 5.1% | ||
Actuant Corp., Class A | 54,180 | 2,104,351 |
Chart Industries, Inc. (I) | 15,310 | 1,883,742 |
CIRCOR International, Inc. | 33,840 | 2,104,171 |
The Manitowoc Company, Inc. | 93,920 | 1,838,954 |
Woodward, Inc. | 44,924 | 1,834,247 |
Professional Services 1.3% | ||
On Assignment, Inc. (I) | 74,650 | 2,463,450 |
Road & Rail 1.2% | ||
Con-way, Inc. | 52,050 | 2,242,835 |
Trading Companies & Distributors 2.1% | ||
Beacon Roofing Supply, Inc. (I) | 52,250 | 1,926,458 |
H&E Equipment Services, Inc. | 76,320 | 2,027,059 |
Information Technology 17.7% | 33,577,837 | |
Computers & Peripherals 1.0% | ||
Electronics for Imaging, Inc. (I) | 62,210 | 1,970,813 |
Electronic Equipment, Instruments & Components 4.9% | ||
Belden, Inc. | 40,160 | 2,572,248 |
Cognex Corp. | 68,540 | 2,149,414 |
InvenSense, Inc. (I) | 126,750 | 2,233,335 |
OSI Systems, Inc. (I) | 32,440 | 2,415,807 |
IT Services 2.6% | ||
Cardtronics, Inc. (I) | 60,970 | 2,261,987 |
EPAM Systems, Inc. (I) | 74,870 | 2,583,015 |
Semiconductors & Semiconductor Equipment 3.3% | ||
Entegris, Inc. (I) | 213,880 | 2,170,882 |
Fairchild Semiconductor International, Inc. (I) | 144,680 | 2,009,605 |
Silicon Laboratories, Inc. (I) | 46,040 | 1,966,368 |
Software 5.9% | ||
ACI Worldwide, Inc. (I) | 45,250 | 2,446,215 |
BroadSoft, Inc. (I) | 55,680 | 2,006,150 |
Manhattan Associates, Inc. (I) | 20,390 | 1,946,226 |
Mentor Graphics Corp. | 108,460 | 2,534,710 |
Verint Systems, Inc. (I) | 62,360 | 2,311,062 |
Materials 4.8% | 9,108,288 | |
Chemicals 4.8% | ||
Flotek Industries, Inc. (I) | 81,850 | 1,882,550 |
H.B. Fuller Company | 49,280 | 2,226,963 |
Minerals Technologies, Inc. | 50,070 | 2,471,956 |
PolyOne Corp. | 82,280 | 2,526,819 |
See notes to financial statements | Semiannual report | Small Company Fund | 13 |
Shares | Value | ||
Utilities 3.0% | $5,673,218 | ||
Electric Utilities 3.0% | |||
ALLETE, Inc. | 58,070 | 2,804,781 | |
UIL Holdings Corp. | 77,150 | 2,868,437 | |
Exchange-Traded Funds 1.3% | $2,485,890 | ||
(Cost $1,961,361) | |||
Financials 1.3% | 2,485,890 | ||
iShares Russell Microcap Index Fund | 36,370 | 2,485,890 | |
Yield (%) | Shares | Value | |
Short-Term Investments 3.4% | $6,362,419 | ||
(Cost $6,362,419) | |||
Money Market Funds 3.4% | 6,362,419 | ||
State Street Institutional Liquid Reserves Fund | 0.0640 (Y) | 6,362,419 | 6,362,419 |
Total investments (Cost $157,497,088)† 99.9% | $189,456,448 | ||
Other assets and liabilities, net 0.1% | $253,447 | ||
Total net assets 100.0% | $189,709,895 | ||
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.
(Y) The rate shown is the annualized seven-day yield as of 9-30-13.
† At 9-30-13, the aggregate cost of investment securities for federal income tax purposes was $158,846,111. Net unrealized appreciation aggregated $30,610,337, of which $32,523,381 related to appreciated investment securities and $1,913,044 related to depreciated investment securities.
14 | Small Company 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 9-30-13 (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 offering price per share.
Assets | |
Investments, at value (Cost $157,497,088) | $189,456,448 |
Receivable for investments sold | 550,829 |
Receivable for fund shares sold | 243,779 |
Dividends and interest receivable | 211,266 |
Receivable due from advisor | 358 |
Other receivables and prepaid expenses | 80,214 |
Total assets | 190,542,894 |
Liabilities | |
Payable for investments purchased | 481,967 |
Payable for fund shares repurchased | 258,623 |
Payable to affiliates | |
Accounting and legal services fees | 9,553 |
Transfer agent fees | 20,647 |
Distribution and service fees | 459 |
Trustees’ fees | 12,112 |
Other liabilities and accrued expenses | 49,638 |
Total liabilities | 832,999 |
Net assets | $189,709,895 |
Net assets consist of | |
Paid-in capital | $160,352,754 |
Accumulated net investment loss | (224,312) |
Accumulated net realized gain (loss) on investments | (2,377,907) |
Net unrealized appreciation (depreciation) on investments | 31,959,360 |
Net assets | $189,709,895 |
See notes to financial statements | Semiannual report | Small Company Fund | 15 |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
Net asset value per share | |
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($140,201,099 ÷ 5,277,650 shares)1 | $26.57 |
Class I ($46,830,853 ÷ 1,744,223 shares) | $26.85 |
Class R1 ($1,224,594 ÷ 46,620 shares) | $26.27 |
Class R2 ($282,347 ÷ 10,585 shares) | $26.67 |
Class R3 ($124,960 ÷ 4,742 shares) | $26.35 |
Class R4 ($80,613 ÷ 3,024 shares) | $26.66 |
Class R5 ($290,173 ÷ 10,806 shares) | $26.85 |
Class R6 ($148,472 ÷ 5,522 shares) | $26.89 |
Class ADV ($526,784 ÷ 19,762 shares) | $26.66 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95%)2 | $27.97 |
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.
16 | Small Company 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 9-30-13
(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 | $1,025,530 |
Interest | 2,630 |
Total investment income | 1,028,160 |
Expenses | |
Investment management fees | 805,548 |
Distribution and service fees | 197,861 |
Accounting and legal services fees | 18,555 |
Transfer agent fees | 123,398 |
Trustees’ fees | 3,961 |
State registration fees | 65,251 |
Printing and postage | 13,575 |
Professional fees | 25,122 |
Custodian fees | 10,168 |
Registration and filing fees | 27,305 |
Other | 5,749 |
Total expenses | 1,296,493 |
Less expense reductions | (52,291) |
Net expenses | 1,244,202 |
Net investment loss | (216,042) |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments | 13,638,799 |
13,638,799 | |
Change in net unrealized appreciation (depreciation) of | |
Investments | 4,327,211 |
4,327,211 | |
Net realized and unrealized gain | 17,966,010 |
Increase in net assets from operations | $17,749,968 |
See notes to financial statements | Semiannual report | Small Company Fund | 17 |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of changes in net assets show how the value of the fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of fund share transactions.
Six months | ||
ended | Year | |
9-30-13 | ended | |
(Unaudited) | 3-31-13 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment loss | ($216,042) | ($404,857) |
Net realized gain | 13,638,799 | 19,083,415 |
Change in net unrealized appreciation (depreciation) | 4,327,211 | 3,577,682 |
Increase in net assets resulting from operations | 17,749,968 | 22,256,240 |
From Fund share transactions | 380,950 | (49,470,021) |
Total increase (decrease) | 18,130,918 | (27,213,781) |
Net assets | ||
Beginning of period | 171,578,977 | 198,792,758 |
End of period | $189,709,895 | $171,578,977 |
Accumulated net investment loss | ($224,312) | ($8,270) |
18 | Small Company 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 during the period.
CLASS A SHARES | |||||||
Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102,3 | 10-31-09 | 10-31-084 |
Per share operating performance | |||||||
Net asset value, beginning | |||||||
of period | $24.10 | $20.86 | $21.44 | $17.82 | $14.68 | $13.83 | $22.55 |
Net investment income (loss)5 | (0.04) | (0.07) | (0.01) | (0.03) | (0.02) | —6 | 0.05 |
Net realized and unrealized gain | |||||||
(loss) on investments | 2.51 | 3.31 | (0.57) | 3.62 | 3.18 | 0.87 | (6.01) |
Total from | |||||||
investment operations | 2.47 | 3.24 | (0.58) | 3.59 | 3.16 | 0.87 | (5.96) |
Less distributions | |||||||
From net investment income | — | — | — | — | (0.02) | (0.02) | (0.01) |
From net realized gain | — | — | — | — | — | — | (2.75) |
Total distributions | — | — | — | — | (0.02) | (0.02) | (2.76) |
Non-recurring reimbursement | — | — | — | 0.037 | — | — | — |
Net asset value, end of period | $26.57 | $24.10 | $20.86 | $21.44 | $17.82 | $14.68 | $13.83 |
Total return (%)8,9 | 10.2510 | 15.53 | (2.71) | 20.31 | 21.5110 | 6.34 | (29.67) |
Ratios and supplemental data | |||||||
Net assets, end of period | |||||||
(in millions) | $140 | $120 | $129 | $88 | $92 | $87 | $104 |
Ratios (as a percentage of | |||||||
average net assets): | |||||||
Expenses before reductions | 1.4911 | 1.54 | 1.54 | 1.49 | 1.6611 | 1.42 | 1.37 |
Expenses net of fee waivers | 1.4811 | 1.50 | 1.44 | 1.34 | 1.3911 | 1.39 | 1.31 |
Net investment income (loss) | (0.33)11 | (0.36) | (0.07) | (0.17) | (0.23)11 | (0.01) | 0.27 |
Portfolio turnover (%) | 42 | 97 | 133 | 159 | 4212 | 155 | 177 |
1 Six months ended 9-30-13. Unaudited.
2 For the five month period ended 3-31-10. The fund changed its fiscal year end from October 31 to March 31.
3 After the close of business on 12-11-09, holders of Investor Shares of the former FMA Small Company Portfolio (the
predecessor fund) became owners of an equal number of full and fractional Class A shares of John Hancock Small
Company Fund. These shares were first offered on 12-14-09. Additionally, the accounting and performance history
of the Investor Shares of the predecessor fund was redesignated as that of John Hancock Small Company Fund
Class A.
4 Prior to 5-1-08, Investor Shares were offered as Institutional Shares.
5 Based on the average daily shares outstanding.
6 Less than $0.005 per share.
7 Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P.,
Millennium Management, L.L.C., and Millennium International Management, L.L.C., which amounted to $0.03
per share.
8 Does not reflect the effect of sales charges, if any.
9 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
10 Not annualized.
11 Annualized.
12 Portfolio turnover is shown for the period from 11-1-09 to 3-31-10.
See notes to financial statements | Semiannual report | Small Company Fund | 19 |
CLASS I SHARES | |||||||
Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102,3 | 10-31-09 | 10-31-084 |
Per share operating performance | |||||||
Net asset value, beginning | |||||||
of period | $24.32 | $20.96 | $21.51 | $17.84 | $14.71 | $13.84 | $17.99 |
Net investment income5 | —6 | —6 | 0.07 | 0.02 | —6 | 0.03 | 0.04 |
Net realized and unrealized gain | |||||||
(loss) on investments | 2.53 | 3.36 | (0.58) | 3.62 | 3.18 | 0.87 | (4.17) |
Total from | |||||||
investment operations | 2.53 | 3.36 | (0.51) | 3.64 | 3.18 | 0.90 | (4.13) |
Less distributions | |||||||
From net investment income | — | — | (0.04) | — | (0.05) | (0.03) | (0.02) |
Non-recurring reimbursement | — | — | — | 0.037 | — | — | — |
Net asset value, end of period | $26.85 | $24.32 | $20.96 | $21.51 | $17.84 | $14.71 | $13.84 |
Total return (%)8 | 10.409 | 16.03 | (2.34) | 20.57 | 21.679 | 6.56 | (22.95)9 |
Ratios and supplemental data | |||||||
Net assets, end of period | |||||||
(in millions) | $47 | $49 | $69 | $67 | $36 | $23 | $27 |
Ratios (as a percentage of | |||||||
average net assets): | |||||||
Expenses before reductions | 1.1510 | 1.18 | 1.16 | 1.12 | 1.1810 | 1.17 | 1.1810 |
Expenses net of fee waivers | 1.1410 | 1.11 | 1.04 | 1.11 | 1.1410 | 1.14 | 1.0810 |
Net investment income | —10,11 | 0.02 | 0.34 | 0.09 | 0.0110 | 0.24 | 0.5510 |
Portfolio turnover (%) | 42 | 97 | 133 | 159 | 4212 | 155 | 177 |
1 Six months ended 9-30-13. Unaudited.
2 For the five month period ended 3-31-10. The fund changed its fiscal year end from October 31 to March 31.
3 After the close of business on 12-11-09, holders of Institutional Shares of the former FMA Small Company Portfolio
(the predecessor fund) became owners of an equal number of full and fractional Class I shares of John Hancock
Small Company Fund. These shares were first offered on 12-14-09. Additionally, the accounting and performance
history of the Institutional Shares of the predecessor fund was redesignated as that of John Hancock Small Company
Fund Class I.
4 Commencement of operations 5-2-08.
5 Based on the average daily shares outstanding.
6 Less than $0.005 per share.
7 Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P.,
Millennium Management, L.L.C., and Millennium International Management, L.L.C., which amounted to $0.03
per share.
8 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
9 Not annualized.
10 Annualized.
11 Less than 0.005%.
12 Portfolio turnover is shown for the period from 11-1-09 to 3-31-10.
20 | Small Company Fund | Semiannual report | See notes to financial statements |
CLASS R1 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112 | |||
Per share operating performance | |||||||
Net asset value, beginning of period | $23.87 | $20.71 | $21.37 | $19.38 | |||
Net investment loss3 | (0.08) | (0.13) | (0.08) | (0.07) | |||
Net realized and unrealized gain (loss) on investments | 2.48 | 3.29 | (0.58) | 2.03 | |||
Total from investment operations | 2.40 | 3.16 | (0.66) | 1.96 | |||
Non-recurring reimbursement | — | — | — | 0.034 | |||
Net asset value, end of period | $26.27 | $23.87 | $20.71 | $21.37 | |||
Total return (%)5 | 10.056 | 15.26 | (3.09) | 10.276 | |||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $1 | $1 | —7 | —7 | |||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 2.898 | 4.37 | 13.34 | 7.228 | |||
Expenses net of fee waivers | 1.808 | 1.80 | 1.80 | 1.808 | |||
Net investment loss | (0.67)8 | (0.60) | (0.40) | (0.42)8 | |||
Portfolio turnover (%) | 42 | 97 | 133 | 159 | |||
1 Six months ended 9-30-13. Unaudited.
2 Period from 4-30-10 (inception date) to 3-31-11.
3 Based on the average daily shares outstanding.
4 Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P.,
Millennium Management, L.L.C., and Millennium International Management, L.L.C., which amounted to $0.03
per share.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
CLASS R2 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | ||||
Per share operating performance | |||||||
Net asset value, beginning of period | $24.21 | $20.96 | $20.56 | ||||
Net investment income (loss)3 | (0.05) | (0.08) | 0.02 | ||||
Net realized and unrealized gain on investments | 2.51 | 3.33 | 0.38 | ||||
Total from investment operations | 2.46 | 3.25 | 0.40 | ||||
Net asset value, end of period | $26.67 | $24.21 | $20.96 | ||||
Total return (%)4 | 10.165 | 15.51 | 1.955 | ||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | —6 | —6 | —6 | ||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 7.607 | 20.22 | 16.317 | ||||
Expenses net of fee waivers | 1.557 | 1.55 | 1.557 | ||||
Net investment income (loss) | (0.35)7 | (0.39) | 1.317 | ||||
Portfolio turnover (%) | 42 | 97 | 1338 | ||||
1 Six months ended 9-30-13. Unaudited.
2 Period from 3-1-12 (inception date) to 3-31-12.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
See notes to financial statements | Semiannual report | Small Company Fund | 21 |
CLASS R3 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112 |
Per share operating performance | ||||
Net asset value, beginning of period | $23.94 | $20.76 | $21.39 | $19.38 |
Net investment loss3 | (0.08) | (0.12) | (0.06) | (0.10) |
Net realized and unrealized gain (loss) on investments | 2.49 | 3.30 | (0.57) | 2.08 |
Total from investment operations | 2.41 | 3.18 | (0.63) | 1.98 |
Non-recurring reimbursement | — | — | — | 0.034 |
Net asset value, end of period | $26.35 | $23.94 | $20.76 | $21.39 |
Total return (%)5 | 10.076 | 15.32 | (2.95) | 10.376 |
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 | 10.138 | 5.15 | 4.65 | 3.008 |
Expenses net of fee waivers | 1.708 | 1.70 | 1.70 | 1.708 |
Net investment loss | (0.64)8 | (0.56) | (0.32) | (0.52)8 |
Portfolio turnover (%) | 42 | 97 | 133 | 159 |
1 Six months ended 9-30-13. Unaudited.
2 Period from 4-30-10 (inception date) to 3-31-11.
3 Based on the average daily shares outstanding.
4 Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P.,
Millennium Management, L.L.C., and Millennium International Management, L.L.C., which amounted to $0.03
per share.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
CLASS R4 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112 |
Per share operating performance | ||||
Net asset value, beginning of period | $24.17 | $20.87 | $21.44 | $19.38 |
Net investment loss3 | (0.02) | (0.03) | (0.01) | (0.03) |
Net realized and unrealized gain (loss) on investments | 2.51 | 3.33 | (0.56) | 2.06 |
Total from investment operations | 2.49 | 3.30 | (0.57) | 2.03 |
Non-recurring reimbursement | — | — | — | 0.034 |
Net asset value, end of period | $26.66 | $24.17 | $20.87 | $21.44 |
Total return (%)5 | 10.306 | 15.81 | (2.66) | 10.636 |
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 | 18.948 | 18.82 | 28.72 | 7.408 |
Expenses net of fee waivers | 1.308 | 1.31 | 1.40 | 1.408 |
Net investment loss | (0.15)8 | (0.17) | (0.03) | (0.16)8 |
Portfolio turnover (%) | 42 | 97 | 133 | 159 |
1 Six months ended 9-30-13. Unaudited.
2 Period from 4-30-10 (inception date) to 3-31-11.
3 Based on the average daily shares outstanding.
4 Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P.,
Millennium Management, L.L.C., and Millennium International Management, L.L.C., which amounted to $0.03
per share.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
22 | Small Company Fund | Semiannual report | See notes to financial statements |
CLASS R5 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112 |
Per share operating performance | ||||
Net asset value, beginning of period | $24.32 | $20.96 | $21.50 | $19.38 |
Net investment income3 | 0.01 | 0.01 | 0.05 | 0.01 |
Net realized and unrealized gain (loss) on investments | 2.52 | 3.35 | (0.56) | 2.08 |
Total from investment operations | 2.53 | 3.36 | (0.51) | 2.09 |
Less distributions | ||||
From net investment income | — | — | (0.03) | — |
Non-recurring reimbursement | — | — | — | 0.034 |
Net asset value, end of period | $26.85 | $24.32 | $20.96 | $21.50 |
Total return (%)5 | 10.406 | 16.03 | (2.34) | 10.946 |
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 | 6.218 | 7.78 | 8.75 | 3.668 |
Expenses net of fee waivers | 1.108 | 1.10 | 1.10 | 1.108 |
Net investment income | 0.058 | 0.05 | 0.28 | 0.058 |
Portfolio turnover (%) | 42 | 97 | 133 | 159 |
1 Six months ended 09-30-13. Unaudited.
2 Period from 4-30-10 (inception date) to 3-31-11.
3 Based on the average daily shares outstanding.
4 Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P.,
Millennium Management, L.L.C., and Millennium International Management, L.L.C., which amounted to $0.03
per share.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
CLASS R6 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | |
Per share operating performance | ||||
Net asset value, beginning of period | $24.34 | $20.97 | $18.69 | |
Net investment income3 | 0.01 | 0.02 | 0.06 | |
Net realized and unrealized gain on investments | 2.54 | 3.35 | 2.26 | |
Total from investment operations | 2.55 | 3.37 | 2.32 | |
Less distributions | ||||
From net investment income | — | — | (0.04) | |
Net asset value, end of period | $26.89 | $24.34 | $20.97 | |
Total return (%)4 | 10.485 | 16.07 | 12.455 | |
Ratios and supplemental data | ||||
Net assets, end of period (in millions) | —6 | —6 | —6 | |
Ratios (as a percentage of average net assets): | ||||
Expenses before reductions | 10.797 | 18.63 | 15.467 | |
Expenses net of fee waivers | 1.047 | 1.04 | 1.047 | |
Net investment income | 0.117 | 0.11 | 0.557 | |
Portfolio turnover (%) | 42 | 97 | 1338 | |
1 Six months ended 9-30-13. Unaudited.
2 Period from 9-1-11 (inception date) to 3-31-12.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
See notes to financial statements | Semiannual report | Small Company Fund | 23 |
CLASS ADV SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-11 | 3-31-102 |
Per share operating performance | |||||
Net asset value, beginning of period | $24.17 | $20.88 | $21.44 | $17.82 | $15.71 |
Net investment income (loss)3 | (0.02) | (0.04) | 0.01 | (0.01) | (0.01) |
Net realized and unrealized gain (loss) on investments | 2.51 | 3.33 | (0.57) | 3.60 | 2.12 |
Total from investment operations | 2.49 | 3.29 | (0.56) | 3.59 | 2.11 |
Non-recurring reimbursement | — | — | — | 0.034 | — |
Net asset value, end of period | $26.66 | $24.17 | $20.88 | $21.44 | $17.82 |
Total return (%)5 | 10.306 | 15.76 | (2.61) | 20.31 | 13.436 |
Ratios and supplemental data | |||||
Net assets, end of period (in millions) | $1 | —7 | $1 | $1 | —7 |
Ratios (as a percentage of average net assets): | |||||
Expenses before reductions | 4.378 | 4.91 | 4.34 | 4.99 | 2.768 |
Expenses net of fee waivers | 1.348 | 1.34 | 1.34 | 1.34 | 1.338 |
Net investment income (loss) | (0.19)8 | (0.20) | 0.03 | (0.07) | (0.17)8 |
Portfolio turnover (%) | 42 | 97 | 133 | 159 | 429 |
1 Six months ended 9-30-13. Unaudited.
2 Period from 12-14-09 (inception date) to 3-31-10.
3 Based on the average daily shares outstanding.
4 Reflects a non-recurring reimbursement pursuant to a settlement between the SEC and Millennium Partners, L.P.,
Millennium Management, L.L.C., and Millennium International Management, L.L.C., which amounted to $0.03
per share.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
9 Portfolio turnover is shown for the period from 11-1-09 to 3-31-10.
24 | Small Company Fund | Semiannual report | See notes to financial statements |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Small Company Fund (the fund) is a 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 maximum long-term 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 shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class R1, Class R2, Class R3, Class R4 and Class R5 shares are available only to certain retirement plans. Class R6 shares are available only to certain retirement plans, institutions and other investors. Class ADV shares as available to investors who acquired Class A as a result of the reorganization of the FMA Small Company Portfolio into the fund and are closed to new investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, transfer agent fees, printing and postage, and state registration fees for each class may differ.
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 as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. 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. In order to value the securities, the fund uses the following valuation techniques: Equity securities, including exchange-traded funds, 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, the securities are valued using the last quoted bid or evaluated price. Investments by the funds in open-end mutual funds are valued at their respective net asset values each business day. Certain securities traded only in the over-the-counter (OTC) 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, for which reliable 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. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
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 securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other 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 inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described.
Semiannual report | Small Company Fund | 25 |
Level 3 includes securities valued using 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. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
As of September 30, 2013, all investments are categorized as Level 1 under the hierarchy described above.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-date. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Real estate investment trusts. The fund may invest in real estate investment trusts (REITs). Distributions from REITs may be recorded as income and subsequently characterized by the REIT at the end of the fiscal year as a reduction of cost of investments and/or as a realized gain. As a result, the fund will estimate the components of distributions from these securities. Such estimates are revised when the actual components of the distributions are known.
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 fund’s custodian agreement, the custodian may loan money to the 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 may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
In addition, the fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. 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 and is reflected in other expenses on the Statement of operations. Commitment fees for the six months ended September 30, 2013 were $307. For the six months ended September 30, 2013, the fund had no borrowings under the line of credit.
Expenses. Within the John Hancock funds complex, expenses that are directly attributable to an individual fund are allocated to such 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 net 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 assets of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage expenses, for all classes, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
26 | Small Company Fund | Semiannual report |
Federal income taxes. The fund intends to continue 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.
