| 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 811-21779 | |
| JOHN HANCOCK FUNDS II | |
| --------------------------------------------------------- | |
| (Exact name of registrant as specified in charter) | |
| 601 CONGRESS STREET, BOSTON, MA 02210-2805 | |
| ------------------------------------------------------------- | |
| (Address of principal executive offices) (Zip code) | |
| MICHAEL J. LEARY, 601 CONGRESS STREET, BOSTON, MA 02210-2805 | |
| ------------------------------------------------------------------------------------------ | |
| (Name and address of agent for service) | |
| Registrant's telephone number, including area code: | (617) 663-4490 |
| ------------------- | |
| Date of fiscal year end: 7/31 | |
| Date of reporting period: 1/31/12 | |
ITEM 1. REPORTS TO STOCKHOLDERS.
The Registrant prepared ten semiannual reports to shareholders for the period ended January 31, 2012. The first report applies to the Technical Opportunities Fund, the second report applies to the Global High Yield Fund, the third report applies to the Multi Sector Bond Fund, the fourth report applies to the Currency Strategies Fund, the fifth report applies to the Fundamental All Cap Core Fund, the sixth report applies to the Fundamental Large Cap Core Fund, the seventh report applies to the Fundamental Large Cap Value Fund, the eighth report applies to the Diversified Strategies Fund, the ninth report applies to the China Emerging Leaders Fund and the tenth report applies to the Global Absolute Return Strategies Fund.
A look at performance
Total returns for the period ended January 31, 2012
| 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 A | –18.93 | — | — | –3.37 | –19.00 | –18.93 | — | — | –8.23 | |
| Class I2 | –14.38 | — | — | –1.00 | –14.60 | –14.38 | — | — | –2.48 | |
| Class NAV2 | –14.26 | — | — | –0.87 | –14.56 | –14.26 | — | — | –2.17 | |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charges on Class A shares of 5.00%.
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. For all classes the net expenses equal the gross expenses. The expense ratios are as follows:
| Class A | Class I | Class NAV | |||
| Net/Gross (%) | 1.91 | 1.55 | 1.38 |
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For current to the most recent month-end performance data, please call 1–800–225–5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on 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.
| 6 | Technical Opportunities Fund | Semiannual report |
| Without | With maximum | |||
| Start date | sales charge | sales charge | Index | |
| Class I2 | 8-3-09 | $9,752 | $9,752 | $12,670 |
| Class NAV2 | 8-3-09 | 9,783 | 9,783 | 12,670 |
MSCI All Country World Index (gross of foreign withholding tax on dividends) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
It is not possible to invest directly in an index. Index figures do not reflect expenses, which would have resulted in lower values if they did.
1 From 8-3-09.
2 For certain types of investors, as described in the Fund’s Class I and Class NAV shares prospectuses.
| Semiannual report | Technical Opportunities Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
▪ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
▪ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about 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 August 1, 2011 with the same investment held until January 31, 2012.
| Account value | Ending value on | Expenses paid during | |
| on 8-1-11 | 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $852.90 | $8.99 |
| Class I | 1,000.00 | 854.00 | 7.04 |
| Class NAV | 1,000.00 | 854.40 | 6.43 |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at January 31, 2012, 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 | Technical Opportunities 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 August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value on | Expenses paid during | |
| on 8-1-11 | 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,015.40 | $9.78 |
| Class I | 1,000.00 | 1,017.50 | 7.66 |
| Class NAV | 1,000.00 | 1,018.20 | 7.00 |
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 1.93%, 1.51% and 1.38% for Class A, Class I and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
| Semiannual report | Technical Opportunities Fund | 9 |
Portfolio summary
| Top 10 Holdings (17.1% of Net Assets on 1-31-12)1,2 | ||||
| Apple, Inc. | 2.6% | Pall Corp. | 1.6% | |
| Monsanto Company | 1.8% | Hexcel Corp. | 1.6% | |
| Oceaneering International, Inc. | 1.8% | Polaris Industries, Inc. | 1.5% | |
| Biogen Idec, Inc. | 1.7% | TransDigm Group, Inc. | 1.5% | |
| NewMarket Corp. | 1.6% | Amazon.com, Inc. | 1.4% | |
| Sector Composition1,3 | ||||
| Consumer Discretionary | 26.6% | Materials | 8.2% | |
| Industrials | 16.2% | Financials | 3.6% | |
| Information Technology | 13.0% | Consumer Staples | 2.9% | |
| Health Care | 8.8% | Utilities | 0.4% | |
| Energy | 8.7% | Short-Term Investments & Other | 11.6% | |
| Country Composition1,3 | ||||
| United States | 72.9% | Japan | 1.1% | |
| Brazil | 3.0% | Australia | 1.0% | |
| Canada | 2.2% | Hong Kong | 1.0% | |
| China | 2.0% | Other Countries | 2.1% | |
| Ireland | 1.6% | Short-Term Investments & Other | 11.6% | |
| United Kingdom | 1.5% | |||
1 As a percentage of net assets on 1-31-12.
2 Cash and cash equivalents not included.
3 International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. These risks are more significant in emerging markets. Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| 10 | Technical Opportunities Fund | Semiannual report |
Fund’s investments
As of 1-31-12 (unaudited)
| Shares | Value | |
| Common Stocks 87.39% | $466,280,138 | |
| (Cost $443,607,778) | ||
| Consumer Discretionary 26.62% | 142,013,737 | |
| Automobiles 1.43% | ||
| Brilliance China Automotive Holdings, Ltd. (I) | 2,274,000 | 2,433,424 |
| Ford Motor Company | 252,300 | 3,133,566 |
| Great Wall Motor Company, Ltd., H Shares (L) | 1,214,500 | 2,078,465 |
| Distributors 1.55% | ||
| LKQ Corp. (I) | 166,400 | 5,424,640 |
| Pool Corp. | 83,100 | 2,827,893 |
| Hotels, Restaurants & Leisure 4.31% | ||
| Caribou Coffee Company, Inc. (I)(L) | 66,993 | 1,136,201 |
| Chipotle Mexican Grill, Inc. (I)(L) | 18,300 | 6,721,407 |
| Las Vegas Sands Corp. (I) | 81,400 | 3,997,554 |
| Sands China, Ltd. (I) | 1,173,200 | 3,960,396 |
| Six Flags Entertainment Corp. | 41,500 | 1,818,945 |
| Starbucks Corp. | 112,200 | 5,377,746 |
| Household Durables 0.60% | ||
| iRobot Corp. (I) | 97,000 | 3,204,880 |
| Internet & Catalog Retail 2.72% | ||
| Amazon.com, Inc. (I) | 39,000 | 7,583,160 |
| Expedia, Inc. (L) | 213,400 | 6,907,758 |
| Leisure Equipment & Products 1.50% | ||
| Polaris Industries, Inc. | 124,300 | 8,004,920 |
| Media 2.17% | ||
| News Corp., Class A | 285,100 | 5,368,433 |
| Sirius XM Radio, Inc. (I)(L) | 2,956,100 | 6,178,249 |
| Specialty Retail 5.03% | ||
| Chow Tai Fook Jewellery Group Ltd. (I) | 1,397,200 | 2,637,552 |
| Fast Retailing Company, Ltd. | 29,100 | 5,784,193 |
| Genesco, Inc. (I)(L) | 30,300 | 1,850,421 |
| PetSmart, Inc. | 74,000 | 3,938,280 |
| Rent-A-Center, Inc. | 99,600 | 3,368,472 |
| Select Comfort Corp. (I) | 157,400 | 3,947,592 |
| Tractor Supply Company | 65,900 | 5,322,743 |
| See notes to financial statements | Semiannual report | Technical Opportunities Fund | 11 |
| Shares | Value | |
| Textiles, Apparel & Luxury Goods 7.31% | ||
| Cia Hering | 88,800 | $2,134,615 |
| Liz Claiborne, Inc. (I) | 309,800 | 2,881,140 |
| Lululemon Athletica, Inc. (I) | 85,700 | 5,410,241 |
| Oxford Industries, Inc. (L) | 70,700 | 3,600,751 |
| PVH Corp. | 85,600 | 6,607,464 |
| Ralph Lauren Corp. | 44,500 | 6,764,000 |
| Steven Madden, Ltd. (I) | 101,800 | 4,188,052 |
| Under Armour, Inc., Class A (I) | 93,200 | 7,420,584 |
| Consumer Staples 1.91% | 10,190,741 | |
| Food & Staples Retailing 1.17% | ||
| Rite Aid Corp. (I) | 1,739,100 | 2,417,349 |
| Whole Foods Market, Inc. | 51,700 | 3,827,351 |
| Food Products 0.30% | ||
| Cal-Maine Foods, Inc. | 42,200 | 1,601,912 |
| Personal Products 0.44% | ||
| Elizabeth Arden, Inc. (I) | 65,169 | 2,344,129 |
| Energy 8.69% | 46,367,916 | |
| Energy Equipment & Services 3.45% | ||
| Cameron International Corp. (I) | 122,800 | 6,532,960 |
| Hornbeck Offshore Services, Inc. (I) | 77,280 | 2,526,283 |
| Oceaneering International, Inc. | 192,900 | 9,373,011 |
| Oil, Gas & Consumable Fuels 5.24% | ||
| Alpha Natural Resources, Inc. (I) | 123,300 | 2,480,796 |
| Anadarko Petroleum Corp. | 67,100 | 5,416,312 |
| Cabot Oil & Gas Corp. (L) | 164,400 | 5,244,360 |
| Concho Resources, Inc. (I) | 63,700 | 6,794,242 |
| Gulfport Energy Corp. (I) | 136,800 | 4,496,616 |
| World Fuel Services Corp. | 77,200 | 3,503,336 |
| Financials 3.55% | 18,927,179 | |
| Consumer Finance 0.63% | ||
| Discover Financial Services | 124,000 | 3,370,320 |
| Real Estate Investment Trusts 1.93% | ||
| American Tower Corp. | 55,400 | 3,518,454 |
| Digital Realty Trust, Inc. (L) | 39,823 | 2,821,858 |
| Taubman Centers, Inc. | 58,900 | 3,948,067 |
| Real Estate Management & Development 0.99% | ||
| BR Malls Participacoes SA | 482,700 | 5,268,480 |
| Health Care 8.84% | 47,178,853 | |
| Biotechnology 3.58% | ||
| Biogen Idec, Inc. (I) | 77,500 | 9,138,800 |
| Cubist Pharmaceuticals, Inc. (I) | 139,800 | 5,706,636 |
| Onyx Pharmaceuticals, Inc. (I) | 104,000 | 4,257,760 |
| 12 | Technical Opportunities Fund | Semiannual report | See notes to financial statements |
| Shares | Value | |
| Health Care Equipment & Supplies 1.56% | ||
| Cantel Medical Corp. | 14,000 | $441,980 |
| Endologix, Inc. (I)(L) | 171,300 | 2,223,474 |
| Intuitive Surgical, Inc. (I) | 12,300 | 5,656,893 |
| Pharmaceuticals 3.70% | ||
| Bristol-Myers Squibb Company | 89,800 | 2,895,152 |
| Elan Corp. PLC, ADR (I) | 389,900 | 5,306,539 |
| Eli Lilly & Company | 75,400 | 2,996,396 |
| Jazz Pharmaceuticals PLC (I) | 69,500 | 3,231,750 |
| Viropharma, Inc. (I)(L) | 178,700 | 5,323,473 |
| Industrials 16.15% | 86,186,731 | |
| Aerospace & Defense 5.84% | ||
| BE Aerospace, Inc. (I) | 96,800 | 4,084,960 |
| Cubic Corp. | 93,603 | 4,328,203 |
| Hexcel Corp. (I) | 333,900 | 8,370,873 |
| TransDigm Group, Inc. (I) | 76,520 | 7,998,636 |
| Triumph Group, Inc. (L) | 101,600 | 6,357,112 |
| Building Products 0.37% | ||
| Simpson Manufacturing Company, Inc. | 61,500 | 1,991,370 |
| Commercial Services & Supplies 1.67% | ||
| Aggreko PLC | 80,831 | 2,674,421 |
| Clean Harbors, Inc. (I)(L) | 98,400 | 6,243,480 |
| Machinery 5.37% | ||
| Barnes Group, Inc. | 184,000 | 4,653,360 |
| Chart Industries, Inc. (I)(L) | 85,602 | 4,773,168 |
| Lincoln Electric Holdings, Inc. | 56,900 | 2,443,855 |
| Pall Corp. | 140,500 | 8,385,040 |
| RBC Bearings, Inc. (I) | 38,600 | 1,747,808 |
| Wabtec Corp. | 66,000 | 4,540,140 |
| Woodward, Inc. | 50,300 | 2,111,594 |
| Professional Services 1.52% | ||
| Intertek Group PLC | 79,706 | 2,657,787 |
| On Assignment, Inc. (I) | 139,100 | 1,559,311 |
| Verisk Analytics, Inc., Class A (I) | 96,700 | 3,874,769 |
| Road & Rail 0.26% | ||
| QR National, Ltd. | 358,809 | 1,411,736 |
| Trading Companies & Distributors 1.12% | ||
| GATX Corp. | 48,600 | 2,086,884 |
| MSC Industrial Direct Company, Inc., Class A | 51,200 | 3,892,224 |
| Information Technology 13.05% | 69,613,158 | |
| Communications Equipment 1.02% | ||
| Cisco Systems, Inc. | 276,500 | 5,427,695 |
| Computers & Peripherals 4.04% | ||
| Apple, Inc. (I) | 30,900 | 14,105,232 |
| Imagination Technologies Group PLC (I) | 298,288 | 2,724,387 |
| SanDisk Corp. (I) | 103,000 | 4,725,640 |
| See notes to financial statements | Semiannual report | Technical Opportunities Fund | 13 |
| Shares | Value | ||
| Electronic Equipment, Instruments & Components 0.99% | |||
| FEI Company (I)(L) | 120,100 | $5,291,606 | |
| Internet Software & Services 2.93% | |||
| Equinix, Inc. (I) | 300 | 35,988 | |
| MercadoLibre, Inc. | 45,200 | 3,950,480 | |
| Netease.com, Inc., ADR (I) | 55,000 | 2,630,650 | |
| SINA Corp. (I) | 82,900 | 5,825,383 | |
| Zillow, Inc. (I) | 109,100 | 3,217,359 | |
| IT Services 1.46% | |||
| Cardtronics, Inc. (I) | 196,800 | 5,028,240 | |
| Cielo SA | 92,400 | 2,752,644 | |
| Semiconductors & Semiconductor Equipment 0.69% | |||
| Marvell Technology Group, Ltd. (I) | 236,000 | 3,665,080 | |
| Software 1.92% | |||
| Aspen Technology, Inc. (I) | 136,400 | 2,456,564 | |
| Intuit, Inc. | 48,100 | 2,714,764 | |
| Nuance Communications, Inc. (I) | 82,300 | 2,347,196 | |
| Sourcefire, Inc. (I)(L) | 87,500 | 2,714,250 | |
| Materials 8.18% | 43,663,223 | ||
| Chemicals 4.89% | |||
| Innophos Holdings, Inc. | 58,700 | 2,930,304 | |
| Monsanto Company | 114,900 | 9,427,545 | |
| NewMarket Corp. (L) | 39,200 | 8,474,648 | |
| Stepan Company | 31,400 | 2,698,516 | |
| Westlake Chemical Corp. | 44,100 | 2,577,645 | |
| Metals & Mining 2.01% | |||
| Iluka Resources, Ltd. | 214,959 | 4,170,135 | |
| Yamana Gold, Inc. | 380,300 | 6,567,781 | |
| Paper & Forest Products 1.28% | |||
| Buckeye Technologies, Inc. | 203,300 | 6,816,649 | |
| Utilities 0.40% | 2,138,600 | ||
| Multi-Utilities 0.40% | |||
| Wisconsin Energy Corp. | 62,900 | 2,138,600 | |
| Preferred Securities 0.98% | $5,243,799 | ||
| (Cost $5,101,544) | |||
| Consumer Staples 0.98% | 5,243,799 | ||
| Companhia de Bebidas das Americas, ADR | 144,100 | 5,243,799 | |
| Yield | Shares | Value | |
| Securities Lending Collateral 7.09% | $37,843,203 | ||
| (Cost $37,831,565) | |||
| John Hancock Collateral Investment Trust (W) | 0.389% (Y) | 3,780,842 | 37,843,203 |
| 14 | Technical Opportunities Fund | Semiannual report | See notes to financial statements |
| Par value | Value | |
| Short-Term Investments 14.96% | $79,800,000 | |
| (Cost $79,800,000) | ||
| Repurchase Agreement 14.96% | 79,800,000 | |
| Bank of America Tri-Party Repurchase Agreement dated 1-31-12 at | ||
| 0.2200% to be repurchased at $24,600,150 on 2-1-12, collateralized | ||
| by $19,050,904 Federal Loan Mortgage Corp., due 6-15-12 | ||
| (valued at $19,050,904 including interest) and $6,041,973 | ||
| Federal Home Loan Mortgage Corp., due 7-2-12 (valued at | ||
| $6,041,973 including interest) | $24,600,000 | 24,600,000 |
| BNP Paribas Tri-Party Repurchase Agreement dated 1-31-12 at | ||
| 0.240% to be repurchased at $33,400,223 on 2-1-12, collateralized | ||
| by $13,991,153, Federal National Mortgage Association, 3.500% | ||
| due 7-1-26 (valued at $14,029,611, including interest) and $19,982,864 | ||
| Federal National Mortgage Association, 3.500% due 1-1-32 (valued at | ||
| $20,038,389, including interest) | 33,400,000 | 33,400,000 |
| JPMorgan Tri-Party Repurchase Agreement dated 1-31-12 at 0.230% | ||
| to be repurchased at $21,800,139 on 2-1-12, collateralized | ||
| by $22,150,222, Federal Home Loan Mortgage, 3.042% to 5.761% | ||
| due 11-1-36 to 2-1-41 (valued at $22,237,533 including interest) | 21,800,000 | 21,800,000 |
| Total investments (Cost $566,340,887)† 110.42% | $589,167,140 | |
| Other assets and liabilities, net (10.42%) | ($55,609,679) | |
| Total net assets 100.00% | $533,557,461 | |
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) All or a portion of this security is on loan as of 1-31-12.
(W) Investment is an affiliate of the Fund, the adviser and/or subadviser. Also, it represents the investment of securities lending collateral received.
(Y) The rate shown is the annualized seven-day yield as of 1-31-12.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $569,997,418. Net unrealized appreciation aggregated $19,169,722, of which $26,735,436 related to appreciated investment securities and $7,565,714 related to depreciated investment securities.
The Fund had the following country concentration as a percentage of net assets on 1-31-12:
| United States | 72.9% | ||
| Brazil | 3.0% | ||
| Canada | 2.2% | ||
| China | 2.0% | ||
| Ireland | 1.6% | ||
| United Kingdom | 1.5% | ||
| Japan | 1.1% | ||
| Australia | 1.0% | ||
| Hong Kong | 1.0% | ||
| Other Countries | 2.1% | ||
| Short-Term Investments & Other | 11.6% |
| See notes to financial statements | Semiannual report | Technical Opportunities 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 1-31-12 (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 $448,709,322) including | |
| $36,548,040 of securities loaned (Note 2) | $471,523,937 |
| Investments in affiliated issuers, at value (Cost $37,831,565) (Note 2) | 37,843,203 |
| Repurchase agreements, at value (Cost $79,800,000) (Note 2) | 79,800,000 |
| Total investments, at value (Cost $566,340,887) | 589,167,140 |
| Cash | 85,844 |
| Receivable for investments sold | 3,499,548 |
| Receivable for fund shares sold | 156,321 |
| Dividends and interest receivable | 151,083 |
| Receivable for securities lending income | 17,191 |
| Other receivables and prepaid expenses | 24,209 |
| Total assets | 593,101,336 |
| Liabilities | |
| Payable for investments purchased | 20,779,900 |
| Payable for fund shares repurchased | 756,079 |
| Payable upon return of securities loaned (Note 2) | 37,885,850 |
| Payable to affiliates | |
| Accounting and legal services fees | 2,732 |
| Transfer agent fees | 17,898 |
| Trustees’ fees | 810 |
| Other liabilities and accrued expenses | 100,606 |
| Total liabilities | 59,543,875 |
| Net assets | |
| Paid-in capital | $590,266,935 |
| Accumulated net investment loss | (2,108,779) |
| Accumulated net realized loss on investments and foreign | |
| currency transactions | (77,420,942) |
| Net unrealized appreciation (depreciation) on investments and translation | |
| of assets and liabilities in foreign currencies | 22,820,247 |
| Net assets | $533,557,461 |
| 16 | Technical Opportunities Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
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 ($71,333,638 ÷ 7,722,333 shares) | $9.24 |
| Class I ($27,828,174 ÷ 2,981,278 shares) | $9.33 |
| Class NAV ($434,395,649 ÷ 46,393,083 shares) | $9.36 |
| Maximum offering price per share | |
| Class A (net asset value per share ÷ 95%)1 | $9.73 |
1 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 | Technical Opportunities 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 1-31-12
(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 | $1,972,688 |
| Securities lending | 115,170 |
| Interest | 107,921 |
| Less foreign taxes withheld | (6,847) |
| Total investment income | 2,188,932 |
| Expenses | |
| Investment management fees (Note 4) | 3,827,349 |
| Distribution and service fees (Note 4) | 134,836 |
| Accounting and legal services fees (Note 4) | 40,628 |
| Transfer agent fees (Note 4) | 124,742 |
| Trustees’ fees (Note 4) | 3,525 |
| State registration fees (Note 4) | 21,471 |
| Printing and postage (Note 4) | 6,277 |
| Professional fees | 34,582 |
| Custodian fees | 92,483 |
| Registration and filing fees | 37,880 |
| Other | 8,106 |
| Total expenses | 4,331,879 |
| Less expense reductions (Note 4) | (19,674) |
| Net expenses | 4,312,205 |
| Net investment loss | (2,123,273) |
| Realized and unrealized gain (loss) | |
| Net realized gain (loss) on | |
| Investments in unaffiliated issuers | (73,003,085) |
| Investments in affiliated issuers | (19,652) |
| Capital gain distributions received from affiliated underlying funds | 1,602 |
| Foreign currency transactions | (280,971) |
| (73,302,106) | |
| Change in net unrealized appreciation (depreciation) of | |
| Investments in unaffiliated issuers | (30,633,296) |
| Investments in affiliated issuers | (2,805) |
| Translation of assets and liabilities in foreign currencies | 2,731 |
| (30,633,370) | |
| Net realized and unrealized loss | (103,935,476) |
| Decrease in net assets from operations | ($106,058,749) |
| 18 | Technical Opportunities Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of changes in net assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Six months | ||
| ended | Year | |
| 1-31-12 | ended | |
| (Unaudited) | 7-31-11 | |
| Increase (decrease) in net assets | ||
| From operations | ||
| Net investment loss | ($2,123,273) | ($2,889,268) |
| Net realized gain (loss) | (73,302,106) | 71,675,755 |
| Change in net unrealized appreciation (depreciation) | (30,633,370) | 19,889,467 |
| Increase (decrease) in net assets resulting from operations | (106,058,749) | 88,675,954 |
| Distributions to shareholders | ||
| From net realized gain | ||
| Class A | (3,359,268) | — |
| Class I | (1,477,257) | — |
| Class NAV | (18,131,169) | — |
| Total distributions | (22,967,694) | — |
| From Fund share transactions (Note 5) | (60,061,504) | 41,487,315 |
| Total increase (decrease) | (189,087,947) | 130,163,269 |
| Net assets | ||
| Beginning of period | 722,645,408 | 592,482,139 |
| End of period | $533,557,461 | $722,645,408 |
| Undistributed net investment income (accumulated net | ||
| investment loss) | ($2,108,779) | $14,494 |
| See notes to financial statements | Semiannual report | Technical Opportunities Fund | 19 |
Financial highlights
The Financial highlights show how the Fund’s net asset value for a share has changed since the beginning of the period.
| CLASS A SHARES Period ended | 1-31-122 | 7-31-11 | 7-31-101 | |||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $11.33 | $9.86 | $10.00 | |||
| Net investment loss3 | (0.06) | (0.09) | (0.13) | |||
| Net realized and unrealized gain (loss) on investments | (1.62) | 1.56 | (0.01) | |||
| Total from investment operations | (1.68) | 1.47 | (0.14) | |||
| Less distributions | ||||||
| From net realized gain | (0.41) | — | — | |||
| Net asset value, end of period | $9.24 | $11.33 | $9.86 | |||
| Total return (%)4,5 | (14.71)6 | 14.91 | (1.40)6 | |||
| Ratios and supplemental data | ||||||
| Net assets, end of period (in millions) | $71 | $125 | $165 | |||
| Ratios (as a percentage of average net assets): | ||||||
| Expenses before reductions | 1.937 | 1.90 | 1.877 | |||
| Expenses net of fee waivers | 1.937 | 1.90 | 1.877 | |||
| Net investment loss | (1.18)7 | (0.79) | (1.23)7 | |||
| Portfolio turnover (%) | 316 | 361 | 389 | |||
1 Period from 8-3-09 (commencement of operations) to 7-31-10.
2 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Does not reflect the effect of sales charges, if any.
6 Not annualized.
7 Annualized.
| CLASS I SHARES Period ended | 1-31-122 | 7-31-11 | 7-31-101 | |||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $11.42 | $9.89 | $10.00 | |||
| Net investment loss3 | (0.04) | (0.04) | (0.09) | |||
| Net realized and unrealized gain (loss) on investments | (1.64) | 1.57 | (0.02) | |||
| Total from investment operations | (1.68) | 1.53 | (0.11) | |||
| Less distributions | ||||||
| From net realized gain | (0.41) | — | — | |||
| Net asset value, end of period | $9.33 | $11.42 | $9.89 | |||
| Total return (%)4 | (14.60)5 | 15.47 | (1.10)5 | |||
| Ratios and supplemental data | ||||||
| Net assets, end of period (in millions) | $28 | $63 | $79 | |||
| Ratios (as a percentage of average net assets): | ||||||
| Expenses before reductions | 1.566 | 1.49 | 1.526 | |||
| Expenses net of fee waivers | 1.516 | 1.49 | 1.526 | |||
| Net investment loss | (0.76)6 | (0.37) | (0.89)6 | |||
| Portfolio turnover (%) | 316 | 361 | 389 | |||
1 Period from 8-3-09 (commencement of operations) to 7-31-10.
2 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
| 20 | Technical Opportunities Fund | Semiannual report | See notes to financial statements |
| CLASS NAV SHARES Period ended | 1-31-122 | 7-31-11 | 7-31-101 | |||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $11.45 | $9.90 | $10.00 | |||
| Net investment loss3 | (0.03) | (0.03) | (0.07) | |||
| Net realized and unrealized gain (loss) on investments | (1.65) | 1.58 | (0.03) | |||
| Total from investment operations | (1.68) | 1.55 | (0.10) | |||
| Less distributions | ||||||
| From net realized gain | (0.41) | — | — | |||
| Net asset value, end of period | $9.36 | $11.45 | $9.90 | |||
| Total return (%)4 | (14.56)5 | 15.66 | (1.00)5 | |||
| Ratios and supplemental data | ||||||
| Net assets, end of period (in millions) | $434 | $535 | $349 | |||
| Ratios (as a percentage of average net assets): | ||||||
| Expenses before reductions | 1.396 | 1.37 | 1.396 | |||
| Expenses net of fee waivers | 1.386 | 1.37 | 1.396 | |||
| Net investment loss | (0.63)6 | (0.31) | (0.72)6 | |||
| Portfolio turnover (%) | 316 | 361 | 389 | |||
1 Period from 8-3-09 (commencement of operations) to 7-31-10.
2 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
| See notes to financial statements | Semiannual report | Technical Opportunities Fund | 21 |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Technical Opportunities Fund (the Fund) is a series of John Hancock Funds II (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 sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, transfer agent, 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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.
| 22 | Technical Opportunities Fund | Semiannual report |
The following is a summary of the values by input classification of the Fund’s investments as of January 31, 2012, by major security category or type:
| LEVEL 3 | ||||
| LEVEL 2 | SIGNIFICANT | |||
| TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE | |
| VALUE AT 1-31-12 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS | |
| Common Stocks | ||||
| Consumer Discretionary | $142,013,737 | $125,119,707 | $16,894,030 | — |
| Consumer Staples | 10,190,741 | 10,190,741 | — | — |
| Energy | 46,367,916 | 46,367,916 | — | — |
| Financials | 18,927,179 | 18,927,179 | — | — |
| Health Care | 47,178,853 | 47,178,853 | — | — |
| Industrials | 86,186,731 | 79,442,787 | 6,743,944 | — |
| Information Technology | 69,613,158 | 66,888,771 | 2,724,387 | — |
| Materials | 43,663,223 | 39,493,088 | 4,170,135 | — |
| Utilities | 2,138,600 | 2,138,600 | — | — |
| Preferred Securities | ||||
| Consumer Staples | 5,243,799 | 5,243,799 | — | — |
| Securities Lending | ||||
| Collateral | 37,843,203 | 37,843,203 | — | — |
| Short-Term Investments | ||||
| Repurchase Agreement | 79,800,000 | — | 79,800,000 | — |
| Total Investments in | ||||
| Securities | $589,167,140 | $478,834,644 | $110,332,496 | — |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the six months ended January 31, 2012, there were no significant transfers into or out of Level 1, Level 2 or Level 3.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Investments by the Funds 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. Certain short-term securities are valued at amortized cost.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the NYSE. Significant market events that affect the values of non-U.S. securities may occur 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 non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Repurchase agreements. The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement, it receives collateral which 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
| Semiannual report | Technical Opportunities Fund | 23 |
ensure that the collateral held is in an amount not less than the principal amount of the repurchase agreement plus any accrued interest. 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. 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.
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 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. It 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 and as a result, the Fund will receive the benefit of any gains and bear any losses generated by JHCIT. Although risk of the loss of the securities lent is mitigated by holding the collateral, the Fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities or if collateral investments decline in value. The Fund may receive compensation for lending its securities by retaining a portion of the return on the investment of the collateral and compensation from fees earned from borrowers of the securities. Net income received from JHCIT is a component of securities lending income as recorded on the Statement of operations.
Foreign currency translation. Assets, including investments and liabilities denominated in foreign currencies, are translated into U.S. dollar values each day at the prevailing exchange rate. Purchases and sales of securities, income and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on 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. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Foreign taxes. The Fund may be subject to capital gains and repatriation taxes as imposed by certain countries in which it invests. Such taxes are generally based upon income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to 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. which enables them to participate in a $200 million unsecured committed line of credit. A commitment fee, payable at the end of each calendar quarter, based on the average daily unused
| 24 | Technical Opportunities Fund | Semiannual report |
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. For the six months ended January 31, 2012, the Fund had no borrowings under the line of credit.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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, 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 July 31, 2011, 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, at least annually.
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, wash sales and net operating losses.
New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
Note 3 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain
| Semiannual report | Technical Opportunities Fund | 25 |
general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 4 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: a) 1.35% of the first $250,000,000 of the Fund’s average daily net assets; b) 1.30% of the next $250,000,000; c) 1.20% of the next $250,000,000; and d) 1.15% of the Fund’s average daily net assets in excess of $750,000,000. Prior to September 27, 2011, the Fund paid this fee monthly, equivalent, on an annual basis, to the sum of: a) 1.35% of the first $250,000,000 of the Fund’s average daily net assets; b) 1.30% of the next $250,000,000; and c) 1.25% of the Fund’s average daily net assets in excess of $500,000,000. The Adviser has a subadvisory agreement with Wellington Management Company, LLP. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended January 31, 2012 were equivalent to a gross annual rate of 1.31% of the Fund’s average daily net assets.
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Fund) of the Trust 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 Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the reimbursement is calculated daily and allocated among all the Participating Funds in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Adviser upon notice to the funds and with the approval of the Board of Trustees.
The Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund excluding certain expenses such as taxes, portfolio brokerage commissions, interest expense, litigation and indemnification and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.95% and 1.59% for Class A and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until November 30, 2012 unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at the time. Prior to November 30, 2011, the fee waiver and/or reimbursement was such that the expenses would not exceed 1.95% and 1.49% for Class A and Class I shares, respectively.
Additionally, the Adviser has voluntarily agreed to waive other fund level expenses excluding advisory fees, 12b-1 fees, service fees, transfer agent fees, printing and postage, blue sky fees, taxes, brokerage commissions, interest expenses, acquired fund fees, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of business. This voluntary expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund. The waivers are such that these expenses will not exceed 0.20% of average net assets.
| 26 | Technical Opportunities Fund | Semiannual report |
Accordingly, these expense reductions described above amounted to $1,449, $10,903 and $7,322 for Class A, Class I and Class NAV shares, respectively, for the six months ended January 31, 2012.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the six months ended January 31, 2012 were equivalent to the net annual effective rate of 1.30% of the Fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement the Fund reimburses the Adviser 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 January 31, 2012, amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A 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 0.30% for Class A shares for distribution and service fees, 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 $22,256 for the six months ended January 31, 2012. Of this amount, $3,625 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $18,442 was paid as sales commissions to broker-dealers and $189 was paid as sales commissions to sales personnel of Signator Investors, Inc., a broker-dealer affiliate of the Adviser.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Adviser. 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 January 31, 2012 were:
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
| CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
| A | $134,836 | $100,154 | $10,825 | $2,510 |
| I | — | 24,588 | 10,646 | 3,767 |
| Total | $134,836 | $124,742 | $21,471 | $6,277 |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to each Fund based on its average daily net assets.
| Semiannual report | Technical Opportunities Fund | 27 |
Note 5 — Fund share transactions
Transactions in Fund shares for the six months ended January 31, 2012 and for the year ended July 31, 2011 were as follows:
| Six months ended 1-31-12 | Year ended 7-31-11 | |||
| Shares | Amount | Shares | Amount | |
| Class A shares | ||||
| Sold | 398,168 | $3,903,616 | 3,507,440 | $38,725,185 |
| Distributions reinvested | 360,725 | 3,253,738 | — | — |
| Repurchased | (4,068,108) | (39,462,409) | (9,187,216) | (101,786,213) |
| Net decrease | (3,309,215) | ($32,305,055) | (5,679,776) | ($63,061,028) |
| Class I shares | ||||
| Sold | 368,450 | $3,664,138 | 2,858,405 | $31,984,512 |
| Distributions reinvested | 111,925 | 1,020,757 | — | — |
| Repurchased | (2,984,294) | (29,059,697) | (5,382,102) | (59,745,319) |
| Net decrease | (2,503,919) | ($24,374,802) | (2,523,697) | ($27,760,807) |
| Class NAV shares | ||||
| Sold | 3,177,697 | $32,976,062 | 12,569,529 | $143,742,559 |
| Distributions reinvested | 1,983,717 | 18,131,169 | — | — |
| Repurchased | (5,508,083) | (54,488,878) | (1,015,276) | (11,433,409) |
| Net increase (decrease) | (346,669) | ($3,381,647) | 11,554,253 | $132,309,150 |
| Net increase (decrease) | (6,159,803) | ($60,061,504) | 3,350,780 | $41,487,315 |
Affiliates of the Fund owned 100% of shares of beneficial interest of Class NAV on January 31, 2012.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $1,202,075,988 and $1,298,786,798, respectively, for the six months ended January 31, 2012.
Note 7 — Investment by affiliated funds
Certain investors in the Fund are affiliated funds and are managed by the Adviser 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. For the six months ended January 31, 2012, the following funds had an affiliate ownership concentration of 5% or more of the Fund’s net assets:
| FUND | AFFILIATE CONCENTRATION | ||
| John Hancock Lifestyle Aggressive Portfolio | 13.0% | ||
| John Hancock Lifestyle Balanced Portfolio | 27.6% | ||
| John Hancock Lifestyle Growth Portfolio | 37.3% | ||
| 28 | Technical Opportunities Fund | Semiannual report |
More information
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management |
| James R. Boyle† | Services, LLC |
| Charles L. Bardelis* | |
| Peter S. Burgess* | Subadviser |
| Grace K. Fey | Wellington Management Company, LLP |
| Theron S. Hoffman | |
| Hassell H. McClellan | Principal distributor |
| Steven M. Roberts* | John Hancock Funds, LLC |
| Officers | Custodian |
| Hugh McHaffie | State Street Bank and Trust Company |
| President | |
| Transfer agent | |
| Thomas M. Kinzler | John Hancock Signature Services, Inc. |
| Secretary and Chief Legal Officer | |
| Legal counsel | |
| Francis V. Knox, Jr. | K&L Gates LLP |
| Chief Compliance Officer | |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
| *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) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site at www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| Semiannual report | Technical Opportunities Fund | 29 |
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
| This report is for the information of the shareholders of John Hancock Technical Opportunities Fund. | 347SA 1/12 |
| It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 3/12 |
| John Hancock Global High Yield Fund | |
| Table of Contents | |
| Your expenses | Page 3 |
| Portfolio summary | Page 4 |
| Portfolio of investments | Page 5 |
| Financial statements | Page 21 |
| Financial highlights | Page 24 |
| Notes to financial statements | Page 27 |
| More information | Page 36 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding your fund expenses
As a shareholder of the Fund, you incur two types of costs:
• Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
• Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund’s actual ongoing operating expenses, and is based on your fund’s actual return. It assumes an account value of $1,000.00 on August 1, 2011, with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,005.90 | $6.55 |
| Class I | 1,000.00 | 1,007.30 | 5.10 |
| Class NAV | 1,000.00 | 1,007.80 | 4.59 |
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 January 31, 2012, 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:
Example
[ My account value $8,600.00 / $1,000.00 = 8.6 ] x $[ “expenses paid” from table ] = My actual expenses
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 August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-122 | |
| Class A | $1,000.00 | $1,018.60 | $6.60 |
| Class I | 1,000.00 | 1,020.10 | 5.13 |
| Class NAV | 1,000.00 | 1,020.60 | 4.62 |
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%, 1.01% and 0.91% for Class A, Class I and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
2 Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
| 3 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Portfolio Composition | |
| Value as a | |
| percentage of | |
| Portfolio Summary | Fund's net assets |
| Corporate Bonds | 65.3% |
| Foreign Government Obligations1 | 26.0% |
| Structured Notes | 1.7% |
| Term Loans | 1.2% |
| Convertible Bonds | 1.0% |
| Preferred Securities | 0.1% |
| Capital Preferred Securities | 0.1% |
| Short-Term Investments & Other | 4.6% |
| Value as a | |
| percentage of | |
| Sector Composition2 | Fund's net assets |
| Foreign Government Obligations1 | 26.0% |
| Consumer Discretionary | 14.4% |
| Energy | 13.2% |
| Materials | 7.5% |
| Telecommunication Services | 7.1% |
| Consumer Staples | 5.7% |
| Industrials | 5.5% |
| Health Care | 4.8% |
| Utilities | 3.6% |
| Financials | 3.4% |
| Information Technology | 2.6% |
| Structured Notes | 1.6% |
| Short-Term Investments & Other | 4.6% |
| Value as a | |
| percentage of Fund's | |
| Quality distribution3 | net assets |
| AA | 1.5% |
| A | 7.5% |
| BBB | 16.5% |
| BB | 13.0% |
| B | 41.2% |
| CCC & Below | 11.5% |
| Not Rated | 4.2% |
| Short-Term Investments and Other | 4.6% |
1 Typically, sovereign debt of developing countries may involve a high degree of risk and may be in default or present the risk of default, however, sovereign debt of developed counties may also present these risks.
2 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
3 Ratings are from Moody’s Investors Services, Inc. If not available, we have used S&P ratings. In the absence of ratings from these agencies, we have used Fitch, Inc. ratings. Not Rated securities are those with no ratings available from these agencies. All are as of 1-31-12 and do not reflect subsequent downgrades or upgrades, if any.
| 4 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Corporate Bonds 65.31% | $262,316,585 | |||
| (Cost $262,819,296) | ||||
| American Samoa 0.14% | 551,960 | |||
| QGOG Atlantic/Alaskan Rigs, Ltd. (S) | 5.250 | 07/30/18 | $543,803 | 551,960 |
| Argentina 0.19% | 748,437 | |||
| Capex SA (S) | 10.000 | 03/10/18 | 195,000 | 166,238 |
| Empresa Distribuidora y Comercializadora Norte (S) | 9.750 | 10/25/22 | 264,000 | 219,120 |
| IRSA Inversiones y Representaciones SA (S) | 11.500 | 07/20/20 | 284,000 | 300,326 |
| Tarjeta Naranja SA (S) | 9.000 | 01/28/17 | 64,000 | 62,753 |
| Australia 0.38% | 1,536,518 | |||
| FMG Resources August 2006 Pty, Ltd. (S) | 8.250 | 11/01/19 | 1,255,000 | 1,345,988 |
| Mirabela Nickel, Ltd. (S) | 8.750 | 04/15/18 | 219,000 | 190,530 |
| Barbados 0.07% | 261,326 | |||
| Columbus International, Inc. | 11.500 | 11/20/14 | 247,000 | 261,326 |
| Bermuda 0.27% | 1,075,393 | |||
| Qtel International Finance, Ltd. | 5.000 | 10/19/25 | 200,000 | 201,500 |
| Qtel International Finance, Ltd. (S) | 5.000 | 10/19/25 | 409,000 | 412,068 |
| Qtel International Finance, Ltd. | 4.750 | 02/16/21 | 250,000 | 253,750 |
| Qtel International Finance, Ltd. (S) | 4.750 | 02/16/21 | 205,000 | 208,075 |
| Brazil 0.92% | 3,676,075 | |||
| Banco Cruzeiro do Sul SA | 8.875 | 09/22/20 | 101,000 | 77,770 |
| Banco Cruzeiro do Sul SA (S) | 8.875 | 09/22/20 | 369,000 | 284,130 |
| BM&FBovespa SA | 5.500 | 07/16/20 | 100,000 | 106,000 |
| BM&FBovespa SA (S) | 5.500 | 07/16/20 | 475,000 | 503,500 |
| BR Malls International Finance, Ltd. (S) | 8.500 | 01/29/49 | 137,000 | 140,425 |
| BR Properties SA (S) | 9.000 | 12/31/49 | 153,000 | 156,060 |
| Globo Comunicacao E Participacoes SA | 6.250 | 12/31/49 | 100,000 | 106,500 |
| Hypermarcas SA (S) | 6.500 | 04/20/21 | 434,000 | 405,790 |
| Net Servicos de Comunicacao SA | 7.500 | 01/27/20 | 200,000 | 232,500 |
| OGX Petroleo e Gas Participacoes SA (S) | 8.500 | 06/01/18 | 608,000 | 628,064 |
| Telemar Norte Leste SA (S) | 5.500 | 10/23/20 | 531,000 | 530,336 |
| Votorantim Cimentos SA (S) | 7.250 | 04/05/41 | 500,000 | 505,000 |
| Canada 1.89% | 7,603,113 | |||
| Ainsworth Lumber Company, Ltd., PIK (S) | 11.000 | 07/29/15 | 824,608 | 610,210 |
| Cascades, Inc. | 7.875 | 01/15/20 | 475,000 | 488,063 |
| Cascades, Inc. | 7.750 | 12/15/17 | 700,000 | 722,750 |
| Catalyst Paper Corp. (H)(S) | 11.000 | 12/15/16 | 720,000 | 424,800 |
| Kodiak Oil & Gas Corp. (S) | 8.125 | 12/01/19 | 530,000 | 561,800 |
| MEG Energy Corp. (S) | 6.500 | 03/15/21 | 750,000 | 783,750 |
| Mercer International, Inc. | 9.500 | 12/01/17 | 920,000 | 954,500 |
| NOVA Chemicals Corp. | 8.375 | 11/01/16 | 1,000,000 | 1,110,000 |
| Taseko Mines, Ltd. | 7.750 | 04/15/19 | 1,075,000 | 989,000 |
| Trinidad Drilling, Ltd. (S) | 7.875 | 01/15/19 | 904,000 | 958,240 |
| Cayman Islands 1.37% | 5,514,689 | |||
| DP World Sukuk, Ltd. | 6.250 | 07/02/17 | 290,000 | 299,425 |
| Dubai Holding Commercial Operations MTN, Ltd. (GBP) (D) | 6.000 | 02/01/17 | 350,000 | 430,194 |
| Dubai Holding Commercial Operations MTN, Ltd. (EUR) (D) | 4.750 | 01/30/14 | 50,000 | 57,960 |
| General Shopping Finance, Ltd. (S) | 10.000 | 11/09/15 | 398,000 | 402,194 |
| Grupo Aval Ltd. (S) | 5.250 | 02/01/17 | 200,000 | 202,077 |
See notes to financial statements
| 5 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Cayman Islands (continued) | ||||
| Gruposura Finance (S) | 5.700 | 05/18/21 | $401,000 | $411,025 |
| Hutchison Whampoa International, Ltd. (S) | 4.625 | 01/13/22 | 200,000 | 201,280 |
| IPIC GMTN, Ltd. (S) | 6.875 | 11/01/41 | 200,000 | 206,000 |
| IPIC GMTN, Ltd. (S) | 3.750 | 03/01/17 | 350,000 | 349,125 |
| Odebrecht Drilling Norbe VIII/IX, Ltd. (S) | 6.350 | 06/30/21 | 336,140 | 349,249 |
| Odebrecht Drilling Norbe VIII/IX, Ltd. | 6.350 | 06/30/21 | 196,000 | 203,644 |
| Odebrecht Finance, Ltd. | 7.000 | 04/21/20 | 101,000 | 109,333 |
| Offshore Group Investments, Ltd. | 11.500 | 08/01/15 | 1,103,000 | 1,221,573 |
| Pemex Finance, Ltd. | 9.150 | 11/15/18 | 520,000 | 638,744 |
| Petrobras International Finance Company | 5.375 | 01/27/21 | 64,000 | 67,116 |
| UPCB Finance V, Ltd. (S) | 7.250 | 11/15/21 | 350,000 | 365,750 |
| Chile 0.31% | 1,245,154 | |||
| Cencosud SA (S) | 5.500 | 01/20/21 | 200,000 | 210,932 |
| Corporacion Nacional del Cobre de Chile | 6.150 | 10/24/36 | 569,000 | 714,104 |
| Corporacion Nacional del Cobre de Chile (S) | 6.150 | 10/24/36 | 255,000 | 320,118 |
| China 0.24% | 950,738 | |||
| China Liansu Group Holdings, Ltd. (S) | 7.875 | 05/13/16 | 335,000 | 302,338 |
| Evergrande Real Estate Group, Ltd. | 13.000 | 01/27/15 | 102,000 | 93,840 |
| Kaisa Group Holdings, Ltd. | 13.500 | 04/28/15 | 100,000 | 93,500 |
| MIE Holdings Corp. (S) | 9.750 | 05/12/16 | 318,000 | 292,560 |
| West China Cement, Ltd. (S) | 7.500 | 01/25/16 | 200,000 | 168,500 |
| Cyprus 0.04% | 176,003 | |||
| Mriya Agro Holding PLC (S) | 10.950 | 03/30/16 | 200,000 | 176,003 |
| Dominican Republic 0.03% | 119,572 | |||
| Cap Cana SA (H) | 10.000 | 04/30/16 | 364,220 | 72,844 |
| Cap Cana SA, PIK | 10.000 | 04/30/16 | 311,518 | 46,728 |
| Germany 0.20% | 817,000 | |||
| Deutsche Bank AG/London (S) | 10.576 | 12/22/12 | 250,000 | 250,000 |
| Unitymedia Hessen GmbH & Company KG (S) | 8.125 | 12/01/17 | 525,000 | 567,000 |
| Hong Kong 0.18% | 713,542 | |||
| Central China Real Estate, Ltd. (S) | 12.250 | 10/20/15 | 104,000 | 100,360 |
| Mega Advance Investments, Ltd. (S) | 5.000 | 05/12/21 | 200,000 | 206,826 |
| PCCW-HKT Capital No. 4, Ltd. | 4.250 | 02/24/16 | 400,000 | 406,356 |
| India 0.03% | 140,151 | |||
| ICICI Bank, Ltd. (S) | 5.750 | 11/16/20 | 143,000 | 140,151 |
| Indonesia 0.06% | 224,618 | |||
| Adaro Indonesia PT | 7.625 | 10/22/19 | 201,000 | 224,618 |
| Ireland 1.21% | 4,856,672 | |||
| Alfa Bank OJSC (S) | 7.875 | 09/25/17 | 317,000 | 319,378 |
| Ardagh Packaging Finance PLC (EUR) (D) | 9.250 | 10/15/20 | 300,000 | 382,605 |
| Ardagh Packaging Finance PLC (S) | 9.125 | 10/15/20 | 1,200,000 | 1,224,000 |
| Metalloinvest Finance, Ltd. (S) | 6.500 | 07/21/16 | 574,000 | 547,453 |
| Nara Cable Funding, Ltd. (EUR) (D) | 8.875 | 12/01/18 | 100,000 | 120,668 |
| Nara Cable Funding, Ltd. (S) | 8.875 | 12/01/18 | 1,075,000 | 1,023,540 |
| Novatek Finance, Ltd. (S) | 6.604 | 02/03/21 | 558,000 | 585,203 |
| Ono Finance II PLC (S) | 10.875 | 07/15/19 | 335,000 | 299,825 |
| SCF Capital, Ltd. (S) | 5.375 | 10/27/17 | 400,000 | 354,000 |
See notes to financial statements
| 6 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Jamaica 0.20% | $820,440 | |||
| Digicel Group, Ltd. | 10.500 | 04/15/18 | $372,000 | 391,530 |
| Digicel Group, Ltd. (S) | 9.125 | 01/15/15 | 171,000 | 172,710 |
| Digicel, Ltd. | 8.250 | 09/01/17 | 244,000 | 256,200 |
| Jersey, C.I. 0.02% | 91,598 | |||
| Bank of India (P)(Q) | 6.994 | 03/29/49 | 102,000 | 91,598 |
| Kazakhstan 1.05% | 4,216,843 | |||
| BTA Bank JSC (10.750% to 01/01/2013, then 12.500%) (H) | 10.750 | 07/01/18 | 506,337 | 94,938 |
| BTA Bank JSC (10.750% to 01/01/2013, then 12.500%) | �� | |||
| (H)(S) | 10.750 | 07/01/18 | 534,480 | 100,215 |
| BTA Bank JSC (Recovery Units) (H)(S)(Z) | Zero | 06/30/20 | 860,400 | 43,020 |
| KazMunayGas National Company (S) | 9.125 | 07/02/18 | 131,000 | 158,353 |
| KazMunayGas National Company | 8.375 | 07/02/13 | 1,520,000 | 1,622,904 |
| KazMunayGas National Company | 7.000 | 05/05/20 | 850,000 | 932,960 |
| KazMunayGas National Company (S) | 7.000 | 05/05/20 | 325,000 | 356,720 |
| KazMunayGas National Company (S) | 6.375 | 04/09/21 | 433,000 | 455,733 |
| Zhaikmunai LLP (S) | 10.500 | 10/19/15 | 152,000 | 152,000 |
| Zhaikmunai LLP | 10.500 | 10/19/15 | 300,000 | 300,000 |
| Luxembourg 1.47% | 5,922,591 | |||
| ALROSA Finance SA | 7.750 | 11/03/20 | 200,000 | 206,750 |
| APERAM (S) | 7.750 | 04/01/18 | 550,000 | 470,250 |
| APERAM (S) | 7.375 | 04/01/16 | 350,000 | 306,250 |
| ARD Finance SA, PIK (S) | 11.125 | 06/01/18 | 344,383 | 303,057 |
| Cemex Espana Luxembourg | 9.250 | 05/12/20 | 280,000 | 235,200 |
| Cemex Espana Luxembourg (EUR) (D) | 8.875 | 05/12/17 | 51,000 | 52,701 |
| CHC Helicopter SA (S) | 9.250 | 10/15/20 | 900,000 | 884,250 |
| ConvaTec Healthcare E SA (S) | 10.500 | 12/15/18 | 775,000 | 756,594 |
| Evraz Group SA (S) | 6.750 | 04/27/18 | 279,000 | 262,958 |
| Intelsat Jackson Holdings SA | 11.250 | 06/15/16 | 650,000 | 689,000 |
| Intelsat Jackson Holdings SA | 8.500 | 11/01/19 | 250,000 | 270,625 |
| Vimpel Communications Via VIP Finance Ireland, Ltd. (S) | 7.748 | 02/02/21 | 274,000 | 264,410 |
| Wind Acquisition Holdings Finance SA, PIK (S) | 12.250 | 07/15/17 | 1,564,803 | 1,220,546 |
| Malaysia 1.39% | 5,563,323 | |||
| Petronas Capital, Ltd. | 7.875 | 05/22/22 | 3,729,000 | 5,069,997 |
| Petronas Capital, Ltd. | 5.250 | 08/12/19 | 232,000 | 261,860 |
| Petronas Global Sukuk, Ltd. (S) | 4.250 | 08/12/14 | 220,000 | 231,466 |
| Mexico 0.49% | 1,980,013 | |||
| America Movil SAB de CV | 2.375 | 09/08/16 | 400,000 | 405,267 |
| Axtel SAB de CV | 9.000 | 09/22/19 | 407,000 | 321,530 |
| Axtel SAB de CV (S) | 7.625 | 02/01/17 | 98,000 | 74,480 |
| Bank of New York Mellon SA Institucion de Banca Multiple | ||||
| (S) | 9.625 | 05/02/21 | 645,125 | 570,936 |
| Cemex SAB de CV | 9.000 | 01/11/18 | 170,000 | 147,900 |
| Cemex SAB de CV (S) | 5.579 | 09/30/15 | 296,000 | 245,680 |
| Grupo Bimbo SAB de CV (S) | 4.875 | 06/30/20 | 200,000 | 211,740 |
| Hipotecaria Su Casita SA de CV (S) | 7.500 | 06/29/18 | 8,266 | 2,480 |
| Netherlands 1.62% | 6,501,223 | |||
| BLT Finance BV | 7.500 | 05/15/14 | 102,000 | 27,540 |
| Indosat Palapa Company BV (S) | 7.375 | 07/29/20 | 136,000 | 152,320 |
| LyondellBasell Industries NV (S) | 6.000 | 11/15/21 | 960,000 | 1,044,000 |
| Metinvest BV (S) | 8.750 | 02/14/18 | 410,000 | 356,700 |
See notes to financial statements
| 7 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Netherlands (continued) | ||||
| Myriad International Holding BV | 6.375 | 07/28/17 | $490,000 | $534,100 |
| Myriad International Holding BV (S) | 6.375 | 07/28/17 | 304,000 | 331,360 |
| NXP BV (S) | 9.750 | 08/01/18 | 1,100,000 | 1,229,250 |
| Sensata Technologies BV (S) | 6.500 | 05/15/19 | 450,000 | 459,000 |
| UPC Holding BV (S) | 9.875 | 04/15/18 | 150,000 | 163,125 |
| UPC Holding BV (EUR) (D) | 9.750 | 04/15/18 | 550,000 | 751,802 |
| UPC Holding BV (EUR) (D) | 8.375 | 08/15/20 | 150,000 | 193,264 |
| VimpelCom Holdings BV | 6.255 | 03/01/17 | 380,000 | 368,144 |
| Ziggo Bond Company BV (EUR) (D) | 8.000 | 05/15/18 | 650,000 | 890,618 |
| Panama 0.05% | 197,250 | |||
| Banco de Credito del Peru (S) | 5.375 | 09/16/20 | 200,000 | 197,250 |
| Peru 0.08% | 333,059 | |||
| Inkia Energy, Ltd. (S) | 8.375 | 04/04/21 | 206,000 | 206,000 |
| Volcan Cia Minera SAA (S) | 5.375 | 02/02/22 | 126,000 | 127,059 |
| Singapore 0.09% | 356,343 | |||
| Axis Bank (P) | 7.125 | 06/28/22 | 101,000 | 90,963 |
| Bakrie Telecom Pte, Ltd. | 11.500 | 05/07/15 | 300,000 | 195,000 |
| STATS ChipPAC, Ltd. (S) | 5.375 | 03/31/16 | 69,000 | 70,380 |
| South Korea 0.18% | 732,604 | |||
| Export-Import Bank of Korea | 4.375 | 09/15/21 | 315,000 | 310,876 |
| Korea Gas Corp. (S) | 6.250 | 01/20/42 | 206,000 | 216,433 |
| Korea Hydro & Nuclear Power Co Ltd. | 4.750 | 07/13/21 | 200,000 | 205,295 |
| Spain 0.09% | 372,304 | |||
| Campofrio Food Group SA (EUR) (D) | 8.250 | 10/31/16 | 275,000 | 372,304 |
| Turkey 0.04% | 159,120 | |||
| Yuksel Insaat AS | 9.500 | 11/10/15 | 204,000 | 159,120 |
| Ukraine 0.07% | 284,820 | |||
| MHP SA | 10.250 | 04/29/15 | 303,000 | 284,820 |
| United Arab Emirates 0.13% | 536,590 | |||
| Dolphin Energy, Ltd. | 5.888 | 06/15/19 | 84,290 | 90,190 |
| DP World, Ltd. | 6.850 | 07/02/37 | 480,000 | 446,400 |
| United Kingdom 0.78% | 3,129,266 | |||
| Ferrexpo Finance PLC (S) | 7.875 | 04/07/16 | 200,000 | 180,000 |
| Ineos Group Holdings, Ltd. (S) | 8.500 | 02/15/16 | 1,710,000 | 1,539,000 |
| Ineos Group Holdings, Ltd. (EUR) (D) | 7.875 | 02/15/16 | 100,000 | 112,558 |
| Ukreximbank Via Biz Finance PLC | 8.375 | 04/27/15 | 133,000 | 119,368 |
| Vedanta Resources PLC (S) | 8.250 | 06/07/21 | 314,000 | 254,340 |
| Virgin Media Finance PLC | 8.375 | 10/15/19 | 825,000 | 924,000 |
| United States 47.74% | 191,723,965 | |||
| Allbritton Communications Company | 8.000 | 05/15/18 | 807,000 | 833,228 |
| Allison Transmission, Inc. (S) | 7.125 | 05/15/19 | 500,000 | 503,125 |
| Ally Financial, Inc. | 7.500 | 09/15/20 | 275,000 | 294,938 |
| Ally Financial, Inc. | 6.250 | 12/01/17 | 300,000 | 309,120 |
| AMC Entertainment, Inc. | 9.750 | 12/01/20 | 200,000 | 197,500 |
| AMC Entertainment, Inc. | 8.750 | 06/01/19 | 875,000 | 923,125 |
| AMC Entertainment, Inc. | 8.000 | 03/01/14 | 950,000 | 947,625 |
| AMC Networks, Inc. (S) | 7.750 | 07/15/21 | 800,000 | 879,000 |
See notes to financial statements
| 8 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| United States (continued) | ||||
| American Casino & Entertainment Properties LLC | 11.000 | 06/15/14 | $335,000 | $345,888 |
| American Renal Holdings Company, Inc. | 8.375 | 05/15/18 | 1,025,000 | 1,107,000 |
| American Residential Services LLC (S) | 12.000 | 04/15/15 | 400,000 | 412,000 |
| American Standard Americas (S) | 10.750 | 01/15/16 | 280,000 | 187,600 |
| ARAMARK Corp. | 8.500 | 02/01/15 | 775,000 | 794,375 |
| ARAMARK Holdings Corp., PIK (S) | 8.625 | 05/01/16 | 975,000 | 1,001,813 |
| Arch Coal, Inc. (S) | 7.250 | 06/15/21 | 900,000 | 904,500 |
| Arch Coal, Inc. (S) | 7.000 | 06/15/19 | 250,000 | 250,625 |
| Armored AutoGroup, Inc. (S) | 9.250 | 11/01/18 | 425,000 | 354,875 |
| Atkore International, Inc. | 9.875 | 01/01/18 | 1,300,000 | 1,287,000 |
| Atlantic Broadband Finance LLC | 9.375 | 01/15/14 | 525,000 | 525,000 |
| Atlas Pipeline Partners LP | 8.750 | 06/15/18 | 1,025,000 | 1,099,313 |
| Baker & Taylor, Inc. (S) | 11.500 | 07/01/13 | 600,000 | 318,000 |
| Basic Energy Services, Inc. | 7.750 | 02/15/19 | 400,000 | 407,000 |
| Basic Energy Services, Inc. | 7.125 | 04/15/16 | 650,000 | 656,500 |
| Biomet, Inc. | 11.625 | 10/15/17 | 1,025,000 | 1,114,688 |
| Boise Paper Holdings LLC | 8.000 | 04/01/20 | 675,000 | 722,250 |
| Boyd Gaming Corp. | 9.125 | 12/01/18 | 1,615,000 | 1,619,038 |
| Brickman Group Holdings, Inc. (S) | 9.125 | 11/01/18 | 1,130,000 | 1,042,425 |
| BWAY Holding Company | 10.000 | 06/15/18 | 650,000 | 708,500 |
| Cablevision Systems Corp. | 8.625 | 09/15/17 | 850,000 | 947,750 |
| Cablevision Systems Corp. | 8.000 | 04/15/20 | 1,350,000 | 1,478,250 |
| Caesars Entertainment Operating Company, Inc. | 12.750 | 04/15/18 | 470,000 | 399,500 |
| Caesars Entertainment Operating Company, Inc. | 5.375 | 12/15/13 | 425,000 | 366,563 |
| Calpine Corp. (S) | 7.875 | 07/31/20 | 850,000 | 915,875 |
| Calpine Corp. (S) | 7.500 | 02/15/21 | 725,000 | 772,125 |
| Case New Holland, Inc. | 7.875 | 12/01/17 | 725,000 | 835,563 |
| CCM Merger, Inc. (S) | 8.000 | 08/01/13 | 565,000 | 548,050 |
| CCO Holdings LLC | 6.625 | 01/31/22 | 1,355,000 | 1,409,200 |
| Cenveo Corp. (S) | 10.500 | 08/15/16 | 650,000 | 552,500 |
| Cenveo Corp. | 8.875 | 02/01/18 | 525,000 | 467,250 |
| Cenveo Corp. | 7.875 | 12/01/13 | 1,175,000 | 957,625 |
| Cequel Communications Holdings I LLC (S) | 8.625 | 11/15/17 | 925,000 | 985,125 |
| Chrysler Group LLC (S) | 8.250 | 06/15/21 | 400,000 | 382,000 |
| Chrysler Group LLC (S) | 8.000 | 06/15/19 | 375,000 | 360,000 |
| Cincinnati Bell, Inc. | 8.750 | 03/15/18 | 905,000 | 871,063 |
| Cincinnati Bell, Inc. | 8.250 | 10/15/17 | 1,280,000 | 1,316,800 |
| Cinemark USA, Inc. | 8.625 | 06/15/19 | 700,000 | 770,000 |
| Cinemark USA, Inc. | 7.375 | 06/15/21 | 675,000 | 710,438 |
| Claire's Stores, Inc. | 9.250 | 06/01/15 | 200,000 | 154,000 |
| Claire's Stores, Inc. | 8.875 | 03/15/19 | 250,000 | 205,000 |
| Claire's Stores, Inc., PIK | 9.625 | 06/01/15 | 797,070 | 613,744 |
| Cloud Peak Energy Resources LLC | 8.500 | 12/15/19 | 715,000 | 781,138 |
| Cloud Peak Energy Resources LLC | 8.250 | 12/15/17 | 100,000 | 108,000 |
| CNO Financial Group, Inc. (S) | 9.000 | 01/15/18 | 450,000 | 478,125 |
| CommScope, Inc. (S) | 8.250 | 01/15/19 | 1,150,000 | 1,196,000 |
| Community Health Systems, Inc. | 8.875 | 07/15/15 | 1,791,000 | 1,862,596 |
| Community Health Systems, Inc. (S) | 8.000 | 11/15/19 | 305,000 | 313,006 |
| Complete Production Services, Inc. | 8.000 | 12/15/16 | 750,000 | 782,813 |
| Concho Resources, Inc. | 7.000 | 01/15/21 | 1,025,000 | 1,127,500 |
| Consol Energy, Inc. | 8.250 | 04/01/20 | 525,000 | 568,969 |
| Consol Energy, Inc. | 8.000 | 04/01/17 | 475,000 | 513,000 |
| Copano Energy LLC | 7.125 | 04/01/21 | 450,000 | 463,500 |
| Cott Beverages, Inc. | 8.375 | 11/15/17 | 725,000 | 790,250 |
