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- 4079
John Hancock Equity Trust
(Exact name of registrant as specified in charter)
601 Congress Street, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip code)
Alfred P. Ouellette
Senior Counsel and Assistant Secretary
601 Congress Street
Boston, Massachusetts 02210
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-663-4324
Date of fiscal year end: | October 31 |
Date of reporting period: | April 30, 2007 |
ITEM 1. REPORT TO SHAREHOLDERS.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/techleaderx1x1.jpg)
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/techleaderx2x1.jpg)
TABLE OF CONTENTS |
Your fund at a glance |
page 1 |
Manager’s report |
page 2 |
A look at performance |
page 6 |
Your expenses |
page 8 |
Fund’s investments |
page 1 0 |
Financial statements |
page 1 3 |
Notes to financial |
statements |
page 2 0 |
For more information |
page 3 2 |
CEO corner
To Our Shareholders,
The U.S. financial markets produced solid results over the last six months. Positive economic news, stronger than expected corporate earnings and increased merger and acquisitions activity served to overcome concerns about inflation, energy costs and the troubled subprime mortgage market’s potential to put the brakes on the economy. This environment also led the Federal Reserve Board to hold short-term interest rates steady. Even with a sharp decline in late February, the broad stock market returned 8.60% for the six months ended April 30, 2007. The Dow Jones Industrial Average punched through the 13,000 mark for the first time in April and posted a string of new highs as the period ended.
After a remarkably long period of calm, the financial markets were rocked at the end of February by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. It also shook investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
Although the downturn lasted for less than a month before positive news stopped the fall, it was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the market’s recent moves, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes well for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more-than-four-year-old bull market.
The recent volatility could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon, not a sprint, approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/techleaderx2x2.jpg)
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of April 30, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks capital appreciation by normally investing at least 80% of its assets in companies that the manager believes are, or have the potential to be, technology leaders.
Over the last six months
► Technology stocks posted solid gains for the period, although they lagged the broader equity market.
► The Fund had positive results, but underperformed its benchmarks, primarily due to unfavorable stock selection.
► Earnings were a key driver of tech stock returns; the stocks of companies that surprised on the upside performed well, while those that disappointed generally declined.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/techleaderx3x1.jpg)
Top 10 holdings | ||||
Hewlett-Packard Co. | 8.0% | BEA Systems, Inc. | 3.6% | |
Microsoft Corp. | 5.4% | Comverse Technology, Inc. | 3.5% | |
Cisco Systems, Inc. | 5.4% | Apple Computer, Inc. | 3.3% | |
NDS Group Plc | 4.5% | RF Micro Devices, Inc. | 3.3% | |
EMC Corp. | 3.6% | Google, Inc. | 2.9% | |
As a percentage of net assets on April 30, 2007.
Manager’s report
John Hancock
Technology Leaders Fund
Like the stock market overall, technology stocks were on a roller coaster ride during much of the six-month period ended April 30, 2007. Tech stocks got off to a decent start in the final two months of 2006, amid growing optimism that inflation was in check, the Federal Reserve Board was done raising interest rates and that the economy, while slowing, would sidestep a recession. Until the final weeks of February, major stock market averages continued to advance and set several new record highs, bolstered by hopes that the Fed would cut interest rates amid declines in oil prices and a downturn in the housing market.
In late February, stocks plunged in a sell-off that was precipitated by a warning about a possible recession from former Fed Chairman Alan Greenspan and a sell-off in the Chinese stock market. And despite diminished hopes of an interest rate cut as inflationary pressures seemingly mounted, stocks resumed their climb in March and April, with strong corporate earnings reports continuing to be the main driver.
Performance
For the six months ended April 30, 2007, John Hancock Technology Leaders Fund’s Class A, Class B, Class C and Class I shares posted total returns of 4.33%, 3.85%, 4.06% and 4.61%, respectively, at net asset value. During the same six-month period, the Fund’s old benchmark index, the NASDAQ 100 Stock Index returned 8.10% . Going forward,
SCORECARD
INVESTMENT | PERIOD’S PERFORMANCE. . . AND WHAT’S BEHIND THE NUMBERS | |
Force Protection | ▲ | New orders for blast-resistant military vehicles boost price |
BEA Systems | ▼ | Results below expectations in increasingly competitive environment |
Rackable Systems | ▼ | Concerns over intensified competition |
2
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/techleaderx5x1.jpg)
Portfolio Manager, MFC Global Investment Management (U.S.), LLC
Thomas P. Norton, CFA
the Fund will compare itself to the Russell 3000 Technology Index, which, in addition to the Standard & Poor’s 500 Index, more accurately reflects the investment universe of the Fund. It returned 7.41% in the period, while the average Morningstar, Inc. specialty-technology fund returned 8.28% 1 and the Standard & Poor’s 500 Index returned 8.60% . Keep in mind that your net asset value return will be different from the Fund’s performance if you were not invested in the Fund for the entire period or did not reinvest all distributions. See pages six and seven for historical performance results.
“Like the stock market overall,
technology stocks were on a
roller coaster ride during much of
the six-month period…”
Investment process refinements
Beginning in early 2007, we instituted significant enhancements to our investment processes, incorporating both quantitative and fundamental tools to help guide our stock selection. We believe these changes will provide us with a more disciplined and consistent approach to portfolio management and ultimately could lead to more advantageous security selection over the longer term. During this six-month period, however, the main detractor from our performance relative to the index was stock selection.
Laggards
Leading the list of our most disappointing performers was Rackable Systems, which provides servers to companies such as Amazon.com, Yahoo! and Microsoft. Its stock lost considerable ground when the company did not meet consensus earnings estimates, due in large measure to brutal competition from bigger tech companies like Dell and IBM and the ensuing pressure for Rackable Systems to cut its prices. Given our view that competitive pressures will continue to trouble Rackable Systems, we eliminated our position in the company. We also lost ground with BEA Systems, Inc. The company makes service-oriented architecture software,
Technology Leaders Fund
3
which enables customers to link different types of computer hardware and software together. Shares of BEA fell as its financial results fell short of expectations as competition heated up.
Our holdings in iRobot Corp. also worked against us. The company, best known for a robot household vacuum called the Roomba, also provides robots to military customers, including PackBots, which perform dangerous tasks, such as battlefield reconnaissance. The market cooled on the stock after disappointing sales of the company’s follow-up Scooba floor-washing robot and its ongoing commitment to plow back some of its earnings into marketing and research and development. We continued to hang onto the stock based on our view that the products it produces for the military in particular offer a strong path to growth in the future. Shares of RF Micro Devices, Inc., a maker of radio frequency components used in mobile devices, fell during the period based in large measure on the company’s projection of weaker-than-expected financial results over the short term, attributable to problems at a key client, Motorola. We maintained our sta ke in RF Micro Devices because we believe that the company will see better growth over the long term as it continues to gain market share.
INDUSTRY DISTRIBUTION2 | |
Communications | |
equipment | 24% |
Computer hardware | 11% |
Internet software & | |
services | 9% |
Computer storage & | |
peripherals | 8% |
Systems software | 8% |
Application software | 6% |
Semiconductors | 5% |
Wireless | |
telecommunication | |
services | 3% |
Data processing & | |
outsourced services | 3% |
Technology distributors | 3% |
Environmental & facilities | |
service | 3% |
Integrated | |
telecommunication | |
services | 2% |
Human resource & | |
employment services | 2% |
Oil & gas equipment & | |
services | 2% |
Movies & entertainment . | 2% |
Integrated oil & gas | 2% |
All others | 6% |
Standouts
Among our best performers during the period was Force Protection, Inc. The defense contractor was buoyed in part by news it had landed a nearly half-billion-dollar deal to supply the U.S. military with 1,000 of its blast-resistant vehicles. These vehicles employ a unique technology to help them protect soldiers from mines, rocket-propelled grenades and improvised explosive devices. We also enjoyed strong gains from shares of MEMC Electronic Materials, which makes silicon wafers used in semiconductors. The company benefited from market share gains, strong demand and increasing prices for some of its products, particularly from the solar industry. Red Hat, Inc. was another winner, posting strong financial results amid solid demand for the open source software maker’s products. Other notable winners included Apple Computer, Inc.; Grant Prideco, Inc.; and Akamai
Technology Leaders Fund
4
Technologies, Inc. Apple continued to be bolstered by the success of its Macintosh computers and iPod, as well as excitement over its upcoming iPhone. Grant Prideco, a maker of technologically advanced drill stems and bits for oil and gas rigs, benefited from strong profit and revenue growth. Akamai Technologies, a provider of technology used to stream video and multimedia content on the Web, was also helped by strong profit and revenue growth.
“Beginning in early 2007,
we instituted significant
enhancements to our investment
processes, incorporating both
quantitative and fundamental
tools to help guide our
stock selection.”
Outlook
We believe that after underperforming the broader stock market over the past three years or so, technology stocks could outperform the overall market during the second half of 2007. Expectations for the group have diminished, and we believe that technology companies overall have better growth potential than many other industries. Furthermore, tech stock valuations appear attractive in our view, both on a historical basis and relative to other industries. The biggest question going forward is the strength of demand. Strong corporate balance sheets and the desire to grow revenues and increase profit margins are all factors that we expect will lead companies to spend on technology-based capital improvements. And so far, end demand for consumer-based technology has remained resilient, despite the downturn in the housing market. As always, we believe that several long-term trends 1; including the explosive growth in use of video and cell phones — could continue to favor technology stocks.
This commentary reflects the views of the portfolio manager through the end of the Fund’s period discussed in this report. The manager’s statements reflect his own opinions. As such, they are in no way guarantees of future events, and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant.
Sector investing is subject to greater risks than the market as a whole.
International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting.
1 Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
2 As a percentage of net assets on April 30, 2007.
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5
A look at performance
For the periods ended April 30, 2007
Average annual returns | Cumulative total returns | |||||||||||
with maximum sales charge (POP) | with maximum sales charge (POP) | |||||||||||
Inception | Since | Since | ||||||||||
Class | date | 1-year | 5-year | 10-year | inception | 6-month | 1-year | 5-year | 10-year | inception | ||
A | 6-29-99 | –6.93% | 3.18% | — | –0.19% | –0.89% | –6.93% | 16.93% | — | –1.49% | ||
B | 6-20-05 | –7.59 | — | — | 4.75 | –1.15 | –7.59 | — | — | 9.01 | ||
C | 6-20-05 | –3.60 | — | — | 6.85 | 3.06 | –3.60 | — | — | 13.12 | ||
I1 | 6-20-05 | –1.54 | — | — | 8.11 | 4.61 | –1.54 | — | — | 15.61 | ||
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I shares.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month-end, please call 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
The Fund’s performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable.
1 For certain types of investors as described in the Fund’s Class I share prospectus.
Technology Leaders Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Technology Leaders Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in three separate indexes.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/techleaderx9x1.jpg)
With | ||||||
Period | Without | maximum | ||||
Class | beginning | sales charge | sales charge | Index 1 | Index 2 | Index 3 |
B2,3 | 6-20-05 | $11,301 | $10,901 | $12,548 | $12,617 | $12,611 |
C2,3,4 | 6-20-05 | 11,312 | 11,312 | 12,548 | 12,617 | 12,611 |
I2,3,5 | 6-20-05 | 11,561 | 11,561 | 12,548 | 12,617 | 12,611 |
Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund’s Class B, Class C and Class I shares, respectively, as of April 30, 2007. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.
Russell 3000 Technology Index — Index 1 — is an unmanaged index of technology sector stocks in the Russell 3000 index, which represents the 3,000 largest u.s. companies based on total market capitalization.
Standard & Poor’s 500 Index — Index 2 — is an unmanaged index that includes 500 widely traded common stocks.
NASDAQ 100 Stock Index — Index 3 — is an unmanaged index that includes 100 of the largest domestic and international non-financial companies listed on the NASDAQ Stock Market based on market capitalization.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
1 NAV represents net asset value and POP represents public offering price.
2 Index 1 figure as of the closest month-end to inception date.
3 Index 3 figure as of the closest month-end to inception date.
4 No contingent deferred sales charge applicable.
5 For certain types of investors as described in the Fund’s Class I share prospectus.
Technology Leaders Fund
7
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
■ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses including management fees, distribution and service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund’s actual ongoing operating expenses and is based on your fund’s actual return. It assumes an account value of $1,000.00 on November 1, 2006, with the same investment held until April 30, 2007.
Account value | Ending value | Expenses paid during period | |
on 11-1-06 | on 4-30-07 | ended 4-30-071 | |
Class A | $1,000.00 | $1,043.30 | $9.12 |
Class B | 1,000.00 | 1,038.50 | 12.61 |
Class C | 1,000.00 | 1,040.60 | 12.64 |
Class I | 1,000.00 | 1,046.10 | 6.59 |
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 April 30, 2007, by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/techleaderx10x1.jpg)
Technology Leaders Fund
8
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’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 November 1, 2006, with the same investment held until April 30, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
Account value | Ending value | Expenses paid during period | |
on 11-1-06 | on 4-30-07 | ended 4-30-071 | |
Class A | $1,000.00 | $1,015.87 | $9.00 |
Class B | 1,000.00 | 1,012.42 | 12.38 |
Class C | 1,000.00 | 1,012.40 | 12.47 |
Class I | 1,000.00 | 1,018.35 | 6.55 |
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.80%, 2.50%, 2.50% and 1.30% for Class A, Class B, Class C and Class I, respectively, multiplied by the average account value over the period, multiplied by number of days in most recent fiscal half-year/365 or 366 (to reflect the one-half year period).
Technology Leaders Fund
9
Fund’s investments
F I N A N C I A L S T A T E M E N T S
Securities owned by the Fund on 4-30-07 (unaudited)
This schedule is divided into two main categories: common stocks and short-term
investments. Common stocks are further broken down by industry group. Short-term
investments, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value | |
Common stocks 99.28% | $2,632,359 | ||
(Cost $2,305,129) | |||
Application Software 5.58% | 147,926 | ||
BEA Systems, Inc. (I) | 8,060 | 95,027 | |
Iona Technologies Plc, American Depositary Receipt (ADR) (Ireland) (I) | 4,700 | 25,239 | |
Synopsys, Inc. (I) | 1,000 | 27,660 | |
Communications Equipment 18.36% | 486,740 | ||
Cisco Systems, Inc. (I) | 5,340 | 142,792 | |
Comverse Technology, Inc. (I) | 4,075 | 92,421 | |
Corning, Inc. (I) | 2,600 | 61,672 | |
Telefonaktiebolaget LM Ericsson (ADR) (Sweden) | 1,500 | 57,255 | |
Kongzhong Corp. (ADR) (China) (I) | 5,470 | 36,485 | |
Nokia Corp. (ADR) (Finland) | 2,058 | 51,965 | |
QUALCOMM, Inc. | 1,008 | 44,150 | |
Computer & Electronics Retail 1.32% | 34,987 | ||
Best Buy Co., Inc. | 750 | 34,987 | |
Computer Hardware 11.26% | 298,524 | ||
Apple Computer, Inc. (I) | 880 | 87,824 | |
Hewlett-Packard Co. | 5,000 | 210,700 | |
Computer Storage & Peripherals 8.27% | 219,147 | ||
EMC Corp. (I) | 6,350 | 96,393 | |
Komag, Inc. (I)(L) | 1,300 | 35,763 | |
SanDisk Corp. (I) | 700 | 30,415 | |
Western Digital Corp. (I) | 3,200 | 56,576 | |
Data Processing & Outsourced Services 3.17% | 84,173 | ||
Electronic Data Systems Corp. | 1,450 | 42,398 | |
Euronet Worldwide, Inc. (I) | 1,500 | 41,775 | |
Electrical Components & Equipment 1.26% | 33,412 | ||
Color Kinetics, Inc. (I)(L) | 1,650 | 33,412 | |
Electronic Manufacturing Services 1.23% | 32,620 | ||
Jabil Circuit, Inc. (I) | 1,400 | 32,620 | |
Environmental & Facilities Service 2.46% | 65,100 | ||
Force Protection, Inc. (I)(K) | 3,000 | 65,100 |
See notes to financial statements
Technology Leaders Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value | |
Household Appliances 1.14% | $30,115 | ||
iRobot Corp. (I)(L) | 1,900 | 30,115 | |
Human Resource & Employment Services 1.98% | 52,563 | ||
Monster Worldwide, Inc. (I) | 1,250 | 52,563 | |
Integrated Oil & Gas 1.47% | 38,885 | ||
Sasol Ltd. (ADR) (South Africa) | 1,138 | 38,885 | |
Integrated Telecommunication Services 2.17% | 57,469 | ||
ADC Telecommunications, Inc. (I) | 1,580 | 29,072 | |
NTELOS Holdings Corp. | 1,410 | 28,397 | |
Internet Software & Services 14.31% | 379,554 | ||
DivX, Inc. (I)(L) | 1,020 | 20,563 | |
Google, Inc. (Class A) (I) | 160 | 75,421 | |
Greenfield Online, Inc. (I) | 1,750 | 28,630 | |
Opsware, Inc. (I) | 3,500 | 28,105 | |
NDS Group Plc (ADR) (United Kingdom) (I) | 2,300 | 118,611 | |
United Online, Inc. | 2,540 | 36,652 | |
Vocus, Inc. (I) | 1,200 | 26,988 | |
Yahoo!, Inc. (I) | 1,590 | 44,584 | |
IT Consulting & Other Services 1.03% | 27,370 | ||
Accenture Ltd. (Class A) (Bermuda) | 700 | 27,370 | |
Movies & Entertainment 1.57% | 41,696 | ||
Disney (Walt) Co. (The) | 1,192 | 41,696 | |
Oil & Gas Equipment & Services 1.94% | 51,540 | ||
Grant Prideco, Inc. (I) | 1,000 | 51,540 | |
Semiconductor Equipment 1.15% | 30,383 | ||
Cymer, Inc. (I) | 750 | 30,383 | |
Semiconductors 5.24% | 139,069 | ||
ASM International NV (Netherlands) (I)(L) | 1,500 | 36,585 | |
QuickLogic Corp. (I) | 7,500 | 20,550 | |
Trident Microsystems, Inc. (I) | 2,550 | 54,137 | |
Verigy Ltd. (Singapore) (I) | 1,100 | 27,797 | |
Systems Software 8.08% | 214,198 | ||
Microsoft Corp. | 4,800 | 143,712 | |
Oracle Corp. (I) | 2,350 | 44,180 | |
Quality Systems, Inc. (I)(L) | 650 | 26,306 | |
Technology Distributors 3.04% | 80,638 | ||
Arrow Electronics, Inc. (I) | 700 | 27,664 | |
Ingram Micro, Inc. (Class A) (I) | 2,700 | 52,974 | |
Wireless Telecommunication Services 3.25% | 86,250 | ||
RF Micro Devices, Inc. (I) | 13,800 | 86,250 |
See notes to financial statements
Technology Leaders Fund
11
F I N A N C I A L S T A T E M E N T S
Interest | Par value | ||
Issuer, description, maturity date | rate | (000) | Value |
Short-term investments 7.85% | $208,273 | ||
(Cost $208,273) | |||
Joint Repurchase Agreement 0.83% | 22,000 | ||
Investment in a joint repurchase agreement transaction with Bank | |||
of America Corp. — Dated 4-30-07, due 5-1-07 (Secured by | |||
U.S. Treasury Inflation Indexed Notes 0.875%, due 4-15-10, | |||
3.000%, due 7-15-12, 3.375%, due 1-15-12 and U.S. Treasury | |||
STRIPS, due 5-15-21). Maturity value: $22,003 | 5.120% | $22 | 22,000 |
Shares | |||
Cash Equivalents 7.02% | 186,273 | ||
John Hancock Cash Investment Trust (T)(W) | 186,273 | 186,273 | |
Total investments (Cost $2,513,402) 107.13% | $2,840,632 | ||
Other assets and liabilities, net (7.13%) | ($189,155) | ||
Total net assets 100.00% | $2,651,477 |
(I) Non-income-producing security.
(K) Direct placement securities are restricted to resale. They have been fair valued in accordance with procedures approved by the Trustees after consideration of restrictions as to resale, financial condition and prospects of the issuer, general market conditions and pertinent information in accordance with the Fund’s bylaws and the Investment Company Act of 1940, as amended. The Fund has limited rights to registration under the Securities Act of 1933 with respect to these restricted securities.