Under the Regulated Investment Company Modernization Act of 2010, the fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Any losses incurred during those taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
For federal income tax purposes, the fund had a capital loss carryforward of $14,667,683 available to offset future net realized capital gains as of March 31, 2013 which expires as follows: March 31, 2016 — $3,030,785 and March 31, 2017 — $11,636,898.
As of March 31, 2013, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund’s federal tax returns are 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 typically 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 in the same amount, except for the effect of class level 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.
Capital accounts within the 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. Book-tax differences are primarily attributable to wash sale loss deferrals, net operating losses, litigation proceeds and real estate investment trusts.
Note 3 — Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including 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 Advisor) serves as investment advisor for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Trust. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Semiannual report | Small Company Fund | 27 |
Management fee. The fund has an investment management agreement with the Advisor under which the fund pays a daily management fee to the Advisor equivalent, on an annual basis, to the sum of: (a) 0.90% of the first $500,000,000 of the fund’s average daily net assets; (b) 0.85% of the next $500,000,000 of the fund’s average daily net assets; and (c) 0.80% of the fund’s average daily net assets in excess of $1,000,000,000. The Advisor has a subadvisory agreement with Fiduciary Management Associates, LLC. The fund is not responsible for payment of the subadvisory fees.
Effective June 1, 2013, the Advisor contractually agreed to waive a portion of its management fee for certain portfolios (the participating portfolios) of the Trust, John Hancock Funds, John Hancock Funds II, and John Hancock Variable Insurance Trust. The waiver equals, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the participating portfolios that exceeds $75 billion but is less than or equal to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds $125 billion but is less than or equal to $150 billion; and 0.015% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each portfolio. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.
The advisor has contractually agreed to reduce its management fee or, if necessary, make payment to the fund to the extent necessary to maintain the fund’s total operating expense at 1.50%, 1.14%, 1.80%, 1.55%, 1.70%, 1.30%, 1.10%, 1.04%, and 1.34% for Class A, Class I, Class R1, Class R2, Class R3, Class R4, Class R5, Class R6, and Class ADV shares, respectively, excluding certain expenses such as taxes, brokerage commissions, interest expense, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense. The current expense limitation agreement expires on June 30, 2014, unless renewed by mutual agreement of the fund and the Advisor based upon a determination that this is appropriate under the circumstances at that time.
For the six month ended September 30, 2013, these expense reductions amounted to the following:
EXPENSE | |||
CLASS | REDUCTIONS | ||
Class A | $2,396 | ||
Class I | 2,169 | ||
Class R1 | 6,329 | ||
Class R2 | 6,698 | ||
Class R3 | 6,756 | ||
Class R4 | 6,709 | ||
Class R5 | 6,757 | ||
Class R6 | 6,912 | ||
Class ADV | 7,527 | ||
Total | $52,253 |
The investment management fees, including the impact of the waivers and reimbursements as described above, incurred for the six months ended September 30, 2013 were equivalent to a net annual effective rate of 0.84% of the fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to 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. These accounting and legal services fees incurred for the six months ended September 30, 2013 amounted to an annual rate of 0.02% of the fund’s average daily net assets.
28 | Small Company Fund | Semiannual report |
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 R1, Class R2, Class R3, Class R4 and Class ADV 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 R2, Class R3, Class R4 and Class R5 shares, the fund pays for certain other services. The fund pays 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 FEE | SERVICE FEE | |
Class A | 0.30% | — | |
Class R1 | 0.50% | 0.25% | |
Class R2 | 0.25% | 0.25% | |
Class R3 | 0.50% | 0.15% | |
Class R4 | 0.25% | 0.10% | |
Class R5 | — | 0.05% | |
Class ADV | 0.25% | — |
The fund’s distributor has contractually agreed to waive 0.10% of the Rule 12b-1 fees of Class R4 shares. This waiver agreement will remain in effect through June 30, 2014, unless renewed by mutual agreement of the fund and the Distributor based upon a determination that this is appropriate under the circumstances at the time. Reimbursements related to this contractual waiver amounted to $38 for the six months ended September 30, 2013.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $337,362 for the six months ended September 30, 2013. Of this amount, $56,844 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $276,106 was paid as sales commissions to broker-dealers and $4,412 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Class A shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. CDSCs are applied to 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 September 30, 2013, CDSCs received by the Distributor amounted to $12 for Class A shares.
Transfer agent fees. The fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. 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 fees that Signature Services receives in connection with retirement and small accounts. 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 September 30, 2013 were:
Semiannual report | Small Company Fund | 29 |
DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
Class A | $192,089 | $97,734 | $9,539 | $10,282 |
Class I | — | 25,049 | 8,076 | 2,688 |
Class R1 | 4,008 | 134 | 6,682 | 117 |
Class R2 | 337 | 26 | 6,902 | 37 |
Class R3 | 557 | 18 | 6,683 | 67 |
Class R4 | 133 | 9 | 6,683 | 37 |
Class R5 | 115 | 31 | 6,683 | 59 |
Class R6 | — | 17 | 6,822 | 101 |
Class ADV | 622 | 380 | 7,181 | 187 |
Total | $197,861 | $123,398 | $65,251 | $13,575 |
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the fund based on its net assets relative to other funds within the John Hancock funds complex.
Note 5 — Fund share transactions
Transactions in fund shares for the six months ended September 30, 2013 and for the year ended March 31, 2013 were as follows:
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 720,053 | $17,994,293 | 648,171 | $13,996,105 |
Repurchased | (412,189) | (10,249,750) | (1,849,095) | (38,523,453) |
Net increase (decrease) | 307,864 | $7,744,543 | (1,200,924) | ($24,527,348) |
Class I shares | ||||
Sold | 102,642 | $2,603,974 | 363,132 | $7,645,212 |
Repurchased | (387,073) | (9,949,698) | (1,604,409) | (33,154,811) |
Net decrease | (284,431) | ($7,345,724) | (1,241,277) | ($25,509,599) |
Class R1 shares | ||||
Sold | 20,063 | $475,152 | 47,491 | $991,428 |
Repurchased | (12,568) | (309,899) | (15,819) | (322,300) |
Net increase | 7,495 | $165,253 | 31,672 | $669,128 |
Class R2 shares | ||||
Sold | 5,721 | $144,257 | — | — |
Net increase | 5,721 | $144,257 | — | — |
Class R3 shares | ||||
Sold | 1,662 | $40,921 | 4,475 | $92,681 |
Repurchased | (15,575) | (365,877) | (7,140) | (146,770) |
Net decrease | (13,913) | ($324,956) | (2,665) | ($54,089) |
Class R4 shares | ||||
Sold | 111 | $2,788 | 1,685 | $34,269 |
Repurchased | (589) | (13,720) | (799) | (18,743) |
Net increase (decrease) | (478) | ($10,932) | 886 | $15,526 |
Class R5 shares | ||||
30 | Small Company Fund | Semiannual report |
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Sold | 1,979 | $50,741 | 2,226 | $47,492 |
Repurchased | (1,619) | (41,009) | (871) | (18,207) |
Net increase | 360 | $9,732 | 1,355 | $29,285 |
Class R6 shares | ||||
Sold | 98 | $2,454 | 99 | $2,224 |
Repurchased | (120) | (3,208) | (46) | (919) |
Net increase (decrease) | (22) | ($754) | 53 | $1,305 |
Class ADV shares | ||||
Sold | — | — | 119 | $2,527 |
Repurchased | (20) | ($469) | (4,396) | (96,756) |
Net decrease | (20) | ($469) | (4,277) | ($94,229) |
Total net increase (decrease) | 22,576 | $380,950 | (2,415,177) | ($49,470,021) |
Affiliates of the fund owned 48%, 43% and 97% of shares of beneficial interest of Class R2, Class R4 and Class R6, respectively, on September 30, 2013.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, amounted to $73,892,259 and $74,837,404, respectively, for the six months ended September 30, 2013.
Semiannual report | Small Company Fund | 31 |
Continuation of Investment Advisory and Subadvisory Agreements
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Funds III (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with Fiduciary Management Associates, LLC (the Subadvisor) for John Hancock Small Company Fund (the fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16–17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the fund, the Advisor, and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for the fund’s benchmark index; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts, as applicable; and other information provided by the Advisor and the Subadvisor regarding the nature, extent, and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor’s revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and does not treat any single factor as determinative and each Trustee may attribute different weights to different factors. The Board’s conclusions may be
32 | Small Company Fund | Semiannual report |
based in part on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of fund performance and operations throughout the year.
Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and other third-party service providers.
In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties through Board meetings, discussions, and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationship, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objective; review of brokerage matters, including with respect to trade allocation and best execution; and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund; and
(f) the Advisor’s reputation and experience in serving as an investment adviser to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.
Investment performance. In considering the fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
Semiannual report | Small Company Fund | 33 |
(a) reviewed information prepared by management regarding the fund’s performance;
(b) considered the comparative performance of the fund’s benchmark;
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the fund’s ranking within a smaller group of peer funds and the fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted that the fund underperformed its benchmark index and peer group average for the one-, three- and five-year periods ended December 31, 2012.
The Board noted that the fund’s performance is being closely monitored. The Board took into account management’s discussion of the fund’s performance and potential options with respect to the future of the fund.
The Board concluded that the fund’s performance is being monitored and reasonably addressed.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data, including, among other data, the fund’s contractual and net management fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund. The Board considered the fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund’s ranking within a broader group of funds. In comparing the fund’s contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.
The Board noted that net management fees for this fund are lower than the peer group median and that total expenses for this fund are higher than the peer group median. The Board took into account management’s discussion of the fund’s expenses. The Board also noted that the fund’s distributor, an affiliate of the Advisor, waived a portion of its Rule 12b-1 fee for one of the share classes of the fund.
The Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the fund, which is discussed further below. The Board also noted that the Advisor has agreed to fee waivers and/or expense reimbursements with respect to total operating expenses for each share class of the fund. The Board also noted that the Advisor pays the subadvisory fees of the fund, and that such fees are negotiated at arm’s length with respect to the Subadvisor. The Board also noted management’s discussion of the fund’s expenses, as well as certain actions taken over the past several years to reduce the fund’s operating expenses. The Board reviewed information provided by the Advisor concerning investment advisory fees charged to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable.
Profitability/indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates from the Advisor’s relationship with the Trust, the Board:
34 | Small Company Fund | Semiannual report |
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
(e) considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;
(f) noted that affiliates of the Advisor provide transfer agency services and distribution services to the fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the fund;
(g) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;
(h) noted that the subadvisory fees for the fund are paid by the Advisor and are negotiated at arm’s length; and
(i) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates from their relationship with the fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders, the Board:
(a) considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the fund and each of the other open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement):
The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The funds that are not Participating Portfolios as of the date of this semiannual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the fund’s fee structure contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the fund to benefit
Semiannual report | Small Company Fund | 35 |
from economies of scale if the fund grows. The Board also took into account management’s discussion of the fund’s advisory fee structure; and
(c) the Board also considered the effect of the fund’s growth in size on its performance and fees. The Board also noted that if the fund’s assets increase over time, the fund may realize other economies of scale.
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the fund, and comparative performance information relating to the fund’s benchmark and comparable funds;
(3) the subadvisory fee for the fund, including breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data; and
(4) information relating to the nature and scope of any material relationships and their significance to the Trust’s Advisor and Subadvisor.
Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background, and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the Trust’s CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by it to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the fund, that is consistent with the fund’s investment objective, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund.
36 | Small Company Fund | Semiannual report |
The Board also relied on the ability of the Advisor to negotiate the Subadvisory Agreement with the Subadvisor, which is not affiliated with the Advisor, and the fees thereunder at arm’s length. As a result, the costs of the services to be provided and the profits to be realized by the Subadvisor from its relationship with the Trust were not a material factor in the Board’s consideration of the Subadvisory Agreement.
The Board also received information regarding the nature and scope (including their significance to the Advisor and its affiliates and to the Subadvisor) of any material relationships with respect to the Subadvisor, which includes arrangements in which the Subadvisor or its affiliates provide advisory, distribution, or management services in connection with financial products sponsored by the Trust’s Advisor or its affiliates, and may include other registered investment companies, a 529 education savings plan, managed separate account, and exempt group annuity contracts sold to qualified plans. The Board also received information and took into account any other potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement.
In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock fund complex and reputational benefits.
Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fees paid by the Advisor to the Subadvisor with respect to the fund to fees charged by the fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the fund’s performance as compared to the fund’s peer group and benchmark and noted that the Board reviews information about the fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the fund is being monitored and reasonably addressed;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the fund in order to permit shareholders to benefit from economies of scale if the fund grows.
* * * |
Based on the Board’s evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
Semiannual report | Small Company Fund | 37 |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Investment Management |
Steven R. Pruchansky, Vice Chairman | Services, LLC |
Charles L. Bardelis* | |
James R. Boyle† | Subadvisor |
Craig Bromley† | Fiduciary Management Associates, LLC |
Peter S. Burgess* | |
William H. Cunningham | Principal distributor |
Grace K. Fey | John Hancock Funds, LLC |
Theron S. Hoffman* | |
Deborah C. Jackson | Custodian |
Hassell H. McClellan | State Street Bank and Trust Company |
Gregory A. Russo | |
Warren A. Thomson† | Transfer agent |
John Hancock Signature Services, Inc. | |
Officers | |
Hugh McHaffie | Legal counsel |
President | K&L Gates LLP |
Andrew G. Arnott | |
Executive Vice President | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†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) website at sec.gov or on our website.
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 website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 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 website at jhinvestments.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhinvestments.com | Investment Operations | Investment Operations |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. | |
P.O. Box 55913 | 30 Dan Road | |
Boston, MA 02205-5913 | Canton, MA 02021 |
38 | Small Company Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/smallcompanyx35x1.jpg)
800-225-5291
800-338-8080 EASI-Line
jhinvestments.com
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/smallcompanyx35x2.jpg)
This report is for the information of the shareholders of John Hancock Small Company Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 348SA 9/13 |
MF160000 | 11/13 |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/discplvaluemidcapx1x1.jpg)
A look at performance
Total returns for the period ended September 30, 2013
Average annual total returns (%) | Cumulative total returns (%) | ||||||
with maximum sales charge | with maximum sales charge | ||||||
1-year | 5-year | 10-year | 6-months | 1-year | 5-year | 10-year | |
Class A1 | 23.90 | 13.66 | 11.60 | 5.70 | 23.90 | 89.72 | 199.71 |
Class C1 | 28.47 | 13.94 | 11.31 | 9.86 | 28.47 | 92.07 | 191.97 |
Class I1,2 | 30.79 | 15.21 | 12.59 | 11.44 | 30.79 | 103.00 | 227.41 |
Class R21,2 | 30.32 | 14.65 | 11.99 | 11.24 | 30.32 | 98.11 | 210.42 |
Class R41,2 | 30.46 | 15.03 | 12.41 | 11.25 | 30.06 | 101.40 | 222.25 |
Class R61,2 | 30.91 | 15.30 | 12.66 | 11.51 | 30.91 | 103.79 | 229.48 |
Class ADV1,2 | 30.43 | 14.81 | 12.17 | 11.25 | 30.43 | 99.52 | 215.28 |
Index† | 27.77 | 11.86 | 10.91 | 7.64 | 27.77 | 75.15 | 181.74 |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charges on Class A shares of 5% and the applicable contingent deferred sales charge (CDSC) on Class C shares. Class C shares held for less than one year are subject to a 1% CDSC. Sales charges are not applicable to Class I, Class R2, Class R4, Class R6, and Class ADV 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 those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least until 6-30-14 for Class R2, Class R4, Class R6, and Class ADV shares. Had the fee waivers and expense limitations not been in place, gross expenses would apply. For all other classes, the net expenses equal the gross expenses. The expense ratios are as follows:
Class A | Class C | Class I | Class R2 | Class R4*^ | Class R6 | Class ADV | |
Net (%) | 1.27 | 2.08 | 0.93 | 1.40 | 1.15 | 0.89 | 1.25 |
Gross (%) | 1.27 | 2.08 | 0.93 | 2.36 | 1.28 | 0.89 | 3.74 |
* Expenses have been estimated for the class’s first full year of operations.
^ The fund’s distributor has contractually agreed to waive 0.10% of Rule 12b-1 fees for Class R4 shares. The current waiver agreement will remain in effect through 6-30-14.
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 800-225-5291 or visit the fund’s website at jhinvestments.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 fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index is the Russell Midcap Value Index.
See the following page for footnotes.
6 | Disciplined Value Mid Cap Fund | Semiannual report |
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With maximum | Without | |||
Start date | sales charge | sales charge | Index | |
Class C3 | 9-30-03 | $29,197 | $29,197 | $28,174 |
Class I2 | 9-30-03 | 32,741 | 32,741 | 28,174 |
Class R22 | 9-30-03 | 31,042 | 31,042 | 28,174 |
Class R42 | 9-30-03 | 32,225 | 32,225 | 28,174 |
Class R62 | 9-30-03 | 32,948 | 32,948 | 28,174 |
Class ADV2 | 9-30-03 | 31,528 | 31,528 | 28,174 |
Russell Midcap Value Index is an unmanaged index that measures the performance of those Russell midcap companies with lower price-to-book ratios and lower forecasted growth values.
It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would have resulted in lower values.
Footnotes related to performance pages
1 After the close of business on 7-9-10, holders of Investor Class Shares and Institutional Class Shares of the former Robeco Boston Partners Mid Cap Value Fund (the predecessor fund) became owners of an equal number of full and fractional Class A and Class I shares, respectively, of John Hancock Disciplined Value Mid Cap Fund. Class A, Class I, and Class ADV shares were first offered on 7-12-10. The returns prior to this date for Class A and Class ADV shares are those of the predecessor fund’s Investor Class Shares recalculated to reflect the gross fees and expenses of the fund’s Class A and Class ADV shares. For Class I shares, the returns prior to this date are those of the predecessor fund’s Institutional Class Shares recalculated to reflect the gross fees and expenses of the Fund’s Class I shares. Class C, Class R6, Class R2, and Class R4 shares were first offered on 8-15-11, 9-1-11, 3-1-12, and 7-2-13, respectively; the returns prior to these dates are those of Class A shares that have been recalculated to apply the gross fees and expenses of Class C, Class R6, Class R2, and Class R4 shares, as applicable.
2 For certain types of investors, as described in the fund’s prospectuses.
3 The contingent deferred sales charge is not applicable.
Semiannual report | Disciplined Value Mid Cap Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
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 the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,112.30 | $6.30 |
Class C | 1,000.00 | 1,108.60 | 10.31 |
Class I | 1,000.00 | 1,114.40 | 4.72 |
Class R2 | 1,000.00 | 1,112.40 | 6.62 |
Class R6 | 1,000.00 | 1,115.10 | 4.29 |
Class ADV | 1,000.00 | 1,112.50 | 6.62 |
For the class noted below, the example assumes an account value of $1,000.00 on July 2, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 7-2-13 | on 9-30-13 | period ended 9-30-132 | |
Class R4 | 1,000.00 | 1,065.30 | 2.93 |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at September 30, 2013, 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 | Disciplined Value Mid Cap Fund | Semiannual report |
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Hypothetical example for comparison purposes
This table allows you to compare the 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 the fund’s actual return). It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-133 | |
Class A | $1,000.00 | $1,019.10 | $6.02 |
Class C | 1,000.00 | 1,015.30 | 9.85 |
Class I | 1,000.00 | 1,020.60 | 4.51 |
Class R2 | 1,000.00 | 1,018.80 | 6.33 |
Class R4 | 1,000.00 | 1,019.30 | 5.82 |
Class R6 | 1,000.00 | 1,021.00 | 4.10 |
Class ADV | 1,000.00 | 1,018.80 | 6.33 |
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 prospectuses for details regarding transaction costs.
1 Expenses are equal to the fund’s annualized expense ratio of 1.19%, 1.95%, 0.89%, 1.25%, 0.81% and 1.25% for Class A, Class C, Class I, Class R2, Class R6 and Class ADV shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
2 Expenses are equal to the fund’s annualized expense ratio of 1.15% for Class R4 shares, multiplied by the average account value over the period, multiplied by 90/365 (to reflect the period).
3 Expenses are equal to the fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
| |
Semiannual report | Disciplined Value Mid Cap Fund | 9 |
Portfolio summary
Top 10 Holdings (16.1% of Net Assets on 9-30-13)1,2 | ||||
Lear Corp. | 2.0% | CBS Corp., Class B | 1.6% | |
Omnicare, Inc. | 1.9% | Torchmark Corp. | 1.5% | |
Towers Watson & Company, Class A | 1.7% | Marsh & McLennan Companies, Inc. | 1.4% | |
TD Ameritrade Holding Corp. | 1.6% | Crown Holdings, Inc. | 1.4% | |
McKesson Corp. | 1.6% | East West Bancorp, Inc. | 1.4% | |
Sector Composition1,3 | ||||
Financials | 27.0% | Energy | 6.3% | |
Industrials | 16.5% | Materials | 6.0% | |
Information Technology | 14.3% | Utilities | 5.1% | |
Consumer Discretionary | 10.4% | Consumer Staples | 2.7% | |
Health Care | 8.7% | Short-Term Investments & Other | 3.0% | |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/discplvaluemidcapx6x1.jpg)
1 As a percentage of net assets on 9-30-13.
2 Cash and cash equivalents not included.
3 The prices of medium and small company stocks can change more frequently and dramatically than those of large companies. Value stocks may not increase in price as anticipated or may decline further in value. Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. 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 and investments focused in one sector may fluctuate more widely than investments diversified across sectors. For additional information on these and other risk considerations, please see the fund’s prospectuses.