| Cott Beverages, Inc. | 8.125 | 09/01/18 | 750,000 | 819,375 |
See notes to financial statements
| 9 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| United States (continued) | ||||
| CPI International, Inc. | 8.000 | 02/15/18 | $850,000 | $731,000 |
| Crosstex Energy LP | 8.875 | 02/15/18 | 325,000 | 352,625 |
| Crown Castle International Corp. | 7.125 | 11/01/19 | 225,000 | 244,688 |
| Dean Foods Company | 9.750 | 12/15/18 | 1,015,000 | 1,106,350 |
| Dean Foods Company | 7.000 | 06/01/16 | 675,000 | 678,375 |
| Dean Foods Company | 6.900 | 10/15/17 | 700,000 | 691,250 |
| Del Monte Corp. | 7.625 | 02/15/19 | 2,145,000 | 2,110,144 |
| DISH DBS Corp. | 7.875 | 09/01/19 | 2,475,000 | 2,852,438 |
| DPL, Inc. (S) | 7.250 | 10/15/21 | 575,000 | 639,688 |
| Dynegy Holdings LLC (H) | 7.750 | 06/01/19 | 1,900,000 | 1,163,750 |
| E*Trade Financial Corp., PIK | 12.500 | 11/30/17 | 925,000 | 1,070,688 |
| Eagle Rock Energy Partners LP (S) | 8.375 | 06/01/19 | 1,025,000 | 1,045,500 |
| Edison Mission Energy | 7.750 | 06/15/16 | 850,000 | 569,500 |
| Edison Mission Energy | 7.000 | 05/15/17 | 875,000 | 507,500 |
| Education Management LLC | 8.750 | 06/01/14 | 400,000 | 403,500 |
| El Paso Corp. | 7.800 | 08/01/31 | 100,000 | 117,228 |
| Elizabeth Arden, Inc. | 7.375 | 03/15/21 | 450,000 | 474,750 |
| Emergency Medical Services Corp. | 8.125 | 06/01/19 | 975,000 | 994,500 |
| Entravision Communications Corp. | 8.750 | 08/01/17 | 1,390,000 | 1,424,750 |
| Express LLC | 8.750 | 03/01/18 | 475,000 | 522,500 |
| Exterran Holdings Inc. | 7.250 | 12/01/18 | 325,000 | 308,750 |
| First Data Corp. | 12.625 | 01/15/21 | 1,250,000 | 1,209,375 |
| Forest Oil Corp. | 7.250 | 06/15/19 | 1,300,000 | 1,300,000 |
| Fox Acquisition Sub LLC (S) | 13.375 | 07/15/16 | 845,000 | 923,163 |
| Fresenius Medical Care US Finance II, Inc. (S) | 5.875 | 01/31/22 | 1,160,000 | 1,186,100 |
| Frontier Communications Corp. | 9.000 | 08/15/31 | 4,074,000 | 3,625,860 |
| GCI, Inc. | 8.625 | 11/15/19 | 400,000 | 431,000 |
| General Maritime Corp. (H) | 12.000 | 11/15/17 | 1,260,000 | 28,350 |
| GenOn Energy, Inc. | 9.875 | 10/15/20 | 1,325,000 | 1,232,250 |
| GenOn Energy, Inc. | 9.500 | 10/15/18 | 480,000 | 453,600 |
| GEO Group, Inc. | 7.750 | 10/15/17 | 595,000 | 636,650 |
| Graphic Packaging International, Inc. | 9.500 | 06/15/17 | 1,225,000 | 1,350,563 |
| Griffon Corp. | 7.125 | 04/01/18 | 1,525,000 | 1,547,875 |
| GXS Worldwide, Inc. | 9.750 | 06/15/15 | 985,000 | 965,300 |
| Harrah's Operating Company, Inc. | 3.276 | 01/28/15 | 825,000 | 743,089 |
| HCA Holdings, Inc. | 7.750 | 05/15/21 | 100,000 | 104,750 |
| HCA, Inc. | 8.360 | 04/15/24 | 915,000 | 894,413 |
| HCA, Inc. | 8.000 | 10/01/18 | 75,000 | 81,375 |
| HCA, Inc. | 7.500 | 02/15/22 | 2,175,000 | 2,327,250 |
| Health Management Associates, Inc. (S) | 7.375 | 01/15/20 | 1,125,000 | 1,158,750 |
| HealthSouth Corp. | 8.125 | 02/15/20 | 825,000 | 874,500 |
| Hercules Offshore, Inc. (S) | 10.500 | 10/15/17 | 1,110,000 | 1,110,000 |
| Hornbeck Offshore Services, Inc. | 6.125 | 12/01/14 | 650,000 | 650,813 |
| IASIS Healthcare LLC | 8.375 | 05/15/19 | 1,100,000 | 1,058,750 |
| iGate Corp. | 9.000 | 05/01/16 | 1,045,000 | 1,110,313 |
| Interactive Data Corp. | 10.250 | 08/01/18 | 900,000 | 996,750 |
| Interface, Inc. | 7.625 | 12/01/18 | 385,000 | 414,838 |
| International Lease Finance Corp. | 8.250 | 12/15/20 | 1,050,000 | 1,120,875 |
| Iron Mountain, Inc. | 8.750 | 07/15/18 | 1,175,000 | 1,224,938 |
| Iron Mountain, Inc. | 8.375 | 08/15/21 | 75,000 | 81,938 |
| Isle of Capri Casinos, Inc. | 7.750 | 03/15/19 | 1,015,000 | 969,325 |
| Isle of Capri Casinos, Inc. | 7.000 | 03/01/14 | 875,000 | 861,875 |
| ITC Deltacom, Inc. | 10.500 | 04/01/16 | 800,000 | 832,000 |
| Jacobs Entertainment, Inc. | 9.750 | 06/15/14 | 80,000 | 75,200 |
| JC Penney Corp., Inc. | 7.400 | 04/01/37 | 750,000 | 727,500 |
See notes to financial statements
| 10 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| United States (continued) | ||||
| JMC Steel Group (S) | 8.250 | 03/15/18 | $1,025,000 | $1,050,625 |
| Koppers, Inc. | 7.875 | 12/01/19 | 650,000 | 685,750 |
| Lamar Media Corp., Series D | 6.625 | 08/15/15 | 825,000 | 845,625 |
| Lawson Software, Inc. (S) | 11.500 | 07/15/18 | 1,355,000 | 1,368,550 |
| Level 3 Financing, Inc. | 10.000 | 02/01/18 | 1,175,000 | 1,254,313 |
| Levi Strauss & Company | 8.875 | 04/01/16 | 650,000 | 675,188 |
| Levi Strauss & Company | 7.625 | 05/15/20 | 900,000 | 940,500 |
| Limited Brands, Inc. | 7.000 | 05/01/20 | 1,300,000 | 1,443,000 |
| Linn Energy LLC | 7.750 | 02/01/21 | 1,325,000 | 1,427,688 |
| Linn Energy LLC (S) | 6.500 | 05/15/19 | 200,000 | 202,000 |
| Local TV Finance LLC, PIK (S) | 9.250 | 06/15/15 | 310,000 | 306,900 |
| MacDermid, Inc. (S) | 9.500 | 04/15/17 | 1,075,000 | 1,096,500 |
| MarkWest Energy Partners LP | 6.250 | 06/15/22 | 540,000 | 573,750 |
| Mediacom LLC (S) | 7.250 | 02/15/22 | 750,000 | 750,000 |
| MEMC Electronic Materials, Inc. | 7.750 | 04/01/19 | 745,000 | 603,450 |
| MGM Resorts International (S) | 8.625 | 02/01/19 | 650,000 | 676,000 |
| MGM Resorts International | 7.500 | 06/01/16 | 425,000 | 426,063 |
| MGM Resorts International | 6.875 | 04/01/16 | 920,000 | 901,600 |
| MGM Resorts International | 5.875 | 02/27/14 | 850,000 | 845,750 |
| Michael Foods, Inc. | 9.750 | 07/15/18 | 950,000 | 1,028,375 |
| Michaels Stores, Inc. | 11.375 | 11/01/16 | 1,225,000 | 1,298,378 |
| Momentive Performance Materials, Inc. | 11.500 | 12/01/16 | 350,000 | 294,000 |
| Momentive Performance Materials, Inc. | 9.000 | 01/15/21 | 1,700,000 | 1,538,500 |
| NBTY, Inc. | 9.000 | 10/01/18 | 975,000 | 1,077,375 |
| New Albertsons, Inc. | 8.700 | 05/01/30 | 525,000 | 446,906 |
| New Albertsons, Inc. | 8.000 | 05/01/31 | 2,050,000 | 1,645,125 |
| NewPage Corp. (H) | 11.375 | 12/31/14 | 610,000 | 396,500 |
| Nextel Communications, Inc. | 7.375 | 08/01/15 | 745,000 | 720,788 |
| NFR Energy LLC (S) | 9.750 | 02/15/17 | 450,000 | 382,500 |
| Nielsen Finance LLC | 7.750 | 10/15/18 | 925,000 | 1,030,219 |
| Niska Gas Storage US LLC | 8.875 | 03/15/18 | 725,000 | 696,906 |
| Norcraft Companies LP | 10.500 | 12/15/15 | 1,050,000 | 973,875 |
| Novelis, Inc. | 8.375 | 12/15/17 | 1,025,000 | 1,124,938 |
| NRG Energy, Inc. | 8.500 | 06/15/19 | 750,000 | 753,750 |
| NRG Energy, Inc. | 8.250 | 09/01/20 | 775,000 | 763,375 |
| NRG Energy, Inc. (S) | 7.875 | 05/15/21 | 1,325,000 | 1,258,750 |
| NRG Energy, Inc. (S) | 7.625 | 05/15/19 | 325,000 | 310,375 |
| Oasis Petroleum, Inc. | 7.250 | 02/01/21 | 850,000 | 892,500 |
| Oasis Petroleum, Inc. | 6.500 | 11/01/21 | 350,000 | 353,500 |
| Owens-Illinois, Inc. | 7.800 | 05/15/18 | 1,000,000 | 1,122,500 |
| Park-Ohio Industries, Inc. | 8.125 | 04/01/21 | 300,000 | 303,000 |
| Parker Drilling Company | 9.125 | 04/01/18 | 248,000 | 262,880 |
| Peabody Energy Corp. (S) | 6.250 | 11/15/21 | 1,080,000 | 1,112,400 |
| Pemex Project Funding Master Trust | 6.625 | 06/15/35 | 777,000 | 872,183 |
| Penn Virginia Resource Partners LP | 8.250 | 04/15/18 | 350,000 | 360,500 |
| PHH Corp. | 9.250 | 03/01/16 | 380,000 | 364,800 |
| PHI, Inc. | 8.625 | 10/15/18 | 150,000 | 151,500 |
| Pinnacle Entertainment, Inc. | 8.750 | 05/15/20 | 650,000 | 661,375 |
| Pinnacle Entertainment, Inc. | 8.625 | 08/01/17 | 1,300,000 | 1,397,500 |
| Pinnacle Foods Finance LLC | 10.625 | 04/01/17 | 900,000 | 951,750 |
| Pinnacle Foods Finance LLC | 9.250 | 04/01/15 | 250,000 | 257,500 |
| Pinnacle Foods Finance LLC | 8.250 | 09/01/17 | 650,000 | 695,500 |
| Plains Exploration & Production Company | 7.625 | 06/01/18 | 300,000 | 321,000 |
| Plains Exploration & Production Company | 7.625 | 04/01/20 | 375,000 | 412,500 |
| Plains Exploration & Production Company | 6.625 | 05/01/21 | 225,000 | 241,313 |
See notes to financial statements
| 11 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| United States (continued) | ||||
| Post Holdings, Inc. (S) | 7.375 | 02/15/22 | $1,275,000 | $1,326,000 |
| Pregis Corp. | 12.375 | 10/15/13 | 500,000 | 477,500 |
| Provident Funding Associates LP (S) | 10.250 | 04/15/17 | 550,000 | 526,625 |
| Provident Funding Associates LP (S) | 10.125 | 02/15/19 | 450,000 | 339,750 |
| Quicksilver Resources, Inc. | 7.125 | 04/01/16 | 1,200,000 | 1,146,000 |
| Quiksilver, Inc. | 6.875 | 04/15/15 | 1,075,000 | 1,034,688 |
| Qwest Corp. | 7.125 | 11/15/43 | 1,975,000 | 1,940,438 |
| Radiation Therapy Services, Inc. | 9.875 | 04/15/17 | 1,050,000 | 732,375 |
| Radio One, Inc., PIK | 15.000 | 05/24/16 | 934,220 | 602,572 |
| RadioShack Corp. | 6.750 | 05/15/19 | 1,150,000 | 966,000 |
| RBS Global, Inc. | 8.500 | 05/01/18 | 1,650,000 | 1,753,125 |
| Regal Cinemas Corp. | 8.625 | 07/15/19 | 775,000 | 850,563 |
| Regal Entertainment Group | 9.125 | 08/15/18 | 600,000 | 657,000 |
| Reynolds Group Issuer, Inc. (S) | 9.875 | 08/15/19 | 1,245,000 | 1,266,788 |
| Reynolds Group Issuer, Inc. (S) | 9.000 | 04/15/19 | 825,000 | 820,875 |
| Reynolds Group Issuer, Inc. (S) | 8.750 | 10/15/16 | 675,000 | 718,875 |
| Reynolds Group Issuer, Inc. (S) | 8.250 | 02/15/21 | 235,000 | 222,663 |
| Sabine Pass LNG LP | 7.500 | 11/30/16 | 600,000 | 625,500 |
| Sabine Pass LNG LP | 7.250 | 11/30/13 | 400,000 | 414,000 |
| SandRidge Energy, Inc. | 8.750 | 01/15/20 | 500,000 | 530,000 |
| SandRidge Energy, Inc. (S) | 8.000 | 06/01/18 | 350,000 | 362,250 |
| SandRidge Energy, Inc. | 7.500 | 03/15/21 | 1,000,000 | 1,015,000 |
| Sealed Air Corp. (S) | 8.375 | 09/15/21 | 1,790,000 | 2,013,750 |
| SESI LLC (S) | 7.125 | 12/15/21 | 485,000 | 526,225 |
| SESI LLC | 6.375 | 05/01/19 | 909,000 | 943,088 |
| Sinclair Television Group, Inc. (S) | 9.250 | 11/01/17 | 300,000 | 333,000 |
| Sinclair Television Group, Inc. | 8.375 | 10/15/18 | 1,350,000 | 1,437,750 |
| Solo Cup Company | 8.500 | 02/15/14 | 565,000 | 525,450 |
| Southern Copper Corp. | 6.750 | 04/16/40 | 154,000 | 162,899 |
| Sprint Capital Corp. | 8.750 | 03/15/32 | 2,375,000 | 1,995,000 |
| Sprint Nextel Corp. (S) | 9.000 | 11/15/18 | 815,000 | 878,163 |
| SSI Investments II | 11.125 | 06/01/18 | 775,000 | 856,375 |
| SunGard Data Systems, Inc. | 7.375 | 11/15/18 | 750,000 | 791,250 |
| Surgical Care Affiliates, Inc. (S) | 10.000 | 07/15/17 | 700,000 | 674,625 |
| Surgical Care Affiliates, Inc., PIK (S) | 8.875 | 07/15/15 | 250,000 | 250,313 |
| Syniverse Holdings, Inc. | 9.125 | 01/15/19 | 950,000 | 1,023,625 |
| Targa Resources Partners LP | 7.875 | 10/15/18 | 675,000 | 725,625 |
| The AES Corp. | 9.750 | 04/15/16 | 1,350,000 | 1,586,250 |
| The AES Corp. (S) | 7.375 | 07/01/21 | 1,080,000 | 1,193,400 |
| The Bon-Ton Department Stores, Inc. | 10.250 | 03/15/14 | 210,000 | 132,825 |
| The Manitowoc Company, Inc. | 9.500 | 02/15/18 | 500,000 | 553,750 |
| The Manitowoc Company, Inc. | 8.500 | 11/01/20 | 500,000 | 545,000 |
| The McClatchy Company | 11.500 | 02/15/17 | 1,485,000 | 1,514,700 |
| The ServiceMaster Company | 7.450 | 08/15/27 | 425,000 | 335,750 |
| The ServiceMaster Company, PIK (S) | 10.750 | 07/15/15 | 810,000 | 846,450 |
| Tomkins LLC | 9.000 | 10/01/18 | 720,000 | 797,400 |
| Toys R Us Property Company LLC | 10.750 | 07/15/17 | 825,000 | 917,813 |
| TransDigm, Inc. | 7.750 | 12/15/18 | 1,225,000 | 1,341,375 |
| TransUnion LLC | 11.375 | 06/15/18 | 725,000 | 855,500 |
| Triumph Group, Inc. | 8.625 | 07/15/18 | 575,000 | 641,125 |
| UCI International, Inc. | 8.625 | 02/15/19 | 850,000 | 859,563 |
| United Surgical Partners International, Inc., PIK | 9.250 | 05/01/17 | 850,000 | 862,750 |
| Univision Communications, Inc. (S) | 8.500 | 05/15/21 | 350,000 | 339,500 |
| Univision Communications, Inc. (S) | 7.875 | 11/01/20 | 1,150,000 | 1,196,000 |
| Vanguard Health Holding Company II LLC | 8.000 | 02/01/18 | 2,250,000 | 2,356,875 |
See notes to financial statements
| 12 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| United States (continued) | ||||
| Venoco, Inc. | 8.875 | 02/15/19 | $575,000 | $494,500 |
| Verso Paper Holdings LLC | 8.750 | 02/01/19 | 250,000 | 138,750 |
| Verso Paper Holdings LLC., Series B | 11.375 | 08/01/16 | 515,000 | 208,575 |
| Visant Corp. | 10.000 | 10/01/17 | 400,000 | 363,000 |
| West Corp. | 8.625 | 10/01/18 | 425,000 | 446,250 |
| West Corp. | 7.875 | 01/15/19 | 550,000 | 576,125 |
| Windstream Corp. | 7.500 | 04/01/23 | 2,028,000 | 2,098,980 |
| Xerium Technologies, Inc. (S) | 8.875 | 06/15/18 | 705,000 | 620,400 |
| Venezuela 2.03% | 8,157,880 | |||
| Petroleos de Venezuela SA | 8.500 | 11/02/17 | 416,900 | 330,393 |
| Petroleos de Venezuela SA | 5.250 | 04/12/17 | 2,116,000 | 1,465,330 |
| Petroleos de Venezuela SA | 5.000 | 10/28/15 | 87,609 | 67,021 |
| Petroleos de Venezuela SA | 4.900 | 10/28/14 | 7,494,209 | 6,295,136 |
| Virgin Islands 0.26% | 1,026,392 | |||
| Gold Fields Orogen Holding BVI, Ltd. | 4.875 | 10/07/20 | 600,000 | 569,162 |
| Sinochem Overseas Capital Company, Ltd. (S) | 4.500 | 11/12/20 | 467,000 | 457,230 |
| Foreign Government | ||||
| Obligations 26.00% | $104,421,476 | |||
| (Cost $101,189,625) | ||||
| Argentina 2.44% | 9,811,947 | |||
| Republic of Argentina | ||||
| Bond | 8.280 | 12/31/33 | 3,549,666 | 2,768,739 |
| Bond (EUR) (D) (P) | 7.820 | 12/31/33 | 3,309,006 | 2,910,811 |
| Bond (EUR) (D) | 7.820 | 12/31/33 | 2,061,817 | 1,813,705 |
| Bond | 7.000 | 04/17/17 | 924,247 | 836,444 |
| Bond (ARS) (D) (P) | 5.830 | 12/31/33 | 2,740,954 | 860,403 |
| Bond (EUR) (D) (P) | 3.135 | 12/15/35 | 4,063,237 | 621,845 |
| Brazil 0.78% | 3,132,546 | |||
| Federative Republic of Brazil | ||||
| Bond | 8.875 | 10/14/19 | 370,000 | 520,775 |
| Bond | 8.875 | 04/15/24 | 299,000 | 447,753 |
| Bond | 8.750 | 02/04/25 | 285,000 | 427,500 |
| Bond | 5.875 | 01/15/19 | 305,000 | 364,018 |
| Bond | 4.875 | 01/22/21 | 1,220,000 | 1,372,500 |
| Colombia 1.92% | 7,692,777 | |||
| Bogota Distrito Capital (COP) | ||||
| Bond (D) | 9.750 | 07/26/28 | 2,728,000,000 | 2,075,914 |
| Republic of Colombia | ||||
| Bond | 11.750 | 02/25/20 | 145,000 | 228,013 |
| Bond | 7.375 | 09/18/37 | 3,318,000 | 4,562,250 |
| Bond | 6.125 | 01/18/41 | 266,000 | 319,200 |
| Bond | 4.375 | 07/12/21 | 472,000 | 507,400 |
| Croatia 0.34% | 1,366,223 | |||
| Republic of Croatia | ||||
| Bond (S) | 6.375 | 03/24/21 | 1,481,000 | 1,366,223 |
| El Salvador 0.40% | 1,623,350 | |||
| Republic of El Salvador | ||||
| Bond | 8.250 | 04/10/32 | 500,000 | 548,750 |
See notes to financial statements
| 13 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| El Salvador (continued) | ||||
| Bond | 7.375 | 12/01/19 | $995,000 | $1,074,600 |
| Ghana 0.12% | 501,670 | |||
| Republic of Ghana | ||||
| Bond | 8.500 | 10/04/17 | 454,000 | 501,670 |
| Hungary 0.28% | 1,108,822 | |||
| Republic of Hungary | ||||
| Bond | 7.625 | 03/29/41 | 74,000 | 68,358 |
| Bond (GBP) (D) | 5.500 | 05/06/14 | 31,000 | 44,419 |
| Bond (GBP) (D) | 5.000 | 03/30/16 | 104,000 | 134,417 |
| Bond | 4.750 | 02/03/15 | 115,000 | 107,525 |
| Bond (EUR) (D) | 4.500 | 01/29/14 | 217,000 | 262,956 |
| Bond (EUR) (D) | 4.375 | 07/04/17 | 312,000 | 336,692 |
| Bond (EUR) (D) | 3.500 | 07/18/16 | 144,000 | 154,455 |
| Indonesia 1.13% | 4,524,471 | |||
| Republic of Indonesia | ||||
| Bond (S) | 11.625 | 03/04/19 | 1,555,000 | 2,313,063 |
| Bond | 11.625 | 03/04/19 | 603,000 | 896,963 |
| Bond | 7.750 | 01/17/38 | 213,000 | 289,680 |
| Bond | 6.875 | 03/09/17 | 874,000 | 1,024,765 |
| Iraq 1.18% | 4,750,750 | |||
| Republic of Iraq | ||||
| Bond | 5.800 | 01/15/28 | 6,130,000 | 4,750,750 |
| Lithuania 0.61% | 2,442,094 | |||
| Republic of Lithuania | ||||
| Bond | 7.375 | 02/11/20 | 101,000 | 108,701 |
| Bond | 6.625 | 02/01/22 | 327,000 | 332,718 |
| Bond | 6.125 | 03/09/21 | 2,026,000 | 2,000,675 |
| Malaysia 0.62% | 2,496,682 | |||
| Government of Malaysia | ||||
| Bond (MYR) (D) | 5.094 | 04/30/14 | 2,290,000 | 788,079 |
| Bond (MYR) (D) | 4.262 | 09/15/16 | 900,000 | 308,866 |
| Bond (MYR) (D) | 4.012 | 09/15/17 | 390,000 | 132,673 |
| Bond (MYR) (D) | 3.835 | 08/12/15 | 1,480,000 | 498,658 |
| Bond (MYR) (D) | 3.741 | 02/27/15 | 2,290,000 | 768,406 |
| Mexico 2.63% | 10,573,352 | |||
| Government of Mexico | ||||
| Bond (MXN) (D) | 8.500 | 05/31/29 | 3,280,000 | 295,329 |
| Bond (MXN) (D) | 8.500 | 11/18/38 | 7,110,000 | 619,097 |
| Bond | 8.000 | 09/24/22 | 632,000 | 880,060 |
| Bond (MXN) (D) | 7.750 | 05/29/31 | 5,530,000 | 458,101 |
| Bond | 7.500 | 04/08/33 | 1,441,000 | 1,999,388 |
| Bond | 6.750 | 09/27/34 | 819,000 | 1,060,605 |
| Bond (MXN) (D) | 6.500 | 06/10/21 | 47,340,000 | 3,781,222 |
| Bond | 5.750 | 10/12/10 | 1,114,000 | 1,166,915 |
| Bond | 3.625 | 03/15/22 | 310,000 | 312,635 |
| Panama 1.49% | 5,992,425 | |||
| Republic of Panama | ||||
| Bond | 9.375 | 04/01/29 | 357,000 | 564,060 |
See notes to financial statements
| 14 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Panama (continued) | ||||
| Bond | 8.875 | 09/30/27 | $357,000 | $531,930 |
| Bond | 7.125 | 01/29/26 | 101,000 | 132,462 |
| Bond | 6.700 | 01/26/36 | 425,000 | 541,875 |
| Bond | 5.200 | 01/30/20 | 3,715,000 | 4,222,098 |
| Peru 0.36% | 1,427,078 | |||
| Republic of Peru | ||||
| Bond | 8.750 | 11/21/33 | 495,000 | 754,875 |
| Bond | 8.375 | 05/03/16 | 203,000 | 251,923 |
| Bond | 7.350 | 07/21/25 | 316,000 | 420,280 |
| Philippines 0.94% | 3,764,480 | |||
| Republic of Philippines | ||||
| Bond | 7.750 | 01/14/31 | 2,768,000 | 3,764,480 |
| Poland 1.74% | 6,996,073 | |||
| Republic of Poland | ||||
| Bond | 6.375 | 07/15/19 | 3,840,000 | 4,315,200 |
| Bond | 5.125 | 04/21/21 | 1,159,000 | 1,192,321 |
| Bond | 5.000 | 03/23/22 | 1,468,000 | 1,488,552 |
| Qatar 0.67% | 2,678,280 | |||
| Government of Qatar | ||||
| Bond | 6.550 | 04/09/19 | 972,000 | 1,146,960 |
| Bond | 5.250 | 01/20/20 | 971,000 | 1,062,080 |
| Bond | 5.250 | 01/20/20 | 429,000 | 469,240 |
| Russia 3.06% | 12,295,135 | |||
| Government of Russia | ||||
| Bond | 12.750 | 06/24/28 | 177,000 | 310,635 |
| Bond | 11.000 | 07/24/18 | 41,000 | 57,195 |
| Bond | 7.500 | 03/31/30 | 10,065,236 | 11,927,305 |
| South Africa 2.02% | 8,101,319 | |||
| Republic of South Africa | ||||
| Bond (ZAR) (D) | 8.000 | 12/21/18 | 6,530,000 | 860,136 |
| Bond | 6.875 | 05/27/19 | 771,000 | 921,345 |
| Bond (ZAR) (D) | 6.750 | 03/31/21 | 19,670,000 | 2,357,050 |
| Bond | 6.250 | 03/08/41 | 922,000 | 1,037,250 |
| Bond | 5.875 | 05/30/22 | 903,000 | 1,015,875 |
| Bond | 5.500 | 03/09/20 | 1,120,000 | 1,240,400 |
| Bond | 4.665 | 01/17/24 | 661,000 | 669,263 |
| South Korea 0.08% | 340,036 | |||
| Republic of Korea | ||||
| Bond | 7.125 | 04/16/19 | 271,000 | 340,036 |
| Turkey 1.18% | 4,735,109 | |||
| Republic of Turkey | ||||
| Bond | 7.500 | 11/07/19 | 1,475,000 | 1,674,125 |
| Bond | 7.250 | 03/15/15 | 871,000 | 949,390 |
| Bond | 7.250 | 03/05/38 | 599,000 | 650,664 |
| Bond | 7.000 | 09/26/16 | 103,000 | 113,300 |
| Bond | 7.000 | 06/05/20 | 132,000 | 145,695 |
| Bond | 5.625 | 03/30/21 | 161,000 | 161,805 |
| Bond | 5.125 | 03/25/22 | 1,092,000 | 1,040,130 |
See notes to financial statements
| 15 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Ukraine 0.90% | $3,599,961 | |||
| Republic of Ukraine | ||||
| Bond | 7.650 | 06/11/13 | $1,601,000 | 1,552,970 |
| Bond | 6.875 | 09/23/15 | 472,000 | 434,240 |
| Bond (S) | 6.875 | 09/23/15 | 657,000 | 604,440 |
| Bond | 6.580 | 11/21/16 | 880,000 | 772,200 |
| Bond | 6.385 | 06/26/12 | 237,000 | 236,111 |
| Uruguay 0.76% | 3,055,643 | |||
| Republic of Uruguay | ||||
| Bond | 8.000 | 11/18/22 | 1,708,057 | 2,326,374 |
| Bond | 7.625 | 03/21/36 | 528,456 | 729,269 |
| Venezuela 0.35% | 1,411,253 | |||
| Republic of Venezuela | ||||
| Bond | 13.625 | 08/15/18 | 810,000 | 824,175 |
| Bond | 12.750 | 08/23/22 | 132,400 | 126,773 |
| Bond | 8.500 | 10/08/14 | 477,000 | 460,305 |
| Capital Preferred Securities 0.08% | $311,163 | |||
| (Cost $316,855) | ||||
| Cayman Islands 0.08% | 311,163 | |||
| Hutchison Whampoa International 10, Ltd. (P)(Q) | 6.000 | 12/29/49 | 310,000 | 311,163 |
| Convertible Bonds 1.02% | $4,090,335 | |||
| (Cost $4,135,461) | ||||
| Bahamas 0.00% | 8,726 | |||
| Ultrapetrol Bahamas, Ltd. (S) | 7.250 | 01/15/17 | 13,000 | 8,726 |
| China 0.00% | 18,343 | |||
| Home Inns & Hotels Management, Inc. (S) | 2.000 | 12/15/15 | 23,000 | 18,343 |
| France 0.03% | 108,536 | |||
| Alcatel-Lucent (EUR) (D) | 5.000 | 01/01/15 | 2,454,800 | 26,046 |
| Cie Generale des Etablissements Michelin (EUR) (D)(Z) | Zero | 01/01/17 | 56,686 | 82,490 |
| Mexico 0.01% | 48,825 | |||
| Cemex SAB de CV (S) | 3.750 | 03/15/18 | 40,000 | 32,550 |
| Cemex SAB de CV (S) | 3.250 | 03/15/16 | 20,000 | 16,275 |
| United Kingdom 0.03% | 112,250 | |||
| Subsea 7 SA | 2.250 | 10/11/13 | 100,000 | 112,250 |
| United States 0.95% | 3,793,655 | |||
| AirTran Holdings, Inc. | 5.250 | 11/01/16 | 66,000 | 86,378 |
| Alcatel-Lucent USA, Inc. | 2.875 | 06/15/25 | 37,000 | 33,809 |
| Alcatel-Lucent USA, Inc., Series A | 2.875 | 06/15/23 | 158,000 | 118,500 |
| Altra Holdings, Inc. (S) | 2.750 | 03/01/31 | 122,000 | 115,595 |
| Callidus Software, Inc. (S) | 4.750 | 06/01/16 | 85,000 | 91,375 |
| Cheniere Energy, Inc. | 2.250 | 08/01/12 | 98,000 | 94,938 |
| Ciena Corp. (S) | 4.000 | 03/15/15 | 92,000 | 97,750 |
| Comtech Telecommunications Corp. | 3.000 | 05/01/29 | 98,000 | 107,923 |
| Dendreon Corp. | 2.875 | 01/15/16 | 179,000 | 149,241 |
| Digital River, Inc. | 2.000 | 11/01/30 | 188,000 | 167,085 |
| Gilead Sciences, Inc. | 1.000 | 05/01/14 | 62,000 | 74,943 |
See notes to financial statements
| 16 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| United States (continued) | ||||
| Greenbrier Companies, Inc. (S) | 3.500 | 04/01/18 | $160,000 | $152,800 |
| Hercules Offshore, Inc. (3.375% Steps down to Zero Coupon | ||||
| on 6/1/2013) | 3.375 | 06/01/38 | 153,000 | 143,246 |
| Hornbeck Offshore Services, Inc. (1.625% Steps down to | ||||
| 1.375% on 11/15/2013) | 1.625 | 11/15/26 | 83,000 | 85,075 |
| Integra LifeSciences Holdings Corp. (S) | 1.625 | 12/15/16 | 37,000 | 31,774 |
| Ixia | 3.000 | 12/15/15 | 112,000�� | 116,760 |
| Mentor Graphics Corp. (S) | 4.000 | 04/01/31 | 150,000 | 153,000 |
| Micron Technology, Inc. | 1.875 | 06/01/14 | 30,000 | 29,475 |
| Micron Technology, Inc. | 1.875 | 06/01/27 | 69,000 | 64,946 |
| Micron Technology, Inc. (S) | 1.500 | 08/01/31 | 128,000 | 127,040 |
| Newpark Resources, Inc. | 4.000 | 10/01/17 | 89,000 | 95,898 |
| ON Semiconductor Corp. | 2.625 | 12/15/26 | 131,000 | 148,521 |
| ON Semiconductor Corp., Series B (Call/Conversion date on | ||||
| 04/15/2012) (Z) | Zero | 04/15/24 | 182,000 | 186,323 |
| Owens-Brockway Glass Container, Inc. (S) | 3.000 | 06/01/15 | 168,000 | 164,640 |
| PDL BioPharma, Inc. | 3.750 | 05/01/15 | 44,000 | 44,880 |
| RadioShack Corp. (S) | 2.500 | 08/01/13 | 155,000 | 145,313 |
| RTI International Metals, Inc. | 3.000 | 12/01/15 | 118,000 | 123,753 |
| Rudolph Technologies, Inc. (S) | 3.750 | 07/15/16 | 30,000 | 31,231 |
| Savient Pharmaceuticals, Inc. | 4.750 | 02/01/18 | 66,000 | 33,248 |
| Smithfield Foods, Inc. | 4.000 | 06/30/13 | 99,000 | 115,583 |
| Teva Pharmaceutical Finance Company, LLC | 0.250 | 02/01/26 | 75,000 | 82,313 |
| TRW Automotive, Inc. | 3.500 | 12/01/15 | 117,000 | 173,453 |
| Tyson Foods, Inc. | 3.250 | 10/15/13 | 125,000 | 153,281 |
| WebMD Health Corp. (S) | 2.500 | 01/31/18 | 114,000 | 98,610 |
| WebMD Health Corp. (S) | 2.250 | 03/31/16 | 17,000 | 15,789 |
| Xilinx, Inc. | 3.125 | 03/15/37 | 111,000 | 139,166 |
| Structured Notes (K) 1.65% | $6,618,517 | |||
| (Cost $6,473,113) | ||||
| Brazil 1.24% | 4,965,910 | |||
| Barclays Bank PLC (BRL) (D) (S) | 10.000 | 01/01/14 | 400,000 | 227,452 |
| Citigroup Funding, Inc. (BRL) (D) | 10.000 | 01/01/21 | 2,100,000 | 1,108,847 |
| Citigroup Holdings Company (BRL) | 10.000 | 01/01/21 | 2,000,000 | 1,056,045 |
| Federative Republic of Brazil (HSBC Bank PLC) | ||||
| Note (BRL) (D) | 10.000 | 01/01/17 | 800,000 | 441,407 |
| Federative Republic of Brazil (HSBC Bank USA) | ||||
| Note (BRL) (D) | 10.000 | 01/01/17 | 1,350,000 | 744,875 |
| Federative Republic of Brazil (JPMorgan Chase & Company) | ||||
| Note (BRL) (D) | 10.000 | 01/01/21 | 2,100,000 | 1,102,524 |
| JPMorgan Chase Bank NA (BRL) | 10.000 | 01/01/15 | 500,000 | 284,760 |
| Colombia 0.25% | 1,002,354 | |||
| Republic of Colombia (Citigroup Funding, Inc.) | ||||
| Note (COP) (D) | 11.000 | 07/27/20 | 1,000,000,000 | 677,986 |
| Note (COP) (D) | 10.000 | 07/24/24 | 485,000,000 | 324,368 |
| United Kingdom 0.16% | 650,253 | |||
| Cablevision SA (Deutsche Bank AG) | ||||
| Bond (S) | 9.375 | 02/13/18 | 644,000 | 650,253 |
See notes to financial statements
| 17 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Term Loans (M)1.16% | $4,672,120 | |||
| (Cost $5,129,414) | ||||
| India 0.05% | 205,600 | |||
| Bakrie and Brothers Tbk PT | 15.000 | 01/18/13 | $114,341 | 114,341 |
| Bakrie and Brothers Tbk PT | 15.000 | 01/18/13 | 91,259 | 91,259 |
| Indonesia 0.15% | 625,040 | |||
| Bumi Resources Tbk PT | 11.295 | 08/07/13 | 601,000 | 625,040 |
| United States 0.96% | 3,841,480 | |||
| BJ's Wholesale Club, Inc. | 7.000 | 09/29/18 | 773,063 | 779,344 |
| iStar Financial, Inc. | 7.000 | 06/30/14 | 800,000 | 784,666 |
| Lord & Taylor | 5.750 | 01/11/19 | 810,000 | 810,675 |
| Texas Competitive Electric Holdings Company LLC | 4.795 | 10/10/17 | 2,378,987 | 1,466,795 |
| Shares | Value | |||
| Preferred Securities 0.14% | $542,351 | |||
| (Cost $556,419) | ||||
| United States 0.14% | 542,351 | |||
| Apache Corp., Series D, 6.000% | 3,230 | 185,499 | ||
| Hartford Financial Services Group, Inc., Series F, 7.250% | 1,347 | 27,775 | ||
| MetLife, Inc., 5.000% | 1,280 | 87,693 | ||
| Molycorp, Inc., 5.500% | 560 | 38,371 | ||
| Unisys Corp., 6.250% | 31 | 1,990 | ||
| Wells Fargo & Company, 7.500% | 116 | 127,020 | ||
| Wintrust Financial Corp., 7.500% | 1,500 | 74,003 | ||
| Shares | Value | |||
| Common Stocks 0.01% | $28,630 | |||
| (Cost $31,740) | ||||
| United States 0.01% | 28,630 | |||
| Archer-Daniels-Midland Company | 1,000 | 28,630 | ||
| Yield | Shares | Value | ||
| Short-Term Investments 3.87% | $15,545,079 | |||
| (Cost $15,545,079) | ||||
| Money Market Funds 3.87% | 15,545,020 | |||
| State Street Institutional Liquid Reserves Fund | 0.1779% | 15,545,020 | 15,545,020 | |
| Repurchase Agreement 0.00% | 59 | |||
| Repurchase Agreement with State Street Corp. dated 1/31/2012 at | ||||
| 0.010% to be repurchased at $59 on 2/1/2012, collateralized by | ||||
| $5,000 U.S. Treasury Notes, 0.0100% due 3/8/12 (valued at $5,000, | ||||
| including interest) | 0.0100% | 59 | 59 | |
See notes to financial statements
| 18 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Total investments (Cost $396,197,002)† 99.24% | $398,546,256 |
| Other assets and liabilities, net 0.76% | $3,072,332 |
| Total net assets 100.00% | $401,618,588 |
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. All par values are denominated in U.S. Dollars unless otherwise indicated.
| Currency abbreviations | |
| ARS | Argentine Peso |
| BRL | Brazilian Real |
| COP | Colombian Peso |
| EUR | Euro |
| GBP | Pound Sterling |
| MXN | Mexican Peso |
| MYR | Malaysian Ringgit |
| ZAR | South African Rand |
Notes to Portfolio of Investments
PIK Payment-in-kind
(D) Par value of foreign bonds is expressed in local currency as shown parenthetically in security description.
(H) Non-income producing - Issuer is in default.
(K) Underlying issuer is shown parenthetically in security description.
(M) All or a portion of this security represents an unsettled term loan commitment where the rate will be determined at time of settlement.
(P) Variable rate obligation. The coupon rate shown represents the rate at period end.
(Q) Perpetual bonds have no stated maturity date. Date shown 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 $83,480,367 or 20.76% of the Fund's net assets as of 1-31-12.
(Z) Zero coupon bonds are issued at a discount from their principal amount in lieu of paying interest periodically.
* Yield represents either the annualized yield at the date of purchase, the stated coupon rate or, for floating rate securities, the rate at period end.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $397,542,048. Net unrealized appreciation aggregated $1,004,208, of which $14,048,426 related to appreciated investment securities and $13,044,218 related to depreciated investment securities.
The Fund had the following sector composition as a percentage of net assets on January 31, 2012:
| Foreign Government Obligations | 26.0% |
| Consumer Discretionary | 14.4% |
| Energy | 13.2% |
| Materials | 7.5% |
| Telecommunication Services | 7.1% |
| Consumer Staples | 5.7% |
| Industrials | 5.5% |
See notes to financial statements
| 19 |
Global High Yield Fund
As of 1-31-12 (Unaudited)
| Health Care | 4.8% |
| Utilities | 3.6% |
| Financials | 3.4% |
| Information Technology | 2.6% |
| Structured Notes | 1.6% |
| Short-Term Investments & Other | 4.6% |
See notes to financial statements
| 20 |
Global High Yield Fund
Statement of Assets and Liabilities — January 31, 2012 (Unaudited)
| Assets | |||
| Investments, at value (Cost $396,197,002) | $ | 398,546,256 | |
| Foreign currency, at value (Cost $43,593) | 43,477 | ||
| Receivable for investments sold | 2,002,309 | ||
| Receivable for fund shares sold | 103,617 | ||
| Receivable for forward foreign currency | |||
| exchange contracts (Note 3) | 137,724 | ||
| Dividends and interest receivable | 7,268,428 | ||
| Other receivables and prepaid expenses | 150 | ||
| Total assets | 408,101,961 | ||
| Liabilities | |||
| Payable for investments purchased | 6,214,631 | ||
| Payable for forward foreign currency exchange | |||
| contracts (Note 3) | 189,468 | ||
| Distributions payable | 285 | ||
| Payable to affiliates | |||
| Transfer agent fees | 7 | ||
| Trustees' fees | 154 | ||
| Other liabilities and accrued expenses | 78,828 | ||
| Total liabilities | 6,483,373 | ||
| Net assets | |||
| Paid-in capital | $ | 400,807,099 | |
| Accumulated distributions in excess of net | |||
| investment income | (1,269,529) | ||
| Accumulated net realized loss on investments | |||
| and foreign currency transactions | (225,197) | ||
| Net unrealized appreciation (depreciation) on | |||
| investments and translation of assets and | |||
| liabilities in foreign currencies | 2,306,215 | ||
| Net assets | $ | 401,618,588 | |
| 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 ($25,451 ÷ 2,500 shares) | $ | 10.18 | |
| Class I ($25,450 ÷ 2,500 shares) | $ | 10.18 | |
| Class NAV ($401,567,687 ÷ 39,448,096 shares) | $ | 10.18 | |
| Maximum offering price per share | |||
| Class A (net asset value per share ÷ 95.5%)1 | $ | 10.66 | |
1 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
| 21 |
Global High Yield Fund
Statement of Operations — January 31, 2012 (Unaudited)
| Investment income | |||
| Interest | $ | 14,351,232 | |
| Dividends | 19,954 | ||
| Less foreign taxes withheld | (3,403) | ||
| Total investment income | 14,367,783 | ||
| Expenses | |||
| Investment management fees (Note 5) | 1,513,798 | ||
| Distribution and service fees (Note 5) | 38 | ||
| Accounting and legal services fees (Note 5) | 21,077 | ||
| Transfer agent fees (Note 5) | 43 | ||
| Trustees' fees (Note 5) | 1,785 | ||
| Professional fees | 35,764 | ||
| Custodian fees | 96,366 | ||
| Registration and filing fees | 20,145 | ||
| Other | 4,977 | ||
| Total expenses | 1,693,993 | ||
| Less expense reductions (Note 5) | (6,055) | ||
| Net expenses | 1,687,938 | ||
| Net investment income | 12,679,845 | ||
| Realized and unrealized gain (loss) | |||
| Net realized gain (loss) on | |||
| Investments | 1,409,113 | ||
| Capital gain distributions received from | |||
| unaffiliated underlying funds | 99 | ||
| Foreign currency transactions | 95,482 | ||
| 1,504,694 | |||
| Change in net unrealized appreciation | |||
| (depreciation) of | |||
| Investments | (10,508,885) | ||
| Translation of assets and liabilities in foreign | |||
| currencies | 25,430 | ||
| (10,483,455) | |||
| Net realized and unrealized loss | (8,978,761) | ||
| Increase in net assets from operations | $ | 3,701,084 | |
See notes to financial statements
| 22 |
Global High Yield Fund
Statements of Changes in Net Assets
| Six months | ||||||
| ended | Year ended | |||||
| 1/31/12 | 7/31/11 | |||||
| (Unaudited) | ||||||
| Increase (decrease) in net assets | ||||||
| From operations | ||||||
| Net investment income | $ | 12,679,845 | $ | 20,364,500 | ||
| Net realized gain | 1,504,694 | 9,478,502 | ||||
| Change in net unrealized appreciation | ||||||
| (depreciation) | (10,483,455) | 2,632,605 | ||||
| Increase in net assets resulting from | ||||||
| operations | 3,701,084 | 32,475,607 | ||||
| Distributions to shareholders | ||||||
| From net investment income | ||||||
| Class A | (983) | (1,708) | ||||
| Class I | (1,019) | (1,787) | ||||
| Class NAV | (15,133,447) | (21,331,720) | ||||
| From net realized gain | ||||||
| Class A | (354) | (484) | ||||
| Class I | (354) | (484) | ||||
| Class NAV | (5,312,235) | (5,628,109) | ||||
| Total distributions | (20,448,392) | (26,964,292) | ||||
| From Fund share transactions (Note 6) | 41,206,804 | 98,934,845 | ||||
| Total increase | 24,459,496 | 104,446,160 | ||||
| Net assets | ||||||
| Beginning of period | 377,159,092 | 272,712,932 | ||||
| End of period | $ | 401,618,588 | $ | 377,159,092 | ||
| Undistributed / (Accumulated distributions in | ||||||
| excess of) net investment income | $ | (1,269,529) | $ | 1,186,075 | ||
See notes to financial statements
| 23 |
Global High Yield Fund
Financial Highlights (For a share outstanding throughout the period)
| Class A Shares | |||||||
| Period ended | |||||||
| 1-31-121 | 7-31-11 | 7-31-102 | |||||
| Per share operating performance | |||||||
| Net asset value, beginning of period | $ | 10.67 | $ | 10.47 | $ | 10.00 | |
| Net investment income3 | 0.33 | 0.65 | 0.45 | ||||
| Net realized and unrealized gain (loss) on | |||||||
| investments | (0.29) | 0.42 | 0.49 | ||||
| Total from investment operations | 0.04 | 1.07 | 0.94 | ||||
| Less distributions | |||||||
| From net investment income | (0.39) | (0.68) | (0.47) | ||||
| From net realized gain | (0.14) | (0.19) | — | ||||
| Total distributions | (0.53) | (0.87) | (0.47) | ||||
| Net asset value, end of period | $ | 10.18 | $ | 10.67 | $ | 10.47 | |
| Total return (%)4,5 | 0.596 | 10.67 | 9.666 | ||||
| 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 and amounts | |||||||
| recaptured | 1.438 | 1.39 | 1.348 | ||||
| Expenses including reductions and amounts | |||||||
| recaptured | 1.308 | 1.30 | 1.308 | ||||
| Net investment income | 6.428 | 6.11 | 5.978 | ||||
| Portfolio turnover (%) | 23 | 68 | 49 | ||||
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 11-2-09 (inception date) to 7-31-10.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Does not reflect the effect of sales charges, if any.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
See notes to financial statements
| 24 |
Global High Yield Fund
Financial Highlights (For a share outstanding throughout the period)
| Class I Shares | |||||||
| Period ended | |||||||
| 1-31-121 | 7-31-11 | 7-31-102 | |||||
| Per share operating performance | |||||||
| Net asset value, beginning of period | $ | 10.67 | $ | 10.47 | $ | 10.00 | |
| Net investment income3 | 0.34 | 0.68 | 0.47 | ||||
| Net realized and unrealized gain (loss) on | |||||||
| investments | (0.28) | 0.42 | 0.49 | ||||
| Total from investment operations | 0.06 | 1.10 | 0.96 | ||||
| Less distributions | |||||||
| From net investment income | (0.41) | (0.71) | (0.49) | ||||
| From net realized gain | (0.14) | (0.19) | — | ||||
| Total distributions | (0.55) | (0.90) | (0.49) | ||||
| Net asset value, end of period | $ | 10.18 | $ | 10.67 | $ | 10.47 | |
| Total return (%)4 | 0.735 | 11.00 | 9.895 | ||||
| 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 and amounts | |||||||
| recaptured | 1.027 | 0.97 | 1.357 | ||||
| Expenses including reductions and amounts | |||||||
| recaptured | 1.017 | 1.00 | 1.007 | ||||
| Net investment income | 6.717 | 6.41 | 6.257 | ||||
| Portfolio turnover (%) | 23 | 68 | 49 | ||||
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 11-2-09 (commencement of operations) to 7-31-10.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
See notes to financial statements
| 25 |
Global High Yield Fund
Financial Highlights (For a share outstanding throughout the period)
| Class NAV Shares | |||||||
| Period ended | |||||||
| 1-31-121 | 7-31-11 | 7-31-102 | |||||
| Per share operating performance | |||||||
| Net asset value, beginning of period | $ | 10.67 | $ | 10.47 | $ | 10.00 | |
| Net investment income3 | 0.35 | 0.69 | 0.49 | ||||
| Net realized and unrealized gain (loss) on | |||||||
| investments | (0.29) | 0.42 | 0.48 | ||||
| Total from investment operations | 0.06 | 1.11 | 0.97 | ||||
| Less distributions | |||||||
| From net investment income | (0.41) | (0.72) | (0.50) | ||||
| From net realized gain | (0.14) | (0.19) | — | ||||
| Total distributions | (0.55) | (0.91) | (0.50) | ||||
| Net asset value, end of period | $ | 10.18 | $ | 10.67 | $ | 10.47 | |
| Total return (%)4 | 0.785 | 11.09 | 9.965 | ||||
| Ratios and supplemental data | |||||||
| Net assets, end of period (in millions) | $ | 402 | $ | 377 | $ | 273 | |
| Ratios (as a percentage of average net | |||||||
| assets): | |||||||
| Expenses before reductions and amounts | |||||||
| recaptured | 0.916 | 0.93 | 0.946 | ||||
| Expenses including reductions and amounts | |||||||
| recaptured | 0.916 | 0.92 | 0.946 | ||||
| Net investment income | 6.826 | 6.50 | 6.516 | ||||
| Portfolio turnover (%) | 23 | 68 | 49 | ||||
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 11-2-09 (commencement of operations) to 7-31-10.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
See notes to financial statements
| 26 |
Global High Yield Fund
Notes to Financial Statements (unaudited)
Note 1 — Organization
John Hancock Global High Yield Fund (the Fund) is a series of John Hancock Funds II (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 total return, which consists of income on its investments 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 shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class NAV shares are sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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.
The following is a summary of the values by input classification of the Fund’s investments as of January 31, 2012, by major security category or type:
| Total Market Value at | Level 1 Quoted | Level 2 Significant | Level 3 Significant | |
| 1/31/2012 | Price | Observable Inputs | Unobservable Inputs | |
| Corporate Bonds | $262,316,585 | — | $262,066,585 | $250,000 |
| Foreign Government | ||||
| Obligations | 104,421,476 | — | 104,421,476 | — |
| Capital Preferred | ||||
| Securities | 311,163 | — | 311,163 | — |
| Convertible Bonds | 4,090,335 | — | 4,090,335 | — |
| Structured Notes | 6,618,517 | — | 935,013 | 5,683,504 |
| Term Loans | 4,672,120 | — | 3,841,480 | 830,640 |
| Preferred Securities | 542,351 | $466,358 | 75,993 | — |
| Common Stocks | 28,630 | 28,630 | — | — |
| Short-Term | ||||
| Investments | 15,545,079 | 15,545,020 | 59 | — |
| Total Investments in | ||||
| Securities | $398,546,256 | $16,040,008 | $375,742,104 | $6,764,144 |
| 27 |
| Other Financial | ||||
| Instruments: | ||||
| Forward Foreign | ||||
| Currency Contracts | ($51,744) | — | ($51,744) | — |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the six months ended January 31, 2012, there were no significant transfers into or out of Level 1 or Level 2.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value. Transfers into or out of Level 3 represent the beginning value of any security or instrument where a change in the level has occurred from the beginning to the end of the period.
| Corporate | Structured | Common | |||
| Bonds | Notes | Term Loans | Stocks | Total | |
| Balance as of 7-31-11 | $538,441 | $7,087,068 | $1,389,274 | - | $9,014,783 |
| Realized gain (loss) | (13,858) | (17,668) | 2,899 | $443 | (28,185) |
| Change in unrealized appreciation | |||||
| (depreciation) | (14,010) | (127,736) | 5,468 | - | (136,277) |
| Purchases | 250,000 | 5,533,057 | 205,600 | - | 5,988,657 |
| Sales | (317,523) | (6,791,217) | (772,601) | (443) | (7,881,784) |
| Transfers into Level 3 | - | - | - | - | |
| Transfers out of Level 3 | (193,050) | - | - | (193,050) | |
| Balance as of 1-31-12 | $250,000 | $5,683,504 | $830,640 | - | $6,764,144 |
| Change in unrealized at period end* | - | $71,852 | $601 | - | $72,453 |
*Change in unrealized appreciation (depreciation) attributable to Level 3 securities held at the period end.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Investments by the Fund in other open-end management investment companies are valued at their respective net asset values each business day. 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 market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the NYSE. Significant market events that affect the values of non-U.S. securities may occur 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 non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
| 28 |
Repurchase agreements. The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement, it receives collateral which 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. 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.
Structured notes. The Fund may invest in structured notes. The Fund invests in an entity, such as a trust, organized and operated solely for the purpose of restructuring the investment characteristics of various securities. This type of restructuring involves the deposit or purchase of specified instruments and the issuance of one or more classes of securities backed by, or representing, interests in the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured notes to create securities with different investment characteristics, such as varying maturities, payment priorities or interest rate provisions. The extent of the income paid by the structured notes is dependent on the cash flow of the underlying instruments.
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 subadviser’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. 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 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.
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. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
| 29 |
Foreign taxes. The Fund may be subject to capital gains and repatriation taxes as imposed by certain countries in which it invests. Such taxes are generally based upon income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to 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. which enables them to participate in a $200 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. For the six months ended January 31, 2012, the Fund had no borrowings under the line of credit.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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 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 July 31, 2011, 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 gain 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,
| 30 |
if any, will reverse in a subsequent period. Book-tax differences are primarily attributable to foreign currency transactions and amortization and accretion on debt securities.
New accounting pronouncements. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The update creates new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Management is currently evaluating the impact, if any, on the Fund’s financial statement disclosures.
Note 3 — Derivative instruments
The Fund may invest in derivatives in order to meet its investment objectives. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, the Fund is exposed to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a specific currency at a price that is set on the date of the contract. The forward contract calls for delivery of the currency on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the failure of the counterparties to timely post collateral, the risk that currency movements will not occur thereby reducing the Fund’s total return and the potential for losses in excess of the 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 January 31, 2012, the Fund used forward foreign currency contracts to manage against anticipated currency exchange rates and for exposure to foreign currency. The following table summarizes the contracts held at January 31, 2012. During the six months ended January 31, 2012, the Fund held forward foreign currency contracts with USD absolute values ranging from $17.9 million to $34.1 million as measured at each quarter end.
| 31 |
| Principal Amount | Principal Amount | Unrealized | |||
| Covered by | Covered by Contract | Settlement | Appreciation | ||
| Currency | Contract | (USD) | Counterparty | Date | (Depreciation) |
| BUYS | |||||
| BRL | 2,832,672 | $1,511,081 | Citibank N.A. | 2/2/2012 | $110,183 |
| BRL | 2,832,672 | 1,598,032 | Citibank N.A. | 3/2/2012 | 11,258 |
| CNY | 10,101,400 | 1,584,458 | Citibank N.A. | 5/16/2012 | 16,283 |
| EUR | 104,664 | 137,392 | Citibank N.A. | 2/29/2012 | (481) |
| $4,830,963 | $137,243 | ||||
| SELLS | |||||
| BRL | 1,607,646 | $1,607,646 | Citibank N.A. | 2/2/2012 | ($13,618) |
| CNY | 1,594,161 | 1,594,161 | Citibank N.A. | 5/16/2012 | (6,581) |
| EUR | 9,277,956 | 9,277,956 | Citibank N.A. | 2/29/2012 | (155,886) |
| GBP | 604,677 | 604,677 | Citibank N.A. | 2/29/2012 | (12,902) |
| $13,084,438 | ($188,987) | ||||
| Currency Abbreviations | |
| BRL | Brazilian Real |
| CNY | Chinese Yuan Renminbi |
| EUR | Euro |
| GBP | Pound Sterling |
Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the Fund at January 31, 2012, by risk category:
| Financial | Asset | Liability | ||
| Statement of Assets and | Instruments | Derivatives | Derivatives | |
| Risk | Liabilities location | Location | Fair Value | Fair Value |
| Foreign | Receivable/Payable for | Forward foreign | ||
| exchange | foreign currency exchange | currency | ||
| contracts | contracts | contracts | $137,724 | ($189,468) |
| Total | $137,724 | ($189,468) | ||
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 January 31, 2012:
Statement of Operations location - Net Realized Gain (Loss) on:
| Risk | Foreign currency transactions* |
| Foreign currency contracts | $1,012,838 |
*Realized gain/loss associated with 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 January 31, 2012:
| 32 |
Statement of Operations location - Change in Unrealized Appreciation (Depreciation) of :
| Risk | Foreign currency transactions* |
| Foreign currency contracts | $18,373 |
*Change in unrealized appreciation/depreciation associated with forward foreign currency contracts is included in this caption on the Statement of Operations.
Note 4 - Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 5 – Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: a) 0.825% of the first $250,000,000 of the Fund’s average daily net assets, b) 0.790% of the next $500,000,000 of the Fund’s average daily net assets and c) 0.770% of the Fund’s average daily net assets in excess of $750,000,000. The Adviser has a subadvisory agreement with Stone Harbor Investment Partners LP. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended January 31, 2012 were equivalent to a gross effective rate of 0.81% of the Fund’s average daily net assets.
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Funds) of the Trust 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 Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the reimbursement is calculated daily and allocated among all the Participating Funds in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Adviser upon notice to the funds and with the approval of the Board of Trustees.
Effective December 1, 2011, the Adviser has contractually agreed to waive fees and/or reimburse operating expenses for Class A and Class I shares, 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. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.30% and 1.10% for Class A and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until November 30, 2012. Prior to December 1, 2011, the fee waivers and/or reimbursements for Class A and Class I shares were such that expenses did not exceed 1.30% and 1.00%, respectively.
Additionally, the Adviser has voluntarily agreed to waive and/or reimburse other expenses of the Fund, excluding advisory fees, 12b-1 fees, service fees, transfer agent fees, state registration fees, taxes, brokerage commissions, interest expense, litigation and indemnification expenses, printing and postage, and other extraordinary expenses not incurred in the ordinary course of business. The waivers are such that these expenses will not exceed 0.15% of average net assets. This voluntary expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund.
| 33 |
Accordingly, these expense reductions amounted to $17, $2 and $6,036 for Class A, Class I and Class NAV shares, respectively, for the six months ended January 31, 2012.
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred to the extent that the Fund is below its expense limitation during this period. The table below outlines the amounts recovered during the six months ended January 31, 2012, and the amount of waived or reimbursed expenses subject to potential recovery and the respective expiration dates. Certain reimbursements or waivers are not subject to recapture.
| Amounts Eligible | Amounts Eligible | Amounts Eligible | Amount recovered | ||||
| for recovery | for recovery | for recovery | during the period | ||||
| through 7-1-13 | through 7-1-14 | through 1-1-15 | ended 1-31-12 | ||||
| $8 | $24 | $17 | - | ||||
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the six months ended January 31, 2012 were equivalent to a net annual effective rate of 0.81% of the Fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser 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 January 31, 2012 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A 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 0.30% for Class A shares for distribution and service fees, expressed as an annual percentage of average daily net assets.
Sales charges. Class A shares are assessed up-front sales charges. During the six months ended January 31, 2012, there were no up-front sales charges 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 Adviser. 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.
| 34 |
Class level expenses. Class level expenses for the six months ended January 31, 2012, were:
| Class | Distribution and | Transfer agent fees | ||||
| service fees | ||||||
| A | $38 | $28 | ||||
| I | - | 15 | ||||
| Total | $38 | $43 | ||||
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to each fund based on its average daily net assets.
Note 6 - Fund share transactions
Transactions in Fund shares for the six months ended January 31, 2012 and for the year ended July 31, 2011 were as follows:
| Six months ended | Year ended | |||||||
| 1/31/12 | 7/31/11 | |||||||
| Shares | Amount | Shares | Amount | |||||
| Class NAV shares | ||||||||
| Sold | 2,900,578 | $ | 29,246,914 | 9,283,578 | $ | 98,785,981 | ||
| Distributions reinvested | 2,035,414 | 20,445,583 | 2,547,974 | 26,959,929 | ||||
| Repurchased | (830,356) | (8,485,693) | (2,524,439) | (26,811,065) | ||||
| Net increase | 4,105,636 | $ | 41,206,804 | 9,307,113 | $ | 98,934,845 | ||
There were no fund share transactions for Class A and Class I for the six months ended January 31, 2012 and the year ended July 31, 2011.
Affiliates of the Fund owned 100% of shares of beneficial interest of Class A, Class I and Class NAV on January 31, 2012.
Note 7 - Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $111,290,481 and $80,384,258, respectively, for the six months ended January 31, 2012.
Note 8 - Investment by affiliated funds
Certain investors in the Fund are affiliated funds and are managed by the Adviser 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. For the six months ended January 31, 2012, the following funds had an affiliate ownership concentration of 5% or more of the Fund’s net assets:
| Affiliated | ||
| Fund | Concentration | |
| John Hancock Lifestyle Balanced Portfolio | 33.6% | |
| John Hancock Lifestyle Conservative Portfolio | 13.1% | |
| John Hancock Lifestyle Growth Portfolio | 18.6% | |
| John Hancock Lifestyle Moderate Portfolio | 13.5% |
| 35 |
| More information |
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management Services, LLC |
| James R. Boyle† | |
| Charles L. Bardelis* | Investment subadviser |
| Grace K. Fey | Stone Harbor Investment Partners LP |
| Peter S. Burgess* | |
| Theron S. Hoffman | Principal distributor |
| Hassell H. McClellan | John Hancock Funds, LLC |
| Steven M. Roberts* | |
| Custodian | |
| State Street Bank and Trust Company | |
| Officers | Transfer agent |
| Hugh McHaffie | John Hancock Signature Services, Inc. |
| President | |
| Thomas M. Kinzler | Legal counsel |
| Secretary and Chief Legal Officer | K&L Gates LLP |
| Francis V. Knox, Jr. | |
| Chief Compliance Officer | |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
| *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, if any, for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC's Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| 36 |
| John Hancock Multi Sector Bond Fund | ||
| Table of Contents | ||
| Your expenses | Page 3 | |
| Portfolio summary | Page 4 | |
| Portfolio of investments | Page 5 | |
| Financial statements | Page 30 | |
| Financial highlights | Page 33 | |
| Notes to financial statements | Page 36 | |
| More information | Page 49 | |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding your fund expenses
As a shareholder of the Fund, you incur two types of costs:
• Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
• Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund’s actual ongoing operating expenses, and is based on your fund’s actual return. It assumes an account value of $1,000.00 on August 1, 2011, with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $993.30 | $6.26 |
| Class I | 1,000.00 | 996.00 | 4.62 |
| Class NAV | 1,000.00 | 996.80 | 3.81 |
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 January 31, 2012, 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:
Example
[ My account value $8,600.00 / $1,000.00 = 8.6 ] x $[ “expenses paid” from table ] = My actual expenses
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-12 | |
| Class A | $1,000.00 | $1,018.90 | $6.34 |
| Class I | 1,000.00 | 1,020.50 | 4.67 |
| Class NAV | 1,000.00 | 1,021.30 | 3.86 |
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 1.25%, 0.92% and 0.76% for Class A, Class I and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
| 3 |
John Hancock Multi Sector Bond Fund
| Portfolio Summary | ||
| Value as a | ||
| percentage of | ||
| Portfolio Composition | Fund's net assets | |
| Corporate Bonds | 40.8% | |
| Term Loans | 19.2% | |
| Collateralized Mortgage Obligations | 16.2% | |
| Foreign Government Obligations | 7.0% | |
| U.S. Government & Agency Obligations | 6.1% | |
| Asset Backed Securities | 3.2% | |
| Convertible Bonds | 1.8% | |
| Structured Notes | 1.0% | |
| Capital Preferred Securities | 0.4% | |
| Preferred Securities | 0.2% | |
| Short-Term Investments & Other | 4.1% | |
| Value as a | ||
| percentage of | ||
| Sector Composition1 | Fund's net assets | |
| Collateralized Mortgage Obligations | 16.2% | |
| Financials | 14.7% | |
| Consumer Discretionary | 11.1% | |
| Industrials | 7.0% | |
| Foreign Government Obligations | 7.0% | |
| Health Care | 6.4% | |
| U.S. Government & Agency Obligations | 6.1% | |
| Energy | 5.8% | |
| Consumer Staples | 5.5% | |
| Materials | 4.4% | |
| Information Technology | 4.3% | |
| Telecommunication Services | 4.2% | |
| Utilities | 3.2% | |
| Short-Term Investments & Other | 4.1% | |
| Value as a | ||
| percentage of | ||
| Quality Composition2 | Fund's net assets | |
| AAA | 5.0% | |
| AA | 2.1% | |
| A | 14.9% | |
| BBB | 23.2% | |
| BB | 13.2% | |
| B | 17.1% | |
| CCC & Below | 6.2% | |
| Not Rated | 8.1% | |
| U.S. Government & Agency Obligations | 6.1% | |
| Short-Term Investments & Other | 4.1% | |
1 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.
2 Ratings are from Moody's Investors Service, Inc. If not available, we have used S&P ratings. In the absence of ratings from these agencies, we have used Fitch, Inc. ratings. Not Rated securities are those with no ratings available. All are as of 1-31-12 and do not reflect subsequent downgrades or upgrades, if any.