Additional Information on these securities is shown below:
Value as a | ||||
percentage | ||||
Acquisition | Acquisition | of Fund’s | Value as of | |
Issuer, description | date | cost | net assets | April 30, 2007 |
Force Protection, Inc. common stock | 12-19-06 | $35,250 | 2.46% | $65,100 |
(L) All or a portion of this security is on loan as of April 30, 2007.
(T) Represents investment of securities lending collateral.
(W) Issuer is an affiliate of John Hancock Advisers, LLC.
Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer; however, security is U.S. dollar-denominated.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
See notes to financial statements
Technology Leaders Fund
12
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 4-30-07 (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 $2,513,402) including $179,305 of securities loaned | $2,840,632 |
Cash | 432 |
Receivable for investments sold | 28,152 |
Receivable for shares sold | 19,458 |
Dividends and interest receivable | 989 |
Total assets | 2,889,663 |
Liabilities | |
Payable for investments purchased | 29,180 |
Payable upon return of securities loaned | 186,273 |
Payable to affiliates | |
Management fees | 4,338 |
Distribution and service fees | 143 |
Other | 161 |
Other payables and accrued expenses | 18,091 |
Total liabilities | 238,186 |
Net assets | |
Capital paid-in | 6,725,120 |
Accumulated net realized loss on investments | (4,384,274) |
Net unrealized appreciation of investments | 327,230 |
Accumulated net investment loss | (16,599) |
Net assets | $2,651,477 |
Net asset value per common share | |
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($2,251,870 ÷ 222,292 shares) | $10.13 |
Class B ($290,741 ÷ 29,093 shares) | $9.99 |
Class C ($107,709 ÷ 10,774 shares) | $10.00 |
Class I ($1,157 ÷ 113 shares) | $10.221 |
Maximum offering price per share | |
Class A2 ($10.13 ÷ 95%) | $10.66 |
1 Net assets have been rounded for presentation purposes. The net asset value is as reported on April 30, 2007.
2 On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price is reduced.
See notes to financial statements
Technology Leaders 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 period ended 4-30-07 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned
and expenses incurred in operating the Fund. It also shows net gains (losses) for
the period stated.
Investment income | |
Dividends (net of foreign withholding taxes of $161) | $5,040 |
Interest | 3,375 |
Securities lending | 576 |
Total investment income | 8,991 |
Expenses | |
Investment management fees (Note 2) | 13,362 |
Distribution and service fees (Note 2) | 5,547 |
Transfer agent fees (Note 2) | 3,339 |
Accounting and legal services fees (Note 2) | 172 |
Blue sky fees | 30,046 |
Printing fees | 12,670 |
Professional fees | 8,145 |
Custodian fees | 5,973 |
Trustees’ fees | 181 |
Securities lending fees | 22 |
Miscellaneous | 1,267 |
Total expenses | 80,724 |
Less expense reductions (Note 2) | (55,134) |
Net expenses | 25,590 |
Net investment loss | (16,599) |
Realized and unrealized gain | |
Net realized gain on investments | 116,347 |
Change in net unrealized appreciation (depreciation) of investments | 4,035 |
Net realized and unrealized gain | 120,382 |
Increase in net assets from operations | $103,783 |
1 Semiannual period from 11-1-06 through 4-30-07.
See notes to financial statements
Technology Leaders Fund
14
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
These Statements of Changes in Net Assets show how the value of the Fund’s net assets
has changed during the last two periods. The difference reflects earnings less expenses,
any investment gains and losses, distributions, if any, paid to shareholders and the net of
Fund share transactions.
Year | Period | |
ended | ended | |
10-31-06 | 4-30-071 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment loss | ($39,866) | ($16,599) |
Net realized gain | 245,780 | 116,347 |
Change in net unrealized appreciation (depreciation) | (128,662) | 4,035 |
Increase in net assets resulting from operations | 77,252 | 103,783 |
From Fund share transactions | (959,728) | (127,134) |
Net assets | ||
Beginning of period | 3,557,304 | 2,674,828 |
End of period | $2,674,828 | $2,651,4772 |
1 Semiannual period from 11-1-06 through 4-30-07. Unaudited.
2 Includes accumulated net investment loss of $16,599.
See notes to financial statements
Technology Leaders Fund
15
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed
since the end of the previous period.
CLASS A SHARES | ||||||
Period ended | 10-31-021 | 10-31-031 | 10-31-041 | 10-31-052 | 10-31-06 | 4-30-073 |
Per share operating performance | ||||||
Net asset value, beginning of period | $8.46 | $6.32 | $8.42 | $8.47 | $9.04 | $9.71 |
Net investment loss4 | (0.21) | (0.19) | (0.30) | (0.33) | (0.10) | (0.06) |
Net realized and unrealized | ||||||
gain (loss) on investments | (1.93) | 2.29 | 0.35 | 0.90 | 0.77 | 0.48 |
Total from investment operations | (2.14) | 2.10 | 0.05 | 0.57 | 0.67 | 0.42 |
Net asset value, end of period | $6.32 | $8.42 | $8.47 | $9.04 | $9.71 | $10.13 |
Total return5 (%) | (25.30)6 | 33.236 | 0.59 | 6.736 | 7.416 | 4.336,7 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $3 | $4 | $3 | $3 | $2 | $2 |
Ratio of net expenses to average | ||||||
net assets (%) | 3.27 | 3.19 | 4.13 | 4.62 | 1.80 | 1.808 |
Ratio of gross expenses to average | ||||||
net assets (%) | 4.389 | 4.029 | 4.13 | 6.719 | 4.879 | 5.938,9 |
Ratio of net investment loss | ||||||
to average net assets (%) | (2.66) | (2.63) | (3.56) | (3.74) | (1.04) | (1.13)8 |
Portfolio turnover (%) | 73 | 109 | 54 | 59 | 104 | 617 |
See notes to financial statements
Technology Leaders Fund
16
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | |||
Period ended | 10-31-0510 | 10-31-06 | 4-30-073 |
Per share operating performance | |||
Net asset value, beginning of period | $8.84 | $9.01 | $9.62 |
Net investment loss4 | (0.06) | (0.17) | (0.09) |
Net realized and unrealized | |||
gain on investments | 0.23 | 0.78 | 0.46 |
Total from investment operations | 0.17 | 0.61 | 0.37 |
Net asset value, end of period | $9.01 | $9.62 | $9.99 |
Total return5,6 (%) | 1.927 | 6.77 | 3.857 |
Ratios and supplemental data | |||
Net assets, end of period | |||
(in millions) | —11 | —11 | —11 |
Ratio of net expenses to average | |||
net assets (%) | 2.508 | 2.50 | 2.508 |
Ratio of gross expenses to average | |||
net assets9 (%) | 8.318 | 5.57 | 6.638 |
Ratio of net investment loss | |||
to average net assets (%) | (1.81)8 | (1.76) | (1.81)8 |
Portfolio turnover (%) | 597 | 104 | 617 |
See notes to financial statements
Technology Leaders Fund
17
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |||
Period ended | 10-31-0510 | 10-31-06 | 4-30-073 |
Per share operating performance | |||
Net asset value, beginning of period | $8.84 | $9.01 | $9.61 |
Net investment loss4 | (0.06) | (0.17) | (0.09) |
Net realized and unrealized | |||
gain on investments | 0.23 | 0.77 | 0.48 |
Total from investment operations | 0.17 | 0.60 | 0.39 |
Net asset value, end of period | $9.01 | $9.61 | $10.00 |
Total return5,6 (%) | 1.927 | 6.66 | 4.067 |
Ratios and supplemental data | |||
Net assets, end of period | |||
(in millions) | —11 | —11 | —11 |
Ratio of net expenses to average | |||
net assets (%) | 2.508 | 2.50 | 2.508 |
Ratio of gross expenses to average | |||
net assets9 (%) | 8.318 | 5.57 | 6.638 |
Ratio of net investment loss | |||
to average net assets (%) | (2.02)8 | (1.73) | (1.82)8 |
Portfolio turnover (%) | 597 | 104 | 617 |
See notes to financial statements
Technology Leaders Fund
18
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |||
Period ended | 10-31-0510 | 10-31-06 | 4-30-073 |
Per share operating performance | |||
Net asset value, beginning of period | $8.84 | $9.05 | $9.77 |
Net investment loss4 | (0.01) | (0.05) | (0.03) |
Net realized and unrealized | |||
gain (loss) on investments | 0.22 | 0.77 | 0.48 |
Total from investment operations | 0.21 | 0.72 | 0.45 |
Net asset value, end of period | $9.05 | $9.77 | $10.22 |
Total return5,6 (%) | 2.387 | 7.96 | 4.617 |
Ratios and supplemental data | |||
Net assets, end of period (in millions) | —11 | — 11 | —11 |
Ratio of net expenses to average | |||
net assets (%) | 1.298 | 1.30 | 1.308 |
Ratio of gross expenses to average | |||
net assets9 (%) | 7.108 | 4.33 | 5.438 |
Ratio of net investment loss | |||
to average net assets (%) | (0.46)8 | (0.57) | (0.62)8 |
Portfolio turnover (%) | 59 7 | 104 | 617 |
1 Audited by previous auditor.
2 Effective 6-18-05, shareholders of the former Light Revolution Fund became owners of an equal number of full and fractional Class A shares of the John Hancock Technology Leaders Fund. Additionally, the accounting and performance history of the Light Revolution Fund was redesignated as that of Class A of John Hancock Technology Leaders Fund.
3 Semiannual period from 11-1-06 through 4-30-07. Unaudited.
4 Based on the average of the shares outstanding.
5 Assumes dividend reinvestment and does not reflect the effect of sales charges.
6 Total returns would have been lower had certain expenses not been reduced during the periods shown.
7 Not annualized.
8 Annualized.
9 Does not take into consideration expense reductions during the periods shown.
10 Class B, Class C and Class I shares began operations on 6-20-05.
11 Less than $500,000.
See notes to financial statements
Technology Leaders Fund
19
Notes to financial statements (unaudited)
Note 1
Accounting policies
John Hancock Technology Leaders Fund (the Fund) is a diversified series of John Hancock Equity Trust (the Trust), an open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to achieve long-term growth of capital.
The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B, Class C and Class I shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission (SEC) and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Class B shares will convert to Class A shares eight years after purchase.
The Fund is the accounting and performance successor to Light Revolution Fund (the Predecessor Fund), a diversified open-end management investment company organized as a Maryland corporation. On June 17, 2005, the Fund acquired substantially all the assets and assumed the liabilities of the Predecessor Fund pursuant to an agreement and plan of reorganization, in exchange for Class A shares of the Fund.
Significant accounting policies of the Fund
are as follows:
Valuation of investments
Securities in the Fund’s portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or, if quotations are not readily available or the value has been materially affected by events occurring after the closing of a foreign market, at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments which have a remaining maturity of 60 days or less may be valued at amortized cost, which approximates market value. Investments in John Hancock Cash Investment Trust, an affiliate of John Hancock Advisers LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. All portfolio transactions initially expressed in terms of foreign currencies have been translated into U.S. dollars as described in “Foreign currency translation” below.
Joint repurchase agreement
Pursuant to an exemptive order issued by the SEC, the Fund, along with other registered investment companies having a management contract with the Adviser, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund’s custodian bank receives delivery of the underlying securities for the joint account on the Fund’s behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times.
Foreign currency translation
All assets or liabilities initially expressed in terms of foreign currencies are translated
Technology Leaders Fund
20
into U.S. dollars based on London currency exchange quotations as of 4:00 P.M., London time, on the date of any determination of the net asset value of the Fund. Transactions affecting statement of operations accounts and net realized gain (loss) on investments are translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign currency exchange gains or losses arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rates.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Net realized gains and losses on sales of investments are determined on the identified cost basis. Capital gains realized on some foreign securities are subject to foreign taxes, which are accrued as applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class I shares are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a line of credit agreement with The Bank of New York (BNY), the Swing Line Lender and Administrative Agent. This agreement enables the Fund to participate, with other funds managed by the Adviser, in an unsecured line of credit with BNY, which permits borrowings of up to $100 million, collectively. Interest is charged to each fund based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended April 30, 2007.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. At April 30, 2007, the Fund loaned securities having a market value of $179,305 collateralized by cash in the amount of $186,273. The cash collateral was invested in John Hancock Cash Investment Trust. Securities lending expenses are paid by the Fund to the lending agent.
Technology Leaders Fund
21
Federal income taxes
The Fund qualifies as a “regulated investment company” by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $4,446,601 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforward expires as follows: October 31, 2009 — $730,761, October 31, 2010 — $3,278,640 and October 31, 2011 — $437,200.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the Interpretation), was issued and is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the effective date. The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than April 30, 2008.
In September 2006, FASB Standard No. 157, Fair Value Measurements (FAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. The Fund may place a security on non-accrual status and reduce related investment income by ceasing current accruals or writing off interest, or dividends receivable, when the collection of income has become doubtful. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. There were no distributions during the year ended October 31, 2006. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distribution on a tax basis is determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates.
Note 2
Management fee and transactions with
affiliates and others
The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a daily management fee to the Adviser, at an annual rate of 1.00% of the Fund’s average daily net asset value.
The Adviser has agreed to limit the Fund’s total expenses excluding distribution, service fees
Technology Leaders Fund
22
and transfer agent fees to 1.25% of the Fund’s average daily net asset value, on an annual basis, and net operating expenses of Class A, Class B, Class C and Class I shares to 1.80%, 2.50%, 2.50% and 1.30% of each respective class’s average daily net asset value, at least until February 29, 2008. Accordingly, the expense reductions related to this total expense limitation amounted to $55,134 for the period ended April 30, 2007. The Adviser reserves the right to terminate these limitations in the future.
The Fund has a Distribution Agreement with John Hancock Funds, LLC (JH Funds), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B and Class C, pursuant to Rule 12b-1 under the 1940 Act, to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30%, 1.00% and 1.00% of average daily net asset value of Class A, Class B and Class C, respectively. A maximum of 0.25% of such payments may be service fees, as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund’s 12b-1 payments could occur under certain circumstances. Prior to June 17, 2005, Quasar Distributors, LLC, served as the Predecessor Fund’s principal underwriter and was compensated at an annual rate of 0.25% of the Predecessor Fund’s a verage daily net asset value.
Expenses under the agreements described above for the period ended April 30, 2007, were as follows:
Distribution and | |
Share class | service fees |
Class A | $3,337 |
Class B | 1,637 |
Class C | 573 |
Total | $5,547 |
Class A shares are assessed up-front sales charges. During the period ended April 30, 2007, JH Funds received net up-front sales charges of $533 with regard to sales of Class A shares. Of this amount, $85 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $311 was paid as sales commissions to unrelated broker-dealers and $137 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a related broker-dealer. The Adviser’s indirect parent, John Hancock Life Insurance Company (JHLICO), is the indirect sole shareholder of Signator Investors.
Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge (CDSC) at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended April 30, 2007, CDSCs received by JH Funds amounted to $1,202 for Class B shares and $1 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an indirect subsidiary of JHLICO. For Class A, Class B and Class C shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’s average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses, aggregated and allocated to each class on the basis of its relative net asset value. For Class I shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of the average daily net asset value. Signature Services has agreed to limit transfer agent fees on Class A, Class B and Class C shares to 0.25% of each class’ average daily net asset value, at least until February 29, 2008. There were no transfer agent fee reductions for the period ended April 30, 2007.
The Fund has an agreement with the Adviser and affiliates to perform necessary tax, accounting and legal services for the Fund. The
Technology Leaders Fund
23
compensation for the year amounted to $172. The Fund also reimbursed JHLICO for certain compliance costs, included in the Fund’s Statement of Operations.
The Adviser and other subsidiaries of JHLICO owned 113 Class I shares of beneficial interest of the Fund on April 30, 2007.
Mr. James R. Boyle is Chairman of the Adviser, as well as affiliated Trustee of the Fund, and is compensated by the Adviser and/or its affiliates. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer, for tax purposes, their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund’s deferred compensation liability are recorded on the Fund’s books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investments, as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund.
Note 3
Fund share transactions
This listing illustrates the number of Fund shares sold and repurchased during the year ended October 31, 2006 and period ended April 30, 2007, along with the corresponding dollar value.
Year ended 10-31-06 | Period ended 4-30-071 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 66,081 | $649,223 | 37,312 | $374,355 |
Repurchased | (212,206) | (1,894,208) | (39,251) | (388,431) |
Net decrease | (146,125) | ($1,244,985) | (1,939) | ($14,076) |
Class B shares | ||||
Sold | 40,934 | $400,503 | 19,619 | $194,030 |
Repurchased | (20,388) | (191,374) | (30,277) | (296,217) |
Net increase (decrease) | 20,546 | $209,129 | (10,658) | ($102,187) |
Class C shares | ||||
Sold | 8,695 | $83,095 | 2,573 | $25,517 |
Repurchased | (741) | (6,967) | (3,736) | (36,388) |
Net increase (decrease) | 7,954 | $76,128 | (1,163) | ($10,871) |
Class I shares | ||||
Sold | — | — | — | — |
Repurchased | — | — | — | — |
Net increase (decrease) | — | — | — | — |
Net decrease | (117,625) | ($959,728) | (13,760) | ($127,134) |
1 Semiannual period from 11-1-06 through 4-30-07. Unaudited.
Technology Leaders Fund
24
Note 4
Investment transactions
Purchases and proceeds from sales or maturities of securities, other than short-term securities and obligations of the U.S. government, during the period ended April 30, 2007, aggregated $1,613,589 and $1,553,236, respectively.
The cost of investments owned on April 30, 2007, including short-term investments, for federal income tax purposes, was $2,555,100. Gross unrealized appreciation and depreciation of investments aggregated $357,970 and $72,438, respectively, resulting in net unrealized appreciation of $285,532. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the tax deferral of losses on certain sales of securities.
Technology Leaders Fund
25
Board Consideration of and
Continuation of Investment Advisory
Agreement and Subadvisory
Agreement: John Hancock Technology
Leaders Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Equity Trust (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with MFC Global Investment Management (U.S.), LLC (the Subadviser) for the John Hancock Technology Leaders Fund (the Fund). The Advisory Agreement and the Subadvisory Agreement are collectively referred to as the Advisory Agreements.
At meetings held on May 1–2 and June 5–6, 2006,1 the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and the Independent Trustees, reviewed a broad range of information requested for this purpose by the Independent Trustees, including: (i) the investment performance of the Fund relative to a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) each selected by Morningstar, Inc. (Morningstar), an independent provider of investment company data, for a range of periods ended December 31, 2005; (ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group; (iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser; (iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund; (v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale; (vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department; (vii) the background and experience of senior management and investment professionals; and (viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. It was based on performance and other information as of December 31, 2005; facts may have changed between that date and the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser were sufficient to support renewal of the Advisory Agreements.
Fund performance
The Board considered the performance results for the Fund over various time periods
26
ended December 31, 2005. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. Morningstar determined the Category and the Peer Group for the Fund. The Board reviewed, with a representative of Morningstar, the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board noted the imperfect comparability of the Peer Group.
The Board noted that the Fund’s performance during the one- and three-year periods was lower than the performance of the Peer Group and Category medians, and its benchmark index, the NYSE Arca Tech 100 Index. The Board also noted that Fund’s performance during the five-year period was higher than the performance of the Peer Group and Category medians, and lower than the performance of its benchmark index. The Adviser discussed with the Board factors that contributed to the Fund’s underperformance and described changes in investment personnel and processes which have been, and are being, implemented with the objective of improving performance. The Board evaluated the actions that had been taken and intends to continue to monitor the Fund’s performance trends to assess the effectiveness of these changes and whether other remedial changes are warranted.
Investment advisory fee and subadvisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was higher than the median rate of the Peer Group and Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees and other miscellaneous fees (e.g., fees for accounting and legal services). The Board also considered peer-adjusted comparisons for the transfer agent fees. The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of th e Peer Group and Category medians. The Board noted that the Fund’s Gross and Net Expense Ratios were appreciably higher than the median of its Peer Group and Category. The Board favorably considered the impact of fee caps towards ultimately lowering the Fund’s total operating expense ratio.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s plans to reduce the Fund’s overall expenses and plans for improving the Fund’s performance supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates, including the Subadviser. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund,
27
including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates as a result of the Adviser’s relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser with the Fund and benefits potentially derived from an increase in the business of the Adviser as a result of its relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser and Subadviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
1 The Board previously considered information about the Subadvisory Agreement at the September and December 2005 Board meetings in connection with the Adviser’s reorganization.