10 | Disciplined Value Mid Cap Fund | Semiannual report |
Fund’s investments
As of 9-30-13 (unaudited)
Shares | Value | |
Common Stocks 97.0% | $4,954,270,602 | |
(Cost $4,072,617,976) | ||
Consumer Discretionary 10.4% | 531,187,090 | |
Auto Components 3.0% | ||
Lear Corp. | 1,461,389 | 104,591,606 |
TRW Automotive Holdings Corp. (I) | 675,025 | 48,136,033 |
Household Durables 1.1% | ||
Newell Rubbermaid, Inc. | 1,956,939 | 53,815,824 |
Leisure Equipment & Products 0.8% | ||
Brunswick Corp. (L) | 1,086,774 | 43,373,150 |
Media 2.2% | ||
CBS Corp., Class B | 1,449,570 | 79,958,281 |
Omnicom Group, Inc. | 523,395 | 33,204,179 |
Multiline Retail 1.6% | ||
Macy’s, Inc. | 1,237,935 | 53,565,447 |
Nordstrom, Inc. (L) | 529,795 | 29,774,479 |
Specialty Retail 1.7% | ||
Foot Locker, Inc. | 911,975 | 30,952,432 |
Staples, Inc. (L) | 1,775,475 | 26,010,709 |
Williams-Sonoma, Inc. | 494,750 | 27,804,950 |
Consumer Staples 2.7% | 140,061,091 | |
Beverages 1.7% | ||
Coca-Cola Enterprises, Inc. | 565,915 | 22,755,442 |
Constellation Brands, Inc., Class A (I) | 843,450 | 48,414,030 |
Dr. Pepper Snapple Group, Inc. | 401,675 | 18,003,074 |
Food Products 0.5% | ||
Tyson Foods, Inc., Class A (L) | 873,380 | 24,699,186 |
Tobacco 0.5% | ||
Lorillard, Inc. (L) | 584,845 | 26,189,359 |
Energy 6.3% | 322,675,187 | |
Energy Equipment & Services 1.0% | ||
Cameron International Corp. (I) | 500,525 | 29,215,644 |
Ensco PLC, Class A | 459,070 | 24,675,013 |
Oil, Gas & Consumable Fuels 5.3% | ||
Energen Corp. | 536,590 | 40,990,110 |
EQT Corp. | 468,590 | 41,573,305 |
See notes to financial statements | Semiannual report | Disciplined Value Mid Cap Fund | 11 |
Shares | Value | |
Oil, Gas & Consumable Fuels (continued) | ||
Kosmos Energy, Ltd. (I) | 1,776,547 | $18,262,903 |
Marathon Oil Corp. | 887,831 | 30,967,545 |
Marathon Petroleum Corp. | 304,455 | 19,582,546 |
Noble Energy, Inc. | 497,740 | 33,353,557 |
Rosetta Resources, Inc. (I) | 693,358 | 37,760,277 |
SM Energy Company | 192,768 | 14,879,762 |
Southwestern Energy Company (I) | 558,250 | 20,309,135 |
Tesoro Corp. | 252,510 | 11,105,390 |
Financials 27.0% | 1,381,048,540 | |
Capital Markets 4.5% | ||
Raymond James Financial, Inc. | 1,444,945 | 60,210,858 |
SEI Investments Company | 999,966 | 30,908,949 |
State Street Corp. | 468,770 | 30,821,628 |
TD Ameritrade Holding Corp. | 3,167,185 | 82,916,903 |
The Charles Schwab Corp. | 1,195,380 | 25,270,333 |
Commercial Banks 6.2% | ||
BB&T Corp. | 2,023,845 | 68,304,769 |
Comerica, Inc. | 990,235 | 38,926,138 |
East West Bancorp, Inc. | 2,241,500 | 71,615,925 |
Fifth Third Bancorp | 2,984,850 | 53,846,694 |
Huntington Bancshares, Inc. | 4,765,435 | 39,362,493 |
SunTrust Banks, Inc. | 1,413,760 | 45,834,099 |
Consumer Finance 1.3% | ||
Discover Financial Services | 849,225 | 42,919,832 |
SLM Corp. | 979,935 | 24,400,382 |
Diversified Financial Services 0.9% | ||
McGraw-Hill Financial, Inc. | 373,819 | 24,518,788 |
Moody’s Corp. | 296,990 | 20,887,307 |
Insurance 7.1% | ||
Alleghany Corp. (I) | 131,643 | 53,927,555 |
Arch Capital Group, Ltd. (I) | 383,550 | 20,761,562 |
Axis Capital Holdings, Ltd. | 1,000,665 | 43,338,801 |
Loews Corp. | 699,330 | 32,686,684 |
Marsh & McLennan Companies, Inc. | 1,681,620 | 73,234,551 |
Reinsurance Group of America, Inc. | 639,010 | 42,807,280 |
Symetra Financial Corp. | 1,123,961 | 20,028,985 |
Torchmark Corp. (L) | 1,082,419 | 78,313,015 |
Real Estate Investment Trusts 7.0% | ||
American Assets Trust, Inc. | 519,877 | 15,861,447 |
Boston Properties, Inc. | 561,600 | 60,035,040 |
BRE Properties, Inc. | 742,810 | 37,705,036 |
Equity Residential | 1,097,345 | 58,784,772 |
Kimco Realty Corp. | 1,496,800 | 30,205,424 |
Regency Centers Corp. | 752,549 | 36,385,744 |
SL Green Realty Corp. | 441,885 | 39,257,063 |
Taubman Centers, Inc. | 598,186 | 40,263,900 |
Ventas, Inc. | 596,855 | 36,706,583 |
12 | Disciplined Value Mid Cap Fund | Semiannual report | See notes to financial statements |
Shares | Value | |
Health Care 8.7% | $443,491,031 | |
Health Care Equipment & Supplies 1.2% | ||
CareFusion Corp. (I) | 1,666,675 | 61,500,308 |
Health Care Providers & Services 6.8% | ||
AmerisourceBergen Corp. | 1,167,115 | 71,310,727 |
Chemed Corp. (L) | 199,316 | 14,251,094 |
Cigna Corp. | 849,575 | 65,298,335 |
DaVita HealthCare Partners, Inc. (I) | 283,115 | 16,109,244 |
Humana, Inc. (L) | 4,740 | 442,384 |
McKesson Corp. | 642,315 | 82,409,015 |
Omnicare, Inc. (L) | 1,786,545 | 99,153,248 |
Life Sciences Tools & Services 0.7% | ||
ICON PLC (I) | 806,662 | 33,016,676 |
Industrials 16.5% | 839,875,753 | |
Aerospace & Defense 2.3% | ||
Cubic Corp. | 289,095 | 15,518,620 |
Curtiss-Wright Corp. | 1,007,807 | 47,326,617 |
Huntington Ingalls Industries, Inc. | 804,697 | 54,236,578 |
Building Products 0.6% | ||
Masco Corp. | 1,488,020 | 31,665,066 |
Construction & Engineering 0.9% | ||
Fluor Corp. | 624,885 | 44,341,840 |
Electrical Equipment 0.6% | ||
Hubbell, Inc., Class B | 297,177 | 31,126,319 |
Industrial Conglomerates 0.4% | ||
Carlisle Companies, Inc. | 276,770 | 19,454,163 |
Machinery 5.3% | ||
AGCO Corp. (L) | 503,160 | 30,400,927 |
Dover Corp. | 717,199 | 64,425,986 |
Flowserve Corp. | 953,380 | 59,481,378 |
Parker Hannifin Corp. | 573,550 | 62,356,356 |
Stanley Black & Decker, Inc. | 376,270 | 34,078,774 |
Timken Company | 368,810 | 22,276,124 |
Professional Services 5.5% | ||
Equifax, Inc. | 610,520 | 36,539,622 |
FTI Consulting, Inc. (I)(L) | 798,958 | 30,200,612 |
ManpowerGroup, Inc. | 803,030 | 58,412,402 |
Robert Half International, Inc. | 1,681,211 | 65,617,665 |
Towers Watson & Company, Class A | 817,706 | 87,461,834 |
Trading Companies & Distributors 0.9% | ||
WESCO International, Inc. (I)(L) | 587,415 | 44,954,870 |
Information Technology 14.3% | 731,807,176 | |
Communications Equipment 1.1% | ||
Brocade Communications Systems, Inc. (I) | 3,557,975 | 28,641,699 |
Harris Corp. | 457,305 | 27,118,187 |
See notes to financial statements | Semiannual report | Disciplined Value Mid Cap Fund | 13 |
Shares | Value | |
Computers & Peripherals 2.5% | ||
NetApp, Inc. (L) | 522,415 | $22,265,327 |
Seagate Technology PLC | 1,029,645 | 45,036,672 |
Western Digital Corp. | 952,330 | 60,377,722 |
Electronic Equipment, Instruments & Components 3.8% | ||
Arrow Electronics, Inc. (I) | 1,191,787 | 57,837,423 |
Avnet, Inc. | 1,381,599 | 57,626,494 |
Flextronics International, Ltd. (I) | 6,122,448 | 55,653,052 |
TE Connectivity, Ltd. | 442,119 | 22,892,922 |
Internet Software & Services 0.7% | ||
IAC/InterActiveCorp | 624,684 | 34,151,474 |
IT Services 1.8% | ||
Alliance Data Systems Corp. (I)(L) | 88,190 | 18,649,539 |
Amdocs, Ltd. | 1,263,635 | 46,299,586 |
Global Payments, Inc. | 132,180 | 6,751,754 |
Lender Processing Services, Inc. | 708,455 | 23,570,298 |
Semiconductors & Semiconductor Equipment 2.7% | ||
Analog Devices, Inc. | 1,138,445 | 53,563,837 |
LSI Corp. | 6,656,985 | 52,057,623 |
ON Semiconductor Corp. (I) | 4,661,714 | 34,030,512 |
Software 1.7% | ||
Activision Blizzard, Inc. | 1,353,240 | 22,558,511 |
Symantec Corp. | 2,534,325 | 62,724,544 |
Materials 6.0% | 305,770,922 | |
Chemicals 1.2% | ||
H.B. Fuller Company | 880,615 | 39,794,992 |
Minerals Technologies, Inc. | 474,677 | 23,434,803 |
Containers & Packaging 4.1% | ||
Ball Corp. | 264,210 | 11,857,745 |
Crown Holdings, Inc. (I) | 1,713,480 | 72,445,934 |
Graphic Packaging Holding Company (I) | 7,010,557 | 60,010,368 |
Owens-Illinois, Inc. (I) | 1,459,545 | 43,815,541 |
Rock-Tenn Company, Class A | 191,785 | 19,422,067 |
Paper & Forest Products 0.7% | ||
International Paper Company | 781,015 | 34,989,472 |
Utilities 5.1% | 258,353,812 | |
Electric Utilities 3.4% | ||
American Electric Power Company, Inc. | 854,745 | 37,053,196 |
Edison International | 1,166,835 | 53,744,420 |
Great Plains Energy, Inc. | 897,865 | 19,932,603 |
NV Energy, Inc. | 1,756,225 | 41,464,472 |
Westar Energy, Inc. (L) | 732,335 | 22,446,068 |
Independent Power Producers & Energy Traders 0.4% | ||
AES Corp. | 1,538,580 | 20,447,728 |
Multi-Utilities 1.3% | ||
Alliant Energy Corp. | 732,464 | 36,293,591 |
Ameren Corp. | 774,160 | 26,971,734 |
14 | Disciplined Value Mid Cap Fund | Semiannual report | See notes to financial statements |
Yield (%) | Shares | Value | |
Securities Lending Collateral 3.4% | $172,496,573 | ||
(Cost $172,465,137) | |||
John Hancock Collateral Investment Trust (W) | 0.1739 (Y) | 17,235,524 | 172,496,573 |
Short-Term Investments 1.5% | $78,586,714 | ||
(Cost $78,586,714) | |||
Money Market Funds 1.5% | 78,586,714 | ||
State Street Institutional US Government | |||
Money Market Fund | 0.0000 (Y) | $78,586,714 | 78,586,714 |
Total investments (Cost $4,323,669,827)† 101.9% | $5,205,353,889 | ||
Other assets and liabilities, net (1.9%) | ($98,180,330) | ||
Total net assets 100.0% | $5,107,173,559 | ||
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) A portion of this security is on loan as of 9-30-13.
(W) Investment is an affiliate of the fund, the advisor and/or subadvisor. This investment represents collateral received for securities lending.
(Y) The rate shown is the annualized seven-day yield as of 9-30-13.
† At 9-30-13, the aggregate cost of investment securities for federal income tax purposes was $4,336,215,029. Net unrealized appreciation aggregated $869,138,860, of which $883,599,328 related to appreciated investment securities and $14,460,468 related to depreciated investment securities.
See notes to financial statements | Semiannual report | Disciplined Value Mid Cap Fund | 15 |
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 9-30-13 (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 offering price per share.
Assets | |||
Investments in unaffiliated issuers, at value (Cost $4,151,204,690) | |||
including $169,188,732 of securities loaned | $5,032,857,316 | ||
Investments in affiliated issuers, at value (Cost $172,465,137) | 172,496,573 | ||
Total investments, at value (Cost $4,323,669,827) | 5,205,353,889 | ||
Cash | 1,634,949 | ||
Receivable for investments sold | 57,112,102 | ||
Receivable for fund shares sold | 36,785,256 | ||
Dividends and interest receivable | 4,635,323 | ||
Receivable for securities lending income | 20,028 | ||
Receivable due from advisor | 228 | ||
Other receivables and prepaid expenses | 194,049 | ||
Total assets | 5,305,735,824 | ||
Liabilities | |||
Payable for investments purchased | 15,192,086 | ||
Payable for fund shares repurchased | 9,860,932 | ||
Payable upon return of securities loaned | 172,476,925 | ||
Payable to affiliates | |||
Accounting and legal services fees | 289,309 | ||
Transfer agent fees | 452,491 | ||
Distribution and service fees | 15,510 | ||
Trustees’ fees | 412 | ||
Other liabilities and accrued expenses | 274,600 | ||
Total liabilities | 198,562,265 | ||
Net assets | $5,107,173,559 | ||
Net assets consist of | |||
Paid-in capital | $4,131,372,806 | ||
Undistributed net investment income | 12,524,080 | ||
Accumulated net realized gain (loss) on investments | 81,592,611 | ||
Net unrealized appreciation (depreciation) on investments | 881,684,062 | ||
Net assets | $5,107,173,559 |
16 | Disciplined Value Mid 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 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 ($2,077,154,622 ÷ 128,665,058 shares)1 | $16.14 |
Class C ($187,331,061 ÷ 11,404,984 shares)1 | $16.43 |
Class I ($2,595,676,506 ÷ 155,763,697 shares) | $16.66 |
Class R2 ($82,876,267 ÷ 4,986,390 shares) | $16.62 |
Class R4 ($501,953 ÷ 30,141 shares) | $16.65 |
Class R6 ($162,893,901 ÷ 9,771,145 shares) | $16.67 |
Class ADV ($739,249 ÷ 45,859 shares) | $16.12 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95%)2 | $16.99 |
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 | Disciplined Value Mid Cap Fund | 17 |
F I N A N C I A L S T A T E M E N T S
Statement of operations For the six-month period ended 9-30-13 (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 | $30,026,662 |
Securities lending | 120,334 |
Interest | 1,795 |
Total investment income | 30,148,791 |
Expenses | |
Investment management fees | 14,512,243 |
Distribution and service fees | 2,572,803 |
Accounting and legal services fees | 384,546 |
Transfer agent fees | 2,367,971 |
Trustees’ fees | 68,500 |
State registration fees | 100,897 |
Printing and postage | 136,956 |
Professional fees | 62,349 |
Custodian fees | 197,469 |
Registration and filing fees | 114,482 |
Other | 28,966 |
Total expenses | 20,547,182 |
Less expense reductions | (89,060) |
Net expenses | 20,458,122 |
Net investment income | 9,690,669 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments in unaffiliated issuers | 58,021,344 |
Investments in affiliated issuers | 2,151 |
58,023,495 | |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 350,594,148 |
Investments in affiliated issuers | (13,060) |
350,581,088 | |
Net realized and unrealized gain | 408,604,583 |
Increase in net assets from operations | $418,295,252 |
18 | Disciplined Value Mid 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
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.
Six months | ||
ended | Year | |
9-30-13 | ended | |
(Unaudited) | 3-31-13 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $9,690,669 | $11,243,225 |
Net realized gain | 58,023,495 | 30,985,395 |
Change in net unrealized appreciation (depreciation) | 350,581,088 | 384,304,783 |
Increase in net assets resulting from operations | 418,295,252 | 426,533,403 |
Distributions to shareholders | ||
From net investment income | ||
Class A | — | (2,921,623) |
Class I | — | (7,726,525) |
Class R2 | — | (4,135) |
Class R6 | — | (455,223) |
Class ADV | — | (2,703) |
Total distributions | — | (11,110,209) |
From fund share transactions | 1,551,850,631 | 1,233,265,665 |
Total increase | 1,970,145,883 | 1,648,688,859 |
Net assets | ||
Beginning of period | 3,137,027,676 | 1,488,338,817 |
End of period | $5,107,173,559 | $3,137,027,676 |
Undistributed net investment income | $12,524,080 | $2,833,411 |
See notes to financial statements | Semiannual report | Disciplined Value Mid Cap Fund | 19 |
Financial highlights
The Financial highlights show how the fund’s net asset value for a share has changed during the period.
CLASS A SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112 | 8-31-103 | 8-31-094 | 8-31-084 |
Per share operating performance | |||||||
Net asset value, beginning | |||||||
of period | $14.51 | $12.41 | $11.98 | $8.66 | $8.10 | $9.08 | $11.16 |
Net investment income5 | 0.03 | 0.05 | 0.04 | 0.01 | 0.016 | 0.07 | 0.06 |
Net realized and unrealized gain | |||||||
(loss) on investments | 1.60 | 2.09 | 0.42 | 3.32 | 0.60 | (0.98)7 | (0.74) |
Total from investment operations | 1.63 | 2.14 | 0.46 | 3.33 | 0.61 | (0.91) | (0.68) |
Less distributions | |||||||
From net investment income | — | (0.04) | — | (0.01) | (0.05) | (0.07) | (0.04) |
From net realized gain | — | — | (0.03) | — | — | —8 | (1.36) |
Total distributions | — | (0.04) | (0.03) | (0.01) | (0.05) | (0.07) | (1.40) |
Net asset value, end of period | $16.14 | $14.51 | $12.41 | $11.98 | $8.66 | $8.10 | $9.08 |
Total return (%)9,10 | 11.2311 | 17.31 | 3.92 | 38.4711 | 7.54 | (9.79)7 | (6.62) |
Ratios and supplemental data | |||||||
Net assets, end of period | |||||||
(in millions) | $2,077 | $1,169 | $517 | $171 | $75 | $14 | $17 |
Ratios (as a percentage of average | |||||||
net assets): | |||||||
Expenses before reductions | 1.1912 | 1.27 | 1.33 | 1.3512 | 1.56 | 1.93 | 1.73 |
Expenses net of fee waivers | |||||||
and credits | 1.1912 | 1.27 | 1.29 | 1.2512 | 1.25 | 1.25 | 1.25 |
Net investment income | 0.3412 | 0.38 | 0.32 | 0.1012 | 0.09 | 1.09 | 0.55 |
Portfolio turnover (%) | 22 | 55 | 41 | 27 | 38 | 58 | 64 |
1 Six months ended 9-30-13. Unaudited.
2 For the seven month period ended 3-31-11. The fund changed its fiscal year end from August 31 to March 31.
3 After the close of business on 7-9-10, holders of Investor Class Shares of the former Robeco Boston Partners Mid Cap
Value Fund (the predecessor fund) became owners of an equal number of full and fractional Class A shares of the John
Hancock Disciplined Value Mid Cap Fund. These shares were first offered on 7-12-10. Additionally, the accounting and
performance history of the Investor Class Shares of the predecessor fund was redesignated as that of John Hancock
Disciplined Value Mid Cap Fund Class A.
4 Audited by previous independent registered public accounting firm.
5 Based on the average daily shares outstanding.
6 The amount shown for a share outstanding may differ with the distributions from net investment income for the
period due to the timing of distributions in relations to fluctuations of shares outstanding during the period.
7 In 2009, the investment advisor fully reimbursed the fund for a loss on a transaction not meeting the fund’s
investment guidelines, which otherwise would have reduced total return by 0.11% and net realized and unrealized
gain/(loss) on investment by $0.01 per share.
8 Less than $0.01 per share.
9 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
10 Does not reflect the effect of sales charges, if any.
11 Not annualized.
12 Annualized.
20 | Disciplined Value Mid Cap Fund | Semiannual report | See notes to financial statements |
CLASS C SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | ||||
Per share operating performance | |||||||
Net asset value, beginning of period | $14.82 | $12.74 | $10.63 | ||||
Net investment loss3 | (0.03) | (0.05) | (0.02) | ||||
Net realized and unrealized gain on investments | 1.64 | 2.13 | 2.16 | ||||
Total from investment operations | 1.61 | 2.08 | 2.14 | ||||
Less distributions | |||||||
From net realized gain | — | — | (0.03) | ||||
Net asset value, end of period | $16.43 | $14.82 | $12.74 | ||||
Total return (%)4,5 | 10.866 | 16.33 | 20.226 | ||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $187 | $90 | $20 | ||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.967 | 2.08 | 2.107 | ||||
Expenses net of fee waivers and credits | 1.957 | 2.08 | 2.107 | ||||
Net investment loss | (0.41)7 | (0.39) | (0.26)7 | ||||
Portfolio turnover (%) | 22 | 55 | 418 | ||||
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class C shares is 8-15-11.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
6 Not annualized.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
See notes to financial statements | Semiannual report | Disciplined Value Mid Cap Fund | 21 |
CLASS I SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112 | 8-31-103 | 8-31-094 | 8-31-084 |
Per share operating performance | |||||||
Net asset value, beginning | |||||||
of period | $14.95 | $12.79 | $12.33 | $8.92 | $8.34 | $9.35 | $11.45 |
Net investment income5 | 0.05 | 0.09 | 0.07 | 0.03 | 0.046 | 0.09 | 0.08 |
Net realized and unrealized gain | |||||||
(loss) on investments | 1.66 | 2.15 | 0.45 | 3.41 | 0.61 | (1.01)7 | (0.76) |
Total from investment operations | 1.71 | 2.24 | 0.52 | 3.44 | 0.65 | (0.92) | (0.68) |
Less distributions | |||||||
From net investment income | — | (0.08) | (0.03) | (0.03) | (0.07) | (0.09) | (0.06) |
From net realized gain | — | — | (0.03) | — | — | —8 | (1.36) |
Total distributions | — | (0.08) | (0.06) | (0.03) | (0.07) | (0.09) | (1.42) |
Net asset value, end of period | $16.66 | $14.95 | $12.79 | $12.33 | $8.92 | $8.34 | $9.35 |
Total return (%)9 | 11.4410 | 17.64 | 4.28 | 38.6410 | 7.76 | (9.50)7 | (6.41) |
Ratios and supplemental data | |||||||
Net assets, end of period | |||||||
(in millions) | $2,596 | $1,762 | $948 | $254 | $87 | $33 | $35 |
Ratios (as a percentage of average | |||||||
net assets): | |||||||
Expenses before reductions | 0.8911 | 0.93 | 0.98 | 0.9911 | 1.28 | 1.69 | 1.48 |
Expenses net of fee waivers | |||||||
and credits | 0.8911 | 0.93 | 0.98 | 0.9911 | 1.00 | 1.00 | 1.00 |
Net investment income | 0.6311 | 0.71 | 0.63 | 0.3711 | 0.41 | 1.33 | 0.80 |
Portfolio turnover (%) | 22 | 55 | 41 | 27 | 38 | 58 | 64 |
1 Six months ended 9-30-13. Unaudited.
2 For the seven month period ended 3-31-11. The fund changed its fiscal year end from August 31 to March 31.
3 After the close of business on 7-9-10, holders of Institutional Class Shares of the former Robeco Boston Partners
Mid Cap Value Fund (the predecessor fund) became owners of an equal number of full and fractional Class I shares
of the John Hancock Disciplined Value Mid Cap Fund. These shares were first offered on 7-12-10. Additionally, the
accounting and performance history of the Institutional Class Shares of the predecessor fund was redesignated as
that of John Hancock Disciplined Value Mid Cap Fund Class I.
4 Audited by previous independent registered public accounting firm.
5 Based on the average daily shares outstanding.
6 The amount shown for a share outstanding may differ with the distributions from net investment income for the
period due to the timing of distributions in relations to fluctuations of shares outstanding during the period.
7 In 2009, the investment advisor fully reimbursed the fund for a loss on a transaction not meeting the fund’s
investment guidelines, which otherwise would have reduced total return by 0.11% and net realized and unrealized
gain/(loss) on investment by $0.01 per share.
8 Less than $0.01 per share.
9 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
10 Not annualized.
11 Annualized.
22 | Disciplined Value Mid Cap Fund | Semiannual report | See notes to financial statements |
CLASS R2 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | ||||
Per share operating performance | |||||||
Net asset value, beginning of period | $14.94 | $12.78 | $12.43 | ||||
Net investment income3 | 0.03 | 0.05 | 0.01 | ||||
Net realized and unrealized gain on investments | 1.65 | 2.14 | 0.34 | ||||
Total from investment operations | 1.68 | 2.19 | 0.35 | ||||
Less distributions | |||||||
From net investment income | — | (0.03) | — | ||||
Net asset value, end of period | $16.62 | $14.94 | $12.78 | ||||
Total return (%)4 | 11.245 | 17.15 | 2.825 | ||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $83 | $15 | —6 | ||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.257 | 2.15 | 16.137 | ||||
Expenses net of fee waivers and credits | 1.257 | 1.40 | 1.457 | ||||
Net investment income | 0.377 | 0.33 | 1.007 | ||||
Portfolio turnover (%) | 22 | 55 | 418 | ||||
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R2 shares is 3-1-12.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
CLASS R4 SHARES Period ended | 9-30-131,2 | ||||||
Per share operating performance | |||||||
Net asset value, beginning of period | $15.63 | ||||||
Net investment income3 | 0.02 | ||||||
Net realized and unrealized gain on investments | 1.00 | ||||||
Total from investment operations | 1.02 | ||||||
Net asset value, end of period | $16.65 | ||||||
Total return (%)4 | 6.535 | ||||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $1 | ||||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 7.376 | ||||||
Expenses net of fee waivers and credits | 1.156 | ||||||
Net investment income | 0.576 | ||||||
Portfolio turnover (%) | 227 | ||||||
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R4 shares is 7-2-13.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Annualized.
7 Portfolio turnover is shown for the period from 4-1-13 to 9-30-13.
See notes to financial statements | Semiannual report | Disciplined Value Mid Cap Fund | 23 |
CLASS R6 SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | ||||
Per share operating performance | |||||||
Net asset value, beginning of period | $14.95 | $12.79 | $10.95 | ||||
Net investment income3 | 0.06 | 0.11 | 0.08 | ||||
Net realized and unrealized gain on investments | 1.66 | 2.14 | 1.82 | ||||
Total from investment operations | 1.72 | 2.25 | 1.90 | ||||
Less distributions | |||||||
From net investment income | — | (0.09) | (0.03) | ||||
From net realized gain | — | — | (0.03) | ||||
Total distributions | — | (0.09) | (0.06) | ||||
Net asset value, end of period | $16.67 | $14.95 | $12.79 | ||||
Total return (%)4 | 11.515 | 17.68 | 17.455 | ||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $163 | $100 | $2 | ||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 0.816 | 0.89 | 4.226 | ||||
Expenses including reductions and amounts recaptured | 0.816 | 0.89 | 0.996 | ||||
Net investment income | 0.716 | 0.84 | 1.256 | ||||
Portfolio turnover (%) | 22 | 55 | 417 | ||||
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class R6 shares is 9-1-11.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Annualized.