| 4 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Corporate Bonds 40.77% | $428,622,816 | |||
| (Cost $415,225,879) | ||||
| Consumer Discretionary 5.98% | 62,900,698 | |||
| Auto Components 0.07% | ||||
| Allison Transmission, Inc. (S) | 7.125 | 05/15/19 | $500,000 | 503,125 |
| UCI International, Inc. | 8.625 | 02/15/19 | 280,000 | 283,150 |
| Automobiles 0.21% | ||||
| Chrysler Group LLC (S) | 8.250 | 06/15/21 | 200,000 | 191,000 |
| Chrysler Group LLC (S) | 8.000 | 06/15/19 | 200,000 | 192,000 |
| Hyundai Capital Services, Inc. (S) | 6.000 | 05/05/15 | 1,725,000 | 1,850,866 |
| Diversified Consumer Services 0.13% | ||||
| SSI Investments II | 11.125 | 06/01/18 | 425,000 | 469,625 |
| The ServiceMaster Company | 7.450 | 08/15/27 | 250,000 | 197,500 |
| The ServiceMaster Company, PIK (S) | 10.750 | 07/15/15 | 625,000 | 653,125 |
| Hotels, Restaurants & Leisure 0.89% | ||||
| American Casino & Entertainment Properties LLC | 11.000 | 06/15/14 | 155,000 | 160,038 |
| Boyd Gaming Corp. | 9.125 | 12/01/18 | 555,000 | 556,388 |
| Caesars Entertainment Operating Company, Inc. | 12.750 | 04/15/18 | 325,000 | 276,250 |
| Caesars Entertainment Operating Company, Inc. | 11.250 | 06/01/17 | 350,000 | 379,313 |
| Caesars Entertainment Operating Company, Inc. | 5.375 | 12/15/13 | 275,000 | 237,188 |
| Cap Cana SA (H) | 10.000 | 04/30/16 | 222,300 | 44,460 |
| Cap Cana SA, PIK | 10.000 | 04/30/16 | 353,419 | 53,013 |
| CCM Merger, Inc. (S) | 8.000 | 08/01/13 | 310,000 | 300,700 |
| Harrah's Operating Company, Inc. | 3.276 | 01/28/15 | 4,648,000 | 4,186,519 |
| Isle of Capri Casinos, Inc. | 7.750 | 03/15/19 | 347,000 | 331,385 |
| Isle of Capri Casinos, Inc. | 7.000 | 03/01/14 | 525,000 | 517,125 |
| Jacobs Entertainment, Inc. | 9.750 | 06/15/14 | 70,000 | 65,800 |
| MGM Resorts International (S) | 8.625 | 02/01/19 | 305,000 | 317,200 |
| MGM Resorts International | 7.500 | 06/01/16 | 325,000 | 325,813 |
| MGM Resorts International | 6.875 | 04/01/16 | 425,000 | 416,500 |
| MGM Resorts International | 5.875 | 02/27/14 | 275,000 | 273,625 |
| Pinnacle Entertainment, Inc. | 8.750 | 05/15/20 | 500,000 | 508,750 |
| Pinnacle Entertainment, Inc. | 8.625 | 08/01/17 | 425,000 | 456,875 |
| Household Durables 0.33% | ||||
| American Standard Americas (S) | 10.750 | 01/15/16 | 260,000 | 174,200 |
| Newell Rubbermaid, Inc. | 6.250 | 04/15/18 | 1,000,000 | 1,133,958 |
| Newell Rubbermaid, Inc. | 5.500 | 04/15/13 | 1,650,000 | 1,734,064 |
| Norcraft Companies LP | 10.500 | 12/15/15 | 490,000 | 454,475 |
| Media 3.02% | ||||
| Allbritton Communications Company | 8.000 | 05/15/18 | 380,000 | 392,350 |
| AMC Entertainment, Inc. | 9.750 | 12/01/20 | 100,000 | 98,750 |
| AMC Entertainment, Inc. | 8.750 | 06/01/19 | 375,000 | 395,625 |
| AMC Entertainment, Inc. | 8.000 | 03/01/14 | 479,000 | 477,803 |
| AMC Networks, Inc. (S) | 7.750 | 07/15/21 | 375,000 | 412,031 |
| Cablevision Systems Corp. | 8.625 | 09/15/17 | 700,000 | 780,500 |
| CCO Holdings LLC | 6.625 | 01/31/22 | 645,000 | 670,800 |
| Cequel Communications Holdings I LLC (S) | 8.625 | 11/15/17 | 400,000 | 426,000 |
| Cinemark USA, Inc. | 8.625 | 06/15/19 | 675,000 | 742,500 |
| Columbus International, Inc. | 11.500 | 11/20/14 | 101,000 | 106,858 |
| DISH DBS Corp. | 7.875 | 09/01/19 | 800,000 | 922,000 |
| Entravision Communications Corp. | 8.750 | 08/01/17 | 635,000 | 650,875 |
| Globo Comunicacao E Participacoes SA (Q) | 6.250 | 07/20/15 | 100,000 | 106,500 |
| See notes to financial statements | |
| 5 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Consumer Discretionary (continued) | ||||
| Grupo Televisa SA | 6.000 | 05/15/18 | $100,000 | $113,665 |
| Interactive Data Corp. | 10.250 | 08/01/18 | 650,000 | 719,875 |
| Lamar Media Corp. (S) | 5.875 | 02/01/22 | 525,000 | 526,969 |
| Local TV Finance LLC, PIK (S) | 9.250 | 06/15/15 | 145,000 | 143,550 |
| MediaCom LLC (S) | 7.250 | 02/15/22 | 420,000 | 420,000 |
| Myriad International Holding BV | 6.375 | 07/28/17 | 300,000 | 327,000 |
| Nara Cable Funding, Ltd. (S) | 8.875 | 12/01/18 | 505,000 | 480,826 |
| Nara Cable Funding, Ltd. (EUR) (D) | 8.875 | 12/01/18 | 100,000 | 120,668 |
| NBCUniversal Media LLC | 5.150 | 04/30/20 | 2,700,000 | 3,094,643 |
| Net Servicos de Comunicacao SA | 7.500 | 01/27/20 | 100,000 | 116,250 |
| News America, Inc. | 6.650 | 11/15/37 | 2,250,000 | 2,703,627 |
| Omnicom Group, Inc. | 4.450 | 08/15/20 | 2,950,000 | 3,127,448 |
| Radio One, Inc., PIK | 15.000 | 05/24/16 | 493,060 | 318,024 |
| Regal Entertainment Group | 9.125 | 08/15/18 | 525,000 | 574,875 |
| Sinclair Television Group, Inc. (S) | 9.250 | 11/01/17 | 250,000 | 277,500 |
| Sinclair Television Group, Inc. | 8.375 | 10/15/18 | 225,000 | 239,625 |
| The Interpublic Group of Companies, Inc. | 6.250 | 11/15/14 | 350,000 | 378,000 |
| The McClatchy Company | 11.500 | 02/15/17 | 925,000 | 943,500 |
| Time Warner Cable, Inc. | 8.750 | 02/14/19 | 2,300,000 | 3,025,908 |
| Time Warner, Inc. | 7.700 | 05/01/32 | 1,789,000 | 2,375,075 |
| Unitymedia Hessen GmbH & Company KG (S) | 8.125 | 12/01/17 | 350,000 | 378,000 |
| Univision Communications, Inc. (S) | 8.500 | 05/15/21 | 350,000 | 339,500 |
| Univision Communications, Inc. (S) | 7.875 | 11/01/20 | 345,000 | 358,800 |
| Viacom, Inc. | 3.500 | 04/01/17 | 3,375,000 | 3,587,379 |
| Visant Corp. | 10.000 | 10/01/17 | 325,000 | 294,938 |
| Ziggo Bond Company BV (EUR) (D) | 8.000 | 05/15/18 | 400,000 | 548,073 |
| Multiline Retail 0.91% | ||||
| JC Penney Corp., Inc. | 7.400 | 04/01/37 | 600,000 | 582,000 |
| Kohl's Corp. | 6.875 | 12/15/37 | 2,475,000 | 3,057,452 |
| Macy's Retail Holdings, Inc. | 5.900 | 12/01/16 | 2,575,000 | 2,974,153 |
| Nordstrom, Inc. | 4.750 | 05/01/20 | 2,550,000 | 2,859,050 |
| The Bon-Ton Department Stores, Inc. | 10.250 | 03/15/14 | 95,000 | 60,088 |
| Specialty Retail 0.33% | ||||
| Armored AutoGroup, Inc. (S) | 9.250 | 11/01/18 | 350,000 | 292,250 |
| Baker & Taylor, Inc. (S) | 11.500 | 07/01/13 | 450,000 | 238,500 |
| Claire's Stores, Inc. | 9.250 | 06/01/15 | 50,000 | 38,500 |
| Claire's Stores, Inc. | 8.875 | 03/15/19 | 525,000 | 430,500 |
| Express LLC | 8.750 | 03/01/18 | 375,000 | 412,500 |
| Limited Brands, Inc. | 6.950 | 03/01/33 | 125,000 | 118,750 |
| Lowe's Companies, Inc. | 4.625 | 04/15/20 | 1,075,000 | 1,214,114 |
| RadioShack Corp. | 6.750 | 05/15/19 | 250,000 | 210,000 |
| Toys R Us Property Company LLC | 10.750 | 07/15/17 | 425,000 | 472,813 |
| Textiles, Apparel & Luxury Goods 0.09% | ||||
| Levi Strauss & Company | 7.625 | 05/15/20 | 500,000 | 522,500 |
| Quiksilver, Inc. | 6.875 | 04/15/15 | 475,000 | 457,188 |
| Consumer Staples 3.13% | 32,862,899 | |||
| Beverages 0.50% | ||||
| Anheuser-Busch InBev Worldwide, Inc. | 4.125 | 01/15/15 | 2,675,000 | 2,914,533 |
| Cott Beverages, Inc. | 8.375 | 11/15/17 | 150,000 | 163,500 |
| Cott Beverages, Inc. | 8.125 | 09/01/18 | 250,000 | 273,125 |
| SABMiller Holdings, Inc. (S) | 2.450 | 01/15/17 | 1,850,000 | 1,890,535 |
| See notes to financial statements | |
| 6 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Consumer Staples (continued) | ||||
| Commercial Services & Supplies 0.03% | ||||
| ARAMARK Holdings Corp., PIK (S) | 8.625 | 05/01/16 | $325,000 | $333,938 |
| Food & Staples Retailing 0.55% | ||||
| Michael Foods, Inc. | 9.750 | 07/15/18 | 450,000 | 487,125 |
| New Albertsons, Inc. | 8.000 | 05/01/31 | 1,350,000 | 1,083,375 |
| Wal-Mart Stores, Inc. | 3.250 | 10/25/20 | 3,950,000 | 4,230,888 |
| Food Products 0.98% | ||||
| Brickman Group Holdings, Inc. (S) | 9.125 | 11/01/18 | 350,000 | 322,875 |
| Campofrio Food Group SA (EUR) (D) | 8.250 | 10/31/16 | 150,000 | 203,075 |
| Dean Foods Company | 9.750 | 12/15/18 | 635,000 | 692,150 |
| Dean Foods Company | 7.000 | 06/01/16 | 50,000 | 50,250 |
| Dean Foods Company | 6.900 | 10/15/17 | 375,000 | 370,313 |
| Del Monte Corp. | 7.625 | 02/15/19 | 1,000,000 | 983,750 |
| General Mills, Inc. | 3.150 | 12/15/21 | 2,925,000 | 2,980,019 |
| Grupo Bimbo SAB de CV (S) | 4.875 | 06/30/20 | 100,000 | 105,870 |
| Mead Johnson Nutrition Company | 4.900 | 11/01/19 | 2,500,000 | 2,860,523 |
| MHP SA | 10.250 | 04/29/15 | 100,000 | 94,000 |
| Minerva Overseas II, Ltd. (S) | 10.875 | 11/15/19 | 104,000 | 96,460 |
| Pinnacle Foods Finance LLC | 10.625 | 04/01/17 | 350,000 | 370,125 |
| Pinnacle Foods Finance LLC | 9.250 | 04/01/15 | 255,000 | 262,650 |
| Pinnacle Foods Finance LLC | 8.250 | 09/01/17 | 275,000 | 294,250 |
| Post Holdings, Inc. (S) | 7.375 | 02/15/22 | 600,000 | 624,000 |
| Household Products 0.18% | ||||
| NBTY, Inc. | 9.000 | 10/01/18 | 475,000 | 524,875 |
| Reynolds Group Issuer, Inc. (S) | 9.875 | 08/15/19 | 405,000 | 412,088 |
| Reynolds Group Issuer, Inc. (S) | 9.000 | 04/15/19 | 725,000 | 721,375 |
| Reynolds Group Issuer, Inc. (S) | 8.250 | 02/15/21 | 250,000 | 236,875 |
| Personal Products 0.04% | ||||
| Elizabeth Arden, Inc. | 7.375 | 03/15/21 | 200,000 | 211,000 |
| Hypermarcas SA (S) | 6.500 | 04/20/21 | 179,000 | 167,365 |
| Tobacco 0.85% | ||||
| Altria Group, Inc. | 9.250 | 08/06/19 | 2,250,000 | 3,064,952 |
| Lorillard Tobacco Company | 8.125 | 06/23/19 | 2,400,000 | 2,925,715 |
| Philip Morris International, Inc. | 5.650 | 05/16/18 | 2,400,000 | 2,911,325 |
| Energy 4.91% | 51,614,750 | |||
| Energy Equipment & Services 1.00% | ||||
| Basic Energy Services, Inc. | 7.750 | 02/15/19 | 250,000 | 254,375 |
| Complete Production Services, Inc. | 8.000 | 12/15/16 | 475,000 | 495,781 |
| Hercules Offshore, Inc. (S) | 10.500 | 10/15/17 | 576,000 | 576,000 |
| Hornbeck Offshore Services, Inc. | 6.125 | 12/01/14 | 375,000 | 375,469 |
| Hornbeck Offshore Services, Inc. (1.625% Steps down to | ||||
| 1.375% on 11/15/2013) | 1.625 | 11/15/26 | 330,000 | 338,250 |
| Inkia Energy, Ltd. (S) | 8.375 | 04/04/21 | 206,000 | 206,000 |
| Offshore Group Investments, Ltd. | 11.500 | 08/01/15 | 590,000 | 653,425 |
| Parker Drilling Company | 9.125 | 04/01/18 | 475,000 | 503,500 |
| Schlumberger Investment SA (S) | 3.300 | 09/14/21 | 2,800,000 | 2,918,672 |
| SESI LLC (S) | 7.125 | 12/15/21 | 320,000 | 347,200 |
| SESI LLC | 6.375 | 05/01/19 | 409,000 | 424,338 |
| Trinidad Drilling, Ltd. (S) | 7.875 | 01/15/19 | 430,000 | 455,800 |
| Weatherford International, Ltd. | 7.000 | 03/15/38 | 2,480,000 | 2,934,827 |
| See notes to financial statements | |
| 7 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Energy (continued) | ||||
| Oil, Gas & Consumable Fuels 3.91% | ||||
| Arch Coal, Inc. (S) | 7.250 | 06/15/21 | $375,000 | $376,875 |
| Arch Coal, Inc. (S) | 7.000 | 06/15/19 | 125,000 | 125,313 |
| Atlas Pipeline Partners LP | 8.750 | 06/15/18 | 675,000 | 723,938 |
| BP Capital Markets PLC | 2.248 | 11/01/16 | 1,650,000 | 1,689,282 |
| Bumi Capital Pte, Ltd. | 12.000 | 11/10/16 | 100,000 | 108,500 |
| Bumi Investment Pte, Ltd. (S) | 10.750 | 10/06/17 | 100,000 | 106,000 |
| Cloud Peak Energy Resources LLC | 8.500 | 12/15/19 | 360,000 | 393,300 |
| Cloud Peak Energy Resources LLC | 8.250 | 12/15/17 | 95,000 | 102,600 |
| Concho Resources, Inc. | 6.500 | 01/15/22 | 250,000 | 268,750 |
| Consol Energy, Inc. | 8.250 | 04/01/20 | 175,000 | 189,656 |
| Consol Energy, Inc. | 8.000 | 04/01/17 | 400,000 | 432,000 |
| Copano Energy LLC | 7.750 | 06/01/18 | 375,000 | 395,625 |
| Dolphin Energy, Ltd. | 5.888 | 06/15/19 | 168,580 | 180,381 |
| Eagle Rock Energy Partners LP (S) | 8.375 | 06/01/19 | 475,000 | 484,500 |
| Ecopetrol SA | 7.625 | 07/23/19 | 25,000 | 30,125 |
| El Paso Corp. | 7.800 | 08/01/31 | 125,000 | 146,535 |
| El Paso Corp. | 7.750 | 01/15/32 | 75,000 | 88,123 |
| EQT Corp. | 4.875 | 11/15/21 | 2,775,000 | 2,824,714 |
| Forest Oil Corp. | 7.250 | 06/15/19 | 625,000 | 625,000 |
| General Maritime Corp. (H) | 12.000 | 11/15/17 | 645,000 | 14,513 |
| Hess Corp. | 8.125 | 02/15/19 | 2,225,000 | 2,894,890 |
| Inergy LP | 7.000 | 10/01/18 | 225,000 | 218,813 |
| KazMunayGas National Company | 11.750 | 01/23/15 | 231,000 | 280,088 |
| KazMunayGas National Company | 8.375 | 07/02/13 | 213,000 | 227,420 |
| KazMunayGas National Company | 7.000 | 05/05/20 | 144,000 | 158,054 |
| KazMunayGas National Company (S) | 6.375 | 04/09/21 | 200,000 | 210,500 |
| Kodiak Oil & Gas Corp. (S) | 8.125 | 12/01/19 | 255,000 | 270,300 |
| Linn Energy LLC | 7.750 | 02/01/21 | 900,000 | 969,750 |
| Marathon Petroleum Corp. | 6.500 | 03/01/41 | 2,700,000 | 2,999,462 |
| MarkWest Energy Partners LP | 6.250 | 06/15/22 | 255,000 | 270,938 |
| MIE Holdings Corp. (S) | 9.750 | 05/12/16 | 204,000 | 187,680 |
| NFR Energy LLC (S) | 9.750 | 02/15/17 | 400,000 | 340,000 |
| Novatek Finance, Ltd. (S) | 6.604 | 02/03/21 | 218,000 | 228,628 |
| Oasis Petroleum, Inc. | 7.250 | 02/01/21 | 425,000 | 446,250 |
| Odebrecht Drilling Norbe VIII/IX, Ltd. | 6.350 | 06/30/21 | 196,000 | 203,644 |
| OGX Petroleo e Gas Participacoes SA (S) | 8.500 | 06/01/18 | 204,000 | 210,732 |
| Peabody Energy Corp. (S) | 6.250 | 11/15/21 | 350,000 | 360,500 |
| Pemex Project Funding Master Trust | 6.625 | 06/15/35 | 735,000 | 825,038 |
| Petrobras International Finance Company | 5.375 | 01/27/21 | 28,000 | 29,363 |
| Petroleos de Venezuela SA | 8.500 | 11/02/17 | 152,200 | 120,619 |
| Petroleos de Venezuela SA | 5.000 | 10/28/15 | 32,114 | 24,567 |
| Petroleos de Venezuela SA | 4.900 | 10/28/14 | 1,905,926 | 1,600,978 |
| Petroleos Mexicanos (MXN) (D)(S) | 7.650 | 11/24/21 | 5,250,000 | 413,990 |
| Petronas Capital, Ltd. | 7.875 | 05/22/22 | 967,000 | 1,314,746 |
| Petronas Global Sukuk, Ltd. (S) | 4.250 | 08/12/14 | 273,000 | 287,229 |
| QGOG Atlantic/Alaskan Rigs, Ltd. (S) | 5.250 | 07/30/18 | 234,563 | 238,081 |
| Quicksilver Resources, Inc. | 7.125 | 04/01/16 | 450,000 | 429,750 |
| Sabine Pass LNG LP | 7.500 | 11/30/16 | 450,000 | 469,125 |
| Sabine Pass LNG LP | 7.250 | 11/30/13 | 400,000 | 414,000 |
| SandRidge Energy, Inc. | 8.750 | 01/15/20 | 600,000 | 636,000 |
| Targa Resources Partners LP | 7.875 | 10/15/18 | 500,000 | 537,500 |
| Teekay Corp. | 8.500 | 01/15/20 | 325,000 | 325,000 |
| Total Capital SA | 4.450 | 06/24/20 | 2,775,000 | 3,149,894 |
| See notes to financial statements | |
| 8 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Energy (continued) | ||||
| TransCanada Pipelines, Ltd. | 7.250 | 08/15/38 | $3,100,000 | $4,316,561 |
| Valero Energy Corp. | 6.625 | 06/15/37 | 2,675,000 | 2,925,262 |
| Venoco, Inc. | 8.875 | 02/15/19 | 325,000 | 279,500 |
| Williams Partners LP | 7.250 | 02/01/17 | 2,367,000 | 2,860,531 |
| Zhaikmunai LLP (S) | 10.500 | 10/19/15 | 150,000 | 150,000 |
| Financials 9.55% | 100,442,692 | |||
| Capital Markets 0.48% | ||||
| Bank of New York Mellon SA Institucion de Banca Multiple | ||||
| (S) | 9.625 | 05/02/21 | 297,750 | 263,509 |
| E*Trade Financial Corp., PIK | 12.500 | 11/30/17 | 550,000 | 636,625 |
| Morgan Stanley | 6.625 | 04/01/18 | 3,900,000 | 4,111,103 |
| Commercial Banks 1.74% | ||||
| Abbey National Treasury Services PLC | 4.000 | 04/27/16 | 4,325,000 | 4,197,957 |
| Axis Bank (P) | 7.125 | 06/28/22 | 100,000 | 90,062 |
| Banco Cruzeiro do Sul SA (S) | 8.875 | 09/22/20 | 207,000 | 159,390 |
| Banco De Credito Del Peru | 5.375 | 09/16/20 | 100,000 | 98,625 |
| Barclays Bank PLC | 5.140 | 10/14/20 | 2,650,000 | 2,541,395 |
| HSBC Holdings PLC | 6.500 | 09/15/37 | 3,625,000 | 3,856,380 |
| Lloyds TSB Bank PLC | 4.875 | 01/21/16 | 2,900,000 | 2,966,224 |
| PNC Bank NA | 4.875 | 09/21/17 | 2,700,000 | 2,916,446 |
| PNC Funding Corp. | 6.700 | 06/10/19 | 1,225,000 | 1,529,905 |
| Consumer Finance 0.81% | ||||
| Ally Financial, Inc. | 7.500 | 09/15/20 | 400,000 | 429,000 |
| Ally Financial, Inc. | 6.250 | 12/01/17 | 225,000 | 231,840 |
| Capital One Financial Corp. | 6.150 | 09/01/16 | 3,635,000 | 3,853,812 |
| Capital One Financial Corp. | 4.750 | 07/15/21 | 500,000 | 526,683 |
| Discover Bank | 8.700 | 11/18/19 | 2,350,000 | 2,781,110 |
| SLM Corp. | 7.250 | 01/25/22 | 725,000 | 732,765 |
| Diversified Financial Services 3.23% | ||||
| Alfa Bank OJSC (S) | 7.875 | 09/25/17 | 113,000 | 113,848 |
| Atlantic Broadband Finance LLC | 9.375 | 01/15/14 | 200,000 | 200,000 |
| Aviation Capital Group (S) | 6.750 | 04/06/21 | 2,925,000 | 2,825,930 |
| Bank of America Corp. | 5.750 | 12/01/17 | 1,250,000 | 1,287,689 |
| BM&FBovespa SA (S) | 5.500 | 07/16/20 | 150,000 | 159,000 |
| BTA Bank JSC (10.750% to 01/01/2013, then 12.500%) (H) | 10.750 | 07/01/18 | 310,989 | 58,310 |
| BTA Bank JSC (10.750% to 01/01/2013, then 12.500%) | ||||
| (H)(S) | 10.750 | 07/01/18 | 270,167 | 50,656 |
| BTA Bank JSC (Recovery Units) (H)(S) | Zero | 06/30/20 | 578,042 | 28,902 |
| Citigroup, Inc. | 8.500 | 05/22/19 | 400,000 | 489,006 |
| Citigroup, Inc. | 5.000 | 09/15/14 | 3,650,000 | 3,753,474 |
| Citigroup, Inc. | 4.875 | 05/07/15 | 1,950,000 | 1,985,139 |
| Countrywide Financial Corp. | 6.250 | 05/15/16 | 1,325,000 | 1,333,578 |
| Dubai Holding Commercial Operations MTN, Ltd. (GBP) (D) | 6.000 | 02/01/17 | 200,000 | 245,825 |
| European Investment Bank (ZAR) (D)(Z) | Zero | 12/31/18 | 1,480,000 | 103,150 |
| Fox Acquisition Sub LLC (S) | 13.375 | 07/15/16 | 400,000 | 437,000 |
| General Electric Capital Corp. | 6.750 | 03/15/32 | 3,625,000 | 4,341,913 |
| Gruposura Finance (S) | 5.700 | 05/18/21 | 201,000 | 206,025 |
| Inter-American Development Bank (IDR) (D) | 5.709 | 08/20/15 | 5,260,000,000 | 473,716 |
| JPMorgan Chase & Company | 6.300 | 04/23/19 | 2,150,000 | 2,485,965 |
| JPMorgan Chase & Company | 6.125 | 06/27/17 | 2,350,000 | 2,595,909 |
| Merrill Lynch & Company, Inc. | 6.050 | 05/16/16 | 6,530,000 | 6,577,454 |
| Ono Finance II PLC (S) | 10.875 | 07/15/19 | 240,000 | 214,800 |
| See notes to financial statements | |
| 9 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Financials (continued) | ||||
| ORIX Corp. | 5.000 | 01/12/16 | $2,625,000 | $2,771,417 |
| Pemex Finance, Ltd. | 9.150 | 11/15/18 | 255,000 | 313,230 |
| PHH Corp. | 9.250 | 03/01/16 | 180,000 | 172,800 |
| Provident Funding Associates LP (S) | 10.250 | 04/15/17 | 125,000 | 119,688 |
| Provident Funding Associates LP (S) | 10.125 | 02/15/19 | 350,000 | 264,250 |
| Sinochem Overseas Capital Company, Ltd. (S) | 4.500 | 11/12/20 | 179,000 | 175,255 |
| Tarjeta Naranja SA (S) | 9.000 | 01/28/17 | 39,000 | 38,240 |
| TNK-BP Finance SA | 6.625 | 03/20/17 | 100,000 | 105,875 |
| Insurance 2.09% | ||||
| Aegon NV | 4.625 | 12/01/15 | 4,275,000 | 4,471,458 |
| AXA SA | 8.600 | 12/15/30 | 2,800,000 | 2,879,447 |
| CNA Financial Corp. | 5.875 | 08/15/20 | 2,725,000 | 2,870,747 |
| CNO Financial Group, Inc. (S) | 9.000 | 01/15/18 | 350,000 | 371,875 |
| Fairfax Financial Holdings, Ltd. (S) | 5.800 | 05/15/21 | 2,150,000 | 2,061,377 |
| Fidelity National Financial, Inc. | 6.600 | 05/15/17 | 2,300,000 | 2,448,716 |
| Hartford Financial Services Group, Inc. | 6.000 | 01/15/19 | 2,675,000 | 2,828,090 |
| Kemper Corp. | 6.000 | 05/15/17 | 1,175,000 | 1,253,951 |
| Prudential Financial, Inc. | 4.750 | 09/17/15 | 2,555,000 | 2,761,587 |
| Real Estate Investment Trusts 1.14% | ||||
| Boston Properties LP | 4.125 | 05/15/21 | 3,025,000 | 3,187,367 |
| Developers Diversified Realty Corp. | 4.750 | 04/15/18 | 2,850,000 | 2,872,190 |
| Kimco Realty Corp. | 4.300 | 02/01/18 | 2,800,000 | 2,873,962 |
| Ventas Realty LP | 4.750 | 06/01/21 | 3,000,000 | 3,093,816 |
| Real Estate Management & Development 0.06% | ||||
| BR Malls International Finance, Ltd. (Q) | 8.500 | 01/21/16 | 60,000 | 61,500 |
| BR Malls International Finance, Ltd. (Q)(S) | 8.500 | 01/21/16 | 82,000 | 84,050 |
| Central China Real Estate, Ltd. (S) | 12.250 | 10/20/15 | 109,000 | 105,185 |
| Evergrande Real Estate Group, Ltd. | 13.000 | 01/27/15 | 100,000 | 92,000 |
| IRSA Inversiones y Representaciones SA (S) | 11.500 | 07/20/20 | 164,000 | 173,428 |
| Kaisa Group Holdings, Ltd. | 13.500 | 04/28/15 | 100,000 | 93,500 |
| Thrifts & Mortgage Finance 0.00% | ||||
| Hipotecaria Su Casita SA de CV (S) | 7.500 | 06/29/18 | 25,235 | 7,571 |
| Health Care 4.01% | 42,135,534 | |||
| Biotechnology 0.22% | ||||
| Amgen, Inc. | 3.875 | 11/15/21 | 2,250,000 | 2,345,074 |
| Health Care Equipment & Supplies 0.52% | ||||
| Biomet, Inc. | 11.625 | 10/15/17 | 450,000 | 489,375 |
| ConvaTec Healthcare E SA (S) | 10.500 | 12/15/18 | 475,000 | 463,719 |
| CR Bard, Inc. | 4.400 | 01/15/21 | 2,750,000 | 3,097,559 |
| Surgical Care Affiliates, Inc. (S) | 10.000 | 07/15/17 | 100,000 | 96,375 |
| Surgical Care Affiliates, Inc., PIK (S) | 8.875 | 07/15/15 | 600,000 | 600,750 |
| United Surgical Partners International, Inc., PIK | 9.250 | 05/01/17 | 700,000 | 710,500 |
| Health Care Providers & Services 1.66% | ||||
| American Renal Holdings Company, Inc. | 8.375 | 05/15/18 | 575,000 | 621,000 |
| Community Health Systems, Inc. | 8.875 | 07/15/15 | 602,000 | 626,080 |
| Community Health Systems, Inc. (S) | 8.000 | 11/15/19 | 495,000 | 507,994 |
| Emergency Medical Services Corp. | 8.125 | 06/01/19 | 475,000 | 484,500 |
| Fresenius Medical Care US Finance II, Inc. (S) | 5.875 | 01/31/22 | 550,000 | 562,375 |
| HCA Holdings, Inc. | 7.750 | 05/15/21 | 75,000 | 78,563 |
| HCA, Inc. | 8.360 | 04/15/24 | 670,000 | 654,925 |
| HCA, Inc. | 7.500 | 02/15/22 | 775,000 | 829,250 |
| See notes to financial statements | |
| 10 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Health Care (continued) | ||||
| Health Management Associates, Inc. (S) | 7.375 | 01/15/20 | $530,000 | $545,900 |
| Healthsouth Corp. | 8.125 | 02/15/20 | 775,000 | 821,500 |
| Humana, Inc. | 8.150 | 06/15/38 | 2,500,000 | 3,412,680 |
| IASIS Healthcare LLC | 8.375 | 05/15/19 | 525,000 | 505,313 |
| McKesson Corp. | 4.750 | 03/01/21 | 2,775,000 | 3,183,530 |
| Radiation Therapy Services, Inc. | 9.875 | 04/15/17 | 475,000 | 331,313 |
| UnitedHealth Group, Inc. | 6.000 | 02/15/18 | 2,500,000 | 3,042,980 |
| Vanguard Health Holding Company II LLC | 8.000 | 02/01/18 | 1,150,000 | 1,204,625 |
| Health Care Technology 0.28% | ||||
| Agilent Technologies, Inc. | 6.500 | 11/01/17 | 2,515,000 | 2,975,730 |
| Pharmaceuticals 1.33% | ||||
| Abbott Laboratories | 6.150 | 11/30/37 | 2,950,000 | 3,897,419 |
| Allergan, Inc. | 3.375 | 09/15/20 | 3,050,000 | 3,220,736 |
| Merck & Company, Inc. | 3.875 | 01/15/21 | 2,075,000 | 2,353,417 |
| Teva Pharmaceutical Finance Company, BV | 2.400 | 11/10/16 | 1,600,000 | 1,656,816 |
| Watson Pharmaceuticals, Inc. | 5.000 | 08/15/14 | 2,625,000 | 2,815,536 |
| Industrials 4.27% | 44,924,048 | |||
| Aerospace & Defense 0.66% | ||||
| L-3 Communications Corp. | 5.200 | 10/15/19 | 2,585,000 | 2,772,033 |
| Textron, Inc. | 5.950 | 09/21/21 | 1,550,000 | 1,643,857 |
| Textron, Inc. | 4.625 | 09/21/16 | 1,525,000 | 1,584,300 |
| TransDigm, Inc. | 7.750 | 12/15/18 | 500,000 | 547,500 |
| Triumph Group, Inc. | 8.625 | 07/15/18 | 325,000 | 362,375 |
| Air Freight & Logistics 0.03% | ||||
| Park-Ohio Industries, Inc. | 8.125 | 04/01/21 | 275,000 | 277,750 |
| Building Products 0.07% | ||||
| Cemex Espana Luxembourg | 9.250 | 05/12/20 | 80,000 | 67,200 |
| Griffon Corp. | 7.125 | 04/01/18 | 625,000 | 634,375 |
| Commercial Services & Supplies 0.67% | ||||
| Cenveo Corp. (S) | 10.500 | 08/15/16 | 175,000 | 148,750 |
| Cenveo Corp. | 8.875 | 02/01/18 | 400,000 | 356,000 |
| Cenveo Corp. | 7.875 | 12/01/13 | 675,000 | 550,125 |
| International Lease Finance Corp. | 8.250 | 12/15/20 | 471,000 | 502,793 |
| International Lease Finance Corp. (S) | 6.500 | 09/01/14 | 2,075,000 | 2,186,531 |
| Iron Mountain, Inc. | 8.375 | 08/15/21 | 450,000 | 491,625 |
| Waste Management, Inc. | 6.100 | 03/15/18 | 2,350,000 | 2,797,200 |
| Construction & Engineering 0.01% | ||||
| Yuksel Insaat AS | 9.500 | 11/10/15 | 100,000 | 78,000 |
| Construction Materials 0.02% | ||||
| Votorantim Cimentos SA (S) | 7.250 | 04/05/41 | 200,000 | 202,000 |
| Containers & Packaging 0.07% | ||||
| Ardagh Packaging Finance PLC (EUR) (D) | 9.250 | 10/15/20 | 200,000 | 255,070 |
| Ardagh Packaging Finance PLC (S) | 9.125 | 10/15/20 | 500,000 | 510,000 |
| Industrial Conglomerates 0.75% | ||||
| Hutchison Whampoa International 09, Ltd. (S) | 7.625 | 04/09/19 | 3,375,000 | 4,133,454 |
| Hutchison Whampoa International 11, Ltd. (S) | 4.625 | 01/13/22 | 200,000 | 201,280 |
| Odebrecht Drilling Norbe VIII/IX, Ltd. (S) | 6.350 | 06/30/21 | 137,200 | 142,551 |
| Tomkins LLC | 9.000 | 10/01/18 | 405,000 | 448,538 |
| Tyco International Finance SA | 8.500 | 01/15/19 | 2,275,000 | 2,970,656 |
| See notes to financial statements | |
| 11 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Industrials (continued) | ||||
| Machinery 0.83% | ||||
| Case New Holland, Inc. | 7.875 | 12/01/17 | $200,000 | $230,500 |
| Caterpillar Financial Services Corp. | 1.375 | 05/20/14 | 2,575,000 | 2,613,409 |
| Joy Global, Inc. | 5.125 | 10/15/21 | 1,050,000 | 1,133,262 |
| RBS Global, Inc. | 8.500 | 05/01/18 | 925,000 | 982,813 |
| The Manitowoc Company, Inc. | 9.500 | 02/15/18 | 425,000 | 470,688 |
| The Manitowoc Company, Inc. | 8.500 | 11/01/20 | 175,000 | 190,750 |
| Volvo Treasury AB (S) | 5.950 | 04/01/15 | 2,610,000 | 2,791,974 |
| Xerium Technologies, Inc. (S) | 8.875 | 06/15/18 | 350,000 | 308,000 |
| Professional Services 0.05% | ||||
| TransUnion LLC | 11.375 | 06/15/18 | 450,000 | 531,000 |
| Road & Rail 0.95% | ||||
| Canadian National Railway Company | 2.850 | 12/15/21 | 4,250,000 | 4,358,940 |
| ERAC USA Finance LLC (S) | 6.375 | 10/15/17 | 2,325,000 | 2,699,739 |
| Ryder System, Inc. | 3.150 | 03/02/15 | 2,900,000 | 2,995,172 |
| Trading Companies & Distributors 0.05% | ||||
| Aircastle, Ltd. | 9.750 | 08/01/18 | 500,000 | 550,000 |
| Transportation Infrastructure 0.11% | ||||
| CHC Helicopter SA (S) | 9.250 | 10/15/20 | 675,000 | 663,188 |
| DP World Sukuk, Ltd. | 6.250 | 07/02/17 | 100,000 | 103,250 |
| DP World, Ltd. | 6.850 | 07/02/37 | 280,000 | 260,400 |
| SCF Capital, Ltd. (S) | 5.375 | 10/27/17 | 200,000 | 177,000 |
| Information Technology 1.21% | 12,713,709 | |||
| Communications Equipment 0.39% | ||||
| Cisco Systems, Inc. | 5.500 | 01/15/40 | 2,925,000 | 3,548,057 |
| CommScope, Inc. (S) | 8.250 | 01/15/19 | 535,000 | 556,400 |
| Electronic Equipment, Instruments & Components 0.11% | ||||
| CPI International, Inc. | 8.000 | 02/15/18 | 500,000 | 430,000 |
| NXP BV (S) | 9.750 | 08/01/18 | 600,000 | 670,500 |
| STATS ChipPAC, Ltd. (S) | 5.375 | 03/31/16 | 20,000 | 20,400 |
| IT Services 0.05% | ||||
| iGate Corp. | 9.000 | 05/01/16 | 455,000 | 483,438 |
| Semiconductors & Semiconductor Equipment 0.50% | ||||
| Analog Devices, Inc. | 3.000 | 04/15/16 | 1,825,000 | 1,931,947 |
| Applied Materials, Inc. | 4.300 | 06/15/21 | 2,750,000 | 3,046,117 |
| MEMC Electronic Materials, Inc. | 7.750 | 04/01/19 | 380,000 | 307,800 |
| Software 0.16% | ||||
| First Data Corp. | 12.625 | 01/15/21 | 600,000 | 580,500 |
| Lawson Software, Inc. (S) | 11.500 | 07/15/18 | 630,000 | 636,300 |
| SunGard Data Systems, Inc. | 7.625 | 11/15/20 | 150,000 | 159,375 |
| SunGard Data Systems, Inc. | 7.375 | 11/15/18 | 325,000 | 342,875 |
| Materials 2.61% | 27,439,628 | |||
| Chemicals 0.57% | ||||
| Ineos Group Holdings, Ltd. (S) | 8.500 | 02/15/16 | 925,000 | 832,500 |
| Ineos Group Holdings, Ltd. (EUR) (D) | 7.875 | 02/15/16 | 50,000 | 56,279 |
| Koppers, Inc. | 7.875 | 12/01/19 | 375,000 | 395,625 |
| LyondellBasell Industries NV (S) | 6.000 | 11/15/21 | 475,000 | 516,563 |
| MacDermid, Inc. (S) | 9.500 | 04/15/17 | 425,000 | 433,500 |
| See notes to financial statements | |
| 12 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Materials (continued) | ||||
| Momentive Performance Materials, Inc. | 11.500 | 12/01/16 | $75,000 | $63,000 |
| Momentive Performance Materials, Inc. | 9.000 | 01/15/21 | 925,000 | 837,125 |
| Nova Chemicals Corp. | 8.375 | 11/01/16 | 575,000 | 638,250 |
| The Dow Chemical Company | 8.550 | 05/15/19 | 1,625,000 | 2,155,330 |
| Construction Materials 0.04% | ||||
| Cemex SAB de CV (P)(S) | 5.579 | 09/30/15 | 277,000 | 229,910 |
| West China Cement, Ltd. (S) | 7.500 | 01/25/16 | 200,000 | 168,500 |
| Containers & Packaging 0.30% | ||||
| ARD Finance SA, PIK (S) | 11.125 | 06/01/18 | 238,419 | 209,809 |
| BWAY Holding Company | 10.000 | 06/15/18 | 475,000 | 517,750 |
| Cascades, Inc. | 7.750 | 12/15/17 | 450,000 | 464,625 |
| Graphic Packaging International, Inc. | 9.500 | 06/15/17 | 425,000 | 468,563 |
| Pregis Corp. | 12.375 | 10/15/13 | 295,000 | 281,725 |
| Sealed Air Corp. (S) | 8.375 | 09/15/21 | 845,000 | 950,625 |
| Solo Cup Company | 8.500 | 02/15/14 | 320,000 | 297,600 |
| Metals & Mining 1.55% | ||||
| APERAM (S) | 7.750 | 04/01/18 | 250,000 | 213,750 |
| APERAM (S) | 7.375 | 04/01/16 | 200,000 | 175,000 |
| ArcelorMittal | 9.850 | 06/01/19 | 2,150,000 | 2,536,224 |
| Atkore International, Inc. | 9.875 | 01/01/18 | 600,000 | 594,000 |
| Barrick PD Australian Finance Pty, Ltd. | 5.950 | 10/15/39 | 2,425,000 | 2,867,170 |
| Corporacion Nacional del Cobre de Chile | 6.150 | 10/24/36 | 285,000 | 357,679 |
| Evraz Group SA (S) | 6.750 | 04/27/18 | 204,000 | 192,270 |
| FMG Resources August 2006 Pty, Ltd. (S) | 8.250 | 11/01/19 | 580,000 | 622,050 |
| Gold Fields Orogen Holding BVI, Ltd. | 4.875 | 10/07/20 | 200,000 | 189,721 |
| Hyundai Steel Company (S) | 4.625 | 04/21/16 | 3,100,000 | 3,131,977 |
| JMC Steel Group (S) | 8.250 | 03/15/18 | 350,000 | 358,750 |
| Metalloinvest Finance, Ltd. (S) | 6.500 | 07/21/16 | 203,000 | 193,611 |
| Metinvest BV (S) | 8.750 | 02/14/18 | 373,000 | 324,510 |
| Mirabela Nickel, Ltd. (S) | 8.750 | 04/15/18 | 120,000 | 104,400 |
| Novelis, Inc. | 8.375 | 12/15/17 | 575,000 | 631,063 |
| Southern Copper Corp. | 6.750 | 04/16/40 | 54,000 | 57,120 |
| Taseko Mines, Ltd. | 7.750 | 04/15/19 | 500,000 | 460,000 |
| Vale Overseas, Ltd. | 5.625 | 09/15/19 | 2,775,000 | 3,100,474 |
| Vedanta Resources PLC (S) | 8.250 | 06/07/21 | 204,000 | 165,240 |
| Volcan Cia Minera SAA (S) | 5.375 | 02/02/22 | 58,000 | 58,488 |
| Paper & Forest Products 0.15% | ||||
| Ainsworth Lumber Company, Ltd., PIK (S) | 11.000 | 07/29/15 | 560,901 | 415,067 |
| Catalyst Paper Corp. (H)(S) | 11.000 | 12/15/16 | 420,000 | 247,800 |
| Mercer International, Inc. | 9.500 | 12/01/17 | 510,000 | 529,125 |
| NewPage Corp. (H) | 11.375 | 12/31/14 | 325,000 | 211,250 |
| Verso Paper Holdings LLC | 8.750 | 02/01/19 | 125,000 | 69,375 |
| Verso Paper Holdings LLC, Series B | 11.375 | 08/01/16 | 287,000 | 116,235 |
| Telecommunication Services 3.07% | 32,231,002 | |||
| Diversified Telecommunication Services 2.47% | ||||
| AT&T, Inc. | 6.500 | 09/01/37 | 2,175,000 | 2,683,606 |
| Axtel SAB de CV | 9.000 | 09/22/19 | 157,000 | 124,030 |
| Axtel SAB de CV (S) | 7.625 | 02/01/17 | 52,000 | 39,520 |
| Cincinnati Bell, Inc. | 8.750 | 03/15/18 | 420,000 | 404,250 |
| Cincinnati Bell, Inc. | 8.250 | 10/15/17 | 620,000 | 637,825 |
| Crown Castle Towers LLC (S) | 4.883 | 08/15/20 | 2,825,000 | 2,943,701 |
| Discovery Communications LLC | 3.700 | 06/01/15 | 2,775,000 | 2,949,606 |
| See notes to financial statements | |
| 13 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Telecommunication Services (continued) | ||||
| Frontier Communications Corp. | 9.000 | 08/15/31 | $1,919,000 | $1,707,910 |
| GXS Worldwide, Inc. | 9.750 | 06/15/15 | 470,000 | 460,600 |
| Indosat Palapa Company BV (S) | 7.375 | 07/29/20 | 103,000 | 115,360 |
| Intelsat Jackson Holdings SA | 8.500 | 11/01/19 | 225,000 | 243,563 |
| Intelsat Jackson Holdings SA (S) | 7.250 | 04/01/19 | 450,000 | 470,250 |
| ITC Deltacom, Inc. | 10.500 | 04/01/16 | 450,000 | 468,000 |
| Level 3 Financing, Inc. | 10.000 | 02/01/18 | 675,000 | 720,563 |
| PCCW-HKT Capital No 4, Ltd. | 4.250 | 02/24/16 | 109,000 | 110,732 |
| Qwest Corp. | 7.125 | 11/15/43 | 450,000 | 442,125 |
| Telecom Italia Capital SA | 5.250 | 10/01/15 | 2,775,000 | 2,681,344 |
| Telefonica Emisiones SAU | 4.949 | 01/15/15 | 1,700,000 | 1,756,629 |
| Telemar Norte Leste SA | 5.500 | 10/23/20 | 240,000 | 239,700 |
| UPC Holding BV (S) | 9.875 | 04/15/18 | 250,000 | 271,875 |
| UPC Holding BV (EUR) (D) | 9.750 | 04/15/18 | 100,000 | 136,691 |
| UPC Holding BV (EUR) (D) | 8.375 | 08/15/20 | 175,000 | 225,475 |
| Verizon Wireless Capital LLC | 8.500 | 11/15/18 | 2,807,000 | 3,914,906 |
| Virgin Media Finance PLC | 8.375 | 10/15/19 | 225,000 | 252,000 |
| West Corp. | 8.625 | 10/01/18 | 100,000 | 105,000 |
| West Corp. | 7.875 | 01/15/19 | 300,000 | 314,250 |
| Wind Acquisition Holdings Finance SA, PIK (S) | 12.250 | 07/15/17 | 728,747 | 568,423 |
| Windstream Corp. | 7.500 | 04/01/23 | 960,000 | 993,600 |
| Wireless Telecommunication Services 0.60% | ||||
| America Movil SAB de CV | 6.125 | 03/30/40 | 2,200,000 | 2,679,433 |
| America Movil SAB de CV | 2.375 | 09/08/16 | 400,000 | 405,267 |
| Bakrie Telecom Pte, Ltd. | 11.500 | 05/07/15 | 148,000 | 96,200 |
| Digicel Group, Ltd. | 10.500 | 04/15/18 | 334,000 | 351,535 |
| Nextel Communications, Inc. | 7.375 | 08/01/15 | 350,000 | 338,625 |
| Qtel International Finance, Ltd. (S) | 5.000 | 10/19/25 | 202,000 | 203,515 |
| Qtel International Finance, Ltd. | 4.750 | 02/16/21 | 300,000 | 304,500 |
| Sprint Capital Corp. | 8.750 | 03/15/32 | 1,115,000 | 936,600 |
| Sprint Nextel Corp. (S) | 9.000 | 11/15/18 | 380,000 | 409,450 |
| Syniverse Holdings, Inc. | 9.125 | 01/15/19 | 125,000 | 134,688 |
| Vimpel Communications Via VIP Finance Ireland, Ltd. (S) | 7.748 | 02/02/21 | 203,000 | 195,895 |
| VimpelCom Holdings BV | 6.255 | 03/01/17 | 200,000 | 193,760 |
| Utilities 2.03% | 21,357,856 | |||
| Electric Utilities 1.28% | ||||
| Abu Dhabi National Energy Company | 6.250 | 09/16/19 | 100,000 | 109,125 |
| Duke Energy Carolinas LLC | 5.300 | 02/15/40 | 2,325,000 | 2,850,534 |
| Edison Mission Energy | 7.625 | 05/15/27 | 100,000 | 53,500 |
| Edison Mission Energy | 7.000 | 05/15/17 | 1,275,000 | 739,500 |
| Emgesa SA ESP (COP) (D) | 8.750 | 01/25/21 | 129,000,000 | 75,973 |
| Emgesa SA ESP (COP) (D)(S) | 8.750 | 01/25/21 | 176,000,000 | 104,732 |
| Empresa Distribuidora y Comercializadora Norte (S) | 9.750 | 10/25/22 | 152,000 | 126,160 |
| Exelon Generation Company LLC | 4.000 | 10/01/20 | 3,065,000 | 3,226,795 |
| Oncor Electric Delivery Company LLC | 6.375 | 01/15/15 | 2,525,000 | 2,887,158 |
| Pacificorp | 4.100 | 02/01/42 | 1,000,000 | 1,007,190 |
| PPL Energy Supply LLC | 6.500 | 05/01/18 | 1,950,000 | 2,251,452 |
| Gas Utilities 0.02% | ||||
| Empresa de Energia de Bogota SA (S) | 6.125 | 11/10/21 | 200,000 | 205,000 |
| Independent Power Producers & Energy Traders 0.53% | ||||
| Calpine Corp. (S) | 7.875 | 07/31/20 | 750,000 | 808,125 |
| Calpine Corp. (S) | 7.500 | 02/15/21 | 225,000 | 239,625 |
| See notes to financial statements | |
| 14 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Utilities (continued) | ||||
| Capex SA (S) | 10.000 | 03/10/18 | $121,000 | $103,153 |
| DPL, Inc. (S) | 7.250 | 10/15/21 | 260,000 | 289,250 |
| Dynegy Holdings LLC (H) | 7.750 | 06/01/19 | 800,000 | 490,000 |
| Empresas Publicas de Medellin ESP (COP) (D)(S) | 8.375 | 02/01/21 | 220,000,000 | 126,954 |
| Empresas Publicas de Medellin ESP (COP) (D) | 8.375 | 02/01/21 | 48,000,000 | 27,553 |
| GenOn Energy, Inc. | 9.875 | 10/15/20 | 300,000 | 279,000 |
| GenOn Energy, Inc. | 9.500 | 10/15/18 | 430,000 | 406,350 |
| NRG Energy, Inc. | 8.500 | 06/15/19 | 900,000 | 904,500 |
| NRG Energy, Inc. (S) | 7.875 | 05/15/21 | 325,000 | 308,750 |
| NRG Energy, Inc. (S) | 7.625 | 05/15/19 | 175,000 | 167,125 |
| The AES Corp. | 9.750 | 04/15/16 | 425,000 | 499,375 |
| The AES Corp. | 8.000 | 10/15/17 | 325,000 | 364,813 |
| The AES Corp. | 8.000 | 06/01/20 | 125,000 | 141,875 |
| The AES Corp. (S) | 7.375 | 07/01/21 | 375,000 | 414,375 |
| Multi-Utilities 0.20% | ||||
| MidAmerican Energy Holdings Company | 5.750 | 04/01/18 | 1,825,000 | 2,149,914 |
| U.S. Government & Agency Obligations 6.06% | $63,696,334 | |||
| (Cost $63,506,255) | ||||
| U.S. Government Agency 6.06% | 63,696,334 | |||
| Federal Home Loan Mortgage Corp. | ||||
| Freddie Mac Gold Pool | 6.000 | TBA | 1,450,000 | 1,590,479 |
| Freddie Mac Gold Pool | 5.500 | TBA | 3,125,000 | 3,389,006 |
| Freddie Mac Gold Pool | 5.000 | TBA | 4,300,000 | 4,627,490 |
| Freddie Mac Gold Pool | 4.500 | TBA | 1,000,000 | 1,063,872 |
| Freddie Mac Non Gold Pool (P) | 5.448 | 01/01/37 | 538,781 | 577,119 |
| Freddie Mac Non Gold Pool (P) | 4.939 | 07/01/38 | 3,424,190 | 3,647,830 |
| Freddie Mac Non Gold Pool (P) | 2.536 | 11/01/36 | 516,325 | 540,126 |
| Federal National Mortgage Association | ||||
| Fannie Mae Pool | 6.500 | 01/01/37 | 1,726,438 | 1,933,273 |
| Fannie Mae Pool | 6.000 | TBA | 3,050,000 | 3,352,163 |
| Fannie Mae Pool (P) | 5.788 | 01/01/37 | 676,444 | 724,696 |
| Fannie Mae Pool (P) | 5.633 | 10/01/38 | 1,284,878 | 1,368,796 |
| Fannie Mae Pool | 5.500 | TBA | 1,200,000 | 1,305,691 |
| Fannie Mae Pool (P) | 5.265 | 04/01/37 | 2,176,217 | 2,301,182 |
| Fannie Mae Pool (P) | 5.032 | 11/01/35 | 761,766 | 811,519 |
| Fannie Mae Pool | 5.000 | TBA | 3,000,000 | 3,230,650 |
| Fannie Mae Pool | 4.500 | TBA | 8,400,000 | 8,977,210 |
| Fannie Mae Pool | 4.000 | TBA | 4,600,000 | 4,863,413 |
| Government National Mortgage Association | ||||
| Ginnie Mae Pool | 6.000 | 08/15/35 | 578,431 | 654,674 |
| Ginnie Mae Pool | 5.500 | TBA | 5,000,000 | 5,578,003 |
| Ginnie Mae Pool | 5.000 | TBA | 5,000,000 | 5,540,568 |
| Ginnie Mae Pool | 4.500 | TBA | 5,000,000 | 5,461,546 |
| Ginnie Mae Pool | 4.000 | TBA | 2,000,000 | 2,157,028 |
| See notes to financial statements | |
| 15 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Foreign Government Obligations 6.95% | $73,101,308 | |||
| (Cost $71,921,164) | ||||
| Argentina 0.33% | 3,468,748 | |||
| Republic of Argentina | ||||
| Bond | 8.280 | 12/31/33 | $1,594,300 | 1,243,554 |
| Bond (EUR) (D) | 7.820 | 12/31/33 | 1,849,246 | 1,626,714 |
| Bond (ARS) (D)(P) | 5.830 | 12/31/33 | 1,189,643 | 373,437 |
| Bond (EUR) (D) | 3.135 | 12/15/35 | 1,470,465 | 225,043 |
| Brazil 0.72% | 7,533,887 | |||
| Federative Republic of Brazil | ||||
| Bond | 4.875 | 01/22/21 | 532,000 | 598,500 |
| Note | 5.875 | 01/15/19 | 439,000 | 523,947 |
| Letras do Tesouro Nacional | ||||
| Bill (BRL) (D)(Z) | Zero | 01/15/15 | 900,000 | 383,828 |
| Notas do Tesouro Nacional | ||||
| Note (BRL) (D) | 10.000 | 01/01/14 | 3,128,000 | 1,803,011 |
| Note (BRL) (D) | 10.000 | 01/01/17 | 3,300,000 | 1,838,791 |
| Note (BRL) (D) | 10.000 | 01/01/21 | 4,461,000 | 2,385,810 |
| Colombia 0.35% | 3,640,547 | |||
| Bogota Distrito Capital | ||||
| Note (COP) (D) | 9.750 | 07/26/28 | 2,265,000,000 | 1,723,587 |
| Republic of Colombia | ||||
| Bond | 8.125 | 05/21/24 | 715,000 | 996,710 |
| Bond | 7.375 | 09/18/37 | 582,000 | 800,250 |
| Bond | 6.125 | 01/18/41 | 100,000 | 120,000 |
| Croatia 0.05% | 475,785 | |||
| Republic of Croatia | ||||
| Bond (S) | 6.625 | 07/14/20 | 113,000 | 106,785 |
| Bond (S) | 6.375 | 03/24/21 | 400,000 | 369,000 |
| El Salvador 0.06% | 642,450 | |||
| Republic of El Salvador | ||||
| Bond | 8.250 | 04/10/32 | 300,000 | 329,250 |
| Bond | 7.375 | 12/01/19 | 290,000 | 313,200 |
| Ghana 0.01% | 112,710 | |||
| Republic of Ghana | ||||
| Bond | 8.500 | 10/04/17 | 102,000 | 112,710 |
| Hungary 0.12% | 1,298,259 | |||
| Government of Hungary | ||||
| Bond (HUF) (D) | 7.500 | 10/24/13 | 40,680,000 | 177,857 |
| Bond (HUF) (D) | 6.750 | 02/12/13 | 77,310,000 | 337,673 |
| Bond (HUF) (D) | 6.750 | 08/22/14 | 42,560,000 | 181,441 |
| Bond (HUF) (D) | 6.750 | 11/24/17 | 26,000,000 | 104,227 |
| Bond (HUF) (D) | 5.500 | 02/12/14 | 4,000,000 | 16,730 |
| Republic of Hungary | ||||
| Bond | 7.625 | 03/29/41 | 26,000 | 24,018 |
| Bond (HUF) (D) | 6.750 | 02/24/17 | 20,000,000 | 81,223 |
| Bond (GBP) (D) | 5.500 | 05/06/14 | 11,000 | 15,762 |
| Bond (GBP) (D) | 5.000 | 03/30/16 | 37,000 | 47,821 |
| See notes to financial statements | |
| 16 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Hungary (continued) | ||||
| Bond | 4.750 | 02/03/15 | $42,000 | $39,270 |
| Bond (EUR) (D) | 4.500 | 01/29/14 | 78,000 | 94,519 |
| Bond (EUR) (D) | 4.375 | 07/04/17 | 113,000 | 121,943 |
| Bond (EUR) (D) | 3.500 | 07/18/16 | 52,000 | 55,775 |
| Indonesia 0.16% | 1,653,661 | |||
| Republic of Indonesia | ||||
| Bond | 11.625 | 03/04/19 | 457,000 | 679,788 |
| Bond (S) | 11.625 | 03/04/19 | 575,000 | 855,313 |
| Bond | 5.875 | 03/13/20 | 104,000 | 118,560 |
| Iraq 0.18% | 1,866,200 | |||
| Republic of Iraq | ||||
| Bond | 5.800 | 01/15/28 | 2,408,000 | 1,866,200 |
| Lithuania 0.08% | 858,878 | |||
| Republic of Lithuania | ||||
| Bond | 6.625 | 02/01/22 | 354,000 | 360,190 |
| Bond | 6.125 | 03/09/21 | 505,000 | 498,688 |
| Malaysia 0.57% | 6,033,611 | |||
| Government of Malaysia | ||||
| Bond | 5.625 | 03/15/16 | 239,000 | 266,182 |
| Bond (MYR) (D) | 5.094 | 04/30/14 | 1,020,000 | 351,022 |
| Bond (MYR) (D) | 4.262 | 09/15/16 | 890,000 | 305,434 |
| Bond (MYR) (D) | 4.012 | 09/15/17 | 3,610,000 | 1,228,080 |
| Bond (MYR) (D) | 3.835 | 08/12/15 | 10,140,000 | 3,416,480 |
| Bond (MYR) (D) | 3.741 | 02/27/15 | 1,390,000 | 466,413 |
| Mexico 0.80% | 8,419,107 | |||
| Government of Mexico | ||||
| Bond (MXN) (D) | 8.500 | 05/31/29 | 13,970,000 | 1,257,850 |
| Bond (MXN) (D) | 8.500 | 11/18/38 | 2,401,000 | 209,065 |
| Bond | 8.000 | 09/24/22 | 152,000 | 211,660 |
| Bond (MXN) (D) | 7.750 | 12/14/17 | 8,230,000 | 710,762 |
| Bond (MXN) (D) | 7.750 | 05/29/31 | 6,890,000 | 570,762 |
| Bond (MXN) (D) | 6.500 | 06/10/21 | 41,620,000 | 3,324,344 |
| Bond | 5.750 | 10/12/10 | 904,000 | 946,940 |
| Bond (MXN) (D) | 4.000 | 06/13/19 | 1,562,068 | 137,588 |
| Bond (MXN) (D) | 3.500 | 12/14/17 | 1,609,404 | 136,775 |
| Bond (MXN) (D) | 2.500 | 12/10/20 | 11,635,041 | 913,361 |
| Panama 0.20% | 2,121,252 | |||
| Republic of Panama | ||||
| Bond | 9.375 | 04/01/29 | 84,000 | 132,720 |
| Bond | 8.875 | 09/30/27 | 217,000 | 323,330 |
| Bond | 6.700 | 01/26/36 | 494,000 | 629,850 |
| Bond | 5.200 | 01/30/20 | 911,000 | 1,035,352 |
| Peru 0.06% | 631,750 | |||
| Republic of Peru | ||||
| Bond | 7.350 | 07/21/25 | 475,000 | 631,750 |
| Philippines 0.15% | 1,566,177 | |||
| Republic of Philippines | ||||
| Bond | 9.500 | 02/02/30 | 124,000 | 193,285 |
| See notes to financial statements | |
| 17 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Philippines (continued) | ||||
| Bond | 7.750 | 01/14/31 | $920,000 | $1,251,200 |
| Bond (PHP) (D) | 4.950 | 01/15/21 | 5,000,000 | 121,692 |
| Poland 0.59% | 6,165,002 | |||
| Government of Poland | ||||
| Bond (PLN) (D) | 5.750 | 10/25/21 | 520,000 | 163,084 |
| Republic of Poland | ||||
| Bond | 6.375 | 07/15/19 | 1,443,000 | 1,621,571 |
| Bond (PLN) (D) | 5.750 | 09/23/22 | 1,010,000 | 316,760 |
| Bond (PLN) (D) | 5.500 | 04/25/15 | 4,780,000 | 1,508,749 |
| Bond | 5.125 | 04/21/21 | 338,000 | 347,718 |
| Bond | 5.000 | 03/23/22 | 638,000 | 646,932 |
| Bond (PLN) (D) | 3.000 | 08/24/16 | 3,833,119 | 1,221,756 |
| Bond (PLN) (D) (Z) | Zero | 01/25/13 | 1,140,000 | 338,432 |
| Qatar 0.08% | 848,894 | |||
| Government of Qatar | ||||
| Bond | 6.550 | 04/09/19 | 255,000 | 300,900 |
| Bond | 5.250 | 01/20/20 | 501,000 | 547,994 |
| Russia 0.41% | 4,310,081 | |||
| Government of Russia | ||||
| Eurobond | 12.750 | 06/24/28 | 282,000 | 494,910 |
| Eurobond | 11.000 | 07/24/18 | 72,000 | 100,440 |
| Eurobond | 7.500 | 03/31/30 | 3,134,794 | 3,714,731 |
| South Africa 0.76% | 7,973,665 | |||
| Republic of South Africa | ||||
| Bond (ZAR) (D) | 10.500 | 12/21/26 | 13,840,000 | 2,124,371 |
| Bond (ZAR) (D) | 8.000 | 12/21/18 | 5,450,000 | 717,877 |
| Bond (ZAR) (D) | 7.250 | 01/15/20 | 990,000 | 123,517 |
| Bond (ZAR) (D) | 7.000 | 02/28/31 | 5,200,000 | 565,184 |
| Bond | 6.875 | 05/27/19 | 183,000 | 218,685 |
| Bond (ZAR) (D) | 6.750 | 03/31/21 | 24,800,000 | 2,971,776 |
| Bond | 6.250 | 03/08/41 | 361,000 | 406,125 |
| Bond | 5.500 | 03/09/20 | 764,000 | 846,130 |
| Thailand 0.24% | 2,533,868 | |||
| Kingdom of Thailand | ||||
| Bond (THB) (D) | 5.250 | 05/12/14 | 4,670,000 | 158,131 |
| Bond (THB) (D) | 4.250 | 03/13/13 | 5,830,000 | 190,932 |
| Bond (THB) (D) | 3.625 | 05/22/15 | 4,160,000 | 136,831 |
| Bond (THB) (D) | 3.125 | 12/11/15 | 58,900,000 | 1,906,661 |
| Bond (THB) (D) | 2.800 | 10/10/17 | 2,320,000 | 73,609 |
| Bond (THB) (D) | 1.200 | 07/14/21 | 2,020,200 | 67,704 |
| Turkey 0.66% | 6,991,232 | |||
| Republic of Turkey | ||||
| Bond (TRY) (D) | 10.000 | 06/17/15 | 160,000 | 91,398 |
| Bond (TRY) (D) | 9.000 | 05/21/14 | 357,657 | 225,764 |
| Bond (TRY) (D) | 9.000 | 01/27/16 | 1,100,000 | 608,239 |
| Bond (TRY) (D) | 8.827 | 07/17/13 | 1,060,000 | 523,548 |
| Bond (TRY) (D) | 8.000 | 01/29/14 | 160,000 | 87,796 |
| Bond | 7.500 | 11/07/19 | 206,000 | 233,810 |
| Bond | 7.250 | 03/15/15 | 590,000 | 643,100 |
| See notes to financial statements | |
| 18 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Turkey (continued) | ||||
| Bond | 7.250 | 03/05/38 | $384,000 | $417,120 |
| Bond | 7.000 | 06/05/20 | 83,000 | 91,611 |
| Bond | 5.125 | 03/25/22 | 226,000 | 215,265 |
| Bond (TRY) (D) | 4.500 | 02/11/15 | 292,613 | 168,963 |
| Bond (TRY) (D) (Z) | Zero | 08/08/12 | 870,000 | 466,236 |
| Bond (TRY) (D) (Z) | Zero | 02/20/13 | 2,400,000 | 1,227,629 |
| Bond (TRY) (D) (Z) | Zero | 05/15/13 | 3,970,000 | 1,990,753 |
| Ukraine 0.10% | 1,053,625 | |||
| Republic of Ukraine | ||||
| Bond | 7.750 | 09/23/20 | 1,099,000 | 961,625 |
| Bond | 6.875 | 09/23/15 | 100,000 | 92,000 |
| Uruguay 0.11% | 1,185,295 | |||
| Republic of Uruguay | ||||
| Bond | 8.000 | 11/18/22 | 566,093 | 771,019 |
| Bond | 7.625 | 03/21/36 | 300,200 | 414,276 |
| Venezuela 0.16% | 1,716,624 | |||
| Republic of Venezuela | ||||
| Bond | 13.625 | 08/15/18 | 400,000 | 407,000 |
| Bond | 12.750 | 08/23/22 | 48,500 | 46,439 |
| Bond | 8.500 | 10/08/14 | 1,309,000 | 1,263,185 |
| Capital Preferred Securities 0.36% | $3,778,237 | |||
| (Cost $3,957,044) | ||||
| Financials 0.35% | 3,628,678 | |||
| ILFC E-Capital Trust I (1.550% + Highest of 3 month LIBOR, | ||||
| 10 year CMT and 30 year CMT) (S) | 4.340 | 12/21/65 | 650,000 | 410,651 |
| Standard Chartered PLC (6.409% to 01/30/2017, then 3 | ||||
| month LIBOR + 1.510%) (Q)(S) | 6.409 | 01/30/17 | 3,700,000 | 3,218,027 |
| Industrials 0.01% | 149,559 | |||
| Hutchison Whampoa International 10, Ltd. (P)(Q) | 6.000 | 10/28/15 | 149,000 | 149,559 |
| Convertible Bonds 1.84% | $19,388,165 | |||
| (Cost $19,846,314) | ||||
| Consumer Discretionary 0.22% | 2,368,964 | |||
| Auto Components 0.13% | ||||
| Cie Generale des Etablissements Michelin (EUR) (D)(Z) | Zero | 01/01/17 | 404,898 | 589,211 |
| TRW Automotive, Inc. | 3.500 | 12/01/15 | 523,000 | 775,348 |
| Hotels, Restaurants & Leisure 0.01% | ||||
| Home Inns & Hotels Management, Inc. (S) | 2.000 | 12/15/15 | 98,000 | 78,155 |
| Specialty Retail 0.08% | ||||
| RadioShack Corp. (S) | 2.500 | 08/01/13 | 988,000 | 926,250 |
| Consumer Staples 0.14% | 1,469,536 | |||
| Food Products 0.14% | ||||
| Smithfield Foods, Inc. | 4.000 | 06/30/13 | 597,000 | 696,998 |
| Tyson Foods, Inc. | 3.250 | 10/15/13 | 630,000 | 772,538 |
| See notes to financial statements | |
| 19 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Energy 0.22% | $2,283,481 | |||
| Energy Equipment & Services 0.18% | ||||
| Hercules Offshore, Inc. (3.375% Steps down to Zero Coupon | ||||
| on 6/1/2013) | 3.375 | 06/01/38 | $833,000 | 779,896 |
| Newpark Resources, Inc. | 4.000 | 10/01/17 | 364,000 | 392,210 |
| Subsea 7 SA | 2.250 | 10/11/13 | 600,000 | 673,500 |
| Oil, Gas & Consumable Fuels 0.04% | ||||
| Cheniere Energy, Inc. | 2.250 | 08/01/12 | 452,000 | 437,875 |
| Health Care 0.19% | 2,052,682 | |||
| Biotechnology 0.13% | ||||
| Dendreon Corp. | 2.875 | 01/15/16 | 546,000 | 455,228 |
| Gilead Sciences, Inc. | 1.000 | 05/01/14 | 415,000 | 501,631 |
| PDL BioPharma, Inc. | 3.750 | 05/01/15 | 260,000 | 265,200 |
| Savient Pharmaceuticals, Inc. | 4.750 | 02/01/18 | 384,000 | 193,440 |
| Health Care Equipment & Supplies 0.02% | ||||
| Integra LifeSciences Holdings Corp. (S) | 1.625 | 12/15/16 | 218,000 | 187,208 |
| Pharmaceuticals 0.04% | ||||
| Teva Pharmaceutical Finance Company, LLC | 0.250 | 02/01/26 | 410,000 | 449,975 |
| Industrials 0.17% | 1,801,276 | |||
| Airlines 0.04% | ||||
| AirTran Holdings, Inc. | 5.250 | 11/01/16 | 322,000 | 421,418 |
| Machinery 0.13% | ||||
| Altra Holdings, Inc. (S) | 2.750 | 03/01/31 | 523,000 | 495,543 |
| Greenbrier Companies, Inc. (S) | 3.500 | 04/01/18 | 881,000 | 841,355 |
| Marine 0.00% | ||||
| Ultrapetrol Bahamas, Ltd. (S) | 7.250 | 01/15/17 | 64,000 | 42,960 |
| Information Technology 0.75% | 7,877,491 | |||
| Communications Equipment 0.24% | ||||
| Alcatel-Lucent (EUR) (D) | 5.000 | 01/01/15 | 13,566,000 | 143,938 |
| Alcatel-Lucent USA, Inc. | 2.875 | 06/15/25 | 238,000 | 217,473 |
| Alcatel-Lucent USA, Inc., Series A | 2.875 | 06/15/23 | 880,000 | 660,000 |
| Ciena Corp. (S) | 4.000 | 03/15/15 | 340,000 | 361,250 |
| Comtech Telecommunications Corp. | 3.000 | 05/01/29 | 388,000 | 427,285 |
| Ixia | 3.000 | 12/15/15 | 670,000 | 698,475 |
| Internet Software & Services 0.11% | ||||
| Digital River, Inc. | 2.000 | 11/01/30 | 884,000 | 785,655 |
| WebMD Health Corp. (S) | 2.500 | 01/31/18 | 298,000 | 257,770 |
| WebMD Health Corp. (S) | 2.250 | 03/31/16 | 98,000 | 91,018 |
| Semiconductors & Semiconductor Equipment 0.29% | ||||
| Micron Technology, Inc. | 1.875 | 06/01/14 | 216,000 | 212,220 |
| Micron Technology, Inc. | 1.875 | 06/01/27 | 307,000 | 288,964 |
| Micron Technology, Inc. (S) | 1.500 | 08/01/31 | 523,000 | 519,078 |
| ON Semiconductor Corp. | 2.625 | 12/15/26 | 674,000 | 764,148 |
| ON Semiconductor Corp., Series B (Call/Conversion date on | ||||
| 04/15/2012) (Z) | Zero | 04/15/24 | 834,000 | 853,808 |
| Rudolph Technologies, Inc. (S) | 3.750 | 07/15/16 | 102,000 | 106,185 |
| Xilinx, Inc. | 3.125 | 03/15/37 | 245,000 | 307,169 |
| See notes to financial statements | |
| 20 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Information Technology (continued) | ||||
| Software 0.11% | ||||
| Callidus Software, Inc. (S) | 4.750 | 06/01/16 | $461,000 | $495,575 |
| Mentor Graphics Corp. (S) | 4.000 | 04/01/31 | 674,000 | 687,480 |
| Materials 0.15% | $1,534,735 | |||
| Construction Materials 0.03% | ||||
| Cemex SAB de CV (S) | 3.750 | 03/15/18 | 275,000 | 223,781 |
| Cemex SAB de CV (S) | 3.250 | 03/15/16 | 112,000 | 91,140 |
| Containers & Packaging 0.07% | ||||
| Owens-Brockway Glass Container, Inc. (S) | 3.000 | 06/01/15 | 700,000 | 686,000 |
| Metals & Mining 0.05% | ||||
| RTI International Metals, Inc. | 3.000 | 12/01/15 | 509,000 | 533,814 |
| Structured Notes (K) 1.00% | $10,510,266 | |||
| (Cost $9,994,926) | ||||
| Brazil 0.17% | 1,740,516 | |||
| Federative Republic of Brazil (HSBC Bank PLC) | ||||
| Note (BRL) (D) | 10.000 | 01/01/17 | 700,000 | 386,232 |
| Federative Republic of Brazil (JPMorgan Chase & Company) | ||||
| Note (BRL) (D) | 10.000 | 01/01/17 | 400,000 | 222,884 |
| Note (BRL) (D) | 10.000 | 01/01/21 | 2,155,000 | 1,131,400 |
| Colombia 0.18% | 1,867,974 | |||
| Republic of Colombia (Citigroup Funding, Inc.) | ||||
| Note (COP) (D) | 11.000 | 07/27/20 | 2,550,000,000 | 1,728,864 |
| Note (COP) (D) | 10.000 | 07/24/24 | 208,000,000 | 139,110 |
| Indonesia 0.33% | 3,513,330 | |||
| Republic of Indonesia (Barclays Bank PLC) | ||||
| Note (IDR) (D) | 11.500 | 09/15/19 | 22,800,000,000 | 3,513,330 |
| Russia 0.28% | 2,994,659 | |||
| Government of Russia (Credit Suisse) | ||||
| Bond (RUB) (D) | 7.500 | 03/15/18 | 5,100,000 | 165,706 |
| Bond (RUB) (D) | 7.400 | 06/14/17 | 14,700,000 | 480,147 |
| Bond (RUB) (D) | 7.000 | 06/03/15 | 37,200,000 | 1,212,363 |
| Government of Russia (Deutsche Bank AG) | ||||
| Bond (RUB) (D) | 7.350 | 01/20/16 | 10,000,000 | 329,371 |
| Government of Russia (HSBC Bank PLC) | ||||
| Bond (RUB) (D)(S) | 7.350 | 01/20/16 | 9,000,000 | 296,434 |
| Government of Russia (JPMorgan Chase & Company) | ||||
| Bond (RUB) (D) | 6.880 | 07/15/15 | 15,700,000 | 510,638 |
| United Kingdom 0.04% | 393,787 | |||
| Cablevision SA (Deutsche Bank AG) | ||||
| Bond (S) | 9.375 | 02/13/18 | 390,000 | 393,787 |
| See notes to financial statements | |
| 21 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Term Loans (M) 19.24% | $202,246,876 | |||
| (Cost $205,091,872) | ||||
| Consumer Discretionary 4.87% | 51,167,314 | |||
| Auto Components 0.26% | ||||
| Allison Transmission, Inc. | 2.790 | 08/07/14 | $2,723,239 | 2,691,922 |
| Automobiles 0.31% | ||||
| Chrysler Group LLC | 6.000 | 05/24/17 | 3,277,530 | 3,206,391 |
| Diversified Consumer Services 0.07% | ||||
| SSI Investments II | 6.500 | 05/26/17 | 738,150 | 739,995 |
| Hotels, Restaurants & Leisure 0.56% | ||||
| Boyd Gaming Corp. | 6.000 | 12/17/15 | 1,375,000 | 1,369,844 |
| CCM Merger, Inc. | 7.000 | 03/01/17 | 2,951,733 | 2,936,053 |
| Isle of Capri Casinos, Inc. | 4.750 | 11/01/13 | 1,626,753 | 1,625,398 |
| Leisure Equipment & Products 0.13% | ||||
| AMC Networks, Inc. | 4.000 | 12/31/18 | 1,360,165 | 1,349,397 |
| Media 2.86% | ||||
| Advantage Sales & Marketing LLC | 9.250 | 06/18/18 | 710,000 | 699,350 |
| Advantage Sales & Marketing LLC | 5.250 | 12/18/17 | 2,106,466 | 2,087,929 |
| Cumulus Media, Inc. | 5.750 | 09/17/18 | 2,825,000 | 2,823,486 |
| Getty Images, Inc. | 5.250 | 11/07/16 | 2,593,922 | 2,601,056 |
| Hubbard Broadcasting, Inc. | 5.250 | 04/28/17 | 1,189,997 | 1,192,972 |
| Interactive Data Corp. | 4.500 | 02/12/18 | 2,573,756 | 2,564,105 |
| Kabel Deutschland GmbH (T) | — | 01/20/19 | 1,110,000 | 1,106,881 |
| Lin Television Corp. | 5.000 | 12/21/18 | 985,000 | 989,925 |
| MCC Georgia LLC | 4.500 | 10/23/17 | 1,951,562 | 1,936,925 |
| Nielsen Finance LLC | 3.545 | 05/02/16 | 2,101,453 | 2,100,688 |
| RH Donnelley, Inc. | 9.000 | 10/24/14 | 1,645,596 | 607,042 |
| Sinclair Television Group, Inc. | 4.000 | 10/28/16 | 2,338,569 | 2,331,261 |
| Sinclair Television Group, Inc. (T) | — | 10/28/16 | 1,005,134 | 1,007,396 |
| Univision Communications, Inc. | 4.520 | 03/31/17 | 5,555,613 | 5,223,432 |
| UPC Financing Partnership | 4.750 | 12/29/17 | 831,000 | 827,884 |
| Visant Corp. | 5.250 | 12/22/16 | 2,129,590 | 2,018,168 |
| Multiline Retail 0.49% | ||||
| Lord & Taylor | 5.750 | 01/11/19 | 2,565,000 | 2,567,137 |
| The Neiman Marcus Group, Inc. | 4.750 | 05/16/18 | 2,664,000 | 2,614,050 |
| Specialty Retail 0.19% | ||||
| Toys R Us - Delaware, Inc. | 6.000 | 09/01/16 | 1,678,750 | 1,665,992 |
| Toys R Us - Delaware, Inc. | 5.250 | 05/25/18 | 288,550 | 282,635 |
| Consumer Staples 2.22% | 23,328,132 | |||
| Food & Staples Retailing 0.57% | ||||
| BJ's Wholesale Club, Inc. | 7.000 | 09/28/18 | 2,064,825 | 2,081,602 |
| Dunkin' Brands, Inc. | 4.000 | 11/23/17 | 2,156,675 | 2,151,643 |
| Michael Foods, Inc. | 4.250 | 02/23/18 | 1,713,170 | 1,711,029 |
| Food Products 1.01% | ||||
| Dean Foods Company | 3.580 | 04/02/16 | 862,046 | 841,572 |
| Del Monte Corp. | 4.500 | 03/08/18 | 3,509,365 | 3,420,754 |
| Dole Food Company, Inc. | 5.043 | 07/06/18 | 711,436 | 712,318 |
| Dole Food Company, Inc. | 5.029 | 07/06/18 | 1,321,239 | 1,322,877 |
| Pierre Foods, Inc. | 7.000 | 09/30/16 | 2,098,437 | 2,087,945 |
| See notes to financial statements | |
| 22 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Consumer Staples (continued) | ||||
| Pinnacle Foods Finance LLC | 6.000 | 04/02/14 | $1,051,534 | $1,055,696 |
| Pinnacle Foods Finance LLC | 2.867 | 04/02/14 | 1,196,867 | 1,184,898 |
| Household Products 0.31% | ||||
| Reynolds Consumer Products Holdings, Inc. | 6.500 | 02/09/18 | 2,007,633 | 2,013,594 |
| Reynolds Group Holdings, Inc. | 6.500 | 08/09/18 | 1,219,679 | 1,223,300 |
| Personal Products 0.33% | ||||
| Prestige Brands International (T) | — | 12/20/18 | 975,000 | 978,859 |
| Revlon Consumer Products Corp. | 4.750 | 11/17/17 | 2,554,049 | 2,542,045 |
| Energy 0.56% | 5,907,499 | |||
| Energy Equipment & Services 0.38% | ||||
| Hercules Offshore, Inc. | 7.500 | 07/11/13 | 4,012,379 | 3,962,782 |
| Oil, Gas & Consumable Fuels 0.18% | ||||
| MEG Energy Corp. | 4.000 | 03/16/18 | 1,948,823 | 1,944,717 |
| Financials 0.97% | 10,183,257 | |||
| Diversified Financial Services 0.66% | ||||
| Atlantic Broadband Finance LLC | 4.000 | 03/08/16 | 1,259,275 | 1,244,321 |
| Fox Acquisition Sub LLC | 4.750 | 07/14/15 | 3,518,350 | 3,497,767 |
| Springleaf Finance Funding Company | 5.500 | 05/10/17 | 2,407,000 | 2,238,510 |
| Real Estate Investment Trusts 0.31% | ||||
| iStar Financial, Inc. | 7.000 | 06/30/14 | 2,040,000 | 2,000,899 |
| iStar Financial, Inc. | 5.000 | 06/28/13 | 1,206,067 | 1,201,760 |
| Health Care 2.18% | 22,908,762 | |||
| Health Care Equipment & Supplies 0.14% | ||||
| Kinetic Concepts, Inc. | 7.000 | 05/04/18 | 1,412,000 | 1,434,441 |
| Health Care Providers & Services 1.62% | ||||
| Community Health Systems, Inc. | 3.958 | 01/25/17 | 1,088,081 | 1,070,400 |
| Community Health Systems, Inc. | 2.755 | 07/25/14 | 1,812,845 | 1,788,170 |
| Community Health Systems, Inc. | 2.520 | 07/25/14 | 72,553 | 71,566 |
| DaVita, Inc. | 4.500 | 10/20/16 | 2,210,898 | 2,219,881 |
| Emergency Medical Services Corp. | 5.250 | 05/25/18 | 2,576,530 | 2,567,674 |
| Golden Gate National Senior Care LLC | 5.000 | 05/04/18 | 3,707,549 | 3,332,159 |
| IASIS Healthcare Corp. | 5.000 | 05/03/18 | 3,831,050 | 3,783,162 |
| Vanguard Health Holding Company I LLC | 5.000 | 01/29/16 | 2,258,078 | 2,253,140 |
| Pharmaceuticals 0.42% | ||||
| Pharmaceutical Products Development | 6.250 | 12/05/18 | 1,894,000 | 1,905,498 |
| Warner Chilcott Company LLC | 4.250 | 03/15/18 | 2,484,462 | 2,482,671 |
| Industrials 2.08% | 21,896,302 | |||
| Aerospace & Defense 0.73% | ||||
| DAE Aviation Holdings, Inc. | 5.560 | 07/31/14 | 1,699,160 | 1,660,929 |
| Sequa Corp. | 6.250 | 12/03/14 | 3,378,447 | 3,323,547 |
| Sequa Corp. | 3.831 | 12/03/14 | 905,000 | 908,771 |
| TransDigm, Inc. | 4.000 | 02/14/17 | 1,782,000 | 1,776,273 |
| See notes to financial statements | |
| 23 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Industrials (continued) | ||||
| Building Products 0.16% | ||||
| Goodman Global, Inc. | 9.000 | 10/30/17 | $687,909 | $690,531 |
| Goodman Global, Inc. | 5.750 | 10/28/16 | 1,006,231 | 1,008,109 |
| Commercial Services & Supplies 0.20% | ||||
| Waste Industries USA, Inc. | 4.750 | 03/17/17 | 2,157,695 | 2,146,907 |
| Industrial Conglomerates 0.25% | ||||
| Bakrie and Brothers Tbk PT | 15.000 | 01/18/13 | 128,297 | 128,297 |
| Tomkins LLC | 4.250 | 09/29/16 | 2,467,567 | 2,463,601 |
| Machinery 0.74% | ||||
| Colfax Corp. | 4.500 | 12/07/18 | 1,920,000 | 1,926,720 |
| Douglas Dynamics Holdings, Inc. | 5.750 | 04/07/18 | 1,323,125 | 1,306,586 |
| Rexnord LLC | 2.975 | 07/19/13 | 2,130,000 | 2,110,698 |
| The Manitowoc Company, Inc. | 4.250 | 11/13/17 | 539,500 | 535,903 |
| Xerium Technologies, Inc. | 5.500 | 05/22/17 | 1,938,508 | 1,909,430 |
| Information Technology 2.31% | 24,263,993 | |||
| Communications Equipment 0.26% | ||||
| CommScope, Inc. | 5.000 | 01/14/18 | 1,354,763 | 1,353,069 |
| Fibertech Networks LLC | 6.750 | 11/30/16 | 1,368,180 | 1,369,890 |
| Electronic Equipment, Instruments & Components 0.16% | ||||
| Aeroflex, Inc. | 4.250 | 05/09/18 | 1,691,500 | 1,638,641 |
| Internet Software & Services 0.12% | ||||
| SkillSoft Corp. | 6.500 | 05/26/17 | 1,229,832 | 1,228,294 |
| IT Services 0.32% | ||||
| Fidelity National Information Services, Inc. | 4.250 | 07/18/16 | 2,000,000 | 2,009,134 |
| Neustar, Inc. | 5.000 | 11/08/18 | 1,398,495 | 1,406,362 |
| Semiconductors & Semiconductor Equipment 0.83% | ||||
| Freescale Semiconductor, Inc. | 4.545 | 12/01/16 | 1,563,591 | 1,528,968 |
| Microsemi Corp. | 5.750 | 02/02/18 | 2,464,823 | 2,477,147 |
| NXP B.V. | 5.500 | 03/03/17 | 2,238,390 | 2,210,410 |
| NXP Funding LLC | 4.500 | 03/03/17 | 2,520,950 | 2,464,229 |
| Software 0.62% | ||||
| First Data Corp. | 4.277 | 03/23/18 | 5,120,632 | 4,486,954 |
| Lawson Software | 6.750 | 07/05/17 | 2,089,763 | 2,090,895 |
| Materials 1.68% | 17,670,963 | |||
| Chemicals 1.14% | ||||
| Ashland, Inc. | 3.750 | 08/23/18 | 2,114,561 | 2,120,588 |
| Chemtura Corp. | 5.500 | 08/27/16 | 2,238,518 | 2,255,307 |
| Hexion Specialty Chemicals BV | 4.375 | 05/05/15 | 796,152 | 782,518 |
| Momentive Specialty Chemicals, Inc. | 4.063 | 05/05/15 | 1,868,627 | 1,836,627 |
| OM Group, Inc. | 5.750 | 08/02/17 | 820,943 | 821,969 |
| Styron LLC | 6.000 | 08/02/17 | 4,527,887 | 4,120,378 |
| Metals & Mining 0.38% | ||||
| Novelis, Inc. | 3.750 | 03/10/17 | 2,339,171 | 2,328,645 |
| Walter Energy, Inc. | 4.000 | 04/02/18 | 1,723,590 | 1,715,587 |
| Paper & Forest Products 0.16% | ||||
| Ainsworth Lumber Company, Ltd. | 5.313 | 06/26/14 | 1,899,473 | 1,689,344 |
| See notes to financial statements | |
| 24 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Telecommunication Services 1.18% | $12,362,330 | |||
| Diversified Telecommunication Services 1.06% | ||||
| Crown Castle International Corp. (T) | — | 01/25/19 | $2,670,000 | 2,668,094 |
| Intelsat Jackson Holdings SA | 5.250 | 04/02/18 | 3,460,969 | 3,463,132 |
| Level 3 Financing, Inc. | 5.750 | 08/31/18 | 1,000,000 | 993,958 |
| Level 3 Financing, Inc. | 2.746 | 03/13/14 | 2,424,000 | 2,355,825 |
| Telesat Canada | 3.270 | 10/31/14 | 1,613,474 | 1,607,712 |
| Wireless Telecommunication Services 0.12% | ||||
| MetroPCS Wireless, Inc. | 4.063 | 03/16/18 | 1,287,016 | 1,273,609 |
| Utilities 1.19% | 12,558,324 | |||
| Electric Utilities 0.50% | ||||
| Texas Competitive Electric Holdings Company LLC | 4.795 | 10/10/17 | 8,488,544 | 5,233,722 |
| Independent Power Producers & Energy Traders 0.69% | ||||
| Calpine Corp. | 4.500 | 04/02/18 | 2,267,863 | 2,248,019 |
| GenOn Energy, Inc. | 6.000 | 12/01/17 | 3,044,833 | 3,004,489 |
| NRG Energy, Inc. | 4.000 | 07/02/18 | 2,080,545 | 2,072,094 |
| Collateralized Mortgage Obligations 16.18% | $170,121,690 | |||
| (Cost $174,234,670) | ||||
| Commercial & Residential 15.91% | 167,313,408 | |||
| American Home Mortgage Assets | ||||
| Series 2006-4, Class 1A11 (P) | 0.466 | 10/25/46 | 4,255,700 | 2,011,576 |
| Series 2007-1, Class A1 (P) | 0.897 | 02/25/47 | 6,098,590 | 2,602,927 |
| BCAP LLC Trust | ||||
| Series 2009, Class 7A1 (P)(S) | 6.120 | 08/26/36 | 2,811,082 | 2,776,325 |
| Series 2011, Class 21A5 (P)(S) | 2.866 | 06/26/34 | 4,837,172 | 4,808,411 |
| BCRR Trust | ||||
| Series 2009-1, Class 2A1 (P)(S) | 5.858 | 07/17/40 | 3,200,000 | 3,629,901 |
| Bear Stearns Commercial Mortgage Securities | ||||
| Series 2005-T20, Class A4A (P) | 5.299 | 10/12/42 | 2,240,000 | 2,501,306 |
| Citicorp Mortgage Securities, Inc. | ||||
| Series 2007-8, Class 1A3 | 6.000 | 09/25/37 | 992,542 | 976,100 |
| Citigroup Mortgage Loan Trust, Inc. | ||||
| Series 2010-8, Class 5A6 (S) | 4.000 | 11/25/36 | 7,836,570 | 8,033,001 |
| Series 2010-8, Class 6A6 (S) | 4.500 | 12/25/36 | 7,501,296 | 7,724,647 |
| Commercial Mortgage Pass Through Certificates | ||||
| Series 2006, Class C8 | 5.377 | 12/10/46 | 3,950,000 | 2,556,397 |
| Countrywide Alternative Loan Trust | ||||
| Series 2005-51, Class 1A2A (P) | 0.571 | 11/20/35 | 423,394 | 409,960 |
| Countrywide Home Loan Mortgage Pass Through Trust | ||||
| Series 2006-3, Class 3A1 (P) | 0.526 | 02/25/36 | 3,355,137 | 1,944,480 |
| Series 2004-25, Class 1A1 (P) | 0.606 | 02/25/35 | 3,217,073 | 2,208,340 |
| Series 2004-25, Class 2A1 (P) | 0.616 | 02/25/35 | 4,828,992 | 3,127,425 |
| Credit Suisse Mortgage Capital Certificates | ||||
| Series 2010-16, Class A3 (P)(S) | 4.250 | 06/25/50 | 2,450,000 | 2,262,996 |
| Series 2010-20R, Class 5A6 (P)(S) | 3.500 | 09/27/35 | 4,340,611 | 4,241,667 |
| Deutsche ALT-A Securities, Inc. Alternate Loan Trust | ||||
| Series 2007-OA2, Class A1 (P) | 0.967 | 04/25/47 | 3,120,104 | 1,900,976 |
| Extended Stay America Trust | ||||
| Series 2010-ESHA, Class A (S) | 2.951 | 11/05/27 | 4,892,754 | 4,960,245 |
| See notes to financial statements | |
| 25 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Commercial & Residential (continued) | ||||
| Series 2010-ESHA, Class B (S) | 4.221 | 11/05/27 | $3,750,000 | $3,809,854 |
| First Horizon Alternative Mortgage Securities | ||||
| Series 2005-AA12, Class 1A1 (P) | 2.350 | 02/25/36 | 3,088,360 | 2,103,896 |
| FREMF Mortgage Trust | ||||
| Series 2011-K701, Class C (P)(S) | 4.437 | 07/25/48 | 6,125,000 | 5,310,120 |
| GS Mortgage Securities Corp. II | ||||
| Series 2007, Class G10 (P) | 5.984 | 08/10/45 | 5,325,000 | 4,615,119 |
| Harborview Mortgage Loan Trust | ||||
| Series 2005-8, Class 1A2A (P) | 0.611 | 09/19/35 | 2,606,545 | 1,512,810 |
| Series 2007-3, Class 2A1A (P) | 0.481 | 05/19/47 | 4,613,610 | 2,778,076 |
| Indymac Index Mortgage Loan Trust | ||||
| Series 2005-16IP, Class A1 (P) | 0.596 | 07/25/45 | 3,155,302 | 2,026,240 |
| Jefferies & Company, Inc. | ||||
| Series 2008-R1, Class A (P)(S) | 9.159 | 06/25/47 | 3,519,014 | 2,735,277 |
| Series 2009-R2, Class 4A (P)(S) | 3.683 | 05/26/37 | 2,690,770 | 2,632,622 |
| Series 2009-R9, Class 1A1 (P)(S) | 2.541 | 08/26/46 | 1,998,623 | 1,953,728 |
| Series 2010-R8, Class 1A1 (P)(S) | 0.494 | 02/26/47 | 3,214,155 | 3,151,402 |
| JPMorgan Chase Commercial Mortgage Securities Corp. | ||||
| Series 2005-CB13, Class A2FX | 5.130 | 01/12/43 | 2,212,632 | 2,217,845 |
| Series 2006-LDP9, Class AJ | 5.411 | 05/15/47 | 4,725,000 | 2,904,273 |
| Series 2007-C1, Class A4 | 5.716 | 02/15/51 | 500,000 | 555,574 |
| Series 2010-C1, Class A1 | 3.853 | 06/15/43 | 2,756,466 | 2,907,559 |
| Series 2011-CCHP, Class A | 2.600 | 07/15/28 | 4,250,000 | 4,239,027 |
| JPMorgan Reremic | ||||
| Series 2009-12, Class 1A1 (P)(S) | 5.705 | 07/26/37 | 1,055,924 | 1,096,651 |
| LB-UBS Commercial Mortgage Trust | ||||
| Series 2006-C6, Class A4 | 5.372 | 09/15/39 | 526,000 | 595,185 |
| Lehman XS Trust | ||||
| Series 2007-4N, Class 3A2A (P) | 0.958 | 03/25/47 | 918,064 | 538,446 |
| Merrill Lynch Mortgage Investors, Inc. | ||||
| Series 2005-A9, Class 2A1A (P) | 2.520 | 12/25/35 | 251,034 | 247,183 |
| Merrill Lynch/Countrywide Commercial Mortgage Trust | ||||
| Series 2006-4, Class A (P) | 0.416 | 12/12/49 | 1,452,085 | 1,451,538 |
| Morgan Stanley Reremic Trust | ||||
| Series 2011-KEYA, Class 1A (S) | 4.250 | 12/19/40 | 5,734,115 | 5,750,802 |
| MortgageIT Trust | ||||
| Series 2004-2, Class A1 (P) | 0.646 | 12/25/34 | 2,609,524 | 2,185,769 |
| Nomura Resecuritization Trust | ||||
| Series 2011-1RA, Class 1A5 (P)(S) | 2.690 | 03/26/36 | 4,826,397 | 4,766,476 |
| OBP Depositor LLC Trust | ||||
| Series 2010-OBP, Class A (S) | 4.646 | 07/15/45 | 2,500,000 | 2,826,475 |
| RBSSP Resecuritization Trust | ||||
| Series 2010-3, Class 3A1 (P)(S) | 0.436 | 01/26/46 | 3,603,967 | 3,355,676 |
| Series 2010-4, Class 5A1 (P)(S) | 0.436 | 02/26/37 | 2,585,680 | 2,496,321 |
| Structured Asset Mortgage Investments, Inc. | ||||
| Series 2005-AR6, Class 2A1 (P) | 0.586 | 09/25/45 | 4,398,472 | 2,485,300 |
| WaMu Mortgage Pass Through Certificates | ||||
| Series 2004-13, Class A1 (P) | 0.673 | 11/25/34 | 3,347,944 | 2,531,538 |
| Series 2004-AR8, Class A1 (P) | 0.733 | 06/25/44 | 2,340,977 | 1,624,755 |
| Series 2005-11, Class A1 (P) | 0.596 | 08/25/45 | 5,032,045 | 3,804,996 |
| Series 2005-AR1, Class A1A (P) | 0.596 | 01/25/45 | 2,230,801 | 1,733,647 |
| Series 2005-AR13, Class A1A1 (P) | 0.566 | 10/25/45 | 4,673,436 | 3,505,661 |
| Series 2005-AR13, Class A1B2 (P) | 0.706 | 10/25/45 | 2,619,063 | 1,656,555 |
| Series 2005-AR17, Class A1A2 (P) | 0.566 | 12/25/45 | 3,880,483 | 2,877,766 |
| Series 2005-AR19, Class A1A1 (P) | 0.546 | 12/25/45 | 2,183,790 | 1,654,511 |
| See notes to financial statements | |
| 26 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Commercial & Residential (continued) | ||||
| Series 2005-AR6, Class 2A1A (P) | 0.506 | 04/25/45 | $6,124,884 | $4,649,846 |
| Series 2005-AR8, Class 1A (P) | 0.546 | 07/25/45 | 4,303,849 | 3,236,507 |
| Series 2005-AR9, Class A1A (P) | 0.596 | 07/25/45 | 2,915,915 | 2,212,465 |
| Wells Fargo Mortgage Backed Securities Trust | ||||
| Series 2005-AR12, Class 2A6 (P) | 2.669 | 06/25/35 | 2,073,803 | 1,846,485 |
| Series 2005-AR4, Class 2A2 (P) | 2.736 | 04/25/35 | 3,573,665 | 3,145,312 |
| Series 2005-AR9, Class 3A1 (P) | 2.722 | 06/25/34 | 1,023,910 | 907,440 |
| U.S. Government Agency 0.27% | 2,808,282 | |||
| Federal Home Loan Mortgage Corp. | ||||
| Freddie Mac Series 3733, Class A | 4.000 | 04/15/28 | 1,308,855 | 1,355,240 |
| Freddie Mac Series 3829 IO | 4.500 | 08/15/39 | 8,831,153 | 1,453,042 |
| Asset Backed Securities 3.21% | $33,800,543 | |||
| (Cost $33,365,004) | ||||
| Cabela's Master Credit Card Trust | ||||
| Series 2010-2A, Class A1 (S) | 2.290 | 09/17/18 | 3,000,000 | 3,115,667 |
| Carrington Mortgage Loan Trust | ||||
| Series 2006-FRE1, Class A2 (P) | 0.386 | 07/25/36 | 4,243,806 | 3,921,116 |
| Countrywide Asset-Backed Certificates | ||||
| Series 2007-1, Class 2A1 (P) | 0.326 | 07/25/37 | 426,592 | 407,087 |
| FUEL Trust | ||||
| Series 2011-1 (S) | 4.207 | 04/15/16 | 2,725,000 | 2,799,204 |
| GSAMP Trust | ||||
| Series 2007-HE2, Class A2A (P) | 0.396 | 03/25/47 | 2,184,909 | 2,147,919 |
| Home Equity Mortgage Trust | ||||
| Series 2006-1, Class A2 | 5.300 | 05/25/36 | 6,311,000 | 2,508,383 |
| Option One Mortgage Loan Trust | ||||
| Series 2007-2, Class 3A1 (P) | 0.366 | 03/25/37 | 724,942 | 718,882 |
| SLC Student Loan Trust | ||||
| Series 2010-B, Class A1 (P)(S) | 4.000 | 07/15/42 | 2,069,213 | 2,092,039 |
| SLM Student Loan Trust | ||||
| Series 20011-1, Class A1 (P) | 0.796 | 03/25/26 | 4,600,535 | 4,591,366 |
| Soundview Home Equity Loan Trust | ||||
| Series 2005-OPT3, Class A4 (P) | 0.576 | 11/25/35 | 2,311,283 | 2,123,251 |
| Structured Asset Securities Corp. | ||||
| Series 2006-BC6, Class A2 (P) | 0.356 | 01/25/37 | 172,117 | 169,498 |
| Series 2008-BC4, Class A3 (P) | 0.526 | 11/25/37 | 4,355,093 | 4,008,031 |
| TAL Advantage LLC | ||||
| Series 2010-2A, Class A (S) | 4.300 | 10/20/25 | 2,712,500 | 2,825,759 |
| Series 2011-1A, Class A (S) | 4.600 | 01/20/26 | 2,385,000 | 2,372,341 |
| Shares | Value | |||
| Common Stocks 0.02% | $172,925 | |||
| (Cost $191,874) | ||||
| Consumer Staples 0.02% | 172,925 | |||
| Food Products 0.02% | ||||
| Archer-Daniels-Midland Company | 6,040 | 172,925 | ||
| See notes to financial statements | |
| 27 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Shares | Value | |||
| Preferred Securities 0.25% | $2,617,834 | |||
| (Cost $2,699,851) | ||||
| Energy 0.08% | 791,385 | |||
| Oil, Gas & Consumable Fuels 0.08% | ||||
| Apache Corp., Series D, 6.000% | 13,780 | 791,385 | ||
| Financials 0.16% | 1,688,625 | |||
| Commercial Banks 0.11% | ||||
| Wells Fargo & Company, Series L, 7.500% | 645 | 706,275 | ||
| Wintrust Financial Corp., 7.500% | 9,850 | 485,950 | ||
| Insurance 0.05% | ||||
| Hartford Financial Services Group, Inc., Series F, 7.250% | 8,242 | 169,950 | ||
| MetLife, Inc., 5.000% | 4,765 | 326,450 | ||
| Information Technology 0.00% | 11,747 | |||
| IT Services 0.00% | ||||
| Unisys Corp., 6.250% | 183 | 11,747 | ||
| Materials 0.01% | 126,077 | |||
| Metals & Mining 0.01% | ||||
| Molycorp, Inc., 5.500% | 1,840 | 126,077 | ||
| Yield (%) | Shares | Value | ||
| Short-Term Investments 6.94% | $72,992,958 | |||
| (Cost $72,992,958) | ||||
| Money Market Funds 6.93% | 72,858,784 | |||
| State Street Institutional Liquid Reserves Fund | 0.1779(Y) | 72,858,784 | 72,858,784 | |
| Par value | Value | |||
| Repurchase Agreement 0.01% | 134,174 | |||
| Repurchase Agreement with State Street Corp., dated 1-31-12 at 0.010% to be | ||||
| repurchased at $134,174 on 2-1-12, collateralized by $140,000 U.S. Treasury Bill, | ||||
| 0.010% due 3-8-12 (valued at $139,994, including interest) | $134,174 | 134,174 | ||
| Total investments (Cost $1,073,027,811)† 102.82% | $1,081,049,952 | |||
| Other assets and liabilities, net (2.82%) | ($29,670,727) | |||
| Total net assets 100.00% | $1,051,379,225 | |||
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.