28
For more information
The Fund’s proxy voting policies, procedures and records are available without charge, upon request:
By phone | On the Fund’s Web site | On the SEC’s Web site |
1-800-225-5291 | www.jhfunds.com/proxy | www.sec.gov |
Trustees | Charles A. Rizzo | Custodian |
Ronald R. Dion, Chairman | Chief Financial Officer | The Bank of New York |
James R. Boyle† | Gordon M. Shone | One Wall Street |
James F. Carlin | Treasurer | New York, NY 10286 |
William H. Cunningham | ||
Charles L. Ladner* | John G. Vrysen | Transfer agent |
Dr. John A. Moore* | Chief Operations Officer | John Hancock Signature |
Patti McGill Peterson* | Services, Inc. | |
Steven R. Pruchansky | Investment adviser | One John Hancock Way, |
*Members of the Audit Committee | John Hancock Advisers, LLC | Suite 1000 |
†Non-Independent Trustee | 601 Congress Street | Boston, MA 02217-1000 |
Boston, MA 02210-2805 | ||
Officers | Legal counsel | |
Keith F. Hartstein | Subadviser | Kirkpatrick & Lockhart |
President and | MFC Global Investment | Preston Gates Ellis LLP |
Chief Executive Officer | Management (U.S.), LLC | One Lincoln Street |
101 Huntington Avenue | Boston, MA 02111-2950 | |
Thomas Kinzler | Boston, MA 02199 | |
Secretary and Chief Legal Officer | ||
Principal distributor | ||
Francis V. Knox, Jr. | John Hancock Funds, LLC | |
Chief Compliance Officer | 601 Congress Street | |
Boston, MA 02210-2805 |
How to contact us | ||
Internet | www.jhfunds.com | |
Regular mail: | Express mail: | |
John Hancock | John Hancock | |
Signature Services, Inc. | Signature Services, Inc. | |
One John Hancock Way, Suite 1000 | Mutual Fund Image Operations | |
Boston, MA 02217-1000 | 380 Stuart Street | |
Boston, MA 02116 | ||
Phone | Customer service representatives | 1-800-225-5291 |
EASI-Line | 1-800-338-8080 | |
TDD line | 1-800-554-6713 | |
A listing of month-end portfolio holdings is available on our Web site, www.jhfunds.com. A more detailed portfolio holdings summary is available on a quarterly basis 60 days after the fiscal quarter on our Web site or upon request by calling 1-800-225-5291, or on the SEC’s Web site, www.sec.gov.
32
J O H N H A N C O C K F A M I L Y O F F U N D S
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Multi Cap Growth Fund | TAX-FREE INCOME |
Small Cap Equity Fund | California Tax-Free Income Fund |
Small Cap Fund | High Yield Municipal Bond Fund |
Small Cap Intrinsic Value Fund | Massachusetts Tax-Free Income Fund |
Sovereign Investors Fund | New York Tax-Free Income Fund |
U.S. Core Fund | Tax-Free Bond Fund |
U.S. Global Leaders Growth Fund | |
Value Opportunities Fund | MONEY MARKET |
Money Market Fund | |
ASSET ALLOCATION | U.S. Government Cash Reserve |
Allocation Core Portfolio | |
Allocation Growth + Value Portfolio | CLOSED-END |
Lifecycle 2010 Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2015 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2020 Portfolio | Income Securities Trust |
Lifecycle 2025 Portfolio | Investors Trust |
Lifecycle 2030 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2035 Portfolio | Patriot Select Dividend Trust |
Lifecycle 2040 Portfolio | Preferred Income Fund |
Lifecycle 2045 Portfolio | Preferred Income II Fund |
Lifecycle Retirement Portfolio | Preferred Income III Fund |
Lifestyle Aggressive Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Balanced Portfolio | |
Lifestyle Conservative Portfolio | |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund |
The Fund’s investment objectives, risks, charges and expenses are included in the prospectus and should be considered carefully before investing. For a prospectus, call your financial professional, call John Hancock Funds at 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com. Please read the prospectus carefully before investing or sending money.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/techleaderx36x1.jpg)
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 Technology Leaders Fund.
060SA 4/07
6/07
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/growthtrendsx1x1.jpg)
CEO corner
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/growthtrendsx2x1.jpg)
TABLE OF CONTENTS |
Your fund at a glance |
page 1 |
Managers’ report |
page 2 |
A look at performance |
page 6 |
Your expenses |
page 8 |
Fund’s investments |
page 10 |
Financial statements |
page 15 |
Notes to financial |
statements |
page 21 |
For more information |
page 32 |
To Our Shareholders,
The U.S. financial markets produced solid results over the last six months. Positive economic news, stronger than expected corporate earnings and increased merger and acquisitions activity served to over come concerns about inflation, energy costs and the troubled subprime mortgage market’s potential to put the brakes on the economy. This ronment also led the Federal Reserve Board to hold short-term interest rates steady. Even with a sharp decline in late February, the broad stock market returned 8.60% for the six months ended April 30, 2007. The Dow Jones Industrial Average punched through the 13,000 mark for first time in April and posted a string of new highs as the period ended
After a remarkably long period of calm, the financial markets were rocked at the end of February by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. It also shook investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
Although the downturn lasted for less than a month before positive news stopped the fall, it was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the market’s recent moves, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more than-four-year-old bull market.
The recent volatility could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon, not a sprint, approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
Sincerely,
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/growthtrendsx2x2.jpg)
Keith F. Hartstein, President and Chief Executive Officer |
This commentary reflects the CEO’s views as of April 30, 2007. They are subject to change at any time.
Your fund at a glance
The Fund seeks long-term growth of capital by investing approximately one third of its assets in equity securities of U.S. and foreign companies in each of the following sectors: financial services, health care and technology.
Over the last six months
► The financial portfolio outperformed its benchmark thanks to positioning among capital market-related shares, such as asset managers, custody banks and investment bankers.
► The health care portfolio benefited from a focus on innovative biotechnology and pharmaceutical companies, but suffered from sharp downturns in a few names elsewhere.
► The technology portion of the Fund lagged its benchmark due primarily to unfavorable stock selection.
John Hancock Growth Trends Fund
Fund performance for the six months ended April 30, 2007.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/growthtrendsx3x1.jpg)
Total returns for the Fund are at net asset value with all distributions reinvested. These returns do not reflect the deduction of the maximum sales charge, which would reduce the performance shown above.
Top holdings | |
Financial Services | |
American International | |
Group, Inc. | 9.3% |
Bank of America Corp. | 8.9% |
Wachovia Corp. | 8.2% |
American Express Co. | 6.1% |
Citigroup, Inc. | 5.5% |
Health Care | |
Shire Plc | 13.8% |
Bayer AG | 6.8% |
Inverness Medical | |
Innovations, Inc. | 5.1% |
Gilead Sciences, Inc. | 4.1% |
Hospira, Inc. | 4.0% |
Technology | |
Microsoft Corp. | 13.7% |
Hewlett-Packard Co. | 9.3% |
Cisco Systems, Inc. | 5.7% |
Mentor Graphics Corp. | 4.7% |
Ingram Micro, Inc. | |
(Class A) | 4.3% |
As a percentage of Financial Services, Health Care and Technology net assets, respectively, on April 30, 2007.
1
Managers’ report
John Hancock
Growth Trends Fund
Despite a bumpy ride, stocks managed healthy returns during the six months ended April 30, 2007, as the broad S&P 500 Index returned 8.60% .
In this period, John Hancock Growth Trends Fund’s Class A, Class B and Class C shares posted total returns of 5.35%, 5.14% and 5.14%, respectively, at net asset value, compared with the average 7.81% return
of Morningstar, Inc.’s large growth fund category.1 The Fund’s three sectors — financials, technology and health care — all produced positive results, but only one — health care — kept pace with the broader market. The Fund’s results were held back by the performance of its health care and technology portfolios, which lagged their benchmark indexes.
FINANCIALS by Roger C. Hamilton and Lisa A. Welch
On April 30, 2007, James K. Schmidt retired after more than 20 years of distinguished service at John Hancock Funds.
Financial shares underperformed the broader market, as the Standard & Poor’s 500 Financial Index returned 5.76% . Life and health insurance firms made up one of the best-performing industry segments. Financial groups whose revenues are tied to the market, such as investment banks, asset managers and custody banks, performed well thanks to continued robust capital markets and deal activity. At the other end of the spectrum, banking stocks saw their returns limited by worry about exposure to subprime loans. In addition, the interest rate environment continued
SCORECARD
INVESTMENT | PERIOD’S PERFORMANCE... AND WHAT’S BEHIND THE NUMBERS | |
Goldman Sachs | ▲ | Strong capital-markets activity |
Aveta | ▼ | Earnings below expectations |
BEA Systems | ▼ | Increased competition hurts results |
2
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/growthtrendsx5x1.jpg)
Portfolio Managers, MFC Global Investment Management (U.S.), LLC Roger C. Hamilton, Lisa A. Welch, Jon D. Stephenson, CFA, Thomas P. Norton, CFA |
to work against them — the yield curve remained inverted throughout the period, hurting banks’ net interest margins.
Continuing a trend of recent years, the financial portfolio’s capital-market holdings were by far the biggest contributors to performance behind such names as Goldman Sachs Group, Inc., Bank of New York Co., Inc., Franklin Resources, Inc. and State Street Corp., among others. An underweight to regional banks also contributed to relative results. These companies faced credit issues relating to subprime loans, and saw their earnings growth limited by the interest rate environment.
“Despite a bumpy ride, stocks |
managed healthy returns during |
the six months ended |
April 30, 2007…” |
In a period when the portfolio outperformed the benchmark by a wide margin, the leading detractors were small, winning segments of the index (less than 1% each) to which the portfolio had no exposure, such as office and retail real estate investment trusts. At the individual security level, the leading detractors were Bank of America Corp. and HSBC Holdings Plc.
We’re generally positive on the financials sector going forward, though the flat yield curve and current credit environment present some challenges in the near term. Nevertheless, we see many attractive investment candidates under our approach, which targets what we believe are good businesses selling with a margin of safety, a catalyst for growth and good revenue trends.
HEALTH CARE by Jon D. Stephenson, CFA
Effective March 14, 2007, Jon D. Stephenson took over management responsibilities for the portfolio, replacing Robert C. Junkin, CPA, who left the company.
Health care stocks did well for the six months ended April 30, 2007, with the Russell 3000 Healthcare Index gaining 8.50% . The Fund’s health
Growth Trends Fund
3
care portfolio benefited from a focus on innovative biotechnology and pharmaceutical companies, but suffered from sharp downturns in a few names elsewhere that caused it to lag the Russell index.
Among top performers were Theratechnologies, Inc., a Canadian biotech company, and Shire Plc, a British specialty pharma company. Theratechnologies surged after the release of positive test data for a new treatment it has for HIV lipo-atrophy, a condition that causes patients to lose volume in their faces. Shire, which focuses on treatments for Attention Deficit Hyperactivity Disorder (ADHD), benefited from a new product approval and robust pipeline. Bayer AG, a German company previously focused on chemicals, also rallied nicely after purchasing a pharmaceuticals company in 2006.
On the downside were Aveta, Inc. and Force Protection, Inc. Aveta is a privately held managed care company with a strong presence in Puerto Rico. The stock sank when fourth quarter earnings came in below expectations, triggering worries the company might default on its debt. A small investment outside the sector also proved costly. Force Protection, which makes armored military vehicles, declined early in 2007 after receiving disappointing news on a key contract. We sold the position to focus exclusively on health care.
Looking ahead, we’re excited about the sector’s growth prospects. We believe challenges, such as payers’ concerns over cost containment, could create attractive opportunities to buy great companies whose stocks are trading below their intrinsic value and where there is a catalyst — such as a planned new product launch or upcoming clinical data release — that could help unlock that value.
SECTOR DISTRIBUTION2 | |
Financials | 29% |
Health care | 29% |
Information technology | 28% |
Energy | 3% |
Consumer discretionary | 2% |
Telecommunication | |
services | 2% |
Industrials | 1% |
Consumer staples | 1% |
Materials | 1% |
TECHNOLOGY by Thomas P. Norton, CFA
Like the stock market overall, technology stocks were on a roller coaster ride during much of the period and ended up lagging the overall market. The technology portion of the Fund also lagged its benchmark, due primarily to unfavorable stock selection. Leading the list of our most disappointing performers was BEA Systems, Inc., whose financial results fell short of expectations as competition heated up. Shares of RF Micro Devices, Inc., a maker of radio frequency components used in mobile devices,
Growth Trends Fund
4
fell during the period based in large measure on the company’s projection of weaker-than-expected financial results over the short term, attributable to Motorola, a key client. Our holdings in iRobot Corp. also worked against us. The company, best known for the Roomba — a robot household vacuum — also provides robots to military customers, including PackBots, which perform dangerous tasks such as battlefield reconnaissance. The market cooled on the stock after disappointing sales of the company’s follow-up Scooba floor-washing robot, and its ongoing commitment to plow back some of its earnings into marketing and research and development. Among our best performers during the period was MEMC Electronic Materials, which makes silicon wafers used in semiconductors. The company benefited from market share gains, strong demand and increasing prices for some of its products, particularly from the solar industry. Red Hat, Inc. was another winner, posting strong financial results amid solid demand for the open source software maker’s products. Another notable standout included Apple Computer, Inc., which continued to be bolstered by the success of its Macintosh computers and iPOD, as well as excitement over its upcoming iPhone.
“The Fund’s three sectors — |
financials, technology and health |
care — all produced positive |
results, but only one — health |
care — kept pace with the |
broader market.” |
We believe that after underperforming the broader stock market over the past three years or so, technology stocks could outperform the overall market during the second half of 2007. Expectations for the group have diminished, and we believe that technology companies as a group have better growth Delete all specs beforepotential than many other industries. Furthermore, tech stock valuations appear attractive in our view, both on a historical basis and relative to other industries.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/growthtrendsx7x1.jpg)
This commentary reflects the views of the managers through the end of the Fund’s period discussed in this report. The managers’ statements reflect their own opinions. As such, they are in no way guarantees of future events, and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant.
Sector investing is subject to greater risks than the market as a whole.
International investing involves special risks such as political, economic and currency risks and differences in accounting standards and financial reporting.
1 Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
2 As a percentage of net assets on April 30, 2007.
Growth Trends Fund
5
A look at performance
For the periods ended April 30, 2007
Average annual returns | Cumulative total returns | ||||||||||
with maximum sales charge (POP) | with maximum sales charge (POP) | ||||||||||
Inception | Since | Since | |||||||||
Class | date | 1-year | 5-year | 10-year | inception | 6-month | 1-year | 5-year | 10-year | inception | |
A | 9-22-00 | 0.97% | 3.57% | — | –5.41% | 0.14% | 0.97% | 19.15% | — | –30.75% | |
B | 9-22-00 | 0.78 | 3.58 | — | –5.34 | 0.14 | 0.78 | 19.25 | — | –30.40 | |
C | 9-22-00 | 4.78 | 3.93 | — | –5.34 | 4.14 | 4.78 | 21.25 | — | –30.40 | |
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect maximum sales charge on Class A shares of 5%, and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The returns for Class C shares have been adjusted to reflect the elimination of the front-end sales charge effective July 15, 2004. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month-end, please call 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
The Fund’s performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable.
Growth Trends Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Growth Trends Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in the Standard & Poor’s 500 Index.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/growthtrendsx9x1.jpg)
Without | With maximum | |||
Class | Period beginning | sales charge | sales charge | Index |
B2 | 9-22-00 | $6,960 | $6,960 | $11,432 |
C2 | 9-22-00 | 6,960 | 6,960 | 11,432 |
Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund’s Class B and Class C shares, respectively, as of April 30, 2007. The Class C shares investment with maximum sales charge has been adjusted to reflect the elimination of the front-end sales charge effective July 15, 2004. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.
Standard & Poor’s 500 Index is an unmanaged index that includes 500 widely traded common stocks.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
1 NAV represents net asset value and POP represents public offering price.
2 No contingent deferred sales charge applicable.
Growth Trends Fund
7
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
■ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses including management fees, distribution and service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund’s actual ongoing operating expenses, and is based on your fund’s actual return. It assumes an account value of $1,000.00 on November 1, 2006, with the same investment held until April 30, 2007.
Account value | Ending value | Expenses paid during period | |
on 11-1-06 | on 4-30-07 | ended 4-30-071 | |
Class A | $1,000.00 | $1,053.50 | $7.60 |
Class B | 1,000.00 | 1,051.40 | 11.18 |
Class C | 1,000.00 | 1,051.40 | 11.18 |
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 April 30, 2007 by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/growthtrendsx10x1.jpg)
Growth Trends Fund
8
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’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 November 1, 2006, with the same investment held until April 30, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
Account value | Ending value | Expenses paid during period | |
on 11-1-06 | on 4-30-07 | ended 4-30-071 | |
Class A | $1,000.00 | $1,017.40 | $7.46 |
Class B | 1,000.00 | 1,013.90 | 10.98 |
Class C | 1,000.00 | 1,013.90 | 10.98 |
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.50%, 2.20% and 2.20% for Class A, Class B and Class C, respectively, multiplied by the average account value over the period, multiplied by [number of days in most recent fiscal half-year/365 or 366] (to reflect the one-half year period).