7 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
CLASS ADV SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112 | 8-31-103 | ||
Per share operating performance | |||||||
Net asset value, beginning of period | $14.49 | $12.40 | $11.97 | $8.65 | $8.86 | ||
Net investment income4 | 0.02 | 0.04 | 0.04 | 0.01 | —5 | ||
Net realized and unrealized gain (loss) on investments | 1.61 | 2.10 | 0.43 | 3.32 | (0.21) | ||
Total from investment operations | 1.63 | 2.14 | 0.47 | 3.33 | (0.21) | ||
Less distributions | |||||||
From net investment income | — | (0.05) | (0.01) | (0.01) | — | ||
From net realized gain | — | — | (0.03) | — | — | ||
Total distributions | — | (0.05) | (0.04) | (0.01) | — | ||
Net asset value, end of period | $16.12 | $14.49 | $12.40 | $11.97 | $8.65 | ||
Total return (%)6 | 11.257 | 17.33 | 3.94 | 38.507 | (2.37)7 | ||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $1 | $1 | $1 | —8 | —8 | ||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 3.569 | 3.74 | 4.18 | 5.789 | 1.429 | ||
Expenses net of fee waivers and credits | 1.259 | 1.25 | 1.25 | 1.259 | 1.259 | ||
Net investment income (loss) | 0.249 | 0.35 | 0.37 | 0.159 | (0.37)9 | ||
Portfolio turnover (%) | 22 | 55 | 41 | 27 | 3810 | ||
1 Six months ended 9-30-13. Unaudited.
2 For the seven month period ended 3-31-11. The fund changed its fiscal year end from August 31 to March 31.
3 The inception date for Class ADV shares is 7-12-10.
4 Based on the average daily shares outstanding.
5 Less than 0.005 per share.
6 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Portfolio turnover is shown for the period from 9-1-09 to 8-31-10.
24 | Disciplined Value Mid Cap Fund | Semiannual report | See notes to financial statements |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Disciplined Value Mid Cap Fund (the fund) is a 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 with current income as 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 and Class C shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class R2 and Class R4 shares are available only to certain retirement plans. Class R6 shares are available only to certain retirement plans, institutions and other investors. Class ADV shares are available only to investors who acquired Class A shares as a result of the reorganization of the Robeco Boston Partners Mid Cap Value Fund (the predecessor fund) into the fund and is closed to new investors. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees, printing and postage and state registration fees for each class may differ.
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 as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. 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. 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, the securities are valued using the last quoted bid or evaluated price. Investments by the fund in open-end mutual funds, including John Hancock Collateral Investment Trust (JHCIT), are valued at their respective net asset values each business day. Certain securities traded only in the over-the-counter (OTC) 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, for which reliable 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. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
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 securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other 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 inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described.
Semiannual report | Disciplined Value Mid Cap Fund | 25 |
Level 3 includes securities valued using 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. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
As of September 30, 2013, all investments are categorized as Level 1 under the hierarchy described above.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-date, except for dividends of foreign securities where the dividend may not be known until after the ex-date. In those cases, dividend income, net of withholding taxes, is recorded when the fund becomes aware of the dividends. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain if amounts are estimable. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Real estate investment trusts. The fund may invest in real estate investment trusts (REITs). Distributions from REITs may be recorded as income and subsequently characterized by the REIT at the end of the fiscal year as a reduction of cost of investments and/or as a realized gain. As a result, the fund will estimate the components of distributions from these securities. Such estimates are revised when the actual components of the distributions are known.
Securities lending. The fund may lend its securities to earn additional income. The fund receives cash collateral from the borrower in an amount not less than the market value of the loaned securities. The fund will invest its collateral in JHCIT, an affiliate of the fund, which has a floating net asset value (NAV) and is registered with the Securities and Exchange Commission as an investment company. JHCIT invests cash received as collateral as part of the securities lending program in short-term money market investments. The fund will receive the benefit of any gains and bear any losses generated by JHCIT with respect to the cash collateral.
If a borrower fails to return loaned securities when due, then the lending agent is responsible to and indemnifies the fund for the lent securities. The lending agent uses the collateral received from the borrower to purchase replacement securities of the same issue, type, class and series of the loaned securities. If the value of the collateral is less than the purchase cost of replacement securities, the lending agent is responsible for satisfying the shortfall but only to the extent that the shortfall is not due to any decrease in the value of JHCIT.
Although the risk of the loss of the securities lent is mitigated by receiving collateral from the borrower and through lending agent indemnification, the fund could experience a delay in recovering its securities or could experience a lower than expected return if the borrower fails to return the securities on a timely basis. 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. Net income received from JHCIT is a component of securities lending income as recorded on the Statement of operations.
Obligations to repay collateral received by the fund is shown on the Statements of assets and liabilities as Payable upon return of securities loaned.
26 | Disciplined Value Mid Cap Fund | Semiannual report |
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 fund’s custodian agreement, the custodian may loan money to the 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 may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
In addition, the fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. 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 and is reflected in other expenses on the Statement of operations. Commitment fees for the six months ended September 30, 2013 were $1,326. For the six months ended September 30, 2013, the fund had no borrowings under the line of credit.
Expenses. Within the John Hancock funds complex, expenses that are directly attributable to an individual fund are allocated to such 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 net 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 assets of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage expenses, for all classes, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
Federal income taxes. The fund intends to continue 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.
As of March 31, 2013, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund’s federal tax returns are 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 in the same amount, except for the effect of class level 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.
Capital accounts within the 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. Book-tax differences are primarily attributable to wash sale loss deferrals.
Semiannual report | Disciplined Value Mid Cap Fund | 27 |
Note 3 — Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including 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 Advisor) serves as investment advisor for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Trust. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The fund has an investment management agreement with the Advisor under which the fund pays a daily management fee to the Advisor equivalent, on an annual basis, to the sum of: (a) 0.800% of the first $500,000,000 of the fund’s average daily net assets; (b) 0.775% of the next $500,000,000 of the fund’s average daily net assets; (c) 0.750% of the next $500,000,000 of the fund’s average daily net assets; (d) 0.725% of the next $1,000,000,000 of the fund’s average daily net assets; and (e) 0.700% of the fund’s average daily net assets in excess of $2,500,000,000. The Advisor has a subadvisory agreement with Robeco Investment Management, Inc. The fund is not responsible for payment of the subadvisory fees.
The Advisor has contractually agreed to reduce its management fee or, if necessary, make payment to the fund to the extent necessary to maintain the fund’s total operating expenses at 1.40%, 1.15%, 0.95% and 1.25% for Class R2, Class R4, Class R6 and Class ADV shares, respectively, excluding certain expenses such as taxes, brokerage commissions, interest expense, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense. The current expense limitation agreements expire on June 30, 2014, except Class R6 which expires September 30, 2013, unless renewed by mutual agreement of the fund and the Advisor based upon a determination that this is appropriate under the circumstances at that time.
Prior to July 1, 2013 the Advisor contractually agreed to reimburse or limit certain expenses for certain share classes of the fund. This agreement excluded certain expenses such as taxes, brokerage commissions, interest expense, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense. The fee waivers and/or expense reimbursements were such that these expenses did not exceed 1.35%, 2.10% and 1.04% for Class A, Class C and Class I shares, respectively.
Effective June 1, 2013, the Advisor has contractually agreed to waive a portion of its management fee for certain portfolios (the participating portfolios) of the Trust, John Hancock Funds, John Hancock Funds II, and John Hancock Variable Insurance Trust. The waiver equals, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the participating portfolios that exceeds $75 billion but is less than or equal to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds $125 billion but is less than or equal to $150 billion; and 0.015% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.
28 | Disciplined Value Mid Cap Fund | Semiannual report |
For the six months ended September 30, 2013, the expense reductions amounted to the following:
EXPENSE | |||
CLASS | REDUCTIONS | ||
Class A | $29,051 | ||
Class C | 2,642 | ||
Class I | 42,339 | ||
Class R2 | 1,005 | ||
Class R4 | 3,220 | ||
Class R6 | 2,491 | ||
Class ADV | 8,259 | ||
Total | $89,007 |
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the six months ended September 30, 2013 were equivalent to a net annual effective rate of 0.73% of the fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to the fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These accounting and legal services fees incurred for the six months ended September 30, 2013 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 C, Class R2, Class R4 and Class ADV 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 R2 and Class R4 shares, the fund pays for certain other services. The fund pays 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 FEE | SERVICE FEE | |
Class A | 0.30% | — | |
Class C | 1.00% | — | |
Class R2 | 0.25% | 0.25% | |
Class R4 | 0.25% | 0.10% | |
Class ADV | 0.25% | — |
Currently, only 0.25% is charged to Class A shares for 12b-1 fees. The fund’s distributor has contractually agreed to waive 0.10% of Rule 12b-1 fees of Class R4 shares. This waiver agreement will remain in effect through June 30, 2014, unless renewed by mutual agreement of the fund and the distributor based upon a determination that this is appropriate under the circumstances at the time. Reimbursements related to this contractual waiver amounted to $53 for the six months ended September 30, 2013.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $3,415,295 for the six months ended September 30, 2013. Of this amount, $512,952 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $2,893,884 was paid as sales commissions to broker-dealers and $8,459 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Semiannual report | Disciplined Value Mid Cap Fund | 29 |
Class A and Class C shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. Class C shares that are redeemed within one year of purchase are subject to a 1.00% CDSC. CDSCs are applied to 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 September 30, 2013, CDSCs received by the Distributor amounted to $4,223 and $8,316 for Class A and Class C shares, respectively.
Transfer agent fees. The fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. 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 fees that Signature Services receives in connection with retirement and small accounts. 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 September 30, 2013 were:
DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
Class A | $1,838,108 | $1,119,880 | $35,721 | $62,137 |
Class C | 648,486 | 98,709 | 11,499 | 5,819 |
Class I | — | 1,128,987 | 25,356 | 68,185 |
Class R2 | 85,183 | 5,064 | 8,873 | 623 |
Class R4 | 131 | 13 | 3,304 | 16 |
Class R6 | — | 14,772 | 7,807 | — |
Class ADV | 895 | 547 | 8,337 | 176 |
Total | $2,572,803 | $2,367,971 | $100,897 | $136,956 |
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the fund based on its net assets relative to other funds within the John Hancock funds complex.
Interfund Lending Program. Pursuant to an Exemptive Order issued by the SEC, the fund, along with other funds advised by the Advisor, may be allowed to participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from, or lend money to, other participating affiliated funds. At period end, no interfund loans were outstanding. The fund’s activity in this program during the period for which loans were outstanding was as follows:
DAYS | WEIGHTED AVERAGE | WEIGHTED AVERAGE | INTEREST | |
BORROWER OR LENDER | OUTSTANDING | LOAN BALANCE | INTEREST RATE | INCOME |
Lender | 1 | $23,145,620 | 0.45% | $286 |
30 | Disciplined Value Mid Cap Fund | Semiannual report |
Note 5 — Fund share transactions
Transactions in fund shares for the six months ended September 30, 2013 and for the year ended March 31, 2013 were as follows:
Six months ended 9-30-13 | Year ended 3-31-13 | ||||||
Shares | Amount | Shares | Amount | ||||
Class A shares | |||||||
Sold | 58,232,619 | $910,699,421 | 56,469,128 | $711,395,855 | |||
Distributions reinvested | 64 | 809 | 207,363 | 2,635,578 | |||
Repurchased | (10,167,113) | (155,332,188) | (17,712,702) | (224,518,358) | |||
Net increase | 48,065,570 | $755,368,042 | 38,963,789 | $489,513,075 | |||
Class C shares | |||||||
Sold | 5,682,071 | $89,904,064 | 4,948,361 | $64,502,527 | |||
Repurchased | (331,347) | (5,236,043) | (487,904) | (6,303,855) | |||
Net increase | 5,350,724 | $84,668,021 | 4,460,457 | $58,198,672 | |||
Class I shares | |||||||
Sold | 58,058,721 | $924,824,235 | 78,343,767 | $1,035,883,636 | |||
Distributions reinvested | — | — | 397,873 | 5,208,153 | |||
Repurchased | (20,163,050) | (326,233,122) | (35,018,145) | (451,367,677) | |||
Net increase | 37,895,671 | $598,591,113 | 43,723,495 | $589,724,112 | |||
Class R2 shares | |||||||
Sold | 4,436,738 | $70,808,123 | 1,158,514 | $16,418,697 | |||
Distributions reinvested | — | — | 221 | 2,891 | |||
Repurchased | (475,548) | (7,540,064) | (141,580) | (2,063,617) | |||
Net increase | 3,961,190 | $63,268,059 | 1,017,155 | $14,357,971 | |||
Class R4 shares | |||||||
Sold | 30,142 | $484,833 | — | — | |||
Repurchased | (1) | (19) | — | — | |||
Net increase | 30,141 | $484,814 | — | — | |||
Class R6 shares | |||||||
Sold | 3,781,480 | $60,058,609 | 6,859,308 | $86,493,579 | |||
Distributions reinvested | — | — | 34,776 | 455,223 | |||
Repurchased | (669,812) | (10,558,103) | (397,409) | (5,208,065) | |||
Net increase | 3,111,668 | $49,500,506 | 6,496,675 | $81,740,737 | |||
Class ADV shares | |||||||
Sold | 1,177 | $18,000 | 797 | $10,312 | |||
Distributions reinvested | — | — | 213 | 2,703 | |||
Repurchased | (3,108) | (47,924) | (22,653) | (281,917) | |||
Net increase | (1,931) | ($29,924) | (21,643) | ($268,902) | |||
Total net increase | 98,413,033 | $1,551,850,631 | 94,639,928 | $1,233,265,665 |
Affiliates of the fund owned 21% of shares of beneficial interest of Class R4 on September 30, 2013.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, amounted to $2,404,078,374 and $855,393,321, respectively, for the six months ended September 30, 2013.
Semiannual report | Disciplined Value Mid Cap Fund | 31 |
Continuation of Investment Advisory and Subadvisory Agreements
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Funds III (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with Robeco Investment Management, Inc. (the Subadvisor) for John Hancock Disciplined Value Mid Cap Fund (the fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16-17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the fund, the Advisor, and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for the fund’s benchmark index; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts, as applicable; and other information provided by the Advisor and the Subadvisor regarding the nature, extent, and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor’s revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and does not treat any single factor as determinative and each Trustee may attribute different weights to different factors. The Board’s conclusions may be based in part
32 | Disciplined Value Mid Cap Fund | Semiannual report |
on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of fund performance and operations throughout the year.
Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and other third-party service providers.
In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties through Board meetings, discussions, and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationship, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objectives; review of brokerage matters, including with respect to trade allocation and best execution; and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund; and
(f) the Advisor’s reputation and experience in serving as an investment adviser to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.
Investment performance. In considering the fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
Semiannual report | Disciplined Value Mid Cap Fund | 33 |
(a) reviewed information prepared by management regarding the fund’s performance;
(b) considered the comparative performance of the fund’s benchmark;
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the fund’s ranking within a smaller group of peer funds and the fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted that the fund underperformed its benchmark index for the one- and three-year periods and outperformed the index for the five-year period ended December 31, 2012. The Board also noted that the fund outperformed its peer group average for the one-, three- and five-year periods ended December 31, 2012.
The Board noted the fund’s favorable performance relative to the benchmark index for the five-year period and relative to the peer group for the one-, three- and five-year periods.
The Board concluded that the performance of the fund has generally been in line with or outperformed the historical performance of comparable funds.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data, including, among other data, the fund’s contractual and net management fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund. The Board considered the fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund’s ranking within a broader group of funds. In comparing the fund’s contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.
The Board noted that net management fees and total expenses for this fund are higher than the peer group medians. The Board took into account management’s discussion of the fund’s expenses.
The Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the fund, which is discussed further below. The Board also noted that the Advisor has agreed to fee waivers and/or expense reimbursements with respect to the total operating expenses of certain share classes of the fund. The Board also noted that the Advisor pays the subadvisory fees of the fund, and that such fees are negotiated at arm’s length with respect to the Subadvisor. The Board also noted management’s discussion of the fund’s expenses, as well as certain actions taken over the past several years to reduce the fund’s operating expenses. The Board reviewed information provided by the Advisor concerning investment advisory fees charged to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable.
Profitability/indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates from the Advisor’s relationship with the Trust, the Board:
34 | Disciplined Value Mid Cap Fund | Semiannual report |
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
(e) considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;
(f) noted that affiliates of the Advisor provide transfer agency services and distribution services to the fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the fund;
(g) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;
(h) noted that the subadvisory fees for the fund are paid by the Advisor and are negotiated at arm’s length; and
(i) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates from their relationship with the fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders, the Board:
(a) considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the fund and each of the other open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement):
The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The funds that are not Participating Portfolios as of the date of this semiannual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the fund’s fee structure contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the fund to benefit
Semiannual report | Disciplined Value Mid Cap Fund | 35 |
from economies of scale if the fund grows. The Board also took into account management’s discussion of the fund’s advisory fee structure; and
(c) the Board also considered the effect of the fund’s growth in size on its performance and fees. The Board also noted that if the fund’s assets increase over time, the fund may realize other economies of scale.
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the fund, and comparative performance information relating to the fund’s benchmark and comparable funds;
(3) the subadvisory fee for the fund, including breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data; and
(4) information relating to the nature and scope of any material relationships and their significance to the Trust’s Advisor and Subadvisor.
Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifica-tions, background, and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the Trust’s CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by it to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the fund, that is consistent with the fund’s investment objectives, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund.
36 | Disciplined Value Mid Cap Fund | Semiannual report |
The Board also relied on the ability of the Advisor to negotiate the Subadvisory Agreement with the Subadvisor, which is not affiliated with the Advisor, and the fees thereunder at arm’s length. As a result, the costs of the services to be provided and the profits to be realized by the Subadvisor from its relationship with the Trust were not a material factor in the Board’s consideration of the Subadvisory Agreement.
The Board also received information regarding the nature and scope (including their significance to the Advisor and its affiliates and to the Subadvisor) of any material relationships with respect to the Subadvisor, which includes arrangements in which the Subadvisor or its affiliates provide advisory, distribution, or management services in connection with financial products sponsored by the Trust’s Advisor or its affiliates, and may include other registered investment companies, a 529 education savings plan, managed separate account, and exempt group annuity contracts sold to qualified plans. The Board also received information and took into account any other potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement.
In addition, the Board considered other potential indirect benefits that the Subadvisor and its affili-ates may receive from the Subadvisor’s relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock fund complex and reputational benefits.
Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fees paid by the Advisor to the Subadvisor with respect to the fund to fees charged by the fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the fund’s performance as compared to the fund’s peer group and benchmark and noted that the Board reviews information about the fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the fund generally has been in line with or outperformed the historical performance of comparable funds and the fund’s overall performance is satisfactory;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the fund in order to permit shareholders to benefit from economies of scale if the fund grows.
* * * |
Based on the Board’s evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
Semiannual report | Disciplined Value Mid Cap Fund | 37 |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Investment Management |
Steven R. Pruchansky, Vice Chairman | Services, LLC |
Charles L. Bardelis* | |
James R. Boyle† | Subadvisor |
Craig Bromley† | Robeco Investment Management, Inc. |
Peter S. Burgess* | |
William H. Cunningham | Principal distributor |
Grace K. Fey | John Hancock Funds, LLC |
Theron S. Hoffman* | |
Deborah C. Jackson | Custodian |
Hassell H. McClellan | State Street Bank and Trust Company |
Gregory A. Russo | |
Warren A. Thomson† | Transfer agent |
John Hancock Signature Services, Inc. | |
Officers | |
Hugh McHaffie | Legal counsel |
President | K&L Gates LLP |
Andrew G. Arnott | |
Executive Vice President | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†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) website at sec.gov or on our website.
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 website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 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 website at jhinvestments.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhinvestments.com | Investment Operations | Investment Operations |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. | |
P.O. Box 55913 | 30 Dan Road | |
Boston, MA 02205-5913 | Canton, MA 02021 |
38 | Disciplined Value Mid Cap Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/discplvaluemidcapx35x1.jpg)
800-225-5291
800-338-8080 EASI-Line
jhinvestments.com
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/discplvaluemidcapx35x2.jpg)
This report is for the information of the shareholders of John Hancock Disciplined Value Mid Cap Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 363SA 9/13 |
MF160001 | 11/13 |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/internationalvalueex1x1.jpg)
A look at performance
Total returns for the period ended September 30, 2013
Average annual total returns (%) | Cumulative total returns (%) | |||||||
with maximum sales charge | with maximum sales charge | |||||||
1-year | 5-year | 10-year | 6-months | 1-year | 5-year | 10-year | ||
Class A1,2 | 10.89 | 5.55 | 7.05 | 2.02 | 10.89 | 30.98 | 97.71 | |
Class I1,2,3 | 17.17 | 6.85 | 7.71 | 7.62 | 17.17 | 39.26 | 110.17 | |
Class R21,2,3 | 16.80 | 6.73 | 7.56 | 7.47 | 16.80 | 38.48 | 107.33 | |
Class R41,2,3 | 17.02 | 6.98 | 7.83 | 7.54 | 17.02 | 40.12 | 112.43 | |
Class R61,2,3 | 17.36 | 7.26 | 8.10 | 7.72 | 17.36 | 41.94 | 117.88 | |
Class NAV1,2,3 | 17.39 | 7.27 | 8.12 | 7.74 | 17.39 | 42.01 | 118.31 | |
Index 1† | 22.00 | 6.64 | 8.68 | 9.83 | 22.00 | 37.92 | 129.92 | |
Index 2† | 23.25 | 6.66 | 8.90 | 11.44 | 23.25 | 38.06 | 134.53 | |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charge on Class A shares of 5%. Sales charges are not applicable to Class I, Class R2, Class R4, Class R6, or 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 those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least until 6-30-14 for Class A, Class I, Class R2, Class R4 and Class R6 shares. Had the fee waivers and expense limitations not been in place, gross expenses would apply. For all other classes, the net expenses equal the gross expenses. The expense ratios are as follows:
Class A | Class I | Class R2* | Class R4*ˆ | Class R6* | Class NAV | ||||
Net (%) | 1.60 | 1.29 | 1.68 | 1.43 | 1.10 | 1.08 | |||
Gross (%) | 1.99 | 2.08 | 1.70 | 1.55 | 1.20 | 1.08 |
* Expenses have been estimated for the classes’ first full year of operations.
ˆ The fund’s distributor has contractually agreed to waive 0.10% of 12b-1 fees of Class R4 shares. The current waiver agreement will remain in effect through June 30, 2014.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month end, please call 800-225-5291 or visit the fund’s website at jhinvestments.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 fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index 1 is the MSCI World ex-USA Index; Index 2 is the MSCI World ex-USA Value Index.
See the following page for footnotes.
6 | International Value Equity Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/internationalvalueex3x1.jpg)
With maximum | Without | ||||
Start date | sales charge | sales charge | Index 1 | Index 2 | |
Class I3 | 9-30-03 | $21,017 | $21,017 | $22,992 | $23,453 |
Class R23 | 9-30-03 | 20,733 | 20,733 | 22,992 | 23,453 |
Class R43 | 9-30-03 | 21,243 | 21,243 | 22,992 | 23,453 |
Class R63 | 9-30-03 | 21,788 | 21,788 | 22,992 | 23,453 |
Class NAV3 | 9-30-03 | 21,831 | 21,831 | 22,992 | 23,453 |
MSCI World ex-USA Index (gross of foreign withholding taxes on dividends) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, excluding the United States of America.
MSCI World ex-USA Value Index (gross of foreign withholding taxes on dividends) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets, excluding the United States of America, that have higher than average value characteristics.
It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would have resulted in lower values.
Footnotes related to performance pages
1 After the close of business on 2-11-11, holders of Class A shares of the former Optique International Value Fund (the predecessor fund) became owners of an equal number of full and fractional Class A shares of John Hancock International Value Equity Fund. These shares were first offered on 2-14-11. Additionally, the accounting and performance history of the Class A shares of the predecessor fund was redesignated as that of John Hancock International Value Equity Fund Class A. Class I shares were first offered on 2-14-11; Class NAV shares were first offered on 12-16-11; Class R2, Class R4, and Class R6 shares were first offered on 7-2-13. Performance prior to these dates is that of Class A shares recalculated to reflect the gross fees and expenses of Class I, Class R2, Class R4, Class R6, and Class NAV shares, as applicable.