| See notes to financial statements | |
| 28 |
Multi Sector Bond Fund
As of 1-31-12 (Unaudited)
| Currency Abbreviations | |
| ARS | Argentine Peso |
| BRL | Brazilian Real |
| COP | Columbian Peso |
| EUR | Euro |
| GBP | Pound Sterling |
| HUF | Hungarian Forint |
| IDR | Indonesian Rupiah |
| MXN | Mexican Peso |
| MYR | Malaysian Ringgit |
| PHP | Philippine Peso |
| PLN | Polish Zloty |
| RUB | Russian Ruble |
| THB | Thai Baht |
| TRY | Turkish Lira |
| ZAR | South African Rand |
Notes to Portfolio of Investments
IO Interest Only Security – Interest Tranche of Stripped Mortgage Pool. Rate shown is the annualized yield at the end of the period.
LIBOR London Interbank Offered Rate
PIK Payment-in-kind
TBA To Be Announced
(D) Par value of foreign bonds is expressed in local currency as shown parenthetically in security description.
(H) Non-income producing - Issuer is in default.
(K) Underlying issuer is shown parenthetically in security description.
(M) Term loans are variable rate obligations. The coupon rate shown represents the rate at period end unless the investment is unsettled.
(P) Variable rate obligation. The coupon rate shown represents the rate at period end.
(Q) Perpetual bonds have no stated maturity date. Date shown 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 $178,614,931 or 16.99% of the Fund's net assets as of 1-31-12.
(T) All or a portion of this position represents unsettled loan commitment at period end where the coupon rate will be determined at time of settlement.
(Y) The rate shown is the annualized seven-day yield as of 1-31-12.
(Z) Zero coupon bonds are issued at a discount from their principal amount in lieu of paying interest periodically.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $1,076,099,608. Net unrealized appreciation aggregated $4,950,344, of which $28,219,454 related to appreciated investment securities and $23,269,110 related to depreciated investment securities.
| See notes to financial statements | |
| 29 |
Multi Sector Bond Fund
Statement of Assets and Liabilities — January 31, 2012 (Unaudited)
| Assets | |
| Investments, at value (Cost $1,073,027,811) | $1,081,049,952 |
| Cash | 118,567 |
| Foreign currency, at value (Cost $33,559) | 33,448 |
| Cash held at broker for futures contracts | 2,086,050 |
| Segregated cash for swap contracts | 5,550,000 |
| Receivable for investments sold | 27,115,494 |
| Receivable for fund shares sold | 108,113 |
| Receivable for forward foreign currency | |
| exchange contracts (Note 3) | 158,922 |
| Dividends and interest receivable | 9,517,136 |
| Other receivables and prepaid expenses | 1,430 |
| Total assets | 1,125,739,112 |
| Liabilities | |
| Payable for investments purchased | 17,016,532 |
| Payable for delayed delivery securities | |
| purchased | 51,121,083 |
| Payable for forward foreign currency exchange | |
| contracts (Note 3) | 97,742 |
| Swap contracts, at value (includes unamortized | |
| upfront amounts received of $4,197,451) | |
| (Note 3) | 5,631,523 |
| Payable for futures variation margin (Note 3) | 384,875 |
| Distributions payable | 173 |
| Payable to affiliates | |
| Accounting and legal services fees | 6,949 |
| Transfer agent fees | 7 |
| Trustees' fees | 964 |
| Other liabilities and accrued expenses | 100,039 |
| Total liabilities | 74,359,887 |
| Net assets | |
| Paid-in capital | $1,056,460,718 |
| Accumulated distributions in excess of net | |
| investment income | (258,365) |
| Accumulated net realized gain (loss) on | |
| investments, futures contracts, foreign currency | |
| transactions and swap agreements | (7,474,700) |
| Net unrealized appreciation (depreciation) on | |
| investments, futures contracts, translation of | |
| assets and liabilities in foreign currencies and | |
| swap agreements | 2,651,572 |
| Net assets | $1,051,379,225 |
| 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 ($25,237 ÷ 2,500 shares) | $10.09 |
| Class I ($25,239 ÷ 2,500 shares) | $10.10 |
| Class NAV ($1,051,328,749 ÷ 104,137,665 | |
| shares) | $10.10 |
| Maximum offering price per share | |
| Class A (net asset value per share ÷ 95.5%)1 | $10.57 |
1 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 | |
| 30 |
Multi Sector Bond Fund
Statement of Operations — January 31, 2012 (Unaudited)
| Investment income | |
| Interest | $26,468,948 |
| Dividends | 98,695 |
| Less foreign taxes withheld | (2,136) |
| Total investment income | 26,565,507 |
| Expenses | |
| Investment management fees (Note 5) | 3,529,276 |
| Distribution and service fees (Note 5) | 37 |
| Accounting and legal services fees (Note 5) | 69,180 |
| Transfer agent fees (Note 5) | 43 |
| Trustees' fees (Note 5) | 5,815 |
| Professional fees | 51,546 |
| Custodian fees | 129,929 |
| Registration and filing fees | 12,007 |
| Other | 9,699 |
| Total expenses | 3,807,532 |
| Less expense reductions and amounts | |
| recaptured (Note 5) | (16,252) |
| Net expenses | 3,791,280 |
| Net investment income | 22,774,227 |
| Realized and unrealized gain (loss) | |
| Net realized gain (loss) on | |
| Investments | 5,272,738 |
| Capital gain distributions received from | |
| unaffiliated underlying funds | 833 |
| Futures contracts (Note 3) | (13,463,781) |
| Swap contracts (Note 3) | 1,012,234 |
| Foreign currency transactions | (1,970,100) |
| (9,148,076) | |
| Change in net unrealized appreciation | |
| (depreciation) of | |
| Investments | (15,081,995) |
| Futures contracts (Note 3) | (365,618) |
| Swap contracts (Note 3) | (911,988) |
| Translation of assets and liabilities in foreign | |
| currencies | (115,711) |
| (16,475,312) | |
| Net realized and unrealized loss | (25,623,388) |
| Decrease in net assets from operations | ($2,849,161) |
| See notes to financial statements | |
| 31 |
Multi Sector Bond Fund
Statements of Changes in Net Assets
| Six months | |||
| ended | Year ended | ||
| 1/31/12 | 7/31/11 | ||
| (Unaudited) | |||
| Increase (decrease) in net assets | |||
| From operations | |||
| Net investment income | $22,774,227 | $39,862,243 | |
| Net realized gain (loss) | (9,148,076) | 10,857,176 | |
| Change in net unrealized appreciation | |||
| (depreciation) | (16,475,312) | 8,955,047 | |
| Increase (decrease) in net assets resulting | |||
| from operations | (2,849,161) | 59,674,466 | |
| Distributions to shareholders | |||
| From net investment income | |||
| Class A | (497) | (1,142) | |
| Class I | (539) | (1,198) | |
| Class NAV | (22,383,979) | (45,435,444) | |
| From net realized gain | |||
| Class A | (114) | (64) | |
| Class I | (114) | (64) | |
| Class NAV | (4,647,739) | (2,256,431) | |
| Total distributions | (27,032,982) | (47,694,343) | |
| From Fund share transactions (Note 6) | 57,949,265 | 327,346,063 | |
| Total increase | 28,067,122 | 339,326,186 | |
| Net assets | |||
| Beginning of period | 1,023,312,103 | 683,985,917 | |
| End of period | $1,051,379,225 | $1,023,312,103 | |
| Accumulated distributions in excess of net | |||
| investment income | ($258,365) | ($647,577) | |
| See notes to financial statements. | |
| 32 |
Multi Sector Bond Fund
Financial Highlights (For a share outstanding throughout the period)
| Class A Shares | ||||||
| Period ended | ||||||
| 1-31-121 | 7-31-11 | 7-31-102 | ||||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $10.41 | $10.25 | $10.00 | |||
| Net investment income3 | 0.20 | 0.39 | 0.25 | |||
| Net realized and unrealized gain (loss) on | ||||||
| investments | (0.27) | 0.26 | 0.25 | |||
| Total from investment operations | (0.07) | 0.65 | 0.50 | |||
| Less distributions | ||||||
| From net investment income | (0.20) | (0.46) | (0.25) | |||
| From net realized gain | (0.05) | (0.03) | — | |||
| Total distributions | (0.25) | (0.49) | (0.25) | |||
| Net asset value, end of period | $10.09 | $10.41 | $10.25 | |||
| Total return (%)4,5 | (0.67)6 | 6.37 | 5.066 | |||
| 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 and amounts | ||||||
| recaptured | 1.278 | 1.24 | 1.198 | |||
| Expenses including reductions and amounts | ||||||
| recaptured | 1.258 | 1.24 | 1.198 | |||
| Net investment income | 4.048 | 3.75 | 3.268 | |||
| Portfolio turnover (%) | 29 | 80 | 68 | |||
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 11-2-09 (commencement of operations) to 7-31-10.
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 periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
| See notes to financial statements | |
| 33 |
Multi Sector Bond Fund
Financial Highlights (For a share outstanding throughout the period)
| Class I Shares | ||||||
| Period ended | ||||||
| 1-31-121 | 7-31-11 | 7-31-102 | ||||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $10.41 | $10.24 | $10.00 | |||
| Net investment income3 | 0.22 | 0.42 | 0.26 | |||
| Net realized and unrealized gain (loss) on | ||||||
| investments | (0.26) | 0.26 | 0.25 | |||
| Total from investment operations | (0.04) | 0.68 | 0.51 | |||
| Less distributions | ||||||
| From net investment income | (0.22) | (0.48) | (0.27) | |||
| From net realized gain | (0.05) | (0.03) | — | |||
| Total distributions | (0.27) | (0.51) | (0.27) | |||
| Net asset value, end of period | $10.10 | $10.41 | $10.24 | |||
| Total return (%)4 | (0.40)5 | 6.70 | 5.185 | |||
| 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 and amounts | ||||||
| recaptured | 0.877 | 0.81 | 1.207 | |||
| Expenses including reductions and amounts | ||||||
| recaptured | 0.927 | 0.95 | 0.957 | |||
| Net investment income | 4.397 | 4.01 | 3.487 | |||
| Portfolio turnover (%) | 29 | 80 | 68 | |||
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 11-2-09 (commencement of operations) to 7-31-10.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Less than $500,000.
7 Annualized.
| See notes to financial statements | |
| 34 |
Multi Sector Bond Fund
Financial Highlights (For a share outstanding throughout the period)
| Class NAV Shares | ||||||
| Period ended | ||||||
| 1-31-121 | 7-31-11 | 7-31-102 | ||||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $10.41 | $10.24 | $10.00 | |||
| Net investment income3 | 0.23 | 0.44 | 0.29 | |||
| Net realized and unrealized gain (loss) on | ||||||
| investments | (0.27) | 0.26 | 0.24 | |||
| Total from investment operations | (0.04) | 0.70 | 0.53 | |||
| Less distributions | ||||||
| From net investment income | (0.22) | (0.50) | (0.29) | |||
| From net realized gain | (0.05) | (0.03) | — | |||
| Total distributions | (0.27) | (0.53) | (0.29) | |||
| Net asset value, end of period | $10.10 | $10.41 | $10.24 | |||
| Total return (%)4 | (0.32)5 | 6.92 | 5.325 | |||
| Ratios and supplemental data | ||||||
| Net assets, end of period (in millions) | $1,051 | $1,023 | $684 | |||
| Ratios (as a percentage of average net | ||||||
| assets): | ||||||
| Expenses before reductions and amounts | ||||||
| recaptured | 0.766 | 0.77 | 0.786 | |||
| Expenses including reductions and amounts | ||||||
| recaptured | 0.766 | 0.77 | 0.776 | |||
| Net investment income | 4.546 | 4.21 | 3.906 | |||
| Portfolio turnover (%) | 29 | 80 | 68 | |||
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 11-2-09 (commencement of operations) to 7-31-10.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
| See notes to financial statements | |
| 35 |
Notes to financial statements (unaudited)
Note 1 — Organization
John Hancock Multi Sector Bond Fund (the Fund) is a series of John Hancock Funds II (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 total return, which consists of income on its investments 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 shares are offered to all investors. Class I shares are offered to institutions and certain investors. Class NAV shares are sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, transfer agent fees, printing and postage and 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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.
| 36 | |
The following is a summary of the values by input classification of the Fund’s investments as of January 31, 2012, by major security category or type:
| Total Market | Level 1 Quoted | Level 2 Significant | Level 3 Significant | |
| Value at | Price | Observable Inputs | Unobservable Inputs | |
| 1-31-12 | ||||
| Corporate Bonds | $428,622,816 | — | $428,495,862 | $126,954 |
| U.S. Government & Agency Obligations | 63,696,334 | — | 63,696,334 | — |
| Foreign Government Obligations | 73,101,308 | — | 73,101,308 | — |
| Capital Preferred Securities | 3,778,237 | — | 3,778,237 | — |
| Convertible Bonds | 19,388,165 | — | 19,388,165 | — |
| Structured Notes | 10,510,266 | — | 1,426,189 | 9,084,077 |
| Term Loans | 202,246,876 | — | 202,118,579 | 128,297 |
| Collateralized Mortgage Obligations | 170,121,690 | — | 170,121,690 | — |
| Asset Backed Securities | 33,800,543 | — | 33,800,543 | — |
| Common Stocks | 172,925 | $172,925 | — | — |
| Preferred Securities | 2,617,834 | 2,120,137 | 497,697 | — |
| Short-Term Investments | 72,992,958 | 72,858,784 | 134,174 | — |
| Total Investments in Securities | $1,081,049,952 | $75,151,846 | $996,558,778 | $9,339,328 |
| Other Financial Instruments: | ||||
| Futures | ($4,020,579) | ($4,020,579) | — | — |
| Forward Foreign Currency Contracts | $61,180 | — | $61,180 | — |
| Interest Rate Swaps | ($1,550,470) | — | ($1,550,470) | — |
| Credit Default Swaps | ($4,081,053) | — | ($4,081,053) | — |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the six months ended January 31, 2012, there were no significant transfers into or out of Level 1 or Level 2.
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value. Transfers into or out of Level 3 represent the beginning value of any security or instrument where a change in the level has occurred from the beginning to the end of the period.
| Collateralized | |||||
| Corporate | Structured | Mortgage | |||
| Bonds | Notes | Term Loans | Obligations | Total | |
| Balance as of 7-31-11 | $401,861 | $16,114,229 | $393,026 | $3,675,000 | $20,584,116 |
| Realized gain (loss) | (6,170) | 504,468 | 2,871 | - | $501,169 |
| Change in unrealized appreciation | |||||
| (depreciation) | (7,576) | (601,238) | 1,974 | - | ($606,840) |
| Purchases | - | 3,637,311 | 128,297 | - | $3,765,608 |
| Sales | (141,371) | (10,570,693) | (397,871) | - | ($11,109,935) |
| Transfers into Level 3 | - | - | - | - | - |
| Transfers out of Level 3 | (119,790) | - | - | (3,675,000) | ($3,794,790) |
| Balance as of 1-31-12 | $126,954 | $9,084,077 | $128,297 | - | $9,339,328 |
| Change in unrealized at period end* | ($1,371) | ($80,235) | $1,974 | - | ($79,632) |
* Change in unrealized appreciation (depreciation) attributable to Level 3 securities held at period end. This balance is included in the change in unrealized appreciation (depreciation) on the Statement of operations.
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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, then securities are valued using the last quoted bid or evaluated price. Investments by the Fund in open-end mutual funds are valued at their respective net asset values each business day. 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 market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the NYSE. Significant market events that affect the values of non-U.S. securities may occur 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 non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Repurchase agreements. The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement, it receives collateral which 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. 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.
When-issued/delayed delivery securities. The Fund may purchase or sell debt securities on a when-issued or delayed-delivery basis, or in a “To Be Announced” (TBA) or “forward commitment” transaction, with delivery or payment to occur at a later date beyond the normal settlement period. TBA securities resulting from these transactions are included in the Portfolio of Investments or in a schedule to the Portfolio of Investments (Sale Commitments Outstanding). At the time that the Fund enters into a commitment to purchase or sell a security, the transaction is recorded and the value of the security is reflected in the Fund’s net asset value. The price of such security and the date that the security will be delivered and paid for are fixed at the time the transaction is negotiated. The value of the security may vary with market fluctuations. No interest accrues to the Fund until payment takes place. At the time that the Fund enters into this type of transaction, the Fund is required to have sufficient cash and/or liquid securities to cover its commitments.
Certain risks may arise upon entering into when-issued or delayed-delivery securities transactions, including the potential inability of counterparties to meet the terms of their contracts, and the issuer’s failure to issue the securities due to political, economic or other factors. Additionally, losses may arise due to declines in the value of the securities prior to settlement date.
Structured notes. The Fund may invest in structured notes. The Fund invests in an entity, such as a trust, organized and operated solely for the purpose of restructuring the investment characteristics of various securities. This type of restructuring involves the deposit or purchase of
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specified instruments and the issuance of one or more classes of securities backed by, or representing interests, in the underlying instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured notes to create securities with different investment characteristics, such as varying maturities, payment priorities or interest rate provisions. The extent of the income paid by the structured notes is dependent on the cash flow of the underlying instruments.
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 subadviser’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. 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 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.
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. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Foreign taxes. The Fund may be subject to capital gains and repatriation taxes as imposed by certain countries in which it invests. Such taxes are generally based upon income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to the Fund to
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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. which enables them to participate in a $200 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. For the six months ended January 31, 2012, the Fund had no borrowings under the line of credit.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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, 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 July 31, 2011, 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 gain 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 foreign currency transactions, characterization of distributions, derivative transactions and amortization and accretion on debt securities.
New accounting pronouncements. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of
| 40 | |
the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The update creates new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Management is currently evaluating the impact, if any, on the Fund’s financial statement disclosures.
Note 3 — Derivative instruments
The Fund may invest in derivatives in order to meet its investment objective. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, the Fund is exposed to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
The Fund has entered into collateral agreements with certain counterparties to mitigate counterparty risk on over-the-counter derivatives. Subject to established minimum levels, collateral is generally determined based on the net aggregate unrealized gain or loss on contracts with a particular counterparty. Collateral pledged to the Fund is held by the custodian bank for the benefit of the Fund and can be in the form of cash or debt securities issued by the U.S. government or related agencies; collateral posted by the Fund is held in a segregated account at the Fund's custodian and is noted in the accompanying Portfolio of investments, or if cash is posted, on the Statement of assets and liabilities. As of January 31, 2012, $5,550,000 was posted by the Fund for the benefit of counterparties.
Futures. A futures contract is a contractual agreement to buy or sell a particular commodity, currency or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates and potential losses in excess of the amounts recognized on the Statement of assets and liabilities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (variation margin and unrealized gain or loss) is recorded by the Fund. When the contract is closed, the Fund records a realized gain or loss 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.
During the six months ended January 31, 2012, the Fund used futures contracts to manage the duration of the portfolio. The following table summarizes the contracts held at January 31, 2012.
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During the six months ended January 31, 2012, the Fund held futures contracts with USD absolute notional values ranging from $204.7 million to $219.9 million as measured at each quarter end.
| UNREALIZED | |||||
| NUMBER OF | NOTIONAL | APPRECIATION | |||
| OPEN CONTRACTS | CONTRACTS | POSITION | EXPIRATION | VALUE | (DEPRECIATION) |
| U.S. Treasury 2-Year Note Futures | 201 | Short | Mar 2012 | ($44,370,750) | ($57,291) |
| U.S. Treasury 10-Year Note Futures | 1100 | Short | Mar 2012 | (145,475,000) | (3,234,496) |
| U.S. Treasury 30-Year Bond Futures | 240 | Short | Mar 2012 | (34,905,000) | (1,041,203) |
| U.S. Treasury 5-Year Note Futures | 129 | Long | Mar 2012 | 16,002,047 | 189,849 |
| U.S. Treasury Ultra Long Bond Futures | 25 | Long | Mar 2012 | 3,999,219 | 122,562 |
| ($204,749,484) | ($4,020,579) |
Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a specific currency at a price that is set on the date of the contract. The forward contract calls for delivery of the currency on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the failure of the counterparties to timely post collateral, the risk that currency movements will not occur thereby reducing the Fund’s total return, and the potential for losses in excess of the 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 January 31, 2012, the Fund used forward foreign currency contracts to manage against anticipated currency exchange rates and gain exposure to foreign currency. The following table summarizes the contracts held at January 31, 2012. During the six months ended January 31, 2012, the Fund held forward foreign currency contracts with USD absolute values ranging from $14.7 million to $48.4 million as measured at each quarter end.
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| PRINCIPAL | ||||||
| PRINCIPAL | AMOUNT | |||||
| AMOUNT | COVERED BY | UNREALIZED | ||||
| COVERED BY | CONTRACT | COUNTER- | SETTLEMENT | APPRECIATION | ||
| CURRENCY | CONTRACT | (USD) | PARTY | DATE | (DEPRECIATION) | |
| BUYS | ||||||
| BRL | 1,399,280 | $746,773 | Citibank N.A. | Feb 2012 | $54,097 | |
| BRL | 1,399,280 | 789,394 | Citibank N.A. | Mar 2012 | 5,561 | |
| CNY | 7,908,801 | 1,241,570 | Citibank N.A. | May 2012 | 11,716 | |
| EUR | 7,475 | 9,812 | Citibank N.A. | Feb 2012 | (34) | |
| PHP | 6,731,450 | 154,960 | Citibank N.A. | Feb 2012 | 1,773 | |
| RUB | 96,772,719 | 3,109,349 | Citibank N.A. | Mar 2012 | 73,807 | |
| $6,051,858 | $146,920 | |||||
| SELLS | ||||||
| BRL | 1,399,280 | $794,143 | Citibank N.A. | Feb 2012 | ($6,727) | |
| CNY | 7,908,801 | 1,243,795 | Citibank N.A. | May 2012 | (9,491) | |
| EUR | 3,403,803 | 4,377,594 | Citibank N.A. | Feb 2012 | (74,907) | |
| GBP | 200,000 | 308,509 | Citibank N.A. | Feb 2012 | (6,583) | |
| RUB | 57,399,000 | 1,900,000 | Citibank N.A. | Mar 2012 | 11,968 | |
| $8,624,041 | ($85,740) | |||||
| Currency Abbreviations | |
| BRL | Brazilian Real |
| CNY | Chinese Yuan Renminbi |
| EUR | Euro |
| GBP | Pound Sterling |
| PHP | Philippine Peso |
| RUB | Russian Ruble |
Swaps. The Fund may enter into interest rate and credit default swap agreements. Swap agreements are agreements between a Fund and counterparty to exchange cash flows, assets, foreign currencies or market-linked returns at specified intervals. Swap agreements are privately negotiated in the over-the-counter market (OTC swaps) or may be executed on a registered commodities exchange (exchange traded swaps). Swaps are marked-to-market daily based upon values from third party vendors, which may include a registered commodities exchange, or broker quotations, and the change in value is recorded as a component of unrealized appreciation/depreciation of swap contracts. The value of the swap will typically implicate collateral posting obligations by the party that is considered out-of-the-money on the swap.
Upfront payments made/received by the Fund are amortized/accreted for financial reporting purposes, with the unamortized/unaccreted portion included in the Statement of assets and liabilities. A termination payment by the counterparty or the Fund is recorded as realized gain or loss, as well as the net periodic payments received or paid by the Fund.
Entering into swap agreements involves, to varying degrees, elements of credit, market and documentation risk that may amount to values that are in excess of the amounts recognized on the Statement of assets and liabilities. Such risks involve the possibility that there will be no liquid market for the swap, or that a counterparty may default on its obligation or delay payment under the swap terms. The counterparty may disagree or contest the terms of the swap. Market risks may also accompany the swap, including interest rate risk. The Fund may also suffer losses if it is unable to terminate or assign outstanding swaps or reduce its exposure through offsetting transactions.
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Interest rate swaps. Interest rate swaps represent an agreement between a Fund and counterparty to exchange cash flows based on the difference between two interest rates applied to a notional amount. The payment flows are usually netted against each other, with the difference being paid by one party to the other. The Fund settles accrued net interest receivable or payable under the swap contracts at specified, future intervals.
During the six months ended January 31, 2012, the Fund used interest rate swaps to manage the duration of the portfolio. The following table summarizes the interest rate swap contracts held as of January 31, 2012. During the six months ended January 31, 2012, the Fund held interest rate swaps with total USD notional amount as represented below.
| USD | ||||||
| NOTIONAL | PAYMENTS MADE | PAYMENTS | MATURITY | MARKET | ||
| COUNTERPARTY | AMOUNT | BY FUND | RECEIVED BY FUND | DATE | VALUE | |
| Citibank N.A. | $10,160,000 | Fixed 3.5825% | 3-Month LIBOR (a) | Dec 2019 | ($1,550,470) | |
(a) At 1-31-12, the 3-month LIBOR rate was 0.54235%.
Credit default swaps. Credit default swaps (CDS) involve the exchange of a fixed rate premium (paid by the Buyer), for protection against the loss in value of an underlying debt instrument, referenced entity or index, in the event of a defined credit event (such as payment default or bankruptcy). Under the terms of the swap, one party acts as a “guarantor” (the Seller), receiving the premium and agreeing to remedies that are specified within the credit default agreement. The Fund may enter into CDS in which it may act as either Buyer or Seller. By acting as the Seller, the Fund may incur economic leverage since it would be obligated to pay the Buyer the notional amount of the contract in the event of a default. The amount of loss in such case would be reduced by any recovery value on the underlying credit.
The Fund used CDS as a Seller of protection during the six months ended January 31, 2012 to take a long exposure to the reference credit indices. The following table summarizes the credit default swap contracts the Fund held as of January 31, 2012 where the Fund acted as a Seller of protection. During the six months ended January 31, 2012, the Fund acted as Seller on credit default swap contracts with total USD notional amounts ranging from $23.2 million to $67.2 million, as measured at each quarter end.
| (PAY)/ | UPFRONT | ||||||||
| USD | USD | RECEIVE | PAYMENT | UNREALIZED | |||||
| COUNTER- | REFERENCE | NOTIONAL | NOTIONAL | FIXED | MATURITY | PAID | APPRECIATION | MARKET | |
| PARTY | OBLIGATION | AMOUNT | AMOUNT | RATE | DATE | (RECEIVED) | (DEPRECIATION) | VALUE | |
| Citibank N.A. | CMBX NA AAA 4 | 4,000,000 | $4,000,000 | 0.350% | Feb 2051 | ($790,844) | $466,116 | ($324,728) | |
| Citibank N.A. | CMBX NA AM 4S | 5,000,000 | 5,000,000 | 0.500% | Feb 2051 | (1,122,296) | 141,532 | (980,764) | |
| Citibank N.A. | CMBX NA AM 4 | 2,000,000 | 2,000,000 | 0.500% | Feb 2051 | (514,014) | 121,708 | (392,306) | |
| Citibank N.A. | CMBX NA AM 4 | 4,000,000 | 4,000,000 | 0.500% | Feb 2051 | (412,310) | (372,301) | (784,611) | |
| Citibank N.A. | CMBX NA AM 4 | 3,500,000 | 3,500,000 | 0.500% | Feb 2051 | (480,275) | (206,260) | (686,535) | |
| Citibank N.A. | CMBX NA AM 4 | 3,000,000 | 3,000,000 | 0.500% | Feb 2051 | (531,099) | (57,359) | (588,458) | |
| Citibank N.A. | CMBX NA AM 4 | 1,650,000 | 1,650,000 | 0.500% | Feb 2051 | (346,613) | 22,962 | (323,651) | |
| $23,150,000 | ($4,197,451) | $116,398 | ($4,081,053) | ||||||
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Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the Fund at January 31, 2012 by risk category:
| FINANCIAL | ASSET | LIABILITY | ||||
| STATEMENT OF ASSETS AND | INSTRUMENTS | DERIVATIVES | DERIVATIVES | |||
| RISK | LIABILITIES LOCATION | LOCATION | FAIR VALUE | FAIR VALUE | ||
| Interest rate contracts | Payable for futures | Futures | $312,411 | † | ($4,332,990) | † |
| Swap contracts, at value | Interest rate swaps | - | (1,550,470) | |||
| Credit contracts | Swap contracts, at value | Credit default swaps | - | (4,081,053) | ||
| Receivable/Payable for foreign | Foreign forward | |||||
| Foreign exchange contracts | currency exchange contracts | currency contracts | 158,922 | (97,742) | ||
| Total | $471,333 | ($10,062,255) | ||||
† Reflects cumulative appreciation/depreciation on futures as disclosed above. Only the year end variation margin is separately disclosed in the Statement of assets and liabilities.
Effect of derivative instruments on the Statement of operations
The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the six months ended January 31, 2012:
| Statement of Operations Location - Net Realized Gain (Loss) on: | ||||
| Futures | Foreign Currency | |||
| Risk | Contracts | Swap Contracts | Transactions* | Total |
| Interest rate contracts | ($13,463,781) | ($166,803) | - | ($13,630,584) |
| Credit contracts | - | 1,179,037 | - | 1,179,037 |
| Foreign currency contracts | - | - | $573,907 | 573,907 |
| Total | ($13,463,781) | $1,012,234 | $573,907 | ($11,877,640) |
* Realized gain/loss associated with 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 January 31, 2012:
| Statement of Operations Location - Change in Unrealized Appreciation (Depreciation) of: | ||||
| Foreign | ||||
| Futures | Currency | |||
| Risk | Contracts | Swap Contracts | Transactions* | Total |
| Interest rate contracts | ($365,618) | ($747,762) | - | ($1,113,380) |
| Credit contracts | - | (164,226) | - | (164,226) |
| Foreign currency contracts | - | - | ($133,272) | (133,272) |
| Total | ($365,618) | ($911,988) | ($133,272) | ($1,410,878) |
*Change in unrealized appreciation/depreciation associated with forward foreign currency contracts is included in the caption on the Statements of operations.
Note 4 - Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the
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normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: a) 0.740% of the first $250,000,000 of the Fund’s average daily net assets, b) 0.700% of the next $500,000,000 and c) 0.675% of the Fund’s average daily net assets in excess of $750,000,000. The Adviser has a subadvisory agreement with Stone Harbor Investment Partners LP. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended January 31, 2012 were equivalent to a gross annual effective rate of 0.70% of the Fund’s average daily net assets.
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Funds) of the Trust 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 Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the reimbursement is calculated daily and allocated among all the Participating Funds in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Adviser upon notice to the funds and with the approval of the Board of Trustees.
The Adviser has contractually agreed to waive fees and/or reimburse operating expenses for Class A and Class I shares 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. The fee waivers and/or expense reimbursements are such that these expenses will not exceed 1.25% and 1.05% for Class A and Class I shares, respectively. The fee waivers and/or expense reimbursements will continue in effect until November 30, 2012, unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at the time. Prior to November 30, 2011, the fee waivers and/or reimbursements were such that the expenses would not exceed 1.25% and 0.95% for Class A and Class I shares, respectively.
Additionally, the Adviser has voluntarily agreed to waive and/or reimburse other expenses of the Fund excluding advisory fees, 12b-1 fees, service fees, transfer agent fees, blue sky fees, taxes, brokerage commissions, interest expense, printing and postage, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of business. The waivers are such that these expenses will not exceed 0.15% of average net assets. This voluntarily expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund.
Accordingly, these expense reductions described above amounted to $3 and $16,256 for Class A and Class NAV shares, respectively, for the six months ended January 31, 2012.
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements, for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred. The
| 46 |
table below outlines the amounts recovered during the six months ended January 31, 2012, and the amount of waived or reimbursed expenses subject to potential recovery and the respective expiration dates. Certain reimbursements or waivers are not subject to recapture.
| Amounts eligible for | Amount recovered during the | |
| recovery through | period ended | |
| January 1, 2015 | January 31, 2012 | |
| $3 | $7 | |
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the six months ended January 31, 2012 were equivalent to the 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 Adviser 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 January 31, 2012 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A 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 0.30% for Class A shares for distribution and service fees, expressed as an annual percentage of average daily net assets.
Sales charges. Class A shares are assessed up-front sales charges. During the six months ended January 31, 2012, there were no upfront sales charges 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 Adviser. 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 January 31, 2012 were:
| Distribution and | Transfer agent | ||
| Class | service fees | fees | |
| A | $37 | $28 | |
| I | - | 15 | |
| Total | $37 | $43 |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to each Fund based on its average daily net assets.
| 47 |
Note 6 - Fund share transactions
Transactions in Fund shares for the six months ended January 31, 2012 and for the year ended July 31, 2011 were as follows:
| Six months ended | Year ended | |||
| 1-31-12 | 7-31-11 | |||
| Shares | Amount | Shares | Amount | |
| Class NAV shares | ||||
| Sold | 4,759,794 | $47,388,275 | 31,528,198 | $327,341,268 |
| Distributions reinvested | 2,716,728 | 27,030,885 | 4,583,239 | 47,692,709 |
| Repurchased | (1,633,557) | (16,469,895) | (4,578,833) | (47,687,914) |
| Net increase | 5,842,965 | $57,949,265 | 31,532,604 | $327,346,063 |
There were no fund share transactions for Class A and Class I, for the six months ended January 31, 2012 and for the year ended July 31, 2011.
Affiliates of the Fund owned 100% of shares of beneficial interest of each of Class A, Class I and Class NAV on January 31, 2012.
Note 7 - Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $315,090,274 and $282,644,741, respectively, for the six months ended January 31, 2012.
Note 8 - Investment by affiliated funds
Certain investors in the Fund are affiliated funds and are managed by the Adviser 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. For the six months ended January 31, 2012, the following funds had an affiliate ownership concentration of 5% or more of the Fund’s net assets:
| Fund | Affiliated Concentration |
| John Hancock Lifestyle Balanced Portfolio | 39.3% |
| John Hancock Lifestyle Conservative Portfolio | 16.1% |
| John Hancock Lifestyle Moderate Portfolio | 16.5% |
| John Hancock Lifestyle Growth Portfolio | 14.4% |
| 48 |
More information
| Trustees | Investment adviser | |
| James M. Oates, Chairman | John Hancock Investment Management Services, LLC | |
| James R. Boyle† | ||
| Charles L. Bardelis* | Investment subadviser | |
| Peter S. Burgess* | Stone Harbor Investment Partners LP | |
| Grace K. Fey | ||
| Theron S. Hoffman | Principal distributor | |
| Hassell H. McClellan | John Hancock Funds, LLC | |
| Steven M. Roberts* | ||
| *Member of the Audit Committee | Custodian | |
| †Non-Independent Trustee | State Street Bank and Trust Company | |
| Transfer agent | ||
| Officers | John Hancock Signature Services, Inc. | |
| Hugh McHaffie | ||
| President | Legal counsel | |
| Thomas M. Kinzler | K&L Gates LLP | |
| Secretary and Chief Legal Officer | ||
| Francis V. Knox, Jr. | ||
| Chief Compliance Officer | ||
| Michael J. Leary | ||
| Treasurer | The report is certified under the Sarbanes-Oxley Act, which | |
| Charles A. Rizzo | requires mutual funds and other public companies to affirm | |
| Chief Financial Officer | that, to the best of their knowledge, the information in | |
| John G. Vrysen | their financial reports is fairly and accurately stated in all | |
| Chief Operating Officer | material respects. | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record, if any, for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC's Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| 49 |
A look at performance
Total returns for the period ended January 31, 2012
| 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 A | –7.99 | — | — | –7.95 | 2.82 | –7.99 | — | — | –11.74 | |
| Class I2 | –4.58 | — | — | –5.60 | 6.50 | –4.58 | — | — | –8.30 | |
| Class R62,3 | –4.49 | — | — | –5.48 | 6.45 | –4.49 | — | — | –8.14 | |
| Class NAV 2 | –4.37 | — | — | –5.39 | 6.60 | –4.37 | — | — | –8.00 | |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charges on Class A shares of 3.00%.
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 expense ratios are as follows:
| Class A | Class I | Class R6 | Class NAV | |||
| Net (%) | 1.56% | 1.09% | 1.02% | 0.95% |
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For current to the most recent month-end performance data, please call 1–800–225–5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on 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.
| 6 | Currency Strategies Fund | Semiannual report |
| Without | With maximum | |||
| Start date | sales charge | sales charge | Index | |
| Class I2 | 8-2-10 | $9,170 | $9,170 | $10,011 |
| Class R62,3 | 8-2-10 | 9,186 | 9,186 | 10,011 |
| Class NAV2 | 8-2-10 | 9,200 | 9,200 | 10,011 |
Citigroup 1-Month U.S. Treasury Bill Index is a market value-weighted index of public obligators of the U.S. Treasury with maturities of one month.
It is not possible to invest directly in an index. Index figures do not reflect expenses, which would have resulted in lower values if they did.
1 From 8-2-10.
2 For certain types of investors as described in the Fund’s Class I, Class R6 and Class NAV prospectuses.
3 The inception date for Class R6 shares is 11-1-11. The returns prior to 11-1-11 are those of Class A shares that have been recalculated to apply the gross fees and expenses of Class R6 shares.
| Semiannual report | Currency Strategies Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
▪ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
▪ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about 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 August 1, 2011 with the same investment held until January 31, 2012.
| Account value | Ending value on | Expenses paid during | |
| on 8-1-11 | 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,060.60 | $8.29 |
| Class I | 1,000.00 | 1,065.00 | 6.07 |
| Class NAV | 1,000.00 | 1,066.00 | 4.88 |
For the class noted below, the example assumes an amount value of $1,000 on November 1, 2011, with the same investment held until January 31, 2012.
| Account value | Ending value on | Expenses paid during | |
| on 11-1-11 | 1-31-12 | period ended 1-31-122 | |
| Class R6 | $1,000.00 | $989.20 | $2.63 |
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 January 31, 2012, 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 | Currency Strategies 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 August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value on | Expenses paid during | |
| on 8-1-11 | 1-31-12 | period ended 1-31-123 | |
| Class A | $1,000.00 | $1,017.10 | $8.11 |
| Class I | 1,000.00 | 1,019.30 | 5.94 |
| Class R6 | 1,000.00 | 1,019.90 | 5.33 |
| Class NAV | 1,000.00 | 1,020.40 | 4.77 |
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 1.60%, 1.17% and 0.94% for Class A, Class I and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
2 Expenses are equal to the Fund’s annualized expense ratio of 1.05% for Class R6 shares, multiplied by the average account value over the period, multiplied by 92/366 (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 184/366 (to reflect the one-half year period).
| Semiannual report | Currency Strategies Fund | 9 |
Currency allocation1
1 As a percentage of net assets on 1-31-12. The Fund’s assets are exposed to both short (unfavored) and long (favored) currency positions.
| 10 | Currency Strategies Fund | Semiannual report |
Fund’s investments
As of 1-31-12 (unaudited)
| Short-Term Investments 101.04% | $918,266,566 | ||||
| (Cost $918,266,566) | |||||
| Maturity | |||||
| Yield (%) * | date | Par value | Value | ||
| U.S. Government 87.03% | 790,978,081 | ||||
| U.S. Treasury Bill | 0.048 | 02-16-12 | $48,000,000 | 47,999,300 | |
| U.S. Treasury Bill | 0.013 | 02-23-12 | 273,000,000 | 272,998,332 | |
| U.S. Treasury Bill | 0.022 | 03-22-12 | 235,000,000 | 234,993,472 | |
| U.S. Treasury Bill | 0.035 | 03-29-12 | 235,000,000 | 234,986,977 | |
| Yield (%) | Shares | Value | |||
| Money Market Funds 14.01% | 127,288,485 | ||||
| State Street Institutional Liquid Reserves Fund | 0.1779 (Y) | 127,288,485 | 127,288,485 | ||
| Total investments (Cost $918,266,566)† 101.04% | $918,266,566 | ||||
| Other assets and liabilities, net (1.04%) | ($9,410,220) | ||||
| Total net assets 100.00% | $908,856,346 | ||||
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
* Yield represents the annualized yield at the date of purchase.
(Y) The rate shown is the annualized seven-day yield as of 1-31-12.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $918,266,566. There was no unrealized appreciation or depreciation on investment securities as of 1-31-12.
The following table summarizes the forward foreign currency contracts held by the fund at 1-31-12:
| PRINCIPAL AMOUNT | PRINCIPAL AMOUNT | UNREALIZED | ||||
| COVERED BY | COVERED BY | SETTLEMENT | APPRECIATION | |||
| CURRENCY | CONTRACT | CONTRACT (USD) | COUNTERPARTY | DATE | (DEPRECIATION) | |
| Buys | ||||||
| AUD | 77,290,881 | $79,252,236 | Barclays Bank PLC | 3-12-12 | $2,366,091 | |
| AUD | 77,290,881 | 79,238,233 | J. Aron & Company | 3-12-12 | 2,380,094 | |
| CAD | 39,793,818 | 38,907,983 | Barclays Bank PLC | 3-12-12 | 735,190 | |
| CAD | 39,793,818 | 38,907,491 | J. Aron & Company | 3-12-12 | 735,683 | |
| CHF | 43,236,329 | 46,119,615 | Barclays Bank PLC | 3-12-12 | 888,510 | |
| CHF | 43,236,329 | 46,124,355 | J. Aron & Company | 3-12-12 | 883,769 | |
| EUR | 54,973,947 | 72,889,310 | Barclays Bank PLC | 3-12-12 | (973,195) | |
| EUR | 54,973,947 | 72,889,732 | J. Aron & Company | 3-12-12 | (973,616) | |
| EUR | 43,581,763 | 58,366,004 | Morgan Stanley | 3-12-12 | (1,352,978) | |
| Capital Services, Inc. | ||||||
| See notes to financial statements | Semiannual report | Currency Strategies Fund | 11 |
| PRINCIPAL AMOUNT | PRINCIPAL AMOUNT | UNREALIZED | ||||
| COVERED BY | COVERED BY | SETTLEMENT | APPRECIATION | |||
| CURRENCY | CONTRACT | CONTRACT (USD) | COUNTERPARTY | DATE | (DEPRECIATION) | |
| Buys (continued) | ||||||
| GBP | 117,489,154 | $182,671,124 | Barclays Bank PLC | 3-12-12 | $2,394,654 | |
| GBP | 117,489,154 | 182,701,047 | J. Aron & Company | 3-12-12 | 2,364,731 | |
| GBP | 76,892,857 | 119,842,131 | Morgan Stanley | 3-12-12 | 1,277,444 | |
| Capital Services, Inc. | ||||||
| JPY | 782,638,005 | 10,076,958 | Barclays Bank PLC | 3-12-12 | 197,326 | |
| JPY | 782,638,005 | 10,089,962 | J. Aron & Company | 3-12-12 | 184,322 | |
| NZD | 129,866,428 | 100,281,849 | Barclays Bank PLC | 3-12-12 | 6,594,850 | |
| NZD | 129,866,428 | 100,329,157 | J. Aron & Company | 3-12-12 | 6,547,541 | |
| NZD | 27,441,452 | 21,229,256 | Morgan Stanley | 3-12-12 | 1,354,346 | |
| Capital Services, Inc. | ||||||
| SEK | 946,416,585 | 138,279,965 | Barclays Bank PLC | 3-12-12 | 548,804 | |
| SEK | 946,416,585 | 138,385,409 | J. Aron & Company | 3-12-12 | 443,360 | |
| SEK | 204,167,655 | 29,997,305 | Morgan Stanley | 3-12-12 | (48,184) | |
| Capital Services, Inc. | ||||||
| $1,566,579,122 | $26,548,742 | |||||
| Sells | ||||||
| AUD | 155,593,338 | $157,160,106 | Barclays Bank PLC | 3-12-12 | ($7,144,760) | |
| AUD | 155,593,338 | 157,739,618 | J. Aron & Company | 3-12-12 | (6,565,250) | |
| AUD | 152,271,784 | 153,933,069 | Morgan Stanley | 3-12-12 | (6,864,274) | |
| Capital Services, Inc. | ||||||
| CAD | 43,405,832 | 42,420,748 | Barclays Bank PLC | 3-12-12 | (820,766) | |
| CAD | 43,405,832 | 42,418,081 | J. Aron & Company | 3-12-12 | (823,433) | |
| CAD | 24,065,475 | 23,693,254 | Morgan Stanley | 3-12-12 | (281,118) | |
| Capital Services, Inc. | ||||||
| CHF | 164,770,526 | 177,090,658 | Barclays Bank PLC | 3-12-12 | (2,053,908) | |
| CHF | 164,770,526 | 177,197,777 | J. Aron & Company | 3-12-12 | (1,946,789) | |
| CHF | 89,924,331 | 97,173,472 | Morgan Stanley | 3-12-12 | (595,563) | |
| Capital Services, Inc. | ||||||
| EUR | 167,218,588 | 219,559,013 | Barclays Bank PLC | 3-12-12 | 806,096 | |
| EUR | 167,218,588 | 219,555,560 | J. Aron & Company | 3-12-12 | 802,644 | |
| GBP | 13,486,121 | 21,027,879 | Barclays Bank PLC | 3-12-12 | (215,099) | |
| GBP | 13,486,121 | 21,017,911 | J. Aron & Company | 3-12-12 | (225,066) | |
| JPY | 16,110,306,531 | 208,318,433 | Barclays Bank PLC | 3-12-12 | (3,173,804) | |
| JPY | 16,110,306,531 | 208,298,778 | J. Aron & Company | 3-12-12 | (3,193,460) | |
| JPY | 4,549,492,252 | 58,650,908 | Morgan Stanley | 3-12-12 | (1,073,735) | |
| Capital Services, Inc. | ||||||
| NZD | 7,078,255 | 5,568,618 | Barclays Bank PLC | 3-12-12 | (256,602) | |
| NZD | 7,078,255 | 5,568,694 | J. Aron & Company | 3-12-12 | (256,526) | |
| $1,996,392,577 | ($33,881,413) | |||||
Currency Abbreviations
| AUD | Australian Dollar | GBP | Pound Sterling | |
| CAD | Canadian Dollar | JPY | Japanese Yen | |
| CHF | Swiss Franc | NZD | New Zealand Dollar | |
| EUR | Euro | SEK | Swedish Krona |
| 12 | Currency Strategies 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 1-31-12 (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 $918,266,566) | $918,266,566 |
| Receivable for fund shares sold | 478,866 |
| Receivable for forward foreign currency exchange contracts (Note 3) | 31,505,455 |
| Interest receivable | 16,732 |
| Receivable due from adviser | 1,154 |
| Other receivables and prepaid expenses | 43,685 |
| Total assets | 950,312,458 |
| Liabilities | |
| Payable for forward foreign currency exchange contracts (Note 3) | 38,838,126 |
| Payable for fund shares repurchased | 2,413,702 |
| Payable for collateral held by Fund | 134,000 |
| Payable to affiliates | |
| Transfer agent fees | 4,399 |
| Trustees’ fees | 311 |
| Other liabilities and accrued expenses | 65,574 |
| Total liabilities | 41,456,112 |
| Net assets | |
| Paid-in capital | $946,189,636 |
| Accumulated net investment loss | (4,086,002) |
| Accumulated net realized loss on investments and foreign | |
| currency transactions | (25,914,617) |
| Net unrealized appreciation (depreciation) on translation of assets and | |
| liabilities in foreign currencies | (7,332,671) |
| Net assets | $908,856,346 |
| Net asset value per share | |
| Based on net asset values and shares outstanding — the Fund has an | |
| unlimited number of shares authorized with no par value | |
| Class A ($9,569,076 ÷ 1,050,979 shares) | $9.10 |
| Class I ($24,168,534 ÷ 2,636,436 shares) | $9.17 |
| Class R6 ($4,730,231 ÷ 514,500 shares) | $9.19 |
| Class NAV ($870,388,505 ÷ 94,653,573 shares) | $9.20 |
| Maximum offering price per share | |
| Class A (net asset value per share ÷ 97%) | $9.38 |
| See notes to financial statements | Semiannual report | Currency Strategies Fund | 13 |
F I N A N C I A L S T A T E M E N T S
Statement of operations For the six-month period ended 1-31-12
(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 | $211,522 |
| Expenses | |
| Investment management fees (Note 5) | 4,040,946 |
| Distribution and service fees (Note 5) | 10,945 |
| Accounting and legal services fees (Note 5) | 57,449 |
| Transfer agent fees (Note 5) | 23,018 |
| Trustees’ fees (Note 5) | 4,480 |
| State registration fees (Note 5) | 21,230 |
| Printing and postage (Note 5) | 11,398 |
| Professional fees | 44,700 |
| Custodian fees | 60,948 |
| Registration and filing fees | 41,536 |
| Other | 7,646 |
| Total expenses | 4,324,296 |
| Less expense reductions (Note 5) | (26,772) |
| Net expenses | 4,297,524 |
| Net investment loss | (4,086,002) |
| Realized and unrealized gain (loss) | |
| Net realized gain (loss) on | |
| Investments in unaffiliated issuers | 32,187 |
| Foreign currency transactions | 12,096,463 |
| 12,128,650 | |
| Change in net unrealized appreciation (depreciation) of | |
| Translation of assets and liabilities in foreign currencies | 52,212,318 |
| 52,212,318 | |
| Net realized and unrealized gain | 64,340,968 |
| Increase in net assets from operations | $60,254,966 |
| 14 | Currency Strategies 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
This Statement of changes in net assets show how the value of the Fund’s net assets has changed since inception. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Six months | ||
| ended | Period | |
| 1-31-12 | ended | |
| (Unaudited) | 7-31-111 | |
| Increase (decrease) in net assets | ||
| From operations | ||
| Net investment loss | ($4,086,002) | ($5,895,204) |
| Net realized gain (loss) | 12,128,650 | (38,043,267) |
| Change in net unrealized appreciation (depreciation) | 52,212,318 | (59,544,989) |
| Increase (decrease) in net assets resulting from operations | 60,254,966 | (103,483,460) |
| From Fund share transactions (Note 6) | (61,718,609) | 1,013,803,449 |
| Total increase (decrease) | (1,463,643) | 910,319,989 |
| Net assets | ||
| Beginning of period | 910,319,989 | — |
| End of period | $908,856,346 | $910,319,989 |
| Accumulated net investment loss | ($4,086,002) | — |
1 Period from 8-2-10 (commencement of operations) to 7-31-11.
| See notes to financial statements | Semiannual report | Currency Strategies Fund | 15 |
Financial highlights
The Financial highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.
| CLASS A SHARES Period ended | 1-31-121 | 7-31-112 | ||||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $8.58 | $10.00 | ||||
| Net investment loss3 | (0.08) | (0.14) | ||||
| Net realized and unrealized gain (loss) on investments | 0.60 | (1.28) | ||||
| Total from investment operations | 0.52 | (1.42) | ||||
| Net asset value, end of period | $9.10 | $8.58 | ||||
| Total return (%)4,5 | 6.066 | (14.20)6 | ||||
| Ratios and supplemental data | ||||||
| Net assets, end of period (in millions) | $10 | $6 | ||||
| Ratios (as a percentage of average net assets): | ||||||
| Expenses before reductions | 1.797 | 1.567 | ||||
| Expenses net of fee waivers | 1.607 | 1.567 | ||||
| Net investment loss | (1.56)7 | (1.48)7 | ||||
| Portfolio turnover (%) | — | — | ||||
1 Unaudited.
2 Period from 8-2-10 (commencement of operations) to 7-31-11.
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 periods shown.
6 Not annualized.
7 Annualized.
| CLASS I SHARES Period ended | 1-31-121 | 7-31-112 | ||||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $8.61 | $10.00 | ||||
| Net investment loss3 | (0.05) | (0.09) | ||||
| Net realized and unrealized gain (loss) on investments | 0.61 | (1.30) | ||||
| Total from investment operations | 0.56 | (1.39) | ||||
| Net asset value, end of period | $9.17 | $8.61 | ||||
| Total return (%)4 | 6.505 | (13.90)5 | ||||
| Ratios and supplemental data | ||||||
| Net assets, end of period (in millions) | $24 | $26 | ||||
| Ratios (as a percentage of average net assets): | ||||||
| Expenses before reductions | 1.196 | 1.056 | ||||
| Expenses net of fee waivers | 1.176 | 1.056 | ||||
| Net investment loss | (1.13)6 | (0.98)6 | ||||
| Portfolio turnover (%) | — | — | ||||
1 Unaudited.
2 Period from 8-2-10 (commencement of operations) to 7-31-11.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
| 16 | Currency Strategies Fund | Semiannual report | See notes to financial statements |
| CLASS R6 SHARES Period ended | 1-31-121,2 |
| Per share operating performance | |
| Net asset value, beginning of period | $9.29 |
| Net investment loss3 | (0.02) |
| Net realized and unrealized loss on investments | (0.08) |
| Total from investment operations | (0.10) |
| Net asset value, end of period | $9.19 |
| Total return (%)4 | (1.08)5 |
| Ratios and supplemental data | |
| Net assets, end of period (in millions) | $5 |
| Ratios (as a percentage of average net assets): | |
| Expenses before reductions | 1.396 |
| Expenses net of fee waivers | 1.056 |
| Net investment loss | (1.01)6 |
| Portfolio turnover (%) | — |
1 Unaudited.
2 Period from 11-1-11 (inception date) to 1-31-12.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the period shown.
5 Not annualized.
6 Annualized.
| CLASS NAV SHARES Period ended | 1-31-121 | 7-31-112 | ||||
| Per share operating performance | ||||||
| Net asset value, beginning of period | $8.63 | $10.00 | ||||
| Net investment loss3 | (0.04) | (0.08) | ||||
| Net realized and unrealized gain (loss) on investments | 0.61 | (1.29) | ||||
| Total from investment operations | 0.57 | (1.37) | ||||
| Net asset value, end of period | $9.20 | $8.63 | ||||
| Total return (%)4 | 6.605 | (13.70)5 | ||||
| Ratios and supplemental data | ||||||
| Net assets, end of period (in millions) | $870 | $878 | ||||
| Ratios (as a percentage of average net assets): | ||||||
| Expenses before reductions | 0.946 | 0.956 | ||||
| Expenses net of fee waivers | 0.946 | 0.956 | ||||
| Net investment loss | (0.89)6 | (0.86)6 | ||||
| Portfolio turnover (%) | — | — | ||||
1 Unaudited.
2 Period from 8-2-10 (commencement of operations) to 7-31-11.
3 Based on the average daily shares outstanding.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
| See notes to financial statements | Semiannual report | Currency Strategies Fund | 17 |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Currency Strategies Fund (the Fund) is a series of John Hancock Funds II (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 achieve total return from investments in currency markets.
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 R6 shares are available only to certain retirement plans, institutions and other investors. Class NAV shares are sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, transfer agent fees, printing and postage and 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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.
As of January 31, 2012 all investments are categorized as Level 2 under the hierarchy described above. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the six months ended January 31, 2012, there were no significant transfers into or out of Level 1, Level 2 or Level 3.
In order to value the securities, the Fund uses the following valuation techniques. 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
| 18 | Currency Strategies Fund | Semiannual report |
rates supplied by an independent pricing service. Certain securities and forward foreign currency contracts traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost. Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees.
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.
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. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to 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, effective March 30, 2011, the Fund and other affiliated funds have entered into an agreement with Citibank N.A. which enables them to participate in a $200 million unsecured committed line of credit. Prior to March 30, 2011, the Fund had a similar agreement with State Street Bank and Trust Company. 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. For the six months ended January 31, 2012, the Fund had no borrowings under the lines of credit.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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
| Semiannual report | Currency Strategies Fund | 19 |
class. Class-specific expenses, such as distribution and service fees, if any, transfer agent fees, state registration fees and printing and postage, 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.
For federal income tax purposes, the Fund has a capital loss carryforward of $8,170,692 available to offset future net realized capital gains as of July 31, 2011, which expires on July 31, 2019.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future 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.
As of July 31, 2011, 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 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 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 net operating losses and derivative transactions.
New accounting pronouncements. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
| 20 | Currency Strategies Fund | Semiannual report |
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The update creates new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Management is currently evaluating the impact, if any, on the Fund’s financial statement disclosures.
Note 3 — Derivative instruments
The Fund may invest in derivatives in order to meet its investment objective. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, derivatives expose the Fund to the risk that the counterparty to an over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a specific currency at a price that is set on the date of the contract. The forward contract calls for delivery of the currency on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the failure of the counterparties to timely post collateral, the risk that currency movements will not occur thereby reducing the Fund’s total return, and the potential for losses in excess of the 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 January 31, 2012, the Fund used forward foreign currency contracts to gain and hedge currency exposure. The following table summarizes the contracts held at January 31, 2012. During the six months ended January 31, 2012, the Fund held forward foreign currency contracts with USD absolute values ranging from to $3.1 billion to $6.1 billion, as measured at each quarter end.
Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the Fund at January 31, 2012 by risk category:
| FINANCIAL | ASSET | LIABILITY | ||
| STATEMENT OF ASSETS AND | INSTRUMENTS | DERIVATIVES | DERIVATIVES | |
| RISK | LIABILITIES LOCATION | LOCATION | FAIR VALUE | FAIR VALUE |
| Foreign Currency | Receivable/Payable for | Forward foreign | $31,505,455 | ($38,838,126) |
| Contracts | forward foreign currency | currency | ||
| exchange contracts | contracts | |||
| Semiannual report | Currency Strategies Fund | 21 |
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 January 31, 2012:
| STATEMENT OF | FOREIGN CURRENCY | |
| RISK | OPERATIONS LOCATION | TRANSACTIONS* |
| Foreign Currency Contracts | Net realized gain (loss) on | $12,096,463 |
*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 January 31, 2012:
| STATEMENT OF | TRANSLATION OF ASSETS AND | |
| RISK | OPERATIONS LOCATION | LIABILITIES IN FOREIGN CURRENCIES* |
| Foreign Currency Contracts | Change in unrealized | $52,212,318 |
| appreciation (depreciation) of | ||
*Change in unrealized appreciation/depreciation associated with forward foreign currency contracts is included in the caption on the Statement of operations.
Note 4 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: a) 0.95% of the first $250,000,000 of the Fund’s average daily net assets, b) 0.90% of the next $250,000,000 and c) 0.85% of the Fund’s average daily net assets in excess of $500,000,000. The Adviser has a subadvisory agreement with First Quadrant, L.P. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended January 31, 2012 were equivalent to gross annual effective rate of 0.89% of the Fund’s average daily net assets.
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Funds) of the John Hancock Fund 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 Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the reimbursement is calculated daily and allocated among all the Participating
| 22 | Currency Strategies Fund | Semiannual report |
Funds in proportion to the daily net assets of each fund. This arrangement may be terminated at any time by the Adviser upon notice to the funds and with the approval of the board of Trustees.
The Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund, 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. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.60%, 1.24% and 1.05% for Class A, Class I and Class R6 shares, respectively. The fee waivers and/or reimbursements will continue in effect until November 30, 2012, unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at the time.
Additionally, the Adviser has voluntarily agreed to waive other fund level expenses excluding advisory fees, 12b-1 fees, service fees, transfer agent fees, printing and postage, blue sky fees, taxes, brokerage commissions, interest expenses, acquired fund fees, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of business. This voluntary expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund. The waivers are such that these expenses will not exceed 0.15% of average net assets.
Accordingly, these expense reductions amounted to $6,889, $2,007, $3,769 and $14,107 for Class A, Class I, Class R6 and Class NAV shares, respectively, for the six months ended January 31, 2012.
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements made subsequent to commencement of operations, for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred. For the period ended January 31, 2012, the Fund did not recapture any expenses. In addition, there were $12,067 in waived or reimbursed expenses subject to potential recovery through January 1, 2015. Certain reimbursements or waivers are not subject to recapture.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the period ended January 31, 2012 were equivalent to the net annual effective rate of 0.88% of the Fund’s average daily net assets.