Growth Trends Fund
9
F I N A N C I A L S T A T E M E N T S
Fund’s investments
Securities owned by the Fund on 4-30-07 (unaudited)
This schedule is divided into two main categories: common stocks and short-term investments. Common stocks are further broken down by industry group. Short-term investments, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
Common stocks 96.31% | $95,569,958 | |
(Cost $73,767,425) | ||
Agricultural Products 0.39% | 387,000 | |
Archer-Daniels-Midland Co. | 10,000 | 387,000 |
Application Software 2.61% | 2,587,713 | |
BEA Systems, Inc. (I) | 94,600 | 1,115,333 |
Mentor Graphics Corp. (I) | 91,000 | 1,472,380 |
Asset Management & Custody Banks 4.85% | 4,815,731 | |
Bank of New York Co., Inc. (The) | 37,620 | 1,522,858 |
Franklin Resources, Inc. | 8,300 | 1,089,873 |
MVC Capital, Inc. | 9,350 | 164,280 |
PennantPark Investment Corp. (I) | 9,870 | 147,853 |
State Street Corp. | 25,200 | 1,735,524 |
Tortoise Capital Resources Corp. (I) | 8,540 | 155,343 |
Biotechnology 4.37% | 4,338,488 | |
Altus Pharmaceuticals, Inc. (I) | 45,950 | 680,519 |
BioMarin Pharmaceuticals, Inc. (I) | 32,350 | 522,776 |
BioSphere Medical, Inc. (I) | 28,150 | 191,138 |
Exelixis, Inc. (I) | 26,750 | 287,295 |
Gilead Sciences, Inc. (I) | 18,000 | 1,470,960 |
Regeneration Technologies, Inc. (I) | 140,000 | 1,185,800 |
Communications Equipment 6.70% | 6,643,755 | |
Cisco Systems, Inc. (I) | 66,750 | 1,784,895 |
Comverse Technology, Inc. (I) | 46,700 | 1,059,156 |
Corning, Inc. (I) | 38,400 | 910,848 |
Telefonaktiebolaget LM Ericsson, American Depositary Receipt | ||
(ADR) (Sweden) | 17,700 | 675,609 |
NDS Group Plc (ADR) (United Kingdom) (I) | 20,500 | 1,057,185 |
Nokia Corp. (ADR) (Finland) | 26,530 | 669,882 |
QUALCOMM, Inc. | 11,100 | 486,180 |
Computer & Electronics Retail 0.46% | 454,837 | |
Best Buy Co., Inc. | 9,750 | 454,837 |
Computer Hardware 3.92% | 3,885,777 | |
Apple Computer, Inc. (I) | 9,900 | 988,020 |
Hewlett-Packard Co. | 68,765 | 2,897,757 |
See notes to financial statements
Growth Trends Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Computer Storage & Peripherals 3.10% | $3,078,938 | |
EMC Corp. (I) | 80,950 | 1,228,821 |
Komag, Inc. (L) | 31,300 | 861,063 |
SanDisk Corp. (I) | 7,850 | 341,082 |
Western Digital Corp. (I) | 36,650 | 647,972 |
Consumer Finance 2.03% | 2,011,210 | |
American Express Co. | 33,150 | 2,011,210 |
Data Processing & Outsourced Services 0.49% | 483,198 | |
Euronet Worldwide, Inc. (I) | 17,350 | 483,198 |
Diversified Banks 7.30% | 7,244,559 | |
Bank of America Corp. | 57,674 | 2,935,607 |
HSBC Holdings Plc (ADR) (United Kingdom) (L) | 3,067 | 283,268 |
Kookmin Bank (ADR) (South Korea) | 6,570 | 590,117 |
Wachovia Corp. | 48,255 | 2,680,083 |
Wells Fargo & Co. | 21,050 | 755,484 |
Diversified Chemicals 2.42% | 2,405,508 | |
Bayer AG (Germany) (C) | 35,000 | 2,405,508 |
Diversified Financial Services 2.48% | 2,463,530 | |
Citigroup, Inc. | 33,750 | 1,809,675 |
JPMorgan Chase & Co. | 12,550 | 653,855 |
Electronic Manufacturing Services 0.47% | 463,670 | |
Jabil Circuit, Inc. | 19,900 | 463,670 |
Health Care Distributors 1.34% | 1,329,050 | |
Cardinal Health, Inc. | 19,000 | 1,329,050 |
Health Care Equipment 5.73% | 5,690,664 | |
Baxter International, Inc. | 15,000 | 849,450 |
Gen-Probe, Inc. (I) | 11,850 | 605,654 |
Hospira, Inc. (I) | 35,000 | 1,419,250 |
Micrus Endovascular Corp. (I) | 10,000 | 222,300 |
NMT Medical, Inc. (I) | 40,000 | 623,200 |
Northstar Neuroscience, Inc. (I) | 39,590 | 539,216 |
Stereotaxis, Inc. (I) | 41,400 | 430,974 |
Thoratec Corp. (I) | 51,000 | 1,000,620 |
Health Care Facilities 0.21% | 213,055 | |
Sun Healthcare Group, Inc. (I) | 16,990 | 213,055 |
Health Care Services 2.51% | 2,487,482 | |
Assisted Living Concepts, Inc. (I) | 20,000 | 245,000 |
Aveta, Inc. (I)(S) | 97,210 | 777,680 |
Capital Senior Living Corp. (I) | 20,000 | 232,200 |
Nektar Therapeutics (I) | 54,000 | 667,980 |
Sunrise Senior Living, Inc. (I) | 5,000 | 191,450 |
Systems Xcellence, Inc. (Canada) (I) | 16,360 | 373,172 |
See notes to financial statements
Growth Trends Fund
11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Health Care Supplies 3.17% | $3,143,610 | |
Inverness Medical Innovations, Inc. (I) | 3,200 | 128,160 |
Inverness Medical Innovations, Inc. (I)(K) | 45,000 | 1,802,250 |
PolyMedica Corp. | 30,000 | 1,213,200 |
Household Appliances 0.35% | 350,285 | |
iRobot Corp. (I)(L) | 22,100 | 350,285 |
Human Resource & Employment Services 0.70% | 693,825 | |
Monster Worldwide, Inc. (I) | 16,500 | 693,825 |
Insurance Brokers 0.24% | 242,187 | |
Aon Corp. | 6,250 | 242,187 |
Integrated Oil & Gas 0.45% | 444,347 | |
Sasol Ltd. (ADR) (South Africa) | 13,004 | 444,347 |
Internet Software & Services 1.60% | 1,591,356 | |
Google, Inc. (Class A) (I) | 2,100 | 989,898 |
Yahoo!, Inc. (I) | 21,450 | 601,458 |
Investment Banking & Brokerage 4.89% | 4,854,561 | |
Goldman Sachs Group, Inc. (The) | 8,000 | 1,748,880 |
Legg Mason, Inc. | 10,550 | 1,046,454 |
Merrill Lynch & Co., Inc. | 6,500 | 586,495 |
Morgan Stanley | 12,200 | 1,024,922 |
UBS AG (Switzerland) | 6,900 | 447,810 |
IT Consulting & Other Services 1.28% | 1,269,447 | |
Accenture Ltd. (Class A) (Bermuda) | 8,100 | 316,710 |
CA, Inc. | 34,950 | 952,737 |
Life & Health Insurance 1.55% | 1,538,022 | |
Aflac, Inc. | 18,300 | 939,522 |
Prudential Financial, Inc. | 6,300 | 598,500 |
Marine 0.22% | 216,720 | |
Oceanfreight, Inc. (Greece) (I) | 11,200 | 216,720 |
Movies & Entertainment 0.47% | 468,732 | |
Disney (Walt) Co. (The) | 13,400 | 468,732 |
Multi-Line Insurance 4.72% | 4,684,426 | |
American International Group, Inc. | 43,850 | 3,065,554 |
Genworth Financial, Inc. (Class A) | 29,250 | 1,067,332 |
Hartford Financial Services Group, Inc. (The) | 5,450 | 551,540 |
Oil & Gas Equipment & Services 0.68% | 672,597 | |
Grant Prideco, Inc. (I) | 13,050 | 672,597 |
Pharmaceuticals 12.10% | 12,007,442 | |
Anesiva, Inc. (I) | 60,000 | 471,000 |
Auxilium Pharmaceuticals, Inc. (I) | 67,000 | 995,620 |
BioMimetic Therapeutics, Inc. (I) | 37,050 | 694,317 |
Cubist Pharmaceuticals, Inc. (I) | 55,000 | 1,179,750 |
Inspire Pharmaceuticals, Inc. (I) | 38,450 | 294,143 |
MGI Pharma, Inc. (I) | 20,000 | 440,400 |
See notes to financial statements
Growth Trends Fund
12
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Pharmaceuticals (continued) | ||
Novartis AG (ADR) (Switzerland) | 13,500 | $784,215 |
Roche Holding AG (Switzerland) | 7,000 | 1,319,297 |
Shire Plc (ADR) (United Kingdom) | 70,000 | 4,892,300 |
Spectrum Pharmaceuticals, Inc. (I) | 80,000 | 536,800 |
Wyeth | 7,200 | 399,600 |
Property & Casualty Insurance 0.85% | 839,970 | |
Ambac Financial Group, Inc. | 9,150 | 839,970 |
Reinsurance 1.50% | 1,493,088 | |
PartnerRe Ltd. (Bermuda) | 15,600 | 1,123,512 |
Platinum Underwriters Holdings Ltd. (Bermuda) | 10,800 | 369,576 |
Semiconductor Equipment 0.36% | 352,437 | |
Cymer, Inc. (I) | 8,700 | 352,437 |
Semiconductors 1.55% | 1,534,043 | |
RF Micro Devices, Inc. (I)(L) | 146,600 | 916,250 |
Trident Microsystems, Inc. (I)(L) | 29,100 | 617,793 |
Specialized Finance 0.96% | 954,716 | |
Nasdaq Stock Market, Inc. (I) | 19,960 | 649,898 |
Nymex Holdings, Inc. (I) | 2,350 | 304,818 |
Systems Software 4.96% | 4,926,817 | |
Microsoft Corp. | 143,050 | 4,282,917 |
Oracle Corp. (I) | 34,250 | 643,900 |
Technology Distributors 1.65% | 1,633,573 | |
Arrow Electronics, Inc. (I) | 7,750 | 306,280 |
Ingram Micro, Inc. (Class A) (I) | 67,650 | 1,327,293 |
Thrifts & Mortgage Finance 0.68% | 673,592 | |
Hudson City Bancorp., Inc. | 50,570 | 673,592 |
Interest | Par value | ||
Issuer, description, maturity date | rate | (000) | Value |
Short-term investments 6.09% | $6,048,762 | ||
(Cost $6,048,762) | |||
Joint Repurchase Agreement 3.70% | 3,678,000 | ||
Investment in a joint repurchase agreement transaction | |||
with Bank of America Corp. — Dated 4-30-07, due | |||
5-1-07 (Secured by U.S. Treasury Inflation Indexed Notes | |||
0.875%, due 4-15-10, 3.000%, due 7-15-12, 3.375%, | |||
due 1-15-12 and U.S. Treasury STRIPS, due 5-15-21). | |||
Maturity value: $3,678,523 | 5.120% | $3,678 | 3,678,000 |
See notes to financial statements
Growth Trends Fund
13
F I N A N C I A L S T A T E M E N T S
Shares | ||
Cash Equivalents 2.39% | $2,370,762 | |
John Hancock Cash Investment Trust (T)(W) | 2,370,762 | 2,370,762 |
Total investments (Cost $79,816,187) 102.40% | $101,618,720 | |
Other assets and liabilities, net (2.40%) | ($2,386,066) | |
Total net assets 100.00% | $99,232,654 |
(C) Parenthetical disclosure of a country in the security description represents country of issuer; however, the security is euro-denominated.
(I) Non-income-producing security.
(K) Direct placement securities are restricted to resale. They have been fair valued in accordance with procedures approved by the Trustees after consideration of restrictions as to resale, financial condition and prospects of the issuer, general market conditions and pertinent information in accordance with the Fund’s bylaws and the Investment Company Act of 1940, as amended. The Fund has limited rights to registration under the Securities Act of 1933 with respect to these restricted securities.
Additional Information on these securities is as follows:
Value as a | ||||
percentage | ||||
Acquisition | Acquisition | of Fund’s | Value as of | |
Issuer, description | date | cost | net assets | April 30, 2007 |
Inverness Medical Innovations, Inc. | 8-17-06 | $1,361,250 | 1.82% | $1,802,250 |
(L) All or a portion of this security is on loan as of April 30, 2007.
(T) Represents investment of securities lending collateral.
(W) Issuer is an affiliate of John Hancock Advisers, LLC.
Parenthetical disclosure of a foreign country in the security description represents country of a foreign issuer; however, security is U.S. dollar-denominated.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
See notes to financial statements
Growth Trends Fund
14
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 4-30-07 (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 $79,816,187) including $2,299,200 of securities loaned | $101,618,720 |
Foreign currency at value (cost $37,688) | 37,688 |
Receivable for investments sold | 1,485,265 |
Receivable for shares sold | 61,103 |
Dividends and interest receivable | 52,690 |
Other assets | 9,578 |
Total assets | 103,265,044 |
Liabilities | |
Due to custodian | 11,980 |
Payable for investments purchased | 1,016,247 |
Payable for shares repurchased | 329,378 |
Payable upon return of securities loaned | 2,370,762 |
Payable to affiliates | |
Management fees | 124,415 |
Distribution and service fees | 10,220 |
Other | 98,091 |
Other payables and accrued expenses | 71,297 |
Total liabilities | 4,032,390 |
Net assets | |
Capital paid-in | 268,193,794 |
Accumulated net realized loss on investments and foreign currency transactions | (190,398,658) |
Net unrealized appreciation of investments and translation of assets and | |
liabilities in foreign currencies | 21,802,826 |
Accumulated net investment loss | (365,308) |
Net assets | $99,232,654 |
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 ($36,444,226 ÷ 5,004,744 shares) | $7.28 |
Class B ($46,052,150 ÷ 6,620,859 shares) | $6.96 |
Class C ($16,736,278 ÷ 2,406,237 shares) | $6.96 |
Maximum offering price per share | |
Class A1 ($7.28 ÷ 95%) | $7.66 |
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
Growth Trends Fund
15
F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 4-30-07 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
Investment income | |
Dividends | $576,466 |
Interest | 67,079 |
Securities lending | 10,978 |
Total investment income | 654,523 |
Expenses | |
Investment management fees (Note 2) | 523,204 |
Distribution and service fees (Note 2) | 390,178 |
Transfer agent fees (Note 2) | 130,801 |
Accounting and legal services fees (Note 2) | 6,733 |
Compliance fees | 1,810 |
Custodian fees | 27,331 |
Printing fees | 23,892 |
Blue sky fees | 20,996 |
Professional fees | 10,679 |
Trustees’ fees | 3,439 |
Interest | 3,168 |
Securities lending fees | 381 |
Miscellaneous | 4,694 |
Total expenses | 1,147,306 |
Less expense reductions (Note 2) | (130,801) |
Net expenses | 1,016,505 |
Net investment loss | (361,982) |
Realized and unrealized gain (loss) | |
Net realized gain (loss) on | |
Investments | 5,832,942 |
Foreign currency transactions | (7,548) |
Change in net unrealized appreciation (depreciation) of | |
Investments | (114,103) |
Translation of assets and liabilities in foreign currencies | 136 |
Net realized and unrealized gain | 5,711,427 |
Increase in net assets from operations | $5,349,445 |
1 Semiannual period from 11-1-06 through 4-30-07. |
See notes to financial statements
Growth Trends Fund
16
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
These Statements of Changes in Net Assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
Year | Period | |
ended | ended | |
10-31-06 | 4-30-071 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment loss | ($1,149,879) | ($361,982) |
Net realized gain | 15,195,862 | 5,825,394 |
Change in net unrealized appreciation (depreciation) | (2,615,259) | (113,967) |
Increase in net assets resulting from operations | 11,430,724 | 5,349,445 |
From Fund share transactions | (34,872,929) | (17,452,374) |
Net assets | ||
Beginning of period | 134,777,788 | 111,335,583 |
End of period2 | $111,335,583 | $99,232,654 |
1 Semiannual period from 11-1-06 through 4-30-07. Unaudited.
2 Includes accumulated net investment loss of $3,326 and $365,308, respectively.
See notes to financial statements
Growth Trends Fund
17
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.
CLASS A SHARES | ||||||
Period ended | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 | 10-31-06 | 4-30-071 |
Per share operating performance | ||||||
Net asset value, beginning of period | $5.87 | $4.49 | $5.51 | $5.67 | $6.27 | $6.91 |
Net Investment Income (loss)2 | (0.05) | (0.03) | (0.04) | —3,9 | (0.03) | (0.01) |
Net realized and unrealized | ||||||
gain (loss) on investments | (1.33) | 1.05 | 0.20 | 0.60 | 0.67 | 0.38 |
Total from investment operations | (1.38) | 1.02 | 0.16 | 0.60 | 0.64 | 0.37 |
Less distributions | ||||||
Net asset value, end of period | $4.49 | $5.51 | $5.67 | $6.27 | $6.91 | $7.28 |
Total return4,5 (%) | (23.51) | 22.72 | 2.90 | 10.58 | 10.21 | 5.356 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $65 | $69 | $58 | $46 | $40 | $36 |
Ratio of net expenses to average | ||||||
net assets (%) | 1.65 | 1.65 | 1.65 | 1.65 | 1.65 | 1.507 |
Ratio of gross expenses to average | ||||||
net assets8 (%) | 1.88 | 2.02 | 1.86 | 1.95 | 2.00 | 1.757 |
Ratio of net investment income | ||||||
(loss) to average net assets (%) | (0.91) | (0.64) | (0.62) | 0.019 | (0.48) | (0.25)7 |
Portfolio turnover (%) | 68 | 76 | 40 | 27 | 70 | 276 |
See notes to financial statements
Growth Trends Fund
18
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | ||||||
Period ended | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 | 10-31-06 | 4-30-071 |
Per share operating performance | ||||||
Net asset value, beginning of period | $5.83 | $4.42 | $5.40 | $5.51 | $6.06 | $6.62 |
Net Investment loss2 | (0.09) | (0.06) | (0.07) | (0.04)9 | (0.07) | (0.03) |
Net realized and unrealized | ||||||
gain (loss) on investments | (1.32) | 1.04 | 0.18 | 0.59 | 0.63 | 0.37 |
Total from investment operations | (1.41) | 0.98 | 0.11 | 0.55 | 0.56 | 0.34 |
Net asset value, end of period | $4.42 | $5.40 | $5.51 | $6.06 | $6.62 | $6.96 |
Total return4,5 (%) | (24.19) | 22.17 | 2.04 | 9.98 | 9.24 | 5.146 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $102 | $104 | $85 | $66 | $53 | $46 |
Ratio of net expenses to average | ||||||
net assets (%) | 2.35 | 2.35 | 2.35 | 2.35 | 2.35 | 2.207 |
Ratio of gross expenses to average | ||||||
net assets8(%) | 2.58 | 2.72 | 2.56 | 2.65 | 2.70 | 2.457 |
Ratio of net investment loss | ||||||
to average net assets (%) | (1.61) | (1.34) | (1.32) | (0.67)9 | (1.18) | (0.95)7 |
Portfolio turnover (%) | 68 | 76 | 40 | 27 | 70 | 276 |
See notes to financial statements
Growth Trends Fund
19
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | ||||||
Period ended | 10-31-02 | 10-31-03 | 10-31-04 | 10-31-05 | 10-31-06 | 4-30-071 |
Per share operating performance | ||||||
Net asset value, beginning of period | $5.83 | $4.42 | $5.40 | $5.51 | $6.06 | $6.62 |
Net Investment loss2 | (0.09) | (0.06) | (0.07) | (0.04)9 | (0.07) | (0.03) |
Net realized and unrealized | ||||||
gain (loss) on investments | (1.32) | 1.04 | 0.18 | 0.59 | 0.63 | 0.37 |
Total from investment operations | (1.41) | 0.98 | 0.11 | 0.55 | 0.56 | 0.34 |
Net asset value, end of period | $4.42 | $5.40 | $5.51 | $6.06 | $6.62 | $6.96 |
Total return4,5 (%) | (24.19) | 22.17 | 2.04 | 9.98 | 9.24 | 5.146 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $42 | $41 | $31 | $23 | $19 | $17 |
Ratio of net expenses to average | ||||||
net assets (%) | 2.35 | 2.35 | 2.35 | 2.35 | 2.35 | 2.207 |
Ratio of gross expenses to average | ||||||
net assets8 (%) | 2.58 | 2.72 | 2.56 | 2.65 | 2.70 | 2.457 |
Ratio of net investment loss | ||||||
to average net assets (%) | (1.61) | (1.34) | (1.32) | (0.66)9 | (1.17) | (0.95)7 |
Portfolio turnover (%) | 68 | 76 | 40 | 27 | 70 | 276 |
1 Semiannual period from 11-1-06 through 4-30-07. Unaudited.
2 Based on the average of the shares outstanding.
3 Less than $0.01 per share.
4 Assumes dividend reinvestment and does not reflect the effect of sales charges.
5 Total returns would have been lower had certain expenses not been reduced during the period shown.
6 Not annualized.
7 Annualized.
8 Does not take into consideration expense reductions during the periods shown.
9 Net investment income (loss) per share and ratio of net investment income (loss) to average net assets reflects a special dividend received by the Fund which amounted to the following amounts:
Percentage | ||
Per share | of net assets | |
Class A | $0.04 | 0.61% |
Class B | 0.04 | 0.62 |
Class C | 0.04 | 0.62 |
See notes to financial statements
Growth Trends Fund
20
Notes to financial statements (unaudited)
Note 1 Accounting policies
John Hancock Growth Trends Fund (the Fund) is a diversified series of John Hancock Equity Trust (the Trust), an open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to achieve long-term growth of capital. The Fund will invest in a number of industry groups without concentration in any particular industry.
The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B and Class C shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission (SEC) and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Class B Shares will convert to Class A shares eight years after purchase.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund’s portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or, if quotations are not readily available, or the value has been materially affected by events occurring after the closing of a foreign market, at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short term debt investments which have a remaining maturity of 60 days or less may be valued at amortized cost, which approximates market value. Investments in John Hancock Cash Investment Trust, an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day. All portfolio transactions initially expressed in terms of foreign currencies have been translated into U.S. dollars as described in “Fo reign currency translation” below.
Joint repurchase agreement
Pursuant to an exemptive order issued by the SEC, the Fund, along with other registered investment companies having a management contract with the Adviser, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund’s custodian bank receives delivery of the underlying securities for the joint account on the Fund’s behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times.