2 In October 2011, the advisor made a voluntary payment to the fund of $6,950, or approximately $0.018 per share. Without this payment, performance would have been lower.
3 For certain types of investors, as described in the fund’s prospectuses.
Semiannual report | International Value Equity Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
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 the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,073.90 | $8.32 |
Class I | 1,000.00 | 1,076.20 | 6.71 |
Class NAV | 1,000.00 | 1,077.40 | 5.36 |
For the classes noted below, the example assumes an account value of $1,000.00 on July 2, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 7-2-13 | on 9-30-13 | period ended 9-30-132 | |
Class R2 | 1,000.00 | 1,092.60 | 4.33 |
Class R4 | 1,000.00 | 1,092.60 | 3.69 |
Class R6 | 1,000.00 | 1,093.80 | 2.84 |
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 September 30, 2013, 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 Value Equity Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/internationalvalueex5x1.jpg)
Hypothetical example for comparison purposes
This table allows you to compare the 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 the fund’s actual return). It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-133 | |
Class A | $1,000.00 | $1,017.00 | $8.09 |
Class I | 1,000.00 | 1,018.60 | 6.53 |
Class R2 | 1,000.00 | 1,016.60 | 8.49 |
Class R4 | 1,000.00 | 1,017.90 | 7.23 |
Class R6 | 1,000.00 | 1,019.60 | 5.57 |
Class NAV | 1,000.00 | 1,019.90 | 5.22 |
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 prospectuses for details regarding transaction costs.
1 Expenses are equal to the fund’s annualized expense ratio of 1.60%, 1.29% and 1.03% for Class A, Class I and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
2 Expenses are equal to the fund’s annualized expense ratio of 1.68%, 1.43% and 1.10% for Class R2, Class R4 and Class R6 shares, respectively, multiplied by the average account value over the period, multiplied by 90/365 (to reflect the one-half year period).
3 Expenses are equal to the fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
Semiannual report | International Value Equity Fund | 9 |
Portfolio summary
Top 10 Holdings (10.7% of Net Assets on 9-30-13)1,2 | ||||
Novartis AG | 1.3% | Shire PLC | 1.0% | |
Total SA | 1.2% | Royal Dutch Shell PLC, A Shares | 1.0% | |
HSBC Holdings PLC | 1.1% | Diageo PLC | 1.0% | |
Allianz SE | 1.1% | Credit Suisse Group AG | 1.0% | |
Vodafone Group PLC | 1.0% | Aegon NV | 1.0% | |
Sector Composition1,3 | ||||
Financials | 22.1% | Telecommunication Services | 7.7% | |
Industrials | 12.4% | Materials | 6.6% | |
Consumer Discretionary | 11.2% | Information Technology | 3.9% | |
Consumer Staples | 9.9% | Utilities | 3.9% | |
Health Care | 9.1% | Short-Term Investments & Other | 4.2% | |
Energy | 9.0% | |||
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/internationalvalueex6x1.jpg)
1 As a percentage of net assets on 9-30-13.
2 Cash and cash equivalents not included.
3 Foreign investing, especially in emerging markets, has additional risks, such as currency and market volatility and political and social instability. Value stocks may not increase in price as anticipated or may decline further in value. Hedging and other strategic transactions may increase volatility of a fund and, if the transaction is not successful, could result in a significant loss. The prices of medium company stocks can change more frequently and dramatically than those of large company stocks. 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 and investments focused in one sector may fluctuate more widely than investments diversified across sectors. For additional information on these and other risk considerations, please see the fund’s prospectuses.
10 | International Value Equity Fund | Semiannual report |
Fund’s investments
As of 9-30-13 (unaudited)
Shares | Value | |
Common Stocks 94.9% | $414,566,482 | |
(Cost $357,684,721) | ||
Australia 5.1% | 22,392,790 | |
AGL Energy, Ltd. | 238,636 | 3,434,417 |
Australia & New Zealand Banking Group, Ltd. | 136,709 | 3,928,612 |
BHP Billiton, Ltd. | 104,467 | 3,484,353 |
Incitec Pivot, Ltd. | 837,306 | 2,104,867 |
National Australia Bank, Ltd. | 122,194 | 3,915,173 |
Newcrest Mining, Ltd. | 134,742 | 1,471,993 |
Santos, Ltd. | 287,089 | 4,053,375 |
Austria 0.9% | 3,938,980 | |
Telekom Austria AG | 469,179 | 3,938,980 |
Canada 7.2% | 31,488,021 | |
Bank of Montreal | 60,919 | 4,065,998 |
Barrick Gold Corp. | 153,528 | 2,858,761 |
Bombardier, Inc. | 694,361 | 3,228,959 |
Husky Energy, Inc. | 131,196 | 3,772,657 |
Magna International, Inc. | 47,225 | 3,894,727 |
Potash Corp. of Saskatchewan, Inc. | 66,848 | 2,090,359 |
Sun Life Financial, Inc. (L) | 105,525 | 3,370,489 |
Suncor Energy, Inc. | 117,469 | 4,200,168 |
The Toronto-Dominion Bank (L) | 44,493 | 4,005,903 |
China 1.9% | 8,197,746 | |
China Petroleum & Chemical Corp., H Shares | 5,100,800 | 3,987,979 |
CNOOC, Ltd. | 2,083,000 | 4,209,767 |
Denmark 0.8% | 3,395,035 | |
Danske Bank A/S (I) | 157,731 | 3,395,035 |
Finland 0.6% | 2,789,546 | |
Kesko OYJ, B Shares | 92,948 | 2,789,546 |
France 8.0% | 34,858,282 | |
Cie de Saint-Gobain | 79,333 | 3,930,389 |
France Telecom SA | 299,860 | 3,761,364 |
GDF Suez | 155,519 | 3,908,922 |
Lafarge SA | 49,298 | 3,433,701 |
Sanofi | 34,102 | 3,458,236 |
Societe BIC SA | 30,352 | 3,529,699 |
Total SA (L) | 87,574 | 5,089,918 |
See notes to financial statements | Semiannual report | International Value Equity Fund | 11 |
Shares | Value | |
France (continued) | ||
Vinci SA | 68,608 | $3,989,496 |
Vivendi SA | 163,228 | 3,756,557 |
Germany 10.4% | 45,326,262 | |
Allianz SE | 29,252 | 4,598,524 |
BASF SE | 33,142 | 3,182,136 |
Bayerische Motoren Werke AG | 39,353 | 4,230,640 |
Deutsche Bank AG | 79,265 | 3,639,504 |
Deutsche Boerse AG | 54,221 | 4,080,056 |
E.ON AG | 184,983 | 3,290,272 |
Infineon Technologies AG | 359,829 | 3,599,794 |
Muenchener Rueckversicherungs AG | 18,801 | 3,677,579 |
Osram Licht AG (I) | 2,983 | 140,040 |
Rheinmetall AG | 69,284 | 3,984,135 |
Rhoen-Klinikum AG | 155,091 | 3,986,072 |
Siemens AG | 29,837 | 3,597,121 |
Software AG | 93,220 | 3,320,389 |
Hong Kong 4.0% | 17,339,600 | |
China Mobile, Ltd. | 359,000 | 4,043,153 |
Guangdong Investment, Ltd. | 3,870,000 | 3,324,345 |
Hang Lung Group, Ltd. | 585,000 | 3,098,164 |
Swire Pacific, Ltd., Class A | 255,500 | 3,060,174 |
Yue Yuen Industrial Holdings, Ltd. | 1,375,000 | 3,813,764 |
Ireland 1.3% | 5,705,665 | |
C&C Group PLC | 234,278 | 1,267,994 |
Shire PLC | 110,830 | 4,437,671 |
Israel 0.8% | 3,402,299 | |
Teva Pharmaceutical Industries, Ltd. | 90,315 | 3,402,299 |
Japan 17.9% | 78,028,249 | |
Aisin Seiki Company, Ltd.�� | 94,200 | 4,037,431 |
Bridgestone Corp. | 103,700 | 3,795,941 |
East Japan Railway Company | 42,100 | 3,628,946 |
Fujitsu, Ltd. (I) | 825,000 | 3,086,369 |
Honda Motor Company, Ltd. | 97,100 | 3,710,708 |
Inpex Corp. | 250,800 | 2,964,707 |
JGC Corp. | 110,000 | 3,982,069 |
Kobayashi Pharmaceutical Company, Ltd. | 47,000 | 2,694,185 |
Komatsu, Ltd. | 130,700 | 3,262,749 |
Kyocera Corp. | 71,200 | 3,793,511 |
Mitsubishi Corp. | 140,600 | 2,851,870 |
Mitsubishi UFJ Financial Group | 651,100 | 4,176,708 |
Mitsui Fudosan Company, Ltd. | 80,000 | 2,703,941 |
MS&AD Insurance Group Holdings | 90,600 | 2,374,173 |
Nidec Corp. (L) | 49,100 | 4,065,912 |
Nikon Corp. | 155,000 | 2,706,354 |
Nippon Building Fund, Inc. | 133 | 1,656,444 |
Nippon Telegraph & Telephone Corp. | 67,100 | 3,482,801 |
Nissan Motor Company, Ltd. | 322,200 | 3,243,985 |
12 | International Value Equity Fund | Semiannual report | See notes to financial statements |
Shares | Value | |
Japan (continued) | ||
Sumitomo Chemical Company, Ltd. (L) | 889,000 | $3,393,739 |
The Bank of Yokohama, Ltd. | 404,000 | 2,313,364 |
Tokyo Electron, Ltd. | 63,800 | 3,431,946 |
Toyo Suisan Kaisha, Ltd. | 114,000 | 3,351,061 |
Tsuruha Holdings, Inc. | 37,600 | 3,319,335 |
Netherlands 4.3% | 18,608,271 | |
Aegon NV | 574,143 | 4,251,336 |
Heineken Holding NV | 62,034 | 3,924,855 |
Koninklijke KPN NV (I) | 788,660 | 2,513,689 |
Royal Dutch Shell PLC, A Shares | 132,038 | 4,355,752 |
TNT Express NV | 390,746 | 3,562,639 |
Norway 0.8% | 3,495,071 | |
DNB ASA | 230,102 | 3,495,071 |
Singapore 2.4% | 10,673,855 | |
DBS Group Holdings, Ltd. | 283,500 | 3,713,017 |
SembCorp Industries, Ltd. | 769,000 | 3,243,207 |
Singapore Telecommunications, Ltd. | 1,243,000 | 3,717,631 |
South Africa 0.5% | 2,287,787 | |
Tiger Brands, Ltd. | 76,811 | 2,287,787 |
Spain 1.6% | 6,912,296 | |
Banco Bilbao Vizcaya Argentaria SA | 276,651 | 3,108,038 |
Telefonica SA (I) | 243,409 | 3,804,258 |
Sweden 3.2% | 14,084,667 | |
Meda AB, Series A | 259,017 | 3,116,075 |
Modern Times Group AB, B Shares | 76,154 | 3,977,707 |
Saab AB | 149,814 | 2,996,227 |
Securitas AB, Series B | 349,673 | 3,994,658 |
Switzerland 5.8% | 25,425,414 | |
Aryzta AG (I) | 60,938 | 4,073,298 |
Credit Suisse Group AG (I) | 138,843 | 4,254,601 |
Glencore Xstrata PLC (I) | 663,759 | 3,620,688 |
Lonza Group AG (I) | 49,034 | 4,013,600 |
Nestle SA | 56,597 | 3,964,174 |
Novartis AG | 71,541 | 5,499,053 |
United Kingdom 17.4% | 76,216,646 | |
Anglo American PLC | 122,570 | 3,014,102 |
AstraZeneca PLC | 80,287 | 4,172,576 |
Aviva PLC | 523,857 | 3,362,406 |
Barclays PLC | 953,059 | 4,100,476 |
British Sky Broadcasting Group PLC | 260,712 | 3,674,655 |
Debenhams PLC | 2,256,292 | 3,727,868 |
Diageo PLC | 135,771 | 4,314,345 |
GlaxoSmithKline PLC | 155,136 | 3,899,024 |
HSBC Holdings PLC | 450,772 | 4,885,113 |
Imperial Tobacco Group PLC | 108,011 | 4,001,815 |
Kingfisher PLC | 670,658 | 4,184,544 |
See notes to financial statements | Semiannual report | International Value Equity Fund | 13 |
Shares | Value | ||
United Kingdom (continued) | |||
National Grid PLC | 273,363 | $3,233,935 | |
Reed Elsevier PLC | 301,281 | 4,058,147 | |
RSA Insurance Group PLC (L) | 1,876,804 | 3,674,216 | |
Smith & Nephew PLC | 291,123 | 3,634,448 | |
Standard Chartered PLC (I) | 161,547 | 3,874,660 | |
Subsea 7 SA | 132,968 | 2,763,731 | |
Tesco PLC | 583,341 | 3,391,232 | |
Unilever PLC | 97,353 | 3,759,937 | |
Vodafone Group PLC | 1,273,150 | 4,489,416 | |
Preferred Securities 0.9% | $3,954,239 | ||
(Cost $4,335,808) | |||
Brazil 0.9% | 3,954,239 | ||
Petroleo Brasileiro SA | 477,330 | 3,954,239 | |
Rights 0.0% | $37,801 | ||
(Cost $37,036) | |||
Spain 0.0% | 37,801 | ||
Banco Bilbao Vizcaya Argentaria SA (I) | 276,651 | 37,801 | |
Yield (%) | Shares | Value | |
Securities Lending Collateral 5.0% | $21,844,436 | ||
(Cost $21,844,402) | |||
John Hancock Collateral Investment Trust (W) | 0.1739 (Y) | 2,182,654 | 21,844,436 |
Par value | Value | ||
Short-Term Investments 3.4% | $14,816,000 | ||
(Cost $14,816,000) | |||
Repurchase Agreement 3.4% | 14,816,000 | ||
Barclays Capital Tri-Party Repurchase Agreement dated 9-30-13 | |||
at 0.060% to be repurchased at $14,816,025 on 10-1-13, | |||
collateralized by $15,411,000 U.S. Treasury Notes, 0.750% | |||
due 2-28-18 (valued at $15,112,359, including interest) | $14,816,000 | 14,816,000 | |
Total investments (Cost $398,717,967)† 104.2% | $455,218,958 | ||
Other assets and liabilities, net (4.2%) | ($18,498,421) | ||
Total net assets 100.0% | $436,720,537 | ||
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) A portion of this security is on loan as of 9-30-13.
(W) Investment is an affiliate of the fund, the advisor and/or subadvisor. This investment represents collateral received for securities lending.
(Y) The rate shown is the annualized seven-day yield as of 9-30-13.
14 | International Value Equity Fund | Semiannual report | See notes to financial statements |
† At 9-30-13, the aggregate cost of investment securities for federal income tax purposes was $398,766,568. Net unrealized appreciation aggregated $56,452,390, of which $65,099,195 related to appreciated investment securities and $8,646,805 related to depreciated investment securities.
The fund had the following sector composition as a percentage of net assets on 9-30-13:
Financials | 22.1% | |||||
Industrials | 12.4% | |||||
Consumer Discretionary | 11.2% | |||||
Consumer Staples | 9.9% | |||||
Health Care | 9.1% | |||||
Energy | 9.0% | |||||
Telecommunication Services | 7.7% | |||||
Materials | 6.6% | |||||
Information Technology | 3.9% | |||||
Utilities | 3.9% | |||||
Short-Term Investments & Other | 4.2% |
See notes to financial statements | Semiannual report | International Value Equity Fund | 15 |
Financial statements
Statement of assets and liabilities 9-30-13 (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 offering price per share.
Assets | |
Investments in unaffiliated issuers, at value (Cost $376,873,565) including | |
$20,763,434 of securities loaned | $433,374,522 |
Investments in affiliated issuers, at value (Cost $21,844,402) | 21,844,436 |
Total investments, at value (Cost $398,717,967) | 455,218,958 |
Cash | 204,122 |
Foreign currency, at value (Cost $1,500,931) | 1,507,048 |
Receivable for investments sold | 504,171 |
Receivable for fund shares sold | 76,680 |
Dividends and interest receivable | 1,256,659 |
Receivable for securities lending income | 10,130 |
Receivable due from advisor | 636 |
Other receivables and prepaid expenses | 69,027 |
Total assets | 458,847,431 |
Liabilities | |
Payable for investments purchased | 37,607 |
Payable for fund shares repurchased | 12,905 |
Payable upon return of securities loaned | 21,843,351 |
Payable to affiliates | |
Accounting and legal services fees | 35,175 |
Transfer agent fees | 2,230 |
Trustees’ fees | 479 |
Other liabilities and accrued expenses | 195,147 |
Total liabilities | 22,126,894 |
Net assets | $436,720,537 |
Net assets consist of | |
Paid-in capital | $358,611,671 |
Undistributed net investment income | 5,758,222 |
Accumulated net realized gain (loss) on investments and foreign | |
currency transactions | 15,831,450 |
Net unrealized appreciation (depreciation) on investments and translation | |
of assets and liabilities in foreign currencies | 56,519,194 |
Net assets | $436,720,537 |
16 | International Value Equity Fund | Semiannual report | See notes to financial statements |
FINANCIAL STATEMENTS
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 ($14,047,945 ÷ 1,510,034 shares)1 | $9.30 |
Class I ($6,847,354 ÷ 734,726 shares) | $9.32 |
Class R2 ($109,220 ÷ 11,723 shares) | $9.32 |
Class R4 ($109,287 ÷ 11,723 shares) | $9.32 |
Class R6 ($109,376 ÷ 11,723 shares) | $9.33 |
Class NAV ($415,497,355 ÷ 44,514,958 shares) | $9.33 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95%) 2 | $9.79 |
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 Value Equity Fund | 17 |
Statement of operations For the six-month period ended 9-30-13
(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 | $7,350,399 |
Securities lending | 275,436 |
Interest | 3,086 |
Less foreign taxes withheld | (666,295) |
Total investment income | 6,962,626 |
Expenses | |
Investment management fees | 1,674,645 |
Distribution and service fees | 13,893 |
Accounting and legal services fees | 36,161 |
Transfer agent fees | 11,754 |
Trustees’ fees | 7,789 |
State registration fees | 28,009 |
Printing and postage | 4,747 |
Professional fees | 29,251 |
Custodian fees | 187,825 |
Registration and filing fees | 26,249 |
Other | 6,084 |
Total expenses | 2,026,407 |
Less expense reductions | (25,983) |
Net expenses | 2,000,424 |
Net investment income | 4,962,202 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments in unaffiliated issuers | 7,566,400 |
Investments in affiliated issuers | (1,178) |
Foreign currency transactions | (183,696) |
7,381,526 | |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 19,402,527 |
Investments in affiliated issuers | (162) |
Translation of assets and liabilities in foreign currencies | 11,486 |
19,413,851 | |
Net realized and unrealized gain | 26,795,377 |
Increase in net assets from operations | $31,757,579 |
18 | International Value Equity Fund | Semiannual report | See notes to financial statements |
FINANCIAL STATEMENTS
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.
Six months | ||
ended | Year | |
9-30-13 | ended | |
(Unaudited) | 3-31-13 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $4,962,202 | $4,618,103 |
Net realized gain | 7,381,526 | 12,266,852 |
Change in net unrealized appreciation (depreciation) | 19,413,851 | 24,913,688 |
Increase in net assets resulting from operations | 31,757,579 | 41,798,643 |
Distributions to shareholders | ||
From net investment income | ||
Class A | — | (47,358) |
Class I | — | (63,687) |
Class NAV | — | (4,286,345) |
From net realized gain | ||
Class A | — | (79,058) |
Class I | — | (82,016) |
Class NAV | — | (4,779,603) |
Total distributions | — | (9,338,067) |
From fund share transactions | 84,113,285 | 170,679,513 |
Total increase | 115,870,864 | 203,140,089 |
Net assets | ||
Beginning of period | 320,849,673 | 117,709,584 |
End of period | $436,720,537 | $320,849,673 |
Undistributed net investment income | $5,758,222 | $796,020 |
See notes to financial statements | Semiannual report | International Value Equity Fund | 19 |
Financial highlights
The Financial highlights show how the fund’s net asset value for a share has changed during the period.
CLASS A SHARES | |||||||
Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112,3 | 10-31-104 | 10-31-094 | 10-31-084 |
Per share operating performance | |||||||
Net asset value, beginning | |||||||
of period | $8.66 | $8.22 | $9.09 | $11.26 | $9.90 | $7.97 | $18.21 |
Net investment income5 | 0.09 | 0.12 | 0.14 | 0.02 | 0.03 | 0.07 | 0.28 |
Net realized and unrealized gain | |||||||
(loss) on investments | 0.55 | 0.54 | (0.92)6 | 0.79 | 1.397 | 2.547 | (7.82)7 |
Total from | |||||||
investment operations | 0.64 | 0.66 | (0.78) | 0.81 | 1.42 | 2.61 | (7.54) |
Less distributions | |||||||
From net investment income | — | (0.08) | (0.06) | (0.28) | (0.06) | (0.68) | (0.25) |
From net realized gain | — | (0.14) | (0.05) | (2.70) | — | — | (2.45) |
Total distributions | — | (0.22) | (0.11) | (2.98) | (0.06) | (0.68) | (2.70) |
Contribution from adviser | — | — | 0.028 | — | — | — | — |
Net asset value, end of period | $9.30 | $8.66 | $8.22 | $9.09 | $11.26 | $9.90 | $7.97 |
Total return (%)9,10 | 7.3911 | 8.16 | (8.20)8 | 9.1311 | 14.46 | 35.61 | (48.17) |
Ratios and supplemental data | |||||||
Net assets, end of period | |||||||
(in millions) | $14 | $7 | $3 | $3 | $3 | $30 | $24 |
Ratios (as a percentage of | |||||||
average net assets): | |||||||
Expenses before reductions | 1.6512 | 1.99 | 3.73 | 16.0512 | 6.71 | 2.68 | 1.56 |
Expenses net of fee waivers | |||||||
and credits | 1.6012 | 1.60 | 1.60 | 1.7712 | 1.85 | 1.85 | 1.56 |
Net investment income | 2.0812 | 1.52 | 1.68 | 0.4812 | 0.33 | 0.88 | 2.09 |
Portfolio turnover (%) | 16 | 27 | 21 | 1213 | 80 | 123 | 13 |
1 Six months ended 9-30-13. Unaudited.
2 For the five month period ended 3-31-11. The fund changed its fiscal year end from October 31 to March 31.
3 After the close of business on 2-11-11, holders of Class A shares of the former Optique International Value Fund (the predecessor fund) became owners of an equal number of full and fractional Class A shares of the John Hancock International Value Equity Fund. These shares were first offered on 2-14-11. Additionally, the accounting and performance history of the Class A shares of the predecessor fund was redesignated as that of John Hancock International Value Equity Fund Class A.
4 Audited by previous independent registered public accounting firm.
5 Based on the average daily shares outstanding.
6 The amount shown for a share outstanding does not correspond with the aggregate gain (loss) on investments for the period due to the timing of sales and repurchases of shares in relation to fluctuating market values of the investments of the fund.
7 Includes redemption fees retained by the fund. Such redemption fees represent less than $0.01 per share.
8 In October 2011, the advisor made a voluntary payment to the fund of $6,950. Without this payment, performance would have been lower.
9 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
10 Does not reflect the effect of sales charges, if any.
11 Not annualized.
12 Annualized.
13 Portfolio turnover is shown for the period from 11-1-10 to 3-31-11.
20 | International Value Equity Fund | Semiannual report | See notes to financial statements |
CLASS I SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-12 | 3-31-112 | |||
Per share operating performance | |||||||
Net asset value, beginning of period | $8.66 | $8.21 | $9.09 | $8.98 | |||
Net investment income3 | 0.11 | 0.13 | 0.19 | 0.02 | |||
Net realized and unrealized gain (loss) on investments | 0.55 | 0.57 | (0.95)4 | 0.09 | |||
Total from investment operations | 0.66 | 0.70 | (0.76) | 0.11 | |||
Less distributions | |||||||
From net investment income | — | (0.11) | (0.09) | — | |||
From net realized gain | — | (0.14) | (0.05) | — | |||
Total distributions | — | (0.25) | (0.14) | — | |||
Contribution from adviser | — | — | 0.025 | — | |||
Net asset value, end of period | $9.32 | $8.66 | $8.21 | $9.09 | |||
Total return (%)6 | 7.627 | 8.61 | (7.87)5 | 1.227 | |||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $7 | $6 | $1 | —8 | |||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.479 | 2.08 | 7.59 | 12.909 | |||
Expenses net of fee waivers and credits | 1.299 | 1.28 | 1.18 | 1.189 | |||
Net investment income | 2.549 | 1.52 | 2.36 | 1.899 | |||
Portfolio turnover (%) | 16 | 27 | 21 | 1210 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class I shares is 2-14-11.