Accounting and legal services. Pursuant to the service agreement, the Fund reimburses the Adviser for all expenses associated with providing the administrative, financial, legal, accounting and recordkeeping services of the Fund, including the preparation of all tax returns, periodic reports to shareholders and regulatory reports, among other services. These expenses are allocated to each share class based on its relative net assets at the time the expense was incurred. The accounting and legal services fees incurred for the six months ended January 31, 2012 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A 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. Accordingly, the Fund may pay up to 0.30% for Class A shares for distribution and service fees, 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 $7,478 for the six months ended January 31, 2012. Of this amount, $1,502 was retained and used for printing prospectuses, advertising, sales literature and other purposes and $5,976 was paid as sales commissions to broker-dealers.
| Semiannual report | Currency Strategies Fund | 23 |
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Adviser. 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 January 31, 2012 were:
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
| SHARE CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
| Class A | $10,945 | $8,137 | $8,801 | $2,933 |
| Class I | — | 14,439 | 8,569 | 7,965 |
| Class R6 | — | 442 | 3,860 | 500 |
| Total | $10,945 | $23,018 | $21,230 | $11,398 |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to each fund based on its average daily net assets.
Note 6 — Fund share transactions
Transactions in Fund shares for the six months ended January 31, 2012 and for the period ended July 31, 2011 were as follows:
| Six months ended 1-31-12 | Period ended 7-31-111 | |||
| Shares | Amount | Shares | Amount | |
| Class A shares | ||||
| Sold | 669,655 | $6,146,551 | 826,832 | $7,734,383 |
| Repurchased | (323,188) | (2,902,171) | (122,321) | (1,122,058) |
| Net increase | 346,467 | $3,244,380 | 704,511 | $6,612,325 |
| Class I shares | ||||
| Sold | 1,515,785 | $13,849,797 | 3,165,821 | $29,647,655 |
| Repurchased | (1,908,000) | (17,284,843) | (137,171) | (1,251,152) |
| Net increase (decrease) | (392,215) | ($3,435,046) | 3,028,650 | $28,396,503 |
| Class R6 shares2 | ||||
| Sold | 537,305 | $5,057,023 | — | — |
| Repurchased | (22,805) | (211,342) | — | — |
| Net increase | 514,500 | $4,845,681 | — | — |
| Class NAV shares | ||||
| Sold | 10,033,301 | $90,290,154 | 104,630,032 | $1,006,262,152 |
| Repurchased | (17,132,422) | (156,663,778) | (2,877,338) | (27,467,531) |
| Net increase (decrease) | (7,099,121) | ($66,373,624) | 101,752,694 | $978,794,621 |
| Net increase (decrease) | (6,630,369) | ($61,718,609) | 105,485,855 | $1,013,803,449 |
1 Period from 8-2-10 (commencement of operations) to 7-31-11.
2 Period from 11-1-11 (inception date) to 1-31-12.
| 24 | Currency Strategies Fund | Semiannual report |
Affiliates of the Fund owned 2% and 100% of shares of beneficial interest of Class R6 and Class NAV, respectively, on January 31, 2012.
Note 7 — Purchase and sale of securities
All purchases and sales of the Fund were short-term investments for the six months ended, January 31, 2012.
Note 8 — Investment by affiliated funds
Certain investors in the Fund are affiliated funds and are managed by the Adviser 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. For the six months ended January 31, 2012, the following funds had an affiliate ownership concentration of 5% or more of the Fund’s net assets:
| AFFILIATE | |||
| FUND | CONCENTRATION | ||
| John Hancock Lifestyle Aggressive Portfolio | 8.55% | ||
| John Hancock Lifestyle Growth Portfolio | 26.38% | ||
| John Hancock Lifestyle Balanced Portfolio | 27.63% | ||
| John Hancock Lifestyle Moderate Portfolio | 9.12% | ||
| John Hancock Lifestyle Conservative Portfolio | 8.09% | ||
| Semiannual report | Currency Strategies Fund | 25 |
More information
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management |
| James R. Boyle† | Services, LLC |
| Charles L. Bardelis* | |
| Peter S. Burgess* | Subadviser |
| Grace K. Fey | First Quadrant, L.P. |
| Theron S. Hoffman | |
| Hassell H. McClellan | Principal distributor |
| Steven M. Roberts* | John Hancock Funds, LLC |
| Officers | Custodian |
| Hugh McHaffie | State Street Bank and Trust Company |
| President | |
| Transfer agent | |
| Thomas M. Kinzler | John Hancock Signature Services, Inc. |
| Secretary and Chief Legal Officer | |
| Legal counsel | |
| Francis V. Knox, Jr. | K&L Gates LLP |
| Chief Compliance Officer | |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
| *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) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| 26 | Currency Strategies Fund | Semiannual report |
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
| This report is for the information of the shareholders of John Hancock Currency Strategies Fund. | 364SA 1/12 |
| It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 3/12 |
A look at performance
Total returns for the period ended January 31, 2012
| Average annual total returns (%) | Cumulative total returns (%) | |||||||||
| with maximum sales charge | with maximum sales charge | |||||||||
| Since | Since | |||||||||
| 1-year | 5-year | 10-year | inception | 6-months | 1-year | 5-year | 10-year | inception1 | ||
| Class A | — | — | — | — | –5.05 | — | — | — | –7.62 | |
| Class I2 | — | — | — | — | 0.21 | — | — | — | –2.39 | |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charges on Class A shares of 5.00%.
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 12-31-12 for Class A 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 I | ||||||
| Net (%) | 1.30 | 0.84 | |||||
| Gross (%) | 3.69 | 3.89 |
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For current to the most recent month-end performance data, please call 1–800–225–5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on 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.
| 6 | Fundamental All Cap Core Fund | Semiannual report |
| Without | With maximum | |||
| Start date | sales charge | sales charge | Index | |
| Class I 2 | 6-1-11 | $9,761 | $9,761 | $9,799 |
Russell 3000 Index is an unmanaged index of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market.
It is not possible to invest directly in an index. Index figures do not reflect expenses, which would have resulted in lower values if they did.
1 From 6-1-11.
2 For certain types of investors, as described in the Fund’s Class I prospectus.
| Semiannual report | Fundamental All Cap Core Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
▪ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
▪ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about 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 August 1, 2011 with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $999.40 | $6.53 |
| Class I | 1,000.00 | 1,002.10 | 4.23 |
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 January 31, 2012, 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 | Fundamental All Cap Core 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 August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,018.60 | $6.60 |
| Class I | 1,000.00 | 1,020.90 | 4.27 |
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% and 0.84% for Class A and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
| Semiannual report | Fundamental All Cap Core Fund | 9 |
Portfolio summary
| Top 10 Holdings (38.5% of Total Net Assets on 1-31-12)1,2 | ||||
| Amazon.com, Inc. | 6.6% | Cisco Systems, Inc. | 3.1% | |
| QUALCOMM, Inc. | 6.2% | Amgen, Inc. | 3.0% | |
| Ancestry.com, Inc. | 4.0% | Robert Half International, Inc. | 3.0% | |
| Lowe’s Companies, Inc. | 3.7% | Visa, Inc., Class A | 2.9% | |
| Bank of America Corp. | 3.2% | Lennar Corp., Class A | 2.8% | |
| Sector Composition1,3 | ||||
| Information Technology | 26.6% | Health Care | 8.2% | |
| Consumer Discretionary | 19.9% | Consumer Staples | 3.4% | |
| Financials | 19.9% | Materials | 1.8% | |
| Industrials | 9.8% | Other | 2.2% | |
| Energy | 8.2% | |||
1 As a percentage of net assets on 1-31-12.
2 Cash and cash equivalents not included.
3 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| 10 | Fundamental All Cap Core Fund | Semiannual report |
Fund’s investments
As of 1-31-12 (unaudited)
| Shares | Value | |
| Common Stocks 97.77% | $3,357,617 | |
| (Cost $3,379,349) | ||
| Consumer Discretionary 19.90% | 683,548 | |
| Hotels, Restaurants & Leisure 1.00% | ||
| International Speedway Corp., Class A | 1,336 | 34,455 |
| Household Durables 2.76% | ||
| Lennar Corp., Class A | 4,420 | 94,986 |
| Internet & Catalog Retail 8.33% | ||
| Amazon.com, Inc. (I) | 1,172 | 227,884 |
| Blue Nile, Inc. (I) | 1,440 | 58,104 |
| Media 2.62% | ||
| CBS Corp., Class B | 1,948 | 55,479 |
| Omnicom Group, Inc. | 754 | 34,390 |
| Specialty Retail 5.19% | ||
| Home Depot, Inc. | 1,176 | 52,203 |
| Lowe’s Companies, Inc. | 4,698 | 126,047 |
| Consumer Staples 3.43% | 117,624 | |
| Beverages 3.43% | ||
| Diageo PLC, ADR | 379 | 33,576 |
| PepsiCo, Inc. | 524 | 34,411 |
| Tsingtao Brewery Company, Ltd., Series H | 9,180 | 49,637 |
| Energy 8.21% | 281,944 | |
| Energy Equipment & Services 2.75% | ||
| National Oilwell Varco, Inc. | 470 | 34,771 |
| Schlumberger, Ltd. | 793 | 59,610 |
| Oil, Gas & Consumable Fuels 5.46% | ||
| Apache Corp. | 760 | 75,149 |
| Occidental Petroleum Corp. | 626 | 62,456 |
| Ultra Petroleum Corp. (I) | 2,079 | 49,958 |
| Financials 19.88% | 682,744 | |
| Capital Markets 10.47% | ||
| AllianceBernstein Holding LP | 4,843 | 73,710 |
| Northern Trust Corp. | 1,310 | 53,985 |
| State Street Corp. | 1,196 | 46,859 |
| T. Rowe Price Group, Inc. | 1,576 | 91,156 |
| The Goldman Sachs Group, Inc. | 842 | 93,858 |
| See notes to financial statements | Semiannual report | Fundamental All Cap Core Fund | 11 |
| Shares | Value | |
| Diversified Financial Services 7.32% | ||
| Bank of America Corp. | 15,343 | $109,396 |
| JPMorgan Chase & Company | 1,919 | 71,579 |
| Moody’s Corp. | 1,890 | 70,365 |
| Insurance 2.09% | ||
| Prudential Financial, Inc. | 1,255 | 71,836 |
| Health Care 8.13% | 279,289 | |
| Biotechnology 3.02% | ||
| Amgen, Inc. | 1,527 | 103,699 |
| Health Care Equipment & Supplies 1.33% | ||
| Medtronic, Inc. | 1,183 | 45,628 |
| Health Care Providers & Services 2.12% | ||
| AMN Healthcare Services, Inc. (I) | 4,625 | 23,541 |
| Amsurg Corp. (I) | 1,919 | 49,414 |
| Pharmaceuticals 1.66% | ||
| Merck & Company, Inc. | 1,490 | 57,007 |
| Industrials 9.79% | 336,248 | |
| Aerospace & Defense 2.27% | ||
| American Science & Engineering, Inc. | 1,089 | 77,864 |
| Air Freight & Logistics 0.57% | ||
| United Parcel Service, Inc., Class B | 259 | 19,593 |
| Commercial Services & Supplies 2.70% | ||
| Avery Dennison Corp. | 3,415 | 92,717 |
| Electrical Equipment 1.29% | ||
| Sensata Technologies Holding NV (I) | 1,540 | 44,367 |
| Professional Services 2.96% | ||
| Robert Half International, Inc. | 3,673 | 101,707 |
| Information Technology 26.62% | 914,247 | |
| Communications Equipment 10.14% | ||
| Cisco Systems, Inc. | 5,375 | 105,511 |
| QUALCOMM, Inc. | 3,594 | 211,399 |
| Tellabs, Inc. | 8,224 | 31,251 |
| Internet Software & Services 8.48% | ||
| Ancestry.com, Inc. (I) | 4,648 | 137,581 |
| Bankrate, Inc. (I) | 1,493 | 34,921 |
| Google, Inc., Class A (I) | 137 | 79,475 |
| VistaPrint NV (I) | 1,100 | 39,358 |
| IT Services 5.04% | ||
| Broadridge Financial Solutions, Inc. | 3,020 | 72,389 |
| Visa, Inc., Class A | 1,000 | 100,640 |
| Software 2.96% | ||
| FactSet Research Systems, Inc. | 570 | 50,342 |
| Oracle Corp. | 1,822 | 51,380 |
| 12 | Fundamental All Cap Core Fund | Semiannual report | See notes to financial statements |
| Shares | Value | |
| Materials 1.81% | $61,973 | |
| Chemicals 1.81% | ||
| Air Products & Chemicals, Inc. | 704 | 61,973 |
| Total investments (Cost $3,379,349)† 97.77% | $3,357,617 | |
| Other assets and liabilities, net 2.23% | $76,584 | |
| Total net assets 100.00% | $3,434,201 | |
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
ADR American Depositary Receipts
(I) Non-income producing security.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $3,382,249. Net unrealized depreciation aggregated $24,632, of which $178,612 related to appreciated investment securities and $203,244 related to depreciated investment securities.
| See notes to financial statements | Semiannual report | Fundamental All Cap Core Fund | 13 |
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 1-31-12 (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 $3,379,349) | $3,357,617 |
| Cash | 135,044 |
| Dividends receivable | 1,434 |
| Receivable due from adviser | 3,088 |
| Other receivables and prepaid expenses | 33,876 |
| Total assets | 3,531,059 |
| Liabilities | |
| Payable for investments purchased | 4,053 |
| Payable for fund shares repurchased | 523 |
| Payable to affiliates | |
| Accounting and legal services fees | 29 |
| Transfer agent fees | 545 |
| Trustees’ fees | 6 |
| Other liabilities and accrued expenses | 91,702 |
| Total liabilities | 96,858 |
| Net assets | |
| Paid-in capital | $3,514,756 |
| Distributions in excess of net investment income | (2,099) |
| Accumulated net realized loss on investments and foreign | |
| currency transactions | (56,724) |
| Net unrealized appreciation (depreciation) on investments | (21,732) |
| Net assets | $3,434,201 |
| 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 ($2,397,236 ÷ 248,318 shares) | $9.65 |
| Class I ($1,036,965 ÷ 107,356 shares) | $9.66 |
| Maximum offering price per share | |
| Class A (net asset value per share ÷ 95%)1 | $10.16 |
1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
| 14 | Fundamental All Cap Core Fund | Semiannual report | See notes to financial statements |
F I N A N C I A L S T A T E M E N T S
Statement of operations For the six-month period ended 1-31-12
(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 | $26,921 |
| Expenses | |
| Investment management fees (Note 4) | 10,526 |
| Distribution and service fees (Note 4) | 3,128 |
| Accounting and legal services fees (Note 4) | 218 |
| Transfer agent fees (Note 4) | 2,951 |
| Trustees’ fees (Note 4) | 16 |
| State registration fees (Note 4) | 26,146 |
| Printing and postage (Note 4) | 2,252 |
| Professional fees | 24,762 |
| Custodian fees | 6,034 |
| Registration and filing fees | 43,738 |
| Other | 2,517 |
| Total expenses before reductions and amounts recaptured | 122,288 |
| Less expense reductions (Note 4) | (104,393) |
| Net expenses | 17,895 |
| Net investment income | 9,026 |
| Realized and unrealized gain (loss) | |
| Net realized gain (loss) on | |
| Investments | (53,819) |
| Foreign currency transactions | (2) |
| (53,821) | |
| Change in net unrealized appreciation (depreciation) of | |
| Investments | 76,893 |
| Net realized and unrealized gain | 23,072 |
| Increase in net assets from operations | $32,098 |
| See notes to financial statements | Semiannual report | Fundamental All Cap Core Fund | 15 |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of changes in net assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Six months | ||
| ended | Period | |
| 1-31-12 | ended | |
| (Unaudited) | 7-31-111 | |
| Increase (decrease) in net assets | ||
| From operations | ||
| Net investment income (loss) | $9,026 | ($821) |
| Net realized gain (loss) | (53,821) | 14,007 |
| Change in net unrealized appreciation (depreciation) | 76,893 | (98,625) |
| Increase (decrease) in net assets resulting from operations | 32,098 | (85,439) |
| Distributions to shareholders | ||
| From net investment income | ||
| Class A | (5,689) | — |
| Class I | (5,560) | — |
| From net realized gain | ||
| Class A | (11,479) | — |
| Class I | (5,456) | — |
| Total distributions | (28,184) | — |
| From Fund share transactions (Note 5) | 251,579 | 3,264,147 |
| Total increase | 255,493 | 3,178,708 |
| Net assets | ||
| Beginning of period | 3,178,708 | — |
| End of period | $3,434,201 | $3,178,708 |
| (Distributions in excess of)/Undistributed net investment income | ($2,099) | $124 |
1 Period from 6-1-11 (commencement of operations) to 7-31-11.
| 16 | Fundamental All Cap Core Fund | Semiannual report | See notes to financial statements |
Financial highlights
The Financial highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.
| CLASS A SHARES Period ended | 1-31-121 | 7-31-112 | |||
| Per share operating performance | |||||
| Net asset value, beginning of period | $9.73 | $10.00 | |||
| Net investment income (loss)3 | 0.02 | (0.01) | |||
| Net realized and unrealized loss on investments | (0.03) | (0.26) | |||
| Total from investment operations | (0.01) | (0.27) | |||
| Less distributions | |||||
| From net investment income | (0.02) | — | |||
| From net realized gain | (0.05) | — | |||
| Total distributions | (0.07) | — | |||
| Net asset value, end of period | $9.65 | $9.73 | |||
| Total return (%)4,5,6 | (0.06) | (2.70) | |||
| Ratios and supplemental data | |||||
| Net assets, end of period (in millions) | $2 | $2 | |||
| Ratios (as a percentage of average net assets): | |||||
| Expenses before reductions and amounts recaptured | 7.637 | 5.777 | |||
| Expenses including reductions and amounts recaptured | 1.307 | 1.307 | |||
| Net investment income (loss) | 0.417 | (0.33)7 | |||
| Portfolio turnover (%) | 26 | 8 | |||
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 6-1-11 (commencement of operations) to 7-31-11.
3 Based on the average daily shares outstanding.
4 Does not reflect the effect of sales charges, if any.
5 Not annualized.
6 Total returns would have been lower had certain expenses not been reduced during the period shown.
7 Annualized.
| See notes to financial statements | Semiannual report | Fundamental All Cap Core Fund | 17 |
| CLASS I SHARES Period ended | 1-31-121 | 7-31-112 |
| Per share operating performance | ||
| Net asset value, beginning of period | $9.74 | $10.00 |
| Net investment income3 | 0.04 | —4 |
| Net realized and unrealized loss on investments | (0.02) | (0.26) |
| Total from investment operations | 0.02 | (0.26) |
| Less distributions | ||
| From net investment income | (0.05) | — |
| From net realized gain | (0.05) | — |
| Total distributions | (0.10) | — |
| Net asset value, end of period | $9.66 | $9.74 |
| Total return (%)5,6 | 0.21 | (2.60) |
| Ratios and supplemental data | ||
| Net assets, end of period (in millions) | $1 | $1 |
| Ratios (as a percentage of average net assets): | ||
| Expenses before reductions and amounts recaptured | 8.267 | 5.457 |
| Expenses including reductions and amounts recaptured | 0.847 | 0.847 |
| Net investment income | 0.917 | 0.147 |
| Portfolio turnover (%) | 26 | 8 |
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 6-1-11 (commencement of operations) to 7-31-11.
3 Based on the average daily shares outstanding.
4 Less than $0.005 per share.
5 Not annualized.
6 Total returns would have been lower had certain expenses not been reduced during the period shown.
7 Annualized.
| 18 | Fundamental All Cap Core Fund | Semiannual report | See notes to financial statements |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Fundamental All Cap Core Fund (the Fund) is a series of John Hancock Funds II (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. 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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 | Fundamental All Cap Core Fund | 19 |
The following is a summary of the values by input classification of the Fund’s investments as of January 31, 2012, by major security category or type:
| LEVEL 3 | |||||
| LEVEL 2 | SIGNIFICANT | ||||
| TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE | ||
| VALUE AT 1-31-12 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS | ||
| Common Stocks | |||||
| Consumer Discretionary | $683,548 | $683,548 | — | — | |
| Consumer Staples | 117,624 | 67,987 | $49,637 | — | |
| Energy | 281,944 | 281,944 | — | — | |
| Financials | 682,744 | 682,744 | — | — | |
| Health Care | 279,289 | 279,289 | — | — | |
| Industrials | 336,248 | 336,248 | — | — | |
| Information Technology | 914,247 | 914,247 | — | — | |
| Materials | 61,973 | 61,973 | — | — | |
| Total Investments | |||||
| in Securities | $3,357,617 | $3,307,980 | $49,637 | — | |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the six months ended January 31, 2012, there were no significant transfers into or out of Level 1, Level 2 or Level 3.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Certain securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to 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. which enables them to participate in a $200 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. For the six months ended January 31, 2012, the Fund had no borrowings under the line of credit.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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
| 20 | Fundamental All Cap Core Fund | Semiannual report |
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, printing and postage and state registration fees, 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 July 31, 2011, 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, 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.
New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
Note 3 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
| Semiannual report | Fundamental All Cap Core Fund | 21 |
Note 4 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: a) 0.675% of the first $2,500,000,000 of the Fund’s aggregate average daily net assets together with the assets of Fundamental All Cap Core Trust, a series of John Hancock Variable Insurance Trust; and b) 0.650% of the combined aggregate average daily net assets in excess of $2,500,000,000. Prior to September 26, 2011 the Fund paid a daily management fee to the Adviser equivalent, on an annual basis, to the sum of a) 0.675% of the first $2,500,000,000 of the Fund’s average daily net assets; and b) 0.650% of the Fund’s average daily net assets in excess of $2,500,000,000. The Adviser 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 Adviser. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended January 31, 2012 were equivalent to a gross annual rate of 0.675% of the Fund’s average daily net assets.
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Funds) of the Trust 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 Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the reimbursement is calculated daily and allocated among all the Participating Funds in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Adviser upon notice to the funds and with the approval of the Board of Trustees.
The Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes interest expense, acquired fund fees, short dividend expense, litigation and indemnification expenses, taxes and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements were such that these expenses will not exceed 1.30% and 0.84% for Class A and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until December 31, 2012 unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at that time.
Additionally, the Adviser has voluntarily agreed to waive other fund level expenses excluding advisory fees, 12b-1 fees, service fees, transfer agent fees, blue sky fees, taxes, printing and postage, interest expenses, acquired fund fees, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of business. This voluntary expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund. The waivers are such that these expenses will not exceed 0.20% of average net assets.
Accordingly, these expense reductions described above amounted to $66,048 and $38,345 for Class A and Class I shares, respectively, for the six months ended January 31, 2012.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the six months ended January 31, 2012 were equivalent to the net annual effective rate of 0.00% of the Fund’s average daily net assets.
| 22 | Fundamental All Cap Core Fund | Semiannual report |
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements made subsequent to the commencement of operations, for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred to the extent that the Fund is below its expense limitation during this period. The table below outlines the amounts recovered during the six months ended January 31, 2012, and the amount of waived or reimbursed expenses subject to potential recovery and the respective expiration dates. Certain reimbursements or waivers are not subject to recapture.
| AMOUNTS | AMOUNTS | AMOUNTS | AMOUNT | |
| ELIGIBLE FOR | ELIGIBLE FOR | ELIGIBLE FOR | RECOVERED | |
| RECOVERY | RECOVERY | RECOVERY | DURING THE | |
| THROUGH | THROUGH | THROUGH | PERIOD ENDED | |
| FUND | JULY 1, 2013 | JULY 1, 2014 | JANUARY 1, 2015 | JANUARY 31, 2012 |
| Fundamental All Cap Core | — | $22,975 | $104,339 | — |
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser 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 January 31, 2012, amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A 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 0.30% for Class A shares for 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.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $1,384 for the six months ended January 31, 2012. Of this amount, $202 was retained and used for printing prospectuses, advertising, sales literature and other purposes and $1,182 was paid as sales commissions to broker-dealers.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Adviser. 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 | Fundamental All Cap Core Fund | 23 |
Class level expenses. Class level expenses for the six months ended January 31, 2012 were:
| DISTRIBUTION AND | TRANSFER | STATE | PRINTING | ||
| CLASS | SERVICE FEES | AGENT FEES | REGISTRATION FEES | AND POSTAGE | |
| Class A | $3,128 | $2,319 | $13,073 | $1,401 | |
| Class I | — | 632 | 13,073 | 851 | |
| Total | $3,128 | $2,951 | $26,146 | $2,252 | |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the Fund based on its average daily net assets.
Note 5 — Fund share transactions
Transactions in Fund shares for the six months ended January 31, 2012 and for the period ended July 31, 2011 were as follows:
| Six months ended 1-31-12 | Period ended 7-31-111 | |||
| Shares | Amount | Shares | Amount | |
| Class A shares | ||||
| Sold | 44,949 | $394,777 | 210,437 | $2,101,647 |
| Distributions reinvested | 416 | 3,789 | — | — |
| Repurchased�� | (7,484) | (65,655) | — | — |
| Net increase | 37,881 | $332,911 | 210,437 | $2,101,647 |
| Class I shares | ||||
| Sold | — | — | 116,250 | $1,162,500 |
| Distributions reinvested | 1,106 | $10,068 | — | — |
| Repurchased | (10,000) | (91,400) | — | — |
| Net increase (decrease) | (8,894) | ($81,332) | 116,250 | $1,162,500 |
| Net increase | 28,987 | $251,579 | 326,687 | $3,264,147 |
1 Period from 6-1-11 (commencement of operations) to 7-31-11.
Affiliates of the Fund owned 77% of shares of beneficial interest of Class A on January 31, 2012.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $1,087,374 and $799,011, respectively, for the six months ended January 31, 2012.
| 24 | Fundamental All Cap Core Fund | Semiannual report |
More information
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management |
| James R. Boyle† | Services, LLC |
| Charles L. Bardelis* | |
| Peter S. Burgess* | Subadviser |
| Grace K. Fey | John Hancock Asset Management a division of |
| Theron S. Hoffman | Manulife Asset Management (US) LLC |
| Hassell H. McClellan | |
| Steven M. Roberts* | Principal distributor |
| John Hancock Funds, LLC | |
| Officers | |
| Hugh McHaffie | Custodian |
| President | State Street Bank and Trust Company |
| Thomas M. Kinzler | Transfer agent |
| Secretary and Chief Legal Officer | John Hancock Signature Services, Inc. |
| Francis V. Knox, Jr. | Legal counsel |
| Chief Compliance Officer | K&L Gates LLP |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
| *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) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site at www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| Semiannual report | Fundamental All Cap Core Fund | 25 |
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
| This report is for the information of the shareholders of John Hancock Fundamental All Cap Core Fund. | 376SA 1/12 |
| It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 3/12 |
A look at performance
Total returns for the period ended January 31, 2012
| Average annual total returns (%) | Cumulative total returns (%) | ||||||||
| with maximum sales charge | with maximum sales charge | ||||||||
| Since | Since | ||||||||
| 1-year | 5-year | 10-year | inception | 6-months | 1-year | 5-year | 10-year | inception1 | |
| Class A | — | — | — | — | –3.18 | — | — | — | –5.79 |
| Class I2 | — | — | — | — | 2.08 | — | — | — | –0.57 |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charges on Class A shares of 5.00%.
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 12-31-12 for Class A 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 I | |||
| Net (%) | 1.30 | 0.84 | ||
| Gross (%) | 3.82 | 3.99 | ||
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For current to the most recent month-end performance data, please call 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on 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.
| 6 Fundamental Large Cap Core Fund | Semiannual report | |
| Without | With maximum | |||
| Start date | sales charge | sales charge | Index | |
| Class I 2 | 6-1-11 | $9,943 | $9,943 | $9,895 |
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, which would have resulted in lower values if they did.
1 From 6-1-11.
2 For certain types of investors as described in the Fund’s Class I prospectus.
| Semiannual report | Fundamental Large Cap Core Fund 7 | ||
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
■ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about 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 August 1, 2011 with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,019.20 | $6.60 |
| Class I | 1,000.00 | 1,020.80 | 4.27 |
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 January 31, 2012, 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 Fundamental Large Cap Core 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 August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,018.60 | $6.60 |
| Class I | 1,000.00 | 1,020.90 | 4.27 |
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% and 0.84% for Class A and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
| Semiannual report | Fundamental Large Cap Core Fund 9 | ||
Portfolio summary
| Top 10 Holdings (35.4% of Net Assets on 1-31-12)1,2 | ||||
| QUALCOMM, Inc. | 5.7% | JPMorgan Chase & Company | 3.1% | |
| Amazon.com, Inc. | 4.9% | Cisco Systems, Inc. | 3.1% | |
| Oracle Corp. | 3.4% | Amgen, Inc. | 3.0% | |
| Merck & Company, Inc. | 3.4% | Visa, Inc., Class A | 2.8% | |
| Moody’s Corp. | 3.2% | Lowe’s Companies, Inc. | 2.8% | |
| Sector Composition1,3 | ||||
| Information Technology | 22.7% | Industrials | 5.5% | |
| Consumer Discretionary | 19.8% | Consumer Staples | 4.7% | |
| Financials | 19.5% | Materials | 1.7% | |
| Energy | 11.5% | Other | 3.2% | |
| Health Care | 11.4% | |||
1 As a percentage of net assets on 1-31-12.
2 Cash and cash equivalents not included.
3 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| 10 Fundamental Large Cap Core Fund | Semiannual report | |
Fund’s investments
As of 1-31-12 (unaudited)
| Shares | Value | |
| Common Stocks 96.83% | $3,464,031 | |
| (Cost $3,453,080) | ||
| Consumer Discretionary 19.78% | 707,622 | |
| Hotels, Restaurants & Leisure 0.91% | ||
| International Speedway Corp., Class A | 1,258 | 32,444 |
| Household Durables 1.78% | ||
| Lennar Corp., Class A | 2,963 | 63,675 |
| Internet & Catalog Retail 6.20% | ||
| Amazon.com, Inc. (I) | 894 | 173,829 |
| Blue Nile, Inc. (I) | 1,194 | 48,178 |
| Media 4.46% | ||
| CBS Corp., Class B | 2,018 | 57,473 |
| Omnicom Group, Inc. | 1,424 | 64,949 |
| The Walt Disney Company | 951 | 36,994 |
| Multiline Retail 1.41% | ||
| Target Corp. | 996 | 50,607 |
| Specialty Retail 5.02% | ||
| Home Depot, Inc. | 1,811 | 80,390 |
| Lowe’s Companies, Inc. | 3,693 | 99,083 |
| Consumer Staples 4.72% | 168,776 | |
| Beverages 3.77% | ||
| Diageo PLC, ADR | 639 | 56,609 |
| PepsiCo, Inc. | 1,190 | 78,147 |
| Tobacco 0.95% | ||
| Philip Morris International, Inc. | 455 | 34,020 |
| Energy 11.48% | 410,813 | |
| Energy Equipment & Services 3.35% | ||
| National Oilwell Varco, Inc. | 493 | 36,472 |
| Schlumberger, Ltd. | 1,112 | 83,589 |
| Oil, Gas & Consumable Fuels 8.13% | ||
| Apache Corp. | 956 | 94,529 |
| Chevron Corp. | 339 | 34,944 |
| Exxon Mobil Corp. | 444 | 37,181 |
| Occidental Petroleum Corp. | 792 | 79,018 |
| Ultra Petroleum Corp. (I) | 1,876 | 45,080 |
| See notes to financial statements | Semiannual report | Fundamental Large Cap Core Fund 11 |
| Shares | Value | |
| Financials 19.56% | $699,842 | |
| Capital Markets 6.40% | ||
| State Street Corp. | 1,195 | 46,820 |
| T. Rowe Price Group, Inc. | 1,626 | 94,048 |
| The Goldman Sachs Group, Inc. | 791 | 88,173 |
| Commercial Banks 1.61% | ||
| Wells Fargo & Company | 1,976 | 57,719 |
| Consumer Finance 0.99% | ||
| American Express Company | 709 | 35,549 |
| Diversified Financial Services 8.47% | ||
| Bank of America Corp. | 10,824 | 77,175 |
| JPMorgan Chase & Company | 2,993 | 111,642 |
| Moody’s Corp. | 3,061 | 113,961 |
| Insurance 2.09% | ||
| Prudential Financial, Inc. | 1,306 | 74,755 |
| Health Care 11.39% | 407,665 | |
| Biotechnology 2.99% | ||
| Amgen, Inc. | 1,577 | 107,094 |
| Health Care Equipment & Supplies 1.56% | ||
| Medtronic, Inc. | 1,445 | 55,734 |
| Health Care Providers & Services 1.18% | ||
| Amsurg Corp. (I) | 1,636 | 42,127 |
| Pharmaceuticals 5.66% | ||
| Merck & Company, Inc. | 3,144 | 120,289 |
| Novartis AG, ADR | 584 | 31,746 |
| Pfizer, Inc. | 2,368 | 50,675 |
| Industrials 5.52% | 197,331 | |
| Air Freight & Logistics 1.99% | ||
| United Parcel Service, Inc., Class B | 939 | 71,035 |
| Industrial Conglomerates 1.34% | ||
| General Electric Company | 2,553 | 47,767 |
| Professional Services 2.19% | ||
| Robert Half International, Inc. | 2,836 | 78,529 |
| Information Technology 22.71% | 812,386 | |
| Communications Equipment 8.72% | ||
| Cisco Systems, Inc. | 5,569 | 109,319 |
| QUALCOMM, Inc. | 3,448 | 202,811 |
| Internet Software & Services 4.36% | ||
| Ancestry.com, Inc. (I) | 2,404 | 71,158 |
| Google, Inc., Class A (I) | 146 | 84,696 |
| IT Services 4.27% | ||
| Broadridge Financial Solutions, Inc. | 2,221 | 53,237 |
| Visa, Inc., Class A | 989 | 99,533 |
| Software 5.36% | ||
| FactSet Research Systems, Inc. | 792 | 69,949 |
| Oracle Corp. | 4,315 | 121,683 |
| 12 Fundamental Large Cap Core Fund | Semiannual report | See notes to financial statements | |
| Shares | Value | |
| Materials 1.67% | $59,596 | |
| Chemicals 1.67% | ||
| Air Products & Chemicals, Inc. | 677 | 59,596 |
| Total investments (Cost $3,453,080)† 96.83% | $3,464,031 | |
| Other assets and liabilities, net 3.17% | $113,352 | |
| Total net assets 100.00% | $3,577,384 | |
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
ADR American Depositary Receipts
(I) Non-income producing security.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $3,453,970. Net unrealized appreciation aggregated $10,061 of which $164,574 related to appreciated investment securities and $154,513 related to depreciated investment securities.
| See notes to financial statements | Semiannual report | Fundamental Large Cap Core Fund 13 | |
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 1-31-12 (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 $3,453,080) | $3,464,031 |
| Cash | 144,751 |
| Receivable for investments sold | 25,000 |
| Dividends receivable | 1,532 |
| Receivable due from adviser | 6,790 |
| Other receivables and prepaid expenses | 38,049 |
| Total assets | 3,680,153 |
| Liabilities | |
| Payable to affiliates | |
| Accounting and legal services fees | 30 |
| Transfer agent fees | 569 |
| Trustees’ fees | 6 |
| Other liabilities and accrued expenses | 102,164 |
| Total liabilities | 102,769 |
| Net assets | |
| Paid-in capital | $3,594,251 |
| Distributions in excess of net investment income | (1,794) |
| Accumulated net realized loss on investments | (26,024) |
| Net unrealized appreciation (depreciation) on investments | 10,951 |
| Net assets | $3,577,384 |
| 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 ($2,489,576 ÷ 252,790 shares) | $9.85 |
| Class I ($1,087,808 ÷ 110,411 shares) | $9.85 |
| Maximum offering price per share | |
| Class A (net asset value per share ÷ 95%)1 | $10.37 |
1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
| 14 Fundamental Large Cap Core Fund | Semiannual report | See notes to financial statements | |
F I N A N C I A L S T A T E M E N T S
Statement of operations For the six-month period ended 1-31-12 (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 | $29,758 |
| Expenses | |
| Investment management fees (Note 4) | 11,617 |
| Distribution and service fees (Note 4) | 3,216 |
| Accounting and legal services fees (Note 4) | 225 |
| Transfer agent fees (Note 4) | 3,030 |
| Trustees’ fees (Note 4) | 16 |
| State registration fees (Note 4) | 26,146 |
| Printing and postage (Note 4) | 2,432 |
| Professional fees | 24,687 |
| Custodian fees | 6,034 |
| Registration and filing fees | 55,854 |
| Other | 2,516 |
| Total expenses before reductions and amounts recaptured | 135,773 |
| Less expense reductions (Note 4) | (117,382) |
| Net expenses | 18,391 |
| Net investment income | 11,367 |
| Realized and unrealized gain (loss) | |
| Net realized gain (loss) on | |
| Investments | (25,133) |
| (25,133) | |
| Change in net unrealized appreciation (depreciation) of | |
| Investments | 104,372 |
| 104,372 | |
| Net realized and unrealized gain | 79,239 |
| Increase in net assets from operations | $90,606 |
| See notes to financial statements | Semiannual report | Fundamental Large Cap Core Fund 15 | |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of changes in net assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Six months | ||
| ended | Period | |
| 1-31-12 | ended | |
| (Unaudited) | 7-31-111 | |
| Increase (decrease) in net assets | ||
| From operations | ||
| Net investment income | $11,367 | $307 |
| Net realized gain (loss) | (25,133) | 10,880 |
| Change in net unrealized appreciation (depreciation) | 104,372 | (93,421) |
| Increase (decrease) in net assets resulting from operations | 90,606 | (82,234) |
| Distributions to shareholders | ||
| From net investment income | ||
| Class A | (7,730) | — |
| Class I | (6,671) | — |
| From net realized gain | ||
| Class A | (7,947) | — |
| Class I | (3,824) | — |
| Total distributions | (26,172) | — |
| From Fund share transactions (Note 5) | 417,034 | 3,178,150 |
| Total increase | 481,468 | 3,095,916 |
| Net assets | ||
| Beginning of period | 3,095,916 | — |
| End of period | $3,577,384 | $3,095,916 |
| (Distributions in excess of)/Undistributed net investment income | ($1,794) | $1,240 |
1 Period from 6-1-11 (commencement of operations) to 7-31-11.
| 16 Fundamental Large Cap Core Fund | Semiannual report | See notes to financial statements | |
Financial highlights
The Financial highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.
| CLASS A SHARES Period ended | 1-31-121 | 7-31-112 |
| Per share operating performance | ||
| Net asset value, beginning of period | $9.73 | $10.00 |
| Net investment income3 | 0.03 | —4 |
| Net realized and unrealized gain (loss) on investments | 0.15 | (0.27) |
| Total from investment operations | 0.18 | (0.27) |
| Less distributions | ||
| From net investment income | (0.03) | — |
| From net realized gain | (0.03) | — |
| Total distributions | (0.06) | — |
| Net asset value, end of period | $9.85 | $9.73 |
| Total return (%)5,6,7 | 1.92 | (2.70) |
| Ratios and supplemental data | ||
| Net assets, end of period (in millions) | $2 | $2 |
| Ratios (as a percentage of average net assets): | ||
| Expenses before reductions and amounts recaptured | 8.298 | 5.958 |
| Expenses including reductions and amounts recaptured | 1.308 | 1.308 |
| Net investment income (loss) | 0.558 | (0.12)8 |
| Portfolio turnover (%) | 20 | 4 |
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 6-1-11 (commencement of operations) to 7-31-11.
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 Not annualized.
7 Total returns would have been lower had certain expenses not been reduced during the period shown.
8 Annualized.
| See notes to financial statements | Semiannual report | Fundamental Large Cap Core Fund 17 | |
| CLASS I SHARES Period ended | 1-31-121 | 7-31-112 |
| Per share operating performance | ||
| Net asset value, beginning of period | $9.74 | $10.00 |
| Net investment income3 | 0.05 | 0.01 |
| Net realized and unrealized gain (loss) on investments | 0.15 | (0.27) |
| Total from investment operations | 0.20 | (0.26) |
| Less distributions | ||
| From net investment income | (0.06) | — |
| From net realized gain | (0.03) | — |
| Total distributions | (0.09) | — |
| Net asset value, end of period | $9.85 | $9.74 |
| Total return (%)4,5 | 2.08 | (2.60) |
| Ratios and supplemental data | ||
| Net assets, end of period (in millions) | $1 | $1 |
| Ratios (as a percentage of average net assets): | ||
| Expenses before reductions and amounts recaptured | 8.846 | 5.616 |
| Expenses including reductions and amounts recaptured | 0.846 | 0.846 |
| Net investment income | 1.046 | 0.366 |
| Portfolio turnover (%) | 20 | 4 |
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 6-1-11 (commencement of operations) to 7-31-11.
3 Based on the average daily shares outstanding.
4 Not annualized.
5 Total returns would have been lower had certain expenses not been reduced during the period shown.
6 Annualized.
| 18 Fundamental Large Cap Core Fund | Semiannual report | See notes to financial statements | |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Fundamental Large Cap Core Fund (the Fund) is a series of John Hancock Funds II (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. 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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.
As of January 31, 2012, all investments are categorized as Level 1 under the hierarchy described above. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the six months ended January 31, 2012, there were no significant transfers into or out of Level 1, Level 2 or Level 3.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities, held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Certain securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees.
| Semiannual report | Fundamental Large Cap Core Fund 19 | |
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.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to 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. which enables them to participate in a $200 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. For the six months ended January 31, 2012, the Fund had no borrowings under the line of credit.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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, printing and postage and state registration fees, 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 July 31, 2011, 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, 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.
| 20 Fundamental Large Cap Core Fund | Semiannual report | |
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. The Fund had no material book-tax differences at July 31, 2011.
New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
Note 3 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 4 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: a) 0.725% of the first $500,000,000 of the Fund’s average daily net assets; b) 0.700% of the next $500,000,000; c) 0.675% of the next $500,000,000; and d) 0.650% of the Fund’s average daily net assets in excess of $1,500,000,000. The Adviser 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 Adviser. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended January 31, 2012 were equivalent to a gross annual rate of 0.725% of the Fund’s average daily net assets.
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Funds) of the Trust 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 Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the reimbursement is calculated daily and allocated among all the Participating Funds in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Adviser upon notice to the funds and with the approval of the Board of Trustees.
| Semiannual report | Fundamental Large Cap Core Fund 21 | |
The Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes interest expense, acquired fund fees, short dividend expense, litigation and indemnification expenses, taxes and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements were such that these expenses will not exceed 1.30% and 0.84% for Class A and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until December 31, 2012 unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at that time.
Additionally, the Adviser has voluntarily agreed to waive other fund level expenses excluding advisory fees, 12b-1 fees, service fees, transfer agent fees, blue sky fees, taxes, printing and postage, brokerage commissions, interest expenses, acquired fund fees, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of business. This voluntary expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund. The waivers are such that these expenses will not exceed 0.20% of average net assets.
Accordingly, these expense reductions described above amounted to $74,944 and $42,438 for Class A and Class I shares, respectively, for the six months ended January 31, 2012.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the six months ended January 31, 2012 were equivalent to the net annual effective rate of 0.00% of the Fund’s average daily net assets.
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements made subsequent to the commencement of operations, for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred to the extent that the Fund is below its expense limitation during this period. The table below outlines the amounts recovered during the six months ended January 31, 2012, and the amount of waived or reimbursed expenses subject to potential recovery and the respective expiration dates. Certain reimbursements or waivers are not subject to recapture.
| AMOUNT RECOVERED | ||||
| AMOUNTS ELIGIBLE FOR | AMOUNTS ELIGIBLE FOR | AMOUNTS ELIGIBLE FOR | DURING THE | |
| RECOVERY THROUGH | RECOVERY THROUGH | RECOVERY THROUGH | PERIOD ENDED | |
| FUND | JULY 1, 2013 | JULY 1, 2014 | JANUARY 1, 2015 | JANUARY 31, 2012 |
| Fundamental Large | — | $23,241 | $117,330 | — |
| Cap Core | ||||
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser 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 January 31, 2012, amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A 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 0.30% for Class A shares for 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.
| 22 Fundamental Large Cap Core Fund | Semiannual report | |
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $80 for the six months ended January 31, 2012. Of this amount, $12 was retained and used for printing prospectuses, advertising, sales literature and other purposes and $68 was paid as sales commissions to broker-dealers.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Adviser. 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 January 31, 2012 were:
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
| CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
| Class A | $3,216 | $2,383 | $13,073 | $1,486 |
| Class I | — | 647 | 13,073 | 946 |
| Total | $3,216 | $3,030 | $26,146 | $2,432 |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the fund based on its average daily net assets.
Note 5 — Fund share transactions
Transactions in Fund shares for the six months ended January 31, 2012 and for the period ended July 31, 2011 were as follows:
| Six months ended 1-31-12 | Year ended 7-31-111 | |||
| Shares | Amount | Shares | Amount | |
| Class A shares | ||||
| Sold | 73,805 | $684,314 | 202,555 | $2,023,250 |
| Distributions reinvested | 383 | 3,593 | — | — |
| Repurchased | (23,953) | (222,213) | — | — |
| Net increase | 50,235 | $465,694 | 202,555 | $2,023,250 |
| Class I shares | ||||
| Sold | 3,903 | $36,194 | 115,490 | $1,154,900 |
| Distributions reinvested | 1,018 | 9,546 | — | — |
| Repurchased | (10,000) | (94,400) | — | — |
| Net increase (decrease) | (5,079) | ($48,660) | 115,490 | $1,154,900 |
| Net increase | 45,156 | $417,034 | 318,045 | $3,178,150 |
1 Period from 6-1-11 (commencement of operations) to 7-31-11.
Affiliates of the Fund owned 75% of shares of beneficial interest of Class A, on January 31, 2012.
| Semiannual report | Fundamental Large Cap Core Fund 23 | |
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $1,033,922 and $618,184, respectively, for the six months ended January 31, 2012.
| 24 Fundamental Large Cap Core Fund | Semiannual report | |
More information
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management |
| James R. Boyle† | Services, LLC |
| Charles L. Bardelis* | |
| Peter S. Burgess* | Subadviser |
| Grace K. Fey | John Hancock Asset Management a division of |
| Theron S. Hoffman | Manulife Asset Management (US) LLC |
| Hassell H. McClellan | |
| Steven M. Roberts* | Principal distributor |
| John Hancock Funds, LLC | |
| Officers | |
| Hugh McHaffie | Custodian |
| President | State Street Bank and Trust Company |
| Thomas M. Kinzler | Transfer agent |
| Secretary and Chief Legal Officer | John Hancock Signature Services, Inc. |
| Francis V. Knox, Jr. | Legal counsel |
| Chief Compliance Officer | K&L Gates LLP |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
| *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) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site at www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| Semiannual report | Fundamental Large Cap Core Fund 25 | |
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhfunds.com/edelivery
| This report is for the information of the shareholders of John Hancock Fundamental Large Cap Core Fund. | 372SA 1/12 |
| It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 3/12 |
A look at performance
Total returns for the period ended January 31, 2012
| Average annual total returns (%) | Cumulative total returns (%) | |||||||||
| with maximum sales charge | with maximum sales charge | |||||||||
| Since | Since | |||||||||
| 1-year | 5-year | 10-year | inception | 6-months | 1-year | 5-year | 10-year | inception | ||
| Class A | — | — | — | — | –0.53 | — | — | — | –5.901 | |
| Class I2 | — | — | — | — | 4.97 | — | — | — | –0.701 | |
Performance figures assume all distributions are reinvested. Figures reflect maximum sales charges on Class A shares of 5.00%.
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 12-31-12 for Class A 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 I | |||
| Net (%) | 1.30 | 0.84 | ||
| Gross (%) | 3.79 | 3.97 |
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For current to the most recent month-end performance data, please call 1–800–225–5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder may pay on fund distributions or on 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.
| 6 | Fundamental Large Cap Value Fund | Semiannual report |
| Without | With maximum | |||
| Start date | sales charge | sales charge | Index | |
| Class I 2 | 6-1-11 | $9,930 | $9,930 | $9,635 |
Russell 1000 Value Index is an unmanaged index containing those securities in the Russell 1000 Index with a less-than-average growth orientation.
It is not possible to invest directly in an index. Index figures do not reflect expenses, which would have resulted in lower values if they did.
1 From 6-1-11.
2 For certain types of investors, as described in the Fund’s Class I share prospectus.
| Semiannual report | Fundamental Large Cap Value Fund | 7 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
■ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about 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 August 1, 2011 with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,047.00 | $6.69 |
| Class I | 1,000.00 | 1,049.70 | 4.33 |
For the class noted below, the example assumes an account value of $1,000 on August 23, 2011, with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 8-23-11 | on 1-31-12 | period ended 1-31-122 | |
| Class NAV | $1,000.00 | $1,221.50 | $3.93 |
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 January 31, 2012, 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 | Fundamental Large Cap Value 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 August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-123 | |
| Class A | $1,000.00 | $1,018.60 | $6.60 |
| Class I | 1,000.00 | 1,020.90 | 4.27 |
| Class NAV | 1,000.00 | 1,021.10 | 4.06 |
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% and 0.84% for Class A and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
2 Expenses are equal to the Fund’s annualized expense ratio of 0.80% for Class NAV shares, multiplied by the average account value over the period, multiplied by 162/366 (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 184/366 (to reflect the one-half year period).
| Semiannual report | Fundamental Large Cap Value Fund | 9 |
Portfolio summary
| Top 10 Holdings (31.8% of Net Assets on 1-31-12) 1,2 | ||||
| Lowe’s Companies, Inc. | 3.7% | Home Depot, Inc. | 3.1% | |
| Amgen, Inc. | 3.5% | Cisco Systems, Inc. | 3.0% | |
| The Goldman Sachs Group, Inc. | 3.2% | QUALCOMM, Inc. | 3.0% | |
| JPMorgan Chase & Company | 3.2% | Moody’s Corp. | 3.0% | |
| Wells Fargo & Company | 3.2% | Occidental Petroleum Corp. | 2.9% | |
| Sector Composition1,3 | ||||
| Financials | 26.3% | Information Technology | 10.7% | |
| Consumer Discretionary | 17.9% | Consumer Staples | 6.5% | |
| Energy | 12.0% | Utilities | 1.0% | |
| Health Care | 11.0% | Other | 3.7% | |
| Industrials | 10.9% | |||
1 As a percentage of net assets on 1-31-12.
2 Cash and cash equivalents not included.
3 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors.
| 10 | Fundamental Large Cap Value Fund | Semiannual report |
Fund’s investments
As of 1-31-12 (unaudited)
| Shares | Value | |
| Common Stocks 96.34% | $381,727,596 | |
| (Cost $327,487,221) | ||
| Consumer Discretionary 17.86% | 70,770,735 | |
| Hotels, Restaurants & Leisure 2.36% | ||
| Carnival Corp. | 309,257 | 9,339,561 |
| Household Durables 2.98% | ||
| Dorel Industries, Inc., Class B | 138,872 | 3,431,982 |
| Lennar Corp., Class A | 390,111 | 8,383,485 |
| Media 4.44% | ||
| Comcast Corp., Class A | 223,200 | 5,934,888 |
| Lamar Advertising Company, Class A (I) | 217,972 | 6,236,179 |
| Omnicom Group, Inc. | 118,954 | 5,425,492 |
| Multiline Retail 1.28% | ||
| Target Corp. | 99,686 | 5,065,046 |
| Specialty Retail 6.80% | ||
| Home Depot, Inc. | 274,773 | 12,197,173 |
| Lowe’s Companies, Inc. | 550,016 | 14,756,929 |
| Consumer Staples 6.52% | 25,840,011 | |
| Beverages 4.04% | ||
| Diageo PLC, ADR | 111,484 | 9,876,368 |
| PepsiCo, Inc. | 93,210 | 6,121,101 |
| Food & Staples Retailing 1.34% | ||
| Walgreen Company | 159,477 | 5,320,153 |
| Tobacco 1.14% | ||
| Philip Morris International, Inc. | 60,484 | 4,522,389 |
| Energy 12.01% | 47,593,137 | |
| Energy Equipment & Services 1.39% | ||
| National Oilwell Varco, Inc. | 74,334 | 5,499,229 |
| Oil, Gas & Consumable Fuels 10.62% | ||
| Apache Corp. | 104,704 | 10,353,132 |
| Chevron Corp. | 96,331 | 9,929,799 |
| ConocoPhillips | 78,016 | 5,321,471 |
| Exxon Mobil Corp. | 57,975 | 4,854,827 |
| Occidental Petroleum Corp. | 116,615 | 11,634,679 |
| See notes to financial statements | Semiannual report | Fundamental Large Cap Value Fund | 11 | |
| Shares | Value | |
| Financials 26.35% | $104,394,126 | |
| Capital Markets 7.76% | ||
| AllianceBernstein Holding LP | 414,284 | 6,305,402 |
| Northern Trust Corp. | 117,845 | 4,856,392 |
| State Street Corp. | 172,443 | 6,756,317 |
| The Goldman Sachs Group, Inc. | 115,147 | 12,835,436 |
| Commercial Banks 5.87% | ||
| U.S. Bancorp | 378,876 | 10,691,881 |
| Wells Fargo & Company | 430,495 | 12,574,758 |
| Diversified Financial Services 8.30% | ||
| Bank of America Corp. | 1,189,302 | 8,479,723 |
| JPMorgan Chase & Company | 340,147 | 12,687,483 |
| Moody’s Corp. | 314,715 | 11,716,839 |
| Insurance 4.42% | ||
| Prudential Financial, Inc. | 179,461 | 10,272,348 |
| Stewart Information Services Corp. | 528,758 | 7,217,547 |
| Health Care 10.97% | 43,455,174 | |
| Biotechnology 3.47% | ||
| Amgen, Inc. | 202,270 | 13,736,156 |
| Health Care Equipment & Supplies 1.87% | ||
| Medtronic, Inc. | 191,751 | 7,395,836 |
| Health Care Providers & Services 1.25% | ||
| Amsurg Corp. (I) | 165,136 | 4,252,252 |
| VCA Antech, Inc. (I) | 30,840 | 690,199 |
| Pharmaceuticals 4.38% | ||
| Merck & Company, Inc. | 275,429 | 10,537,914 |
| Novartis AG, ADR | 89,813 | 4,882,235 |
| Pfizer, Inc. | 91,616 | 1,960,582 |
| Industrials 10.91% | 43,209,608 | |
| Aerospace & Defense 0.96% | ||
| The Boeing Company | 51,333 | 3,807,882 |
| Air Freight & Logistics 2.04% | ||
| FedEx Corp. | 88,342 | 8,082,410 |
| Commercial Services & Supplies 2.64% | ||
| Avery Dennison Corp. | 385,198 | 10,458,126 |
| Electrical Equipment 1.31% | ||
| Sensata Technologies Holding NV (I) | 179,711 | 5,177,474 |
| Industrial Conglomerates 2.49% | ||
| General Electric Company | 527,690 | 9,873,080 |
| Professional Services 1.47% | ||
| Robert Half International, Inc. | 209,846 | 5,810,636 |
| Information Technology 10.72% | 42,496,408 | |
| Communications Equipment 6.65% | ||
| Cisco Systems, Inc. | 612,859 | 12,030,422 |
| QUALCOMM, Inc. | 200,788 | 11,810,350 |
| Tellabs, Inc. | 663,760 | 2,522,288 |
| 12 | Fundamental Large Cap Value Fund | Semiannual report | See notes to financial statements |
| Shares | Value | |
| IT Services 1.47% | ||
| Broadridge Financial Solutions, Inc. | 242,692 | $5,817,327 |
| Software 2.60% | ||
| Microsoft Corp. | 136,746 | 4,038,109 |
| Oracle Corp. | 222,621 | 6,277,912 |
| Utilities 1.00% | 3,968,397 | |
| Electric Utilities 1.00% | ||
| Entergy Corp. | 57,198 | 3,968,397 |
| ||
| Total investments (Cost $327,487,221)† 96.34% | $381,727,596 | |
| Other assets and liabilities, net 3.66% | $14,521,564 | |
| Total net assets 100.00% | $396,249,161 | |
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
ADR American Depositary Receipts
(I) Non-income producing security.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $327,488,223. Net unrealized appreciation aggregated $54,239,373, of which $54,699,683 related to appreciated investment securities and $460,310 related to depreciated investment securities.
| See notes to financial statements | Semiannual report | Fundamental Large Cap Value Fund | 13 |
F I N A N C I A L S T A T E M E N T S
Financial statements
Statement of assets and liabilities 1-31-12 (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 $327,487,221) | $381,727,596 |
| Cash | 14,925,875 |
| Dividends receivable | 120,579 |
| Receivable due from adviser | 405 |
| Other receivables and prepaid expenses | 37,999 |
| Total assets | 396,812,454 |
| Liabilities | |
| Payable for investments purchased | 445,009 |
| Payable to affiliates | |
| Accounting and legal services fees | 3,236 |
| Transfer agent fees | 504 |
| Trustees’ fees | 270 |
| Other liabilities and accrued expenses | 114,274 |
| Total liabilities | 563,293 |
| Net assets | |
| Paid-in capital | $335,956,854 |
| Distributions in excess of net investment income | (35,852) |
| Accumulated net realized gain on investments and foreign | |
| currency transactions | 6,087,784 |
| Net unrealized appreciation (depreciation) on investments | 54,240,375 |
| Net assets | $396,249,161 |
| 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 ($2,124,255 ÷ 215,921 shares) | $9.84 |
| Class I ($1,048,082 ÷ 106,464 shares) | $9.84 |
| Class NAV ($393,076,824 ÷ 39,952,416 shares) | $9.84 |
| Maximum offering perice per share | |
| Class A (net asset value per share ÷ 95%)1 | $10.36 |
1 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
| 14 | Fundamental Large Cap Value 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 1-31-12
(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 | $3,502,462 |
| Less foreign taxes withheld | (3,118) |
| Total investment income | 3,499,344 |
| Expenses | |
| Investment management fees (Note 4) | 1,002,182 |
| Distribution and service fees (Note 4) | 2,777 |
| Accounting and legal services fees (Note 4) | 20,229 |
| Transfer agent fees (Note 4) | 2,685 |
| Trustees’ fees (Note 4) | 1,320 |
| State registration fees (Note 4) | 25,952 |
| Printing and postage (Note 4) | 2,194 |
| Professional fees | 26,175 |
| Custodian fees | 24,574 |
| Registration and filing fees | 76,561 |
| Other | 2,658 |
| Total expenses before reductions and amounts recaptured | 1,187,307 |
| Less expense reductions and amounts recaptured (Note 4) | (14,052) |
| Net expenses | 1,173,255 |
| Net investment income | 2,326,089 |
| Realized and unrealized gain (loss) | |
| Net realized gain (loss) on | |
| Investments | 7,171,443 |
| Foreign currency transactions | (18) |
| 7,171,425 | |
| Change in net unrealized appreciation (depreciation) of | |
| Investments | 54,415,878 |
| 54,415,878 | |
| Net realized and unrealized gain | 61,587,303 |
| Increase in net assets from operations | $63,913,392 |
| See notes to financial statements | Semiannual report | Fundamental Large Cap Value Fund | 15 |
F I N A N C I A L S T A T E M E N T S
Statements of changes in net assets
These Statements of changes in net assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Six months | ||
| ended | Period | |
| 1-31-12 | ended | |
| (Unaudited) | 7-31-111 | |
| Increase (decrease) in net assets | ||
| From operations | ||
| Net investment income | $2,326,089 | $2,156 |
| Net realized gain | 7,171,425 | 6,266 |
| Change in net unrealized appreciation (depreciation) | 54,415,878 | (175,503) |
| Increase (decrease) in net assets resulting from operations | 63,913,392 | (167,081) |
| Distributions to shareholders | ||
| From net investment income | ||
| Class A | (7,223) | — |
| Class I | (6,741) | — |
| Class NAV2 | (2,351,020) | — |
| From net realized gain | ||
| Class A | (5,698) | — |
| Class I | (3,154) | — |
| Class NAV2 | (1,081,097) | — |
| Total distributions | (3,454,933) | — |
| From Fund share transactions (Note 5) | 332,846,753 | 3,111,030 |
| Total increase | 393,305,212 | 2,943,949 |
| Net assets | ||
| Beginning of period | 2,943,949 | — |
| End of period | $396,249,161 | $2,943,949 |
| (Distributions in excess of)/undistributed net investment income | ($35,852) | $3,043 |
1 Period from 6-1-11 (commencement of operations) to 7-31-11.
2 Period from 8-23-11 (commencement of operations) to 1-31-12.
| 16 | Fundamental Large Cap 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 since the end of the previous period.
| CLASS A SHARES Period ended | 1-31-121 | 7-31-112 |
| Per share operating performance | ||
| Net asset value, beginning of period | $9.46 | $10.00 |
| Net investment income3 | 0.05 | —4 |
| Net realized and unrealized gain (loss) on investments | 0.39 | (0.54) |
| Total from investment operations | 0.44 | (0.54) |
| Less distributions | ||
| From net investment income | (0.03) | — |
| From net realized gain | (0.03) | — |
| Total distributions | (0.06) | — |
| Net asset value, end of period | $9.84 | $9.46 |
| Total return (%)5,6,7 | 4.70 | (5.40) |
| Ratios and supplemental data | ||
| Net assets, end of period (in millions) | $2 | $2 |
| Ratios (as a percentage of average net assets): | ||
| Expenses before reductions and amounts recaptured | 3.218 | 5.958 |
| Expenses including reductions and amounts recaptured | 1.308 | 1.308 |
| Net investment income | 1.128 | 0.268 |
| Portfolio turnover (%) | 23 | 5 |
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 6-1-11 (commencement of operations) to 7-31-11.
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 period shown.
7 Not annualized.
8 Annualized.
| See notes to financial statements | Semiannual report | Fundamental Large Cap Value Fund | 17 |
| CLASS I SHARES Period ended | 1-31-121 | 7-31-112 |
| Per share operating performance | ||
| Net asset value, beginning of period | $9.46 | $10.00 |
| Net investment income3 | 0.07 | 0.01 |
| Net realized and unrealized gain (loss) on investments | 0.40 | (0.55) |
| Total from investment operations | 0.47 | (0.54) |
| Less distributions | ||
| From net investment income | (0.06) | — |
| From net realized gain | (0.03) | — |
| Total distributions | (0.09) | — |
| Net asset value, end of period | $9.84 | $9.46 |
| Total return (%)4,5 | 4.97 | (5.40) |
| Ratios and supplemental data | ||
| Net assets, end of period (in millions) | $1 | $1 |
| Ratios (as a percentage of average net assets): | ||
| Expenses before reductions and amounts recaptured | 3.966 | 5.616 |
| Expenses including reductions and amounts recaptured | 0.846 | 0.846 |
| Net investment income | 1.616 | 0.746 |
| Portfolio turnover (%) | 23 | 5 |
1 Semiannual period from 8-1-11 to 1-31-12. Unaudited.
2 Period from 6-1-11 (commencement of operations) to 7-31-11.
3 Based on the average daily shares outstanding.
4 Not annualized.
5 Total returns would have been lower had certain expenses not been reduced during the period shown.
6 Annualized.
| CLASS NAV SHARES Period ended | 1-31-121 |
| Per share operating performance | |
| Net asset value, beginning of period | $8.13 |
| Net investment income2 | 0.07 |
| Net realized and unrealized gain on investments | 1.73 |
| Total from investment operations | 1.80 |
| Less distributions | |
| From net investment income | (0.06) |
| From net realized gain | (0.03) |
| Total distributions | (0.09) |
| Net asset value, end of period | $9.84 |
| Total return (%)3,4 | 22.15 |
| Ratios and supplemental data | |
| Net assets, end of period (in millions) | $393 |
| Ratios (as a percentage of average net assets): | |
| Expenses before reductions and amounts recaptured | 0.795 |
| Expenses including reductions and amounts recaptured | 0.805 |
| Net investment income | 1.605 |
| Portfolio turnover (%) | 23 |
1 Period from 8-23-11 (commencement of operations) to 1-31-12. Unaudited.
2 Based on the average daily shares outstanding.
3 Total returns would have been lower had certain expenses not been reduced during the period shown.
4 Not annualized.
5 Annualized.
| 18 | Fundamental Large Cap Value Fund | Semiannual report | See notes to financial statements |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Fundamental Large Cap Value Fund (the Fund) is a series of John Hancock Funds II (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 sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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.
As of January 31, 2012, all investments are categorized as Level 1 under the hierarchy described above. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the six months ended January 31, 2012, there were no significant transfers into or out of Level 1, Level 2, or Level 3.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities, held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Certain securities traded only in the over-the-counter market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees.
| Semiannual report | Fundamental Large Cap Value Fund | 19 |
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation. Dividend income is recorded on the ex-date.
Line of credit. The Fund may borrow from banks for temporary or emergency purposes, including meeting redemption requests that otherwise might require the untimely sale of securities. Pursuant to the custodian agreement, the custodian may loan money to 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. which enables them to participate in a $200 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. For the six months ended January 31, 2012, the Fund had no borrowings under the line of credit.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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, printing and postage and state registration fees, 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 July 31, 2011, 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, 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.
| 20 | Fundamental Large Cap Value Fund | Semiannual report |
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. The Fund had no material book-tax differences at July 31, 2011.
New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
Note 3 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 4 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: a) 0.70% of the first $500,000,000 of the Fund’s aggregate average daily net assets together with the assets of Fundamental Large Cap Value Trust, a series of John Hancock Variable Insurance Trust; b) 0.65% of the next $500,000,000 of the combined aggregate average daily net assets; and c) 0.60% of the combined aggregate average daily net assets in excess of $1,000,000,000. Prior to August 23, 2011 the Fund paid a daily management fee to the Adviser equivalent, on an annual basis, to the sum of a) 0.70% of the first $500,000,000 of the Fund’s average daily net assets; b) 0.65% of the next $500,000,000; and c) 0.60% of the Fund’s average daily net assets in excess of $1,000,000,000. The Adviser 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 Adviser. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the six months ended January 31, 2012 were equivalent to a gross annual rate of 0.70% of the Fund’s average daily net assets.
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Funds) of the Trust 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 Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the
| Semiannual report | Fundamental Large Cap Value Fund | 21 |
reimbursement is calculated daily and allocated among all the Participating Funds in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Adviser upon notice to the funds and with the approval of the Board of Trustees.
The Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund. This agreement excludes interest expense, acquired fund fees, short dividend expense, litigation and indemnification expenses, taxes and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements were such that these expenses will not exceed 1.30%, 0.84% and 0.82% for Class A, Class I and Class NAV shares, respectively. For Class A and Class I shares the fee waivers and/or reimbursements will continue in effect until December 31, 2012 unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at that time. For Class NAV shares, this expense limitation shall remain in effect until November 30, 2012 unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at that time.
Additionally, the Adviser has voluntarily agreed to waive other fund level expenses excluding advisory fees, 12b-1 fees, service fees, transfer agent fees, blue sky fees, taxes, printing and postage, interest expenses, acquired fund fees, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of business. This voluntary expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund. The waivers are such that these expenses will not exceed 0.20% of average net assets.
Accordingly, these expense reductions described above amounted to $17,836, $16,125 and $2,506 for Class A, Class I and Class NAV shares, respectively, for the six months ended January 31, 2012.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the six months ended January 31, 2012 were equivalent to the net annual effective rate of 0.69% of the Fund’s average daily net assets.
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements made subsequent to the commencement of operations, for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred to the extent that the Fund is below its expense limitation during this period. The table below outlines the amounts recovered during the six months ended January 31, 2012, and the amount of waived or reimbursed expenses subject to potential recovery and the respective expiration dates. Certain reimbursements or waivers are not subject to recapture.
| AMOUNT RECOVERED | ||||
| AMOUNTS ELIGIBLE FOR | AMOUNTS ELIGIBLE FOR | AMOUNTS ELIGIBLE FOR | DURING THE | |
| RECOVERY THROUGH | RECOVERY THROUGH | RECOVERY THROUGH | PERIOD ENDED | |
| FUND | JULY 1, 2013 | JULY 1, 2014 | JANUARY 1, 2015 | JANUARY 31, 2012 |
| Fundamental Large | — | $705 | $28,856 | $22,415 |
| Cap Value | ||||
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser 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 January 31, 2012, amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
| 22 | Fundamental Large Cap Value 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 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 0.30% for Class A shares for 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.
Sales charges. Class A shares are assessed up-front sales charges, which resulted in payments to the Distributor amounting to $1,306 for the six months ended January 31, 2012. Of this amount, $206 was retained and used for printing prospectuses, advertising, sales literature and other purposes and $1,100 was paid as sales commissions to broker-dealers.
Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Adviser. 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 January 31, 2012 were:
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
| CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE FEES |
| Class A | $2,777 | $2,058 | $12,976 | $1,375 |
| Class I | — | 627 | 12,976 | 819 |
| Total | $2,777 | $2,685 | $25,952 | $2,194 |
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to the Fund based on its average daily net assets.
| Semiannual report | Fundamental Large Cap Value Fund | 23 |
Note 5 — Fund share transactions
Transactions in Fund shares for the six months ended January 31, 2012 and for the period ended July 31, 2011 were as follows:
| Six months ended 1-31-12 | Period ended 7-31-111 | |||
| Shares | Amount | Shares | Amount | |
| Class A shares | ||||
| Sold | 23,930 | $217,420 | 195,710 | $1,956,030 |
| Distributions reinvested | 123 | 1,153 | — | — |
| Repurchased | (3,842) | (36,807) | — | — |
| Net increase | 20,211 | $181,766 | 195,710 | $1,956,030 |
| Class I shares | ||||
| Sold | — | — | 115,500 | $1,155,000 |
| Distributions reinvested | 964 | $9,038 | — | — |
| Repurchased | (10,000) | (94,200) | — | — |
| Net increase (decrease) | (9,036) | ($85,162) | 115,500 | $1,155,000 |
| Class NAV shares2 | ||||
| Sold | 39,586,128 | $329,318,032 | — | — |
| Distributions reinvested | 366,288 | 3,432,117 | — | — |
| Net increase | 39,952,416 | $332,750,149 | — | — |
| Net increase | 39,963,591 | $332,846,753 | 311,210 | $3,111,030 |
1 Period from 6-1-11 (commencement of operations) to 7-31-11.
2 Period from 8-23-11 (commencement of operations) to 1-31-12.
Affiliates of the Fund owned 88% and 100% of shares of beneficial interest of Class A and Class NAV, respectively, on January 31, 2012.
Note 6 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $381,882,552 and $64,641,532, respectively, for the six months ended January 31, 2012.
Note 7 — Investment by affiliated funds
Certain investors in the Fund are affiliated funds and are managed by the Adviser 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. For the six months ended January 31, 2012, the following funds had an affiliate ownership concentration of 5% or more of the Fund’s net assets:
| FUND | AFFILIATE CONCENTRATION | |
| John Hancock Lifestyle Aggressive Portfolio | 18.52% | |
| John Hancock Lifestyle Growth Portfolio | 43.41% | |
| John Hancock Lifestyle Balance Portfolio | 32.54% | |
| 24 | Fundamental Large Cap Value Fund | Semiannual report |
More information
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management |
| James R. Boyle† | Services, LLC |
| Charles L. Bardelis* | |
| Peter S. Burgess* | Subadviser |
| Grace K. Fey | John Hancock Asset Management a division of |
| Theron S. Hoffman | Manulife Asset Management (US) LLC |
| Hassell H. McClellan | |
| Steven M. Roberts* | Principal distributor |
| John Hancock Funds, LLC | |
| Officers | |
| Hugh McHaffie | Custodian |
| President | State Street Bank and Trust Company |
| Thomas M. Kinzler | Transfer agent |
| Secretary and Chief Legal Officer | John Hancock Signature Services, Inc. |
| Francis V. Knox, Jr. | Legal counsel |
| Chief Compliance Officer | K&L Gates LLP |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
| *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) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC’s Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site at www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| Semiannual report | Fundamental Large Cap Value Fund | 25 |
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available:electronic delivery
www.jhfunds.com/edelivery
| This report is for the information of the shareholders of John Hancock Fundamental Large Cap Value Fund. | 374SA 1/12 |
| It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 3/12 |
John Hancock Diversified Strategies Fund
Table of Contents
| Your expenses | Page 3 |
| Portfolio summary | Page 4 |
| Portfolio of investments | Page 5 |
| Financial statements | Page 12 |
| Financial highlights | Page 15 |
| Notes to financial statements | Page 17 |
| More information | Page 29 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding your 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 (if applicable), minimum account fee charge, etc.
• Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund’s actual ongoing operating expenses, and is based on your fund’s actual return. It assumes an account value of $1,000.00 on September 30, 2011 with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 9-30-11 | on 1-31-12 | period ended 1-31-121,2 | |
| Class A | $1,000.00 | $1,061.90 | $4.12 |
| Class I | 1,000.00 | 1,064.00 | 2.69 |
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 January 31, 2012 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:
Example
[ My account value $8,600.00 / $1,000.00 = 8.6 ] x $[ “expenses paid” from table ] = My actual expenses
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’s actual expense ratio and an assumed 5% annualized return before expenses (which is not your fund’s actual return). It assumes an account value of $1,000.00 on August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-122,3 | |
| Class A | $1,000.00 | $1,019.20 | $5.99 |
| Class I | 1,000.00 | 1,021.30 | 3.91 |
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 1.18% and 0.77% for Class A and Class I shares, respectively, multiplied by the average account value over the period, multiplied by 124/366 (to reflect the period).
2 The Fund's expense ratios do not include fees and expenses indirectly incurred by the underlying funds, whose ratios can vary based on the mix of underlying funds. The range of annualized expense ratios of the underlying funds held by the Fund was 0.77% to 1.20% for Class A and Class I shares, respectively.