Foreign currency translation
All assets or liabilities initially expressed in terms of foreign currencies are translated into U.S. dollars based on London currency exchange quotations as of 4:00 p.m., London Time, on the date of any determination of the net asset value of the Fund. Transactions affecting statement of operations accounts and net realized gain (loss) on investments are translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Growth Trends Fund |
Reported net realized foreign currency exchange gains or losses arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency exchange gains and losses arise from changes in the value of assets and liabilities, other than investments in securities, resulting from changes in the exchange rates.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Net realized gains and losses on sales of investments are determined on the identified cost basis. Capital gains realized on some foreign securities are subject to foreign taxes, which are accrued as applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, are calculated daily at the class level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative sizes of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a line of credit agreement with The Bank of New York (BNY), the Swing Line Lender and Administrative Agent. This agreement enables the Fund to participate, with other funds managed by the Adviser, in an unsecured line of credit with BNY, which permits borrowings of up to $100 million, collectively. Interest is charged to each fund based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit, and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended April 30, 2007.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. On April 30, 2007, the Fund loaned securities having a market value of $2,299,200 collateralized by cash in the amount of $2,370,762. The cash collateral was invested in John Hancock Cash Investment Trust. Securities lending expenses are paid by the Fund to the lending agent.
Forward foreign currency exchange contracts
The Fund may enter into forward foreign currency exchange contracts as a hedge against the effect of fluctuations in currency exchange rates. A forward foreign currency exchange contract involves an obligation to purchase or sell a specific currency at a future date at a set price. The aggregate principal amounts of the contracts are marked to market daily at the applicable foreign currency exchange rates. Any resulting unrealized gains and losses are included in the determination of the Fund’s daily net asset value. The Fund records realized gains and losses at the time the forward foreign currency exchange contracts are closed out. Risks may arise upon entering these contracts from the potential inability of counterparties to meet the terms of the contracts and from unanticipated
Growth Trends Fund
22
movements in the value of a foreign currency relative to the U.S. dollar. These contracts involve market or credit risk in excess of the unrealized gain or loss reflected in the Fund’s Statement of Assets and Liabilities.
The Fund may also purchase and sell forward contracts to facilitate the settlement of foreign currency denominated portfolio transactions, under which it intends to take delivery of the foreign currency. Such contracts normally involve no market risk if they are offset by the currency amount of the underlying transactions.
The Fund had no open forward foreign currency exchange contracts on April 30, 2007.
Federal income taxes
The Fund qualifies as a “regulated investment company” by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders. Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $196,013,787 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The loss carryforward expires as follows: October 31, 2009 — $57,002,933, October 31, 2010 — $87,616,374 and October 31, 2011 — $51,394,480.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the Interpretation), was issued and is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the effective date. The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of the Interpretation to the Fund and has not at this time quantified the impact, if any, resulting from the adoption of the Interpretation on the Fund’s financial statements. The Fund will implement this pronouncement no later than April 30, 2008.
In September 2006, FASB Standard No. 157, Fair Value Measurements (FAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend date or, in the case of some foreign securities, on the date thereafter when the Fund identifies the dividend. Interest income on investment securities is recorded on the accrual basis. Foreign income may be subject to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates.
Growth Trends Fund
23
Note 2
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 1.00% of the first $2,400,000,000 of the Fund’s average daily net asset value and (b) 0.70% of the Fund’s average daily net asset value in excess of $2,400,000,000.
The Adviser has agreed to limit the Fund’s management fee to 0.75% of the Fund’s average daily net assets, at least until February 29, 2008. Accordingly, the expense reductions related to management fee limitation amounted to $130,801 for the period ended April 30, 2007. The Adviser reserves the right to terminate this limitation in the future.
The Adviser has agreed to limit the Fund’s total expenses, excluding distribution and service fees, to 1.35% of the Fund’s average daily net asset value, on an annual basis, at least until February 29, 2008. Pursuant to this agreement, there was no reimbursement for the period ended April 30, 2007. The Adviser reserves the right to terminate this limitation in the future.
The Fund has a Distribution Agreement with John Hancock Funds, LLC (JH Funds), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1 under the 1940 Act, to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30%, 1.00% and 1.00% of average daily net asset value of Class A, Class B and Class C, respectively. A maximum of 0.25% of such payments may be service fees, as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund’s 12b-1 payments could occ ur under certain circumstances.
Expenses under the agreements described above for the period ended April 30, 2007 were as follows:
Distribution and | |
Share class | service fees |
Class A | $57,011 |
Class B | 245,215 |
Class C | 87,952 |
Total | $390,178 |
Class A shares are assessed up-front sales charges. During the period ended April 30, 2007, JH Funds received net up-front sales charges of $19,556 with regard to sales of Class A shares. Of this amount, $2,987 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $13,294 was paid as sales commissions to unrelated broker-dealers and $3,275 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a related broker-dealer. The Adviser’s indirect parent, John Hancock Life Insurance Company (JHLICO), is the indirect sole shareholder of Signator Investors.
Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge (CDSC) at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended April 30, 2007, CDSCs received by JH Funds amounted to $35,946 for Class B shares and $684 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an indirect subsidiary of JHLICO. The Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’s average daily
Growth Trends Fund
24net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of-pocket expenses aggregated and allocated to each class on the basis of its relative net asset value. Effective July 1, 2006, Signature Services has contractually limited transfer agent fees by implementing a transfer agent fee cap of 0.25% until at least February 29, 2008. There were no transfer agent fee reductions during the period ended April 30, 2007. Signature Services reserves the right to terminate this reimbursement limitation at any time.
The Fund has an agreement with the Adviser and affiliates to perform necessary tax, accounting and legal services for the Fund. The compensation for the year amounted to $6,733. The Fund also reimbursed JHLICO for certain compliance costs, included in the Fund’s Statement of Operations.
Mr. James R. Boyle is Chairman of the Adviser, as well as affiliated Trustee of the Fund, and is compensated by the Adviser and/or its affiliates. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer, for tax purposes, their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund’s deferred compensation liability are recorded on the Fund’s books as an other asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investments, as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund.
Note 3
Fund share transactions
This listing illustrates the number of Fund shares sold and repurchased during the year ended October 31, 2006 and the period ended April 30, 2007, along with the corresponding dollar value.
Year ended 10-31-06 | Period ended 4-30-071 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 608,065 | $4,037,541 | 207,804 | $1,476,406 |
Repurchased | (2,170,522) | (14,362,453) | (996,235) | (7,072,272) |
Net decrease | (1,562,457) | ($10,324,912) | (788,431) | ($5,595,866) |
Class B shares | ||||
Sold | 383,374 | $2,452,637 | 114,360 | $777,538 |
Repurchased | (3,299,870) | (21,016,012) | (1,444,073) | (9,800,039) |
Net decrease | (2,916,496) | ($18,563,375) | (1,329,713) | ($9,022,501) |
Class C shares | ||||
Sold | 116,717 | $749,987 | 60,382 | $411,361 |
Repurchased | (1,059,886) | (6,734,629) | (476,570) | (3,245,368) |
Net decrease | (943,169) | ($5,984,642) | (416,188) | ($2,834,007) |
Net decrease | (5,422,122) | ($34,872,929) | (2,534,332) | ($17,452,374) |
Growth Trends Fund
25Note 4
Investment transactions
Purchases and proceeds from sales or maturities of securities, other than short-term securities and obligations of the U.S. government, during the period ended April 30, 2007, aggregated $28,110,037 and $49,082,705, respectively.
The cost of investments owned on April 30, 2007, including short-term investments, for federal income tax purposes, was $80,022,256. Gross unrealized appreciation and depreciation of investments aggregated $24,168,609 and $2,572,145, respectively, resulting in net unrealized appreciation of $21,596,464. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the tax deferral of losses certain sales of securities.
Growth Trends Fund
26Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement: John Hancock Growth Trends Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Equity Trust (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to review and consider the continuation of: (i) the investment advisory agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Adviser) and (ii) the investment subadvisory agreement (the Subadvisory Agreement) with MFC Global Investment Management (U.S.), LLC (the Subadviser) for the John Hancock Growth Trends Fund (the Fund). The Advisory Agreement with the Adviser and the Subadvisory Agreement with the Subadviser are collectively referred to as the Advisory Agreements.
At meetings held on May 1–2 and June 5–6, 2006,1 the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and the Independent Trustees, reviewed a broad range of information requested for this purpose by the Independent Trustees, including: (i) the investment performance of the Fund relative to a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) each selected by Morningstar Inc. (Morningstar), an independent provider of investment company data, for a range of periods ended December 31, 2005; (ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group; (iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser; (iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund; (v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale; (vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department; (vii) the background and experience of senior management and investment professionals and (viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. It was based on performance and other information as of December 31, 2005; facts may have changed between that date and the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below.
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser were sufficient to support renewal of the Advisory Agreements.
27
Fund performance
The Board considered the performance results for the Fund over various time periods ended December 31, 2005. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. Morningstar determined the Category and the Peer Group for the Fund. The Board reviewed with a representative of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board noted the imperfect comparability of the Peer Group.
The Board noted that the Fund’s performance during the five-year period was lower than the performance of the Peer Group and Category medians, and its benchmark index — the Russell 1000 Growth Index. The Board also noted that the Fund’s performance during the three-year period was lower than the Peer Group and Category medians and higher than the performance of the benchmark index. The Board viewed favorably that the more recent performance of the Fund for the one-year period ended December 31, 2005 was higher than the performance of the Category median, and its benchmark index, and not appreciably lower than the performance of the Peer Group median.
Investment advisory fee and subadvisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was higher than the median rate of the Peer Group and Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees and other miscellaneous fees (e.g., fees for accounting and legal services). The Board also considered peer-adjusted comparisons for the transfer agent fees. The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of th e Peer Group and Category medians. The Board noted that the Fund’s Gross and Net Expense Ratios were higher than the median of its Peer Group and Category. The Board favorably considered the impact of fee caps towards ultimately lowering the Fund’s total operating expense ratio.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s overall performance and expenses supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment sub-advisory services. The Board concluded that the Subadvisory Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates, including the Subadviser. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately
28
benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates as a result of the Adviser’s relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser with the Fund and benefits potentially derived from an increase in the business of the Adviser as a result of its relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser and Subadviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser to its other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate was not unreasonable, taking into account fee rates offered to others by the Adviser and giving effect to differences in services covered by such fee rates.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates as a result of the Adviser’s relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser with the Fund and benefits potentially derived from an increase in the business of the Adviser as a result of its relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
29
The Board also considered the effectiveness of the Adviser’s and the Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser and Subadviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
1 The Board previously considered information about the Subadvisory Agreement at the September and December 2005 Board meetings in connection with the Adviser’s reorganization.
30
For more information
The Fund’s proxy voting policies, procedures and records are available without charge, upon request:
By phone | On the Fund’s Web site | On the SEC’s Web site |
1-800-225-5291 | www.jhfunds.com/proxy | www.sec.gov |
Trustees | Charles A. Rizzo | Custodian |
Ronald R. Dion, Chairman | Chief Financial Officer | The Bank of New York |
James R. Boyle† | One Wall Street | |
James F. Carlin | Gordon M. Shone | New York, NY 10286 |
William H. Cunningham | Treasurer | |
Charles L. Ladner* | ||
Dr. John A. Moore* | John G. Vrysen | Transfer agent |
Patti McGill Peterson* | Chief Operations Officer | John Hancock Signature |
Steven R. Pruchansky | Services, Inc. | |
*Members of the Audit Committee | Investment adviser | One John Hancock Way, |
†Non-Independent Trustee | John Hancock Advisers, LLC | Suite 1000 |
601 Congress Street | Boston, MA 02217-1000 | |
Boston, MA 02210-2805 | ||
Legal counsel | ||
Officers | Subadviser | Kirkpatrick & Lockhart |
Keith F. Hartstein | MFC Global Investment | Preston Gates Ellis LLP |
President and | Management (U.S.), LLC | One Lincoln Street |
Chief Executive Officer | 101 Huntington Avenue | Boston, MA 02111-2950 |
Boston, MA 02199 | ||
Thomas Kinzler | ||
Secretary and | Principal distributor | |
Chief Legal Officer | John Hancock Funds, LLC | |
601 Congress Street | ||
Francis V. Knox, Jr. | Boston, MA 02210-2805 | |
Chief Compliance Officer |
How to contact us | ||
Internet | www.jhfunds.com | |
Regular mail: | Express mail: | |
John Hancock | John Hancock | |
Signature Services, Inc. | Signature Services, Inc. | |
One John Hancock Way, Suite 1000 | Mutual Fund Image Operations | |
Boston, MA 02217-1000 | 380 Stuart Street | |
Boston, MA 02116 | ||
Phone | Customer service representatives | 1-800-225-5291 |
EASI-Line | 1-800-338-8080 | |
TDD line | 1-800-554-6713 | |
A listing of month-end portfolio holdings is available on our Web site, www.jhfunds.com. A more detailed portfolio holdings summary is available on a quarterly basis 60 days after the fiscal quarter on our Web site or upon request by calling 1-800-225-5291, or on the SEC’s Web site, www.sec.gov.
32
JOHN HANCOCK FAMILY OF FUNDS
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Multi Cap Growth Fund | TAX-FREE INCOME |
Small Cap Equity Fund | California Tax-Free Income Fund |
Small Cap Fund | High Yield Municipal Bond Fund |
Small Cap Intrinsic Value Fund | Massachusetts Tax-Free Income Fund |
Sovereign Investors Fund | New York Tax-Free Income Fund |
U.S. Core Fund | Tax-Free Bond Fund |
U.S. Global Leaders Growth Fund | |
Value Opportunities Fund | MONEY MARKET |
Money Market Fund | |
ASSET ALLOCATION | U.S. Government Cash Reserve |
Allocation Core Portfolio | |
Allocation Growth + Value Portfolio | CLOSED-END |
Lifecycle 2010 Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2015 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2020 Portfolio | Income Securities Trust |
Lifecycle 2025 Portfolio | Investors Trust |
Lifecycle 2030 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2035 Portfolio | Patriot Select Dividend Trust |
Lifecycle 2040 Portfolio | Preferred Income Fund |
Lifecycle 2045 Portfolio | Preferred Income II Fund |
Lifecycle Retirement Portfolio | Preferred Income III Fund |
Lifestyle Aggressive Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Balanced Portfolio | |
Lifestyle Conservative Portfolio | |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund |
The Fund’s investment objectives, risks, charges and expenses are included in the prospectus and should be considered carefully before investing. For a prospectus, call your financial professional, call John Hancock Funds at 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com. Please read the prospectus carefully before investing or sending money.
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1-800-225-5291 1-800-554-6713 TDD 1-800-338-8080 EASI-Line www.jhfunds.com |
Now available: electronic delivery www.jhfunds.com/edelivery |
This report is for the information of the shareholders of John Hancock Growth Trends Fund.
460SA 4/07 6/07 |
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CEO corner
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TABLE OF CONTENTS |
Your fund at a glance |
page 1 |
Manager’s report |
page 2 |
A look at performance |
page 6 |
Your expenses |
page 8 |
Fund’s investments |
page 10 |
Financial statements |
page 13 |
Notes to financial |
statements |
page 20 |
For more information |
page 32 |
To Our Shareholders, |
The U.S. financial markets produced solid results over the last six months. Positive economic news, stronger than expected corporate earnings and increased merger and acquisitions activity served to overcome concerns about inflation, energy costs and the troubled subprime mortgage market’s potential to put the brakes on the economy. This environment also led the Federal Reserve Board to hold short-term interest rates steady. Even with a sharp decline in late February, the broad stock market returned 8.60% for the six months ended April 30, 2007. The Dow Jones Industrial Average punched through the 13,000 mark for the first time in April and posted a string of new highs as the period ended.
After a remarkably long period of calm, the financial markets were rocked at the end of February by a dramatic sell-off in China’s stock market, which had ripple effects on financial markets worldwide. It also shook investors out of their seemingly casual attitude toward risk and remind them of the simple fact that stock markets move in two directions — down as well as up.
Although the downturn lasted for less than a month before positive news stopped the fall, it was also a good occasion to bring to mind several important investment principles that we believe are at the foundation of successful investing. First, keep a long-term approach to investing, avoiding emotional reactions to daily market moves. Second, maintain a well-diversified portfolio that is appropriate for your goals, risk profile and time horizons.
After the market’s recent moves, we encourage investors to sit back, take stock and set some realistic expectations. While history bodes well for the U.S. market in 2007 (since 1939, the S&P 500 Index has always produced positive results in the third year of a presidential term), there are no guarantees, and opinions are divided on the future of this more-than-four-year-old bull market.
The recent volatility could also be a wake-up call to contact your financial professional to determine whether changes are in order to your investment mix. Some asset groups have had long runs of outperformance. Others had truly outsized returns in 2006. These trends argue for a look to determine if these categories now represent a larger stake in your portfolios than prudent diversification would suggest they should. After all, we believe investors with a well-balanced portfolio and a marathon, not a sprint, approach to investing, stand a better chance of weathering the market’s short-term twists and turns, and reaching their long-term goals.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/smallcapx2x2.jpg)
Keith F. Hartstein,
President and Chief Executive Officer
This commentary reflects the CEO’s views as of April 30, 2007. They are subject to change at any time.
Your fund at a glance |
The Fund seeks capital appreciation by normally investing at least 80% of its assets in equity securities of small-capitalization companies (which, for purposes of this fund, are companies with market capitalizations under $2 billion, or market capitalizations within the range of those companies in the Russell 2000 Index or the Standard & Poor’s SmallCap 600 Index.)
Over the last six months |
► Small caps turned in healthy gains but trailed mid caps and large caps, as the U.S. economy continued to slow.
► The Fund lagged the Russell 2000 Index, hampered by earnings shortfalls and other fundamental disappointments with a number of its holdings.
► The Fed kept short-term interest rates steady, as inflation concerns were roughly balanced by the central bank's desire to keep the economy on a path of moderate growth.
John Hancock Small Cap Fund |
Fund performance for the six months ended April 30, 2007.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/smallcapx3x1.jpg)
Total returns for the Fund are at net asset value with all distributions reinvested. These returns do not reflect the deduction of the maximum sales charge, which would reduce the performance shown above.
Top 10 holdings | |
inVentiv Health, Inc. | 4.3% |
SVB Financial Group | 4.3% |
Transaction Systems Architects, Inc. | |
(Class A) | 3.8% |
Gaylord Entertainment Co. | 3.6% |
LKQ Corp. | 3.2% |
First Community Bancorp. (Class A) | 3.1% |
Boston Private Financial | |
Holdings, Inc. | 3.1% |
Daktronics, Inc. | 3.0% |
Kendle International, Inc. | 3.0% |
Inverness Medical Innovations, Inc. | 2.8% |
As a percentage of net assets on April 30, 2007.
1
Manager’s report
John Hancock
Small Cap Fund
The six-month review period ended April 30, 2007 witnessed another strong advance for small-cap stocks, with every month except February showing a gain in the Russell 2000 Index.
In February, a sharp drop of more than 3% near the end of the month — triggered by volatility in overseas markets — managed to turn a healthy month-to-date gain into a loss. However, the Russell 2000 Index wasted little time in steadying itself and pushing higher again, closing the period near all-time highs. Both value and growth stocks posted solid returns. Meanwhile, the small-cap segment trailed large caps and especially mid caps, which led the other size groups by a wide margin.
While investors remained concerned about a slowdown in economic growth, most of the weakness appeared limited to the housing and auto manufacturing groups. GDP, a measure of all goods and services produced in the United States, registered a 2.5% gain for the fourth quarter of 2006, a respectable, if unspectacular, result. Initial GDP estimates for the first quarter of 2007 were considerably lower, and many companies scaled back their forecasts for earnings growth as well. Against a backdrop of sharply lower expectations, many companies managed to beat their first-quarter earnings estimates, contributing to a strong finish for stock prices in the final month of the period.
Mergers and acquisitions continued to be a significant factor in the small-cap market, with many deals fueled by private equity funds.
SCORECARD
INVESTMENT | PERIOD’S PERFORMANCE... AND WHAT’S BEHIND THE NUMBERS | |
Witness Systems | ▲ | Accepted takeover bid |
Silicon Image | ▼ | Lowered sales guidance |
Arch Chemicals | ▼ | Higher raw material costs curbed profits |
2
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/smallcapx5x1.jpg)
Portfolio Manager, Independence Investments LLC Charles S. Glovsky, CFA |
Stock buybacks and efforts to take companies private also boosted stock prices by reducing the supply of shares on the market.