3 Based on the average daily shares outstanding.
4 The amount shown for a share outstanding does not correspond with the aggregate gain (loss) on investments for the period due to the timing of sales and repurchases of shares in relation to fluctuating market values of the investments of the fund.
5 In October 2011, the advisor made a voluntary payment to the fund of $6,950. Without this payment, performance would have been lower.
6 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
10 Portfolio turnover is shown for the period from 11-1-10 to 3-31-11.
CLASS R2 SHARES Period ended | 9-30-131,2 | ||||||
Per share operating performance | |||||||
Net asset value, beginning of period | $8.53 | ||||||
Net investment income3 | 0.01 | ||||||
Net realized and unrealized gain on investments | 0.78 | ||||||
Total from investment operations | 0.79 | ||||||
Net asset value, end of period | $9.32 | ||||||
Total return (%)4 | 9.265 | ||||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | —6 | ||||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 14.757 | ||||||
Expenses net of fee waivers and credits | 1.687 | ||||||
Net investment income | 0.597 | ||||||
Portfolio turnover (%) | 168 |
1 The period ended 9-30-13. Unaudited.
2 The inception date for Class R2 shares is 7-2-13.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-13 to 9-30-13.
See notes to financial statements | Semiannual report | International Value Equity Fund | 21 |
CLASS R4 SHARES Period ended | 9-30-131,2 | ||||||
Per share operating performance | |||||||
Net asset value, beginning of period | $8.53 | ||||||
Net investment income3 | 0.02 | ||||||
Net realized and unrealized gain on investments | 0.77 | ||||||
Total from investment operations | 0.79 | ||||||
Net asset value, end of period | $9.32 | ||||||
Total return (%)4 | 9.265 | ||||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | —6 | ||||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 14.757 | ||||||
Expenses net of fee waivers and credits | 1.437 | ||||||
Net investment income | 0.847 | ||||||
Portfolio turnover (%) | 168 |
1 The period ended 9-30-13. Unaudited.
2 The inception date for Class R4 shares is 7-2-13.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-13 to 9-30-13.
CLASS R6 SHARES Period ended | 9-30-131,2 | ||||||
Per share operating performance | |||||||
Net asset value, beginning of period | $8.53 | ||||||
Net investment income3 | 0.03 | ||||||
Net realized and unrealized gain on investments | 0.77 | ||||||
Total from investment operations | 0.80 | ||||||
Net asset value, end of period | $9.33 | ||||||
Total return (%)4 | 9.385 | ||||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | —6 | ||||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 15.527 | ||||||
Expenses net of fee waivers and credits | 1.107 | ||||||
Net investment income | 1.187 | ||||||
Portfolio turnover (%) | 168 |
1 The period ended 9-30-13. Unaudited.
2 The inception date for Class R6 shares is 7-2-13.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-13 to 9-30-13.
22 | International Value Equity Fund | Semiannual report | See notes to financial statements |
CLASS NAV SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 | ||||
Per share operating performance | |||||||
Net asset value, beginning of period | $8.66 | $8.22 | $7.21 | ||||
Net investment income3 | 0.12 | 0.15 | 0.05 | ||||
Net realized and unrealized gain on investments | 0.55 | 0.55 | 0.96 | ||||
Total from investment operations | 0.67 | 0.70 | 1.01 | ||||
Less distributions | |||||||
From net investment income | — | (0.12) | —4 | ||||
From net realized gain | — | (0.14) | — | ||||
Total distributions | — | (0.26) | —4 | ||||
Net asset value, end of period | $9.33 | $8.66 | $8.22 | ||||
Total return (%)5 | 7.746 | 8.69 | 14.056 | ||||
Ratios and supplemental data | |||||||
Net assets, end of period (in millions) | $415 | $307 | $114 | ||||
Ratios (as a percentage of average net assets): | |||||||
Expenses before reductions | 1.047 | 1.08 | 1.087 | ||||
Expenses net of fee waivers and credits | 1.037 | 1.08 | 1.087 | ||||
Net investment income | 2.637 | 1.78 | 2.217 | ||||
Portfolio turnover (%) | 16 | 27 | 218 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class NAV shares is 12-16-11.
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 applicable periods shown.
6 Not annualized.
7 Annualized.
8 Portfolio turnover is shown for the period from 4-1-11 to 3-31-12.
See notes to financial statements | Semiannual report | International Value Equity Fund | 23 |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock International Value Equity Fund (the fund) is a 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 shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class R2 and Class R4 shares are available only to certain retirement plans. Class R6 shares are available only to certain retirement plans, institutions and other investors. Class NAV shares are offered to John Hancock affiliated funds of funds and certain 529 plans. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees, printing and postage and state registration fees for each class may differ.
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 as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. 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. 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, the securities are valued using the last quoted bid or evaluated price. Investments by the fund in open-end mutual funds, including John Hancock Collateral Investment Trust (JHCIT), are valued at their respective net asset values each business day. 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 (OTC) 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, for which reliable 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. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed. Generally, trading in foreign 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 foreign securities may occur between 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 foreign securities in order to adjust for events that may occur between the close of foreign exchanges and the close of the NYSE.
24 | International Value Equity Fund | Semiannual report |
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 securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other 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 inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using 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. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
The following is a summary of the values by input classification of the fund’s investments as of September 30, 2013, by major security category or type:
LEVEL 3 | |||||
LEVEL 2 | SIGNIFICANT | ||||
TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE | ||
VALUE AT 9-30-13 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS | ||
Common Stocks | |||||
Australia | $22,392,790 | — | $22,392,790 | — | |
Austria | 3,938,980 | — | 3,938,980 | — | |
Canada | 31,488,021 | $31,488,021 | — | — | |
China | 8,197,746 | — | 8,197,746 | — | |
Denmark | 3,395,035 | — | 3,395,035 | — | |
Finland | 2,789,546 | — | 2,789,546 | — | |
France | 34,858,282 | — | 34,858,282 | — | |
Germany | 45,326,262 | — | 45,326,262 | — | |
Hong Kong | 17,339,600 | — | 17,339,600 | — | |
Ireland | 5,705,665 | — | 5,705,665 | — | |
Israel | 3,402,299 | — | 3,402,299 | — | |
Japan | 78,028,249 | — | 78,028,249 | — | |
Netherlands | 18,608,271 | — | 18,608,271 | — | |
Norway | 3,495,071 | — | 3,495,071 | — | |
Singapore | 10,673,855 | — | 10,673,855 | — | |
South Africa | 2,287,787 | — | 2,287,787 | — | |
Spain | 6,912,296 | — | 6,912,296 | — | |
Sweden | 14,084,667 | — | 14,084,667 | — | |
Switzerland | 25,425,414 | — | 25,425,414 | — | |
United Kingdom | 76,216,646 | — | 76,216,646 | — | |
Preferred Securities | |||||
Brazil | 3,954,239 | 3,954,239 | — | — | |
Rights | |||||
Spain | 37,801 | 37,801 | — | — | |
Securities Lending | |||||
Collateral | 21,844,436 | 21,844,436 | — | — | |
Short-Term Investments | 14,816,000 | — | 14,816,000 | — | |
Total Investments in | |||||
Securities | $455,218,958 | $57,324,497 | $397,894,461 | — |
Semiannual report | International Value Equity Fund | 25 |
Repurchase agreements. The fund may enter into repurchase agreements. When the fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. Collateral for certain tri-party repurchase agreements is held at a third-party custodian bank in a segregated account for the benefit of the fund.
Repurchase agreements are typically governed by the terms and conditions of the Master Repurchase Agreement and/or Global Master Repurchase Agreement (collectively, MRA). Upon an event of default, the non-defaulting party may close out all transactions traded under the MRA and net amounts owed. Absent an event of default, the MRA does not result in an offset of the reported amounts of assets and liabilities in the statement of assets and liabilities. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline or the counterparty may have insufficient assets to pay back claims resulting from close-out of the transactions. Collateral received by the portfolio for repurchase agreements is disclosed in the Portfolio of investments as part of the caption related to the repurchase agreement.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-date, except for dividends of foreign securities where the dividend may not be known until after the ex-date. In those cases, dividend income, net of withholding taxes, is recorded when the fund becomes aware of the dividends. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Securities lending. The fund may lend its securities to earn additional income. The fund receives cash collateral from the borrower in an amount not less than the market value of the loaned securities. The fund will invest its collateral in JHCIT, an affiliate of the fund, which has a floating net asset value (NAV) and is registered with the Securities and Exchange Commission as an investment company. JHCIT invests cash received as collateral as part of the securities lending program in short-term money market investments. The fund will receive the benefit of any gains and bear any losses generated by JHCIT with respect to the cash collateral.
If a borrower fails to return loaned securities when due, then the lending agent is responsible to and indemnifies the fund for the lent securities. The lending agent uses the collateral received from the borrower to purchase replacement securities of the same issue, type, class and series of the loaned securities. If the value of the collateral is less than the purchase cost of replacement securities, the lending agent is responsible for satisfying the shortfall but only to the extent that the shortfall is not due to any decrease in the value of JHCIT.
Although the risk of the loss of the securities lent is mitigated by receiving collateral from the borrower and through lending agent indemnification, the fund could experience a delay in recovering its securities or could experience a lower than expected return if the borrower fails to return the securities on a timely basis. 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. Net income received from JHCIT is a component of securities lending income as recorded on the Statement of Operations.
Obligations to repay collateral received by the fund is shown on the Statement of assets and liabilities as Payable upon return of securities loaned.
26 | International Value Equity Fund | Semiannual report |
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 the value of 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. These risks are heightened for investments held in emerging markets. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs), accounting standards and other factors. 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.
Foreign taxes. The fund may be subject to withholding tax on income and/or capital gains or repatriation taxes imposed by certain countries in which the fund invests. Taxes are accrued based upon investment income, realized gains or unrealized appreciation.
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 fund’s custodian agreement, the custodian may loan money to the 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 may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
In addition, the fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. 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 and is reflected in other expenses on the Statement of operations. Commitment fees for the six months ended September 30, 2013 were $362. For the six months ended September 30, 2013, the fund had no significant borrowings under the line of credit.
Expenses. Within the John Hancock funds complex, expenses that are directly attributable to an individual fund are allocated to such 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 net 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 assets of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage expenses, for all classes, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
Federal income taxes. The fund intends to continue 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 | International Value Equity Fund | 27 |
As of March 31, 2013, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund’s federal tax returns are 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 in the same amount, except for the effect of class level 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.
Capital accounts within the 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. Book-tax differences are primarily attributable to foreign currency transactions.
Note 3 — Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including 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 Advisor) serves as investment advisor for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Trust. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The fund has an investment management agreement with the Advisor under which the fund pays a daily management fee to the Advisor equivalent, on an annual basis, to the sum of: (a) 0.900% of the first $100,000,000 of the fund’s average daily net assets; (b) 0.875% of the next $900,000,000 of the fund’s average daily net assets; (c) 0.850% of the next $1,000,000,000 of the fund’s average daily net assets; (d) 0.825% of the next $1,000,000,000 of the fund’s average daily net assets; (e) 0.800% of the next $1,000,000,000 of the fund’s average daily net assets and (f) 0.775% of the fund’s average daily net assets in excess of $4,000,000,000. The Advisor has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Advisor. The fund is not responsible for payment of the subadvisory fees.
Effective June 1, 2013, the Advisor has contractually agreed to waive a portion of its management fee for certain portfolios (the participating portfolios) of the Trust, John Hancock Funds, John Hancock Funds II and John Hancock Variable Insurance Trust. The waiver equals, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the participating portfolios that exceeds $75 billion up to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds $125 billion up to $150 billion; and 0.015% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion. The amount of the reimbursement is calculated daily and allocated among all the participating
28 | International Value Equity Fund | Semiannual report |
portfolios in proportion to the daily net assets of each portfolio. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.
The Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay operating expenses of the fund to the extent necessary to maintain the fund’s total operating expenses at 1.60%, 1.29%, 1.68%, 1.43% and 1.10% for Class A, Class I, Class R2, Class R4 and Class R6 shares respectively. This agreement excludes certain expenses such as taxes, brokerage commissions, interest expense, litigation, and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense. These expense limitations shall remain in effect until June 30, 2014 for Class A, Class I, Class R2, Class R4 and Class R6 shares and thereafter until terminated by the Advisor.
Accordingly, these expense reductions amounted to $2,551, $5,809, $3,389, $3,428, $3,740 and $7,040 for Class A, Class I, Class R2, Class R4, Class R6 and Class NAV shares, respectively, for the six months ended September 30, 2013.
The investment management fees, including the impact of waivers and reimbursements as described above, incurred for the six months ended September 30, 2013 were equivalent to a net annual effective rate of 0.87% of the fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to 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. These accounting and legal services fees incurred for the six months ended September 30, 2013 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 R2 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 R2 and Class R4 shares, the fund pays for certain other services. The fund pays 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 | RULE 12b–1 FEE | SERVICE FEE | ||||
Class A | 0.30% | — | ||||
Class R2 | 0.25% | 0.25% | ||||
Class R4 | 0.25% | 0.10% |
The Distributor has contractually agreed to waive 0.10% of 12b-1 fees on Class R4 shares to 0.15% of the average daily net assets of Class R4 shares, until at least June 30, 2014, unless renewed by mutual agreement of the fund and the Distributor based upon a determination that this is appropriate under the circumstances at the time. Accordingly, the fee limitation amounted to $26 for Class R4 shares for the period ended September 30, 2013.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $41,986 for the six months ended September 30, 2013. Of this amount, $6,996 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $34,962 was paid as sales commissions to broker-dealers and $28 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Semiannual report | International Value Equity Fund | 29 |
Class A shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. CDSCs are applied to 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 September 30, 2013, the fund did not pay CDSCs for Class A shares.
Transfer agent fees. The fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. 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 fees that Signature Services receives in connection with retirement and small accounts. 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 September 30, 2013 were:
DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
Class A | $13,763 | $8,396 | $8,847 | $2,530 |
Class I | — | 3,340 | 8,460 | 2,193 |
Class R2 | 65 | 6 | 3,479 | 8 |
Class R4 | 65 | 6 | 3,479 | 8 |
Class R6 | — | 6 | 3,744 | 8 |
Total | $13,893 | $11,754 | $28,009 | $4,747 |
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the fund based on its net assets relative to other funds within the John Hancock funds complex.
Interfund Lending Program. Pursuant to an Exemptive Order issued by the SEC, the fund, along with other funds advised by the Advisor, may be allowed to participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from, or lend money to, other participating affiliated funds. At period end, no interfund loans were outstanding. The fund’s activity in this program during the period for which loans were outstanding was as follows:
WEIGHTED AVERAGE | DAYS | WEIGHTED AVERAGE | INTEREST | |
BORROWER OR LENDER | LOAN BALANCE | OUTSTANDING | INTEREST RATE | INCOME |
Lending | $15,626,831 | 3 | 0.46% | $593 |
Note 5 — Fund share transactions
Transactions in fund shares for the six months ended September 30, 2013 and for the year ended March 31, 2013 were as follows:
30 | International Value Equity Fund | Semiannual report |
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 740,385 | $6,478,850 | 681,430 | $5,618,151 |
Distributions reinvested | — | — | 14,621 | 122,084 |
Repurchased | (85,147) | (742,184) | (197,404) | (1,628,179) |
Net increase | 655,238 | $5,736,666 | 498,647 | $4,112,056 |
Class I shares | ||||
Sold | 43,414 | $381,458 | 604,155 | $5,156,332 |
Distributions reinvested | — | — | 17,140 | 142,946 |
Repurchased | (9,630) | (85,582) | (10,943) | (92,922) |
Net increase | 33,784 | $295,876 | 610,352 | $5,206,356 |
Class R2 shares1 | ||||
Sold | 11,723 | $100,000 | — | — |
Net increase | 11,723 | $100,000 | — | — |
Class R4 shares1 | ||||
Sold | 11,723 | $100,000 | — | — |
Net increase | 11,723 | $100,000 | — | — |
Class R6 shares1 | ||||
Sold | 11,723 | $100,000 | — | — |
Net increase | 11,723 | $100,000 | — | — |
Class NAV shares | ||||
Sold | 9,023,443 | $77,784,908 | 21,601,965 | 160,986,341 |
Distributions reinvested | — | — | 1,087,044 | 9,065,948 |
Repurchased | (478) | (4,165) | (1,071,284) | (8,691,188) |
Net increase | 9,022,965 | $77,780,743 | 21,617,725 | 161,361,101 |
Total net increase | 9,747,156 | $84,113,285 | 22,726,724 | $170,679,513 |
1 The inception date for Class R2, Class R4 and Class R6 shares is 7-2-13.
Affiliates of the fund owned 2%, 100%, 100%, 100% and 100% of shares of beneficial interest of Class I, Class R2, Class R4, Class R6 and Class NAV, respectively, on September 30, 2013.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, amounted to $139,437,524 and $52,761,240, respectively, for the six months ended September 30, 2013.
Note 7 — Investment by affiliated funds
Certain investors in the fund are affiliated funds that are managed by the Advisor and its affiliates. The affiliated funds do not invest in the fund for the purpose of exercising management or control; however, this investment may represent a significant portion of the fund’s net assets. At September 30, 2013, funds within the John Hancock funds complex held 95.1% of the fund. The following funds had an affiliate ownership of 5% or more of the fund’s net assets:
AFFILIATE | |||
FUND | CONCENTRATION | ||
Lifestyle Aggressive Portfolio | 14.9% | ||
Lifestyle Moderate Portfolio | 6.3% | ||
Lifestyle Growth Portfolio | 35.6% | ||
Lifestyle Balanced Portfolio | 30.5% |
Semiannual report | International Value Equity Fund | 31 |
Continuation of Investment Advisory and Subadvisory Agreements
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Funds III (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with John Hancock Asset Management a division of Manulife Asset Management (US) LLC (the Subadvisor) for John Hancock International Value Equity Fund (the fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16–17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the fund, the Advisor, and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for the fund’s benchmark index; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts, as applicable; and other information provided by the Advisor and the Subadvisor regarding the nature, extent, and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor’s revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The Board noted the affiliation of the Subadvisor with the Advisor, noting any potential conflicts of interest. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and does not treat any single factor as determinative and each Trustee may attribute different weights to different factors. The Board’s conclusions may be
32 | International Value Equity Fund | Semiannual report |
based in part on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of fund performance and operations throughout the year.
Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and third-party service providers.
In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties through Board meetings, discussions, and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationship, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objective; review of brokerage matters, including with respect to trade allocation and best execution; and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund; and
(f) the Advisor’s reputation and experience in serving as an investment adviser to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.
Investment performance. In considering the fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
Semiannual report | International Value Equity Fund | 33 |
(a) reviewed information prepared by management regarding the fund’s performance;
(b) considered the comparative performance of the fund’s benchmark;
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the fund’s ranking within a smaller group of peer funds and the fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted that the fund outperformed its benchmark index and peer group average for the one-year period ended December 31, 2012.
The Board took into account management’s discussion of the fund’s performance, noting that the fund commenced operations on February 14, 2011 and has a limited performance history.
The Board concluded that the performance of the fund has generally been in line with or outperformed the historical performance of comparable funds and the fund’s benchmark.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data, including, among other data, the fund’s contractual and net management fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund. The Board considered the fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund’s ranking within a broader group of funds. In comparing the fund’s contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.
The Board noted that net management fees and total expenses for this fund are higher than the peer group medians. The Board took into account management’s discussion of the fund’s expenses.
The Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the sub-advisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the fund, which is discussed further below. The Board also noted that the Advisor has agreed to fee waivers and/or expense reimbursements with respect to total operating expenses of certain share classes of the fund. The Board also noted that the Advisor pays the subadvisory fees of the fund. The Board also noted management’s discussion of the fund’s expenses, as well as certain actions taken over the past several years to reduce the fund’s operating expenses. The Board reviewed information provided by the Advisor concerning investment advisory fees charged to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable.
Profitability/indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates (including the Subadvisor) from the Advisor’s relationship with the Trust, the Board:
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;
34 | International Value Equity Fund | Semiannual report |
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
(e) considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;
(f) noted that the fund’s Subadvisor is an affiliate of the Advisor;
(g) noted that affiliates of the Advisor provide transfer agency services and distribution services to the fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the fund;
(h) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;
(i) noted that the subadvisory fees for the fund are paid by the Advisor; and
(j) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates (including the Subadvisor) from their relationship with the fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders, the Board:
(a) considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the fund and each of the other open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement):
The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The funds that are not Participating Portfolios as of the date of this semiannual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the fund’s fee structure contains breakpoints at the subadvisory fee level and that such/certain breakpoints are reflected as breakpoints in the advisory fees for the fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the fund to benefit from economies of scale if the fund grows. The Board also took into account management’s discussion of the fund’s advisory fee structure; and
Semiannual report | International Value Equity Fund | 35 |
(c) the Board also considered the effect of the fund’s growth in size on its performance and fees. The Board also noted that if the fund’s assets increase over time, the fund may realize other economies of scale.
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the fund, and comparative performance information relating to the fund’s benchmark and comparable funds;
(3) the subadvisory fee for the fund, including breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data.
Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background, and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the Trust’s CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by it to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the fund, that is consistent with the fund’s investment objective, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund.
The Board also received information and took into account any other potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement. In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock fund complex and reputational benefits.
36 | International Value Equity Fund | Semiannual report |
Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fees paid by the Advisor to the Subadvisor with respect to the fund to fees charged by the fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the fund’s performance as compared to the fund’s peer group and benchmark and noted that the Board reviews information about the fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the fund generally has been in line with or outperformed the historical performance of comparable funds and the fund’s benchmark and the fund’s overall performance is satisfactory;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the fund in order to permit shareholders to benefit from economies of scale if the fund grows.
* * * |
Based on the Board’s evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
Semiannual report | International Value Equity Fund | 37 |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Investment Management |
Steven R. Pruchansky, Vice Chairman | Services, LLC |
Charles L. Bardelis* | |
James R. Boyle† | Subadvisor |
Craig Bromley† | John Hancock Asset Management a division of |
Peter S. Burgess* | Manulife Asset Management (US) LLC |
William H. Cunningham | |
Grace K. Fey | Principal distributor |
Theron S. Hoffman* | John Hancock Funds, LLC |
Deborah C. Jackson | |
Hassell H. McClellan | Custodian |
Gregory A. Russo | State Street Bank and Trust Company |
Warren A. Thomson† | |
Transfer agent | |
Officers | John Hancock Signature Services, Inc. |
Hugh McHaffie | |
President | Legal counsel |
K&L Gates LLP | |
Andrew G. Arnott | |
Executive Vice President | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†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) website at sec.gov or on our website.
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 website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 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 website at jhinvestments.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhinvestments.com | Investment Operations | Investment Operations |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. | |
P.O. Box 55913 | 30 Dan Road | |
Boston, MA 02205-5913 | Canton, MA 02021 |
38 | International Value Equity Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/internationalvalueex35x1.jpg)
800-225-5291
800-338-8080 EASI-Line
jhinvestments.com
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/internationalvalueex35x2.jpg)
This report is for the information of the shareholders of John Hancock International Value Equity Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 366SA 9/13 |
MF160076 | 11/13 |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/strategicgrowthx1x1.jpg)
A look at performance
Total returns for the period ended September 30, 2013
Average annual total returns (%) | Cumulative total returns (%) | ||||||||
with maximum sales charge | with maximum sales charge | ||||||||
1-year | 5-year | 10-year | Since inception1 | 6-months | 1-year | 5-year | 10-year | Since inception1 | |
Class A | 13.77 | — | — | 19.53 | 8.78 | 13.77 | — | — | 37.67 |
Class I2 | 20.28 | — | — | 23.49 | 14.68 | 20.28 | — | — | 45.93 |
Class NAV2 | 20.37 | — | — | 23.65 | 14.76 | 20.37 | — | — | 46.28 |
Index† | 19.27 | — | — | 22.15 | 10.34 | 19.27 | — | — | 42.97 |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charge on Class A shares of 5%. Sales charges are not applicable to Class I or 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 those disclosed in the Financial highlights tables in this report. The fee waivers and expense limitations are contractual at least through 6-30-14 for Class A and Class I shares. Had the fee waivers and expense limitations not been in place, gross expenses would apply. For Class NAV shares, the net expenses equal the gross expenses. The expense ratios are as follows:
Class A | Class I | Class NAV | |
Net (%) | 1.30 | 0.94 | 0.78 |
Gross (%) | 2.01 | 5.88 | 0.78 |
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month end, please call 800-225-5291 or visit the fund’s website at jhinvestments.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 fee waivers or expense reductions, without which the expenses would increase and results would have been less favorable.