3 Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by 184/366 (to reflect the half-year period).
| 3 |
| Diversified Strategies Fund | ||
| Portfolio Summary | ||
| Value as a | ||
| percentage of | ||
| Fund's net | ||
| Portfolio Composition | assets | |
| Fixed Income (66.1%) | ||
| Corporate Bonds | 51.4% | |
| U.S. Government Agency | 10.3% | |
| Collateralized Mortgage Obligations | 1.8% | |
| Term Loans | 1.2% | |
| Capital Preferred Securities | 1.1% | |
| Asset Backed Securities | 0.3% | |
| Affiliated Investment Companies | 26.7% | |
| Unaffiliated Investment Companies | 5.7% | |
| Other Assets and Liabilities | 1.5% | |
| Value as a | ||
| percentage of | ||
| Fund's net | ||
| Sector Composition 1 | assets | |
| Fixed Income (66.1%) | ||
| Financials | 19.0% | |
| U.S. Government Agency | 10.3% | |
| Consumer Discretionary | 8.4% | |
| Materials | 7.2% | |
| Industrials | 6.1% | |
| Energy | 3.8% | |
| Telecommunication Services | 3.5% | |
| Utilities | 2.9% | |
| Consumer Staples | 2.7% | |
| Health Care | 1.9% | |
| Information Technology | 0.3% | |
| Affiliated Investment Companies (26.7%) | ||
| Equity | 17.0% | |
| Fixed Income | 5.0% | |
| Currency | 4.7% | |
| Unaffiliated Investment Companies (5.7%) | ||
| Long/Short Equity | 2.9% | |
| Futures | 2.8% | |
| Other Assets and Liabilities | 1.5% | |
| Fixed Income Quality Composition 2, 3 | ||
| AAA | 1.1% | |
| AA | 1.7% | |
| A | 9.1% | |
| BBB | 26.2% | |
| BB | 15.6% | |
| B | 23.9% | |
| CCC | 6.7% | |
| U.S. Government Agency | 15.6% | |
| Not Rated | 0.1% | |
1 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors. International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. These risks are more significant in emerging markets.
2 Ratings are from Moody's Investors Service, Inc. If not available, we have used S&P ratings. In the absence of ratings from these agencies, we have used Fitch, Inc. ratings. Not Rated securities are those with no ratings available. All are as of 1-31-12 and do not reflect subsequent downgrades or upgrades, if any.
3 Composition based on fixed income securities which represent $27,097,960 and 66.1% of the Fund's net assets at 1-31-12. Percentages shown are based on total fixed income securities.
| 4 |
Diversified Strategies Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Corporate Bonds 51.43% | $21,067,356 | |||
| (Cost $19,976,497) | ||||
| Consumer Discretionary 7.77% | 3,180,813 | |||
| Auto Components 0.96% | ||||
| Allison Transmission, Inc. (S) | 7.125 | 05/15/19 | $125,000 | 125,781 |
| Exide Technologies | 8.625 | 02/01/18 | 135,000 | 111,375 |
| Visteon Corp. | 6.750 | 04/15/19 | 160,000 | 158,000 |
| Automobiles 0.53% | ||||
| Ford Motor Credit Company LLC | 5.875 | 08/02/21 | 200,000 | 218,850 |
| Food Products 0.22% | ||||
| Simmons Foods, Inc. (S) | 10.500 | 11/01/17 | 100,000 | 89,750 |
| Hotels, Restaurants & Leisure 2.26% | ||||
| Caesars Entertainment Operating Company, Inc. | 11.250 | 06/01/17 | 100,000 | 108,375 |
| CCM Merger, Inc. (S) | 8.000 | 08/01/13 | 100,000 | 97,000 |
| Downstream Development Authority of the Quapaw Tribe of | ||||
| Oklahoma (S) | 10.500 | 07/01/19 | 100,000 | 97,500 |
| Greektown Superholdings, Inc. | 13.000 | 07/01/15 | 100,000 | 107,000 |
| Jacobs Entertainment, Inc. | 9.750 | 06/15/14 | 100,000 | 94,000 |
| Landry's Restaurants, Inc. | 11.625 | 12/01/15 | 100,000 | 107,250 |
| Seminole Indian Tribe of Florida (S) | 7.750 | 10/01/17 | 200,000 | 210,000 |
| Sugarhouse HSP Gaming Property Mezzanine LP (S) | 8.625 | 04/15/16 | 100,000 | 102,750 |
| Media 1.78% | ||||
| AMC Entertainment, Inc. | 8.000 | 03/01/14 | 100,000 | 99,750 |
| DISH DBS Corp. | 6.750 | 06/01/21 | 125,000 | 136,250 |
| Grupo Televisa SAB | 6.625 | 01/15/40 | 100,000 | 113,647 |
| Regal Entertainment Group | 9.125 | 08/15/18 | 100,000 | 109,500 |
| WMG Acquisition Corp. | 9.500 | 06/15/16 | 100,000 | 108,750 |
| XM Satellite Radio, Inc. (S) | 7.625 | 11/01/18 | 150,000 | 160,688 |
| Multiline Retail 0.48% | ||||
| Macy's Retail Holdings, Inc. | 7.875 | 08/15/36 | 175,000 | 197,422 |
| Specialty Retail 0.99% | ||||
| Automotores Gildemeister SA (S) | 8.250 | 05/24/21 | 150,000 | 153,750 |
| Autonation, Inc. | 5.500 | 02/01/20 | 40,000 | 40,300 |
| Hillman Group, Inc. | 10.875 | 06/01/18 | 100,000 | 102,750 |
| Toys R Us Property Company II LLC | 8.500 | 12/01/17 | 100,000 | 107,125 |
| Textiles, Apparel & Luxury Goods 0.55% | ||||
| Burlington Coat Factory Warehouse Corp. | 10.000 | 02/15/19 | 125,000 | 118,750 |
| Levi Strauss & Company | 7.625 | 05/15/20 | 100,000 | 104,500 |
| Consumer Staples 2.69% | 1,101,887 | |||
| Beverages 0.06% | ||||
| Corp. Lindley SA (S) | 6.750 | 11/23/21 | 25,000 | 26,500 |
| Food & Staples Retailing 0.25% | ||||
| Rite Aid Corp. | 9.375 | 12/15/15 | 100,000 | 100,750 |
| Food Products 0.92% | ||||
| B&G Foods, Inc. | 7.625 | 01/15/18 | 125,000 | 134,531 |
| Corp. Pesquera Inca SAC (S) | 9.000 | 02/10/17 | 78,000 | 80,925 |
| Del Monte Corp. | 7.625 | 02/15/19 | 100,000 | 98,375 |
| Post Holdings, Inc. (S) | 7.375 | 02/15/22 | 60,000 | 62,400 |
See notes to the financial statements
| 5 |
Diversified Strategies Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Consumer Staples (continued) | ||||
| Household Products 0.55% | ||||
| Reynolds Group Issuer, Inc. (S) | 9.000 | 04/15/19 | $100,000 | $99,500 |
| Yankee Candle Company, Inc. | 8.500 | 02/15/15 | 125,000 | 127,656 |
| Personal Products 0.67% | ||||
| Hypermarcas SA (S) | 6.500 | 04/20/21 | 150,000 | 140,250 |
| Revlon Consumer Products Corp. | 9.750 | 11/15/15 | 125,000 | 133,750 |
| Tobacco 0.24% | ||||
| Alliance One International, Inc. | 10.000 | 07/15/16 | 100,000 | 97,250 |
| Energy 3.77% | 1,543,571 | |||
| Energy Equipment & Services 0.82% | ||||
| Trinidad Drilling, Ltd. (S) | 7.875 | 01/15/19 | 100,000 | 106,000 |
| Weatherford International, Inc. | 6.800 | 06/15/37 | 200,000 | 227,599 |
| Oil, Gas & Consumable Fuels 2.95% | ||||
| Alpha Natural Resources, Inc. | 6.000 | 06/01/19 | 150,000 | 148,875 |
| Arch Coal, Inc. (S) | 7.250 | 06/15/21 | 125,000 | 125,625 |
| EV Energy Partners LP | 8.000 | 04/15/19 | 100,000 | 103,250 |
| Kinder Morgan Energy Partners LP | 5.800 | 03/15/35 | 200,000 | 206,771 |
| Linn Energy LLC | 8.625 | 04/15/20 | 150,000 | 166,500 |
| Nexen, Inc. | 6.400 | 05/15/37 | 200,000 | 225,651 |
| Niska Gas Storage US LLC | 8.875 | 03/15/18 | 100,000 | 96,125 |
| Peabody Energy Corp. (S) | 6.250 | 11/15/21 | 35,000 | 36,050 |
| TransCanada Pipelines, Ltd. (6.350% to 05/15/2017, then 3 | ||||
| month LIBOR + 2.210%) | 6.350 | 05/15/67 | 100,000 | 101,125 |
| Financials 15.94% | 6,530,974 | |||
| Capital Markets 2.51% | ||||
| Affinion Group Holdings, Inc. | 11.625 | 11/15/15 | 100,000 | 84,500 |
| Credit Suisse New York | 5.400 | 01/14/20 | 250,000 | 252,986 |
| Jefferies Group, Inc. | 6.875 | 04/15/21 | 200,000 | 191,000 |
| Morgan Stanley | 5.750 | 01/25/21 | 300,000 | 299,913 |
| The Goldman Sachs Group, Inc. | 6.750 | 10/01/37 | 200,000 | 198,098 |
| Commercial Banks 2.92% | ||||
| Abbey National Treasury Services PLC | 4.000 | 04/27/16 | 200,000 | 194,125 |
| Banco de Credito del Peru (S) | 4.750 | 03/16/16 | 100,000 | 100,250 |
| Barclays Bank PLC | 5.140 | 10/14/20 | 200,000 | 191,803 |
| BBVA Bancomer SA (S) | 6.500 | 03/10/21 | 100,000 | 99,450 |
| ICICI Bank, Ltd. (S) | 5.750 | 11/16/20 | 200,000 | 196,016 |
| Lloyds TSB Bank PLC | 6.375 | 01/21/21 | 200,000 | 214,093 |
| The Royal Bank of Scotland PLC | 4.875 | 03/16/15 | 200,000 | 202,470 |
| Consumer Finance 1.18% | ||||
| Capital One Financial Corp. | 6.150 | 09/01/16 | 250,000 | 265,049 |
| Discover Bank | 7.000 | 04/15/20 | 200,000 | 219,234 |
| Diversified Financial Services 3.57% | ||||
| Bank of America NA | 6.000 | 10/15/36 | 200,000 | 188,275 |
| Citigroup, Inc. | 5.850 | 12/11/34 | 200,000 | 204,615 |
| General Electric Capital Corp. | 5.300 | 02/11/21 | 250,000 | 272,157 |
| JPMorgan Chase & Company (7.900% to 04/30/2018, then 3 | ||||
| month LIBOR + 3.470%) (Q) | 7.900 | 04/30/18 | 200,000 | 216,642 |
| Merrill Lynch & Company, Inc. | 7.750 | 05/14/38 | 200,000 | 210,470 |
| Nationstar Mortgage | 10.875 | 04/01/15 | 125,000 | 124,063 |
See notes to the financial statements
| 6 |
Diversified Strategies Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Financials (continued) | ||||
| Rabobank Nederland NV (11.000% to 06/30/2019, then 3 | ||||
| month LIBOR + 10.868%) (Q)(S) | 11.000 | 06/30/19 | $200,000 | $247,500 |
| Insurance 3.63% | ||||
| Aflac, Inc. | 6.900 | 12/17/39 | 200,000 | 229,960 |
| AXA SA (6.379% to 12/14/2036, then 3 month LIBOR + | ||||
| 2.256%) (Q)(S) | 6.379 | 12/14/36 | 200,000 | 149,500 |
| CNA Financial Corp. | 7.250 | 11/15/23 | 200,000 | 220,986 |
| CNO Financial Group, Inc. (S) | 9.000 | 01/15/18 | 100,000 | 106,250 |
| Glen Meadow Pass-Through Trust (6.505% to 02/15/2017, | ||||
| then 3 month LIBOR + 2.125%) (S) | 6.505 | 02/12/67 | 200,000 | 150,000 |
| Liberty Mutual Group, Inc. (S) | 7.800 | 03/15/37 | 200,000 | 187,000 |
| Liberty Mutual Group, Inc. (S) | 6.500 | 03/15/35 | 50,000 | 49,948 |
| Lincoln National Corp. (6.050% to 04/20/2017, then 3 month | ||||
| LIBOR + 2.040%) | 6.050 | 04/20/67 | 200,000 | 178,000 |
| Willis Group Holdings PLC | 5.750 | 03/15/21 | 200,000 | 217,052 |
| Real Estate Investment Trusts 1.90% | ||||
| DDR Corp. | 7.500 | 04/01/17 | 200,000 | 225,353 |
| MPT Operating Partnership LP | 6.875 | 05/01/21 | 100,000 | 103,750 |
| Prologis LP | 6.875 | 03/15/20 | 200,000 | 229,875 |
| Weyerhaeuser Company | 7.375 | 03/15/32 | 200,000 | 218,091 |
| Real Estate Management & Development 0.23% | ||||
| Realogy Corp. (S) | 7.875 | 02/15/19 | 100,000 | 92,500 |
| Health Care 1.53% | 627,050 | |||
| Biotechnology 0.37% | ||||
| Grifols, Inc. | 8.250 | 02/01/18 | 100,000 | 109,750 |
| Kinetic Concepts, Inc. (S) | 10.500 | 11/01/18 | 40,000 | 40,800 |
| Health Care Equipment & Supplies 0.38% | ||||
| Alere, Inc. | 8.625 | 10/01/18 | 150,000 | 156,375 |
| Health Care Providers & Services 0.51% | ||||
| BioScrip, Inc. | 10.250 | 10/01/15 | 100,000 | 103,000 |
| HCA, Inc. | 7.500 | 02/15/22 | 100,000 | 107,000 |
| Pharmaceuticals 0.27% | ||||
| Endo Pharmaceuticals Holdings, Inc. | 7.250 | 01/15/22 | 100,000 | 110,125 |
| Industrials 6.10% | 2,497,720 | |||
| Aerospace & Defense 1.22% | ||||
| Ducommun, Inc. (S) | 9.750 | 07/15/18 | 100,000 | 102,250 |
| Huntington Ingalls Industries, Inc. (S) | 7.125 | 03/15/21 | 150,000 | 156,750 |
| Kratos Defense & Security Solutions, Inc. | 10.000 | 06/01/17 | 120,000 | 126,900 |
| Textron Financial Corp. (6.000% to 02/15/2017, then 3 month | ||||
| LIBOR + 1.735%) (S) | 6.000 | 02/15/67 | 150,000 | 112,500 |
| Airlines 2.22% | ||||
| Continental Airlines 1997-4 Class A Pass Through Trust | 6.900 | 01/02/18 | 31,952 | 33,550 |
| Continental Airlines 2010-1 Class A Pass Through Trust | 4.750 | 01/12/21 | 196,148 | 203,503 |
| Delta Air Lines 2007-1 Class A Pass Through Trust | 6.821 | 08/10/22 | 151,268 | 163,370 |
| Delta Air Lines 2010-1 Class A Pass Through Trust | 6.200 | 07/02/18 | 179,857 | 193,346 |
| United Air Lines, Inc. 2007-1 Class C Pass Through Trust (P) | 3.059 | 07/02/14 | 108,045 | 100,752 |
| Voto-Votorantim, Ltd. (S) | 6.750 | 04/05/21 | 200,000 | 215,000 |
See notes to the financial statements
| 7 |
Diversified Strategies Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Industrials (continued) | ||||
| Commercial Services & Supplies 0.78% | ||||
| International Lease Finance Corp. (S) | 7.125 | 09/01/18 | $100,000 | $109,500 |
| Steelcase, Inc. | 6.375 | 02/15/21 | 200,000 | 208,199 |
| Electrical Equipment 0.32% | ||||
| Coleman Cable, Inc. | 9.000 | 02/15/18 | 130,000 | 132,600 |
| Industrial Conglomerates 0.49% | ||||
| Odebrecht Finance, Ltd. (S) | 7.500 | 09/14/15 | 200,000 | 200,500 |
| Marine 0.05% | ||||
| Navios South American Logistics, Inc. (S) | 9.250 | 04/15/19 | 25,000 | 20,500 |
| Road & Rail 0.75% | ||||
| Avis Budget Car Rental LLC | 8.250 | 01/15/19 | 100,000 | 105,250 |
| Florida East Coast Railway Corp. | 8.125 | 02/01/17 | 100,000 | 100,000 |
| The Hertz Corp. | 6.750 | 04/15/19 | 100,000 | 103,250 |
| Trading Companies & Distributors 0.27% | ||||
| Aircastle, Ltd. | 9.750 | 08/01/18 | 100,000 | 110,000 |
| Information Technology 0.25% | 103,000 | |||
| IT Services 0.25% | ||||
| Brightstar Corp. (S) | 9.500 | 12/01/16 | 100,000 | 103,000 |
| Materials 7.20% | 2,948,785 | |||
| Chemicals 0.89% | ||||
| American Pacific Corp. | 9.000 | 02/01/15 | 150,000 | 145,500 |
| Braskem Finance, Ltd. (S) | 7.000 | 05/07/20 | 200,000 | 216,500 |
| Construction Materials 0.60% | ||||
| Building Materials Corp. of America (S) | 6.750 | 05/01/21 | 100,000 | 107,500 |
| Cemex SAB de CV (S) | 9.000 | 01/11/18 | 160,000 | 139,200 |
| Containers & Packaging 0.30% | ||||
| Pretium Packaging LLC | 11.500 | 04/01/16 | 100,000 | 99,000 |
| Solo Cup Company | 10.500 | 11/01/13 | 25,000 | 25,375 |
| Metals & Mining 4.26% | ||||
| Alcoa, Inc. | 5.400 | 04/15/21 | 200,000 | 210,131 |
| ArcelorMittal | 6.750 | 03/01/41 | 200,000 | 195,311 |
| Commercial Metals Company | 7.350 | 08/15/18 | 200,000 | 199,500 |
| FMG Resources August 2006 Pty, Ltd. (S) | 8.250 | 11/01/19 | 25,000 | 26,813 |
| FMG Resources August 2006 Pty, Ltd. (S) | 6.875 | 02/01/18 | 25,000 | 25,438 |
| JMC Steel Group (S) | 8.250 | 03/15/18 | 100,000 | 102,500 |
| Metinvest BV (S) | 8.750 | 02/14/18 | 200,000 | 174,000 |
| Rain CII Carbon LLC (S) | 8.000 | 12/01/18 | 100,000 | 103,750 |
| Steel Dynamics, Inc. | 7.750 | 04/15/16 | 125,000 | 130,625 |
| SunCoke Energy, Inc. | 7.625 | 08/01/19 | 100,000 | 101,000 |
| Taseko Mines, Ltd. | 7.750 | 04/15/19 | 100,000 | 92,000 |
| Teck Resources, Ltd. | 6.250 | 07/15/41 | 200,000 | 235,268 |
| Vale Overseas, Ltd. | 6.875 | 11/10/39 | 125,000 | 148,142 |
| Paper & Forest Products 1.15% | ||||
| Georgia-Pacific LLC | 7.250 | 06/01/28 | 171,000 | 206,947 |
| International Paper Company | 9.375 | 05/15/19 | 200,000 | 264,285 |
See notes to the financial statements
| 8 |
Diversified Strategies Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Telecommunication Services 3.54% | $1,451,740 | |||
| Diversified Telecommunication Services 3.29% | ||||
| CenturyLink, Inc. | 7.600 | 09/15/39 | $200,000 | 203,278 |
| Frontier Communications Corp. | 8.500 | 04/15/20 | 150,000 | 148,500 |
| GTP Towers Issuer LLC (S) | 8.112 | 02/15/15 | 100,000 | 102,271 |
| Intelsat Jackson Holdings SA | 7.250 | 10/15/20 | 100,000 | 104,375 |
| PAETEC Holding Corp. | 9.875 | 12/01/18 | 100,000 | 111,750 |
| Qwest Communications International, Inc. | 8.000 | 10/01/15 | 30,000 | 32,176 |
| Telecom Italia Capital SA | 7.200 | 07/18/36 | 200,000 | 181,000 |
| Telefonica Emisiones SAU | 5.134 | 04/27/20 | 200,000 | 195,265 |
| West Corp. | 11.000 | 10/15/16 | 100,000 | 106,125 |
| Windstream Corp. | 7.750 | 10/01/21 | 150,000 | 162,000 |
| Wireless Telecommunication Services 0.25% | ||||
| Digicel, Ltd. (S) | 8.250 | 09/01/17 | 100,000 | 105,000 |
| Utilities 2.64% | 1,081,816 | |||
| Electric Utilities 1.02% | ||||
| Allegheny Energy Supply Company LLC (S) | 6.750 | 10/15/39 | 200,000 | 219,884 |
| PNM Resources, Inc. | 9.250 | 05/15/15 | 150,000 | 165,750 |
| Southern California Edison Company (6.25% to 2/1/2022, | ||||
| then 3 month LIBOR + 4.199%) | 6.250 | 02/01/22 | 30,000 | 30,557 |
| Independent Power Producers & Energy Traders 1.38% | ||||
| DPL, Inc. (S) | 7.250 | 10/15/21 | 200,000 | 222,500 |
| IPALCO Enterprises, Inc. | 5.000 | 05/01/18 | 200,000 | 197,250 |
| NRG Energy, Inc. | 8.250 | 09/01/20 | 150,000 | 147,750 |
| Multi-Utilities 0.24% | ||||
| Integrys Energy Group, Inc. (6.110% to 12/01/2016, then 3 | ||||
| month LIBOR + 2.120%) | 6.110 | 12/01/66 | 100,000 | 98,125 |
| U.S. Government & Agency Obligations 10.29% | $4,216,802 | |||
| (Cost $4,104,503) | ||||
| U.S. Government 3.88% | 1,588,716 | |||
| United States Treasury Strip PO | 2.169 | 08/15/41 | 4,000,000 | 1,588,716 |
| U.S. Government Agency 6.41% | 2,628,086 | |||
| Federal National Mortgage Association | ||||
| 30 Yr Pass Thru CTF | 4.000 | 10/01/41 | 1,281,602 | 1,363,702 |
| 30 Yr Pass Thru CTF | 4.000 | 11/01/41 | 1,194,931 | 1,264,384 |
| Capital Preferred Securities 1.07% | $438,428 | |||
| (Cost $419,244) | ||||
| Financials 1.07% | 438,428 | |||
| MetLife Capital Trust X (9.250% to 04/08/2038 then 3 month | ||||
| LIBOR + 5.540%) (S) | 9.250 | 04/08/33 | 30,000 | 35,475 |
| Regions Financing Trust II (6.625% to 05/15/2027, then 3 | ||||
| month LIBOR + 1.290%) | 6.625 | 05/15/47 | 150,000 | 133,500 |
| State Street Capital Trust III | 5.536 | 01/29/49 | 175,000 | 175,453 |
| ZFS Finance USA Trust II (6.450% to 06/15/2016 then 3 | ||||
| month LIBOR + 2.000%) (S) | 6.450 | 12/15/65 | 100,000 | 94,000 |
See notes to the financial statements
| 9 |
Diversified Strategies Fund
As of 1-31-12 (Unaudited)
| Maturity | Par value | |||
| Rate (%) | date | Value | ||
| Municipal Bonds 0.06% | $23,662 | |||
| (Cost $22,487) | ||||
| State of Illinois | 5.100 | 06/01/33 | $25,000 | 23,662 |
| Term Loans (M) 1.23% | $504,165 | |||
| (Cost $487,897) | ||||
| Consumer Discretionary 0.63% | 257,816 | |||
| Hotels, Restaurants & Leisure 0.34% | ||||
| Kalispel Tribal Economic Authority | 7.500 | 02/25/17 | 146,921 | 138,106 |
| Media 0.29% | ||||
| Clear Channel Communications, Inc. | 3.890 | 01/28/16 | 150,000 | 119,710 |
| Health Care 0.35% | 144,199 | |||
| Health Care Providers & Services 0.35% | ||||
| National Mentor Holdings, Inc. | 7.000 | 02/09/17 | 149,623 | 144,199 |
| Utilities 0.25% | 102,150 | |||
| Electric Utilities 0.25% | ||||
| Texas Competitive Electric Holdings Company LLC | 3.706 | 10/10/14 | 150,000 | 102,150 |
| Collateralized Mortgage Obligations 1.74% | $713,240 | |||
| (Cost $663,483) | ||||
| Commercial & Residential 1.74% | 713,240 | |||
| Countrywide Alternative Loan Trust | ||||
| Series 2007-16CB, Class 4A7 | 6.000 | 08/25/37 | 147,555 | 109,810 |
| Greenwich Capital Commercial Funding Corp. | ||||
| Series 2006-GG7, Class AM (P) | 6.079 | 07/10/38 | 220,000 | 227,502 |
| JPMorgan Chase Commercial Mortgage Securities Corp. | ||||
| Series 2006-LDP7, Class AM (P) | 6.065 | 04/15/45 | 250,000 | 264,893 |
| WaMu Mortgage Pass Through Certificates | ||||
| Series 2005-AR6, Class X IO | 0.649 | 04/25/45 | 2,114,395 | 111,035 |
| Asset Backed Securities 0.33% | $134,308 | |||
| (Cost $127,938) | ||||
| Home Equity Asset Trust | ||||
| Series 2007-3, Class 2A2 (P) | 0.456 | 08/25/37 | 190,000 | 134,308 |
| Shares | Value | |||
| Affiliated Investment Companies 26.69% | $10,930,981 | |||
| (Cost $10,373,097) | ||||
| Equity 17.02% | 6,972,360 | |||
| John Hancock Funds II (G) 12.10% | ||||
| Capital Appreciation Value, Class NAV (T.Rowe Price) | 196,694 | 2,067,254 | ||
| Global Real Estate, Class NAV (Deutsche) | 118,274 | 845,662 | ||
| Redwood, Class NAV (RCM) | 191,194 | 2,041,951 | ||
| John Hancock Funds III (G) 4.92% | ||||
| Global Shareholder Yield, Class NAV (Epoch) | 213,491 | 2,017,493 | ||
See notes to the financial statements
| 10 |
Diversified Strategies Fund
As of 1-31-12 (Unaudited)
| Shares | Value | |
| Fixed Income 4.99% | $2,041,357 | |
| John Hancock Funds II (G) 4.99% | ||
| Multi Sector Bond, Class NAV (Stone Harbor) | 202,115 | 2,041,357 |
| Currency 4.68% | 1,917,264 | |
| John Hancock Funds II (G) 4.68% | ||
| Currency Strategies, Class NAV (First Quadrant) (I) | 208,398 | 1,917,264 |
| Unaffiliated Investment Companies 5.69% | $2,328,593 | |
| (Cost $2,393,497) | ||
| Equity 2.90% | 1,186,627 | |
| Turner Spectrum Fund Institutional, Class I (I) | 106,519 | 1,186,627 |
| Other 2.79% | 1,141,966 | |
| AQR Managed Futures Strategy Fund, Class I | 119,954 | 1,141,966 |
| Total investments (Cost $38,568,643)† 98.53% | $40,357,535 | |
| Other assets and liabilities, net 1.47% | $602,986 | |
| Total net assets 100.00% | $40,960,521 | |
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.
IO Interest Only Security – (Interest Tranche of Stripped Mortgage Pool). Rate shown is the annualized yield at the end of the period.
PO Principal Only Security – (Principal Tranche of Stripped Security). Rate shown is the annualized yield at the end of purchase.
LIBOR London Interbank Offered Rate.
(G) The Fund's subadviser is shown parenthetically.
(I) Non-income producing security.
(M) Term loans are variable rate obligations. The coupon rate shown represents the rate at period end.
(P) Variable rate obligation. The coupon rate shown represents the rate at period end.
(Q) Perpetual bonds have no stated maturity date. Date shown 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 $5,828,514 or 14.23% of the Fund's net assets as of 1-31-12.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $38,578,235. Net unrealized appreciation aggregated $1,779,300, of which $1,936,872 related to appreciated investment securities and $157,572 related to depreciated investment securities.
Investment Companies
Underlying Funds’ Investment Managers
| Deutsche Asset Management | (Deutsche) |
| Epoch Investment Partners, Inc. | (Epoch) |
| First Quadrant LP | (First Quadrant) |
| RCM Capital Management LLC | (RCM) |
| Stone Harbor Investment Partners LP | (Stone Harbor) |
| T. Rowe Price Associates, Inc. | (T. Rowe Price) |
See notes to the financial statements
| 11 |
Diversified Strategies Fund
Statement of Assets and Liabilities — January 31, 2012 (Unaudited)
| Assets | |||
| Investments in unaffiliated issuers, at value | |||
| (Cost $28,195,546) | $ | 29,426,554 | |
| Investments in affiliated funds, at value (Cost | |||
| $10,373,097) (Note 7) | 10,930,981 | ||
| Total investments, at value (Cost | |||
| $38,568,643) | 40,357,535 | ||
| Cash | 313,885 | ||
| Receivable for investments sold | 900 | ||
| Dividends and interest receivable | 438,517 | ||
| Receivable due from adviser | 1,614 | ||
| Other receivables and prepaid expenses | 11,454 | ||
| Total assets | 41,123,905 | ||
| Liabilities | |||
| Payable for investments purchased | 107,442 | ||
| Payable to affiliates | |||
| Accounting and legal services fees | 273 | ||
| Transfer agent fees | 7,005 | ||
| Trustees' fees | 98 | ||
| Other liabilities and accrued expenses | 48,566 | ||
| Total liabilities | 163,384 | ||
| Net assets | |||
| Paid-in capital | $ | 39,000,000 | |
| Undistributed net investment income | 100,289 | ||
| Accumulated net realized gain on investments | 71,340 | ||
| Net unrealized appreciation (depreciation) on | |||
| investments | 1,788,892 | ||
| Net assets | $ | 40,960,521 | |
| 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 ($31,505,407 ÷ 3,000,000 shares) | $ | 10.50 | |
| Class I ($9,455,114 ÷ 900,000 shares) | $ | 10.51 | |
| Maximum offering price per share | |||
| Class A (net asset value per share ÷ 95%)1 | $ | 11.05 | |
1 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
| 12 |
Diversified Strategies Fund
Statement of Operations — For the Period Ended January 31, 2012 (Unaudited)1
| Investment income | |||
| Interest | $ | 549,215 | |
| Income distributions received from affiliated | |||
| underlying funds | 85,202 | ||
| Dividends | 8,895 | ||
| Less foreign taxes withheld | (161) | ||
| Total investment income | 643,151 | ||
| Expenses | |||
| Investment management fees (Note 4) | 75,594 | ||
| Distribution and service fees (Note 4) | 30,912 | ||
| Accounting and legal services fees (Note 4) | 1,765 | ||
| Transfer agent fees (Note 4) | 26,153 | ||
| Trustees' fees (Note 4) | 189 | ||
| Professional fees | 26,036 | ||
| Custodian fees | 2,801 | ||
| Registration and filing fees | 20,268 | ||
| Other | 2,437 | ||
| Total expenses | 186,155 | ||
| Less expense reductions (Note 4) | (40,538) | ||
| Net expenses | 145,617 | ||
| Net investment income | 497,534 | ||
| Realized and unrealized gain (loss) | |||
| Net realized gain (loss) on | |||
| Investments in unaffiliated issuers | 57,844 | ||
| Investments in affiliated issuers | 13,522 | ||
| Capital gain distributions received from affiliated | |||
| underlying funds | 62,452 | ||
| 133,818 | |||
| Change in net unrealized appreciation | |||
| (depreciation) of | |||
| Investments in unaffiliated issuers | 1,231,008 | ||
| Investments in affiliated issuers | 557,884 | ||
| 1,788,892 | |||
| Net realized and unrealized gain | 1,922,710 | ||
| Increase in net assets from operations | $ | 2,420,244 | |
1 Period from 9-30-11 (commencement of operations) to 1-31-12.
See notes to financial statements
| 13 |
Diversified Strategies Fund
Statement of Changes in Net Assets
| Period ended | |||
| 1/31/12 1 | |||
| (Unaudited) | |||
| Increase (decrease) in net assets | |||
| From operations | |||
| Net investment income | $ | 497,534 | |
| Net realized gain | 133,818 | ||
| Change in net unrealized appreciation | |||
| (depreciation) | 1,788,892 | ||
| Increase in net assets resulting from | |||
| operations | 2,420,244 | ||
| Distributions to shareholders | |||
| From net investment income | |||
| Class A | (298,380) | ||
| Class I | (98,865) | ||
| From net realized gain | |||
| Class A | (48,060) | ||
| Class I | (14,418) | ||
| Total distributions | (459,723) | ||
| From Fund share transactions (Note 5) | 39,000,000 | ||
| Total increase | 40,960,521 | ||
| Net assets | |||
| Beginning of period | — | ||
| End of period | $ | 40,960,521 | |
| Undistributed net investment income | $ | 100,289 | |
1 Period from 9-30-11 (commencement of operations) to 1-31-12.
The accompanying notes are an integral part of the financial statements.
| 14 |
Diversified Strategies Fund
Financial Highlights (For a share outstanding throughout the period)
| Class A Shares | |||
| Period ended | |||
| 1-31-121,2 | |||
| Per share operating performance | |||
| Net asset value, beginning of period | $ | 10.00 | |
| Net investment income3 | 0.13 | ||
| Net realized and unrealized gain on | |||
| investments | 0.49 | ||
| Total from investment operations | 0.62 | ||
| Less distributions | |||
| From net investment income | (0.10) | ||
| From net realized gain | (0.02) | ||
| Total distributions | (0.12) | ||
| Net asset value, end of period | $ | 10.50 | |
| Total return (%)4 | 6.195,6 | ||
| Ratios and supplemental data | |||
| Net assets, end of period (in millions) | $ | 32 | |
| Ratios (as a percentage of average net | |||
| assets): | |||
| Expenses before reductions7 | 1.488 | ||
| Expenses net of fee waivers7 | 1.188 | ||
| Net investment income | 3.628 | ||
| Portfolio turnover (%) | 2 | ||
1 Period from 9-30-11 (commencement of operations) to 1-31-12.
2 Unaudited.
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 period shown.
6 Not annualized.
7 Ratios do not include expenses indirectly incurred from underlying funds whose expense ratios can vary based on the mix of underlying funds held by the Fund. The range of expense ratios of the underlying funds held by the Fund was as follows: 0.77% to 1.20% for 1-31-12.
8 Annualized.
See notes to financial statements
| 15 |
Diversified Strategies Fund
Financial Highlights (For a share outstanding throughout the period)
| Class I Shares | |||
| Period ended | |||
| 1-31-121,2 | |||
| Per share operating performance | |||
| Net asset value, beginning of period | $ | 10.00 | |
| Net investment income3 | 0.14 | ||
| Net realized and unrealized gain on | |||
| investments | 0.50 | ||
| Total from investment operations | 0.64 | ||
| Less distributions | |||
| From net investment income | (0.11) | ||
| From net realized gain | (0.02) | ||
| Total distributions | (0.13) | ||
| Net asset value, end of period | $ | 10.51 | |
| Total return (%) | 6.404,5 | ||
| Ratios and supplemental data | |||
| Net assets, end of period (in millions) | $ | 9 | |
| Ratios (as a percentage of average net | |||
| assets): | |||
| Expenses before reductions6 | 1.077 | ||
| Expenses net of fee waivers6 | 0.777 | ||
| Net investment income | 4.037 | ||
| Portfolio turnover (%) | 2 | ||
1 Period from 9-30-11 (commencement of operations) to 1-31-12.
2 Unaudited.
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 Ratios do not include expenses indirectly incurred from underlying funds whose expense ratios can vary based on the mix of underlying funds held by the Fund. The range of expense ratios of the underlying funds held by the Fund was as follows: 0.77% to 1.20% for 1-31-12.
7 Annualized.
See notes to financial statements
| 16 |
Notes to Financial Statements (unaudited)
Note 1 — Organization
John Hancock Diversified Strategies Fund (the Fund) is a series of John Hancock Funds II (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 achieve consistent returns over the long term with a focus on capital preservation.
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. 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 for each class may differ.
The accounting policies of the underlying funds of the Fund are outlined in the underlying funds’ shareholder reports, available without charge by calling 1-800-344-1029 and jhfunds.com, on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or at the SEC’s public reference room in Washington, D.C. The underlying funds are not covered by this report.
Note 2 - Significant accounting policies
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 p.m., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities, including registered investment companies. Level 2 includes securities valued using 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, 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.
All investments are categorized as Level 2 under the hierarchy described above except for affiliated and unaffiliated investment companies which are categorized as Level 1. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the period ended January 31, 2012, there were no significant transfers into or out of Level 1, Level 2 or Level 3.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Investments by the Fund in open-end mutual funds are valued at their respective net asset values each business day. Debt obligations are valued based on the evaluated prices provided by an independent pricing service, which utilizes both dealer-supplied and electronic data processing
| 17 |
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 are valued in U.S. dollars, based on foreign currency exchange rates supplied by an independent pricing service. Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees.
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. 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 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. Income and capital gain distributions from underlying funds are recorded on ex-date. Gains and losses on securities sold are determined on the basis of identified cost and may include proceeds from litigation.
Foreign taxes. The Fund may be subject to capital gains and repatriation taxes as imposed by certain countries in which it invests. Such taxes are generally based upon income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation.
Overdrafts. Pursuant to the custodian agreement, the Fund’s custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the custodian for any overdraft, including any costs or expenses associated with the overdraft. The custodian 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.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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 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 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.
Distribution of income and gains. Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-date. The Fund generally declares and pays dividends and capital gain distributions, if any, at least annually.
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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.
New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
Note 3 - Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 4 – Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser) serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect, wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, based on two components: (a) a fee on assets invested in a fund of John Hancock Funds III (JHF III) or John Hancock Funds II (JHF II) and (b) a fee on assets invested in investments other than a fund of JHF III and JHF II (Other Assets). The fee on assets invested in the fund of JHF III or JHF II is stated as an annual percentage of the current value of the aggregate net assets of the Fund and is equivalent to the sum of: (a) 0.250% of the first $1,000,000,000 of the Fund’s aggregate net assets and (b) 0.225% of the excess over $1,000,000,000 of the Fund’s aggregate net assets. The fee on Other Assets is stated as an annual percentage of the current value of the aggregate net assets of the Fund and is equivalent to the sum of: (a) 0.700% of the first $1,000,000,000 of the Fund’s aggregate net assets and (b) 0.675% of the excess over $1,000,000,000 of the Fund’s aggregate net assets. The Adviser 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 Adviser. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended January 31, 2012 were equivalent to gross annual effective rate of 0.56% of the Fund’s average daily net assets.
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The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Funds) of the Trust and John Hancock Variable Insurance Trust. The waiver equals, on an annualized basis, 0.010% of that portion of the aggregate net assets of all the Participating Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the reimbursement is calculated daily and allocated among all the Participating Funds in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Adviser upon notice to the funds and with the approval of the Board of Trustees.
The Adviser has contractually agreed to waive fees and/or reimburse certain expenses for each share class of the Fund, excluding certain expenses such as taxes, brokerage commissions, interest expense, litigation and other extraordinary expenses not incurred in the ordinary course of the Fund’s business. The fee waivers and/or reimbursements are such that these expenses will not exceed 1.22% and 0.80% for Class A and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until November 30, 2012, unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at the time.
Additionally, the Adviser has voluntarily agreed to waive other fund level expenses excluding advisory fees, 12b-1 fees, transfer agent fees, service fees, blue sky fees, printing and postage, acquired fund fees, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of business. This voluntarily expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund. The waivers are such that these expenses will not exceed 0.10% of the Fund’s average net assets.
Accordingly, these expense reductions amounted to $31,180 and $9,358 for Class A and Class I shares, respectively, for the period ended January 31, 2012.
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements made subsequent to commencement of operations, for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred. For the period ended January 31, 2012, the Fund did not recapture any expenses. In addition, there were $40,099 in waived or reimbursed expenses subject to potential recovery through January 1, 2015. Certain reimbursements or waivers are not subject to recapture.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the period ended January 31, 2012 were equivalent to the net annual effective rate of 0.26% of the Fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser 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 period ended January 31, 2012 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A 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 0.30% for Class A for distribution and service fees under these arrangements, expressed as an annual percentage of average daily net assets.
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Transfer agent fees. The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an affiliate of the Adviser. 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 period ended January 31, 2012 were:
| Class | Distribution and service fees | Transfer agent fees | ||
| A | $30,912 | $22,728 | ||
| I | - | 3,425 | ||
| Total | $30,912 | $26,153 | ||
Trustee expenses. The Fund compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to each Fund based on its average daily net assets.
Note 5 - Fund share transactions
Transactions in Fund shares for the period ended January 31, 2012 were as follows:
| Period ended | |||||
| 1/31/121 | |||||
| Shares | Amount | ||||
| Class A shares | |||||
| Sold | 3,000,000 | $30,000,000 | |||
| Net increase | 3,000,000 | $30,000,000 | |||
| Class I shares | |||||
| Sold | 900,000 | $9,000,000 | |||
| Net increase | 900,000 | $9,000,000 | |||
| Net increase | 3,900,000 | $39,000,000 | |||
1 Period from 9-30-11 (commencement of operations) to 1-31-12.
Affiliates of the Fund owned 100% of shares of beneficial interest of Class A and Class I, respectively, on January 31, 2012.
Note 6 - Purchase and sale of securities
Purchases and sales of securities, other than short-term securities and U.S. Treasury obligations, aggregated $44,108,464 and $5,596,341, respectively, for the period ended January 31, 2012. Purchases and sales of U.S. Treasury obligations aggregated $1,522,725 and $20,262, respectively, for the period ended January 31, 2012.
Note 7 – Investment in affiliated underlying funds
The Fund invests in affiliated underlying funds that are managed by the Adviser and its affiliates. The Fund does not invest in the affiliated underlying funds for the purpose of exercising management or control; however, the Fund’s investment may represent a significant portion of
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each underlying Fund’s net assets. For the period ended January 31, 2012, the Fund did not hold 5% or more of any underlying Fund’s net assets.
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| EVALUATION OF ADVISORY AND SUBADVISORY |
| AGREEMENTS BY THE BOARD OF TRUSTEES |
At an in-person meeting on September 21–23, 2011, the Board of Trustees of John Hancock Funds II (the Trust), including all of 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), approved the following new series of the Trust:
Diversified Strategies Fund (the New Portfolio)
This section describes the evaluation by the Board of Trustees of:
(a) an amendment to the advisory agreement between the Trust and John Hancock Investment Management Services, LLC (the Adviser or JHIMS) (the Advisory Agreement) to add the New Portfolio; and
(b) an amendment to the subadvisory agreement between the Adviser and John Hancock Asset Management a division of Manulife Asset Management (US) LLC (the Subadviser) with respect to the New Portfolio (the Subadvisory Agreement).
Evaluation by the Board of Trustees
The Board, including the Independent Trustees, is responsible for selecting the Adviser, approving the Adviser’s selection of subadvisers for each of the portfolios of the Trust (the Funds) and approving the Trust’s advisory and subadvisory (and any sub-subadvisory) agreements, their periodic continuation and any amendments. Consistent with Securities and Exchange Commission rules, the Board regularly evaluates the Trust’s advisory and subadvisory arrangements, including consideration of the factors listed below. The Board may also consider other factors (including conditions and trends prevailing generally in the economy, the securities markets and the industry) and does not treat any single factor as determinative, and each Trustee may attribute different weights to different factors. The Board is furnished with an analysis of its fiduciary obligations in connection with its evaluation and, throughout the evaluation process, the Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel. The factors considered by the Board are:
1. the nature, extent and quality of the services to be provided by the Adviser to the Trust and by the subadvisers to the Funds;
2. the investment performance of the Funds and their subadvisers;
3. the extent to which economies of scale would be realized as a Fund grows and whether fee levels reflect these economies of scale for the benefit of Fund shareholders;
4. the costs of the services to be provided and the profits to be realized by the Adviser and its affiliates (including any subadvisers that are affiliated with the Adviser) from the Adviser’s relationship with the Trust; and
5. comparative services rendered and comparative advisory and subadvisory fee rates.
The Board believes that information relating to all of these factors is relevant to its evaluation of the Trust’s advisory agreement. The Board also takes into account any indirect benefits expected to be derived by the Adviser and its affiliates and the subadvisers and their affiliates from their relationships with the Funds. With respect to its evaluation of subadvisory agreements (including any sub-subadvisory agreements) with subadvisers not affiliated with the Adviser, the Board believes that, in view of the Trust’s manager-of-managers advisory structure, the costs of the services to be provided and the profits to be realized by those subadvisers that are not affiliated with the Adviser from their relationship with the Trust generally are not a material factor in the Board’s consideration of these subadvisory agreements because such fees are paid by the Adviser and not by the Funds and the Board relies on the ability of the Adviser to negotiate the subadvisory fees at arm’s length.
In evaluating subadvisory arrangements, the Board also considers other material business relationships that unaffiliated subadvisers and their affiliates have with the Adviser or its affiliates, including the involvement
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by certain affiliates of certain subadvisers in the distribution of financial products, including shares of the Trust, offered by the Adviser and other affiliates of the Adviser (Material Relationships).
Approval of Advisory and Subadvisory Agreements
At its in-person meeting on September 21–23, 2011, the Board, including all the Independent Trustees, approved the Advisory Agreement and the Subadvisory Agreement with respect to the New Portfolio.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the New Portfolio, the Adviser and the Subadviser, including comparative performance, fee and expense information for a peer group of similar mutual funds, including performance information for relevant benchmark indices and other information provided by the Adviser and the Subadviser regarding the nature, extent and quality of services to be provided by the Adviser and the Subadviser under their respective Agreements. The Board also took into account discussions with management and information provided to the Board in its meetings throughout the year with respect to the services provided by the Adviser and the Subadviser with respect to other funds in the Trust and in John Hancock Variable Insurance Trust, including quarterly performance reports prepared by management containing reviews of investment results. The Board also took into account information with respect to the New Portfolio presented at its June 2011 meeting. The Board noted the affiliation of the Subadviser with JHIMS, noting any potential conflicts of interest.
Throughout the process, the Trustees were afforded the opportunity to ask questions of and request additional information from management. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed Agreements with respect to the New Portfolio and discussed the proposed Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In considering the nature, extent and quality of the services to be provided by the Adviser, the Board took into account their knowledge of JHIMS’s management and the quality of the performance of its duties through Board meetings, discussions and reports during the preceding year and through each Trustee’s history of service to the Trust. The Board considered that JHIMS is responsible for the management of the day-to-day operations of the Funds, including but not limited to, general supervision of and coordination of the services provided by the subadvisers, and is also responsible for monitoring and reviewing the activities of the subadvisers and other third-party service providers. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the Funds’ compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act, and that it also considers the Adviser’s risk management processes.
In approving the Advisory Agreement, and with reference to the factors that it regularly considers when considering approval of advisory and subadvisory agreements as listed above, the Board:
(1) – (a) considered the high value to the Trust of continuing its relationship with JHIMS as the Trust’s adviser, the skills and competency with which JHIMS has in the past managed the Trust’s affairs and its subadvisory relationships, JHIMS’ oversight and monitoring of subadvisers’ investment performance and compliance programs including its timeliness in responding to performance issues and the qualifications of JHIMS’ personnel;
(b) considered JHIMS’ compliance policies and procedures and noted its responsiveness to regulatory changes and mutual fund industry developments;
(c) considered JHIMS’ administrative capabilities, including its ability to supervise the other service providers for the New Portfolio;
(d) considered the financial condition of the Adviser and whether it had the financial wherewithal to provide a high level and quality of services to the New Portfolio; and
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(e) recognized the Adviser’s reputation and experience in serving as an investment adviser to the Trust, and considered 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 JHIMS may reasonably be expected to provide a high quality of services under the Advisory Agreement with respect to the New Portfolio.
(2) – (a) considered the performance of other comparable funds, if any, managed by the Adviser and the Subadviser and the performance of such funds’ respective benchmarks and comparable funds in their peer group; and (b) the performance of other Trust and John Hancock Variable Insurance Trust funds managed by the Adviser and Subadviser;
(3) – (a) with respect to each Fund (except those listed below) and the New Portfolio, considered that the Adviser has agreed to waive its management fee for each of these Funds and the New Portfolio and each of the funds of John Hancock Variable Insurance Trust (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement) and that, at the request of the Board, the Reimbursement rate was increased effective May 31, 2011. The current Reimbursement rate is as follows: The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceed $75 billion but is less than $100 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that equals or exceeds $100 billion. The amount of the Reimbursement shall be calculated daily and allocated among all the Participating Portfolios in proportion to the daily net assets of each Participating Portfolio, and that Reimbursement may be terminated or modified by the Adviser only upon notice to the Trust and approval of the Board of Trustees of the Trust. (The Funds that are not Participating Portfolios as of the date of this report are each of the funds of funds of the Trust and John Hancock Variable Insurance Trust.)
(b) reviewed the Trust’s and New Portfolio’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the New Portfolio contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the New Portfolio and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the New Portfolio to benefit from economies of scale if the assets of the New Portfolio grow; and
(c) The Board also considered the effect of the New Portfolio’s growth in size on its performance and fees. The Board also noted that if the New Portfolio’s assets increase over time, the New Portfolio may realize other economies of scale if assets increase proportionally more than certain other fixed expenses.
(4) – (a) reviewed and considered information presented by JHIMS regarding the anticipated profitability of JHIMS’ relationship with the New Portfolio and whether JHIMS has the financial ability to provide a high level of services to the New Portfolio;
(b) considered that JHIMS also will provide administrative services to the New Portfolio on a cost basis pursuant to an administrative services agreement;
(c) noted that John Hancock Asset Management is an affiliate of the Adviser;
(d) John Hancock Signature Services, LLC and John Hancock Funds, LLC, affiliates of the Adviser, will provide transfer agency services and distribution services to the New Portfolio, respectively;
(e) that JHIMS also will derive reputational and other indirect benefits from providing advisory services to the New Portfolio;
(f) took into account the Reimbursement in place, as well as that the Adviser had entered into an expense limitation agreement with respect to certain of the New Portfolio’s expenses;
(g) noted that the subadvisory fees for the New Portfolio are paid by JHIMS; and
(h) considered that the Adviser should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the New Portfolio and the entrepreneurial risk that it assumes as Adviser.
Based upon its review, the Board concluded that the Adviser and its affiliates’ anticipated level of profitability, if any, from their relationship with the New Portfolio was reasonable and not excessive.
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5 – reviewed comparative information including, among other data, the New Portfolio’s contractual and actual advisory and subadvisory fees and anticipated total expenses as compared to similarly situated investment companies deemed to be comparable to the New Portfolio.
The Board determined that the New Portfolio’s advisory fees are generally within a competitive range of those incurred by other comparable funds. In this regard, 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 Adviser after payment of the subadvisory fee. The Board also noted that JHIMS will be waiving fees and/or reimbursing expenses with respect to the New Portfolio. The Board also noted that the Adviser pays the subadvisory fees of the New Portfolio. The Board also noted management’s discussion of the New Portfolio’s anticipated expenses. The Board also took into account the level and quality of services expected to be provided by JHIMS with respect to the New Portfolio, as well as the other factors considered. The Board concluded that the advisory fees to be paid by the Trust with respect to the New Portfolio were reasonable.
In addition, the Trustees reviewed the advisory fee to be paid to the Adviser and concluded that the advisory fee to be paid to the Adviser is based on services provided that are in addition to, rather than duplicative of, the services provided pursuant to the advisory agreements for the underlying portfolios of the Funds and that the additional services are necessary because of the differences between the investment policies, strategies and techniques of a fund of funds and those of its underlying portfolios.
Additional information relating to the New Portfolio that the Board considered in approving the Advisory Agreement is set forth in Appendix A.
Approval of Subadvisory Agreement
In making its determination with respect to the factors that it considers in considering approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadviser’s business, including current subadvisory services to the Trust (and other funds in the John Hancock family of funds);
(2) the investment performance of other comparable accounts managed by the Subadviser and the investment performance of other Trust and John Hancock Variable Insurance Trust funds managed by the Subadviser; and
(3) the proposed subadvisory fees for the New Portfolio, including any breakpoints, and comparative fee information as set forth in Appendix A.
With respect to the services to be provided by the Subadviser, the Board received information provided to the Board by the Subadviser, as well as considered information presented at prior meetings. The Board considered the Subadviser’s current level of staffing and its overall resources, as well as its compensation program. The Board reviewed the Subadviser’s history and investment experience, as well as information regarding the qualifications, background and responsibilities of the Subadviser’s investment and compliance personnel who would provide services to the New Portfolio. The Board also considered, among other things, the Subadviser’s compliance program and any disciplinary history. The Board also considered the Subadviser’s risk assessment and monitoring process. The Board noted the Subadviser’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 also noted that the CCO and his staff conduct regular, periodic compliance reviews with the Subadviser and present reports to the Independent Trustees regarding the same, which includes evaluating the regulatory compliance systems of the Subadviser and procedures reasonably designed by them to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadviser.
The Board considered the Subadviser’s investment process and philosophy. The Board took into account that the Subadviser’s responsibilities include the development and maintenance of an investment program for the New Portfolio which is consistent with the New Portfolio’s investment objectives, the selection of
| 26 |
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’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadviser has extensive experience and demonstrated skills as a manager, is currently the subadviser to other funds of the Trust and John Hancock Variable Insurance Trust and the Board is generally satisfied with the Subadviser’s management of these funds, and may reasonably be expected to provide a high quality of investment management services and personnel to the New Portfolio;
(2) The proposed subadvisory fees are (i) competitive and within the range of industry norms and (ii) will be paid by JHIMS out of the advisory fees it receives from the New Portfolio, and the Board concluded that the New Portfolio’s subadvisory fees are reasonable; and
(3) The New Portfolio’s subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the New Portfolio in order to permit shareholders to benefit from economies of scale if the assets of the New Portfolio grow.
In addition, the Trustees reviewed the subadvisory fees to be paid to the Subadviser and concluded that the subadvisory fees to be paid to the Subadviser is based on services provided that are in addition to, rather than duplicative of, the services provided pursuant to the subadvisory agreements for the underlying portfolios of the Funds and that the additional services are necessary because of the differences between the investment policies, strategies and techniques of a fund of funds and those of its underlying portfolios.
Additional information relating to the New Portfolio that the Board considered for the New Portfolio is set forth in Appendix A.
| * * * | ||
Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel, the Board, including the Independent Trustees, concluded that approval of the Advisory Agreement and the Subadvisory Agreement with respect to the New Portfolio would be in the best interest of the New Portfolio and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and the Subadvisory Agreement.
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| John Hancock Funds II |
| Appendix A |
| PORTFOLIO | COMPARABLE FUND | |||
| (SUBADVISER) | PERFORMANCE | ESTIMATED FEES AND EXPENSES | ||
| No comparable fund | Estimated advisory fees for the Fund | |||
| Diversified | performance is available. | are lower than the peer group median. | ||
| Strategies | ||||
| (John Hancock | Estimated subadvisory fees for the | |||
| Asset | Fund are lower than the peer group | |||
| Management) | median. | |||
{N0301799; 1}
| 28 |
| More information |
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management Services, LLC |
| James R. Boyle† | |
| Grace K. Fey | Investment subadviser |
| Charles L. Bardelis* | John Hancock Asset Management a division of |
| Peter S. Burgess* | Manulife Asset Management (US) LLC |
| Theron S. Hoffman | |
| Hassell H. McClellan | Principal distributor |
| Steven M. Roberts* | John Hancock Funds, LLC |
| *Member of the Audit Committee | |
| †Non-Independent Trustee | Custodian |
| State Street Bank and Trust Company | |
| Officers | Transfer agent |
| Hugh McHaffie | John Hancock Signature Services, Inc. |
| President | |
| Thomas M. Kinzler | Legal counsel |
| Secretary and Chief Legal Officer | K&L Gates LLP |
| Francis V. Knox, Jr. | |
| Chief Compliance Officer | |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
The Fund’s proxy voting policies and procedures, as well as the Fund’s proxy voting record, if any, for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC's Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| 29 |
John Hancock China Emerging Leaders Fund
| Table of Contents | |
| Your expenses | Page 3 |
| Portfolio summary | Page 4 |
| Portfolio of investments | Page 5 |
| Financial statements | Page 7 |
| Financial highlights | Page 10 |
| Notes to financial statements | Page 13 |
| More information | Page 24 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding your fund expenses
As a shareholder of the Fund, you incur two types of costs:
• Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
• Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund’s actual ongoing operating expenses, and is based on your fund’s actual return. It assumes an account value of $1,000.00 on December 29, 2011, with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 12-29-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,053.00 | $1.72 |
| Class I | 1,000.00 | 1,053.00 | 1.37 |
| Class NAV | 1,000.00 | 1,053.00 | 1.29 |
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 January 31, 2012, 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:
Example
[ My account value $8,600.00 / $1,000.00 = 8.6 ] x $[ “expenses paid” from table ] = My actual expenses
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 August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical Example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-122 | |
| Class A | $1,000.00 | $1,016.10 | $9.12 |
| Class I | 1,000.00 | 1,017.90 | 7.30 |
| Class NAV | 1,000.00 | 1,018.30 | 6.85 |
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 1.80%, 1.44% and 1.35% for Class A, Class I and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 34/366 (to reflect the period).
2 Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
| 3 |
China Emerging Leaders Fund
Portfolio Summary
| Top 10 Holdings (46.0% of Net Assets on 1-31-12)1,2 | |
| China Mobile, Ltd. | 6.4% |
| China Petroleum & Chemical Corp., H Shares | 5.3% |
| PICC Property & Casualty Company, Ltd., H Shares | 5.0% |
| Galaxy Entertainment Group, Ltd. | 4.8% |
| Intime Department Store Group Company, Ltd. | 4.6% |
| Zhuzhou CSR Times Electric Company, Ltd., H Shares | 4.1% |
| China Communications Construction Company, Ltd., H Shares | 4.1% |
| Biosensors International Group, Ltd. | 4.0% |
| Haier Electronics Group Company, Ltd. | 3.9% |
| China Metal Recycling Holdings, Ltd. | 3.8% |
| Country Composition1,3 | |
| China | 59.7% |
| Hong Kong | 22.2% |
| Singapore | 4.0% |
| Bermuda | 2.8% |
| Macau | 2.1% |
| Short-Term Investments and Other | 9.2% |
| Sector Composition1,3 | |
| Consumer Discretionary | 18.9% |
| Industrials | 14.0% |
| Health Care | 11.0% |
| Financials | 10.6% |
| Consumer Staples | 10.0% |
| Energy | 9.2% |
| Materials | 7.2% |
| Telecommunication Services | 6.4% |
| Information Technology | 3.5% |
| Short-Term Investments and Other | 9.2% |
1 As a percentage of net assets on 1-31-12.
2 Cash and cash equivalents not included.
3 Sector investing is subject to greater risks than the market as a whole. Because the Fund may focus on particular sectors of the economy, its performance may depend on the performance of those sectors. International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting. Although they are larger and/or more established than many emerging markets, the markets of China function in many ways as emerging markets and carry the high levels of risk associated with emerging markets.
| 4 |
China Emerging Leaders Fund
As of 1-31-12 (Unaudited)
| Shares | Value | |
| Common Stocks 88.01% | $140,324,510 | |
| (Cost $135,042,325) | ||
| China 59.71% | 95,205,774 | |
| Baoxin Auto Group, Ltd. (I) | 3,000,000 | 3,191,366 |
| China Communications Construction Company, Ltd., H Shares | 7,000,000 | 6,500,895 |
| China COSCO Holdings Company, Ltd., H Shares | 7,000,000 | 3,973,193 |
| China Minsheng Banking Corp., Ltd., H Shares | 6,000,000 | 5,574,963 |
| China Pacific Insurance Group Company, Ltd., H Shares | 1,000,000 | 3,336,844 |
| China Petroleum & Chemical Corp., H Shares | 7,000,000 | 8,404,198 |
| China Qinfa Group, Ltd. (I) | 7,000,000 | 1,519,363 |
| China Yurun Food Group, Ltd. | 3,500,000 | 5,781,570 |
| Hengan International Group Company, Ltd. | 500,000 | 4,467,182 |
| Intime Department Store Group Company, Ltd. | 6,000,000 | 7,266,507 |
| Lenovo Group, Ltd. | 7,000,000 | 5,581,740 |
| PICC Property & Casualty Company, Ltd., H Shares | 6,000,000 | 7,946,122 |
| Sany Heavy Equipment International Holdings Company, Ltd. | 6,000,000 | 5,281,072 |
| Shandong Weigao Group Medical Polymer Company, Ltd., H Shares | 5,000,000 | 4,581,117 |
| Sinopharm Group Company, Ltd., H Shares | 2,500,000 | 5,941,155 |
| Yanzhou Coal Mining Company, Ltd., H Shares | 2,000,000 | 4,771,030 |
| Zhaojin Mining Industry Company, Ltd., H Shares | 2,500,000 | 4,477,939 |
| Zhuzhou CSR Times Electric Company, Ltd., H Shares | 3,000,000 | 6,609,518 |
| Hong Kong 22.15% | 35,316,859 | |
| China Foods, Ltd. | 1,500,000 | 1,184,109 |
| China Metal Recycling Holdings, Ltd. | 5,098,200 | 6,034,533 |
| China Mobile, Ltd. | 1,000,000 | 10,210,336 |
| Galaxy Entertainment Group, Ltd. (I) | 3,500,000 | 7,625,572 |
| Haier Electronics Group Company, Ltd. (I) | 6,000,000 | 6,155,660 |
| Hao Tian Resources Group, Ltd. (I) | 20,000,000 | 1,032,478 |
| Hengdeli Holdings, Ltd. | 5,000,000 | 1,916,736 |
| Hua Han Bio-Pharmaceutical Holdings, Ltd., H Shares | 3,000,000 | 534,152 |
| Ming Fung Jewellery Group, Ltd. (I) | 10,000,000 | 623,283 |
| Macau 2.12% | 3,375,721 | |
| Sands China, Ltd. (I) | 1,000,000 | 3,375,721 |
| Singapore 4.03% | 6,426,156 | |
| Biosensors International Group, Ltd. (I) | 5,000,000 | 6,426,156 |
| Equity Linked Securities 2.78% | $4,432,214 | |
| (Cost $4,400,764) | ||
| Bermuda 2.78% | 4,432,214 | |
| Kweichow Moutai Company, Ltd., Access Product (Credit Lyonnais) (Expiration Date: | ||
| 10-26-15; Strike Price: $0.000001) (I)(S) | 150,000 | 4,432,214 |
| Short-Term Investments 20.09% | $32,025,195 | |
| (Cost $32,025,195) | ||
| Money Market Funds 20.09% | 32,025,195 | |
| State Street Institutional Liquid Reserves Fund, 0.1779% (Y) | 32,025,195 | 32,025,195 |
See notes to financial statements
| 5 |
China Emerging Leaders Fund
As of 1-31-12 (Unaudited)
| Total investments (Cost $171,468,284)† 110.88% | $176,781,919 |
| Other assets and liabilities, net (10.88%) | ($17,353,488) |
| Total net assets 100.00% | $159,428,431 |
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.
(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.
(Y) The rate shown is the annualized seven-day yield as of 1-31-12.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $171,468,284. Net unrealized appreciation aggregated $5,313,635, of which $5,753,830 related to appreciated investment securities and $440,195 related to depreciated investment securities.
The Fund had the following sector composition as of 1-31-12 (as a percentage of total net assets):
| Consumer Discretionary | 18.9% | ||
| Industrials | 14.0% | ||
| Health Care | 11.0% | ||
| Financials | 10.6% | ||
| Consumer Staples | 10.0% | ||
| Energy | 9.2% | ||
| Materials | 7.2% | ||
| Telecommunication Services | 6.4% | ||
| Information Technology | 3.5% | ||
| Short-Term Investments & Other | 9.2% |
See notes to financial statements
| 6 |
China Emerging Leaders Fund
Statement of Assets and Liabilities — January 31, 2012 (Unaudited)
| Assets | ||
| Investments, at value (Cost $171,468,284) | $ | 176,781,919 |
| Receivable for investments sold | 1,207,391 | |
| Receivable for fund shares sold | 29,012 | |
| Interest receivable | 8,307 | |
| Total assets | 178,026,629 | |
| Liabilities | ||
| Payable for investments purchased | 18,572,700 | |
| Payable to affiliates | ||
| Accounting and legal services fees | 1,206 | |
| Transfer agent fees | 30 | |
| Trustees' fees | 76 | |
| Due to adviser | 98 | |
| Other liabilities and accrued expenses | 24,088 | |
| Total liabilities | 18,598,198 | |
| Net assets | ||
| Paid-in capital | $ | 153,653,314 |
| Accumulated net investment loss | (122,540) | |
| Accumulated net realized gain on investments | ||
| and foreign currency transactions | 591,719 | |
| Net unrealized appreciation (depreciation) on | ||
| investments and translation of assets and | ||
| liabilities in foreign currencies | 5,305,938 | |
| Net assets | $ | 159,428,431 |
| 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 ($105,276 ÷ 10,000 shares) | $ | 10.53 |
| Class I ($105,310 ÷ 10,000 shares) | $ | 10.53 |
| Class NAV ($159,217,845 ÷ 15,120,694 shares) | $ | 10.53 |
| Maximum offering price per share | ||
| Class A (net asset value per share ÷ 95%)1 | $ | 11.08 |
1 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
| 7 |
China Emerging Leaders Fund
Statement of Operations — For the Period Ended January 31, 2012 (Unaudited)1
| Investment income | ||
| Interest | $ | 9,316 |
| Expenses | ||
| Investment management fees (Note 4) | 107,678 | |
| Distribution and service fees (Note 4) | 28 | |
| Accounting and legal services fees (Note 4) | 1,273 | |
| Transfer agent fees (Note 4) | 33 | |
| Trustees' fees (Note 4) | 76 | |
| Professional fees | 6,716 | |
| Custodian fees | 10,768 | |
| Registration and filing fees | 5,762 | |
| Other | 987 | |
| Total expenses | 133,321 | |
| Less expense reductions (Note 4) | (1,465) | |
| Net expenses | 131,856 | |
| Net investment loss | (122,540) | |
| Realized and unrealized gain (loss) | ||
| Net realized gain (loss) on | ||
| Investments | 616,397 | |
| Foreign currency transactions | (24,678) | |
| 591,719 | ||
| Change in net unrealized appreciation | ||
| (depreciation) of | ||
| Investments | 5,313,635 | |
| Translation of assets and liabilities in foreign | ||
| currencies | (7,697) | |
| 5,305,938 | ||
| Net realized and unrealized gain | 5,897,657 | |
| Increase in net assets from operations | $ | 5,775,117 |
1 Period from 12-29-11 (commencement of operations) to 1-31-12.
See notes to financial statements
| 8 |
China Emerging Leaders Fund
Statement of Changes in Net Assets
| Period | ||
| ended | ||
| 1/31/121 | ||
| (Unaudited) | ||
| Increase (decrease) in net assets | ||
| From operations | ||
| Net investment loss | $ | (122,540) |
| Net realized gain | 591,719 | |
| Change in net unrealized appreciation | ||
| (depreciation) | 5,305,938 | |
| Increase in net assets resulting from | ||
| operations | 5,775,117 | |
| From Fund share transactions (Note 5) | 153,653,314 | |
| Total increase | 159,428,431 | |
| Net assets | ||
| Beginning of period | — | |
| End of period | $ | 159,428,431 |
| Accumulated net investment loss | $ | (122,540) |
1 Period from 12-29-11 (commencement of operations) to 1-31-12.
See notes to financial statements
| 9 |
China Emerging Leaders Fund
Financial Highlights (For a share outstanding throughout the period)
| Class A Shares | ||
| Period ended | ||
| 1-31-121 | ||
| Per share operating performance | ||
| Net asset value, beginning of period | $ | 10.00 |
| Net investment loss2 | (0.02) | |
| Net realized and unrealized gain on | ||
| investments | 0.55 | |
| Total from investment operations | 0.53 | |
| Net asset value, end of period | $ | 10.53 |
| Total return (%)3 | 5.304,5 | |
| Ratios and supplemental data | ||
| Net assets, end of period (in millions) | $ | — 6 |
| Ratios (as a percentage of average net | ||
| assets): | ||
| Expenses before reductions | 1.897 | |
| Expenses net of fee waivers and credits | 1.807 | |
| Net investment loss | (1.69)7 | |
| Portfolio turnover (%) | 6 | |
1 Period from 12-29-11 (commencement of operations) to 1-31-12. Unaudited.
2 Based on the average daily shares outstanding.
3 Does not reflect the effect of sales charges, if any.
4 Not annualized.
5 Total returns would have been lower had certain expenses not been reduced during the period shown.
6 Less than $500,000.
7 Annualized.
See notes to financial statements
| 10 |
China Emerging Leaders Fund
Financial Highlights (For a share outstanding throughout the period)
| Class I Shares | ||
| Period ended | ||
| 1-31-121 | ||
| Per share operating performance | ||
| Net asset value, beginning of period | $ | 10.00 |
| Net investment loss2 | (0.02) | |
| Net realized and unrealized gain on | ||
| investments | 0.55 | |
| Total from investment operations | 0.53 | |
| Net asset value, end of period | $ | 10.53 |
| Total return (%) | 5.303,4 | |
| Ratios and supplemental data | ||
| Net assets, end of period (in millions) | $ | — 5 |
| Ratios (as a percentage of average net | ||
| assets): | ||
| Expenses before reductions | 1.476 | |
| Expenses net of fee waivers and credits | 1.446 | |
| Net investment loss | (1.33)6 | |
| Portfolio turnover (%) | 6 | |
1 Period from 12-29-11 (commencement of operations) to 1-31-12. Unaudited.
2 Based on the average daily shares outstanding.
3 Total returns would have been lower had certain expenses not been reduced during the period shown.
4 Not annualized.
5 Less than $500,000.
6 Annualized.
See notes to financial statements
| 11 |
China Emerging Leaders Fund
Financial Highlights (For a share outstanding throughout the period)
| Class NAV Shares | ||
| Period ended | ||
| 1-31-121 | ||
| Per share operating performance | ||
| Net asset value, beginning of period | $ | 10.00 |
| Net investment loss2 | (0.02) | |
| Net realized and unrealized gain on | ||
| investments | 0.55 | |
| Total from investment operations | 0.53 | |
| Net asset value, end of period | $ | 10.53 |
| Total return (%) | 5.303,4 | |
| Ratios and supplemental data | ||
| Net assets, end of period (in millions) | $ | 159 |
| Ratios (as a percentage of average net | ||
| assets): | ||
| Expenses before reductions | 1.365 | |
| Expenses net of fee waivers and credits | 1.355 | |
| Net investment loss | (1.25)5 | |
| Portfolio turnover (%) | 6 | |
1 Period from 12-29-11 (commencement of operations) to 1-31-12. Unaudited.
2 Based on the average daily shares outstanding.
3 Total returns would have been lower had certain expenses not been reduced during the period shown.
4 Not annualized.
5 Annualized.
See notes to financial statements
| 12 |
China Emerging Leaders Fund
Notes to Financial Statements (unaudited)
Note 1 — Organization
John Hancock China Emerging Leaders Fund (the Fund) is a series of John Hancock Funds II (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 achieve 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 sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, if any, and transfer agent 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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.
As of January 31, 2012, all investments are categorized as Level 2 under the hierarchy described above, except for short-term investments, which are categorized as Level 1. Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the period ended January 31, 2012, there were no significant transfers into or out of Level 1, Level 2 or Level 3.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. Investments by the Fund in open-end mutual funds 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, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the NYSE. Significant market events that affect the values of
| 13 |
non-U.S. 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 non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
Security transactions and related investment income. Investment security transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Interest income is accrued as earned. 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 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.
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 investing in a single country or in a limited geographic region tend to be riskier than funds that invest more broadly. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Overdrafts. Pursuant to the custodian agreement, the Fund’s custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the custodian for any overdraft, including any costs or expenses associated with the overdraft. The custodian 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.
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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, 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 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.
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 declares and pays dividends and capital gain distributions, if any, at least annually.
| 14 |
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.
New accounting pronouncement. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2, and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
Note 3 - Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 4 – Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser), serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund has an investment management agreement with the Adviser under which the Fund pays a daily management fee to the Adviser equivalent, on an annual basis, to the sum of: a) 1.10% of the first $500,000,000 of the Fund’s average daily net assets, b) 1.05% of the next $500,000,000 of the Fund’s average daily net assets and c) 1.00% of the Fund’s average daily net assets in excess of $1,000,000,000. The Adviser has a subadvisory agreement with Atlantis Investment Management (Hong Kong) Ltd. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended January 31, 2012 were equivalent to a gross annual rate of 1.10% of the Fund’s average daily net assets.
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Portfolios) of the Trust 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 $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that equals or exceeds $100 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 Adviser upon notice to the funds and with the approval of the Board of Trustees.
| 15 |
The Adviser has contractually agreed to waive and/or reimburse operating expenses for Class A and Class I shares, 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. The fee waivers and/or reimbursement are such that the expenses will not exceed 1.80% and 1.44% for Class A and Class I shares, respectively. The fee waivers and/or reimbursements will continue in effect until December 31, 2012, unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at the time.
Additionally, the Adviser has voluntarily agreed to waive and/or reimburse a portion of its management fee in order to limit the Fund’s expenses, 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, advisory fees, 12b-1 fees, transfer agent fees and service fees, state registration fees and printing and postage, to 0.25% of the Fund’s average net assets. This voluntary expense reimbursement will continue in effect until terminated at any time by the Adviser on notice to the Fund.