“The six-month review period |
ending April 30, 2007 witnessed |
another strong advance for |
small-cap stocks…” |
Looking at performance
For the six months ended April 30, 2007, John Hancock Small Cap Fund’s Class A, Class B, Class C and Class I shares returned 3.40%, 2.97%, 2.97% and 3.69%, respectively, at net asset value. By comparison, the average small growth fund monitored by Morningstar, Inc. returned 8.80%, 1 while the Russell 2000 Index finished with a 6.86% return and the S&P SmallCap 600 Index returned 8.41% . Keep in mind that your returns will differ from those listed above if you were not invested in the Fund for the entire period or did not reinvest all distributions. Historical performance information can be found on pages six and seven.
The Fund’s performance was undermined by stock selection in a number of sectors, as a slowing economy resulted in many of our companies reporting weaker-than-expected first-quarter earnings or other fundamental disappointments. In most cases, we judged these problems to be temporary and held on to the position with the expectation of an improving longer-term picture. Nevertheless, our choices held back performance during the review period. Additionally, this Fund is more concentrated than most small-cap funds because every stock we buy has to meet a strict set of criteria. We look for improving fundamentals, an attractive valuation and catalysts that appear likely to move a stock up. Not a lot of stocks can clear all of those hurdles, especially in the current environment of relatively rich small-cap valuations. Over the long term, we believe our disciplined approach can yield above-market results,
Small Cap Fund
3 |
but when our stock picks encounter problems, the Fund tends to suffer more than a less concentrated portfolio would.
Information technology, materials and energy falter
Although technology was a sector where we found a number of attractive opportunities, reflected in the Fund’s fairly significant overweighting in that sector, it was also the sector that detracted most from performance. The share price of semiconductor maker Silicon Image, Inc. fell in February after the company announced lowered expectations for its sales of chips that are used for high-definition applications. Lionbridge Technologies, Inc., a provider of services that enable its clients to localize their enterprise content and technology applications globally, also struggled under the weight of disappointing fundamental news. Shares of Avocent Corp., a maker of switching systems, faltered because of uncertainty about the direction of the company’s server-related business.
In materials, Arch Chemicals, Inc. detracted from performance. The specialty chemical manufacturer was hampered by higher raw material costs, which lowered profit margins. In the energy sector, drilling rig provider Hercules Offshore, Inc. saw its share price decline in response to falling prices for rigs in the Gulf of Mexico. We sold both Avocent and Hercules Offshore by the end of the review period.
INDUSTRY DISTRIBUTION2 | |
Health care | 24% |
Financials | 21% |
Information technology | 18% |
Consumer discretionary | 15% |
Industrials | 8% |
Energy | 6% |
Materials | 3% |
Consumer staples | 2% |
Utilities | 1% |
Financials add value
Financials merits mention as a sector that helped performance during the period. In that case, the Fund was aided by both favorable stock selection and a significant underweighting. Financials was the only sector in the benchmark to record a loss, which stemmed in large part from investors’ skittishness over the subprime mortgage market’s well-publicized difficulties with increasing defaults and delinquencies. Not having any direct exposure to subprime mortgage lenders helped the Fund’s performance, as did underweighting the real estate investment trust (REIT) group, which — unlike most other segments of the market — failed to recover significantly following the late-February sell-off.
SVB Financial Group was one of our better financial holdings and also one of the Fund’s largest positions at the end of the review period. The stock was lifted in mid-April when the
Small Cap Fund
4
California-based bank upped its earnings guidance for the first quarter. Further helping our results was Placer Sierra Bancshares, also based in the Golden State. In January, Placer received a buyout offer from Wells Fargo, triggering an immediate jump in the former’s stock price. Elsewhere, Witness Systems, Inc. was one of the Fund’s top contributors. The company, which provides software to optimize performance at customer service centers, agreed in February to be bought by Verint Systems, a subsidiary of Comverse Technology. Lastly, we’ll mention inVentiv Health, Inc., a provider of contract sales services for pharmaceutical companies. While there was no single event to highlight, the company made progress at diversifying its core business into well-chosen areas of drug introduction and marketing.
“The Fund’s performance was |
undermined by stock selection in |
a number of sectors…” |
Outlook
We view the rest of 2007 with a positive outlook. While the prospect of a slowing economy could dampen earnings growth at some companies and small-cap valuations overall are no longer cheap, we are still finding compelling growth opportunities at reasonable valuations in a variety of sectors. At present, we see no recession on the horizon and believe the Fed will be quick to lower interest rates if a recession appears imminent. Corporate balance sheets remain strong, with ample cash and minimal debt. Meanwhile, the mergers and acquisitions market continues to sizzle. We think these positive factors should outweigh any negatives for the time being.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/smallcapx7x1.jpg)
This commentary reflects the views of the portfolio manager’s through the end of the Fund’s period discussed in this report. The manager’s statements reflect his own opinions. As such, they are in no way guarantees of future events, and are not intended to be used as investment advice or a recommendation regarding any specific security. They are also subject to change at any time as market and other conditions warrant.
See the prospectus for the risks of investing in small-cap stocks.
1 Figures from Morningstar, Inc. include reinvested dividends and do not take into account sales charges. Actual load-adjusted performance is lower.
2 As a percentage of net assets on April 30, 2007.
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5
A look at performance
For the periods ended April 30, 2007
Average annual returns | Cumulative total returns | ||||||||||
with maximum sales charge (POP) | with maximum sales charge (POP) | ||||||||||
Inception | Since | Since | |||||||||
Class | date | 1-year | 5-year | 10-year | inception | 6-month | 1-year | 5-year | 10-year | inception | |
A1 | 12-16-98 | –6.64% | 6.42% | — | 10.36% | –1.77% | –6.64% | 36.52% | — | 128.26% | |
B | 12-6-04 | –7.31 | — | — | 4.85 | –2.03 | –7.31 | — | — | 12.02 | |
C | 12-6-04 | –3.41 | — | — | 6.01 | 1.97 | –3.41 | — | — | 15.02 | |
I2 | 12-6-04 | –1.20 | — | — | 7.24 | 3.69 | –1.20 | — | — | 18.24 | |
Performance figures assume all distributions are reinvested. Public offering price (POP) figures reflect a sales charge on Class A shares of 5% and the applicable contingent deferred sales charge (CDSC) on Class B and Class C shares. The Class B shares’ CDSC declines annually between years 1–6 according to the following schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the sixth year. Class C shares held for less than one year are subject to a 1% CDSC. Sales charge is not applicable for Class I shares.
The returns reflect past results and should not be considered indicative of future performance. The return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Due to market volatility, the Fund’s current performance may be higher or lower than the performance shown. For performance data current to the most recent month-end, please call 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com.
The performance table above and the chart on the next page do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.
The Fund’s performance results reflect any applicable expense reductions, without which the expenses would increase and results would have been less favorable.
1 Effective December 3, 2004, shareholders of the former Independence Small Cap Portfolio became owners of that number of full and fractional shares of Class A shares of the John Hancock Small Cap Fund. Additionally, the accounting and performance history of the former Independence Small Cap Portfolio was redesignated as that of Class A of John Hancock Small Cap Fund.
2 For certain types of investors as described in the Fund’s Class I share prospectus.
Small Cap Fund
6
Growth of $10,000
This chart shows what happened to a hypothetical $10,000 investment in Small Cap Fund Class A shares for the period indicated. For comparison, we’ve shown the same investment in two separate indexes.
Without | With maximum | ||||
Class | Period beginning | sales charge | sales charge | Index 1 | Index 2 |
B2 | 12-6-04 | $11,502 | $11,202 | $13,113 | $13,368 |
C2,3 | 12-6-04 | 11,502 | 11,502 | 13,113 | 13,368 |
I2,4 | 12-6-04 | 11,824 | 11,824 | 13,113 | 13,368 |
Assuming all distributions were reinvested for the period indicated, the table above shows the value of a $10,000 investment in the Fund’s Class B, Class C and Class I shares, respectively, as of April 30, 2007. Performance of the classes will vary based on the difference in sales charges paid by shareholders investing in the different classes and the fee structure of those classes.
Russell 2000 Index — Index 1 — is an unmanaged index composed of 2,000 U.S. small-capitalization stocks.
Standard & Poor’s SmallCap 600 Index — Index 2 — is an unmanaged index of 600 domestic stocks of small-size companies.
It is not possible to invest directly in an index. Index figures do not reflect sales charges which would have resulted in lower values if they did.
1 NAV represents net asset value and POP represents public offering price.
2 Index 2 figure as of closest month end to inception date.
3 No contingent deferred sales charge applicable.
4 For certain types of investors as described in the Fund’s Class I share prospectus.
Small Cap Fund
7
Your expenses
These examples are intended to help you understand your ongoing operating expenses.
Understanding fund expenses
As a shareholder of the Fund, you incur two types of costs:
■ Transaction costs which include sales charges (loads) on purchases or redemptions (varies by share class), minimum account fee charge, etc.
■ Ongoing operating expenses including management fees, distribution and service fees (if applicable) and other fund expenses.
We are going to present only your ongoing operating expenses here.
Actual expenses/actual returns
This example is intended to provide information about your fund’s actual ongoing operating expenses, and is based on your fund’s actual return. It assumes an account value of $1,000.00 on November 1, 2006, with the same investment held until April 30, 2007.
Account value | Ending value | Expenses paid during period | |
on 11-1-06 | on 4-30-07 | ended 4-30-071 | |
Class A | $1,000.00 | $1,034.00 | $8.24 |
Class B | 1,000.00 | 1,029.70 | 11.77 |
Class C | 1,000.00 | 1,029.70 | 11.77 |
Class I | 1,000.00 | 1,036.90 | 5.30 |
Together with the value of your account, you may use this information to estimate the operating expenses that you paid over the period. Simply divide your account value at April 30, 2007 by $1,000.00, then multiply it by the “expenses paid” for your share class from the table above. For example, for an account value of $8,600.00, the operating expenses should be calculated as follows:
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/smallcapx10x1.jpg)
Small Cap Fund
8
Hypothetical example for comparison purposes
This table allows you to compare your fund’s ongoing operating expenses with those of any other fund. It provides an example of the Fund’s hypothetical account values and hypothetical expenses based on each class’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 November 1, 2006, with the same investment held until April 30, 2007. Look in any other fund shareholder report to find its hypothetical example and you will be able to compare these expenses.
Account value | Ending value | Expenses paid during period | |
on 11-1-06 | on 4-30-07 | ended 4-30-071 | |
Class A | $1,000.00 | $1,016.70 | $8.17 |
Class B | 1,000.00 | 1,013.20 | 11.68 |
Class C | 1,000.00 | 1,013.20 | 11.68 |
Class I | 1,000.00 | 1,019.59 | 5.25 |
Remember, these examples do not include any transaction costs, such as sales charges; therefore, these examples will not help you to determine the relative total costs of owning different funds. If transaction costs were included, your expenses would have been higher. See the prospectus for details regarding transaction costs.
1 Expenses are equal to the Fund’s annualized expense ratio of 1.63%, 2.33%, 2.33% and 1.06% for Class A, Class B, Class C and Class I, respectively, multiplied by the average account value over the period, multiplied by number of days in most recent fiscal half-year/365 or 366 (to reflect the one-half year period).
Small Cap Fund
9
F I N A N C I A L S T A T E M E N T S
Fund’s investments
Securities owned by the Fund on 4-30-07 (unaudited)
This schedule is divided into two main categories: common stocks and short-term investments. Common stocks are further broken down by industry group. Short-term investments, which represent the Fund’s cash position, are listed last.
Issuer | Shares | Value |
Common stocks 98.05% | $232,693,823 | |
(Cost $199,770,923) | ||
Apparel Retail 2.67% | 6,335,191 | |
Christopher & Banks Corp. | 328,100 | 5,679,411 |
New York & Co., Inc. (I) | 46,942 | 655,780 |
Apparel, Accessories & Luxury Goods 0.94% | 2,219,434 | |
Hartmarx Corp. (I) | 337,300 | 2,219,434 |
Application Software 5.04% | 11,965,813 | |
Transaction Systems Architects, Inc. (Class A) (I) | 284,500 | 9,027,185 |
Witness Systems, Inc. (I) | 107,800 | 2,938,628 |
Asset Management & Custody Banks 1.22% | 2,906,640 | |
iShares Russell 2000 Index Fund (L) | 36,000 | 2,906,640 |
Auto Parts & Equipment 3.16% | 7,487,528 | |
LKQ Corp. (I) | 331,600 | 7,487,528 |
Computer Storage & Peripherals 1.34% | 3,172,522 | |
Radiant Systems, Inc. (I) | 235,700 | 3,172,522 |
Diversified Chemicals 0.42% | 1,007,733 | |
ICO, Inc. (I) | 151,996 | 1,007,733 |
Diversified Commercial & Professional Services 2.45% | 5,826,168 | |
Gaiam, Inc. (Class A) (I) | 161,400 | 2,454,894 |
PeopleSupport, Inc. (I)(L) | 268,200 | 3,371,274 |
Electronic Equipment Manufacturers 3.01% | 7,139,252 | |
Daktronics, Inc. (L) | 313,400 | 7,139,252 |
Electronic Manufacturing Services 2.21% | 5,251,308 | |
Trimble Navigation Ltd. (I) | 183,100 | 5,251,308 |
Health Care Equipment 11.38% | 27,018,145 | |
Cantel Medical Corp. (I) | 223,500 | 4,094,520 |
Hologic, Inc. (I) | 52,500 | 3,021,375 |
Kensey Nash Corp. (I) | 225,600 | 5,802,432 |
Nighthawk Radiology Holdings, Inc. (I)(L) | 118,600 | 2,302,026 |
SurModics, Inc. (I)(L) | 133,100 | 5,407,853 |
Symmetry Medical, Inc. (I) | 376,100 | 6,389,939 |
See notes to financial statements
Small Cap Fund
10
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Health Care Services 6.76% | $16,051,117 | |
Air Methods Corp. (I) | 211,690 | 5,823,592 |
inVentiv Health, Inc. (I) | 269,500 | 10,227,525 |
Health Care Supplies 2.85% | 6,752,430 | |
Inverness Medical Innovations, Inc. (I) | 168,600 | 6,752,430 |
Hotels, Resorts & Cruise Lines 3.59% | 8,521,400 | |
Gaylord Entertainment Co. (I) | 155,500 | 8,521,400 |
Industrial Machinery 1.61% | 3,825,532 | |
Chart Industries, Inc. (I) | 202,946 | 3,825,532 |
Internet Software & Services 1.41% | 3,342,090 | |
TheStreet.com, Inc. | 330,900 | 3,342,090 |
Investment Banking & Brokerage 0.43% | 1,029,204 | |
SWS Group, Inc. | 39,600 | 1,029,204 |
IT Consulting & Other Services 1.15% | 2,719,832 | |
Lionbridge Technologies, Inc. (I) | 535,400 | 2,719,832 |
Life & Health Insurance 2.37% | 5,619,705 | |
American Equity Investment Life Holding Co. | 411,700 | 5,619,705 |
Life Sciences Tools & Services 2.98% | 7,071,600 | |
Kendle International, Inc. (I) | 207,500 | 7,071,600 |
Oil & Gas Equipment & Services 1.10% | 2,615,730 | |
Metretek Technologies, Inc. (I)(L) | 211,800 | 2,615,730 |
Oil & Gas Exploration & Production 4.79% | 11,365,435 | |
Goodrich Petroleum Corp. (I)(L) | 109,600 | 3,850,248 |
Mariner Energy, Inc. (I) | 139,700 | 3,150,235 |
PetroQuest Energy, Inc. (I) | 382,220 | 4,364,952 |
Personal Products 2.38% | 5,656,014 | |
Inter Parfums, Inc. | 245,700 | 5,656,014 |
Property & Casualty Insurance 4.52% | 10,724,627 | |
James River Group, Inc. | 85,960 | 2,667,339 |
National Interstate Corp. | 138,300 | 3,313,668 |
Philadelphia Consolidated Holding Corp. (I) | 109,300 | 4,743,620 |
Publishing 1.41% | 3,335,240 | |
Courier Corp. | 83,800 | 3,335,240 |
Railroads 1.48% | 3,515,667 | |
Genesee & Wyoming, Inc. (Class A) (I) | 129,300 | 3,515,667 |
Regional Banks 12.00% | 28,467,469 | |
Boston Private Financial Holdings, Inc. | 264,000 | 7,341,840 |
First Community Bancorp. (Class A) | 134,700 | 7,389,642 |
Placer Sierra Bancshares | 131,100 | 3,635,403 |
SVB Financial Group (I) | 197,200 | 10,100,584 |
Semiconductors 1.92% | 4,547,316 | |
Silicon Image, Inc. (I) | 519,100 | 4,547,316 |
See notes to financial statements
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11
F I N A N C I A L S T A T E M E N T S
Issuer | Shares | Value |
Specialized Consumer Services 1.10% | $2,601,168 | |
Flow International Corp. (I) | 223,468 | 2,601,168 |
Specialty Chemicals 2.35% | 5,587,678 | |
Arch Chemicals, Inc. | 184,900 | 5,587,678 |
Specialty Stores 2.44% | 5,800,054 | |
Tractor Supply Co. (I)(L) | 112,100 | 5,800,054 |
Systems Software 2.18% | 5,169,420 | |
Secure Computing Corp. (I) | 638,200 | 5,169,420 |
Trucking 1.96% | 4,660,320 | |
Pacer International, Inc. | 182,400 | 4,660,320 |
Water Utilities 1.43% | 3,385,041 | |
Aqua America, Inc. (L) | 153,100 | 3,385,041 |
Interest | Par value | ||
Issuer, description, maturity date | rate | (000) | Value |
Short-term investments 17.22% | $40,865,743 | ||
(Cost $40,865,743) | |||
Joint Repurchase Agreement 2.82% | 6,701,000 | ||
Investment in a joint repurchase agreement transaction with Bank | |||
of America Corp. — Dated 4-30-07 due 5-1-07 (secured by U.S. | |||
STRIPS due 5-15-21 and U.S. Treasury Inflation Indexed Notes | |||
3.375% due 1-15-12, 10.875% due 4-15-10 and 3.000% | |||
due 7-15-12). | |||
Maturity value: $6,701,953 | 5.120% | $6,701 | 6,701,000 |
Shares | |||
Cash Equivalents 14.40% | 34,164,743 | ||
John Hancock Cash Investment Trust (T)(W) | 34,164,743 | 34,164,743 | |
Total investments (Cost $240,636,666) 115.27% | $273,559,566 | ||
Other assets and liabilities, net (15.27%) | ($36,232,444) | ||
Total net assets 100.00% | $237,327,122 |
(I) Non-income-producing security.
(L) All or a portion of this security is on loan as of April 30, 2007.
(T) Represents investment of securities lending collateral.
(W) Issuer is an affiliate of John Hancock Advisers, LLC.
The percentage shown for each investment category is the total value of that category as a percentage of the net assets of the Fund.
See notes to financial statements
Small Cap Fund
12
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 4-30-07 (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 $240,636,666) including $33,009,251 | |
of securities loaned | $273,559,566 |
Cash | 93 |
Receivable for investments sold | 2,172,659 |
Receivable for shares sold | 425,033 |
Dividends and interest receivable | 24,713 |
Other assets | 696 |
Total assets | 276,182,760 |
Liabilities | |
Payable for investments purchased | 1,158,130 |
Payable for shares repurchased | 2,950,040 |
Payable upon return of securities loaned | 34,164,743 |
Payable to affiliates | |
Management fees | 366,824 |
Distribution and service fees | 14,302 |
Other | 141,066 |
Other payables and accrued expenses | 60,533 |
Total liabilities | 38,855,638 |
Net assets | |
Capital paid-in | 202,398,475 |
Accumulated net realized gain on investments | 3,284,934 |
Net unrealized appreciation of investments | 32,922,900 |
Accumulated net investment loss | (1,279,187) |
Net assets | $237,327,122 |
Net asset value per common share | |
Based on net asset values and shares outstanding — the Fund has an | |
unlimited number of shares authorized with no par value | |
Class A ($163,583,641 ÷ 12,529,441 shares) | $13.06 |
Class B ($10,148,992 ÷ 790,295 shares) | $12.84 |
Class C ($42,931,814 ÷ 3,342,771 shares) | $12.84 |
Class I ($20,662,675 ÷ 1,565,171 shares) | $13.20 |
Maximum offering price per share | |
Class A1 ($13.06 ÷ 95%) | $13.75 |
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
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13
F I N A N C I A L S T A T E M E N T S
Statement of operations For the period ended 4-30-07 (unaudited)1
This Statement of Operations summarizes the Fund’s investment income earned and expenses incurred in operating the Fund. It also shows net gains (losses) for the period stated.