† Index is the Russell 1000 Growth Index.
See the following page for footnotes.
6 | Strategic Growth Fund | Semiannual report |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/strategicgrowthx3x1.jpg)
With maximum | Without | |||
Start date | sales charge | sales charge | Index | |
Class I2 | 12-19-11 | $14,593 | $14,593 | $14,297 |
Class NAV2 | 12-19-11 | 14,628 | 14,628 | 14,297 |
Russell 1000 Growth Index is an unmanaged index which measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
It is not possible to invest directly in an index. Index figures do not reflect expenses or sales charges, which would have resulted in lower values.
Footnotes related to performance pages
1 From 12-19-11.
2 For certain types of investors, as described in the fund’s prospectuses.
Semiannual report | Strategic Growth Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses of investing in the fund so you can compare these costs with the ongoing costs of investing in other mutual funds.
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 the fund’s actual ongoing operating expenses and is based on the fund’s actual return. It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,145.00 | $6.99 |
Class I | 1,000.00 | 1,146.80 | 5.06 |
Class NAV | 1,000.00 | 1,147.60 | 3.90 |
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 September 30, 2013, 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:
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/strategicgrowthx4x1.jpg)
8 | Strategic Growth Fund | Semiannual report |
Hypothetical example for comparison purposes
This table allows you to compare the 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 the fund’s actual return). It assumes an account value of $1,000.00 on April 1, 2013, with the same investment held until September 30, 2013. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses. Please remember that these hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.
Account value | Ending value | Expenses paid during | |
on 4-1-13 | on 9-30-13 | period ended 9-30-131 | |
Class A | $1,000.00 | $1,018.60 | $6.58 |
Class I | 1,000.00 | 1,020.40 | 4.76 |
Class NAV | 1,000.00 | 1,021.40 | 3.75 |
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 1.30%, 0.94% and 0.74% for Class A, Class I and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
Semiannual report | Strategic Growth Fund | 9 |
Portfolio summary
Top 10 Holdings (29.2% of Net Assets on 9-30-13)1,2 | ||||
Apple, Inc. | 4.6% | Visa, Inc., Class A | 2.7% | |
Google, Inc., Class A | 3.8% | Gilead Sciences, Inc. | 2.6% | |
Philip Morris International, Inc. | 3.2% | eBay, Inc. | 2.5% | |
Facebook, Inc., Class A | 2.8% | Biogen Idec, Inc. | 2.2% | |
Amazon.com, Inc. | 2.8% | priceline.com, Inc. | 2.0% | |
Sector Composition1,3 | ||||
Information Technology | 30.2% | Energy | 4.7% | |
Consumer Discretionary | 19.0% | Financials | 4.3% | |
Health Care | 13.5% | Telecommunication Services | 3.6% | |
Industrials | 12.0% | Materials | 2.8% | |
Consumer Staples | 5.9% | Short-Term Investments & Other | 4.0% | |
![](https://capedge.com/proxy/N-CSRS/0000928816-13-001910/strategicgrowthx6x1.jpg)
1 As a percentage of net assets on 9-30-13.
2 Cash and cash equivalents not included.
3 Large company stocks as a group could fall out of favor with the market, causing the fund to underperform. Growth stocks may be subject to greater price fluctuations because their prices tend to place greater emphasis on earning expectations. Foreign investing, especially in emerging markets, has additional risks such as currency and market volatility and political and social instability. 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 and investments focused in one sector may fluctuate more widely than investments diversified across sectors. For additional information on these and other risk considerations, please see the fund’s prospectus.
10 | Strategic Growth Fund | Semiannual report |
Fund’s investments
As of 9-30-13 (unaudited)
Shares | Value | |
Common Stocks 96.0% | $1,070,945,419 | |
(Cost $864,020,575) | ||
Consumer Discretionary 19.0% | 212,007,983 | |
Hotels, Restaurants & Leisure 3.4% | ||
Las Vegas Sands Corp. | 180,969 | 12,019,961 |
Panera Bread Company, Class A (I) | 96,030 | 15,223,636 |
Starbucks Corp. | 141,844 | 10,917,733 |
Household Durables 1.2% | ||
Mohawk Industries, Inc. (I) | 105,628 | 13,758,047 |
Internet & Catalog Retail 5.9% | ||
Amazon.com, Inc. (I) | 98,633 | 30,836,621 |
priceline.com, Inc. (I) | 21,762 | 22,000,294 |
TripAdvisor, Inc. (I)(L) | 166,641 | 12,638,053 |
Media 3.1% | ||
AMC Networks, Inc., Class A (I) | 221,049 | 15,137,436 |
Comcast Corp., Class A | 308,191 | 13,914,824 |
Discovery Communications, Inc., Class A (I) | 65,636 | 5,540,991 |
Specialty Retail 3.8% | ||
Lowe’s Companies, Inc. | 192,508 | 9,165,306 |
The Home Depot, Inc. | 282,143 | 21,400,547 |
Tractor Supply Company | 177,654 | 11,933,019 |
Textiles, Apparel & Luxury Goods 1.6% | ||
Michael Kors Holdings, Ltd. (I) | 235,125 | 17,521,515 |
Consumer Staples 5.9% | 65,655,588 | |
Food & Staples Retailing 2.7% | ||
Costco Wholesale Corp. | 167,360 | 19,266,483 |
Whole Foods Market, Inc. | 189,358 | 11,077,443 |
Tobacco 3.2% | ||
Philip Morris International, Inc. | 407,803 | 35,311,662 |
Energy 4.7% | 52,522,358 | |
Energy Equipment & Services 3.2% | ||
Halliburton Company | 410,612 | 19,770,968 |
Schlumberger, Ltd. | 176,493 | 15,594,921 |
Oil, Gas & Consumable Fuels 1.5% | ||
Anadarko Petroleum Corp. | 184,498 | 17,156,469 |
See notes to financial statements | Semiannual report | Strategic Growth Fund | 11 |
Financials 4.3% | $48,049,329 | |
Commercial Banks 1.6% | ||
First Republic Bank | 389,934 | 18,182,622 |
Diversified Financial Services 2.7% | ||
Citigroup, Inc. | 346,171 | 16,792,755 |
JPMorgan Chase & Company | 252,930 | 13,073,952 |
Health Care 13.5% | 150,403,900 | |
Biotechnology 7.5% | ||
Alexion Pharmaceuticals, Inc. (I) | 169,106 | 19,643,353 |
Amgen, Inc. | 96,962 | 10,853,926 |
Biogen Idec, Inc. (I) | 100,555 | 24,209,622 |
Gilead Sciences, Inc. (I) | 464,251 | 29,173,533 |
Health Care Providers & Services 1.2% | ||
Express Scripts Holding Company (I) | 218,644 | 13,507,826 |
Health Care Technology 1.4% | ||
Cerner Corp. (I) | 175,068 | 9,199,823 |
Medidata Solutions, Inc. (I) | 64,141 | 6,345,469 |
Pharmaceuticals 3.4% | ||
AbbVie, Inc. | 408,571 | 18,275,381 |
Perrigo Company (L) | 155,576 | 19,194,967 |
Industrials 12.0% | 133,471,400 | |
Aerospace & Defense 3.5% | ||
B/E Aerospace, Inc. (I) | 87,779 | 6,479,846 |
Precision Castparts Corp. | 87,806 | 19,953,035 |
United Technologies Corp. | 111,000 | 11,968,020 |
Building Products 2.6% | ||
Fortune Brands Home & Security, Inc. | 449,695 | 18,720,803 |
USG Corp. (I)(L) | 353,068 | 10,090,683 |
Electrical Equipment 0.8% | ||
Eaton Corp. PLC | 133,251 | 9,172,999 |
Machinery 3.4% | ||
Cummins, Inc. | 156,193 | 20,753,364 |
WABCO Holdings, Inc. (I) | 197,870 | 16,672,526 |
Road & Rail 0.8% | ||
Union Pacific Corp. | 60,280 | 9,363,895 |
Trading Companies & Distributors 0.9% | ||
United Rentals, Inc. (I) | 176,638 | 10,296,229 |
Information Technology 30.2% | 336,703,397 | |
Computers & Peripherals 4.6% | ||
Apple, Inc. | 106,718 | 50,877,807 |
Electronic Equipment, Instruments & Components 1.1% | ||
Amphenol Corp., Class A | 165,432 | 12,801,128 |
12 | Strategic Growth Fund | Semiannual report | See notes to financial statements |
Shares | Value | ||
Internet Software & Services 10.8% | |||
Demandware, Inc. (I) | 219,502 | $10,169,528 | |
eBay, Inc. (I) | 496,471 | 27,698,117 | |
Facebook, Inc., Class A (I) | 630,818 | 31,692,296 | |
Google, Inc., Class A (I) | 48,115 | 42,144,410 | |
LinkedIn Corp., Class A (I) | 35,923 | 8,839,213 | |
IT Services 7.7% | |||
Alliance Data Systems Corp. (I)(L) | 92,819 | 19,628,434 | |
FleetCor Technologies, Inc. (I) | 153,665 | 16,927,736 | |
Vantiv, Inc., Class A (I) | 685,530 | 19,153,708 | |
Visa, Inc., Class A | 156,849 | 29,973,844 | |
Semiconductors & Semiconductor Equipment 1.7% | |||
Texas Instruments, Inc. | 479,283 | 19,300,726 | |
Software 4.3% | |||
Guidewire Software, Inc. (I) | 168,305 | 7,928,849 | |
Microsoft Corp. | 308,241 | 10,267,508 | |
ServiceNow, Inc. (I)(L) | 130,650 | 6,787,268 | |
Splunk, Inc. (I) | 107,060 | 6,427,882 | |
VMware, Inc., Class A (I) | 198,825 | 16,084,943 | |
Materials 2.8% | 31,679,599 | ||
Chemicals 1.9% | |||
Monsanto Company | 71,885 | 7,502,637 | |
The Sherwin-Williams Company | 75,353 | 13,727,810 | |
Metals & Mining 0.9% | |||
Nucor Corp. | 213,161 | 10,449,152 | |
Telecommunication Services 3.6% | 40,451,865 | ||
Wireless Telecommunication Services 3.6% | |||
Crown Castle International Corp. (I) | 286,294 | 20,908,051 | |
SBA Communications Corp., Class A (I) | 242,901 | 19,543,814 | |
Yield (%) | Shares | Value | |
Securities Lending Collateral 5.4% | $60,655,561 | ||
(Cost $60,648,907) | |||
John Hancock Collateral Investment Trust (W) | 0.1739% (Y) | 6,060,586 | 60,655,561 |
See notes to financial statements | Semiannual report | Strategic Growth Fund | 13 |
Shares | Value | ||
Short-Term Investments 1.7% | $19,033,000 | ||
(Cost $19,033,000) | |||
Repurchase Agreement 1.7% | 19,033,000 | ||
Repurchase Agreement with State Street Corp. | |||
dated 9-30-13 at 0.000% to be repurchased | |||
at $19,033,000 on 10-1-13, collateralized | |||
by $17,955,000 U.S. Treasury Note. 3.125% | |||
due 5-15-21 (valued at $19,413,844, | |||
including interest) | $19,033,000 | 19,033,000 | |
Total investments (Cost $943,702,482) † 103.1% | $1,150,633,980 | ||
Other assets and liabilities, net (3.1%) | ($34,404,998) | ||
Total net assets 100.0% | $1,116,228,982 | ||
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) A portion of this security is on loan as of 9-30-13.
(W) Investment is an affiliate of the fund, the advisor and/or subadvisor. This investment represents collateral received for securities lending.
(Y) The rate shown is the annualized seven-day yield as of 9-30-13.
† At 9-30-13, the aggregate cost of investment securities for federal income tax purposes was $944,713,367. Net unrealized appreciation aggregated $205,920,613, of which $209,382,649 related to appreciated investment securities and $3,462,036 related to depreciated investment securities.
14 | Strategic 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
Financial statements
Statement of assets and liabilities 9-30-13 (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 offering price per share.
Assets | |
Investments in unaffiliated issuers, at value (Cost $883,053,575) including | |
$59,543,343 of securities loaned | $1,089,978,419 |
Investments in affiliated issuers, at value (Cost $60,648,907) | 60,655,561 |
Total investments, at value (Cost $943,702,482) | 1,150,633,980 |
Cash | 23,622,262 |
Receivable for interfund lending | 11,615,970 |
Receivable for investments sold | 1,583,883 |
Receivable for fund shares sold | 47,159 |
Dividends and interest receivable | 676,708 |
Receivable for securities lending income | 10,060 |
Receivable due from advisor | 200 |
Other receivables and prepaid expenses | 24,741 |
Total assets | 1,188,214,963 |
Liabilities | |
Payable for fund shares repurchased | 11,180,229 |
Payable upon return of securities loaned | 60,656,980 |
Payable to affiliates | |
Accounting and legal services fees | 89,841 |
Transfer agent fees | 860 |
Trustees’ fees | 2,036 |
Other liabilities and accrued expenses | 56,035 |
Total liabilities | 71,985,981 |
Net assets | $1,116,228,982 |
Net assets consist of | |
Paid-in capital | $859,958,667 |
Undistributed net investment income | 4,721,099 |
Accumulated net realized gain (loss) on investments | 44,617,718 |
Net unrealized appreciation (depreciation) on investments | 206,931,498 |
Net assets | $1,116,228,982 |
See notes to financial statements | Semiannual report | Strategic Growth Fund | 15 |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
Net asset value per share | |
Based on net asset values and shares outstanding — the fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($6,600,162 ÷ 456,672 shares)1 | $14.45 |
Class I ($920,543 ÷ 63,363 shares) | $14.53 |
Class NAV ($1,108,708,277 ÷ 76,241,683 shares) | $14.54 |
Maximum offering price per share | |
Class A (net asset value per share ÷ 95%)2 | $15.21 |
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.
16 | Strategic 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 operations For the six-month period ended 9-30-13 (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 | $5,328,251 |
Securities lending | 45,364 |
Interest | 2,685 |
Total investment income | 5,376,300 |
Expenses | |
Investment management fees | 3,826,107 |
Distribution and service fees | 8,543 |
Accounting and legal services fees | 90,086 |
Transfer agent fees | 4,784 |
Trustees’ fees | 23,449 |
State registration fees | 16,083 |
Printing and postage | 2,430 |
Professional fees | 33,168 |
Custodian fees | 53,898 |
Other | 8,277 |
Total expenses before reductions | 4,066,825 |
Net expense reductions | (35,141) |
Total expenses | 4,031,684 |
Net investment income | 1,344,616 |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments in unaffiliated issuers | 51,734,853 |
Investments in affiliated issuers | (4,018) |
51,730,835 | |
Change in net unrealized appreciation (depreciation) of | |
Investments in unaffiliated issuers | 95,646,797 |
Investments in affiliated issuers | 4,930 |
95,651,727 | |
Net realized and unrealized gain | 147,382,562 |
Increase in net assets from operations | $148,727,178 |
See notes to financial statements | Semiannual report | Strategic Growth Fund | 17 |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of changes in net assets show how the value of the fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of fund share transactions.
Six months | ||
ended | Year | |
9-30-13 | ended | |
(Unaudited) | 3-31-13 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment income | $1,344,616 | $6,098,580 |
Net realized gain (loss) | 51,730,835 | (7,090,053) |
Change in net unrealized appreciation (depreciation) | 95,651,727 | 69,801,172 |
Increase in net assets resulting from operations | 148,727,178 | 68,809,699 |
Distributions to shareholders | ||
From net investment income | ||
Class I | — | (687) |
Class NAV | — | (2,794,360) |
From net realized gain | ||
Class A | — | (11,944) |
Class I | — | (1,468) |
Class NAV | — | (2,610,928) |
Total distributions | — | (5,419,387) |
From fund share transactions | (51,411,040) | 616,312,525 |
Total increase | 97,316,138 | 679,702,837 |
Net assets | ||
Beginning of period | 1,018,912,844 | 339,210,007 |
End of period | $1,116,228,982 | $1,018,912,844 |
Undistributed net investment income | $4,721,099 | $3,376,483 |
18 | Strategic Growth Fund | Semiannual report |
Financial highlights
The Financial highlights show how the fund’s net asset value for a share has changed during the period.
CLASS A SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 |
Per share operating performance | |||
Net asset value, beginning of period | $12.62 | $12.14 | $10.00 |
Net investment income (loss)3 | (0.02) | 0.02 | (0.01) |
Net realized and unrealized gain on investments | 1.85 | 0.49 | 2.15 |
Total from investment operations | 1.83 | 0.51 | 2.14 |
Less distributions | |||
From net investment income | — | — | —4 |
From net realized gain | — | (0.03) | — |
Total distributions | — | (0.03) | —4 |
Net asset value, end of period | $14.45 | $12.62 | $12.14 |
Total return (%)5,6 | 14.507 | 4.25 | 21.417 |
Ratios and supplemental data | |||
Net assets, end of period (in millions) | $7 | $5 | $3 |
Ratios (as a percentage of average net assets): | |||
Expenses before reductions | 1.558 | 2.01 | 2.058 |
Expenses net of fee waivers | 1.308 | 1.30 | 1.308 |
Net investment income (loss) | (0.30)8 | 0.18 | (0.32)8 |
Portfolio turnover (%) | 51 | 100 | 26 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class A shares is 12-19-11.
3 Based on the average daily shares outstanding.
4 Less than $0.005 per share.
5 Does not reflect the effect of sales charges, if any.
6 Total returns would have been lower had certain expenses not been reduced during the applicable periods shown.
7 Not annualized.
8 Annualized.
See notes to financial statements | Semiannual report | Strategic Growth Fund | 19 |
CLASS I SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 |
Per share operating performance | |||
Net asset value, beginning of period | $12.67 | $12.16 | $10.00 |
Net investment income3 | —4 | 0.06 | —4 |
Net realized and unrealized gain on investments | 1.86 | 0.50 | 2.16 |
Total from investment operations | 1.86 | 0.56 | 2.16 |
Less distributions | |||
From net investment income | — | (0.02) | —4 |
From net realized gain | — | (0.03) | — |
Total distributions | — | (0.05) | —4 |
Net asset value, end of period | $14.53 | $12.67 | $12.16 |
Total return (%)5 | 14.686 | 4.62 | 21.636 |
Ratios and supplemental data | |||
Net assets, end of period (in millions) | $1 | $1 | —7 |
Ratios (as a percentage of average net assets): | |||
Expenses before reductions | 2.898 | 5.88 | 11.448 |
Expenses net of fee waivers | 0.948 | 0.94 | 0.948 |
Net investment income | 0.068 | 0.51 | 0.148 |
Portfolio turnover (%) | 51 | 100 | 26 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class I shares is 12-19-11.
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 applicable periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
CLASS NAV SHARES Period ended | 9-30-131 | 3-31-13 | 3-31-122 |
Per share operating performance | |||
Net asset value, beginning of period | $12.67 | $12.16 | $10.00 |
Net investment income3 | 0.02 | 0.08 | —4 |
Net realized and unrealized gain on investments | 1.85 | 0.50 | 2.16 |
Total from investment operations | 1.87 | 0.58 | 2.16 |
Less distributions | |||
From net investment income | — | (0.04) | —4 |
From net realized gain | — | (0.03) | — |
Total distributions | — | (0.07) | —4 |
Net asset value, end of period | $14.54 | $12.67 | $12.16 |
Total return (%)5 | 14.766 | 4.80 | 21.636 |
Ratios and supplemental data | |||
Net assets, end of period (in millions) | $1,109 | $1,013 | $336 |
Ratios (as a percentage of average net assets): | |||
Expenses before reductions | 0.757 | 0.78 | 0.857 |
Expenses net of fee waivers | 0.747 | 0.78 | 0.857 |
Net investment income | 0.257 | 0.71 | 0.157 |
Portfolio turnover (%) | 51 | 100 | 26 |
1 Six months ended 9-30-13. Unaudited.
2 The inception date for Class NAV shares is 12-19-11.
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 applicable periods shown.
6 Not annualized.
7 Annualized.
20 | Strategic Growth Fund | Semiannual report | See notes to financial statements |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Strategic Growth Fund (the fund) is a 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 shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class NAV shares are offered to John Hancock affiliated funds of funds and certain 529 plans. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent fees, printing and postage and state registration fees for each class may differ.
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 as of the date of the financial statements. Actual results could differ from those estimates and those differences could be significant. 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. 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, the securities are valued using the last quoted bid or evaluated price. Investments by the fund in open-end mutual funds, including John Hancock Collateral Investment Trust (JHCIT), are valued at their respective net asset values each business day. Certain short-term securities are valued at amortized cost. Other portfolio securities and assets, for which reliable 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. The frequency with which these fair valuation procedures are used cannot be predicted and fair value of securities may differ significantly from the value that would have been used had a ready market for such securities existed.
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 securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using other 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 inputs are received from independent pricing vendors and brokers and are based on an evaluation of the inputs described. Level 3 includes securities valued using 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. Factors used in determining value may include market or issuer specific events or trends, changes in interest rates and credit quality. The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities.
Semiannual report | Strategic Growth Fund | 21 |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy.
As of September 30, 2013, all investments are categorized as Level 1 under the hierarchy described above except repurchase agreements with a value of $19,033,000, which are categorized as Level 2.
Repurchase agreements. The fund may enter into repurchase agreements. When the fund enters into a repurchase agreement, it receives collateral that is held in a segregated account by the fund’s custodian. The collateral amount is marked-to-market and monitored on a daily basis to ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. Collateral for certain tri-party repurchase agreements is held at a third-party custodian bank in a segregated account for the benefit of the fund.
Repurchase agreements are typically governed by the terms and conditions of the Master Repurchase Agreement and/or Global Master Repurchase Agreement (collectively, MRA). Upon an event of default, the non-defaulting party may close out all transactions traded under the MRA and net amounts owed. Absent an event of default, the MRA does not result in an offset of the reported amounts of assets and liabilities in the statement of assets and liabilities. In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the collateral value may decline or the counterparty may have insufficient assets to pay back claims resulting from close-out of the transactions. Collateral received by the fund for repurchase agreements is disclosed in the Portfolio of investments as part of the caption related to the repurchase agreement.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Dividend income is recorded on the ex-date, except for dividends of foreign securities where the dividend may not be known until after the ex-date. In those cases, dividend income, net of withholding taxes, is recorded when the fund becomes aware of the dividends. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Securities lending. The fund may lend its securities to earn additional income. The fund receives cash collateral from the borrower in an amount not less than the market value of the loaned securities. The fund will invest its collateral in JHCIT, an affiliate of the fund, which has a floating net asset value (NAV) and is registered with the Securities and Exchange Commission as an investment company. JHCIT invests cash received as collateral as part of the securities lending program in short-term money market investments. The fund will receive the benefit of any gains and bear any losses generated by JHCIT with respect to the cash collateral.
If a borrower fails to return loaned securities when due, then the lending agent is responsible to and indemnifies the fund for the lent securities. The lending agent uses the collateral received from the borrower to purchase replacement securities of the same issue, type, class and series of the loaned securities. If the value of the collateral is less than the purchase cost of replacement securities, the lending agent is responsible for satisfying the shortfall but only to the extent that the shortfall is not due to any decrease in the value of JHCIT.
Although the risk of the loss of the securities lent is mitigated by receiving collateral from the borrower and through lending agent indemnification, the fund could experience a delay in recovering its securities or could experience a lower than expected return if the borrower fails to return the securities on a timely basis. The fund may receive compensation for lending its securities
22 | Strategic Growth Fund | Semiannual report |
by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Net income received from JHCIT is a component of securities lending income as recorded on the Statement of operations.
Obligations to repay collateral received by the fund are shown on the Statement of assets and liabilities as Payable upon return of securities loaned.
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 fund’s custodian agreement, the custodian may loan money to the 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 may have a lien, security interest or security entitlement in any fund property that is not otherwise segregated or pledged, to the maximum extent permitted by law, to the extent of any overdraft.
In addition, the fund and other affiliated funds have entered into an agreement with Citibank N.A. that enables them to participate in a $300 million unsecured committed line of credit. 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 and is reflected in other expenses on the Statement of operations. Commitment fees for the six months ended September 30, 2013 were $514. For the six months ended September 30, 2013, the fund had no borrowings under the line of credit.
Expenses. Within the John Hancock funds complex, expenses that are directly attributable to an individual fund are allocated to such 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 net 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 assets of the class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage expenses, for all classes, are calculated daily at the class level based on the appropriate net assets of each class and the specific expense rates applicable to each class.
Federal income taxes. The fund intends to continue 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.