Accordingly, these expense reductions amounted to $9, $3 and $1,453 for Class A, Class I and Class NAV shares, respectively, for the period ended January 31, 2012.
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred. For the period ended January 31, 2012, the Fund did not recapture any expenses. In addition, there was $1,116 in waived or reimbursed expenses subject to potential recovery through January 1, 2015. Certain reimbursements or waivers are not subject to recapture.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the period ended January 31, 2012 were equivalent to a net annual effective rate of 1.09% of the Fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser 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 period ended January 31, 2012 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
Distribution and service plans. The Fund has a distribution agreement with the Distributor. The Fund has adopted distribution and service plans with respect to Class A 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 0.30% for Class A shares for distribution and service fees, expressed as an annual percentage of average daily net assets.
Sales charges. Class A shares are assessed up-front sales charges. During the period ended January 31, 2012, there were no up-front sales charges assessed 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 Adviser. 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,
| 16 |
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 period ended January 31, 2012 were:
| Class | Distribution and | Transfer agent fees | |
| service fees | |||
| A | $28 | $22 | |
| I | - | 11 | |
| Total | $28 | $33 | |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to each fund based on its average daily net assets.
Note 5 - Fund share transactions
Transactions in Fund shares for the period ended January 31, 2012 were as follows:
| Period ended | ||||||
| 1/31/121 | ||||||
| Shares | Amount | |||||
| Class A shares | ||||||
| Sold | 10,000 | $ | 100,000 | |||
| Net increase | 10,000 | $ | 100,000 | |||
| Class I shares | ||||||
| Sold | 10,000 | $ | 100,000 | |||
| Net increase | 10,000 | $ | 100,000 | |||
| Class NAV shares | ||||||
| Sold | 15,120,694 | $ | 153,453,314 | |||
| Net increase | 15,120,694 | $ | 153,453,314 | |||
| Net increase | 15,140,694 | $ | 153,653,314 | |||
1 Period from 12-29-11 (commencement of operations) to 1-31-12.
Affiliates of the Fund owned 100% of shares of beneficial interest of the Fund on January 31, 2012.
Note 6 - Purchase and sale of securities
Purchases and sales of securities, other than short-term securities, aggregated $145,490,733 and $6,664,041, respectively, for the period ended January 31, 2012.
Note 7 - Investment by affiliated funds
Certain investors in the Fund are affiliated funds and are managed by the Adviser 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 January 31, 2012, the following funds had an affiliate ownership concentration of 5% or more of the Fund’s net assets:
| Affiliated | ||
| Fund | Concentration | |
| John Hancock Lifestyle Balanced Portfolio | 16.9% | |
| John Hancock Lifestyle Growth Portfolio | 16.9% | |
| John Hancock Lifestyle Aggressive Portfolio | 5.2% |
| 17 |
| EVALUATION OF ADVISORY AND SUBADVISORY |
| AGREEMENTS BY THE BOARD OF TRUSTEES |
At an in-person meeting on December 14–16, 2011, the Board of Trustees of John Hancock Funds II (the Trust), including all of 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), approved the following new series of the Trust:
China Emerging Leaders Fund (the New Portfolio)
This section describes the evaluation by the Board of Trustees of:
(a) an amendment to the advisory agreement between the Trust and John Hancock Investment Management Services, LLC (the Adviser or JHIMS) (the Advisory Agreement) to add the New Portfolio; and
(b) the subadvisory agreement between the Adviser and Atlantis Investment Management (Hong Kong) Ltd (the Subadviser) with respect to the New Portfolio (the Subadvisory Agreement).
Evaluation by the Board of Trustees
The Board, including the Independent Trustees, is responsible for selecting the Adviser, approving the Adviser’s selection of subadvisers for each of the portfolios of the Trust (the Funds) and approving the Trust’s advisory and subadvisory (and any sub-subadvisory) agreements, their periodic continuation and any amendments. Consistent with Securities and Exchange Commission rules, the Board regularly evaluates the Trust’s advisory and subadvisory arrangements, including consideration of the factors listed below. The Board may also consider other factors (including conditions and trends prevailing generally in the economy, the securities markets and the industry) and does not treat any single factor as determinative, and each Trustee may attribute different weights to different factors. The Board is furnished with an analysis of its fiduciary obligations in connection with its evaluation and, throughout the evaluation process, the Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel. The factors considered by the Board are:
1. the nature, extent and quality of the services to be provided by the Adviser to the Trust and by the subadvisers to the Funds;
2. the investment performance of the Funds and their subadvisers;
3. the extent to which economies of scale would be realized as a Fund grows and whether fee levels reflect these economies of scale for the benefit of Fund shareholders;
4. the costs of the services to be provided and the profits to be realized by the Adviser and its affiliates (including any subadvisers that are affiliated with the Adviser) from the Adviser’s relationship with the Trust; and
5. comparative services rendered and comparative advisory and subadvisory fee rates.
The Board believes that information relating to all of these factors is relevant to its evaluation of the Trust’s advisory agreement. The Board also takes into account any indirect benefits expected to be derived by the Adviser and its affiliates and the subadvisers and their affiliates from their relationships with the Funds. With respect to its evaluation of subadvisory agreements (including any sub-subadvisory agreements) with subadvisers not affiliated with the Adviser, the Board believes that, in view of the Trust’s manager-of-managers advisory structure, the costs of the services to be provided and the profits to be realized by those subadvisers that are not affiliated with the Adviser from their relationship with the Trust generally are not a material factor in the Board’s consideration of these subadvisory agreements because such fees are paid by the Adviser and not by the Funds and the Board relies on the ability of the Adviser to negotiate the subadvisory fees at arm’s-length.
In evaluating subadvisory arrangements, the Board also considers other material business relationships that unaffiliated subadvisers and their affiliates have with the Adviser or its affiliates, including the involvement
| 18 |
by certain affiliates of certain subadvisers in the distribution of financial products, including shares of the Trust, offered by the Adviser and other affiliates of the Adviser (Material Relationships).
Approval of Advisory and Subadvisory Agreements
At its in-person meeting on December 14–16, 2011, the Board, including all the Independent Trustees, approved the Advisory Agreement and the Subadvisory Agreement with respect to the New Portfolio.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the New Portfolio, the Adviser and the Subadviser, including comparative performance, fee and expense information for a peer group of similar mutual funds, including performance information for relevant benchmark indices and other information provided by the Adviser and the Subadviser regarding the nature, extent and quality of services to be provided by the Adviser and the Subadviser under their respective Agreements. The Board also took into account discussions with management and information provided to the Board in its meetings throughout the year with respect to the services provided by the Adviser with respect to other funds in the Trust and in John Hancock Variable Insurance Trust, including quarterly performance reports prepared by management containing reviews of investment results. The Board also took into account information with respect to the New Portfolio presented at their September 2011 meeting, including a presentation from the Subadviser with respect to the New Portfolio.
Throughout the process, the Trustees were afforded the opportunity to ask questions of and request additional information from management. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed Agreements with respect to the New Portfolio and discussed the proposed Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In considering the nature, extent and quality of the services to be provided by the Adviser, the Board took into account their knowledge of JHIMS’s management and the quality of the performance of its duties through Board meetings, discussions and reports during the preceding year and through each Trustee’s history of service to the Trust. The Board considered that JHIMS is responsible for the management of the day-to-day operations of the Funds, including but not limited to, general supervision of and coordination of the services provided by the subadvisers, and is also responsible for monitoring and reviewing the activities of the subadvisers and other third-party service providers. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the Funds’ compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act, and that it also considers the Adviser’s risk management processes.
In approving the Advisory Agreement, and with reference to the factors that it regularly considers when considering approval of advisory and subadvisory agreements as listed above, the Board:
(1) – (a) considered the high value to the Trust of continuing its relationship with JHIMS as the Trust’s adviser, the skills and competency with which JHIMS has in the past managed the Trust’s affairs and its subadvisory relationships, JHIMS’ oversight and monitoring of subadvisers’ investment performance and compliance programs including its timeliness in responding to performance issues and the qualifications of JHIMS’ personnel;
(b) considered JHIMS’ compliance policies and procedures and noted its responsiveness to regulatory changes and mutual fund industry developments;
(c) considered JHIMS’ administrative capabilities, including its ability to supervise the other service providers for the New Portfolio;
(d) considered the financial condition of the Adviser and whether it had the financial wherewithal to provide a high level and quality of services to the New Portfolio; and
| 19 |
(e) recognized the Adviser’s reputation and experience in serving as an investment adviser to the Trust, and considered 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 JHIMS may reasonably be expected to provide a high quality of services under the Advisory Agreement with respect to the New Portfolio.
(2) – (a) with respect to each Fund (except those listed below) and the New Portfolio, considered that the Adviser has agreed to waive its management fee for each of these Funds and the New Portfolio and each of the funds of John Hancock Variable Insurance Trust (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement) and that, at the request of the Board, the Reimbursement rate was increased effective May 31, 2011. The current Reimbursement rate is as follows: The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceed $75 billion but is less than $100 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that equals or exceeds $100 billion. The amount of the Reimbursement shall be calculated daily and allocated among all the Participating Portfolios in proportion to the daily net assets of each Participating Portfolio, and that Reimbursement may be terminated or modified by the Adviser only upon notice to the Trust and approval of the Board of Trustees of the Trust. (The Funds that are not Participating Portfolios as of the date of this report are each of the funds of funds of the Trust and John Hancock Variable Insurance Trust.)
(b) reviewed the Trust’s and New Portfolio’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the New Portfolio contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the New Portfolio and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the New Portfolio to benefit from economies of scale if the assets of the New Portfolio grow; and
(c) The Board also considered the effect of the New Portfolio’s growth in size on its performance and fees. The Board also noted that if the New Portfolio’s assets increase over time, the New Portfolio may realize other economies of scale if assets increase proportionally more than certain other fixed expenses.
(3) – (a) reviewed and considered information presented by JHIMS regarding the anticipated profitability of JHIMS’ relationship with the New Portfolio and whether JHIMS has the financial ability to provide a high level of services to the New Portfolio;
(b) considered that JHIMS also will provide administrative services to the New Portfolio on a cost basis pursuant to an administrative services agreement;
(c) John Hancock Signature Services, LLC and John Hancock Funds, LLC, affiliates of the Adviser, will provide transfer agency services and distribution services to the New Portfolio, respectively;
(d) that JHIMS also will derive reputational and other indirect benefits from providing advisory services to the New Portfolio;
(e) noted that the subadvisory fees for the New Portfolio are paid by JHIMS and are negotiated at arm’s length;
(f) took into account the Reimbursement in place, as well as that the Adviser had entered into an expense limitation agreement with respect to certain of the New Portfolio’s expenses; and
(g) considered that the Adviser should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the New Portfolio and the entrepreneurial risk that it assumes as Adviser.
| 20 |
Based upon its review, the Board concluded that the Adviser and its affiliates’ anticipated level of profitability, if any, from their relationship with the New Portfolio was reasonable and not excessive.
(4) – reviewed comparative information including, among other data, the New Portfolio’s contractual and actual advisory and subadvisory fees and anticipated total expenses as compared to similarly situated investment companies deemed to be comparable to the New Portfolio.
The Board determined that the New Portfolio’s advisory fees are generally within a competitive range of those incurred by other comparable funds. In this regard, 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 Adviser after payment of the subadvisory fee. The Board also noted that JHIMS will be waiving fees and/or reimbursing expenses with respect to the New Portfolio. The Board also noted that the Adviser pays the subadvisory fees of the New Portfolio, and that such fees are negotiated at arm’s length with respect to the Subadviser. The Board also noted management’s discussion of the New Portfolio’s anticipated expenses. The Board also took into account the level and quality of services expected to be provided by JHIMS with respect to the New Portfolio, as well as the other factors considered. The Board concluded that the advisory fees to be paid by the Trust with respect to the New Portfolio were reasonable.
Additional information relating to the New Portfolio that the Board considered in approving the Advisory Agreement is set forth in Appendix A.
Approval of Subadvisory Agreement
In making its determination with respect to the factors that it considers in considering approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadviser’s business;
(2) the investment performance of another comparable account managed by the Subadviser; and
(3) the proposed subadvisory fees for the New Portfolio, including any breakpoints, and comparative fee information as set forth in Appendix A.
With respect to the services to be provided by the Subadviser, the Board received information provided to the Board by the Subadviser, as well as considered information presented at prior meetings. The Board considered the Subadviser’s current level of staffing and its overall resources, as well as its compensation program. The Board reviewed the Subadviser’s history and investment experience, as well as information regarding the qualifications, background and responsibilities of the Subadviser’s investment and compliance personnel who would provide services to the New Portfolio. The Board also considered, among other things, the Subadviser’s compliance program and any disciplinary history. The Board also considered the Subadviser’s risk assessment and monitoring process. The Board noted the Subadviser’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 also noted that the CCO and his staff conducted compliance reviews with the Subadviser, which included evaluating the regulatory compliance systems of the Subadviser and procedures reasonably designed by them to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadviser.
The Board considered the Subadviser’s investment process and philosophy. The Board took into account that the Subadviser’s responsibilities include the development and maintenance of an investment program for the New Portfolio which is consistent with the New Portfolio’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 any Material Relationships with respect to the Subadviser, which include arrangements in which unaffiliated subadvisers or their affiliates provide advisory, distribution or management services in connection with financial products sponsored by the
| 21 |
Trust’s adviser or its affiliates, and may include other registered investment companies, a 529 education savings plan, managed separate accounts and exempt group annuity contracts sold to qualified plans. The Board also received information and took into account any other potential conflicts of interests the Adviser might have in connection with the Subadvisory Agreement.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadviser’s investment personnel have extensive experience and demonstrated skills as a manager and may reasonably be expected to provide a high quality of investment management services and personnel to the New Portfolio;
(2) The proposed subadvisory fees are (i) competitive and within the range of industry norms and (ii) will be paid by JHIMS out of the advisory fees it receives from the New Portfolio and are a product of arm’s length negotiation between the Adviser and the Subadviser; and the Board concluded that the New Portfolio’s subadvisory fees are reasonable; and
(3) The New Portfolio’s subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the New Portfolio in order to permit shareholders to benefit from economies of scale if the assets of the New Portfolio grow.
Additional information relating to the New Portfolio that the Board considered for the New Portfolio is set forth in Appendix A.
| * * * | ||
Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel, the Board, including the Independent Trustees, concluded that approval of the Advisory Agreement and the Subadvisory Agreement with respect to the New Portfolio would be in the best interest of the New Portfolio and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and the Subadvisory Agreement.
| 22 |
| John Hancock Funds II |
| Appendix A |
| PORTFOLIO | COMPARABLE FUND | |||
| (SUBADVISER) | PERFORMANCE | ESTIMATED FEES AND EXPENSES | ||
| A comparable fund managed by | Estimated advisory fees for the Fund | |||
| the Subadviser in a similar | are equal to the peer group median. | |||
| manner to the Fund | ||||
| China Emerging | outperformed its benchmark | Estimated subadvisory fees for the | ||
| Leaders Fund | and peer group average for the | Fund are slightly higher than the peer | ||
| one-, three- and five- year | group median. | |||
| (Atlantis) | periods ended June 30, 2011. | |||
| Estimated net total expenses for the | ||||
| Fund are lower than the peer group | ||||
| median. | ||||
| 23 |
More information
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management Services, LLC |
| James R. Boyle† | |
| Charles L. Bardelis* | Investment subadviser |
| Peter S. Burgess* | Atlantis Investment Management (Hong Kong) Ltd. |
| Grace K. Fey | |
| Theron S. Hoffman | Principal distributor |
| Hassell H. McClellan | John Hancock Funds, LLC |
| Steven M. Roberts* | |
| Custodian | |
| State Street Bank and Trust Company | |
| Officers | |
| Hugh McHaffie | Transfer agent |
| President | John Hancock Signature Services, Inc. |
| Thomas M. Kinzler | Legal counsel |
| Secretary and Chief Legal Officer | K&L Gates LLP |
| Francis V. Knox, Jr. | |
| Chief Compliance Officer | |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
| *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, if any, for the most recent twelve-month period ended June 30, are available free of charge on the Securities and Exchange Commission (SEC) Web site at www.sec.gov or on our Web site.
The Fund’s complete list of portfolio holdings, for the first and third fiscal quarters, is filed with the SEC on Form N-Q. The Fund’s Form N-Q is available on our Web site and the SEC’s Web site, www.sec.gov, and can be reviewed and copied (for a fee) at the SEC’s Public Reference Room in Washington, DC. Call 1-800-SEC-0330 to receive information on the operation of the SEC's Public Reference Room.
We make this information on your fund, as well as monthly portfolio holdings, and other fund details available on our Web site www.jhfunds.com or by calling 1-800-225-5291.
| You can also contact us: | ||
| 1-800-225-5291 | Regular mail: | Express mail: |
| jhfunds.com | John Hancock Signature Services, Inc. | John Hancock Signature Services, Inc. |
| P.O. Box 55913 | Mutual Fund Image Operations | |
| Boston, MA 02205-5913 | 30 Dan Road | |
| Canton, MA 02021 |
| 24 |
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
■ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses including management fees, distribution and service fees (if applicable), and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about 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 December 19, 2011 with the same investment held until January 31, 2012.
| Account value | Ending value | Expenses paid during | |
| on 12-19-11 | on 1-31-12 | period ended 1-31-121 | |
| Class A | $1,000.00 | $1,045.00 | $2.40 |
| Class I | 1,000.00 | 1,045.00 | 1.95 |
| Class NAV | 1,000.00 | 1,045.00 | 1.78 |
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 January 31, 2012, 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:
| Semiannual report | Global Absolute Return Strategies Fund 1 | |
Your expenses
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 August 1, 2011, with the same investment held until January 31, 2012. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
| Account value | Ending value | Expenses paid during | |
| on 8-1-11 | on 1-31-12 | period ended 1-31-122 | |
| Class A | $1,000.00 | $1,015.30 | $9.88 |
| Class I | 1,000.00 | 1,017.10 | 8.06 |
| Class NAV | 1,000.00 | 1,017.80 | 7.35 |
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 1.95%, 1.59% and 1.45% for Class A, Class I and Class NAV shares, respectively, multiplied by the average account value over the period, multiplied by 44/366 (to reflect the period).
2 Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
| 2 Global Absolute Return Strategies Fund | Semiannual report | |
| Corporate Bonds | 26.2% |
| United States | 10.3% |
| France | 3.1% |
| United Kingdom | 2.9% |
| Netherlands | 2.4% |
| Luxembourg | 0.9% |
| Spain | 0.8% |
| Sweden | 0.8% |
| Italy | 0.7% |
| Germany | 0.7% |
| Ireland | 0.7% |
| Other countries | 2.9% |
| Equities | 23.0% |
| United States | 9.4% |
| Russia | 3.1% |
| United Kingdom | 2.3% |
| Germany | 1.1% |
| France | 0.8% |
| Japan | 0.8% |
| Switzerland | 0.7% |
| Australia | 0.6% |
| Sweden | 0.6% |
| Other countries | 3.6% |
| U.S. Government | 17.8% |
| Treasury Inflation | |
| Protected Securities | 17.8% |
| Foreign Government Obligations | 6.3% |
| Mexico | 5.1% |
| Germany | 0.8% |
| Other countries | 0.4% |
| Purchased Options | 2.8% |
| Short-Term Investments & Other | 23.9% |
| Time deposits | 18.0% |
| Repurchase agreement | 2.9% |
| Derivatives | –3.2% |
| Other assets & liabilities | 6.2% |
As a percentage of net assets on 1-31-12.
Absolute return funds are not designed to outperform stocks and bonds in strong markets and there is no guarantee of positive returns. They employ certain techniques which are intended to reduce risk and volatility in the portfolio and provide protection against a decline in the Fund’s assets. However, there is no guarantee that any investment strategy will be successful or that the Fund’s objectives will be achieved. The use of hedging and derivatives transactions could produce disproportionate gains or losses and may increase volatility and costs.
Currency transactions are impacted by fluctuations in exchange rates, which may adversely affect the U.S. dollar value of a fund’s investments. Foreign investing, especially in emerging markets, has additional risks such as currency and market volatility and political and social instability.
| Semiannual report | Global Absolute Return Strategies Fund 3 | |
Fund’s investments
As of 1-31-12 (unaudited)
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| Corporate Bonds 26.21% | $54,053,806 | ||||
| (Cost $52,246,211) | |||||
| Australia 0.39% | 801,026 | ||||
| Australia & New Zealand Banking Group, Ltd. | |||||
| (EUR) (D) | 3.750 | 03-10-17 | 200,000 | 270,330 | |
| FMG Resources August 2006 Pty, Ltd. (S) | 8.250 | 11-01-19 | $100,000 | 107,250 | |
| Santos Finance, Ltd. (8.250% to 9-22-17, then | |||||
| 3 month EURIBOR + 6.851%) (EUR) (D) | 8.250 | 09-22-70 | 50,000 | 63,440 | |
| Westpac Banking Corp. (EUR) (D) | 4.250 | 09-22-16 | 260,000 | 360,006 | |
| Austria 0.06% | 115,627 | ||||
| VERBUND International Finance GmbH | |||||
| (EUR) (D) | 4.750 | 07-16-19 | 80,000 | 115,627 | |
| Belgium 0.16% | 325,652 | ||||
| Anheuser-Busch InBev NV (EUR) (D) | 4.000 | 06-02-21 | 120,000 | 167,632 | |
| Anheuser-Busch InBev NV (EUR) (D) | 6.570 | 02-27-14 | 110,000 | 158,020 | |
| Brazil 0.18% | 370,397 | ||||
| OGX Petroleo e Gas Participacoes SA (S) | 8.500 | 06-01-18 | 200,000 | 206,600 | |
| Vale SA (EUR) (D) | 4.375 | 03-24-18 | 120,000 | 163,797 | |
| Canada 0.32% | 652,250 | ||||
| Air Canada (S) | 9.250 | 08-01-15 | 200,000 | 190,500 | |
| Bombardier, Inc. (S) | 7.750 | 03-15-20 | 75,000 | 85,125 | |
| Cascades, Inc. | 7.875 | 01-15-20 | 100,000 | 102,750 | |
| Mercer International, Inc. | 9.500 | 12-01-17 | 50,000 | 51,875 | |
| NOVA Chemicals Corp. | 8.375 | 11-01-16 | 200,000 | 222,000 | |
| Cayman Islands 0.20% | 409,995 | ||||
| Hutchison Whampoa Finance 09, Ltd. | |||||
| (EUR) (D) | 4.750 | 11-14-16 | 100,000 | 139,216 | |
| Thames Water Utilities Cayman Finance, Ltd. | |||||
| (EUR) (D) | 3.250 | 11-09-16 | 100,000 | 135,396 | |
| UPCB Finance, Ltd. (EUR) (D) | 7.625 | 01-15-20 | 100,000 | 135,383 | |
| Czech Republic 0.12% | 250,427 | ||||
| CEZ AS (EUR) (D) | 4.500 | 06-29-20 | 100,000 | 136,220 | |
| CEZ AS (EUR) (D) | 6.000 | 07-18-14 | 80,000 | 114,207 | |
| Denmark 0.39% | 795,124 | ||||
| Danske Bank A/S (EUR) (D) | 4.750 | 06-04-14 | 150,000 | 206,771 | |
| Danske Bank A/S (4.100% to 3-16-18, then 3 | |||||
| month EURIBOR + 1.810%) (EUR) (D) | 4.100 | 03-16-18 | 70,000 | 87,009 | |
| 4 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| Denmark (continued) | |||||
| DONG Energy A/S (EUR) (D) | 4.875 | 12-16-21 | 120,000 | $173,888 | |
| ISS A/S (EUR) (D) | 8.875 | 05-15-16 | 100,000 | 131,459 | |
| TDC A/S (EUR) (D) | 4.375 | 02-23-18 | 140,000 | 195,997 | |
| Finland 0.07% | 139,945 | ||||
| Fortum Oyj (EUR) (D) | 4.000 | 05-24-21 | 100,000 | 139,945 | |
| France 3.14% | 6,479,810 | ||||
| Alstom SA (EUR) (D) | 3.875 | 03-02-16 | 100,000 | 132,924 | |
| Alstom SA (EUR) (D) | 4.000 | 09-23-14 | 100,000 | 135,508 | |
| Areva SA (EUR) (D) | 4.625 | 10-05-17 | 100,000 | 123,654 | |
| Autoroutes du Sud de la France SA (EUR) (D) | 4.000 | 09-24-18 | 100,000 | 134,579 | |
| AXA SA (EUR) (D) | 4.500 | 01-23-15 | 50,000 | 69,157 | |
| AXA SA (5.250% to 4-16-20, then 3 month | |||||
| EURIBOR + 3.050%) (EUR) (D) | 5.250 | 04-16-40 | 150,000 | 157,088 | |
| BNP Paribas SA (EUR) (D) | 3.500 | 03-07-16 | 100,000 | 135,062 | |
| BNP Paribas SA (4.730% to 4-12-16, then | |||||
| 3 month EURIBOR + 1.690%) (EUR) (D)(Q) | 4.730 | 04-12-16 | 100,000 | 102,030 | |
| BNP Paribas SA (8.667% to 9-11-13, then | |||||
| 3 month EURIBOR + 4.050%) (EUR) (D)(Q) | 8.667 | 09-11-13 | 100,000 | 128,856 | |
| Bouygues SA (EUR) (D) | 3.641 | 10-29-19 | 100,000 | 129,918 | |
| Bouygues SA (EUR) (D) | 4.375 | 10-29-14 | 60,000 | 82,801 | |
| Casino Guichard Perrachon SA (EUR) (D) | 4.472 | 04-04-16 | 100,000 | 135,501 | |
| Casino Guichard Perrachon SA (EUR) (D) | 6.375 | 04-04-13 | 150,000 | 204,609 | |
| Cie de Saint-Gobain (EUR) (D) | 4.500 | 09-30-19 | 100,000 | 134,014 | |
| Cie de Saint-Gobain (EUR) (D) | 8.250 | 07-28-14 | 100,000 | 148,459 | |
| Cie Generale de Geophysique-Veritas | 9.500 | 05-15-16 | $100,000 | 108,750 | |
| Credit Agricole SA (EUR) (D) | 5.971 | 02-01-18 | 100,000 | 129,443 | |
| EDF SA (EUR) (D) | 3.875 | 01-18-22 | 100,000 | 133,107 | |
| Eutelsat SA (EUR) (D) | 5.000 | 01-14-19 | 100,000 | 140,552 | |
| France Telecom SA (EUR) (D) | 3.875 | 04-09-20 | 100,000 | 137,101 | |
| France Telecom SA (EUR) (D) | 5.000 | 01-22-14 | 100,000 | 139,084 | |
| GDF Suez (EUR) (D) | 3.500 | 10-18-22 | 200,000 | 266,484 | |
| HSBC Holdings PLC (EUR) (D) | 4.875 | 01-15-14 | 200,000 | 275,557 | |
| Lafarge SA (EUR) (D) | 6.625 | 11-29-18 | 50,000 | 63,098 | |
| Lafarge SA (EUR) (D) | 8.875 | 05-27-14 | 100,000 | 143,558 | |
| Legrand SA (EUR) (D) | 4.375 | 03-21-18 | 100,000 | 134,724 | |
| Pernod-Ricard SA (EUR) (D) | 7.000 | 01-15-15 | 150,000 | 218,852 | |
| PPR (EUR) (D) | 3.750 | 04-08-15 | 27,000 | 36,109 | |
| PPR (EUR) (D) | 8.625 | 04-03-14 | 120,000 | 176,792 | |
| RCI Banque SA (EUR) (D) | 4.000 | 12-02-13 | 110,000 | 146,424 | |
| RCI Banque SA (EUR) (D) | 5.625 | 03-13-15 | 41,000 | 55,804 | |
| RCI Banque SA (EUR) (D) | 5.625 | 10-05-15 | 80,000 | 109,013 | |
| RTE EDF Transport SA (EUR) (D) | 4.125 | 02-03-21 | 200,000 | 274,486 | |
| Societe Fonciere Lyonnaise SA (EUR) (D) | 4.625 | 05-25-16 | 100,000 | 126,070 | |
| Societe Generale SA | 2.500 | 01-15-14 | 110,000 | 107,022 | |
| Societe Generale SA (EUR) (D) | 4.750 | 03-02-21 | 100,000 | 133,173 | |
| Societe Generale SA (9.375% to 9-4-19, then | |||||
| 3 month EURIBOR + 8.901%) (EUR) (D)(Q) | 9.375 | 09-04-19 | 100,000 | 115,331 | |
| SPCM SA (EUR) (D) | 8.250 | 06-15-17 | 50,000 | 67,692 | |
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 5 | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| France (continued) | |||||
| Suez Environnement SA (EUR) (D) | 6.250 | 04-08-19 | 100,000 | $158,048 | |
| Total Infrastructures Gaz France SA (EUR) (D) | 4.339 | 07-07-21 | 100,000 | 139,899 | |
| Unibail-Rodamco SE (EUR) (D) | 3.875 | 12-13-17 | 110,000 | 150,001 | |
| Valeo SA (EUR) (D) | 3.750 | 06-24-13 | 90,000 | 119,140 | |
| Valeo SA (EUR) (D) | 5.750 | 01-19-17 | 100,000 | 137,740 | |
| Veolia Environnement SA (EUR) (D) | 6.750 | 04-24-19 | 200,000 | 312,815 | |
| Vivendi SA (EUR) (D) | 3.875 | 11-30-15 | 100,000 | 135,549 | |
| Vivendi SA (EUR) (D) | 4.125 | 07-18-17 | 100,000 | 134,232 | |
| Germany 0.69% | 1,425,195 | ||||
| Deutsche Telekom International Finance BV | |||||
| (EUR) (D) | 4.250 | 07-13-22 | 100,000 | 137,541 | |
| Deutsche Telekom International Finance BV | |||||
| (EUR) (D) | 5.750 | 04-14-15 | 100,000 | 144,946 | |
| Evonik Industries AG (EUR) (D) | 7.000 | 10-14-14 | 90,000 | 130,852 | |
| Henkel AG & Company KGaA (5.375% to | |||||
| 11-25-15, then 3 month EURIBOR + 2.850%) | |||||
| (EUR) (D) | 5.375 | 11-25-15 | 100,000 | 133,421 | |
| Kabel BW Musketeer GmbH (EUR) (D) | 9.500 | 03-15-21 | 100,000 | 136,037 | |
| Metro AG (EUR) (D) | 7.625 | 03-05-15 | 80,000 | 119,146 | |
| ThyssenKrupp AG (EUR) (D) | 8.000 | 06-18-14 | 100,000 | 144,931 | |
| Unitymedia GmbH (EUR) (D) | 9.625 | 12-01-19 | 100,000 | 138,980 | |
| Unitymedia Hessen GmbH & Company KG | |||||
| (EUR) (D) | 8.125 | 12-01-17 | 100,000 | 138,653 | |
| Volkswagen Leasing GmbH (EUR) (D) | 2.750 | 07-13-15 | 150,000 | 200,688 | |
| Greece 0.02% | 49,500 | ||||
| Navios Maritime Holdings, Inc. | 8.875 | 11-01-17 | $50,000 | 49,500 | |
| Guernsey Channel Islands 0.05% | 99,743 | ||||
| Credit Suisse Group Finance Guernsey, Ltd. | |||||
| (3.625% to 1-23-13, then 3 month | |||||
| EURIBOR + 0.870%) (EUR) (D) | 3.625 | 01-23-18 | 80,000 | 99,743 | |
| Ireland 0.68% | 1,402,597 | ||||
| Ardagh Glass Finance PLC (EUR) (D) | 9.250 | 07-01-16 | 100,000 | 140,615 | |
| Caterpillar International Finance, Ltd. | |||||
| (EUR) (D) | 2.750 | 06-06-14 | 100,000 | 134,525 | |
| CRH Finance, Ltd. (EUR) (D) | 7.375 | 05-28-14 | 110,000 | 157,416 | |
| GE Capital European Funding (EUR) (D) | 4.250 | 02-06-14 | 130,000 | 178,056 | |
| GE Capital European Funding (EUR) (D) | 4.625 | 02-22-27 | 100,000 | 129,695 | |
| GE Capital European Funding (EUR) (D) | 5.375 | 01-16-18 | 270,000 | 394,360 | |
| Intesa Sanpaolo Bank Ireland PLC (EUR) (D) | 4.000 | 08-08-13 | 100,000 | 130,585 | |
| Smurfit Kappa Acquisitions (EUR) (D) | 7.750 | 11-15-19 | 100,000 | 137,345 | |
| Italy 0.73% | 1,504,284 | ||||
| Atlantia SpA (EUR) (D) | 4.375 | 09-16-25 | 70,000 | 81,535 | |
| Atlantia SpA (EUR) (D) | 5.000 | 06-09-14 | 100,000 | 135,626 | |
| Banco Popolare SC (EUR) (D) | 4.000 | 04-06-13 | 100,000 | 128,127 | |
| Eni SpA (EUR) (D) | 4.250 | 02-03-20 | 143,000 | 189,589 | |
| Eni SpA (EUR) (D) | 5.875 | 01-20-14 | 150,000 | 209,403 | |
| Intesa Sanpaolo SpA (EUR) (D) | 3.750 | 11-23-16 | 100,000 | 124,957 | |
| 6 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| Italy (continued) | |||||
| Intesa Sanpaolo SpA (EUR) (D) | 5.375 | 12-19-13 | 100,000 | $134,102 | |
| Intesa Sanpaolo SpA (3.750% to 3-2-15, | |||||
| then 3 month EURIBOR + 0.890%) (EUR) (D) | 3.750 | 03-02-20 | 150,000 | 149,292 | |
| Telecom Italia SpA (EUR) (D) | 4.750 | 05-19-14 | 150,000 | 199,043 | |
| UniCredit SpA (EUR) (D) | 5.250 | 04-30-23 | 120,000 | 152,610 | |
| Jersey, C.I. 0.37% | 771,418 | ||||
| ASIF III Jersey, Ltd. (EUR) (D) | 4.750 | 09-11-13 | 150,000 | 197,935 | |
| BAA Funding, Ltd. (EUR) (D) | 4.125 | 10-12-16 | 100,000 | 133,902 | |
| BAA Funding, Ltd. (EUR) (D) | 4.600 | 09-30-14 | 100,000 | 136,504 | |
| HSBC Capital Funding LP (5.369% to 3-24-14, | |||||
| then 3 month EURIBOR + 2.000%) (EUR) (D)(Q) | 5.369 | 03-24-14 | 120,000 | 143,624 | |
| UBS AG (4.250% to 9-16-14, then 3 month | |||||
| EURIBOR + 1.260%) (EUR) (D) | 4.500 | 09-16-19 | 130,000 | 159,453 | |
| Luxembourg 0.87% | 1,791,490 | ||||
| ArcelorMittal (EUR) (D) | 8.250 | 06-03-13 | 80,000 | 111,854 | |
| Codere Finance Luxembourg SA (EUR) (D) | 8.250 | 06-15-15 | 50,000 | 65,075 | |
| ConvaTec Healthcare E SA (EUR) (D) | 7.375 | 12-15-17 | 100,000 | 134,075 | |
| Expro Finance Luxembourg SCA (S) | 8.500 | 12-15-16 | $125,000 | 113,438 | |
| Fiat Industrial Finance Europe SA (EUR) (D) | 5.250 | 03-11-15 | 100,000 | 129,496 | |
| Fiat Industrial Finance Europe SA (EUR) (D) | 6.250 | 03-09-18 | 100,000 | 125,573 | |
| Finmeccanica Finance SA (EUR) (D) | 8.125 | 12-03-13 | 80,000 | 109,520 | |
| Intelsat Luxembourg SA | 11.250 | 02-04-17 | 350,000 | 353,500 | |
| Michelin Luxembourg SCS (EUR) (D) | 8.625 | 04-24-14 | 100,000 | 148,928 | |
| Telecom Italia Finance SA (EUR) (D) | 7.750 | 01-24-33 | 50,000 | 63,312 | |
| Wind Acquisition Finance SA (EUR) (D) | 7.375 | 02-15-18 | 200,000 | 238,719 | |
| Wind Acquisition Finance SA (S) | 11.750 | 07-15-17 | 200,000 | 198,000 | |
| Mexico 0.15% | 314,558 | ||||
| America Movil SAB de CV (EUR) (D) | 3.750 | 06-28-17 | 150,000 | 207,058 | |
| Kansas City Southern de Mexico SA de CV | 6.125 | 06-15-21 | 100,000 | 107,500 | |
| Netherlands 2.38% | 4,906,997 | ||||
| ABN Amro Bank NV (EUR) (D) | 3.625 | 10-06-17 | 60,000 | 78,745 | |
| ABN Amro Bank NV (EUR) (D) | 6.375 | 04-27-21 | 110,000 | 145,756 | |
| Allianz Finance II BV (EUR) (D) | 4.000 | 11-23-16 | 50,000 | 70,660 | |
| Allianz Finance II BV (5.750% to 7-8-21, then | |||||
| 3 month EURIBOR + 2.349%) (EUR) (D) | 5.750 | 07-08-41 | 400,000 | 479,584 | |
| BMW Finance NV (EUR) (D) | 4.000 | 09-17-14 | 130,000 | 179,603 | |
| Conti-Gummi Finance BV (EUR) (D) | 6.500 | 01-15-16 | 80,000 | 108,830 | |
| Conti-Gummi Finance BV (EUR) (D) | 7.500 | 09-15-17 | 100,000 | 136,037 | |
| Cooperatieve Centrale Raiffeisen- | |||||
| Boerenleenbank BA (EUR) (D) | 3.500 | 10-17-18 | 250,000 | 331,895 | |
| Cooperatieve Centrale Raiffeisen- | |||||
| Boerenleenbank BA (EUR) (D) | 4.375 | 01-22-14 | 150,000 | 206,204 | |
| E.ON International Finance BV (EUR) (D) | 5.750 | 05-07-20 | 240,000 | 381,678 | |
| EADS Finance BV (EUR) (D) | 4.625 | 08-12-16 | 80,000 | 115,430 | |
| Enel Finance International NV (EUR) (D) | 4.625 | 06-24-15 | 300,000 | 405,369 | |
| Fortis Bank Nederland NV (EUR) (D) | 4.625 | 07-09-14 | 130,000 | 178,031 | |
| HeidelbergCement Finance BV (EUR) (D) | 8.000 | 01-31-17 | 100,000 | 141,269 | |
| ING Bank NV (EUR) (D) | 3.375 | 03-03-15 | 220,000 | 291,831 | |
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 7 | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| Netherlands (continued) | |||||
| ING Bank NV (EUR) (D) | 4.875 | 01-18-21 | 100,000 | $138,447 | |
| ING Bank NV (4.625% to 3-15-14, then | |||||
| 3 month EURIBOR + 1.440%) (EUR) (D) | 4.625 | 03-15-19 | 80,000 | 94,180 | |
| KBC Internationale Financieringsmaatschappij | |||||
| NV (EUR) (D) | 4.500 | 09-17-14 | 150,000 | 197,232 | |
| Koninklijke KPN NV (EUR) (D) | 4.750 | 05-29-14 | 100,000 | 138,605 | |
| Koninklijke KPN NV (EUR) (D) | 5.625 | 09-30-24 | 80,000 | 115,475 | |
| Linde Finance BV (6.250% to 9-10-13, then | |||||
| 3 month EURIBOR + 3.200%) (EUR) (D) | 7.375 | 07-14-66 | 110,000 | 160,071 | |
| New World Resources NV (EUR) (D) | 7.875 | 05-01-18 | 50,000 | 64,094 | |
| NXP BV (S) | 9.750 | 08-01-18 | $125,000 | 139,688 | |
| Repsol International Finance BV (EUR) (D) | 4.250 | 02-12-16 | 100,000 | 134,827 | |
| Telefonica Europe BV (EUR) (D) | 5.875 | 02-14-33 | 50,000 | 64,853 | |
| Volkswagen International Finance NV (EUR) (D) | 2.125 | 01-19-15 | 123,000 | 162,527 | |
| Volkswagen International Finance NV (EUR) (D) | 4.875 | 05-22-13 | 80,000 | 109,058 | |
| Ziggo Bond Company BV (EUR) (D) | 8.000 | 05-15-18 | 100,000 | 137,018 | |
| Norway 0.21% | 443,925 | ||||
| DNB Bank ASA (EUR) (D) | 4.375 | 02-24-21 | 150,000 | 203,512 | |
| DNB Bank ASA (EUR) (D) | 5.875 | 06-20-13 | 80,000 | 110,576 | |
| Statkraft AS (EUR) (D) | 6.625 | 04-02-19 | 80,000 | 129,837 | |
| Spain 0.84% | 1,733,933 | ||||
| Amadeus Capital Markets SA (EUR) (D) | 4.875 | 07-15-16 | 100,000 | 134,101 | |
| Banco Bilbao Vizcaya Argentaria SA (EUR) (D) | 4.250 | 03-30-15 | 150,000 | 200,510 | |
| Banco Santander SA (EUR) (D) | 4.375 | 03-16-15 | 200,000 | 269,432 | |
| BBVA Senior Finance SAU (EUR) (D) | 4.875 | 01-23-14 | 100,000 | 133,872 | |
| Campofrio Food Group SA (EUR) (D) | 8.250 | 10-31-16 | 50,000 | 67,692 | |
| Gas Natural Capital Markets SA (EUR) (D) | 5.000 | 02-13-18 | 100,000 | 130,037 | |
| Gas Natural Capital Markets SA (EUR) (D) | 5.250 | 07-09-14 | 100,000 | 136,202 | |
| Iberdrola Finanzas SAU (EUR) (D) | 4.750 | 01-25-16 | 200,000 | 270,991 | |
| Obrascon Huarte Lain SA (EUR) (D) | 7.375 | 04-28-15 | 50,000 | 66,057 | |
| Telefonica Emisiones SAU (EUR) (D) | 3.661 | 09-18-17 | 100,000 | 124,395 | |
| Telefonica Emisiones SAU (EUR) (D) | 4.674 | 02-07-14 | 150,000 | 200,644 | |
| Sweden 0.81% | 1,669,268 | ||||
| Nordea Bank AB (EUR) (D) | 4.000 | 06-29-20 | 150,000 | 202,515 | |
| Nordea Bank AB (EUR) (D) | 4.000 | 03-29-21 | 80,000 | 98,598 | |
| Nordea Bank AB (EUR) (D) | 4.500 | 05-12-14 | 100,000 | 138,325 | |
| Nordea Bank AB (6.250% to 9-10-13, then | |||||
| 3 month EURIBOR + 3.200%) (EUR) (D) | 6.250 | 09-10-18 | 90,000 | 122,073 | |
| Sandvik AB (EUR) (D) | 6.875 | 02-25-14 | 90,000 | 129,120 | |
| Skandinaviska Enskilda Banken AB (EUR) (D) | 3.750 | 05-19-16 | 140,000 | 188,848 | |
| Skandinaviska Enskilda Banken AB (EUR) (D) | 3.875 | 04-12-17 | 100,000 | 134,577 | |
| Skandinaviska Enskilda Banken AB (9.250% | |||||
| to 3-31-15, then 5 Year EUR Swap Rate + | |||||
| 6.400%) (EUR) (D)(Q) | 9.250 | 03-31-15 | 40,000 | 55,587 | |
| Svenska Handelsbanken AB (EUR) (D) | 4.375 | 10-20-21 | 150,000 | 207,105 | |
| Svenska Handelsbanken AB (EUR) (D) | 4.875 | 03-25-14 | 70,000 | 97,465 | |
| Swedbank AB (EUR) (D) | 3.375 | 02-09-17 | 100,000 | 131,367 | |
| Vattenfall AB (EUR) (D) | 6.750 | 01-31-19 | 100,000 | 163,688 | |
| 8 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| Switzerland 0.23% | $484,005 | ||||
| Credit Suisse AG (EUR) (D) | 4.750 | 08-05-19 | 50,000 | 70,190 | |
| Credit Suisse AG (EUR) (D) | 6.125 | 08-05-13 | 190,000 | 264,212 | |
| UBS AG (EUR) (D) | 6.000 | 04-18-18 | 100,000 | 149,603 | |
| United Kingdom 2.89% | 5,960,521 | ||||
| Abbey National Treasury Services PLC (EUR) (D) | 3.375 | 10-20-15 | 140,000 | 179,488 | |
| Anglo American Capital PLC (EUR) (D) | 4.250 | 09-30-13 | 120,000 | 162,901 | |
| Barclays Bank PLC (EUR) (D) | 4.000 | 01-20-17 | 120,000 | 160,917 | |
| Barclays Bank PLC (EUR) (D) | 5.250 | 05-27-14 | 100,000 | 139,115 | |
| Barclays Bank PLC (4.500% to 3-04-14, then | |||||
| 3 month EURIBOR + 3.200%) (EUR) (D) | 4.500 | 03-04-19 | 80,000 | 94,285 | |
| BAT International Finance PLC (EUR) (D) | 5.375 | 06-29-17 | 110,000 | 166,164 | |
| BG Energy Capital PLC (EUR) (D) | 3.000 | 11-16-18 | 130,000 | 175,501 | |
| BP Capital Markets PLC (EUR) (D) | 3.830 | 10-06-17 | 100,000 | 140,096 | |
| Brambles Finance PLC (EUR) (D) | 4.625 | 04-20-18 | 100,000 | 143,293 | |
| British Telecommunications PLC (EUR) (D) | 5.250 | 06-23-14 | 90,000 | 126,548 | |
| British Telecommunications PLC (EUR) (D) | 6.500 | 07-07-15 | 80,000 | 119,137 | |
| Experian Finance PLC (EUR) (D) | 4.750 | 02-04-20 | 110,000 | 156,719 | |
| FCE Bank PLC (EUR) (D) | 7.250 | 07-15-13 | 150,000 | 205,527 | |
| Hammerson PLC (EUR) (D) | 4.875 | 06-19-15 | 120,000 | 164,027 | |
| HSBC Bank PLC (EUR) (D) | 3.875 | 10-24-18 | 200,000 | 271,768 | |
| HSBC Holdings PLC (3.625% to 6-29-15, then | |||||
| 3 month EURIBOR + 0.930%) (EUR) (D) | 3.625 | 06-29-20 | 70,000 | 87,863 | |
| Imperial Tobacco Finance PLC (EUR) (D) | 7.250 | 09-15-14 | 200,000 | 293,867 | |
| Ineos Group Holdings, Ltd. (S) | 8.500 | 02-15-16 | $75,000 | 67,500 | |
| Legal & General Group PLC (4.000% to 6-8-15 | |||||
| then 3 month EURIBOR +1.700%) (EUR) (D) | 4.000 | 06-08-25 | 100,000 | 115,122 | |
| Lloyds TSB Bank PLC (EUR) (D) | 3.750 | 09-07-15 | 250,000 | 324,010 | |
| Lloyds TSB Bank PLC (EUR) (D) | 6.250 | 04-15-14 | 50,000 | 69,235 | |
| Lloyds TSB Bank PLC (EUR) (D) | 6.500 | 03-24-20 | 150,000 | 167,222 | |
| Mondi Finance PLC (EUR) (D) | 5.750 | 04-03-17 | 100,000 | 138,326 | |
| Motability Operations Group PLC (EUR) (D) | 3.250 | 11-30-18 | 140,000 | 183,978 | |
| National Grid PLC (EUR) (D) | 5.000 | 07-02-18 | 100,000 | 146,700 | |
| National Grid PLC (EUR) (D) | 6.500 | 04-22-14 | 100,000 | 143,721 | |
| Nationwide Building Society (EUR) (D) | 3.750 | 01-20-15 | 120,000 | 159,084 | |
| Nationwide Building Society (EUR) (D) | 6.750 | 07-22-20 | 90,000 | 106,239 | |
| Rexam PLC (EUR) (D) | 4.375 | 03-15-13 | 120,000 | 160,524 | |
| Royal Bank of Scotland Group PLC (EUR) (D) | 5.250 | 05-15-13 | 160,000 | 214,522 | |
| Royal Bank of Scotland PLC (EUR) (D) | 4.875 | 07-15-15 | 165,000 | 221,656 | |
| Royal Bank of Scotland PLC (EUR) (D) | 6.000 | 05-10-13 | 150,000 | 197,872 | |
| SABMiller PLC (EUR) (D) | 4.500 | 01-20-15 | 120,000 | 168,004 | |
| SSE PLC (5.030% to 10-1-15, then 5 Year EUR | |||||
| Swap Rate + 3.150%) (EUR) (D)(Q) | 5.025 | 10-01-15 | 130,000 | 164,719 | |
| United Utilities Water PLC (EUR) (D) | 4.250 | 01-24-20 | 80,000 | 113,257 | |
| Virgin Media Finance PLC (GBP) (D) | 8.875 | 10-15-19 | 100,000 | 176,096 | |
| WPP 2008, Ltd. (EUR) (D) | 4.375 | 12-05-13 | 100,000 | 135,518 | |
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 9 | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| United States 10.26% | $21,156,119 | ||||
| Accellent, Inc. | 8.375 | 02-01-17 | $70,000 | 70,875 | |
| Accuride Corp. | 9.500 | 08-01-18 | 75,000 | 77,250 | |
| Aleris International, Inc. | 7.625 | 02-15-18 | 200,000 | 202,500 | |
| Allison Transmission, Inc. (S) | 7.125 | 05-15-19 | 125,000 | 125,781 | |
| Alta Mesa Holdings LP | 9.625 | 10-15-18 | 75,000 | 70,500 | |
| AMC Entertainment, Inc. | 8.750 | 06-01-19 | 125,000 | 131,875 | |
| Amgen, Inc. (EUR) (D) | 4.375 | 12-05-18 | 120,000 | 170,026 | |
| Apria Healthcare Group, Inc. | 11.250 | 11-01-14 | 175,000 | 182,656 | |
| ARAMARK Holdings Corp., PIK (S) | 8.625 | 05-01-16 | 100,000 | 102,750 | |
| Atlas Pipeline Partners LP (S) | 8.750 | 06-15-18 | 100,000 | 106,750 | |
| Atwood Oceanics, Inc. | 6.500 | 02-01-20 | 73,000 | 75,555 | |
| Avaya, Inc. (S) | 7.000 | 04-01-19 | 100,000 | 97,500 | |
| Bank of America Corp. (EUR) (D) | 4.000 | 03-28-18 | 100,000 | 105,952 | |
| Bank of America Corp. (EUR) (D) | 4.750 | 04-03-17 | 100,000 | 129,018 | |
| Bank of America Corp. (EUR) (D) | 5.125 | 09-26-14 | 150,000 | 201,470 | |
| Beazer Homes USA, Inc. | 8.125 | 06-15-16 | 225,000 | 194,625 | |
| Berry Plastics Corp. | 8.250 | 11-15-15 | 75,000 | 80,438 | |
| Berry Plastics Corp. | 9.750 | 01-15-21 | 75,000 | 78,375 | |
| BMW US Capital LLC (EUR) (D) | 5.000 | 05-28-15 | 130,000 | 186,577 | |
| Boise Paper Holdings LLC | 8.000 | 04-01-20 | 150,000 | 160,500 | |
| Boyd Gaming Corp. | 9.125 | 12-01-18 | 125,000 | 125,313 | |
| Cablevision Systems Corp. | 8.625 | 09-15-17 | 250,000 | 278,750 | |
| Caesars Entertainment Operating | |||||
| Company, Inc. | 10.000 | 12-15-18 | 100,000 | 77,250 | |
| Caesars Entertainment Operating | |||||
| Company, Inc. | 11.250 | 06-01-17 | 200,000 | 216,750 | |
| Calpine Corp. (S) | 7.500 | 02-15-21 | 250,000 | 266,250 | |
| CCO Holdings LLC | 7.875 | 04-30-18 | 250,000 | 271,250 | |
| CDW LLC | 8.500 | 04-01-19 | 225,000 | 236,250 | |
| Cedar Fair LP | 9.125 | 08-01-18 | 125,000 | 138,594 | |
| Chaparral Energy, Inc. | 8.250 | 09-01-21 | 225,000 | 235,688 | |
| Chesapeake Oilfield Operating LLC (S) | 6.625 | 11-15-19 | 125,000 | 125,625 | |
| Chrysler Group LLC (S) | 8.250 | 06-15-21 | 200,000 | 191,000 | |
| Citigroup, Inc. (EUR) (D) | 4.000 | 11-26-15 | 100,000 | 132,340 | |
| Citigroup, Inc. (EUR) (D) | 5.000 | 08-02-19 | 120,000 | 159,455 | |
| Citigroup, Inc. (EUR) (D) | 6.400 | 03-27-13 | 120,000 | 163,518 | |
| Citigroup, Inc. (4.750% to 2-10-14, then | |||||
| 3 month EURIBOR + 1.400%) (EUR) (D) | 4.750 | 02-10-19 | 80,000 | 91,433 | |
| CityCenter Holdings LLC, PIK | 10.750 | 01-15-17 | 132,187 | 141,110 | |
| Clear Channel Communications, Inc. | 9.000 | 03-01-21 | 150,000 | 130,500 | |
| Cloud Peak Energy Resources LLC | 8.500 | 12-15-19 | 150,000 | 163,875 | |
| Concho Resources, Inc. | 6.500 | 01-15-22 | 150,000 | 161,250 | |
| Cricket Communications, Inc. | 7.750 | 10-15-20 | 200,000 | 190,500 | |
| Crown Americas LLC | 6.250 | 02-01-21 | 100,000 | 108,750 | |
| D.R. Horton, Inc. | 6.500 | 04-15-16 | 105,000 | 112,613 | |
| Del Monte Corp. | 7.625 | 02-15-19 | 100,000 | 98,375 | |
| Denbury Resources, Inc. | 8.250 | 02-15-20 | 50,000 | 56,875 | |
| DineEquity, Inc. | 9.500 | 10-30-18 | 200,000 | 218,000 | |
| DISH DBS Corp. | 6.750 | 06-01-21 | 300,000 | 327,000 | |
| 10 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| United States (continued) | |||||
| DJO Finance LLC | 7.750 | 04-15-18 | $50,000 | $37,188 | |
| DJO Finance LLC | 10.875 | 11-15-14 | 100,000 | 93,750 | |
| El Paso Corp. | 7.000 | 06-15-17 | 150,000 | 166,163 | |
| Endo Pharmaceuticals Holdings, Inc. | 7.000 | 12-15-20 | 150,000 | 163,500 | |
| Energy Future Intermediate Holding | |||||
| Company LLC | 10.000 | 12-01-20 | 150,000 | 161,625 | |
| Energy XXI Gulf Coast, Inc. | 7.750 | 06-15-19 | 200,000 | 206,500 | |
| First Data Corp. (S) | 8.250 | 01-15-21 | 175,000 | 161,875 | |
| First Data Corp., PIK (S) | 8.750 | 01-15-22 | 70,000 | 63,700 | |
| Ford Motor Company | 7.450 | 07-16-31 | 525,000 | 647,063 | |
| Freescale Semiconductor, Inc. | 10.750 | 08-01-20 | 150,000 | 163,500 | |
| Fresenius Medical Care US Finance II, Inc. (S) | 5.875 | 01-31-22 | 60,000 | 61,350 | |
| Frontier Communications Corp. | 8.125 | 10-01-18 | 350,000 | 349,125 | |
| GE Capital Trust IV (4.625% to 9-15-16 then | |||||
| 3 month EURIBOR +1.600%) (EUR) (D) | 4.625 | 09-15-66 | 100,000 | 112,494 | |
| GenOn Americas Generation LLC | 8.500 | 10-01-21 | 125,000 | 115,000 | |
| Goodrich Petroleum Corp. (S) | 8.875 | 03-15-19 | 125,000 | 122,500 | |
| GWR Operating Partnership LLP | 10.875 | 04-01-17 | 100,000 | 109,750 | |
| Gymboree Corp. | 9.125 | 12-01-18 | 75,000 | 66,750 | |
| HCA, Inc. | 7.250 | 09-15-20 | 275,000 | 295,969 | |
| HCA, Inc. | 7.500 | 11-15-95 | 100,000 | 76,750 | |
| HealthSouth Corp. | 8.125 | 02-15-20 | 200,000 | 212,000 | |
| Hexion US Finance Corp. | 8.875 | 02-01-18 | 150,000 | 149,625 | |
| Huntsman International LLC | 5.500 | 06-30-16 | 150,000 | 148,500 | |
| IASIS Healthcare LLC | 8.375 | 05-15-19 | 75,000 | 72,188 | |
| Interactive Data Corp. | 10.250 | 08-01-18 | 125,000 | 138,438 | |
| J Crew Group, Inc. | 8.125 | 03-01-19 | 125,000 | 121,250 | |
| Jarden Corp. | 6.125 | 11-15-22 | 100,000 | 103,625 | |
| Jarden Corp. | 7.500 | 05-01-17 | 100,000 | 107,250 | |
| JPMorgan Chase & Company (EUR) (D) | 3.875 | 09-23-20 | 150,000 | 195,837 | |
| JPMorgan Chase & Company (EUR) (D) | 6.125 | 04-01-14 | 150,000 | 212,032 | |
| Laredo Petroleum, Inc. | 9.500 | 02-15-19 | 100,000 | 109,250 | |
| Laureate Education, Inc. (S) | 12.750 | 08-15-17 | 100,000 | 106,750 | |
| Level 3 Financing, Inc. (S) | 8.125 | 07-01-19 | 200,000 | 201,500 | |
| Level 3 Financing, Inc. (S) | 8.625 | 07-15-20 | 20,000 | 20,500 | |
| Levi Strauss & Company | 7.625 | 05-15-20 | 125,000 | 130,625 | |
| Limited Brands, Inc. | 6.625 | 04-01-21 | 100,000 | 110,000 | |
| Linn Energy LLC | 8.625 | 04-15-20 | 150,000 | 166,500 | |
| Longview Fibre Paper & Packaging, Inc. (S) | 8.000 | 06-01-16 | 75,000 | 78,469 | |
| Marina District Finance Company, Inc. | 9.500 | 10-15-15 | 125,000 | 119,063 | |
| Merrill Lynch & Company, Inc. (EUR) (D) | 4.625 | 10-02-13 | 80,000 | 105,851 | |
| MetroPCS Wireless, Inc. | 6.625 | 11-15-20 | 200,000 | 198,500 | |
| MGM Resorts International | 6.625 | 07-15-15 | 350,000 | 350,000 | |
| MGM Resorts International (S) | 8.625 | 02-01-19 | 60,000 | 62,400 | |
| Michael Foods, Inc. | 9.750 | 07-15-18 | 200,000 | 216,500 | |
| Morgan Stanley (EUR) (D) | 4.500 | 10-29-14 | 100,000 | 133,200 | |
| Morgan Stanley (EUR) (D) | 4.500 | 02-23-16 | 120,000 | 153,872 | |
| Morgan Stanley (EUR) (D) | 5.375 | 08-10-20 | 100,000 | 124,260 | |
| Newfield Exploration Company | 5.750 | 01-30-22 | 50,000 | 53,125 | |
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 11 | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| United States (continued) | |||||
| Novelis, Inc. | 8.750 | 12-15-20 | $150,000 | $167,625 | |
| NPC International, Inc. (S) | 10.500 | 01-15-20 | 100,000 | 103,250 | |
| NRG Energy, Inc. (S) | 7.875 | 05-15-21 | 50,000 | 47,500 | |
| NRG Energy, Inc. | 8.250 | 09-01-20 | 400,000 | 394,000 | |
| Peninsula Gaming LLC | 10.750 | 08-15-17 | 100,000 | 107,750 | |
| Pinnacle Entertainment, Inc. | 8.750 | 05-15-20 | 145,000 | 147,538 | |
| Pioneer Natural Resources Company | 7.500 | 01-15-20 | 125,000 | 150,346 | |
| Plains Exploration & Production Company | 7.625 | 04-01-20 | 125,000 | 137,500 | |
| Production Resource Group, Inc. (S) | 8.875 | 05-01-19 | 125,000 | 112,500 | |
| Quicksilver Resources, Inc. | 9.125 | 08-15-19 | 50,000 | 48,750 | |
| RBS Global, Inc. | 11.750 | 08-01-16 | 125,000 | 132,188 | |
| Regal Entertainment Group | 9.125 | 08-15-18 | 100,000 | 109,500 | |
| Regions Bank | 7.500 | 05-15-18 | 250,000 | 260,625 | |
| Reynolds Group Issuer, Inc. (S) | 7.875 | 08-15-19 | 100,000 | 107,750 | |
| Reynolds Group Issuer, Inc. (EUR) (D) | 8.750 | 10-15-16 | 100,000 | 137,345 | |
| Reynolds Group Issuer, Inc. (S) | 9.250 | 05-15-18 | 150,000 | 149,625 | |
| Rite Aid Corp. | 7.500 | 03-01-17 | 350,000 | 357,000 | |
| SandRidge Energy, Inc. | 8.750 | 01-15-20 | 200,000 | 212,000 | |
| Service Corp. International | 7.000 | 05-15-19 | 100,000 | 108,000 | |
| Solutia, Inc. | 8.750 | 11-01-17 | 100,000 | 113,250 | |
| Sprint Nextel Corp. (S) | 9.000 | 11-15-18 | 350,000 | 377,125 | |
| Summit Materials LLC (S) | 10.500 | 01-31-20 | 50,000 | 50,250 | |
| SunGard Data Systems, Inc. | 7.625 | 11-15-20 | 200,000 | 212,500 | |
| Tenet Healthcare Corp. | 10.000 | 05-01-18 | 150,000 | 172,875 | |
| Texas Competitive Electric Holdings | |||||
| Company LLC (S) | 11.500 | 10-01-20 | 100,000 | 75,500 | |
| The Hertz Corp. | 6.750 | 04-15-19 | 100,000 | 103,250 | |
| Triumph Group, Inc. | 8.000 | 11-15-17 | 45,000 | 48,825 | |
| Triumph Group, Inc. | 8.625 | 07-15-18 | 40,000 | 44,600 | |
| U.S. Airways 2010-1 Class A Pass | |||||
| Through Trust | 6.250 | 04-22-23 | 120,965 | 115,522 | |
| UAL 2007-1 Pass Through Trust | 6.636 | 07-02-22 | 148,055 | 151,757 | |
| United Rentals North America, Inc. | 8.375 | 09-15-20 | 370,000 | 376,475 | |
| United Surgical Partners International, Inc. | 8.875 | 05-01-17 | 75,000 | 78,563 | |
| Univision Communications, Inc. (S) | 7.875 | 11-01-20 | 200,000 | 208,000 | |
| Valeant Pharmaceuticals International (S) | 6.750 | 08-15-21 | 125,000 | 125,625 | |
| Vector Group Ltd. | 11.000 | 08-15-15 | 100,000 | 103,875 | |
| Verso Paper Holdings LLC | 11.500 | 07-01-14 | 100,000 | 103,000 | |
| Visant Corp. | 10.000 | 10-01-17 | 75,000 | 68,063 | |
| Wachovia Corp. (EUR) (D) | 4.375 | 11-27-18 | 150,000 | 188,730 | |
| Wal-Mart Stores, Inc. (EUR) (D) | 4.875 | 09-21-29 | 100,000 | 153,742 | |
| Wells Fargo & Company (EUR) (D) | 4.125 | 11-03-16 | 50,000 | 69,852 | |
| Wells Fargo Bank NA (EUR) (D) | 6.000 | 05-23-13 | 150,000 | 206,509 | |
| West Corp. | 7.875 | 01-15-19 | 175,000 | 183,313 | |
| Westvaco Corp. | 8.200 | 01-15-30 | 100,000 | 113,170 | |
| Windstream Corp. | 7.750 | 10-01-21 | 350,000 | 378,000 | |
| Zurich Finance USA, Inc. (EUR) (D) | 4.500 | 09-17-14 | 50,000 | 69,320 | |
| Zurich Finance USA, Inc. (5.750% to 10-2-13, | |||||
| then 3 month EURIBOR + 2.670%) (EUR) (D) | 5.750 | 10-02-23 | 175,000 | 228,687 | |
| 12 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| Foreign Government Obligations 6.29% | $12,980,973 | ||||
| (Cost $11,773,554) | |||||
| Australia 0.30% | 627,546 | ||||
| Commonwealth of Australia | |||||
| Bond (AUD) (D) | 3.000 | 09-20-25 | 449,000 | 627,546 | |
| Germany 0.77% | 1,583,269 | ||||
| Federal Republic of Germany | |||||
| Bond (EUR) (D) | 1.750 | 10-09-15 | 500,000 | 684,437 | |
| Bond (EUR) (D) | 3.250 | 01-04-20 | 200,000 | 296,658 | |
| Bond (EUR) (D) | 3.500 | 07-04-19 | 400,000 | 602,174 | |
| Mexico 5.13% | 10,577,404 | ||||
| Government of Mexico | |||||
| Bond (MXN) (D) | 6.500 | 06-10-21 | 33,000,000 | 2,635,833 | |
| Bond (MXN) (D) | 7.500 | 06-03-27 | 32,000,000 | 2,663,328 | |
| Bond (MXN) (D) | 8.500 | 05-31-29 | 29,000,000 | 2,611,141 | |
| Bond (MXN) (D) | 10.000 | 12-05-24 | 26,000,000 | 2,667,102 | |
| United Kingdom 0.09% | 192,754 | ||||
| Government of United Kingdom | |||||
| Bond (GBP) (D) | 1.875 | 11-22-22 | 96,248 | 192,754 | |
| Shares | Value | ||||
| Common Stocks 22.71% | $46,851,689 | ||||
| (Cost $42,240,295) | |||||
| Australia 0.61% | 1,263,317 | ||||
| Brambles, Ltd. | 81,564 | 629,628 | |||
| Santos, Ltd. | 44,454 | 633,689 | |||
| Belgium 0.16% | 320,695 | ||||
| Umicore SA | 6,890 | 320,695 | |||
| Bermuda 0.25% | 512,379 | ||||
| Arch Capital Group, Ltd. (I) | 14,213 | 512,379 | |||
| Canada 0.46% | 950,771 | ||||
| Cenovus Energy, Inc. | 17,917 | 653,818 | |||
| Trican Well Service, Ltd. | 17,851 | 296,953 | |||
| China 0.31% | 650,347 | ||||
| 51job, Inc., ADR (I) | 5,024 | 225,477 | |||
| China Zhengtong Auto Services Holdings, Ltd. (I) | 268,000 | 280,551 | |||
| Kingdee International Software Group Company, Ltd. | 482,000 | 144,319 | |||
| Denmark 0.29% | 603,896 | ||||
| Novo Nordisk A/S | 5,101 | 603,896 | |||
| France 0.84% | 1,724,157 | ||||
| Air Liquide SA | 3,428 | 432,164 | |||
| Ingenico SA | 10,901 | 457,784 | |||
| Sanofi | 7,900 | 585,572 | |||
| Societe Generale SA | 9,236 | 248,637 | |||
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 13 | |
| Shares | Value | |
| Germany 0.88% | $1,823,201 | |
| Bayerische Motoren Werke (BMW) AG | 7,459 | 638,788 |
| Kabel Deutschland Holding AG (I) | 5,364 | 280,141 |
| Linde AG | 3,766 | 598,439 |
| Symrise AG | 10,735 | 305,833 |
| Indonesia 0.10% | 205,616 | |
| Lippo Karawaci Tbk PT | 2,763,000 | 205,616 |
| Ireland 0.11% | 228,159 | |
| Shire PLC | 6,878 | 228,159 |
| Italy 0.20% | 404,419 | |
| Prysmian SpA | 26,895 | 404,419 |
| Japan 0.83% | 1,718,418 | |
| Mitsui Fudosan Company, Ltd. | 14,000 | 231,337 |
| Seven & I Holdings Company, Ltd. | 15,400 | 434,373 |
| Sumitomo Mitsui Financial Group | 12,700 | 405,650 |
| Yamada Denki Company, Ltd. | 4,350 | 277,155 |
| Yamato Transport Company, Ltd. | 22,300 | 369,903 |
| Malaysia 0.15% | 317,444 | |
| UEM Land Holdings BHD (I) | 417,600 | 317,444 |
| Netherlands 0.12% | 237,807 | |
| Koninklijke Boskalis Westinster NV | 6,122 | 237,807 |
| Norway 0.19% | 398,513 | |
| DNB ASA | 37,698 | 398,513 |
| Papua New Guinea 0.15% | 307,619 | |
| Oil Search, Ltd. | 43,969 | 307,619 |
| Portugal 0.27% | 552,387 | |
| Galp Energia SGPS SA | 34,169 | 552,387 |
| Russia 3.12% | 6,444,649 | |
| Gazprom OAO, ADR | 167,000 | 2,012,350 |
| Lukoil OAO, ADR | 26,000 | 1,516,840 |
| MMC Norilsk Nickel OJSC, ADR | 37,000 | 710,770 |
| Rosneft Oil Company, GDR | 114,000 | 841,437 |
| Sberbank of Russia, ADR (I) | 62,000 | 744,000 |
| Uralkali, GDR | 9,000 | 319,860 |
| VTB Bank OJSC, GDR | 64,000 | 299,392 |
| Singapore 0.18% | 365,103 | |
| DBS Group Holdings, Ltd. | 34,000 | 365,103 |
| South Korea 0.39% | 803,351 | |
| Hyundai Mobis | 1,050 | 258,679 |
| Samsung Electronics Company, Ltd. | 206 | 203,848 |
| Samsung Heavy Industries Company, Ltd. | 10,760 | 340,824 |
| Spain 0.17% | 360,870 | |
| Grifols SA (I) | 18,440 | 337,370 |
| Grifols SA, B Shares (I) | 1,844 | 23,500 |
| 14 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
| Shares | Value | |
| Sweden 0.57% | $1,169,958 | |
| Lundin Petroleum AB (I) | 7,575 | 170,800 |
| Swedbank AB, Class A | 41,751 | 600,995 |
| Swedish Match AB | 11,428 | 398,163 |
| Switzerland 0.68% | 1,409,083 | |
| ACE, Ltd. | 3,426 | 238,450 |
| Lonza Group AG (I) | 6,920 | 374,276 |
| Swiss Re, Ltd. (I) | 8,939 | 486,084 |
| Xstrata PLC | 18,287 | 310,273 |
| United Kingdom 2.27% | 4,675,113 | |
| Aveva Group PLC | 8,355 | 208,338 |
| BG Group PLC | 31,506 | 708,445 |
| Carillion PLC | 37,040 | 180,507 |
| Cookson Group PLC | 42,539 | 388,379 |
| Croda International PLC | 18,392 | 562,243 |
| Lloyds Banking Group PLC (I) | 558,758 | 270,774 |
| Michael Page International PLC | 36,930 | 226,816 |
| Mitie Group PLC | 46,302 | 186,010 |
| Pearson PLC | 23,279 | 431,091 |
| Rolls-Royce Holdings PLC | 22,816 | 264,729 |
| Telecity Group PLC (I) | 40,963 | 418,286 |
| The Weir Group PLC | 10,027 | 309,439 |
| Tullow Oil PLC | 23,719 | 520,056 |
| United States 9.41% | 19,404,417 | |
| Acuity Brands, Inc. | 9,268 | 539,676 |
| Altera Corp. | 8,734 | 347,526 |
| Anadarko Petroleum Corp. | 4,749 | 383,339 |
| Apple, Inc. (I) | 2,843 | 1,297,773 |
| Baxter International, Inc. | 8,057 | 447,002 |
| BorgWarner, Inc. (I) | 7,892 | 588,980 |
| Bunge, Ltd. | 3,485 | 199,586 |
| Calpine Corp. (I) | 26,795 | 391,207 |
| Celgene Corp. (I) | 6,635 | 482,365 |
| Citigroup, Inc. | 15,628 | 480,092 |
| Dendreon Corp. (I) | 5,870 | 79,715 |
| Dr. Pepper Snapple Group, Inc. | 10,189 | 395,537 |
| EMC Corp. (I) | 19,789 | 509,765 |
| Equinix, Inc. (I) | 2,778 | 333,249 |
| Ford Motor Company | 22,648 | 281,288 |
| Google, Inc., Class A (I) | 448 | 259,889 |
| Home Depot, Inc. | 5,011 | 222,438 |
| J.B. Hunt Transport Services, Inc. | 9,005 | 459,885 |
| JPMorgan Chase & Company | 22,315 | 832,350 |
| Lowe’s Companies, Inc. | 13,455 | 360,998 |
| MasterCard, Inc., Class A | 1,578 | 561,089 |
| Mead Johnson Nutrition Company | 5,747 | 425,795 |
| Monsanto Company | 8,131 | 667,149 |
| News Corp., Class B | 24,913 | 485,056 |
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 15 | |
| Shares | Value | |
| United States (continued) | ||
| Occidental Petroleum Corp. | 6,150 | $613,586 |
| ON Semiconductor Corp. (I) | 63,488 | 552,346 |
| Penn National Gaming, Inc. (I) | 10,962 | 448,784 |
| PepsiCo, Inc. | 3,069 | 201,541 |
| Pfizer, Inc. | 24,020 | 514,028 |
| Polycom, Inc. (I) | 17,686 | 352,836 |
| priceline.com, Inc. (I) | 903 | 478,120 |
| QUALCOMM, Inc. | 12,382 | 728,309 |
| Starbucks Corp. | 7,582 | 363,405 |
| The Boeing Company | 8,095 | 600,487 |
| The Estee Lauder Companies, Inc., Class A | 8,428 | 488,234 |
| The Goldman Sachs Group, Inc. | 6,233 | 694,793 |
| Time Warner Cable, Inc. | 5,070 | 373,760 |
| United Parcel Service, Inc., Class B | 3,876 | 293,219 |
| Urban Outfitters, Inc. (I) | 12,400 | 328,600 |
| Virgin Media, Inc. | 24,074 | 573,924 |
| Visa, Inc., Class A | 4,477 | 450,565 |
| Walter Energy, Inc. | 4,573 | 316,131 |
| Shares | Value | |
| Preferred Securities 0.26% | $533,357 | |
| (Cost $494,294) | ||
| Germany 0.26% | 533,357 | |
| Henkel AG & Company KGaA | 8,640 | 533,357 |
| Maturity | |||||
| Rate (%) | date | Par value | Value | ||
| U.S. Government & Agency Obligations 17.77% | $36,651,598 | ||||
| (Cost $36,151,862) | |||||
| United States 17.77% | 36,651,598 | ||||
| Treasury Inflation Protected Securities | |||||
| Inflation Indexed Note | 0.500 | 04-15-15 | $2,438,667 | 2,589,179 | |
| Inflation Indexed Note | 0.625 | 04-15-13 | 3,632,768 | 3,719,613 | |
| Inflation Indexed Note | 1.125 | 01-15-21 | 615,355 | 704,197 | |
| Inflation Indexed Note | 1.250 | 07-15-20 | 2,548,818 | 2,954,638 | |
| Inflation Indexed Note | 1.375 | 07-15-18 | 5,327,533 | 6,159,960 | |
| Inflation Indexed Note | 1.625 | 01-15-15 | 851,886 | 930,285 | |
| Inflation Indexed Note | 1.750 | 01-15-28 | 2,127,403 | 2,635,486 | |
| Inflation Indexed Note | 2.000 | 01-15-26 | 571,070 | 721,556 | |
| Inflation Indexed Note | 2.125 | 02-15-40 | 1,876,751 | 2,615,283 | |
| Inflation Indexed Note | 2.125 | 02-15-41 | 654,973 | 918,599 | |
| Inflation Indexed Note | 2.375 | 01-15-17 | 1,897,031 | 2,241,460 | |
| Inflation Indexed Note | 2.375 | 01-15-25 | 1,835,121 | 2,397,988 | |
| Inflation Indexed Note | 3.000 | 07-15-12 | 2,665,016 | 2,726,436 | |
| Inflation Indexed Note | 3.875 | 04-15-29 | 3,333,132 | 5,336,918 | |
| 16 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
| Number of | ||
| contracts/ | ||
| notional | Value | |
| Purchased Options 2.84% | $5,859,362 | |
| (Cost $4,652,808) | ||
| Over the Counter Call on 3 Year Interest Rate Swap | ||
| (Expiration Date: 1-19-15; Strike Price: EUR 2.60; | ||
| Counterparty: Morgan Stanley & Company) (I) | 2,800,000 | 103,176 |
| Over the Counter Call on 3 Year Interest Rate Swap | ||
| (Expiration Date: 12-19-14; Strike Price: EUR 2.60; | ||
| Counterparty: Morgan Stanley & Company) (I) | 33,100,000 | 1,235,217 |
| Over the Counter Call on CBOE SPX Volatility Index | ||
| (Expiration Date: 4-18-12; Strike Price: $28.00; | ||
| Counterparty: Royal Bank of Scotland, PLC) (I) | 615 | 144,525 |
| Over the Counter Call on KOSPI 200 Index (Expiration Date: | ||
| 12-13-12; Strike Price: $235.87; Counterparty: UBS AG) (I) | 93,000,000 | 3,124,056 |
| Over the Counter Call on S&P 500 Index (Expiration Date: | ||
| 6-15-12; Strike Price: $1,350; Counterparty: Royal Bank of | ||
| Scotland, PLC) (I) | 56 | 203,280 |
| Over the Counter Call on the USD vs. JPY (Expiration Date: | ||
| 12-18-14; Strike Price: $83; Counterparty: Goldman Sachs | ||
| Capital Markets LP) (I) | 18,750,000 | 908,888 |
| Over the Counter Put on CBOE SPX Volatility Index | ||
| (Expiration Date: 3-21-12; Strike Price: $22.00; | ||
| Counterparty: Royal Bank of Scotland, PLC) (I) | 615 | 140,220 |
| Yield* | Par value | Value | |
| Short-Term Investments 20.88% | $43,056,870 | ||
| (Cost $43,056,870) | |||
| Time Deposits 17.94% | 37,001,870 | ||
| Bank of Montreal | 0.0500% | $6,000,304 | 6,000,304 |
| Bank of Nova Scotia | 0.0300% | 6,000,062 | 6,000,062 |
| Danske Bank | 0.0500% | 6,000,379 | 6,000,379 |
| ING Bank | 0.0500% | 6,500,415 | 6,500,415 |
| Lloyds TSB Bank PLC | 0.0600% | 6,500,424 | 6,500,424 |
| Rabobank | 0.0500% | 6,000,286 | 6,000,286 |
| Repurchase Agreement 2.94% | 6,055,000 | ||
| Repurchase Agreement with State Street Corp., dated | |||
| 1-31-12 at 0.010% to be repurchased at $6,055,002 on | |||
| 2-1-12, collateralized by $6,085,000 Federal Home Loan | |||
| Bank, 1.625% due 11-21-12 (valued at $6,176,275, | |||
| including interest) | 6,055,000 | 6,055,000 | |
| Total investments (Cost $190,615,894)† 96.96% | $199,987,655 | ||
| Other assets and liabilities, net 3.04% | $6,268,474 | ||
| Total net assets 100.00% | $206,256,129 | ||
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund. All par values are denominated in U.S. Dollars unless otherwise indicated.