Investment income | |
Dividends | $432,282 |
Securities lending | 283,784 |
Interest | 171,603 |
Total investment income | 887,669 |
Expenses | |
Investment management fees (Note 2) | 1,139,277 |
Distribution and service fees (Note 2) | 526,356 |
Class A, B and C transfer agent fees (Note 2) | 354,560 |
Class I transfer agent fees (Note 2) | 7,847 |
Accounting and legal services fees (Note 2) | 16,263 |
Compliance fees | 2,491 |
Blue sky fees | 38,865 |
Custodian fees | 28,042 |
Printing fees | 24,564 |
Securities lending fees | 11,434 |
Professional fees | 10,844 |
Trustees’ fees | 5,743 |
Miscellaneous | 564 |
Total expenses | 2,166,850 |
Net investment loss | (1,279,181) |
Realized and unrealized gain | |
Net realized gain on investments | 7,286,811 |
Change in net unrealized appreciation (depreciation) of investments | 2,425,750 |
Net realized and unrealized gain | 9,712,561 |
Increase in net assets from operations | $8,433,380 |
1 Semiannual period from 11-1-06 through 4-30-07.
See notes to financial statements
Small Cap Fund
14
F I N A N C I A L S T A T E M E N T S
Statement of changes in net assets
These Statements of Changes in Net Assets show how the value of the Fund’s net assets has changed during the last two periods. The difference reflects earnings less expenses, any investment gains and losses, distributions, if any, paid to shareholders and the net of Fund share transactions.
Year | Period | |
ended | ended | |
10-31-06 | 4-30-071 | |
Increase (decrease) in net assets | ||
From operations | ||
Net investment loss | ($2,449,649) | ($1,279,181) |
Net realized gain (loss) | (3,242,650) | 7,286,811 |
Change in net unrealized appreciation (depreciation) | 22,459,623 | 2,425,750 |
Increase in net assets resulting from operations | 16,767,324 | 8,433,380 |
Distributions to shareholders | ||
From net realized gain | ||
Class A | (472,311) | — |
Class B | (40,294) | — |
Class C | (142,287) | — |
Class I | (152,976) | — |
(807,868) | — | |
From Fund share transactions | 60,516,796 | (27,294,848) |
Net assets | ||
Beginning of period | 179,712,338 | 256,188,590 |
End of period2 | $256,188,590 | $237,327,122 |
1 Semiannual period from 11-1-06 through 4-30-07. Unaudited.
2 Includes accumulated net investment loss of $6 and $1,279,187, respectively.
See notes to financial statements
Small Cap Fund
15
F I N A N C I A L S T A T E M E N T S
Financial highlights
The Financial Highlights show how the Fund’s net asset value for a share has changed since the end of the previous period.
CLASS A SHARES | ||||||
Period ended | 10-31-021 | 10-31-03 | 10-31-04 | 10-31-052 | 10-31-06 | 4-30-073 |
Per share operating performance | ||||||
Net asset value, beginning of period | $12.99 | $8.22 | $10.06 | $11.44 | $11.56 | $12.63 |
Net investment loss4 | (0.16) | (0.05) | (0.09) | (0.11) | (0.12) | (0.06) |
Net realized and unrealized | ||||||
gain on investments | 0.365 | 2.22 | 1.61 | 1.61 | 1.24 | 0.49 |
Total from investment operations | 0.20 | 2.17 | 1.52 | 1.50 | 1.12 | 0.43 |
Less distributions | ||||||
From net realized gain | (4.97) | (0.33) | (0.14) | (1.38) | (0.05) | — |
Net asset value, end of period | $8.22 | $10.06 | $11.44 | $11.56 | $12.63 | $13.06 |
Total return6 (%) | (3.59)7 | 27.417 | 15.257 | 13.447 | 9.717 | 3.408 |
Ratios and supplemental data | ||||||
Net assets, end of period | ||||||
(in millions) | $11 | $16 | $28 | $105 | $162 | $164 |
Ratio of net expenses to average | ||||||
net assets (%) | 2.28 | 1.18 | 1.23 | 1.57 | 1.59 | 1.639 |
Ratio of gross expenses to average | ||||||
net assets (%) | 2.6910 | 2.6010 | 2.2310 | 1.6510 | 1.6010 | 1.639 |
Ratio of net investment loss | ||||||
to average net assets (%) | (1.92) | (0.57) | (0.80) | (0.99) | (0.98) | (0.93)9 |
Portfolio turnover (%) | 92 | 79 | 129 | 145 | 74 | 508 |
See notes to financial statements
Small Cap Fund
16
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS B SHARES | |||
Period ended | 10-31-052,11 | 10-31-06 | 4-30-073 |
Per share operating performance | |||
Net asset value, beginning of period | $11.21 | $11.49 | $12.47 |
Net investment loss4 | (0.17) | (0.20) | (0.10) |
Net realized and unrealized | |||
gain on investments | 0.45 | 1.23 | 0.47 |
Total from investment operations | 0.28 | 1.03 | 0.37 |
Less distributions | |||
From net realized gain | — | (0.05) | — |
Net asset value, end of period | $11.49 | $12.47 | $12.84 |
Total return6 (%) | 2.507,8 | 8.997 | 2.978 |
Ratios and supplemental data | |||
Net assets, end of period | |||
(in millions) | $9 | $11 | $10 |
Ratio of net expenses to average | |||
net assets (%) | 2.279 | 2.29 | 2.339 |
Ratio of gross expenses to average | |||
net assets (%) | 2.359,10 | 2.3010 | 2.339 |
Ratio of net investment loss | |||
to average net assets (%) | (1.67)9 | (1.67) | (1.63)9 |
Portfolio turnover (%) | 1458 | 74 | 508 |
See notes to financial statements
Small Cap Fund
17
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS C SHARES | |||
Period ended | 10-31-052,11 | 10-31-06 | 4-30-073 |
Per share operating performance | |||
Net asset value, beginning of period | $11.21 | $11.49 | $12.47 |
Net investment loss4 | (0.17) | (0.20) | (0.10) |
Net realized and unrealized | |||
gain on investments | 0.45 | 1.23 | 0.47 |
Total from investment operations | 0.28 | 1.03 | 0.37 |
Less distributions | |||
From net realized gain | — | (0.05) | — |
Net asset value, end of period | $11.49 | $12.47 | $12.84 |
Total return6 (%) | 2.507,8 | 8.997 | 2.978 |
Ratios and supplemental data | |||
Net assets, end of period | |||
(in millions) | $31 | $44 | $43 |
Ratio of net expenses to average | |||
net assets (%) | 2.279 | 2.29 | 2.339 |
Ratio of gross expenses to average | |||
net assets (%) | 2.359,10 | 2.3010 | 2.339 |
Ratio of net investment loss | |||
to average net assets (%) | (1.67)9 | (1.68) | (1.63)9 |
Portfolio turnover (%) | 1458 | 74 | 508 |
See notes to financial statements
Small Cap Fund
18
F I N A N C I A L S T A T E M E N T S
Financial highlights
CLASS I SHARES | |||
Period ended | 10-31-052,11 | 10-31-06 | 4-30-073 |
Per share operating performance | |||
Net asset value, beginning of period | $11.21 | $11.60 | $12.73 |
Net investment loss4 | (0.05) | (0.06) | (0.02) |
Net realized and unrealized | |||
gain on investments | 0.44 | 1.24 | 0.49 |
Total from investment operations | 0.39 | 1.18 | 0.47 |
Less distributions | |||
From net realized gain | — | (0.05) | — |
Net asset value, end of period | $11.60 | $12.73 | $13.20 |
Total return6 (%) | 3.487,8 | 10.20 | 3.698 |
Ratios and supplemental data | |||
Net assets, end of period | |||
(in millions) | $34 | $40 | $21 |
Ratio of net expenses to average | |||
net assets (%) | 1.109 | 1.08 | 1.069 |
Ratio of gross expenses to average | |||
net assets (%) | 1.189,10 | 1.08 | 1.069 |
Ratio of net investment loss | |||
to average net assets (%) | (0.53)9 | (0.47) | (0.37)9 |
Portfolio turnover (%) | 1458 | 74 | 508 |
1 On 6-24-02, the Advisors’ Inner Circle Fund Independence Small Cap Portfolio acquired the assets and liabilities of the UAM Independence Small Cap Portfolio, a series of the UAM Funds, Inc. The operations of the Advisers’ Inner Circle Fund Independence Small Cap Portfolio prior to the acquisition were those of the predecessor fund, the UAM Independence Small Cap Portfolio.
2 Effective 12-3-04, shareholders of the former Independence Small Cap Portfolio became owners of an equal number of full and fractional Class A shares of the John Hancock Small Cap Fund. Additionally, the accounting and performance history of the Independence Small Cap Portfolio was redesignated as that of Class A of John Hancock Small Cap Fund.
3 Semiannual period from 11-01-06 through 4-30-07. Unaudited.
4 Based on the average of the shares outstanding.
5 The per share amount does not accord with the aggregate net losses on investments because of the sales and repurchase of the Fund’s shares in relation to fluctuating market value of the investments in the Fund.
6 Assumes dividend reinvestment and does not reflect the effect of sales charges.
7 Total returns would have been lower had certain expenses not been reduced during the periods shown.
8 Not annualized.
9 Annualized.
10 Does not take into consideration expense reductions during the periods shown.
11 Class B, Class C and Class I shares began operations on 12-6-04.
See notes to financial statements
Small Cap Fund
19
Notes to financial statements (unaudited)
Note 1 Accounting policies
John Hancock Small Cap Fund (the Fund) is a diversified series of John Hancock Equity Trust (the Trust), an open-end management investment company registered under the Investment Company Act of 1940, as amended (the 1940 Act). The investment objective of the Fund is to seek capital appreciation.
The Trustees have authorized the issuance of multiple classes of shares of the Fund, designated as Class A, Class B, Class C and Class I shares. The shares of each class represent an interest in the same portfolio of investments of the Fund and have equal rights as to voting, redemptions, dividends and liquidation, except that certain expenses, subject to the approval of the Trustees, may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission (SEC) and the Internal Revenue Service. Shareholders of a class that bears distribution and service expenses under the terms of a distribution plan have exclusive voting rights to that distribution plan. Class B shares will convert to Class A shares eight years after purchase.
The Fund is the accounting and performance successor to Independence Small Cap Portfolio, a diversified open-end management investment company organized as a Massachusetts business trust. On December 3, 2004, the Fund acquired substantially all the assets and assumed the liabilities of the former Independence Small Cap Portfolio pursuant to an agreement and plan of reorganization, in exchange for Class A shares of the Fund.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund’s portfolio are valued on the basis of market quotations, valuations provided by independent pricing services or at fair value as determined in good faith in accordance with procedures approved by the Trustees. Short-term debt investments which have a remaining maturity of 60 days or less may be valued at amortized cost, which approximates market value. Investments in John Hancock Cash Investment Trust, an affiliate of John Hancock Advisers, LLC (the Adviser), a wholly owned subsidiary of John Hancock Financial Services, Inc., a subsidiary of Manulife Financial Corporation (MFC), are valued at their net asset value each business day.
Joint repurchase agreement
Pursuant to an exemptive order issued by the SEC, the Fund, along with other registered investment companies having a management contract with the Adviser, may participate in a joint repurchase agreement transaction. Aggregate cash balances are invested in one or more large repurchase agreements, whose underlying securities are obligations of the U.S. government and/or its agencies. The Fund’s custodian bank receives delivery of the underlying securities for the joint account on the Fund’s behalf. The Adviser is responsible for ensuring that the agreement is fully collateralized at all times.
Investment transactions
Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment transactions are reported on trade date. Net realized gains and losses on sales of investments are determined on the identified cost basis.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are determined at the fund level and allocated daily to each class of shares based on the appropriate net asset value of the respective classes. Distribution and service fees, if any, and transfer agent fees for Class I shares are calculated daily at the class
Small Cap Fund
20level based on the appropriate net asset value of each class and the specific expense rate(s) applicable to each class.
Expenses
The majority of expenses are directly identifiable to an individual fund. Expenses that are not readily identifiable to a specific fund are allocated in such a manner as deemed equitable, taking into consideration, among other things, the nature and type of expense and the relative size of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Fund has entered into a syndicated line of credit agreement with The Bank of New York (“BNY”), the Swing Line Lender and Administrative Agent. This agreement enables the Fund to participate, with other funds managed by the Adviser, in an unsecured line of credit with BNY, which permits borrowings of up to $100 million, collectively. Interest is charged to each fund based on its borrowing. In addition, a commitment fee is charged to each fund based on the average daily unused portion of the line of credit and is allocated among the participating funds. The Fund had no borrowing activity under the line of credit during the period ended April 30, 2007.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund negotiated lender fees. The loans are collateralized at all times with cash or securities with a market value at least equal to the market value of the securities on loan. As with other extensions of credit, the Fund may bear the risk of delay of the loaned securities in recovery or even loss of rights in the collateral, should the borrower of the securities fail financially. At April 30, 2007, the Fund loaned securities having a market value of $33,009,251 collateralized by cash in the amount of $34,164,743. The cash collateral was invested in John Hancock Cash Investment Trust. Securities lending expenses are paid by the Fund to the lending agent.
Federal income taxes
The Fund qualifies as a “regulated investment company” by complying with the applicable provisions of the Internal Revenue Code and will not be subject to federal income tax on taxable income that is distributed to shareholders.
Therefore, no federal income tax provision is required. For federal income tax purposes, the Fund has $3,318,724 of a capital loss carryforward available, to the extent provided by regulations, to offset future net realized capital gains. To the extent that such carryforward is used by the Fund, no capital gain distributions will be made. The entire amount of the loss carryforward expires October 31, 2014.
New accounting pronouncements
In June 2006, Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”), was issued and is effective for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the effective date. The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management is currently evaluating the application of this Interpretation of the Fund and has not at this time quantified the impact, if any, resulting from adoption of the Interpretation on the Fund’s financial statements. The fund will implement this pronouncement no later than April 30, 2008.
In September 2006, FASB Standard No. 157, Fair Value Measurements (FAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishing a framework for measuring fair value and expands disclosure about fair value measurements. Management is currently evaluating the application of FAS 157 to the Fund and its impact, if any, resulting from the adoption of FAS 157 on the Fund’s financial statements.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend date. Interest income on investment securities is recorded on the accrual basis.
Small Cap Fund |
The Fund records distributions to shareholders from net investment income and net realized gains, if any, on the ex-dividend date. During the year ended October 31, 2006, the tax character of distributions paid was as follows: ordinary income $62,230 and long-term capital gain $745,638. Distributions paid by the Fund with respect to each class of shares are calculated in the same manner, at the same time and are in the same amount, except for the effect of expenses that may be applied differently to each class.
Such distributions, on a tax basis, are determined in conformity with income tax regulations, which may differ from accounting principles generally accepted in the United States of America. Distributions in excess of tax basis earnings and profits, if any, are reported in the Fund’s financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with accounting principles generally accepted in the United States of America, incorporates estimates made by management in determining the reported amount of assets, liabilities, revenues and expenses of the Fund. Actual results could differ from these estimates.
Note 2
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under the investment management contract, the Fund pays a monthly management fee to the Adviser equivalent, on an annual basis, to the sum of: (a) 0.90% of the first $1,000,000,000 of the Fund’s average daily net asset value and (b) 0.85% of the Fund’s average daily net asset value in excess of $1,000,000,000. The Adviser has a subadvisory agreement with Independence Investments LLC, which — effective June 1, 2006 — became an affiliate of Convergent Capital Management LLC (Convergent) and changed its name from Independence Investment LLC. Convergent’s parent company is City National Corporation. Formerly, the Subadviser was a wholly owned indirect subsidiary of the John Hancock Life Insurance Company (JHLICO) and was named Independence Investment Associates, Inc. The Fund is not responsible for payment of the subadvisory fees.
The Subadviser was a wholly owned indirect subsidiary of JHLICO and an indirect wholly owned subsidiary of Manulife Financial Corporation (MFC). MFC sold the assets of the Subadviser to a subsidiary of City National Corp. The closing took place on May 31, 2006. The Board of Trustees has approved a new sub-advisory agreement with the successor to the Subadviser’s business and an interim subadvisory agreement pending shareholder approval.
The Adviser has agreed to limit the Fund’s expenses, excluding distribution, and service fees and transfer agent fees, to not exceed 1.05% of the Fund’s average daily net assets with respect to Class A, Class B and Class C shares and net operating expenses to 1.65%, 2.35%, 2.35% and 1.10% of the average daily net asset value of Class A, Class B, Class C and Class I shares, respectively, until February 29, 2008. There were no fee reductions during the period ended April 30, 2007. The Adviser reserves the right to terminate this limitation in the future.
The Fund has a Distribution Agreement with John Hancock Funds, LLC (JH Funds), a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution Plans with respect to Class A, Class B and Class C, pursuant to Rule 12b-1 under the 1940 Act, to reimburse JH Funds for the services it provides as distributor of shares of the Fund. Accordingly, the Fund makes monthly payments to JH Funds at an annual rate not to exceed 0.30%, 1.00% and 1.00% of average daily net asset value of Class A, Class B and Class C, respectively. A maximum of 0.25% of such payments may be service fees, as defined by the Conduct Rules of the National Association of Securities Dealers. Under the Conduct Rules, curtailment of a portion of the Fund’s 12b-1 payments could occur under certain circumstances.
Expenses under the agreement described above for the period ended April 30, 2007 were as follows:
Small Cap Fund
22Distribution and | |
Share class | service fees |
Class A | $249,674 |
Class B | 53,065 |
Class C | 223,617 |
Total | $526,356 |
Class A shares are assessed up-front sales charges. During the period ended April 30, 2007, JH Funds received net up-front sales charges of $106,803 with regard to sales of Class A shares. Of this amount, $15,108 was retained and used for printing prospectuses, advertising, sales literature and other purposes, $90,312 was paid as sales commissions to unrelated broker-dealers and $1,383 was paid as sales commissions to sales personnel of Signator Investors, Inc. (Signator Investors), a related broker-dealer. The Adviser’s indirect parent, JHLICO is the indirect sole shareholder of Signator Investors.
Class B shares that are redeemed within six years of purchase are subject to a contingent deferred sales charge (CDSC) at declining rates, beginning at 5.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Class C shares that are redeemed within one year of purchase are subject to a CDSC at a rate of 1.00% of the lesser of the current market value at the time of redemption or the original purchase cost of the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds and are used, in whole or in part, to defray its expenses for providing distribution-related services to the Fund in connection with the sale of Class B and Class C shares. During the period ended April 30, 2007, CDSCs received by JH Funds amounted to $16,218 for Class B shares and $6,598 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature Services, Inc. (Signature Services), an indirect subsidiary of JHLICO. For Class A, Class B and Class C shares, the Fund pays a monthly transfer agent fee at an annual rate of 0.05% of each class’s average daily net asset value, plus a fee based on the number of shareholder accounts and reimbursement for certain out-of pocket expenses, aggregated and allocated to each class on the basis of its relative net asset value. For Class I shares, the Fund pays a monthly transfer agent fee at a total annual rate of 0.05% of Class I average daily net asset value. Signature Services agreed to limit transfer agent fees on Class A, Class B and Class C shares to 0.30% of each class’s average daily net asset value, at least until February 29, 2008. There were no transfer agent fee reductions during the period ended April 30, 2007.
The Fund has an agreement with the Adviser and affiliates to perform necessary tax, accounting and legal services for the Fund. The compensation for the period amounted to $16,263. The Fund also reimbursed JHLICO for certain compliance costs, included in the Fund’s Statement of Operations.
The Adviser and other subsidiaries of JHLICO owned 89 Class A, 89 Class B, 89 Class C and 89 Class I shares of beneficial interest of the Fund on April 30, 2007.