Under the Regulated Investment Company Modernization Act of 2010, the fund is permitted to carry forward capital losses for an unlimited period. Capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
For federal income tax purposes, as of March 31, 2013, the fund has a long-term capital loss carryforward of $6,102,232 available to offset future net realized capital gains, which do not expire.
As of March 31, 2013, the fund had no uncertain tax positions that would require financial statement recognition, derecognition or disclosure. The fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.
Semiannual report | Strategic Growth Fund | 23 |
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 in the same amount, except for the effect of class level 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.
Capital accounts within the 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. Book-tax differences are primarily attributable to wash sale loss deferrals.
Note 3 — Guarantees and indemnifications
Under the Trust’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust, including 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 Advisor) serves as investment advisor for the Trust. John Hancock Funds, LLC (the Distributor), an affiliate of the Advisor, serves as principal underwriter of the Trust. The Advisor and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The fund has an investment management agreement with the Advisor under which the fund pays a daily management fee to the Advisor equivalent, on an annual basis, to the sum of: (a) 0.725% of the first $500,000,000 of the fund’s average daily net assets; (b) 0.700% of the next $500,000,000 of the fund’s average daily net assets; (c) 0.675% of the next $500,000,000 of the fund’s average daily net assets; and (d) 0.650% of the fund’s average daily net assets in excess of $1,500,000,000. The Advisor has a subadvisory agreement with John Hancock Asset Management a division of Manulife Asset Management (US) LLC, an indirectly owned subsidiary of MFC and an affiliate of the Advisor. The fund is not responsible for payment of the subadvisory fees.
Effective June 1, 2013, the Advisor has contractually agreed to waive a portion of its management fee for certain portfolios (the participating portfolios) of the Trust, John Hancock Funds, John Hancock Funds II and John Hancock Variable Insurance Trust. The waiver equals, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the participating portfolios that exceeds $75 billion up to $125 billion; 0.0125% of that portion of the aggregate net assets of all the participating portfolios that exceeds $125 billion up to $150 billion; and 0.015% of that portion of the aggregate net assets of all the participating portfolios that exceeds $150 billion. The amount of the reimbursement is calculated daily and allocated among all the participating portfolios in proportion to the daily net assets of each portfolio. This arrangement may be amended or terminated at any time by the Advisor upon notice to the fund and with the approval of the Board of Trustees.
24 | Strategic Growth Fund | Semiannual report |
The Advisor has contractually agreed to reduce its management fee or, if necessary, make payment to the fund to the extent necessary to maintain the fund’s total operating expenses at 1.30% and 0.94% for Class A and Class I shares, respectively. This agreement excludes certain expenses such as taxes, brokerage commissions, interest expense, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the fund’s business, acquired fund fees and expenses paid indirectly and short dividend expense. For Class A and Class I shares, this expense limitation shall remain in effect through June 30, 2014, unless renewed by mutual agreement of the fund and the Advisor based upon a determination that this is appropriate under the circumstances at that time.
Accordingly, these expense reductions amounted to $7,091, $8,243 and $19,807 for Class A, Class I and Class NAV shares respectively, for the six months ended September 30, 2013.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the six months ended September 30, 2013 were equivalent to a net annual effective rate of 0.70% of the fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the fund reimburses the Advisor for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services to 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. These accounting and legal services fees incurred for the six months ended September 30, 2013 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 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 pays 0.30% of distribution and service fees for Class A shares under the arrangement, expressed as an annual percentage of average daily net assets.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $10,939 for the six months ended September 30, 2013. Of this amount, $1,733 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $9,121 was paid as sales commissions to broker-dealers and $85 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Advisor.
Class A shares may be subject to contingent deferred sales charges (CDSCs). Certain Class A shares that are acquired through purchases of $1 million or more and are redeemed within one year of purchase are subject to a 1.00% sales charge. CDSCs are applied to 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 September 30, 2013, there were no CDSCs received by the Distributor for Class A shares.
Transfer agent fees. The fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Advisor. 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 fees that Signature Services receives in connection with retirement and small accounts. Signature
Semiannual report | Strategic Growth Fund | 25 |
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 September 30, 2013 were:
DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
Class A | $8,543 | $4,345 | $8,038 | $1,861 |
Class I | — | 439 | 8,045 | 569 |
Total | $8,543 | $4,784 | $16,083 | $2,430 |
Trustee expenses. The fund compensates each Trustee who is not an employee of the Advisor or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the fund based on its net assets relative to other funds within the John Hancock funds complex.
Interfund lending program. Pursuant to an Exemptive Order issued by the SEC, the fund, along with other funds advised by the Advisor, may be allowed to participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from, or lend money to, other participating affiliated funds. As of September 30, 2013, the fund had a loan outstanding of $11,615,970 to John Hancock Funds II Emerging Markets Fund, at an interest rate of 0.44%, due October 1, 2013. This open loan is presented under the caption Receivable for interfund lending in the fund’s Statement of assets and liabilities. The fund’s activity in this program during the period for which loans were outstanding was as follows:
WEIGHTED AVERAGE | DAYS | WEIGHTED AVERAGE | INTEREST | |
BORROWER OR LENDER | LOAN BALANCE | OUTSTANDING | INTEREST RATE | INCOME |
Lender | $22,041,339 | 7 | 0.45% | $1,934 |
Note 5 — Fund share transactions
Transactions in the fund’s shares for the six months ended September 30, 2013 and for the year ended March 31, 2013 were as follows:
Six months ended 9-30-13 | Year ended 3-31-13 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 87,732 | $1,184,464 | 202,152 | $2,399,453 |
Distributions reinvested | — | — | 478 | 5,596 |
Repurchased | (27,591) | (373,942) | (56,936) | (671,858) |
Net increase | 60,141 | $810,522 | 145,694 | $1,733,191 |
Class I shares | ||||
Sold | 1,642 | $22,185 | 38,731 | $471,183 |
Distributions reinvested | — | — | 142 | 1,672 |
Repurchased | (1,158) | (15,329) | (12,930) | (148,049) |
Net increase | 484 | $6,856 | 25,943 | $324,806 |
Class NAV shares | ||||
Sold | 485,770 | $6,386,154 | 53,490,022 | $627,632,168 |
Distributions reinvested | — | — | 460,809 | 5,405,288 |
Repurchased | (4,231,871) | (58,614,572) | (1,572,659) | (18,782,928) |
Net increase (decrease) | (3,746,101) | ($52,228,418) | 52,378,172 | $614,254,528 |
Total net increase (decrease) | (3,685,476) | ($51,411,040) | 52,549,809 | $616,312,525 |
26 | Strategic Growth Fund | Semiannual report |
Affiliates of the fund owned 42%, 16% and 100% of shares of beneficial interest of Class A, Class I and Class NAV, respectively, for the six months ended September 30, 2013.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, amounted to $535,954,703 and $621,631,186, respectively, for the six months ended September 30, 2013.
Note 7 — Investment by affiliated funds
Certain investors in the fund are affiliated funds that are managed by the Advisor and its affiliates. The affiliated funds do not invest in the fund for the purpose of exercising management or control; however, this investment may represent a significant portion of the fund’s net assets. At September 30, 2013, funds within the John Hancock funds complex held 99.3% of the fund. The following funds had an affiliate ownership concentration of 5% or more of the fund’s net assets:
AFFILIATED | ||
FUND | CONCENTRATION | |
John Hancock Lifestyle Aggressive Portfolio | 14.6% | |
John Hancock Lifestyle Balanced Portfolio | 29.9% | |
John Hancock Lifestyle Growth Portfolio | 38.5% | |
John Hancock Lifestyle Moderate Portfolio | 6.5% |
Semiannual report | Strategic Growth Fund | 27 |
Continuation of Investment Advisory and Subadvisory Agreements
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
This section describes the evaluation by the Board of Trustees (the Board) of John Hancock Funds III (the Trust) of the Advisory Agreement (the Advisory Agreement) with John Hancock Investment Management Services, LLC (the Advisor) and the Subadvisory Agreement (the Subadvisory Agreement) with John Hancock Asset Management a division of Manulife Asset Management (US) LLC (the Subadvisor) for John Hancock Strategic Growth Fund (the fund). The Advisory Agreement and Subadvisory Agreement are collectively referred to as the Agreements.
Approval of Advisory and Subadvisory Agreements
At in-person meetings held on May 16–17, 2013, the Board, including the Trustees who are not considered to be interested persons of the Trust under the Investment Company Act of 1940, as amended (the 1940 Act) (the Independent Trustees), reapproved for an annual period the continuation of the Advisory Agreement between the Trust and the Advisor and the Subadvisory Agreement between the Advisor and the Subadvisor with respect to the fund.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the fund, the Advisor, and the Subadvisor, including comparative performance, fee and expense information for peer groups of similar mutual funds prepared by an independent third-party provider of mutual fund data; performance information for the fund’s benchmark index; and, with respect to the Subadvisor, comparative performance information for comparably managed accounts, as applicable; and other information provided by the Advisor and the Subadvisor regarding the nature, extent, and quality of services provided by the Advisor and the Subadvisor under their respective Agreements, as well as information regarding the Advisor’s revenues and costs of providing services to the fund and any compensation paid to affiliates of the Advisor. At the meeting at which the renewal of the Advisory Agreement and Subadvisory Agreement is considered, particular focus is given to information concerning fund performance, comparability of fees and total expenses, and profitability. However, the Board notes that the evaluation process with respect to the Advisor and the Subadvisor is an ongoing one. In this regard, the Board also took into account discussions with management and information provided to the Board at prior meetings with respect to the services provided by the Advisor and the Subadvisor to the fund, including quarterly performance reports prepared by management containing reviews of investment results and prior presentations from the Subadvisor with respect to the fund. The Board noted the affiliation of the Subadvisor with the Advisor, noting any potential conflicts of interest. The Board also considered the nature, quality, and extent of non-advisory services, if any, to be provided to the fund by the Advisor’s affiliates, including distribution services.
Throughout the process, the Board asked questions of and requested additional information from management. The Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel throughout the process. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuation of the Agreements and discussed the proposed continuation of the Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In approving the Advisory Agreement with respect to the fund, the Board, including the Independent Trustees, considered a variety of factors, including those discussed below. The Board also considered other factors (including conditions and trends prevailing generally in the economy, the securities markets, and the industry) and does not treat any single factor as determinative and each Trustee may attribute different weights to different factors. The Board’s conclusions may be based in part
28 | Strategic Growth Fund | Semiannual report |
on its consideration of the advisory and subadvisory arrangements in prior years and on the Board’s ongoing regular review of fund performance and operations throughout the year.
Nature, extent, and quality of services. Among the information received by the Board from the Advisor relating to the nature, extent, and quality of services provided to the fund, the Board reviewed information provided by the Advisor relating to its operations and personnel, descriptions of its organizational and management structure, and information regarding the Advisor’s compliance and regulatory history, including its Form ADV. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the Advisor’s risk management processes. The Board considered that the Advisor is responsible for the management of the day-to-day operations of the fund, including, but not limited to, general supervision of and coordination of the services provided by the Subadvisor, and is also responsible for monitoring and reviewing the activities of the Subadvisor and third-party service providers.
In considering the nature, extent, and quality of the services provided by the Advisor, the Trustees also took into account their knowledge of the Advisor’s management and the quality of the performance of the Advisor’s duties through Board meetings, discussions, and reports during the preceding year and through each Trustee’s experience as a Trustee of the Trust and of the other trusts in the complex.
In the course of their deliberations regarding the Advisory Agreement, the Board considered, among other things:
(a) the skills and competency with which the Advisor has in the past managed the Trust’s affairs and its subadvisory relationship, the Advisor’s oversight and monitoring of the Subadvisor’s investment performance and compliance programs, such as the Subadvisor’s compliance with fund policies and objective; review of brokerage matters, including with respect to trade allocation and best execution; and the Advisor’s timeliness in responding to performance issues;
(b) the background, qualifications and skills of the Advisor’s personnel;
(c) the Advisor’s compliance policies and procedures and its responsiveness to regulatory changes and mutual fund industry developments;
(d) the Advisor’s administrative capabilities, including its ability to supervise the other service providers for the fund;
(e) the financial condition of the Advisor and whether it has the financial wherewithal to provide a high level and quality of services to the fund; and
(f) the Advisor’s reputation and experience in serving as an investment adviser to the Trust and the benefit to shareholders of investing in funds that are part of a family of funds offering a variety of investments.
The Board concluded that the Advisor may reasonably be expected to continue to provide a high quality of services under the Advisory Agreement with respect to the fund.
Investment performance. In considering the fund’s performance, the Board noted that it reviews at its regularly scheduled meetings information about the fund’s performance results. In connection with the consideration of the Advisory Agreement, the Board:
(a) reviewed information prepared by management regarding the fund’s performance;
Semiannual report | Strategic Growth Fund | 29 |
(b) considered the comparative performance of the fund’s benchmark;
(c) considered the performance of comparable funds, if any, as included in the report prepared by an independent third-party provider of mutual fund data. Such report included the fund’s ranking within a smaller group of peer funds and the fund’s ranking within broader groups of funds; and
(d) took into account the Advisor’s analysis of the fund’s performance and its plans and recommendations regarding the Trust’s subadvisory arrangements generally.
The Board noted that the fund outperformed its benchmark index and peer group average for the one-period ended December 31, 2012.
The Board took into account management’s discussion of the fund’s performance, noting that the fund commenced operations on December 16, 2011 and has a limited performance history.
The Board concluded that the performance of the fund has generally been in line with or outperformed the historical performance of comparable funds and the fund’s benchmark.
Fees and expenses. The Board reviewed comparative information prepared by an independent third-party provider of mutual fund data, including, among other data, the fund’s contractual and net management fees and total expenses as compared to similarly situated investment companies deemed to be comparable to the fund. The Board considered the fund’s ranking within a smaller group of peer funds chosen by the independent third-party provider, as well as the fund’s ranking within a broader group of funds. In comparing the fund’s contractual and net management fees to those of comparable funds, the Board noted that such fees include both advisory and administrative costs.
The Board noted that net management fees for this fund are higher than the peer group median and that total expenses for this fund are lower than the peer group median. The Board took into account management’s discussion of the fund’s expenses.
The Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by the Advisor after payment of the subadvisory fee. The Board also took into account that management had agreed to implement an overall fee waiver across a number of funds in the complex, including the fund, which is discussed further below. The Board also noted that the Advisor has agreed to fee waivers and/or expense reimbursements with respect to total operating expenses for each share class of the fund. The Board also noted management’s discussion of the fund’s expenses, as well as certain actions taken over the past several years to reduce the fund’s operating expenses. The Board reviewed information provided by the Advisor concerning investment advisory fees charged to other clients (including other funds in the complex) having similar investment mandates, if any. The Board considered any differences between the Advisor’s and Subadvisor’s services to the fund and the services they provide to other comparable clients or funds. The Board concluded that the advisory fee paid with respect to the fund is reasonable.
Profitability/indirect benefits. In considering the costs of the services to be provided and the profits to be realized by the Advisor and its affiliates (including the Subadvisor) from the Advisor’s relationship with the Trust, the Board:
(a) reviewed financial information of the Advisor;
(b) reviewed and considered an analysis presented by the Advisor regarding the net profitability to the Advisor and its affiliates with respect to the fund;
(c) received and reviewed profitability information with respect to the John Hancock fund complex as a whole;
30 | Strategic Growth Fund | Semiannual report |
(d) received information with respect to the Advisor’s allocation methodologies used in preparing the profitability data;
(e) considered that the Advisor also provides administrative services to the fund on a cost basis pursuant to an administrative services agreement;
(f) noted that the fund’s Subadvisor is an affiliate of the Advisor;
(g) noted that affiliates of the Advisor provide transfer agency services and distribution services to the fund, and that the Trust’s distributor also receives Rule 12b-1 payments to support distribution of the fund;
(h) noted that the Advisor also derives reputational and other indirect benefits from providing advisory services to the fund;
(i) noted that the subadvisory fees for the fund are paid by the Advisor; and
(j) considered that the Advisor should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the fund and the entrepreneurial risk that it assumes as Advisor.
Based upon its review, the Board concluded that the level of profitability, if any, of the Advisor and its affiliates (including the Subadvisor) from their relationship with the fund was reasonable and not excessive.
Economies of scale. In considering the extent to which economies of scale would be realized as the fund grows and whether fee levels reflect these economies of scale for the benefit of fund shareholders, the Board:
(a) considered that the Advisor has agreed, effective June 1, 2013, to waive its management fee for the fund and each of the other open-end funds of John Hancock Funds II, John Hancock Funds III, each other John Hancock fund (except those listed below) (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement):
The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $75 billion but is less than or equal to $125 billion, 0.0125% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $125 billion but is less than or equal to $150 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that exceeds $150 billion. (The funds that are not Participating Portfolios as of the date of this semiannual report are each of the fund of funds, money market funds, index funds and closed-end funds);
(b) reviewed the Trust’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the fund’s fee structure contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the fund and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the fund to benefit from economies of scale if the fund grows. The Board also took into account management’s discussion of the fund’s advisory fee structure; and
(c) the Board also considered the effect of the fund’s growth in size on its performance and fees. The Board also noted that if the fund’s assets increase over time, the fund may realize other economies of scale.
Semiannual report | Strategic Growth Fund | 31 |
Approval of Subadvisory Agreement
In making its determination with respect to approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadvisor’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the historical and current performance of the fund, and comparative performance information relating to the fund’s benchmark and comparable funds; and
(3) the subadvisory fee for the fund, including breakpoints, and comparative fee information, where available, prepared by an independent third-party provider of mutual fund data.
Nature, extent, and quality of services. With respect to the services provided by the Subadvisor, the Board received information provided to the Board by the Subadvisor, including the Subadvisor’s Form ADV, as well as took into account information presented throughout the past year. The Board considered the Subadvisor’s current level of staffing and its overall resources, as well as received information relating to the Subadvisor’s compensation program. The Board reviewed the Subadvisor’s history and investment experience, as well as information regarding the qualifications, background, and responsibilities of the Subadvisor’s investment and compliance personnel who provide services to the fund. The Board also considered, among other things, the Subadvisor’s compliance program and any disciplinary history. The Board also considered the Subadvisor’s risk assessment and monitoring process. The Board reviewed the Subadvisor’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate. The Board noted that the Advisor conducts regular, periodic reviews of the Subadvisor and its operations, including regarding investment processes and organizational and staffing matters. The Board also noted that the Trust’s CCO and his staff conduct regular, periodic compliance reviews with the Subadvisor and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadvisor and procedures reasonably designed by it to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadvisor.
The Board considered the Subadvisor’s investment process and philosophy. The Board took into account that the Subadvisor’s responsibilities include the development and maintenance of an investment program for the fund, that is consistent with the fund’s investment objective, the selection of investment securities and the placement of orders for the purchase and sale of such securities, as well as the implementation of compliance controls related to performance of these services. The Board also received information with respect to the Subadvisor’s brokerage policies and practices, including with respect to best execution and soft dollars.
Subadvisor compensation. In considering the cost of services to be provided by the Subadvisor and the profitability to the Subadvisor of its relationship with the fund, the Board noted that the fees under the Subadvisory Agreement are paid by the Advisor and not the fund.
The Board also received information and took into account any other potential conflicts of interest the Advisor might have in connection with the Subadvisory Agreement. In addition, the Board considered other potential indirect benefits that the Subadvisor and its affiliates may receive from the Subadvisor’s relationship with the fund, such as the opportunity to provide advisory services to additional funds in the John Hancock fund complex and reputational benefits.
Subadvisory fees. The Board considered that the fund pays an advisory fee to the Advisor and that, in turn, the Advisor pays a subadvisory fee to the Subadvisor. The Board also took into account the subadvisory fees paid by the Advisor to the Subadvisor with respect to the fund to fees charged
32 | Strategic Growth Fund | Semiannual report |
by the fund’s Subadvisor to manage other subadvised portfolios and portfolios not subject to regulation under the 1940 Act, as applicable.
Subadvisor performance. As noted above, the Board considered the fund’s performance as compared to the fund’s peer group and benchmark and noted that the Board reviews information about the fund’s performance results at its regularly scheduled meetings. The Board noted the Advisor’s expertise and resources in monitoring the performance, investment style, and risk-adjusted performance of the Subadvisor. The Board was mindful of the Advisor’s focus on the Subadvisor’s performance. The Board also noted the Subadvisor’s long-term performance record for similar accounts, as applicable.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadvisor has extensive experience and demonstrated skills as a manager;
(2) The performance of the fund generally has been in line with or outperformed the historical performance of comparable funds and the fund’s benchmark and the fund’s overall performance is satisfactory;
(3) The subadvisory fees are reasonable in relation to the level and quality of services being provided; and
(4) Subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the fund in order to permit shareholders to benefit from economies of scale if the fund grows.
* * * |
Based on the Board’s evaluation of all factors that the Board deemed to be material, including those factors described above, the Board, including the Independent Trustees, concluded that renewal of the Advisory Agreement and the Subadvisory Agreement would be in the best interest of the fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and Subadvisory Agreement for an additional one-year period.
Semiannual report | Strategic Growth Fund | 33 |
More information
Trustees | Investment advisor |
James M. Oates, Chairman | John Hancock Investment Management |
Steven R. Pruchansky, Vice Chairman | Services, LLC |
Charles L. Bardelis* | |
James R. Boyle† | Subadvisor |
Craig Bromley† | John Hancock Asset Management a division of |
Peter S. Burgess* | Manulife Asset Management (US) LLC |
William H. Cunningham | |
Grace K. Fey | Principal distributor |
Theron S. Hoffman* | John Hancock Funds, LLC |
Deborah C. Jackson | |
Hassell H. McClellan | Custodian |
Gregory A. Russo | State Street Bank and Trust Company |
Warren A. Thomson† | |
Transfer agent | |
Officers | John Hancock Signature Services, Inc. |
Hugh McHaffie | |
President | Legal counsel |
K&L Gates LLP | |
Andrew G. Arnott | |
Executive Vice President | |
Thomas M. Kinzler | |
Secretary and Chief Legal Officer | |
Francis V. Knox, Jr. | |
Chief Compliance Officer | |
Charles A. Rizzo | |
Chief Financial Officer | |
Salvatore Schiavone | |
Treasurer | |
*Member of the Audit Committee | |
†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) website at sec.gov or on our website.
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 website and the SEC’s website, sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 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 website at jhinvestments.com or by calling 800-225-5291.
You can also contact us: | ||
800-225-5291 | Regular mail: | Express mail: |
jhinvestments.com | Investment Operations | Investment Operations |
John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. | |
P.O. Box 55913 | 30 Dan Road | |
Boston, MA 02205-5913 | Canton, MA 02021 |
34 | Strategic Growth Fund | Semiannual report |
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800-225-5291
800-338-8080 EASI-Line
jhinvestments.com
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This report is for the information of the shareholders of John Hancock Strategic Growth Fund. | |
It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 393SA 9/13 |
MF160002 | 11/13 |
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The registrant has adopted procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees. A copy of the procedures is filed as an exhibit to this Form N-CSR. See attached “John Hancock Funds – Nominating and Governance Committee Charter”.
ITEM 11. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in this Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Such disclosure and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to the registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Within 90 days prior to the filing date of this Form N-CSR, the registrant had carried out an evaluation, under the supervision and with the participation of the registrant’s management, including the registrant’s principal executive officer and the registrant’s principal financial officer, of the effectiveness of the design and operation of the registrant’s disclosure controls and
procedures relating to information required to be disclosed on Form N-CSR. Based on such evaluation, the registrant’s principal executive officer and principal financial officer concluded that the registrant’s disclosure controls and procedures are operating effectively to ensure that:
(i) information required to be disclosed in this Form N-CSR is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission, and
(ii) information is accumulated and communicated to the registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) CHANGE IN REGISTRANT’S INTERNAL CONTROL: Not applicable.
ITEM 12. EXHIBITS.
(a)(1)(i) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER.
(a)(1)(ii) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER.
(b) CERTIFICATION PURSUANT TO Rule 30a-2(b) OF THE INVESTMENT COMPANY ACT OF 1940.
(c)(1) Submission of Matters to a Vote of Security Holders is attached. See attached “John Hancock Funds – Nominating and Governance Committee Charter”.
(c)(2) Contact person at the registrant.
SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Funds III | |
By: | /s/ Hugh McHaffie |
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Hugh McHaffie | |
President | |
Date: | November 25, 2013 |
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/ Hugh McHaffie |
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Hugh McHaffie | |
President | |
Date: | November 25, 2013 |
By: | /s/ Charles A. Rizzo |
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Charles A. Rizzo | |
Chief Financial Officer | |
Date: | November 25, 2013 |