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 17 | |
| Notes to Portfolio of Investments | |
| ADR | American Depositary Receipts |
| EURIBOR | Euro Interbank Offered Rate |
| GDR | Global Depositary Receipt |
| PIK | Payment-in-kind |
(D) Par value of foreign bonds is expressed in local currency as shown parenthetically in security description.
(I) Non-income producing security.
(Q) Perpetual bonds have no stated maturity date. Date shown 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.
* Yield represents the annualized yield at the date of purchase.
† At 1-31-12, the aggregate cost of investment securities for federal income tax purposes was $190,737,564. Net unrealized appreciation aggregated $9,250,091, of which $9,565,804 related to appreciated investment securities and $315,713 related to depreciated investment securities.
| Currency abbreviations used in Portfolio of Investments and Notes to financial statements | |
| AUD | Australian Dollar |
| CAD | Canadian Dollar |
| CHF | Swiss Franc |
| DKK | Danish Krone |
| EUR | Euro |
| GBP | Pound Sterling |
| HKD | Hong Kong Dollar |
| JPY | Japanese Yen |
| MXN | Mexican Peso |
| NOK | Norwegian Krone |
| SEK | Swedish Krona |
| SGD | Singapore Dollar |
| USD | United States Dollar |
| The Fund had the following sector composition as a percentage of net assets on 1-31-12: | ||
| U.S. Government | 17.8% | |
| Financials | 11.5% | |
| Consumer Discretionary | 7.7% | |
| Energy | 6.4% | |
| Foreign Government Obligations | 6.3% | |
| Industrials | 4.6% | |
| Materials | 4.3% | |
| Information Technology | 3.9% | |
| Consumer Staples | 3.1% | |
| Purchased Options | 2.8% | |
| Utilities | 2.6% | |
| Health Care | 2.6% | |
| Telecommunication Services | 2.5% | |
| Short-Term Investments & Other | 23.9% | |
| 18 Global Absolute Return Strategies 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 1-31-12 (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 $190,615,894) | $199,987,655 |
| Cash | 593 |
| Foreign currency, at value (Cost $6,076) | 6,053 |
| Cash held at broker for futures contracts | 8,517,299 |
| Receivable for investments sold | 286,284 |
| Receivable for fund shares sold | 2,800,743 |
| Receivable for forward foreign currency exchange contracts (Note 3) | 147,938 |
| Dividends and interest receivable | 1,452,625 |
| Swap contracts, at value (includes unamortized upfront payments received | |
| of $85,496) (Note 3) | 5,009,920 |
| Receivable for futures variation margin | 151,747 |
| Receivable due from adviser | 99 |
| Other receivables and prepaid expenses | 53,410 |
| Total assets | 218,414,366 |
| Liabilities | |
| Payable for investments purchased | 1,558,457 |
| Payable for forward foreign currency exchange contracts (Note 3) | 1,180,961 |
| Written options, at value (premiums received $5,956,206) (Note 3) | 6,802,914 |
| Swap contracts, at value (includes unamortized upfront payments received | |
| of $20,580) (Note 3) | 2,524,997 |
| Payable to affiliates | |
| Accounting and legal services fees | 1,987 |
| Transfer agent fees | 161 |
| Trustees’ fees | 62 |
| Other liabilities and accrued expenses | 88,698 |
| Total liabilities | 12,158,237 |
| Net assets | |
| Paid-in capital | $197,461,453 |
| Undistributed net investment income | 15,459 |
| Accumulated net realized loss on investments, futures contracts, foreign | |
| currency transactions and swap agreements | (76,085) |
| Net unrealized appreciation (depreciation) on investments, futures | |
| contracts, written options, translation of assets and liabilities in foreign | |
| currencies and swap agreements | 8,855,302 |
| Net assets | $206,256,129 |
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 19 | |
F I N A N C I A L S T A T E M E N T S
Statement of assets and liabilities (continued)
| Net asset value per share | |
| Based on net asset values and shares outstanding — the Fund has an | |
| unlimited number of shares authorized with no par value | |
| Class A ($435,195 ÷ 41,635 shares) | $10.45 |
| Class I ($4,319,831 ÷ 413,204 shares) | $10.45 |
| Class NAV ($201,501,103 ÷ 19,276,096 shares) | $10.45 |
| Maximum offering price per share | |
| Class A (net asset value per share ÷ 95%)1 | $11.00 |
1 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.
| 20 Global Absolute Return Strategies 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 period ended 1-31-12 (unaudited)1
This Statement of operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
| Investment income | |
| Interest | $339,421 |
| Dividends | 16,372 |
| Less foreign taxes withheld | (4,375) |
| Total investment income | 351,418 |
| Expenses | |
| Investment management fees (Note 5) | 301,054 |
| Distribution and service fees (Note 5) | 42 |
| Accounting and legal services fees (Note 5) | 3,011 |
| Transfer agent fees (Note 5) | 175 |
| Trustees’ fees (Note 5) | 65 |
| State registration fees (Note 5) | 3,558 |
| Professional fees | 11,321 |
| Custodian fees | 9,959 |
| Registration and filing fees | 8,576 |
| Other | 2,776 |
| Total expenses | 340,537 |
| Less expense reductions (Note 5) | (4,578) |
| Net expenses | 335,959 |
| Net investment income | 15,459 |
| Realized and unrealized gain (loss) | |
| Net realized gain (loss) on | |
| Investments | 61,797 |
| Futures contracts (Note 3) | (103,855) |
| Swap contracts (Note 3) | 30,536 |
| Foreign currency transactions | (64,563) |
| (76,085) | |
| Change in net unrealized appreciation (depreciation) of | |
| Investments | 9,371,761 |
| Futures contracts (Note 3) | (1,237,888) |
| Written options (Note ) | (846,708) |
| Swap contracts (Note 3) | 2,590,999 |
| Translation of assets and liabilities in foreign currencies | (1,022,862) |
| 8,855,302 | |
| Net realized and unrealized gain | 8,779,217 |
| Increase in net assets from operations | $8,794,676 |
1 Period from 12-19-11 (commencement of operations) to 1-31-12.
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 21 | |
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
This Statement of changes in net assets shows how the value of the Fund’s net assets has changed since inception. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
| Period | |
| ended | |
| 1-31-12 | |
| (Unaudited)1 | |
| Increase (decrease) in net assets | |
| From operations | |
| Net investment income | $15,459 |
| Net realized loss | (76,085) |
| Change in net unrealized appreciation (depreciation) | 8,855,302 |
| Increase in net assets resulting from operations | 8,794,676 |
| From Fund share transactions (Note 6) | 197,461,453 |
| Total increase | 206,526,129 |
| Net assets | |
| Beginning of period | — |
| End of period | $206,526,129 |
| Undistributed net investment income | $15,459 |
1 Period from 12-19-11 (commencement of operations) to 1-31-12.
| 22 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
Financial highlights
The Financial highlights show how the Fund’s net asset value for a share has changed since the beginning of the period.
| CLASS A SHARES Period ended | 1-31-121 |
| Per share operating performance | |
| Net asset value, beginning of period | $10.00 |
| Net investment loss2 | —3 |
| Net realized and unrealized gain on investments | 0.45 |
| Total from investment operations | 0.45 |
| Net asset value, end of period | $10.45 |
| Total return (%)4 | 4.505,6 |
| Ratios and supplemental data | |
| Net assets, end of period (in millions) | —7 |
| Ratios (as a percentage of average net assets): | |
| Expenses before reductions | 14.908 |
| Expenses net of fee waivers | 1.958 |
| Net investment loss | (0.13)8 |
| Portfolio turnover (%) | 2 |
1 Period from 12-19-11 (commencement of operations) to 1-31-12. Unaudited.
2 Based on the average daily shares outstanding.
3 Less than ($0.005) per share.
4 Does not reflect the effect of sales charges, of any.
5 Total returns would have been lower had certain expenses not been reduced during the periods shown.
6 Not annualized.
7 Less than $500,000.
8 Annualized.
| CLASS I SHARES Period ended | 1-31-121 |
| Per share operating performance | |
| Net asset value, beginning of period | $10.00 |
| Net investment income2 | 0.04 |
| Net realized and unrealized gain on investments | 0.41 |
| Total from investment operations | 0.45 |
| Net asset value, end of period | $10.45 |
| Total return (%) | 4.503,4 |
| Ratios and supplemental data | |
| Net assets, end of period (in millions) | $4 |
| Ratios (as a percentage of average net assets): | |
| Expenses before reductions | 3.115 |
| Expenses net of fee waivers | 1.595 |
| Net investment income | 0.325 |
| Portfolio turnover (%) | 2 |
1 Period from 12-19-11 (commencement of operations) to 1-31-12. Unaudited.
2 Based on the average daily shares outstanding.
3 Total returns would have been lower had certain expenses not been reduced during the periods shown.
4 Not annualized.
5 Annualized.
| See notes to financial statements | Semiannual report | Global Absolute Return Strategies Fund 23 | |
| CLASS NAV SHARES Period ended | 1-31-121 |
| Per share operating performance | |
| Net asset value, beginning of period | $10.00 |
| Net investment income2 | —3 |
| Net realized and unrealized gain on investments | 0.45 |
| Total from investment operations | 0.45 |
| Net asset value, end of period | $10.45 |
| Total return (%) | 4.504,5 |
| Ratios and supplemental data | |
| Net assets, end of period (in millions) | $202 |
| Ratios (as a percentage of average net assets): | |
| Expenses before reductions | 1.456 |
| Expenses net of fee waivers | 1.456 |
| Net investment income | 0.076 |
| Portfolio turnover (%) | 2 |
1 Period from 12-19-11 (commencement of operations) to 1-31-12. Unaudited.
2 Based on the average daily shares outstanding.
3 Less than $0.005 per share.
4 Total returns would have been lower had certain expenses not been reduced during the periods shown.
5 Not annualized.
6 Annualized.
| 24 Global Absolute Return Strategies Fund | Semiannual report | See notes to financial statements | |
Notes to financial statements
(unaudited)
Note 1 — Organization
John Hancock Global Absolute Return Strategies Fund (the Fund) is a series of John Hancock Funds II (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 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 open to all investors. Class I shares are offered to institutions and certain investors. Class NAV shares are sold to John Hancock affiliated funds of funds. Shareholders of each class have exclusive voting rights to matters that affect that class. The distribution and service fees, 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 at the date of the financial statements. Actual results could differ from those estimates. Events or transactions occurring after the end of the fiscal period through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund:
Security valuation. Investments are stated at value as of the close of regular trading on the New York Stock Exchange (NYSE), normally at 4:00 P.M., Eastern Time. The Fund uses a three-tier hierarchy to prioritize the pricing assumptions, referred to as inputs, used in valuation techniques to measure fair value. Level 1 includes securities valued using quoted prices in active markets for identical securities. Level 2 includes securities valued using 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, 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 | Global Absolute Return Strategies Fund 25 | ||
The following is a summary of the values by input classification of the Fund’s investments as of January 31, 2012, by major security category or type:
| LEVEL 3 | ||||
| LEVEL 2 | SIGNIFICANT | |||
| TOTAL MARKET | LEVEL 1 | SIGNIFICANT | UNOBSERVABLE | |
| INVESTMENTS IN SECURITIES | VALUE AT 1-31-12 | QUOTED PRICE | OBSERVABLE INPUTS | INPUTS |
| Corporate Bonds | $54,053,806 | — | $54,053,806 | — |
| Foreign Government | ||||
| Obligations | 12,980,973 | — | 12,980,973 | — |
| Common Stocks | 46,851,689 | $26,614,846 | 20,236,843 | — |
| Preferred Securities | 533,357 | — | 533,357 | — |
| U.S. Government & | ||||
| Agency Obligations | 36,651,598 | — | 36,651,598 | — |
| Purchased Options | 5,859,362 | 488,025 | 5,371,337 | — |
| Short-Term Investments | 43,056,870 | — | 43,056,870 | — |
| Total Investments | ||||
| in Securities | $199,987,655 | $27,102,871 | $172,884,784 | — |
| Other Financial Instruments | ||||
| Futures | ($1,237,888) | ($1,106,869) | ($131,019) | — |
| Forward Foreign | ||||
| Currency Contracts | ($1,033,023) | — | ($1,033,023) | — |
| Written Options | ($6,802,914) | ($3,623,540) | ($3,179,374) | — |
| Interest Rate Swaps | ($1,882) | — | ($1,882) | — |
| Credit Default Swaps | $2,208,007 | — | $2,208,007 | — |
| Variance Swaps | $278,798 | — | $278,798 | — |
Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. During the period ended January 31, 2012, there were no significant transfers into or out of Level 1, Level 2 or Level 3.
In order to value the securities, the Fund uses the following valuation techniques. Equity securities held by the Fund are valued at the last sale price or official closing price on the principal securities exchange on which they trade. In the event there were no sales during the day or closing prices are not available, then securities are valued using the last quoted bid or evaluated price. 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 market are valued at the last bid price quoted by brokers making markets in the securities at the close of trading. Certain short-term securities are valued at amortized cost.
Other portfolio securities and assets, where market quotations are not readily available, are valued at fair value, as determined in good faith by the Fund’s Pricing Committee, following procedures established by the Board of Trustees. Generally, trading in non-U.S. securities is substantially completed each day at various times prior to the close of trading on the NYSE. Significant market events that affect the values of non-U.S. securities may occur 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 non-U.S. securities in order to adjust for events which may occur between the close of foreign exchanges and the close of the NYSE.
| 26 Global Absolute Return Strategies Fund | Semiannual report | |
Repurchase agreements. The Fund may enter into repurchase agreements. When the Fund enters into a repurchase agreement, it receives collateral which 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. 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.
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. 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 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.
Inflation indexed bonds. Inflation-indexed bonds are securities that generally have a lower coupon interest rate fixed at issuance but whose principal value is periodically adjusted to a rate of inflation, such as the Consumer Price Index. Over the life of an inflation-indexed bond, interest is paid on the inflation adjusted principal value as described above. Increases in the principal amount of these securities are recorded as interest income. Decreases in the principal amount of these securities may reduce interest income to the extent of income recorded. Excess amounts are recorded as an adjustment to cost.
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. Risks can result from differences in economic and political conditions, regulations, market practices (including higher transaction costs) and accounting standards. Foreign investments are also subject to a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
Foreign taxes. The Fund may be subject to capital gains and repatriation taxes as imposed by certain countries in which it invests. Such taxes are generally based upon income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation.
Overdrafts. Pursuant to the custodian agreement, the Fund’s custodian may, in its discretion, advance funds to the Fund to make properly authorized payments. When such payments result in an overdraft, the Fund is obligated to repay the custodian for any overdraft, including any costs or expenses associated with the overdraft. The custodian 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.
| Semiannual report | Global Absolute Return Strategies Fund 27 | |
Expenses. Expenses that are directly attributable to an individual fund are allocated to the 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, 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 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.
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 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.
New accounting pronouncements. In May 2011, Accounting Standards Update 2011-04 (ASU 2011-04), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, was issued and is effective during interim and annual periods beginning after December 15, 2011. ASU 2011-04 amends Financial Accounting Standards Board (FASB) Topic 820, Fair Value Measurement. The amendments are the result of the work by the FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The update may require additional disclosures related to transfers between Levels 1, 2 and 3. Also, the update requires additional disclosures related to quantitative and qualitative information regarding unobservable inputs and valuation techniques utilized in the valuation process. Management is currently evaluating the application of ASU 2011-04 and its impact, if any, on the Fund’s financial statement disclosure.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The update creates new disclosure requirements requiring entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of assets and liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Management is currently evaluating the impact, if any, on the Fund’s financial statement disclosure.
Note 3 — Derivative instruments
The Fund may invest in derivatives in order to meet its investment objective. The use of derivatives may involve risks different from, or potentially greater than, the risks associated with investing directly in securities. Specifically, the Fund is exposed to the risk that the counterparty to an
| 28 Global Absolute Return Strategies Fund | Semiannual report | |
over-the-counter (OTC) derivatives contract will be unable or unwilling to make timely settlement payments or otherwise honor its obligations. OTC derivatives transactions typically can only be closed out with the other party to the transaction. If the counterparty defaults, the Fund will have contractual remedies, but there is no assurance that the counterparty will meet its contractual obligations or that the Fund will succeed in enforcing them.
Futures. A futures contract is a contractual agreement to buy or sell a particular commodity, currency or financial instrument at a pre-determined price in the future. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates and potential losses in excess of the amounts recognized on the Statement of assets and liabilities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade.
Upon entering into a futures contract, the Fund is required to deposit initial margin with the broker in the form of cash or securities. The amount of required margin is generally based on a percentage of the contract value; this amount is the initial margin for the trade. The margin deposit must then be maintained at the established level over the life of the contract. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (variation margin) and unrealized gain or loss is recorded by the Fund. When the contract is closed, the Fund records a realized gain or loss 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.
During the period ended January 31, 2012, the Fund used futures contracts to manage against anticipated changes in securities markets, gain exposure to certain securities markets and/or substitute for securities purchase or to be purchased and maintain diversity and liquidity of the portfolio. The following table summarizes the contracts held at January 31, 2012. During the period ended January 31, 2012, the Fund held futures contracts with USD absolute notional values ranging up to $101.3 million as measured at each quarter end.
| UNREALIZED | |||||
| OPEN | NUMBER OF | EXPIRATION | APPRECIATION | ||
| CONTRACTS | CONTRACTS | POSITION | DATE | VALUE | (DEPRECIATION) |
| E-Mini NASDAQ 100 | 210 | Long | Mar 2012 | $10,349,850 | $942,890 |
| Index Futures | |||||
| E-Mini S&P 500 | 307 | Long | Mar 2012 | 20,080,870 | 1,431,398 |
| Futures | |||||
| Ultra Long U.S. | 164 | Long | Mar 2012 | 26,234,875 | (195,152) |
| Treasury Bond Futures | |||||
| ASX SPI 200 | 9 | Short | Mar 2012 | (1,009,470) | (33,012) |
| Index Futures | |||||
| Dow Jones Euro | 120 | Short | Mar 2012 | (3,798,576) | (315,705) |
| STOXX 50 Index | |||||
| Futures | |||||
| FTSE 100 Index | 44 | Short | Mar 2012 | (3,913,627) | (208,836) |
| Futures | |||||
| Hang Seng Index | 3 | Short | Feb 2012 | (393,737) | (13,251) |
| Futures | |||||
| OMXS 30 Index | 60 | Short | Feb 2012 | (910,915) | (3,254) |
| Futures | |||||
| Russell 2000 Mini | 391 | Short | Mar 2012 | (30,935,920) | (2,673,662) |
| Index Futures | |||||
| Swiss Market Index | 18 | Short | Mar 2012 | (1,150,983) | (38,285) |
| Futures | |||||
| TOPIX Index Futures | 25 | Short | Mar 2012 | (2,481,304) | (131,019) |
| ($1,237,888) | |||||
| Semiannual report | Global Absolute Return Strategies Fund 29 | |
Forward foreign currency contracts. A forward foreign currency contract is an agreement between two parties to buy and sell a specific currency at a price that is set on the date of the contract. The forward contract calls for delivery of the currency on a future date that is specified in the contract. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the forward agreement, the failure of the counterparties to timely post collateral, the risk that currency movements will not occur thereby reducing the Fund’s total return and the potential for losses in excess of the 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 period ended January 31, 2012, the Fund used forward foreign currency contracts to manage against anticipated currency exchange rates and gain exposure to foreign currency. The following table summarizes the contracts held at January 31, 2012. During the period ended January 31, 2012, the Fund held forward foreign currency contracts with USD absolute values ranging up to $114.8 million as measured at each quarter end.
| PRINCIPAL | PRINCIPAL | |||||
| AMOUNT | AMOUNT | UNREALIZED | ||||
| COVERED BY | COVERED BY | SETTLEMENT | APPRECIATION | |||
| CURRENCY | CONTRACT | CONTRACT (USD) | COUNTERPARTY | DATE | (DEPRECIATION) | |
| Buys | ||||||
| AUD | 13,295 | $14,060 | Barclays Bank PLC | 3-7-12 | $2 | |
| EUR | 99,550 | 130,888 | Barclays Bank PLC | 2-2-12 | (672) | |
| EUR | 142,288 | 186,796 | Barclays Bank PLC | 2-3-12 | (676) | |
| EUR | 139,927 | 184,635 | Barclays Bank PLC | 2-8-12 | (1,602) | |
| EUR | 99,413 | 131,177 | Barclays Bank PLC | 2-13-12 | (1,138) | |
| EUR | 338,580 | 444,317 | Barclays Bank PLC | 3-7-12 | (1,414) | |
| EUR | 32,131 | 41,796 | Royal Bank of Scotland PLC | 3-7-12 | 237 | |
| EUR | 59,592 | 76,006 | Royal Bank of Scotland PLC | 3-9-12 | 1,947 | |
| GBP | 3,128 | 4,866 | Royal Bank of Scotland PLC | 3-7-12 | 62 | |
| NOK | 56,000,000 | 9,403,783 | Royal Bank of Scotland PLC | 2-29-12 | 131,309 | |
| $10,618,324 | $128,055 | |||||
| Sells | ||||||
| AUD | 599,239 | $607,063 | Barclays Bank PLC | 3-7-12 | ($26,694) | |
| AUD | 1,400,000 | 1,376,873 | Royal Bank of Scotland PLC | 3-9-12 | (103,447) | |
| CAD | 1,950,000 | 1,878,881 | Royal Bank of Scotland PLC | 3-9-12 | (64,260) | |
| CAD | 9,733,894 | 9,375,000 | Royal Bank of Scotland PLC | 3-22-12 | (321,828) | |
| CHF | 1,270,000 | 1,358,190 | Royal Bank of Scotland PLC | 3-9-12 | (22,281) | |
| DKK | 940,000 | 164,877 | Royal Bank of Scotland PLC | 3-9-12 | (570) | |
| EUR | 7,200,000 | 9,414,252 | Barclays Bank PLC | 2-28-12 | (4,028) | |
| EUR | 800,000 | 1,037,091 | Royal Bank of Scotland PLC | 2-28-12 | (9,384) | |
| EUR | 7,228,000 | 9,403,783 | Royal Bank of Scotland PLC | 2-29-12 | (51,136) | |
| EUR | 2,585,021 | 3,392,444 | Barclays Bank PLC | 3-7-12 | 10,920 | |
| EUR | 24,731,745 | 32,355,606 | Royal Bank of Scotland PLC | 3-7-12 | 3,461 | |
| EUR | 3,799,779 | 4,942,710 | Royal Bank of Scotland PLC | 3-9-12 | (27,899) | |
| EUR | 1,272,814 | 1,650,000 | Barclays Bank PLC | 4-20-12 | (15,299) | |
| EUR | 14,400,988 | 18,462,556 | Barclays Bank PLC | 4-25-12 | (379,595) | |
| GBP | 230,987 | 363,830 | Barclays Bank PLC | 3-7-12 | (59) | |
| GBP | 1,259 | 1,947 | Royal Bank of Scotland PLC | 3-7-12 | (36) | |
| GBP | 1,243 | 1,928 | Barclays Bank PLC | 3-9-12 | (30) | |
| 30 Global Absolute Return Strategies Fund | Semiannual report | |
| PRINCIPAL | PRINCIPAL | |||||
| AMOUNT | AMOUNT | UNREALIZED | ||||
| COVERED BY | COVERED BY | SETTLEMENT | APPRECIATION | |||
| CURRENCY | CONTRACT | CONTRACT (USD) | COUNTERPARTY | DATE | (DEPRECIATION) | |
| Sells | ||||||
| GBP | 2,350,000 | $3,645,901 | Royal Bank of Scotland PLC | 3-9-12 | ($56,139) | |
| HKD | 3,400,000 | 436,929 | Royal Bank of Scotland PLC | 3-9-12 | (1,496) | |
| JPY | 267,000,000 | 3,432,569 | Royal Bank of Scotland PLC | 3-9-12 | (71,960) | |
| NOK | 850,000 | 142,814 | Royal Bank of Scotland PLC | 3-9-12 | (1,865) | |
| SEK | 3,300,000 | 477,309 | Royal Bank of Scotland PLC | 3-9-12 | (7,008) | |
| SGD | 345,000 | 263,834 | Royal Bank of Scotland PLC | 3-9-12 | (10,445) | |
| $104,186,387 | ($1,161,078) | |||||
Options. There are two types of options, a put option and a call option. A call option gives the purchaser of the option the right to buy (and the seller the obligation to sell) the underlying instrument at the exercise price. A put option gives the purchaser of the option the right to sell (and the writer the obligation to buy) the underlying instrument at the exercise price. Writing puts and buying calls may increase the Fund’s exposure to changes in the value of the underlying instrument. Buying puts and writing calls may decrease the Fund’s exposure to such changes. Risks related to the use of options include the loss of the premium, possible illiquidity of the options markets, trading restrictions imposed by an exchange and movements in underlying security values, and for written options, potential losses in excess of the amounts recognized on the Statement of assets and liabilities.
Options are traded either over-the-counter or on an exchange. Options listed on an exchange are valued at their closing price. If no closing price is available, then they are valued at the mean between the last bid and ask prices from the exchange on which they are principally traded. For options not listed on an exchange, an independent pricing source is used to value the options at the mean between the last bid and ask prices. When the Fund purchases an option, the premium paid by the Fund is included in the portfolio of investments and subsequently “marked-to-market” to reflect current market value. If the purchased option expires, the Fund realizes a loss equal to the cost of the option. If the Fund exercises a call option, the cost of the securities acquired by exercising the call is increased by the premium paid to buy the call. If the Fund exercises a put option, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are decreased by the premium paid. If the Fund enters into a closing sale transaction, the Fund realizes a gain or loss, depending on whether proceeds from the closing sale are greater or less than the original cost. When the Fund writes an option, the premium received is included as a liability and subsequently “marked-to-market” to reflect current market value of the option written. Premiums received from writing options that expire unexercised are recorded as realized gains. Premiums received from writing options which are exercised or are closed are added to or offset against the proceeds or amount paid on the transaction to determine the realized gain or loss. If a put option on a security is exercised, the premium received reduces the cost basis of the securities purchased.
During the period ended January 31, 2012, the Fund used purchased options to manage against anticipated currency exchange rates, changes in securities markets and changes in volatility; gain exposure to foreign currency, certain markets and/or substitute for securities purchase or to be purchased. During the period ended January 31, 2012, the Fund held purchased options with market values ranging up to $5.9 million as measured at each quarter end.
During the period ended January 31, 2012, the Fund wrote option contracts to manage against anticipated currency exchange rates, changes in securities markets and anticipated interest rate changes; gain exposure to foreign currency and certain markets and/or substitute for securities purchase or to be purchased. The following tables summarize the Fund’s written options activities during the period ended January 31, 2012 and the contracts held at January 31, 2012.
| Semiannual report | Global Absolute Return Strategies Fund 31 | |
| NUMBER OF | NOTIONAL | ||
| CONTRACTS | (CURRENCY & | PREMIUMS | |
| (EQUITY) | INTEREST RATE) | RECEIVED | |
| Outstanding, beginning of period | — | — | — |
| Options written | 515 | 64,050,000 | $5,956,206 |
| Options closed | — | — | — |
| Options exercised | — | — | — |
| Options expired | — | — | — |
| Outstanding, end of period | 515 | 64,050,000 | $5,956,206 |
Options on exchange-traded futures contracts
| EXPIRATION | NUMBER OF | |||||
| NAME OF ISSUER | EXERCISE PRICE | DATE | CONTRACTS | PREMIUM | VALUE | |
| Calls | ||||||
| DAX Index | $5,750 | Dec 2012 | 515 | $2,109,150 | ($3,623,540) | |
Foreign currency options
| EXERCISE | EXPIRATION | NOTIONAL | |||||
| DESCRIPTION | COUNTERPARTY | PRICE | DATE | AMOUNT | PREMIUM | VALUE | |
| Puts | |||||||
| USD | Goldman | $68.00 | Dec 2014 | USD $18,750,000 | $1,066,375 | ($897,881) | |
| versus | Sachs | ||||||
| JPY | |||||||
Interest rate swaptions
| FLOATING | PAY/RECEIvE | ||||||||
| RATE | FLOATING | EXERCISE | EXPIRATION | CUR- | NOTIONAL | ||||
| DESCRIPTION | COUNTERPARTY | INDEX | RATE | RATE | DATE | RENCY | AMOUNT | PREMIUM | VALUE |
| Calls | |||||||||
| 10-Year Interest | Morgan Stanley | EUR | Receive | 2.70% | Dec 2014 | EUR | 17,300,000 | $968,127 | ($968,937) |
| Rate Swap | EURIBOR | ||||||||
| TELERATE | |||||||||
| 10-Year Interest | Royal Bank of | EUR | Receive | 2.80% | Jan 2015 | EUR | 1,500,000 | 90,054 | (91,407) |
| Rate Swap | Scotland PLC | EURIBOR | |||||||
| TELERATE | |||||||||
| 30-Year Interest | Royal Bank of | USD LIBOR | Receive | 2.40% | Dec 2012 | USD | 26,500,000 | 1,722,500 | (1,221,149) |
| Rate Swap | Scotland PLC | BBA | |||||||
| 45,300,000 | $2,780,681 | ($2,281,493) | |||||||
Swaps. The Fund may enter into interest rate, credit default and other forms of swap agreements. Swap agreements are agreements between a fund and counterparty to exchange cash flows, assets, foreign currencies or market-linked returns at specified intervals. Swap agreements are privately negotiated in the over-the-counter market (OTC swaps) or may be executed on a registered commodities exchange (centrally cleared swaps). Swaps are marked-to-market daily based upon values from third party vendors, which may include a registered commodities exchange, or broker quotations and the change in value is recorded as a component of unrealized appreciation/ depreciation of swap contracts. The value of the swap will typically implicate collateral posting obligations by the party that is considered out-of-the-money on the swap.
Upfront payments made/received by the Fund are amortized/accreted for financial reporting purposes, with the unamortized/unaccreted portion included in the Statement of assets and liabilities. A termination payment by the counterparty or the Fund is recorded as realized gain or loss, as well as the net periodic payments received or paid by the Fund.
Entering into swap agreements involves, to varying degrees, elements of credit, market and documentation risk that may amount to values that are in excess of the amounts recognized on the Statement of assets and liabilities. Such risks involve the possibility that there will be no liquid
| 32 Global Absolute Return Strategies Fund | Semiannual report | |
market for the swap, or that a counterparty may default on its obligation or delay payment under the swap terms. The counterparty may disagree or contest the terms of the swap. Market risks may also accompany the swap, including interest rate risk. The Fund may also suffer losses if it is unable to terminate or assign outstanding swaps or reduce its exposure through offsetting transactions.
Interest rate swaps. Interest rate swaps represent an agreement between a fund and counterparty to exchange cash flows based on the difference between two interest rates applied to a notional amount. The payment flows are usually netted against each other, with the difference being paid by one party to the other. The Fund settles accrued net interest receivable or payable under the swap contracts at specified, future intervals.
During the period ended January 31, 2012, the Fund used interest rate swaps to manage against anticipated interest rate changes and maintain diversity and liquidity of the portfolio. The following table summarizes the interest rate swap contracts held as of January 31, 2012. During the period ended January 31, 2012, the Fund held interest rate swaps with total USD notional amounts ranging up to $136.7 million as measured at each quarter end.
| UNAMORTIZED | |||||||||||
| PAYMENTS | PAYMENTS | UPFRONT | UNREALIZED | ||||||||
| NOTIONAL | USD NOTIONAL | MADE BY | RECEIVED | MATURITY | PAYMENT PAID | APPRECIATION | MARKET | ||||
| COUNTERPARTY | AMOUNT | CURRENCY | AMOUNT | FUND | BY FUND | DATE | (RECEIVED); | (DEPRECIATION) | VALUE | ||
| Goldman Sachs | 26,000,000 | USD | $26,000,000 | Fixed | 3-Month | Dec 2021 | — | ($378,067) | ($378,067) | ||
| 2.039% | LIBOR (a) | ||||||||||
| Royal Bank | 56,000,000 | AUD | 55,370,000 | Fixed | AUD-BBR- | Dec 2013 | — | 223,583 | 223,583 | ||
| of Scotland PLC | 3.670% | BBSW | |||||||||
| Royal Bank | 56,000,000 | AUD | 55,370,000 | AUD-BBR- | Fixed | Dec 2015 | — | 152,602 | 152,602 | ||
| of Scotland PLC | BBSW | 4.200% | |||||||||
| $136,740,000 | — | ($1,882) | ($1,882) | ||||||||
(a) At 1-31-12, the 3-month LIBOR rate was 0.54235%.
Credit default swaps. Credit default swaps (CDS) involve the exchange of a fixed rate premium (paid by the Buyer), for protection against the loss in value of an underlying debt instrument, referenced entity or index, in the event of a defined credit event (such as payment default or bankruptcy). Under the terms of the swap, one party acts as a “guarantor” (the Seller), receiving the premium and agreeing to remedies that are specified within the credit default agreement. The Fund may enter into CDS in which it may act as either Buyer or Seller. By acting as the Seller, the Fund may incur economic leverage since it would be obligated to pay the Buyer the notional amount of the contract in the event of a default. The amount of loss in such case would be reduced by any recovery value on the underlying credit.
During the period ended January 31, 2012, the Fund used CDS as a Buyer of protection to manage against potential credit events, gain exposure to security or credit index and/or temporary substitute for securities purchase or to be purchased. The following table summarizes the credit default swap contracts the Fund held as of January 31, 2012 as a Buyer of protection. During the period ended January 31, 2012, the Fund was the Buyer of credit default swap contracts with total USD notional amounts ranging up to $16.9 million as measured at each quarter end.
| UNAMORTIZED | |||||||||||
| USD | UPFRONT | UNREALIZED | |||||||||
| COUNTER- | REFERENCE | NOTIONAL | NOTIONAL | (PAY)/RECEIVE | MATURITY | PAYMENT PAID | APPRECIATION | MARKET | |||
| PARTY | OBLIGATION | AMOUNT | CURRENCY | AMOUNT | FIXED RATE | DATE | (RECEIVED) | (DEPRECIATION) | VALUE | ||
| Buy | |||||||||||
| Morgan | iTraxx Europe S16 v1 | 13,000,000 | EUR | $16,893,494 | (1.000%) | Dec 2016 | $650,017 | ($337,387) | $312,630 | ||
| Stanley | 5-year Index | ||||||||||
| $16,893,494 | $650,017 | ($337,387) | $312,630 | ||||||||
| Semiannual report | Global Absolute Return Strategies Fund 33 | |
The Fund used CDS as a Seller of protection during the period ended January 31, 2012 to take a long position in the exposure of the benchmark credit, gain exposure to security or credit index and/or temporary substitute for securities purchase or to be purchased. The following table summarizes the credit default swap contracts the Fund held as of January 31, 2012 where the Fund acted as a Seller of protection. During the period ended January 31, 2012, the Fund acted as Seller on credit default swap contracts with total USD notional amounts ranging up to $35.0 million as measured at each quarter end.
| UNAMORTIZED | |||||||||||
| (PAY)/ | UPFRONT | ||||||||||
| USD | RECEIVE | PAYMENT | UNREALIZED | ||||||||
| REFERENCE | NOTIONAL | CUR- | NOTIONAL | FIXED | MATURITY | PAID | APPRECIATION | MARKET | |||
| COUNTERPARTY | OBLIGATION | AMOUNT | RENCY | AMOUNT | RATE | DATE | (RECEIVED) | (DEPRECIATION) | VALUE | ||
| Sell | |||||||||||
| Credit Suisse | CDX. | 1,176,000 | USD | $1,176,000 | 5.000% | Dec 2016 | ($20,580) | ($4,141) | ($24,721) | ||
| International | NA.HY.17-v4 | ||||||||||
| 5-year | |||||||||||
| Morgan Stanley | iTraxx SUBFIN | 26,000,000 | EUR | 33,786,989 | 5.000% | Dec 2016 | (735,513) | 2,655,611 | 1,920,098 | ||
| CDSI S16 5-year | |||||||||||
| Index | |||||||||||
| $34,962,989 | ($756,093) | $2,651,470 | $1,895,377 | ||||||||
Variance Swaps. Variance swap agreements involve two parties agreeing to exchange cash flows based on the measured variance (or square of volatility) of a specified underlying asset. One party agrees to exchange a “fixed rate” or strike price payment for the “floating rate” or realized price variance on the underlying asset with respect to the notional amount. At inception, the strike price is generally chosen such that the fair value of the swap is zero. At the maturity date, a net cash flow is exchanged, where the payoff amount is equivalent to the difference between the realized price variance of the underlying asset and the strike price multiplied by the notional amount. As a receiver of the realized price variance, the Fund would receive the payoff amount when the realized price variance of the underlying asset is greater than the strike price and would owe the payoff amount when the variance is less than the strike price. As a payer of the realized price variance the Fund would owe the payoff amount when the realized price variance of the underlying asset is greater than the strike price and would receive the payoff amount when the variance is less than the strike price.
The Fund used variance swaps during the period ended January 31, 2012 to manage against anticipated changes in securities markets. The following table summarizes the variance swap contracts the Fund held as of January 31, 2012. During the period ended January 31, 2012, the Fund held variance swap contracts with total USD notional amounts ranging up to $1.0 million as measured at each quarter end.
| UNAMORTIZED | |||||||||||
| UPFRONT | |||||||||||
| USD | PAY/ | VOLATILITY | PAYMENT | UNREALIZED | |||||||
| COUNTER- | REFERENCE | CUR- | NOTIONAL | NOTIONAL | RECEIVE | MATURITY | STRIKE | PAID | APPRECIATION | MARKET | |
| PARTY | ENTITY | RENCY | AMOUNT | AMOUNT | VARIANCE | DATE | PRICE | (RECEIVED) | (DEPRECIATION) | VALUE | |
| Morgan | China Enterprises | HKD | 370,000 | $47,536 | Receive | Dec 2012 | 43.30% | — | ($351,699) | ($351,699) | |
| Stanley | Index (Hang | ||||||||||
| Seng) | |||||||||||
| Morgan | Nikkei 225 Index | JPY | 29,000,000 | 371,664 | Receive | Dec 2013 | 33.00% | — | (1,758,577) | (1,758,577) | |
| Stanley | |||||||||||
| Morgan | FTSE 100 Index | GBP | 37,000 | 57,942 | Pay | Dec 2012 | 31.40% | — | 344,036 | 344,036 | |
| Stanley | |||||||||||
| Morgan | S&P 500 Index | USD | 370,000 | 370,000 | Pay | Dec 2013 | 33.65% | — | 2,056,971 | 2,056,971 | |
| Stanley | |||||||||||
| Morgan | Nikkei 225 Index | JPY | 237,000 | 3,060 | Receive | Dec 2013 | 29.00% | — | (1,574) | (1,574) | |
| Stanley | |||||||||||
| Morgan | Nikkei 225 Index | JPY | 353,000 | 4,603 | Receive | Dec 2013 | 29.00% | — | (2,206) | (2,206) | |
| Stanley | |||||||||||
| 34 Global Absolute Return Strategies Fund | Semiannual report | |
| UNAMORTIZED | |||||||||||
| UPFRONT | |||||||||||
| USD | PAY/ | VOLATILITY | PAYMENT | UNREALIZED | |||||||
| COUNTER- | REFERENCE | CUR- | NOTIONAL | NOTIONAL | RECEIVE | MATURITY | STRIKE | PAID | APPRECIATION | MARKET | |
| PARTY | ENTITY | RENCY | AMOUNT | AMOUNT | VARIANCE | DATE | PRICE | (RECEIVED) | (DEPRECIATION) | VALUE | |
| Morgan | S&P 500 Index | USD | 3,000 | $3,000 | Pay | Dec 2013 | 27.00% | — | ($3,002) | ($3,002) | |
| Stanley | |||||||||||
| Morgan | S&P 500 Index | USD | 5,000 | 5,000 | Pay | Dec 2013 | 27.00% | — | (5,151) | (5,151) | |
| Stanley | |||||||||||
| $862,805 | — | $278,798 | $278,798 | ||||||||
Fair value of derivative instruments by risk category
The table below summarizes the fair value of derivatives held by the Fund at January 31, 2012 by risk category:
| FINANCIAL | ASSET | LIABILITY | ||
| STATEMENT OF ASSETS | INSTRUMENTS | DERIVATIVES | DERIVATIVES | |
| RISK | AND LIABILITIES LOCATION | LOCATION | FAIR VALUE | FAIR VALUE |
| Interest rate contracts | Investments, at value* | Purchased options | $1,338,393 | — |
| Interest rate contracts | Written options, at value | Written options | — | ($2,281,493) |
| Interest rate contracts | Swap contracts, at value | Interest rate swaps | 376,185 | (378,067) |
| Foreign exchange contracts | Investments, at value* | Purchased options | 908,888 | — |
| Foreign exchange contracts | Written options, at value | Written options | — | (897,881) |
| Foreign exchange contracts | Receivable/payable for | Forward foreign | 147,938 | (1,180,961) |
| forward foreign currency | currency contracts | |||
| exchange contracts | ||||
| Equity contracts | Investments, at value* | Purchased options | 3,612,081 | — |
| Equity contracts | Written options, at value | Written options | — | (3,623,540) |
| Equity contracts | Receivable/payable for futures | Futures† | 2,374,288 | (3,612,176) |
| Equity contracts | Swap contracts, at value | variance swaps | 2,401,007 | (2,122,209) |
| Credit contracts | Swap contracts, at value | Credit default swaps | 2,232,728 | (24,721) |
* Purchased options are included in the portfolio of investments.
† Reflects cumulative appreciation/depreciation on futures as disclosed in Note 3. Only the period end variation margin is separately disclosed on the Statement of assets and liabilities.
Effect of derivative instruments on the Statement of operations
The table below summarizes the net realized gain (loss) included in the net increase (decrease) in net assets from operations, classified by derivative instrument and risk category, for the period ended January 31, 2012:
| STATEMENT OF | FOREIGN | ||||
| OPERATIONS | FUTURES | SWAP | CURRENCY | ||
| RISK | LOCATION | CONTRACTS | CONTRACTS | TRANSACTIONS* | TOTAL |
| Interest rate | Net realized gain | — | $46,567 | — | $46,567 |
| contracts | (loss) | ||||
| Foreign exchange | Net realized gain | — | — | $297,918 | $297,918 |
| contracts | (loss) | ||||
| Equity contracts | Net realized gain | ($103,855) | — | — | ($103,855) |
| (loss) | |||||
| Credit contracts | Net realized gain | — | (16,031) | — | ($16,031) |
| (loss) | |||||
| Total | ($103,855) | $30,536 | $297,918 | $224,599 | |
* Realized gain/loss associated with forward foreign currency contracts is included in the caption on the Statement of operations.
| Semiannual report | Global Absolute Return Strategies Fund 35 | |
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 period ended January 31, 2012:
| TRANSLATION | |||||||
| OF ASSETS | |||||||
| STATEMENT OF | INVESTMENTS | AND LIABILITIES | |||||
| OPERATIONS | (PURCHASED | FUTURES | WRITTEN | SWAP | IN FOREIGN | ||
| RISK | LOCATION | OPTIONS) | CONTRACTS | OPTIONS | CONTRACTS | CURRENCIES* | TOTAL |
| Interest rate | Change in | $122,226 | — | $499,188 | ($1,882) | — | $619,532 |
| contracts | unrealized | ||||||
| appreciation | |||||||
| (depreciation) | |||||||
| Foreign | Change in | (75,923) | — | 168,494 | — | ($1,033,023) | ($940,452) |
| exchange | unrealized | ||||||
| contracts | appreciation | ||||||
| (depreciation) | |||||||
| Equity | Change in | 1,160,251 | ($1,237,888) | (1,514,390) | 278,798 | — | ($1,313,229) |
| contracts | unrealized | ||||||
| appreciation | |||||||
| (depreciation) | |||||||
| Credit | Change in | — | — | — | 2,314,083 | — | $2,314,083 |
| contracts | unrealized | ||||||
| appreciation | |||||||
| (depreciation) | |||||||
| Total | $1,206,554 | ($1,237,888) | ($846,708) | $2,590,999 | ($1,033,023) | $679,934 | |
* Change in unrealized appreciation/depreciation associated with forward foreign currency contracts is included in the caption on the Statement of operations.
Note 4 — Guarantees and indemnifications
Under the Fund’s organizational documents, its Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. The risk of material loss from such claims is considered remote.
Note 5 — Fees and transactions with affiliates
John Hancock Investment Management Services, LLC (the Adviser), serves as investment adviser for the Fund. John Hancock Funds, LLC (the Distributor), an affiliate of the Adviser, serves as principal underwriter of the Fund. The Adviser and the Distributor are indirect wholly owned subsidiaries of Manulife Financial Corporation (MFC).
Management fee. The Fund pays the Adviser a daily management fee for its services. If the net assets of the Fund are equal to or less than $500,000,000, the management fee paid to the Adviser equivalent, on an annual basis, to the sum of: a) 1.30% of the first $200,000,000 of the Fund’s average daily net assets and b) 1.25% of the next $300,000,000 of average daily net assets. If the net assets of the Fund exceed $500,000,000, the management fee paid to the Adviser equivalent, on an annual basis, is 1.20% of average daily net assets. The Adviser has a subadvisory agreement with Standard Life Investments (Corporate Funds) Limited. The Fund is not responsible for payment of the subadvisory fees.
The investment management fees incurred for the period ended January 31, 2012 were equivalent to a gross annual rate of 1.30% of the Fund’s average daily net assets.
| 36 Global Absolute Return Strategies Fund | Semiannual report | |
The Adviser has contractually agreed to waive a portion of its management fee for certain funds (the Participating Funds) of the Trust 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 Funds that exceeds $75 billion but is less than $100 billion; and 0.015% of that portion of the aggregate net assets of all the Participating Funds that equals or exceeds $100 billion. The amount of the reimbursement is calculated daily and allocated among all the Participating Funds in proportion to the daily net assets of each fund. This arrangement may be amended or terminated at any time by the Adviser upon notice to the funds and with approval of the Board of Trustees.
The Adviser has contractually agreed to waive all or a portion of its management fee and reimburse operating expenses of the Fund, excluding certain expenses such as taxes, brokerage commissions, interest expense, litigation and indemnification expenses and other extraordinary expenses, to the extent necessary to maintain the Fund’s total operating expenses at 1.95% and 1.59% for classes A and I, respectively. The fee waivers and/or reimbursements will continue in effect until December 31, 2012, unless renewed by mutual agreement of the Fund and the Adviser based upon a determination that this is appropriate under the circumstances at the time.
The Adviser has voluntarily agreed to waive a portion of its management fee and/or reimburse the Fund, in order to limit the Fund’s expenses, excluding taxes, brokerage commissions, interest expense, litigation and indemnifications expenses and other extraordinary expenses not incurred in the ordinary course of the Fund’s business, advisory fees, 12b-1 fees, transfer agent fees and service fees, state registration fees and printing and postage, to 0.20% of the Fund’s average daily net asset value, on an annual basis. This voluntary arrangement may be amended or terminated at any time by the Adviser upon notice to the Fund.
For the period ended January 31, 2012, the expense reductions amounted to the following:
| EXPENSE | |||
| CLASS | REDUCTIONS | ||
| Class A | $1,820 | ||
| Class I | 1,968 | ||
| Class NAV | 790 | ||
| Total | $4,578 | ||
Expense recapture. The Adviser may recapture operating expenses reimbursed or fees waived under previous expense limitation or waiver arrangements made subsequent to December 19, 2011, for a period of three years following the beginning of the month in which such reimbursements or waivers originally occurred to the extent that the Fund is below its expense limitation during this period. Certain reimbursements or waivers are not subject to recapture. The expenses waived or reimbursed subject to potential recovery through January 1, 2015 are $3,783. For the period ended January 31, 2012, the Fund did not recapture any expenses.
The investment management fees, including the impact of the waivers and reimbursements described above, incurred for the period ended January 31, 2012 were equivalent to a net annual effective rate of 1.28% of the Fund’s average daily net assets.
Accounting and legal services. Pursuant to a service agreement, the Fund reimburses the Adviser 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 period ended January 31, 2012 amounted to an annual rate of 0.01% of the Fund’s average daily net assets.
| Semiannual report | Global Absolute Return Strategies Fund 37 | |
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 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 0.30% for Class A for distribution and service fees, expressed as an annual percentage of average daily net assets.
Sales charges. Class A shares are assessed up-front sales charges. During the period ended January 31, 2012, there were no up-front sales charges assessed 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 Adviser. 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 period ended January 31, 2012 were:
| DISTRIBUTION | TRANSFER | STATE | PRINTING AND | |
| CLASS | AND SERVICE FEES | AGENT FEES | REGISTRATION FEES | POSTAGE |
| Class A | $42 | $34 | $1,779 | $4 |
| Class I | — | 141 | 1,779 | 39 |
| Total | $42 | $175 | $3,558 | $43 |
Trustee expenses. The Trust compensates each Trustee who is not an employee of the Adviser or its affiliates. The costs of paying Trustee compensation and expenses are allocated to each fund based on its average daily net assets.
Note 6 — Fund share transactions
Transactions in Fund shares for the period ended January 31, 2012 were as follows:
| Period ended 1-31-121 | ||
| Shares | Amount | |
| Class A shares | ||
| Sold | 41,635 | $428,666 |
| Net increase | 41,635 | $428,666 |
| Class I shares | ||
| Sold | 413,204 | $4,250,228 |
| Net increase | 413,204 | $4,250,228 |
| Class NAV shares | ||
| Sold | 19,352,017 | $193,556,196 |
| Repurchased | (75,921) | (773,637) |
| Net increase | 19,276,096 | $192,782,559 |
| Net increase | 19,730,935 | $197,461,453 |
1 Period from 12-19-11 (commencement of operations) to 1-31-12.
| 38 Global Absolute Return Strategies Fund | Semiannual report | |
Affiliates of the Fund owned 24%, 2% and 100% of shares of beneficial interest of Class A, Class I and Class NAV on January 31, 2012.
Note 7 — Purchase and sale of securities
Purchases and sales of securities, other than short-term securities and U.S. Treasury obligations, aggregated $110,272,490 and $3,463,665, respectively, for the period ended January 31, 2012. Purchases and sales of U.S. Treasury obligations aggregated $36,201,018 and $0, respectively, for the period ended January 31, 2012.
Note 8 — Investment by affiliated funds
Certain investors in the Fund are affiliated funds and are managed by the Adviser 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. As of January 31, 2012, the following funds had an affiliate ownership concentration of 5% or more of the Fund’s net assets:
| AFFILIATED | ||
| FUND | CONCENTRATION | |
| John Hancock Lifestyle Growth Portfolio | 26.8% | |
| John Hancock Lifestyle Balanced Portfolio | 26.8% | |
| John Hancock Lifestyle Moderate Portfolio | 9.0% | |
| John Hancock Lifestyle Aggressive Portfolio | 8.5% | |
| John Hancock Lifestyle Conservative Portfolio | 8.1% | |
| Semiannual report | Global Absolute Return Strategies Fund 39 | |
Evaluation of Advisory and Subadvisory Agreements by the Board of Trustees
At an in-person meeting on December 14–16, 2011, the Board of Trustees of John Hancock Funds II (the Trust), including all of 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), approved the following new series of the Trust:
Global Absolute Return Strategies Fund (the New Portfolio)
This section describes the evaluation by the Board of Trustees of:
(a) an amendment to the advisory agreement between the Trust and John Hancock Investment Management Services, LLC (the Adviser or JHIMS) (the Advisory Agreement) to add the New Portfolio; and
(b) the subadvisory agreement between the Adviser and Standard Life Investments (Corporate Funds) Limited (the Subadviser) with respect to the New Portfolio (the Subadvisory Agreement).
Evaluation by the Board of Trustees
The Board, including the Independent Trustees, is responsible for selecting the Adviser, approving the Adviser’s selection of subadvisers for each of the portfolios of the Trust (the Funds) and approving the Trust’s advisory and subadvisory (and any sub-subadvisory) agreements, their periodic continuation and any amendments. Consistent with Securities and Exchange Commission rules, the Board regularly evaluates the Trust’s advisory and subadvisory arrangements, including consideration of the factors listed below. The Board may also consider other factors (including conditions and trends prevailing generally in the economy, the securities markets and the industry) and does not treat any single factor as determinative, and each Trustee may attribute different weights to different factors. The Board is furnished with an analysis of its fiduciary obligations in connection with its evaluation and, throughout the evaluation process, the Board is assisted by counsel for the Trust and the Independent Trustees are also separately assisted by independent legal counsel. The factors considered by the Board are:
1. the nature, extent and quality of the services to be provided by the Adviser to the Trust and by the subadvisers to the Funds;
2. the investment performance of the Funds and their subadvisers;
3. the extent to which economies of scale would be realized as a Fund grows and whether fee levels reflect these economies of scale for the benefit of Fund shareholders;
4. the costs of the services to be provided and the profits to be realized by the Adviser and its affiliates (including any subadvisers that are affiliated with the Adviser) from the Adviser’s relationship with the Trust; and
5. comparative services rendered and comparative advisory and subadvisory fee rates.
The Board believes that information relating to all of these factors is relevant to its evaluation of the Trust’s advisory agreement. The Board also takes into account any indirect benefits expected to be derived by the Adviser and its affiliates and the subadvisers and their affiliates from their relationships with the Funds. With respect to its evaluation of subadvisory agreements (including any sub-subadvisory agreements) with subadvisers not affiliated with the Adviser, the Board believes that, in view of the Trust’s manager-of-managers advisory structure, the costs of the services to be provided and the profits to be realized by those subadvisers that are not affiliated with the Adviser
| 40 Global Absolute Return Strategies Fund | Semiannual report | |
from their relationship with the Trust generally are not a material factor in the Board’s consideration of these subadvisory agreements because such fees are paid by the Adviser and not by the Funds and the Board relies on the ability of the Adviser to negotiate the subadvisory fees at arm’s length.
In evaluating subadvisory arrangements, the Board also considers other material business relationships that unaffiliated subadvisers and their affiliates have with the Adviser or its affiliates, including the involvement by certain affiliates of certain subadvisers in the distribution of financial products, including shares of the Trust, offered by the Adviser and other affiliates of the Adviser (Material Relationships).
Approval of Advisory and Subadvisory Agreements
At its in-person meeting on December 14–16, 2011, the Board, including all the Independent Trustees, approved the Advisory Agreement and the Subadvisory Agreement with respect to the New Portfolio.
In considering the Advisory Agreement and the Subadvisory Agreement, the Board received in advance of the meeting a variety of materials relating to the New Portfolio, the Adviser and the Subadviser, including comparative performance, fee and expense information for a peer group of similar mutual funds, including performance information for relevant benchmark indices and other information provided by the Adviser and the Subadviser regarding the nature, extent and quality of services to be provided by the Adviser and the Subadviser under their respective Agreements. The Board also took into account discussions with management and information provided to the Board in its meetings throughout the year with respect to the services provided by the Adviser with respect to other funds in the Trust and in John Hancock Variable Insurance Trust, including quarterly performance reports prepared by management containing reviews of investment results. The Board also took into account information with respect to the New Portfolio presented at their September 2011 meeting, including a presentation from the Subadviser with respect to the New Portfolio.
Throughout the process, the Trustees were afforded the opportunity to ask questions of and request additional information from management. The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed Agreements with respect to the New Portfolio and discussed the proposed Agreements in private sessions with their independent legal counsel at which no representatives of management were present.
Approval of Advisory Agreement
In considering the nature, extent and quality of the services to be provided by the Adviser, the Board took into account their knowledge of JHIMS’s management and the quality of the performance of its duties through Board meetings, discussions and reports during the preceding year and through each Trustee’s history of service to the Trust. The Board considered that JHIMS is responsible for the management of the day-to-day operations of the Funds, including but not limited to, general supervision of and coordination of the services provided by the subadvisers, and is also responsible for monitoring and reviewing the activities of the subadvisers and other third-party service providers. The Board also noted that on a regular basis it receives and reviews information from the Trust’s Chief Compliance Officer (CCO) regarding the Funds’ compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act, and that it also considers the Adviser’s risk management processes.
In approving the Advisory Agreement, and with reference to the factors that it regularly considers when considering approval of advisory and subadvisory agreements as listed above, the Board:
(1) — (a)considered the high value to the Trust of continuing its relationship with JHIMS as the Trust’s adviser, the skills and competency with which JHIMS has in the past managed the
| Semiannual report | Global Absolute Return Strategies Fund 41 | |
Trust’s affairs and its subadvisory relationships, JHIMS’ oversight and monitoring of sub-advisers’ investment performance and compliance programs including its timeliness in responding to performance issues and the qualifications of JHIMS’ personnel;
(b) considered JHIMS’ compliance policies and procedures and noted its responsiveness to regulatory changes and mutual fund industry developments;
(c) considered JHIMS’ administrative capabilities, including its ability to supervise the other service providers for the New Portfolio;
(d) considered the financial condition of the Adviser and whether it had the financial wherewithal to provide a high level and quality of services to the New Portfolio; and
(e) recognized the Adviser’s reputation and experience in serving as an investment adviser to the Trust, and considered 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 JHIMS may reasonably be expected to provide a high quality of services under the Advisory Agreement with respect to the New Portfolio.
(2) — (a) reviewed the performance of a composite of accounts with investment objectives and strategies substantially similar to the New Portfolio; and
(b) reviewed the comparative performance of the composite’s benchmark.
(3) — (a) with respect to each Fund (except those listed below) and the New Portfolio, considered that the Adviser has agreed to waive its management fee for each of these Funds and the New Portfolio and each of the funds of John Hancock Variable Insurance Trust (the Participating Portfolios) or otherwise reimburse the expenses of the Participating Portfolios as follows (the Reimbursement) and that, at the request of the Board, the Reimbursement rate was increased effective May 31, 2011. The current Reimbursement rate is as follows: The Reimbursement shall equal, on an annualized basis, 0.01% of that portion of the aggregate net assets of all the Participating Portfolios that exceed $75 billion but is less than $100 billion and 0.015% of that portion of the aggregate net assets of all the Participating Portfolios that equals or exceeds $100 billion. The amount of the Reimbursement shall be calculated daily and allocated among all the Participating Portfolios in proportion to the daily net assets of each Participating Portfolio, and that Reimbursement may be terminated or modified by the Adviser only upon notice to the Trust and approval of the Board of Trustees of the Trust. (The Funds that are not Participating Portfolios as of the date of this report are each of the funds of funds of the Trust and John Hancock Variable Insurance Trust.)
(b) reviewed the Trust’s and New Portfolio’s advisory fee structure and the incorporation therein of any subadvisory fee breakpoints in the advisory fees charged and concluded that (i) the New Portfolio contains breakpoints at the subadvisory fee level and that such breakpoints are reflected as breakpoints in the advisory fees for the New Portfolio and (ii) although economies of scale cannot be measured with precision, these arrangements permit shareholders of the New Portfolio to benefit from economies of scale if the assets of the New Portfolio grow; and
(c) The Board also considered the effect of the New Portfolio’s growth in size on its performance and fees. The Board also noted that if the New Portfolio’s assets increase over time, the New Portfolio may realize other economies of scale if assets increase proportionally more than certain other fixed expenses.
| 42 Global Absolute Return Strategies Fund | Semiannual report | |
(4) — (a) reviewed and considered information presented by JHIMS regarding the anticipated profitability of JHIMS’ relationship with the New Portfolio and whether JHIMS has the financial ability to provide a high level of services to the New Portfolio;
(b) considered that JHIMS also will provide administrative services to the New Portfolio on a cost basis pursuant to an administrative services agreement;
(c) John Hancock Signature Services, LLC and John Hancock Funds, LLC, affiliates of the Adviser, will provide transfer agency services and distribution services to the New Portfolio, respectively;
(d) that JHIMS also will derive reputational and other indirect benefits from providing advisory services to the New Portfolio;
(e) noted that the subadvisory fees for the New Portfolio are paid by JHIMS and are negotiated at arm’s length;
(f) took into account the Reimbursement in place, as well as that the Adviser had entered into an expense limitation agreement with respect to certain of the New Portfolio’s expenses; and
(g) considered that the Adviser should be entitled to earn a reasonable level of profits in exchange for the level of services it provides to the New Portfolio and the entrepreneurial risk that it assumes as Adviser.
Based upon its review, the Board concluded that the Adviser and its affiliates’ anticipated level of profitability, if any, from their relationship with the New Portfolio was reasonable and not excessive.
(5) reviewed comparative information including, among other data, the New Portfolio’s contractual and actual advisory and subadvisory fees and anticipated total expenses as compared to similarly situated investment companies deemed to be comparable to the New Portfolio.
The Board determined that the New Portfolio’s advisory fees are generally within a competitive range of those incurred by other comparable funds. In this regard, 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 Adviser after payment of the subadvisory fee. The Board also noted that JHIMS will be waiving fees and/or reimbursing expenses with respect to the New Portfolio. The Board also noted that the Adviser pays the subadvisory fees of the New Portfolio, and that such fees are negotiated at arm’s length with respect to the Subadviser. The Board also noted management’s discussion of the New Portfolio’s anticipated expenses. The Board also took into account the level and quality of services expected to be provided by JHIMS with respect to the New Portfolio, as well as the other factors considered. The Board concluded that the advisory fees to be paid by the Trust with respect to the New Portfolio were reasonable.
Additional information relating to the New Portfolio that the Board considered in approving the Advisory Agreement is set forth in Appendix A.
Approval of Subadvisory Agreement
In making its determination with respect to the factors that it considers in considering approval of the Subadvisory Agreement, the Board reviewed:
(1) information relating to the Subadviser’s business;
| Semiannual report | Global Absolute Return Strategies Fund 43 | |
(2) the investment performance of comparable accounts managed by the Subadviser as set forth in Appendix A; and
(3) the proposed subadvisory fees for the New Portfolio, including any breakpoints, and comparative fee information as set forth in Appendix A.
With respect to the services to be provided by the Subadviser, the Board received information provided to the Board by the Subadviser, as well as considered information presented at prior meetings. The Board considered the Subadviser’s current level of staffing and its overall resources, as well as its compensation program. The Board reviewed the Subadviser’s history and investment experience, as well as information regarding the qualifications, background and responsibilities of the Subadviser’s investment and compliance personnel who would provide services to the New Portfolio. The Board also considered, among other things, the Subadviser’s compliance program and any disciplinary history. The Board also considered the Subadviser’s risk assessment and monitoring process. The Board noted the Subadviser’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and ameliora-tory actions undertaken, as appropriate. The Board also noted that the CCO and his staff conducted compliance reviews with the Subadviser, which included evaluating the regulatory compliance systems of the Subadviser and procedures reasonably designed by them to assure compliance with the federal securities laws. The Board also took into account the financial condition of the Subadviser.
The Board considered the Subadviser’s investment process and philosophy. The Board took into account that the Subadviser’s responsibilities include the development and maintenance of an investment program for the New Portfolio which is consistent with the New Portfolio’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 any Material Relationships with respect to the Subadviser, which include arrangements in which unaffiliated subadvisers or their affiliates provide advisory, distribution or management services in connection with financial products sponsored by the Trust’s adviser or its affiliates, and may include other registered investment companies, a 529 education savings plan, managed separate accounts and exempt group annuity contracts sold to qualified plans. The Board also received information and took into account any other potential conflicts of interests the Adviser might have in connection with the Subadvisory Agreement.
The Board’s decision to approve the Subadvisory Agreement was based on a number of determinations, including the following:
(1) The Subadviser has extensive experience and demonstrated skills as a manager and may reasonably be expected to provide a high quality of investment management services and personnel to the New Portfolio;
(2) The proposed subadvisory fees are (i) competitive and within the range of industry norms and (ii) will be paid by JHIMS out of the advisory fees it receives from the New Portfolio and are a product of arm’s length negotiation between the Adviser and the Subadviser; and the Board concluded that the New Portfolio’s subadvisory fees are reasonable; and
(3) The New Portfolio’s subadvisory fee breakpoints are reflected as breakpoints in the advisory fees for the New Portfolio in order to permit shareholders to benefit from economies of scale if the assets of the New Portfolio grow.
| 44 Global Absolute Return Strategies Fund | Semiannual report | |
Additional information relating to the New Portfolio that the Board considered for the New Portfolio is set forth in Appendix A.
| * * * |
Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel, the Board, including the Independent Trustees, concluded that approval of the Advisory Agreement and the Subadvisory Agreement with respect to the New Portfolio would be in the best interest of the New Portfolio and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Advisory Agreement and the Subadvisory Agreement.
| Appendix A | |||
| Portfolio | Comparable Fund | Estimated | |
| (Subadviser) | Performance | Fees and Expenses | Other Comments |
| Global Absolute | The Global Absolute | Estimated advisory | It was noted that |
| Return Strategies | Return Strategies | fees for the Fund are | estimated advisory fees |
| Fund | composite, managed by | modestly higher than | and total net expenses |
| the Subadviser in a similar | the peer group median. | were below the peer | |
| (Standard Life | manner to the Fund, | group average. | |
| Investments) | outperformed the Merrill | Estimated subadvisory | |
| Lynch 3-month T-Bill Index | fees for the Fund are | ||
| and its peer group average | higher than the peer | ||
| for the one-, three- and | group median. | ||
| five- year periods ended | |||
| October 31, 2011. | Estimated net total | ||
| expenses for the Fund | |||
| are higher than the peer | |||
| group median. | |||
| Semiannual report | Global Absolute Return Strategies Fund 45 | |
| Trustees | Investment adviser |
| James M. Oates, Chairman | John Hancock Investment Management |
| James R. Boyle† | Services, LLC |
| Charles L. Bardelis* | |
| Peter S. Burgess* | Subadviser |
| Grace K. Fey | Standard Life Investments (Corporate Funds) |
| Theron S. Hoffman | Limited |
| Hassell H. McClellan | |
| Steven M. Roberts* | Principal distributor |
| John Hancock Funds, LLC | |
| Officers | |
| Hugh McHaffie | Custodian |
| President | State Street Bank and Trust Company |
| Thomas M. Kinzler | Transfer agent |
| Secretary and Chief Legal Officer | John Hancock Signature Services, Inc. |
| Francis V. Knox, Jr. | Legal counsel |
| Chief Compliance Officer | K&L Gates LLP |
| Michael J. Leary | |
| Treasurer | |
| Charles A. Rizzo | |
| Chief Financial Officer | |
| John G. Vrysen | |
| Chief Operating Officer | |
| *Member of the Audit Committee | |
| †Non-Independent Trustee |
| 46 Global Absolute Return Strategies Fund | Semiannual report | |
1-800-225-5291
1-800-554-6713 TDD
1-800-338-8080 EASI-Line
www.jhfunds. com
Now available: electronic delivery
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| This report is for the information of the shareholders of John Hancock Global Absolute Return Strategies Fund. | 395SA 1/12 |
| It is not authorized for distribution to prospective investors unless preceded or accompanied by a prospectus. | 3/12 |
ITEM 2. CODE OF ETHICS.
(a)Not Applicable
(b)Not Applicable
(c)Not Applicable
(d)Not Applicable
(e)Not Applicable
(f)Not Applicable
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) Not Applicable
(f) Not Applicable.
(g) Not Applicable
(h) Not Applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) Included with Item 1.
(b) Not Applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES AND AFFILIATED PURCHASERS.
Not Applicable.
ITEM 10. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required
to be disclosed in this Form N-CSR is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Within 90 days prior to the filing date of this Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant's management, including the Registrant's principal executive officer and the Registrant's principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures relating to information required to be disclosed on Form N-CSR. Based on such evaluation, the Registrant's principal executive officer and principal financial officer concluded that the Registrant's disclosure controls and procedures are operating effectively to ensure that:
(i) information required to be disclosed in this Form N-CSR is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission, and
(ii) information is accumulated and communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) CHANGE IN REGISTRANT’S INTERNAL CONTROL: Not Applicable.
ITEM 12. EXHIBITS.
(a)(1) Not applicable
(a)(2)(i) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER.
(a)(2)(ii) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER.
(b) CERTIFICATION PURSUANT TO Rule 30a-2(b) OF THE INVESTMENT COMPANY ACT OF 1940
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 II
/s/ Hugh McHaffie
Hugh McHaffie
President
Date: March 26, 2012
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.
/s/ Hugh McHaffie
Hugh McHaffie
President
Date: March 26, 2012
/s/ Charles A. Rizzo
Charles A. Rizzo
Chief Financial Officer
Date: March 26, 2012