Mr. James R. Boyle is Chairman of the Adviser, as well as affiliated Trustee of the Fund, and is compensated by the Adviser and/or its affiliates. The compensation of unaffiliated Trustees is borne by the Fund. The unaffiliated Trustees may elect to defer, for tax purposes, their receipt of this compensation under the John Hancock Group of Funds Deferred Compensation Plan. The Fund makes investments into other John Hancock funds, as applicable, to cover its liability for the deferred compensation. Investments to cover the Fund’s deferred compensation liability are recorded on the Fund’s books as another asset. The deferred compensation liability and the related other asset are always equal and are marked to market on a periodic basis to reflect any income earned by the investments, as well as any unrealized gains or losses. The Deferred Compensation Plan investments had no impact on the operations of the Fund.
Small Cap Fund
23Note 3
Fund share transactions
This listing illustrates the number of Fund shares sold, reinvested and repurchased during the year ended October 31, 2006 and the period ended April 30, 2007, along with the corresponding dollar value.
Year ended 10-31-06 | Period ended 4-30-071 | |||
Shares | Amount | Shares | Amount | |
Class A shares | ||||
Sold | 7,213,368 | $90,180,663 | 2,081,662 | $27,384,542 |
Distributions reinvested | 36,036 | 433,506 | — | — |
Repurchased | (3,536,982) | (43,450,941) | (2,386,964) | (31,244,051) |
Net increase (decrease) | 3,712,422 | $47,163,228 | (305,302) | ($3,859,509) |
Class B shares | ||||
Sold | 368,860 | $4,601,372 | 92,576 | $1,198,753 |
Distributions reinvested | 3,184 | 38,048 | — | — |
Repurchased | (319,849) | (3,855,544) | (146,456) | (1,906,898) |
Net increase (decrease) | 52,195 | $783,876 | (53,880) | ($708,145) |
Class C shares | ||||
Sold | 1,601,647 | $19,839,715 | 392,267 | $5,077,690 |
Distributions reinvested | 11,360 | 135,754 | — | — |
Repurchased | (846,776) | (10,158,283) | (551,902) | (7,138,466) |
Net increase (decrease) | 766,231 | $9,817,186 | (159,635) | ($2,060,776) |
Class I shares | ||||
Sold | 1,453,384 | $17,845,858 | 437,431 | $5,752,302 |
Distributions reinvested | 12,549 | 151,472 | — | — |
Repurchased | (1,234,513) | (15,244,824) | (2,006,313) | (26,418,720) |
Net increase (decrease) | 231,420 | $2,752,506 | (1,568,882) | ($20,666,418) |
Net increase (decrease) | 4,762,268 | $60,516,796 | (2,087,699) | ($27,294,848) |
1 Semiannual period from 11-1-06 through 4-30-07. Unaudited.
Note 4
Investment transactions
Purchases and proceeds from sales or maturities of securities, other than short-term securities and obligations of the U.S. government, during the period ended April 30, 2007, aggregated $122,477,193 and $150,395,792, respectively.
The cost of investments owned on April 30, 2007, including short-term investments, for federal income tax purposes, was $241,093,163. Gross unrealized appreciation and depreciation of investments aggregated $36,298,600 and $3,832,197, respectively, resulting in net unrealized appreciation of $32,466,403. The difference between book basis and tax basis net unrealized appreciation of investments is attributable primarily to the tax deferral of losses on certain sales of securities.
Small Cap Fund |
Board Consideration of and Continuation of Investment Advisory Agreement and Subadvisory Agreement: John Hancock Small Cap Fund
The Investment Company Act of 1940 (the 1940 Act) requires the Board of Trustees (the Board) of John Hancock Equity Trust (the Trust), including a majority of the Trustees who have no direct or indirect interest in the investment advisory agreement and are not “interested persons” of the Trust, as defined in the 1940 Act (the Independent Trustees), annually to review and consider the continuation of the investment advisory agreement (the Advisory Agreement) with John Hancock Advisers, LLC (the Adviser) for the John Hancock Small Cap Fund (the Fund). The Board also considered the continuation of an interim investment subadvisory agreement (the Subadvisory Agreement) with Independence Investment LLC (the Subadviser) and a proposed investment subadvisory agreement (the New Subadvisory Agreement) with a newly formed subsidiary of Convergent Capital Management (New Independence). The Advisory Agreement with the Adviser and the Subadvisory Agreement with the Subadvis er are collectively referred to as the Advisory Agreements.
At meetings held on May 1–2 and June 5–6, 2006,1 the Board considered the factors and reached the conclusions described below relating to the selection of the Adviser and Subadviser and the continuation of the Advisory Agreements. The Board also considered factors and reached the conclusions described below relating to the selection of New Independence and the approval of the New Subadvisory Agreement. During such meetings, the Board’s Contracts/Operations Committee and the Independent Trustees also met in executive sessions with their independent legal counsel.
In evaluating the Advisory Agreements, the Board, including the Contracts/Operations Committee and the Independent Trustees, reviewed a broad range of information requested for this purpose by the Independent Trustees, including: (i) the investment performance of the Fund relative to a category of relevant funds (the Category) and a peer group of comparable funds (the Peer Group) each selected by Morningstar, Inc. (Morningstar), an independent provider of investment company data, for a range of periods ended December 31, 2005; (ii) advisory and other fees incurred by, and the expense ratios of, the Fund relative to a Category and a Peer Group; (iii) the advisory fees of comparable portfolios of other clients of the Adviser and the Subadviser; (iv) the Adviser’s financial results and condition, including its and certain of its affiliates’ profitability from services performed for the Fund; (v) breakpoints in the Fund’s and the Peer Group’s fees, and information about economies of scale; (vi) the Adviser’s and Subadviser’s record of compliance with applicable laws and regulations, with the Fund’s investment policies and restrictions and with the applicable Code of Ethics, and the structure and responsibilities of the Adviser’s and Subadviser’s compliance department; (vii) the background and experience of senior management and investment professionals; and (viii) the nature, cost and character of advisory and non-investment management services provided by the Adviser and its affiliates and by the Subadviser.
In evaluating the New Subadvisory Agreement, the Board, including the Contracts/Operations Committee and the Independent Trustees, reviewed a broad range of information provided to the Independent Trustees, including: (i) the description of the transaction in which New Independence would be formed as a subsidiary of Convergent Capital Management (the Transaction), (ii) a description of Convergent Capital Management, (iii) the nature and quality of services rendered to the Fund, (iv) the subadvisory fee payable to New Independence by the Adviser, (v) the qualifications and background of New Independence, as well as the qualifications of its personnel, and (vi) possible conflicts of interest that may result from or be reflected in the terms of the Transaction.
The Board’s review and conclusions were based on a comprehensive consideration of all information presented to the Board and not the result of any single controlling factor. It was based on performance and other information as of December 31, 2005; facts may have changed between that date and the date of this shareholders report. The key factors considered by the Board and the conclusions reached are described below.
25
Nature, extent and quality of services
The Board considered the ability of the Adviser and the Subadviser, based on their resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of the Adviser and Subadviser. In addition, the Board took into account the administrative services provided to the Fund by the Adviser and its affiliates.
Based on the above factors, together with those referenced below, the Board concluded that, within the context of its full deliberations, the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser and Subadviser were sufficient to support renewal of the Advisory Agreements.
Fund performance
The Board considered the performance results for the Fund over various time periods ended December 31, 2005. The Board also considered these results in comparison to the performance of the Category, as well as the Fund’s Peer Group and benchmark index. Morningstar determined the Category and the Peer Group for the Fund. The Board reviewed with a representative of Morningstar the methodology used by Morningstar to select the funds in the Category and the Peer Group. The Board noted the imperfect comparability of the Peer Group.
The Board noted that the Fund’s performance during the periods under review was generally competitive with the performance of the Peer Group and Category medians, and its benchmark index, the Russell 2000 Growth Index. The Board noted that the Fund’s performance during the five-year period was appreciably higher than the performance of the Peer Group and Category medians, and its benchmark index. The Board also noted that, during the three-year period under review, the Fund’s performance was equal to or not appreciably lower than the Peer Group and Category medians, and its benchmark index. The Board noted that, during the one-year period under review, the Fund’s performance was higher than its benchmark index and lower than the Peer Group and Category medians.
Investment advisory fee and subadvisory fee rates and expenses
The Board reviewed and considered the contractual investment advisory fee rate payable by the Fund to the Adviser for investment advisory services (the Advisory Agreement Rate). The Board received and considered information comparing the Advisory Agreement Rate with the advisory fees for the Peer Group and Category. The Board noted that the Advisory Agreement Rate was equal to the median rate of the Peer Group and Category.
The Board received and considered expense information regarding the Fund’s various components, including advisory fees, distribution and fees other than advisory and distribution fees, including transfer agent fees, custodian fees and other miscellaneous fees (e.g., fees for accounting and legal services). The Board also considered peer-adjusted comparisons for the transfer agent fees. The Board considered comparisons of these expenses to the Peer Group median. The Board also received and considered expense information regarding the Fund’s total operating expense ratio (Gross Expense Ratio) and total operating expense ratio after taking the fee waiver arrangement applicable to the Advisory Agreement Rate into account (Net Expense Ratio). The Board received and considered information comparing the Gross Expense Ratio and Net Expense Ratio of the Fund to that of the Peer Group and Category medians. The Board noted that the Fund’s Gross and Net Expense Ratios were higher than the median of its Category. The Board also noted that the Fund’s Gross and Net Expense Ratios were equal to or not appreciably higher than the median of its Peer Group.
The Adviser also discussed the Morningstar data and rankings, and other relevant information, for the Fund. Based on the above-referenced considerations and other factors, the Board concluded that the Fund’s overall performance and expenses supported the re-approval of the Advisory Agreements.
The Board also received information about the investment subadvisory fee rate (the Subadvisory Agreement Rate) payable by the Adviser to the Subadviser for investment subadvisory services. The Board concluded that the Subadvisory
26
Agreement Rate was fair and equitable, based on its consideration of the factors described here.
Profitability
The Board received and considered a detailed profitability analysis of the Adviser based on the Advisory Agreements, as well as on other relationships between the Fund and the Adviser and its affiliates, including the Subadviser. The Board concluded that, in light of the costs of providing investment management and other services to the Fund, the profits and other ancillary benefits reported by the Adviser were not unreasonable.
Economies of scale
The Board received and considered general information regarding economies of scale with respect to the management of the Fund, including the Fund’s ability to appropriately benefit from economies of scale under the Fund’s fee structure. The Board recognized the inherent limitations of any analysis of economies of scale, stemming largely from the Board’s understanding that most of the Adviser’s costs are not specific to individual Funds, but rather are incurred across a variety of products and services.
To the extent the Board and the Adviser were able to identify actual or potential economies of scale from Fund-specific or allocated expenses, in order to ensure that any such economies continue to be reasonably shared with the Fund as its assets increase, the Adviser and the Board agreed to continue the existing breakpoints to the Advisory Agreement Rate.
Information about services to other clients
The Board also received information about the nature, extent and quality of services and fee rates offered by the Adviser and Subadviser to their other clients, including other registered investment companies, institutional investors and separate accounts. The Board concluded that the Advisory Agreement Rate and the Subadvisory Agreement Rate were not unreasonable, taking into account fee rates offered to others by the Adviser and Subadviser, respectively, after giving effect to differences in services.
Other benefits to the Adviser
The Board received information regarding potential “fall-out” or ancillary benefits received by the Adviser and its affiliates as a result of the Adviser’s relationship with the Fund. Such benefits could include, among others, benefits directly attributable to the relationship of the Adviser with the Fund and benefits potentially derived from an increase in the business of the Adviser as a result of its relationship with the Fund (such as the ability to market to shareholders other financial products offered by the Adviser and its affiliates).
The Board also considered the effectiveness of the Adviser’s, Subadviser’s and Fund’s policies and procedures for complying with the requirements of the federal securities laws, including those relating to best execution of portfolio transactions and brokerage allocation.
Other factors and broader review
As discussed above, the Board reviewed detailed materials received from the Adviser and Subadviser as part of the annual re-approval process. The Board also regularly reviews and assesses the quality of the services that the Fund receives throughout the year. In this regard, the Board reviews reports of the Adviser and Subadviser at least quarterly, which include, among other things, fund performance reports and compliance reports. In addition, the Board meets with portfolio managers and senior investment officers at various times throughout the year.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the continuation of the Advisory Agreements for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved the continuation of the Advisory Agreements.
New subadvisory agreement with New Independence
In evaluating the New Subadvisory Agreement, the Board considered that the employees of the Subadviser would be offered employment with New Independence. The Board also considered the Subadviser’s belief that most of its employees, including the portfolio managers and analysts responsible for the Fund and the executives responsible for the management of the Subadviser, would become employees of
27
New Independence. The Board considered that no material changes in the investment process or resources were anticipated to occur as a result of the Transaction. The Board strongly considered that the subadvisory fees payable under the New Subadvisory Agreement would be borne by the Adviser and not the Fund, and that the proposed Transaction would not have any effect on the fees paid by the Fund to the Adviser or the consideration paid to New Independence by the Adviser. The Board also considered that subadvisory fees to be paid by the Adviser to New Independence were identical to the fees under the existing Subadvisory Agreement.
After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board concluded that approval of the New Subadvisory Agreement for the Fund was in the best interest of the Fund and its shareholders. Accordingly, the Board unanimously approved, and voted to recommend to shareholders that the Fund adopt, the New Subadvisory Agreement.
1 The Board considered additional information about the New Subadvisory Agreement and New Independence at the March 2006 Board meetings. The New Subadvisory Agreement became effective August 4, 2006 after shareholder approval.
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For more information
The Fund’s proxy voting policies, procedures and records are available without charge, upon request:
By phone | On the Fund’s Web site | On the SEC’s Web site |
1-800-225-5291 | www.jhfunds.com/proxy | www.sec.gov |
Trustees | Charles A. Rizzo | Custodian |
Ronald R. Dion, Chairman | Chief Financial Officer | The Bank of New York |
James R. Boyle† | One Wall Street | |
James F. Carlin | Gordon M. Shone | New York, NY 10286 |
William H. Cunningham | Treasurer | |
Charles L. Ladner* | Transfer agent | |
Dr. John A. Moore* | John G. Vrysen | John Hancock Signature |
Patti McGill Peterson* | Chief Operations Officer | |
Steven R. Pruchansky | Services, Inc. | |
*Members of the Audit Committee | Investment adviser | One John Hancock Way, |
†Non-Independent Trustee | John Hancock Advisers, LLC | Suite 1000 |
601 Congress Street | Boston, MA 02217-1000 | |
Officers | Boston, MA 02210-2805 | |
Keith F. Hartstein | Legal counsel | |
President and | Subadviser | Kirkpatrick & Lockhart |
Chief Executive Officer | Independence Investments | Preston Gates Ellis LLP |
LLC | One Lincoln Street | |
Thomas Kinzler | 160 Federal Street | Boston, MA 02111-2950 |
Secretary and Chief Legal Officer | Boston, MA 02110 | |
Francis V. Knox, Jr. | Principal distributor | |
Chief Compliance Officer | John Hancock Funds, LLC | |
601 Congress Street | ||
Boston, MA 02210-2805 |
How to contact us | ||
Internet | www.jhfunds.com | |
Regular mail: | Express mail: | |
John Hancock | John Hancock | |
Signature Services, Inc. | Signature Services, Inc. | |
One John Hancock Way, Suite 1000 | Mutual Fund Image Operations | |
Boston, MA 02217-1000 | 380 Stuart Street | |
Boston, MA 02116 | ||
Phone | Customer service representatives | 1-800-225-5291 |
EASI-Line | 1-800-338-8080 | |
TDD line | 1-800-554-6713 | |
A listing of month-end portfolio holdings is available on our Web site, www.jhfunds.com. A more detailed portfolio holdings summary is available on a quarterly basis 60 days after the fiscal quarter on our Web site or upon request by calling 1-800-225-5291, or on the SEC’s Web site, www.sec.gov.
32
JOHN HANCOCK FAMILY OF FUNDS
EQUITY | INTERNATIONAL |
Balanced Fund | Greater China Opportunities Fund |
Classic Value Fund | International Allocation Portfolio |
Classic Value Fund II | International Classic Value Fund |
Classic Value Mega Cap Fund | International Core Fund |
Core Equity Fund | International Growth Fund |
Global Shareholder Yield Fund | |
Growth Fund | INCOME |
Growth Opportunities Fund | Bond Fund |
Growth Trends Fund | Government Income Fund |
Intrinsic Value Fund | High Yield Fund |
Large Cap Equity Fund | Investment Grade Bond Fund |
Large Cap Select Fund | Strategic Income Fund |
Mid Cap Equity Fund | |
Multi Cap Growth Fund | TAX-FREE INCOME |
Small Cap Equity Fund | California Tax-Free Income Fund |
Small Cap Fund | High Yield Municipal Bond Fund |
Small Cap Intrinsic Value Fund | Massachusetts Tax-Free Income Fund |
Sovereign Investors Fund | New York Tax-Free Income Fund |
U.S. Core Fund | Tax-Free Bond Fund |
U.S. Global Leaders Growth Fund | |
Value Opportunities Fund | MONEY MARKET |
Money Market Fund | |
ASSET ALLOCATION | U.S. Government Cash Reserve |
Allocation Core Portfolio | |
Allocation Growth + Value Portfolio | CLOSED-END |
Lifecycle 2010 Portfolio | Bank and Thrift Opportunity Fund |
Lifecycle 2015 Portfolio | Financial Trends Fund, Inc. |
Lifecycle 2020 Portfolio | Income Securities Trust |
Lifecycle 2025 Portfolio | Investors Trust |
Lifecycle 2030 Portfolio | Patriot Premium Dividend Fund II |
Lifecycle 2035 Portfolio | Patriot Select Dividend Trust |
Lifecycle 2040 Portfolio | Preferred Income Fund |
Lifecycle 2045 Portfolio | Preferred Income II Fund |
Lifecycle Retirement Portfolio | Preferred Income III Fund |
Lifestyle Aggressive Portfolio | Tax-Advantaged Dividend Income Fund |
Lifestyle Balanced Portfolio | |
Lifestyle Conservative Portfolio | |
Lifestyle Growth Portfolio | |
Lifestyle Moderate Portfolio | |
SECTOR | |
Financial Industries Fund | |
Health Sciences Fund | |
Real Estate Fund | |
Regional Bank Fund | |
Technology Fund | |
Technology Leaders Fund |
The Fund’s investment objectives, risks, charges and expenses are included in the prospectus and should be considered carefully before investing. For a prospectus, call your financial professional, call John Hancock Funds at 1-800-225-5291 or visit the Fund’s Web site at www.jhfunds.com. Please read the prospectus carefully before investing or sending money.
![](https://capedge.com/proxy/N-CSRS/0000928816-07-000918/smallcapx36x1.jpg)
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 Small Cap Fund.
820SA 4/07
6/07
ITEM 2. CODE OF ETHICS. |
As of the end of the period, April 30, 2007, the registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Chief Executive Officer, Chief Financial Officer and Treasurer (respectively, the principal executive officer, the principal financial officer and the principal accounting officer, the “Senior Financial Officers”). A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time. |
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time. |
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time. ITEM 6. SCHEDULE OF INVESTMENTS. |
Not applicable. |
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable. |
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable. |
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable. |
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to previously disclosed John Hancock Funds - Administration Committee Charter and John Hancock Funds – Governance Committee Charter.
ITEM 11. CONTROLS AND PROCEDURES. |
(a) Based upon their evaluation of the registrant's disclosure controls and procedures as conducted within 90 days of the filing date of this Form N-CSR, the registrant's principal executive officer and principal financial officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed
by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS. |
(a)(1) Code of Ethics for Senior Financial Officers is attached.
(a)(2) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached.
(b) Separate certifications for the registrant's principal executive officer and principal financial officer, as required by 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, are attached. The certifications furnished pursuant to this paragraph are not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certifications are not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference.
(c)(1) Submission of Matters to a Vote of Security Holders is attached. See attached “John Hancock Funds – Governance Committee Charter”.
(c)(2) Proxy Voting Policies and Procedures are attached.
(c)(3) Contact person at the registrant. |
SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
John Hancock Equity Trust |
By: /s/ Keith F. Hartstein ------------------------------------- Keith F. Hartstein President and Chief Executive Officer Date: June 29, 2007 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Keith F. Hartstein ------------------------------------- Keith F. Hartstein President and Chief Executive Officer Date: June 29, 2007 |
By: /s/ Charles A. Rizzo ------------------------------------- Charles A. Rizzo Chief Financial Officer Date: June 29, 2007 |